*2432 Where a legal partnership exists among members of a family, each member of such partnership may be charged only with his distributable share in the profits of the business.
*1236 In this proceeding the petitioner seeks a redetermination of a deficiency of income tax asserted against him by the Commissioner, for the year 1922, in the amount of $3,987.32.
He assigned five errors, all of which, except the second, he waives.
The second error is to the effect that the Commissioner erred in holding that he was the sole owner of a business in Kansas City, Mo., known as the Kansas City Transfer Co., and not a partner in a partnership composed of himself, his wife, and his son, each owning an equal share in said business.
FINDINGS OF FACT.
The petitioner is an individual who now resides in Orlando, Fla. In 1922 and prior thereto he resided in Kansas City, Mo.
*1237 For a number of years prior to 1920 he was connected with companies, either as corporations or otherwise, engaged in the transfer business. His companies, from time to time, had bought*2433 competing companies and thus built up the business of the company with which petitioner was connected. Petitioner had also, from time to time, purchased interests held by his associates until in the early part of 1920 he owned, in his own name, all the stock of a corporation known as the Kansas City Transfer & Storage Co., which was the company into which all businesses theretofore purchased had been absorbed. In such purchases theretofore made, petitioner's wife, Jennie B. Hinshaw, had contributed out of her own separate funds, $5,000. In 1920 it was decided to dissolve the corporation and operate the business as a partnership. This was done, and in May, 1920, the following document was executed by R. E. Hinshaw, Jennie B. Hinshaw, and T. F. Hinshaw:
PARTNERSHIP AGREEMENT
This agreement made and entered into this 10th day of May, 1920, by and between R. E. HINSHAW, J. B. HINSHAW, and T. F. HINSHAW, all of Kansas City, Jackson County, Missouri, WITNESSETH:
THAT WHEREAS the parties hereto are the owners of all of the personal property, good will and effects of whatsoever kind or nature now used in connection with the operation of a general transfer business formerly conducted*2434 under the name of Kansas City Transfer Company, at 6th and Penn Streets in Kansas City, Missouri.
AND WHEREAS said Kansas City Transfer Company, a corporation, has been dissolved by unanimous vote of all the stockholders thereof.
AND WHEREAS it is the intention and desire of the parties hereto, being the owners of said assets, to conduct said business in the future as a partnership.
NOW THEREFORE it is agreed by and between the parties hereto as follows, to-wit:
(1) That the parties hereto, R. E. Hinshaw, J. B. Hinshaw and T. F. Hinshaw, do hereby enter into a partnership agreement for the purpose of conducting a general transfer and hauling business in Kansas City, Jackson County, Missouri.
(2) Each of the parties hereto is the owner of an undivided one-third interest in all of the assets, personal property, good will, and effects of whatsoever kind, character or description now owned, controlled and used in and about said business.
(3) R. E. Hinshaw shall be the general manager of said business, and shall devote so much of his time and attention thereto as may be necessary for the successful operation of the same; J. B. Hinshaw and T. F. Hinshaw shall devote such*2435 of their time to said business as may from time to time be required, and each of the parties hereto shall do everything in his power to make said business a success and to promote its best interests.
(4) The parties hereto shall be entitled to such compensation for their services, to be paid out of the earnings of said business, as shall from time to time be mutually agreed upon.
(5) This partnership agreement shall continue for a period of five (5) years from the date hereof, unless the time be extended by mutual agreement; in *1238 case, however, either of the parties hereto shall desire to withdraw from said partnership arrangement at any time, he may be permitted to do so upon thirty (30) days notice in writing of such intention and desire, in which event the interest of the party so withdrawing may be purchased by the remaining parties to this, agreement, and in case the parties cannot agree upon the price to be paid therefor, the withdrawing party shall select an arbitrator, and the remaining parties shall select an arbitrator, and such arbitrators shall select a third arbitrator, which three arbitrators shall determine and fix the price to be paid for such withdrawing*2436 party's interest, and the price and sum so fixed shall be binding upon the parties hereto, and shall be paid to the withdrawing party by the remaining parties.
(6) Books shall be kept showing all the receipts and expenditures of said business, and the parties hereto shall bear equally all losses of said business, and shall share equally in all profits thereof.
IN WITNESS WHEREOF the parties hereto have set their hands to three copies hereof, all original, the day and year first above written.
The parties operated under that contract until in 1922 when the business was sold, and on such sale the Commissioner determined a capital gain of $15,284.93. This determination of gain, together with the Commissioner's action in denying the existence of a partnership, constituted the main factors which resulted in the deficiency.
OPINION.
LOVE: While there were originally five assignments of error, raising that many issues of fact, evidently in view of the inadequacy of the proof with reference to four of them, petitioner, by counsel, waived all except assignment No. 2, which is still insisted upon.
Was there, or was there not, a partnership in 1922 composed of petitioner, his*2437 wife, and his son; and was all of the income of the business in 1922 chargeable to petitioner only, or should only his distributable share of such income be chargeable to him? That is the only question now to be determined.
There are no facts in the record that directly attack the bona fides of the purported partnership contract. The terms, conditions, and phraseology of that document certainly are all sufficient to constitute a partnership. The evidence pertaining to actual operations under that contract are very meager. Mrs. Hinshaw contributed $5,000 out of a total of over $70,000, cost in building up the business, and there is no evidence that the son contributed any amount of the capital investment. There is ample evidence that the son contributed his time and services, but no evidence that the wife contributed any service.
However, the contract itself stipulates that each of the parties to that contract "is the owner of an undivided one-third interest in all of the assets" that prior to that time had belonged to the corporation, and thence forward formed the assets of the new business.
*1239 As a matter of law, it may be said that regardless of the question*2438 as to whether or not the wife and son had contributed any, or an equal part of the capital, the father then and and there had a legal and moral right to give to each such interest in the business as he felt inclined to give them; and that the document was, on its face, sufficient to invest each of them with the legal and equitable title to the interest therein stipulated, and that it did so invest them and each of them with an undivided one-third interest.
Having reached the conclusions above indicated, we hold that the petitioner is liable for income tax on only his distributable share of the net income of the business conducted by the partnership.
Judgment will be entered under Rule 50.