*238 Decision will be entered under Rule 50.
The petitioner was married in 1918. His wife turned over all her property to him to be used in a jewelry business conducted by him, and over a period of many years labored with him in the store without compensation in building up the business. Besides acting as saleslady, she did much of the buying and all the advertising, and devoted her attention to managing the jewelry department, while the petitioner managed the optometrical department. On February 1, 1941, articles of copartnership were signed by both parties under which the petitioner was to receive a salary of $ 6,000 per annum and the balance of profits and losses was to be shared equally. Both parties continued to give their entire time and energies to the business. Held, that the partnership is an ordinary business partnership within the provisions of the Internal Revenue Code.
*659 This proceeding is for the redetermination of deficiencies in income*239 tax for the fiscal years ended January 31, 1941 and 1942, in the respective amounts of $ 546.69 and $ 6,975.33.
The petitioner waives his allegations of error with respect to the determination of the deficiency for the fiscal year ended January 31, 1941. The only question with respect to the fiscal year ended January 31, 1942, is whether the petitioner is taxable upon the entire amount of net income of a jewelry business conducted under the name of "Leo Marks" or upon only the portion of the net income of the business which belonged to him as a partner; in other words, whether a partnership composed of the petitioner and his wife, Mollie S. Marks, is a business partnership within the meaning of the Internal Revenue Code.
*660 FINDINGS OF FACT.
The petitioner is a resident of Toledo, Ohio. He filed his income tax returns for the fiscal years ended January 31, 1941 and 1942, with the collector of internal revenue for the tenth district of Ohio at Toledo.
Articles of copartnership were executed by the petitioner and his wife, Mollie S. Marks, on February 1, 1941. Under the partnership agreement the petitioner was to receive a salary of $ 6,000 per annum for his services as an*240 optometrist and the balance of the profits and losses was to be equally divided between the two partners. For the fiscal year ended January 31, 1942, each partner reported his share of the partnership profits. The respondent has held that the entire profits of the business are taxable to the petitioner.
The petitioner was married on June 16, 1918. He was then 22 years of age and his wife was 21. The petitioner was a registered optometrist just starting in business in Toledo. In connection with his business he had a small jewelry store in what was formerly a peanut and popcorn stand. The store was only about 10 feet wide. The total worth of the petitioner at the time did not exceed $ 700 or $ 800 and he had a small number of bills outstanding. His wife had saved approximately $ 200 from working as a clerk and at the time of her marriage her father gave her $ 200. An uncle of the petitioner also made the couple a wedding gift of $ 250. The petitioner was desperately in need of funds to enlarge his business. His wife turned over to him the $ 400 belonging to her and her interest in the wedding gift of $ 250 from the petitioner's uncle. With these funds the petitioner increased*241 his small stock of cheap jewelry, consisting of rhinestone brooches, Ingersoll watches, etc.
Immediately after her marriage Mollie went into her husband's store as a clerk. It was her practice during the early days of her married life to get to the store between 9 and 10 o'clock. Her husband then went out and canvassed prospects for glasses. Upon his return to the store in the early afternoon the husband waited upon persons who were interested in buying glasses and Mollie attended to other customers. When a customer asked for jewelry which they did not have in stock it was the practice of Mollie many times to take the customer to a wholesale jeweler in Toledo, where he made his selection from a large stock. The petitioner's store was allowed a commission upon any goods purchased by such a customer. After a while the wholesale jeweler allowed certain articles of jewelry to be consigned to the petitioner and the prospective customer made his selection from such consignment and the balance was returned to the wholesaler, together with cash for any jewelry not returned.
*661 After the Armistice there was a considerable demand for wedding rings and other jewelry by returned *242 soldiers. This was profitable business. The stock of merchandise was gradually increased and the petitioner's credit was eventually established on a small scale.
Both the petitioner and his wife spent long hours at the store, which was kept open late in the evenings after other jewelry stores were closed and as long as there was any prospect of customers.
The petitioner's first of three children, a son, was born on March 14, 1920. Within a short time thereafter Mollie was back in the store working as before. By this time the couple was enabled to employ a maid, who looked after the house and cared for the infant child. As the business expanded the petitioner's time was more exclusively devoted to his optometrical business, while the purchase and sale of jewelry devolved upon Mollie. She interviewed salesmen and made her own selections of jewelry which she thought could be sold. She attended to all window displays and also to all the advertising which was done. She had a pleasing personality and was largely instrumental in building up a clientele. She had no social life, but devoted all of her time and energy to the business of the petitioner. She devised schemes for advertising*243 which were entirely new and which paid good dividends. When costume jewelry became the vogue, she wished her husband to branch out and carry a line of costume jewelry. At first he objected, but finally was persuaded to add costume jewelry to his business.
In about 1924 or 1925 the petitioner had an opportunity to rent an adjoining store and the partition between his old store and the new one was taken out. This afforded the petitioner a room for his optometrical business. He attended to this line almost exclusively, whereas Mollie devoted her attention to the other lines.
Both the petitioner and his wife devoted all of their time and energy to the building up of the business over a period of years. After a few years they moved into a larger and better store and employed two or three clerks. Mollie continued to devote her entire time and energy to the business of the store. When her other two children were born she was absent from the store for only a few weeks.
It was the hope and expectation of both the petitioner and his wife that their first-born son, Dennis, would become an optometrist and then would be taken into the business as a partner; and, eventually, that the son*244 should be the proprietor of the entire business. With this end in view, the son was sent to the Northern Illinois College of Optometry, from which he was graduated in 1940. He was then given employment in the store. The son was very critical as to the way the store was run and antagonized his father and also his father's brother, who had become an important employee in the optometrical end of *662 the business. Dennis disrupted the smooth-working organization of the store and the petitioner became so provoked he threatened to discharge him. There were many acrimonious discussions between the petitioner and his wife as to the employment of Dennis. Mollie stood up for her son and insisted that she had an interest in the business both by reason of the capital she had originally invested and also by reason of the fact that she had spent many years of hard labor without compensation in building up the business, and she insisted that if Dennis was not to be taken in as a partner she herself should be made a partner and given a greater voice in the management. The petitioner recognized the justice of his wife's claims and had no objection to having her as a partner, but he would*245 not consent to Dennis becoming a partner.
After discussing the matter with his attorney, it was agreed that an inventory of the merchandise in the store should be taken; that Mollie should give the petitioner her note in an amount equaling one-half of the inventory, upon which the petitioner would allow her a credit of $ 3,950; that the petitioner should receive a salary from the business of $ 6,000 a year from February 1, 1941; and that the balance of the profits should be divided equally between them. Mollie agreed to this arrangement, although not satisfied that she owed the petitioner anything for her one-half interest in the business. She was confident, however, that she would soon be able to pay off her debt to her husband out of the profits of the business. On February 1, 1941, the petitioner and his wife executed the following partnership agreement:
Whereas:
Leo Marks has for a number of years last past been conducting a jewelry and optical business at 508 Adams Street in the City of Toledo, Ohio under the firm name and style of "Leo Marks"; and
Whereas:
On the 1st day of February 1941, Leo Marks sold to Mollie S. Marks, an undivided one-half (1/2) interest in and to*246 the aforementioned business;
Witnesseth:
(1) That it is hereby mutually agreed by and between the said Leo Marks and Mollie S. Marks to enter into a partnership under the firm name and style of "Leo Marks", for the purpose of carrying on the jewelry and optical business at 508 Adams Street in the City of Toledo, Ohio.
(2) It is further agreed by and between the parties that the said Leo Marks shall devote his entire time, skill, labor and experience to advancing and rendering profitable the interests and business of said partnership and that the said Mollie S. Marks shall be required to devote as much of her time or personal attention to the business of said partnership as necessary to the best interest of said business.
It is further mutually agreed by and between the parties hereto, that the said Leo Marks shall draw the sum of Six Thousand ($ 6,000.00) Dollars per year as his salary before any profits are determined and that the said Mollie S. Marks shall draw no salary.
*663 (3) The parties hereto further agree that the profits and losses of said business shall be shared equally between them, share and share alike.
(4) This partnership shall continue until dissolved by *247 mutual consent or operation of law.
At the same time that the above partnership agreement was executed Mollie S. Marks gave the petitioner a promissory note in the amount of $ 17,249.92 and the petitioner credited the note with $ 3,950 representing a gift that he was making to his wife toward the payment of the note. The note did not provide for interest and was paid off in subsequent years by Mollie out of her profits from the business.
Immediately upon the execution of the partnership agreement Mollie S. Marks was given authority to draw checks against the partnership account at the bank and all parties in interest were advised of the partnership relationship which existed between petitioner and his wife from February 1, 1941. Under such authority she signed hundreds of checks for the partnership. Not only were creditors notified of the partnership arrangement, but any firm notes were signed by both parties and action for the collection of delinquent accounts was also in the name of both parties as partners.
The petitioner worked very hard during the taxable years and for many years prior thereto. He was near a nervous breakdown at several times and went on vacations to Florida*248 and Canada for a rest. During his absences the business was run by his wife.
During the taxable years the services rendered by Mollie to the business were continuous and valuable. She was allowed to manage the merchandise end of the business, while the petitioner devoted his attention almost exclusively to the fitting and sale of glasses.
During the taxable year and succeeding years the business grew rapidly. The profits have been commensurate with the increased volume of business. Out of her share of the profits Mollie has been able to save more than $ 40,000.
OPINION.
The only questiton with which we are here concerned is whether the partnership which existed between the petitioner and his wife for the fiscal year ended January 31, 1942, is a partnership to be recognized for income tax purposes.
In Lusthaus v. Commissioner, 327 U.S. 293, it is said:
* * * The term "partnership" as used in Section 182, Internal Revenue Code, means ordinary partnerships. Burk-Waggoner Assn. v. Hopkins, 269 U.S. 110, 113. *664 When two or more people contribute property or services to an enterprise and agree to share the*249 proceeds, they are partners.5 * * *
In Commissioner v. Tower, 327 U.S. 280, it is said:
There can be no question that a wife and husband may, under certain circumstances, become partners for tax, as for other purposes. If she either invests capital originating with her or substantially contributes to the control and management of the business, or otherwise performs vital additional services, or does all of these things she may be a partner as contemplated by 26 U. S. C. §§ 181, 182. The Tax Court has recognized that under such circumstances the income belongs to the wife. A wife may become a general or a limited partner with her husband. * * *
See also H. D. Webster, 4 T. C. 1169.
In the*250 instant proceeding the respondent submits that Mollie S. Marks brought no new capital into the business at the time she was made a partner by virtue of the partnership agreement executed February 1, 1941. It is not necessary, however, that a wife bring new capital into the partnership if in point of fact she renders valuable services to the business. We are satisfied from the evidence that Mollie S. Marks contributed very valuable services to the business which was operated in the name of her husband. This is plain from the depositions of numerous deponents. We are satisfied that the services rendered by Mollie to the jewelry business conducted in the name of the petitioner during the taxable years were not intermittent, negligible, or inconsequential. They were continuous and valuable services. The evidence abundantly shows that the prosperity of the business was materially contributed to by Mollie; not only did she spend a lifetime of labor in the business, but she had an original contribution of capital in it. Cf. Felix Zukaitis, 3 T. C. 814. The partnership which existed between petitioner and his wife for the fiscal year ended January 31, *251 1942, was an ordinary business partnership within the contemplation of the taxing statute.
Decision will be entered under Rule 50.
Footnotes
5. Campbell v. Northwest Eckington Co., 229 U.S. 561, 580; Karrick v. Hannaman, 168 U.S. 328, 334; Meehan v. Valentine, 145 U.S. 611, 618; Berthold v. Goldsmith, 24 How. 536, 541; Ward v. Thompson, 22 How. 330, 334↩.