*1516 Decedent, until his death on November 30, 1927, was a member of a partnership. Both the decedent and the partnership were on the cash receipts and disbursements basis and both reported income on the calendar year basis. Held, following Maurice L. Goldman et al., Executors,15 B.T.A. 1341">15 B.T.A. 1341, that decedent's distributive share of the partnership income, whether distributed or not, for the period in 1927 ending with his death, should be included in decedent's income.
*1 The respondent determined a deficiency in the income tax of the decedent for the period January 1 to November 30, 1927, in the amount of $547.16. Error is alleged in the inclusion in decedent's income of any portion of earnings of the partnership of which decedent was a member at the time of his death on November 30, 1927.
FINDINGS OF FACT.
Petitioners are executors of the estate of Charles F. Choate, Jr., deceased, and are also members of the law firm of Choate, Hall & Stewart, of which decedent was the senior partner at the time of his death on November 30, 1927.
*1517 The partnership had no written articles of partnership, but there was in force at the time of decedent's death a memorandum of agreement dated March 22, 1927, reading as follows:
It is mutually agreed that in the event of the death of either of the partners whose signatures appear below the surviving partners shall have the right to continue the business under the firm name of Choate, Hall & Stewart and *2 shall become the absolute owners of the partnership assets and good will including the entire interest of any deceased partner therein, and in the event of any such death the surviving partners shall pay to the personal representatives of the deceased partner:
FIRST: such portion of the capital of the partnership, if any, as the deceased partner may have contributed;
SECOND: such portion of the undivided profits of the partnership as the deceased partner, if living, would have been entitled to upon the date of his death according to the system of accounting now employed by said partnership. Payment of said last named sum or any part thereof may be deferred by the surviving partners for a period of not exceeding one (1) year, but interest shall be added upon the payment*1518 or the payments so deferred at the rate of six (6) per cent. per annum;
THIRD: a sum equal to the deceased's partner's proportionate share of the net profits of the partnership for the fiscal year last preceeding the one in which his death occurred. Payment of said last named sum or any part thereof may be deferred by the surviving partners for a period of not exceeding two (2) years, but interest shall be added upon any payment or payments so deferred at the rate of four (4) per cent per annum.
Provided, however, that the payment under this clause in case of the death of any of the six partners named in this paragraph shall be a fixed sum as follows: C. F. Choate, Jr., $100,000, J. L. Hall, $50,000, F. H. Nash, $30,000, F. S. Knowlton, $25,000, J. Wentworth, $16,000, S. C. Rand, $16,000.
The good will of each partner is hereby valued at the difference between the entire sum payable under this third clause and the amount of his business on the books and unpaid for at the date of his death.
During 1927 and in prior years the office manager of the partnership prepared monthly estimates of the amount available for drawing by the partners after setting aside reserves for probable*1519 expenses. The partners were at liberty to draw against the monthly estimates from time to time if they so desired. During the year 1927 the decedent withdrew againt the monthly estimates the sum of $127,428.33, of which $5,500 was designated salary withdrawals in his account. At November 30, 1927, the accounts of the partnership and of the decedent were ruled down and balanced, and the amounts of the several partner's shares of income were credited to their respective accounts. This balancing of the books showed the decedent entitled to an additional sum of $29,165.86, or a total for the year up to the time of his death of $156,594.19. Of this latter amount $15,167.95 represented an undrawn balance in decedent's favor from the previous year. The remainder, $141,426.24, represented his share of the net profits of the partnership for the eleven months ending November 30, 1927. The executors made certain minor adjustments in this last figure and filed an income-tax return on behalf of the decedent including therein as income $139,016.05 in two parts - $5,500 under item 1 as salary, and $133,516.05 under item 4 as income from the partnership.
*3 It had been the practice*1520 of the decedent and of the partnership to file their returns on the cash receipts and disbursements basis, and both the decedent and the partnership had also adopted the calendar year as the basis of their respective income-tax returns.
After the decision of the Board in , the petitioners filed an amended income-tax return on behalf of the decedent, excluding therefrom salaries and income from the partnership which had been included in the original return.
In the Federal estate-tax return decedent's executors reported as an asset of the estate the amount of $29,165.86 which was available for withdrawal by decedent at the time of his death but was not withdrawn and was later paid to his executors or for their account.
Upon the death of the decedent no new partners were taken into the firm, no partners retired and no change of any kind was made in the personnel. No new partnership agreement was made at that time, but the partnership percentages were changed on December 1, 1927. The percentages had been changed at prior times on various occasions, such as the admission or retirement of a partner and at times*1521 by agreement.
The partnership filed a single income-tax return for the entire calendar year 1927. This return was filed on the cash receipts and disbursements basis and showed the percentage of profits applicable to each partner for the eleven-month period ending November 30, 1927, and also the percentage applicable for the month of December, 1927. The decedent's share of income for the eleven-month period was listed in the amount of $139,016.05.
The respondent has accepted the amount of $139,016.05 as being decedent's distributive share of partnership income and has computed the tax on that basis.
OPINION.
ARUNDELL: The facts in this case are on all fours with those in , in which we held that there should be included in decedent's income the share of partnership income allocable to the decedent to the date of his death. See also ; affd., C.C.A., 2d Cir., in which the only distinction was that the partnership was on the accrual basis, and we held the principle of the Goldman case applicable. Petitioners here contend that the decision*1522 in , is in conflict with the Goldman decision and the principle of the Archbald case should be applied here. In the Goldman case we specifically overruled the Archbald case in *4 so far as the two were in conflict. This leaves the Goldman case as representing our present view, under which the position taken by respondent in the present case is correct.
While it appears that according to the partnership books, the decedent's correct distributive share of partnership income was $141,426.24 (excluding the $15,167.95 carried over from 1926), the executors made certain adjustments and reported decedent's share as $139,016.05. We understand from the statements of counsel at the hearing that there is no dispute as to the adjustments so made by the executors, and that the figure of $139,016.05 is accepted by the parties as correct. In determining the deficiency the respondent made certain adjustments in the income reported and the deductions claimed. As no error is alleged with respect to such adjustments, the respondent's determination is affirmed.
*1523 Some attempt is made to show that under Massachusetts law - the partnership here being within that jurisdiction - a partnership is not necessarily dissolved by the death of a partner. The cited cases, as we read them, do not so hold. , merely sustains a contract for the carrying on of the business of the partnership after the death of one or more of the partners. ; , cited by both parties, holds that:
The death of a partner commonly has the effect of dissolving a partnership, at least in the sense that the deceased partner is no longer associated in the active business. This is so, both at common law * * * and under the uniform partnership act [in effect in that jurisdiction]. Whatever may be the succeeding partnership, the one of which the deceased partner was a member has ceased so far as he was concerned.
No decision is pointed to which construes an agreement to continue the business as one continuing the partnership itself. We see no ground for distinguishing this case from the Goldman and Davison cases and we accordingly hold*1524 that the principle of those cases applies here.
Decision will be entered for the respondent.