*70 Decision will be entered under Rule 50.
Under the facts, a valid partnership for purposes of taxation held to have been in existence in the taxable year between Frederick A. Depue, now deceased, and his wife.
*463 This case involves a deficiency in income tax for the taxable year 1944 in the amount of $ 23,096.29. The only question presented for our consideration is whether in 1944 a valid partnership for income tax purposes existed between Frederick A. Depue, since deceased, and his wife, Edna H. Depue. The answer to this question will establish whether or not the entire income of the business trading under the name of F. A. Depue was attributable to Frederick A. Depue and taxable to him in its entirety.
FINDINGS OF FACT.
Frederick A. Depue, who died in November 1948, during 1944 was a resident of Philadelphia, Pennsylvania, and filed an individual income tax return for 1944 with the collector of internal revenue for the first *464 district*71 of Pennsylvania at Philadelphia, disclosing a tax liability of $ 17,299.72, which he reported as payable on income received from a partnership identified as "F. A. Depue." A partnership return, Form 1065, was filed under the name of F. A. Depue, in which the partnership was designated as Frederick A. and Edna H. Depue, trading as F. A. Depue. The net income was disclosed as $ 66,328.57, of which $ 35,764.29 was allocated to Frederick A. Depue and $ 30,564.28 to Edna H. Depue.
In the notice of deficiency the Commissioner rejected such allocation with the following explanation:
The total amount of net income of the alleged partnership alleged to be doing business under the name of "F. A. Depue" for the year 1944 has been included in your taxable income for said year.
Frederick A. Depue and Edna H. Depue were married in 1911. For four years prior to her marriage Edna had been employed as a bookkeeper in two business concerns at a salary of $ 12 a week and she had accumulated $ 600 in savings. In 1913 she inherited $ 500 from her grandmother. At the time of the marriage her husband was employed as a trainman at a salary of $ 23 a week. Edna began looking for an opportunity for her*72 husband to go into business for himself. In 1915 a coal yard adjacent to the Reading Railroad, by which her husband was employed, had become economically involved and the lease and equipment were for sale. Urged by Edna, Frederick borrowed $ 1,400 from his father, to which was added the $ 1,100 savings of Edna, and the lease and equipment were procured.
The two-year-old daughter of the Depues was cared for by a sister of Edna Depue and for five years Edna Depue worked constantly with her husband in building up a retail and wholesale ice and coal business. Edna looked after all matters pertaining to the office, the weighing of coal, the investigation of customers' credit, the procuring of bank loans, and all matters pertaining to office management, while Frederick looked after the yard and solicited business, and Frederick and Edna together consulted upon the quantities and qualities of purchases to be made. They opened a joint bank account, in which both made deposits, and both signed checks. The only family source of income was from the coal business and all income not used for personal expenses was retained in the business. Out of this income the $ 1,400 borrowed by Frederick*73 from his father was repaid.
In 1920 a second daughter was born and Edna was required to spend some time at home. She continued to weigh coal and work in the office, but her hours at the office were more irregular and the number of hours spent at the office varied with the rise and fall of the coal business throughout the year. She worked when she was needed.
At the end of the second five years the business had expanded considerably and in 1928 the old yard was abandoned and a new one at Third *465 and Burke Streets was procured. In 1932 a second yard was opened and in 1936 a third yard, and in 1938 two new yards were opened. By this time the number of employees had been greatly increased, a general manager was employed, and the work of the Depues became mostly supervisory. Edna and Frederick continued to confer at home on business policies, particularly as to the advantages of procuring new outlets and shifting equipment from one yard to another, and the figuring of bids on large coal contracts which were being filled at that time.
In 1943 Frederick Depue's health began to deteriorate and it became evident that in the near future he must relax from his constant application*74 to business. While Edna and Frederick Depue had considered themselves partners in the business from the beginning, the fact that they so considered themselves was not generally known to the employees or to the public. In order to increase her authority with the employees, to afford Frederick Depue some relief from his responsibilities, to put their business relation on a more exact basis, and to enable Edna to have more effective contact with the public, Frederick and Edna decided to enter into a formal partnership agreement, to transfer the property into the partnership name, and to notify the public generally of the official character of the partnership. The agreement was drawn to be effective as of January 1, 1944, but was not signed until March 14, 1944.
By the partnership agreement the partnership capital was divided $ 52,363.86 to Frederick and $ 33,000 to Edna. Frederick was to be the general manager and assume the responsibility of performing all duties as such, either personally or through an agent of his own selection. He was to receive a salary of $ 100 per week. Edna was not required to perform any services for the partnership, but also received no compensation, *75 wages, or salary.
After the partnership agreement was executed a bank account was maintained in Fidelity Trust Co. and another in the Jenkintown Bank. These were joint bank accounts of Frederick and Edna Depue. A joint account was also kept at the Kensington bank, on which both Edna and Frederick wrote checks. The leases on the coal yards in the city of Philadelphia were assigned to Frederick and Edna jointly and severally, trading as F. A. Depue. The Reading Railroad, the lessor, was notified and consented to the assignments. The Commonwealth of Pennsylvania and Montgomery County, Pennsylvania, were all notified of the formation of the partnership and the names of the partners. Edna continued to supervise the records of the company and kept herself informed as to the coal on hand and the prospective needs of the business. She conferred with her husband as formerly on every important venture in the business, with particular reference to the figuring of all large bids to supply coal. By 1944 her responsibilities *466 for detail work at the office had been almost completely removed, due to the fact that there were then 41 employees and the employment of an office manager*76 had become necessary. All of the profits of the business were kept in the business except the $ 5,200 annual salary paid to Frederick and, beginning in 1947, the $ 2,600 paid to Edna. The household living expenses were paid from Frederick's drawing account.
After the death of Frederick, Edna took over the entire management of the coal business and at the hearing evidenced a very complete knowledge of the operation of the same.
Prior to 1944, beginning in 1941, Frederick A. Depue reported the entire net income from the business as coal dealer for Federal income tax purposes as follows:
| 1941 | $ 14,070.36 |
| 1942 | 24,000.58 |
| 1943 | 47,436.78 |
The partnership return for the taxable year 1944 showed a total net income of $ 66,328.57, of which Edna reported $ 30,564.28 and Frederick reported $ 35,764.39. Edna H. Depue did not file any income tax returns for prior years.
OPINION.
The above findings of fact would seem to dispose of the question of law without much discussion.
The Supreme Court of the United States, in , stated that important elements to be considered in determining whether a husband-wife partnership*77 was valid for income tax purposes were the origin of the partnership capital, the contribution to the control and management of the business by the husband and wife, the performing of vital services by the partners, and a combination of all of the above factors, together with all other surrounding circumstances.
In the case at bar the original capital which initiated the business was $ 1,100 produced by the wife and $ 1,400 borrowed and produced by the husband. The $ 1,400 originating with the husband was subsequently withdrawn from the business income and repaid to the lender. Thus, of all of the capital which supported and maintained the business in its initial years, the $ 1,100 produced by the wife was the only item that remained in the business throughout its growth and expansion. The fact is undisputed that the initial idea of entering into the coal business arose from Edna Depue, to whom, therefore, the very foundation of her husband's increase in income from $ 23 per week to $ 35,000 a year may be attributed.
Furthermore, her very substantial participation in the active work, including the management of the business, during its first five years of *467 existence and*78 her continuation of this activity with but slight modification during the next five years, as well as her assistance to her husband up to the formation of the written contract agreement in 1944, constituted a contribution to the business in 1944 equivalent to a tangible contribution of money and material. ; .
We do not place the same importance as does the Commissioner on the fact that Frederick Depue filed the income tax returns during this period in his individual name. The evidence shows that Frederick and Edna were very busily engaged in developing a new business during these early years and, without any especial experience or advice in tax matters, it would have been an easy matter to overlook the desirability of one form of reporting income over another.
The United States Supreme Court, in the recent case of , has in effect reasserted the law as laid down in the Tower case and has emphasized the fact that for a valid partnership there must be an intention of the parties to enter *79 into a partnership relationship at the time the tax status of a partnership is sought by the taxpayer. The Court said: "the parties, in good faith and acting with a business purpose, intended to join together in the present conduct of the enterprise." (Italics supplied.)
In the case at bar not only the direct testimony of Edna Depue, but the surrounding circumstances of the conduct of the business of Edna Depue and her husband all indicate that Edna and Frederick Depue considered themselves partners in this business from the very beginning. They shared the responsibility, they shared the work, and the income from the enterprise not needed for business expansion they devoted to their common use. The purpose of the written contract entered into in 1944 was merely to give formal notice to the public and the employees as to the present existence of the partnership.
From all of the facts in this case, including the showing of an initial contribution to capital of $ 1,100 by Edna, her vital services in the formative years of the business prior to the formation of the partnership, and her important service to the partnership during the taxable year, we are convinced that the partnership*80 of Frederick A. Depue and Edna H. Depue doing business as F. A. Depue was a bona fide partnership for the purpose of taxation and for all other purposes. ; ; ; .
Decision will be entered under Rule 50.