*129 Decision will be entered for the respondent.
Petitioners conducted a business of manufacturing and selling furniture as a corporation. They owned all of the stock. To reduce taxes, they dissolved the corporation and transferred the business to a marital partnership consisting of themselves and their wives. They made gifts of stock to their wives in anticipation of the dissolution of the corporation and the creation of the partnership. The wives did not participate in the business. Petitioners had complete control over the business, the assets, and the income. Held, that petitioners did not relinquish dominion and control over part of the assets of the business which they purported to transfer to their wives under gifts of stock in the corporation, the wives did not make any real contribution to the capital of the partnership, and the income thereof is taxable to petitioners, respectively.
*731 Respondent determined deficiencies in income tax for the calendar years 1939 and 1940 as follows:
| Docket No. | 1939 | 1940 | |
| O. William Lowry | 112691 | $ 38.97 | $ 3,005.76 |
| Charles R. Sligh, Jr | 112692 | 52.71 | 2,693.02 |
The deficiencies in each proceeding result from respondent's determination that the share of partnership income reported by the wife of the petitioner is taxable to petitioner. The only question is whether certain income of a partnership is taxable to each petitioner.
The petitioners filed their respective returns for the taxable years with the collector for the district of Michigan. The returns were made for the calendar year and on the cash basis.
FINDINGS OF FACT.
The petitioners, O. William Lowry and Charles R. Sligh, Jr., reside at Holland, Michigan. During the taxable years they were engaged in the business of the manufacture and sale of furniture and allied products, under the name of the Charles R. Sligh Co.
From 1928 to 1933 petitioners were employed by the Sligh Furniture Co. of Grand Rapids, Michigan, a corporation which had been*131 founded by Sligh's father. Lowry, an industrial engineer, was employed as plant manager. The Sligh Furniture Co. of Grand Rapids was liquidated in the early part of 1933.
On October 30, 1933, petitioners acquired a plant at Holland, Michigan. They organized the Charles R. Sligh Co., a corporation, to engage in the business of manufacturing and selling furniture and allied products. The outstanding capital of the corporation consisted of 1,800 shares of stock of a par value of $ 10 per share, of which Sligh, Lowry, and R. Donald Matheson each owned one-third, or 600 shares. Matheson was president of the Holland State Bank. The stock was restricted in that it could not be offered to an outsider until it was first offered to the other stockholders. Sligh was president, Matheson was vice president, and Lowry was secretary and treasurer. Sligh had complete charge of sales, advertising, and office procedure, and he determined the general policies and administration of the business. He had general supervision of designing and styling. Also, he was in charge of the office of the corporation. Lowry had charge of financial matters; he was the plant manager; he had charge of production, *132 of labor relations, and of buying. Matheson took no active part in the management of the corporation. Throughout the existence of the corporation the duties of Sligh and Lowry remained the same.
*732 In January 1937 Matheson sold his 600 shares of stock to Sligh and Lowry for $ 30,000, each paying $ 15,000 for 300 shares. After the purchase of Matheson's stock, Sligh and Lowry each owned 900 shares. In order to purchase one-half of Matheson's stock, Lowry borrowed $ 15,000 from his bank upon a joint note signed by himself and his wife, Sara H. Lowry. Lowry deposited the 900 shares of the corporate stock owned by him as collateral for the loan. After disposing of his stock, Matheson withdrew from the corporation. Thereafter, Charlotte K. Sligh and Sara H. Lowry, the wives of the petitioners, became directors. Sara Lowry also became vice president. Sligh and Lowry entered into an agreement on January 23, 1937, the substance of which was that if a wife should cease to be a director, the husband, as a director, would have the privilege of naming a director to be elected to fill the vacancy.
At the time of the purchase of Matheson's stock petitioners first discussed the matter*133 of doing business in some form other than the corporate form for the purpose of reducing taxes. By the spring of 1937 the corporation was doing a very substantial business. Sligh and Lowry felt that corporate taxes were "a drain on the business and prevented its growth." They discussed with their tax consultant and with their attorney the advisability of forming a partnership with their wives.
In May of 1937 all of Lowry's stock, 900 shares, was pledged to a bank to secure the loan to Lowry referred to above. Lowry arranged with the bank for its release of 450 shares of stock.
On May 24, 1937, Lowry transferred to his wife 450 shares of his stock. The transfer was recorded on the books of the corporation and a new certificate was issued and delivered to Sara Lowry. Lowry wrote a letter to his wife in which he stated that the stock was a gift to her, that there were no restrictions upon her rights as a stockholder, and that she was entitled to receive dividends on the stock. There was an agreement between the company, Lowry, and Sligh, dated April 26, 1937, under which the stock of the company could not be sold to outsiders without first offering the stock to the other stockholders. *134 Sara Lowry gave the stock certificate back to her husband, who put it in the company's vault where all of his papers were kept. In May of 1938 the company paid dividends to its stockholders. Sara Lowry received dividends amounting to $ 1,800. She opened a bank account in which the above amount was deposited.
Lowry and his wife mutually agreed that they would pay the note held by the bank on which they were jointly liable. Lowry and his wife gave renewal notes from time to time. A gift tax return was filed by Lowry which reported the value of the 450 shares at $ 22,500. No gift tax was paid because of the specific exemption.
*733 In the spring of 1938 the petitioners again gave serious consideration to liquidating the corporation and forming a partnership to carry on the business. They discussed this matter on numerous occasions with their banker, tax consultant, insurance agent, and attorney. The primary consideration for the change was one of tax savings. The parties taking part in these discussions were all of the opinion that the formation of a partnership would result in tax savings. The tax consultant advised that the dissolution of the corporation be postponed*135 until the Revenue Act of 1938 was enacted and they would know what the law was. Later, petitioners were advised by their tax consultant that it would be beneficial to make the change in December of 1938, if the change was to be made, and that the change to a partnership would result in a substantial reduction of taxes.
On December 10, 1938, a plan for the complete liquidation of the corporation was adopted by the stockholders of the corporation. On December 16, 1938, a partnership agreement was executed.
On December 1, 1938, Sligh transferred 450 shares of his stock in the corporation to his wife, Charlotte K. Sligh. Sligh wrote a letter to his wife stating that he made a gift of the stock to his wife, to be held as her separate property, subject to no restrictions except that the stock was subject to the terms of the agreement of April 26, 1937, under which the stock could not be offered for sale to outsiders unless first offered to the remaining stockholders. The transfer was recorded on the books of the corporation and a new certificate was issued in the wife's name. Sligh filed a gift tax return in which the stock was valued at $ 22,500. No gift tax was paid because of the*136 statutory exemption.
The formal steps taken to effect the change from the corporate to the partnership form of doing business were as follows: The charter of the corporation was amended to make the term of the corporation end on December 24, 1938. A certificate of dissolution of the corporation was duly filed on December 27, 1938. The stockholders of the corporation authorized the officers to distribute all of the corporation's assets on December 15, 1938, to the stockholders, pro rata, subject to all liabilities, in redemption of all of the outstanding stock and in complete liquidation of the corporation. An agreement, captioned "Articles of Copartnership," was executed on December 16, 1938, by petitioners and their wives, which purported to create a limited partnership, in which petitioners were designated "general partners" and their wives were designated "limited partners." Also on December 16, 1938, there was filed with the clerk of Ottawa County, Michigan, a certificate of limited copartnership which was signed by petitioners and their wives. On December 15, 1938, the corporation through its officers, the petitioners, executed formal documents to effect transfers *734 *137 to the stockholders of the property in the manufacturing plant, including machinery, furniture, inventories, and all tangible property; of the right to all intangible assets of the corporation; and of certain leases, said documents being a bill of sale, and two assignments. The stockholders directed the corporation to execute a conveyance of the land upon which the plant was situated and a lease from the Pere Marquette Railway and another lease direct to Charles Sligh, Jr., and William Lowry, as the general partners of the Charles R. Sligh Co., a limited copartnership. On December 15, 1938, the corporation deeded the real estate with all buildings, machinery, and equipment affixed to the premises to Charles Sligh, Jr., and William Lowry, general partners. The deed was recorded. As of the close of business on December 15, 1938, entries were made on the books of the corporation to show transfer to the stockholders, in liquidation, of all assets subject to liabilities. On December 16, 1938, petitioners and their wives executed a formal bill of sale to cover machinery, furniture, inventories, and all tangible property, and an assignment of interest in all intangible property, to *138 convey all property to Charles Sligh, Jr., and William Lowry, general partners in the limited copartnership. On December 16, 1938, opening entries were made on the books of the copartnership to reflect the transfers of all of the property which had stood in the name of the corporation.
There was no interruption in business. The closing of the corporation's books, the opening of the books of the copartnership, and the conveyances and assignments constituted formal steps to end the conduct of the business under the corporate form and the beginning of the conduct of the business as a limited partnership.
The corporation kept its books and made its returns on the basis of a fiscal year ending on May 31.
Under the partnership agreement the name of the business was as before, "Charles R. Sligh Company." The material provisions of the partnership agreement are as follows: The name of "Charles R. Sligh Company" is recognized as a personal right of petitioner, Charles R. Sligh, Jr., and upon dissolution of the partnership for reasons other than the fault of Sligh, no other party to the agreement shall have any right to engage in business under the name of "Charles R. Sligh Company," and any*139 trade-mark, trade name, insignia or device which may have been adopted containing the names of "Charles R. Sligh" or "Sligh" shall be transferred to Charles R. Sligh, Jr., who shall not be obligated to make payment therefor. No receiver or liquidator shall succeed to any interest in the name during Sligh's life. The members of the firm are Sligh and Lowry, general partners, and their wives are made limited partners. The term for which the partnership is to exist is five years. The term may be extended for another term not exceeding an aggregate of five *735 years by the agreement of the general partners, and if the general partners so agree to an extension, then the persons who are the limited partners "shall execute" a certificate continuing the firm. The general business of the firm is stated to be the manufacture of household furniture. The general partners shall have authority to engage in any business within the general scope, and may, by agreement between them, engage in any other business not within the expressed scope without the consent of the limited partners. Sligh and Lowry, as general partners and managers, may be paid reasonable salaries for their services*140 in such amounts as they may mutually agree. The profits, after allowing for salaries and reserves, are to be divided into four parts, one for each partner, "but no profits shall be distributed until the General Partners, * * *, shall affirmatively so decide." No interest shall be credited to any partner on account of any undivided profits retained in the firm. All losses incurred in the course of the business shall be borne by the partners equally and charged against the respective shares of the partners in the undivided profits and capital. The limited partners are not personally liable for any losses of the firm. With respect to the capital of the partnership, the agreement states that no cash is contributed by any partner and each partner has contributed in property "an undivided one-fourth interest" in the entire assets formerly owned by the corporation; that the known liabilities transferred from the books of the corporation were about $ 47,000, and that the general partners obligate themselves to hold the limited partners harmless from liability for any of the liabilities of the corporation assumed by the partnership; that the limited partners are under no obligation to *141 make any further contribution to the partnership, "except as profits may be retained as provided in subparagraph (c) of Paragraph VII hereof"; that the general partners, in opening books of account for the partnership, shall have authority to establish values upon the books for the assets contributed by all the partners, but such values are not conclusive "as to the value of the interest of any partner upon the dissolution of the firm for any cause"; and that neither the general partners nor the limited partners shall have any right to withdraw his or her contribution to the firm capital, or any part thereof. The duties of the partners are stated to be as follows:
X
Duties of the Partners. The General Partners, and the survivor of them, will at all times during the continuance of the partnership devote the whole of their time and skill to the business, and to the best of their abilities will carry on all the affairs of the firm, and shall and will not, at any time during such continuance, either directly or indirectly, be concerned in any other trade, business, or profession whatsoever, provided, that either General Partner, or the survivor, may engage in other business with *142 the consent of the other General Partner, or the *736 partner or partners succeeding to the interest of a deceased General Partner. The Limited Partners shall not be required to bestow any attention upon the affairs of the partnership. Said Charles R. Sligh, Jr. shall have principal charge of the selection of designs for articles to be manufactured, and supervision of the company's office and office force, and shall act as general manager of sales. In addition thereto, he shall perform those duties and have those powers commonly required of and exercised by the president of a corporation. Said O. William Lowry shall have principal charge of the purchases of raw materials and of the supervision of the firm's manufacturing plant and the employment and discharge of factory employees. In addition, he shall perform those duties and have those powers commonly required of and exercised by the secretary and treasurer of a corporation. * * *
The certificate of limited copartnership which was filed with the county clerk contains special provisions, inter alia, as follows: The limited partners shall have no right to substitute an assignee as a contributor unless the written consent*143 of all partners is first obtained. The contribution of each limited partner shall not be returned prior to the end of the five-year term of the partnership, unless an earlier dissolution occurs. The limited partners are to have no right to demand and receive property other than cash in return for their contributions upon dissolution of the partnership.
As of the end of the fiscal year 1938 the gross sales of the Charles R. Sligh Co. amounted to $ 275,315.70. Less the cost of goods sold, $ 206,530.34, the gross profits from sales amounted to $ 68,785.36. Adding miscellaneous income to the latter amount, the total income of the concern was $ 69,196.63, according to the corporation income tax return. On that return, the total deductions taken amounted to $ 55,376.21, which included deductions of $ 12,585.93 as compensation of officers and $ 16,506.46 as salaries, wages, and commissions. The commissions amounted to $ 12,242.65. The net income reported was $ 13,820.42. The number of employees of the company varied, and ranged between 50 and 100 employees. Prior to the dissolution of the corporation the salaries of Sligh and Lowry were $ 5,700 and $ 5,200 per annum, respectively. *144 They continued to receive the same salaries after the dissolution of the corporation.
The balance sheet of the corporation shown in the final return for the period ended December 24, 1938, showed assets and liabilities as follows:
| Assets | Liabilities | ||
| Cash | $ 8,125.16 | Accounts payable | $ 2,272.03 |
| Notes receivable | 19,946.80 | Notes payable | 29,500.00 |
| Inventories | 31,379.40 | Accrued expenses | 3,835.64 |
| Capital assets | 24,044.12 | Reserves for taxes | 1,879.65 |
| Prepaid items | 888.53 | Capital stock | 18,000.00 |
| Earned surplus and undivided | |||
| profits | 28,896.69 | ||
| Total | 84,384.01 | Total | 84,384.01 |
*737 When the change to a partnership was made the bank which gave credit to the business was notified, but no general notice was given directly to customers or creditors.
Books were set up for the partnership with opening entries as of December 16, 1938. On the books there were capital accounts, undivided profits account, and personal accounts for each of the partners. In the capital accounts in the names of petitioners and their wives, respectively, credits were made in the amount of $ 17,501.75, each, to represent the respective interests in the capital. In the undivided*145 profits account credits were made for the undivided profits which were not withdrawn. In the personal accounts were shown the withdrawals.
The books of the partnership and its returns were on a fiscal year ending May 31. The petitioners and their wives reported income on the basis of a calendar year. For the first period, December 16, 1938, to May 31, 1939, the return of the Charles R. Sligh Co. reported gross receipts, $ 117,911.83; gross profit, $ 33,920.26; net income, $ 13,909.31. In schedule j of the return, the partners' shares of income were reported as follows:
| Charles R. Sligh, Jr | $ 4,847.71 |
| O. William Lowry | 4,609.45 |
| Charlotte K. Sligh | 2,226.08 |
| Sara H. Lowry | 2,226.07 |
The above amounts allocated to Sligh and Lowry in excess of the amounts allocated to their wives represent allowances for salaries. The petitioners and their wives reported the above amounts in their separate income tax returns for the calendar year 1939.
The partnership return for the fiscal year June 1, 1939, to May 31, 1940, reported gross receipts, $ 285,229.80; gross profit, $ 94,778.07; net income, $ 55,301.17. In schedule j, the partners' shares of net income were reported as follows: *146
| Charles R. Sligh, Jr | $ 16,815.21 |
| O. William Lowry | 16,295.38 |
| Charlotte K. Sligh | 11,095.29 |
| Sara H. Lowry | 11,095.29 |
The amounts allocated to petitioners, above, in excess of the amounts allocated to their wives represent allowances for salaries. The petitioners and their wives reported the above amounts in their separate returns for the calendar year 1940.
On the books of the partnership for the period December 16, 1938, to May 31, 1939, credits were made to petitioners and their wives, individually, as their shares of undivided profits in the amount of $ 2,313.65, each; and for the period June 1, 1939, to May 31, 1940, the credit for undivided profits to each person was in the amount of *738 $ 10,868.15. (In some instances it was one cent more or less.) Neither of the wives withdrew any money during the period December 1938 to May 31, 1939. During the period June 1, 1939, to May 31, 1940, the withdrawal account in the name of Charlotte Sligh was charged $ 718.37. That charge was for withdrawals to pay her income tax. During the same period, the withdrawal account of Sara Lowry was charged $ 1,309.56. Of that total sum, about $ 500 was for the purchase of an automobile, *147 and the balance was for payment of income tax.
Neither of the wives of petitioners contributed any services to the business of the Charles R. Sligh Co.
Respondent has included in the income of each petitioner for each year, 1939 and 1940, the amounts reported by the wife in her separate return as her share of partnership income. The reason given for such determination, as stated in the deficiency notice, is that the wife's share of partnership income is held taxable to the husband because the wife rendered no services and contributed no capital, as such, to the business, and because the husband in the close family group retained "dominion, control, and administration" of the business.
Petitioners did not relinquish dominion and control over any part of the assets of the corporation by reason of the gifts of stock in the corporation to their wives, and, consequently, the wives did not contribute any property to the capital of the partnership.
OPINION.
Prior to the time when petitioners gave consideration to the matter of dissolving the corporation known as the Charles R. Sligh Co., petitioners owned all of the stock of the corporation. They discussed the tax advantages to be derived*148 from conducting the business as a partnership in comparison with the conduct of the business as a corporation, from January 1937 until the fall of 1938. Upon advice of their tax adviser, petitioners delayed making the conversion from the corporate form to the partnership form until 1938, but the matter was discussed and considered during 1937 and 1938, and prior to the making of transfers to the respective wives. A limited partnership was created at the end of 1938, with the arrangement that the wives of petitioners were to be limited partners, but were not to contribute any services. The business which had been conducted through a corporation under the direction of petitioners was continued in exactly the same way under the partnership under the direction of petitioners. The petitioners' motives in making the formal change were primarily to reduce the amount of tax, and that is admitted.
The question is whether or not petitioners are liable for tax upon the entire income of the business in 1939 and 1940, respectively. Petitioners *739 contend that the partnership must be recognized for purposes of Federal taxation and that, consequently, the income of the business is taxable*149 to the four partners, respectively. Respondent contends that the partnership arrangement should not be recognized for tax purposes because it effected no substantial change in the economic status of the petitioners under the revenue laws. Respondent asserts that the arrangements were without substance, were only a device to reduce taxes, and were without any real business purpose. Respondent contends that this proceeding comes within the rule of Schroder v. Commissioner, 134 Fed. (2d) 346; Mead v. Commissioner, 131 Fed. (2d) 323; certiorari denied, 318 U.S. 777">318 U.S. 777; and Earp v. Jones, 131 Fed. (2d) 292; certiorari denied, 318 U.S. 764">318 U.S. 764. Respondent contends further, that the income of the business is taxable to petitioners under the rule of Helvering v. Clifford, 309 U.S. 331">309 U.S. 331, and he relies also upon Warren v. Commissioner, 133 Fed. (2d) 312, affirming 45 B. T. A. 379; Harry C. Fisher, 29 B. T. A. 1041;*150 affd., 74 Fed. (2d) 1014; Higgins v. Smith, 308 U.S. 473">308 U.S. 473; and Francis Doll, 2 T.C. 276">2 T. C. 276.
We have said that it is essential that a contribution be made by each member of a partnership of either property or services, in order that a partnership may be found to exist. Thomas M. McIntyre, 37 B. T. A. 812. See also Meehan v. Valentine, 145 U.S. 611">145 U.S. 611. In this case the wives of petitioners did not contribute any services to the business. The question to be considered is whether they contributed any capital or property to the business.
It is clear that petitioners made the alleged gifts of stock in the corporation to their wives pursuant to a plan involving the dissolution of the corporation and the transfer of assets to a partnership. The evidence shows that the purpose of the transfer of stock to each wife was to put over to her a share in the assets of the corporation which she was, in turn, to contribute to the partnership. Of course, there was no actual distribution of the assets of the corporation to the stockholders upon the*151 dissolution of the corporation. All steps to effect the change were taken on paper. Petitioners were the owners of all of the stock and, therefore, of all the assets of the corporation, in the beginning. If they made bona fide gifts of interests in part of the assets to their wives, through the medium of transfers of stock, their wives must have received complete dominion and control over property, and petitioners must have divested themselves of such control. Such rule is well established. See Edson v. Lucas, 40 Fed. (2d) 398, and authorities cited therein on the essential elements of a bona fide gift. If the wives received such dominion over property, it will follow that they, individually, made real contributions to the capital of the partnership.
The question whether petitioners made bona fide gifts of interests in property to their wives, divesting themselves of full dominion and *740 control, must be determined by examining the terms of the certificate of partnership and the partnership agreement. The provisions of both agreements lead us to conclude that the wives of petitioners did not receive from them a complete economic interest*152 in the portions of the property which purportedly went to them out of the corporation, and from the wives into the partnership. The limited partners, the wives, have no right to receive any property upon dissolution of the partnership, which is to exist for five years only, other than cash, and they have no right to withdraw their "contributions to the firm capital." Although the value of the "interest" contributed by each wife was said to be $ 22,500, in the certificate of partnership, the general partners, petitioners, "shall have full power and authority to establish values upon such books for the assets so contributed to the firm by all the partners. Such values shall not be conclusive as to the value of the interest of any partner upon dissolution of the firm for any cause." From these provisions it is apparent that, whereas the wives are purported to have contributed to the partnership property having a value of $ 22,500, it is wholly problematical what they will be allowed by the general partners upon dissolution of the firm for said contribution to the capital. The wives can not receive property, but only cash, and they are left without any voice in determining, in the *153 end, the cash value of the property they are alleged to have contributed. Petitioners retained the right to determine the book values of the contributions, but whatever values they fix are not conclusive and binding.
There is considerable ambiguity in the matter of what property the limited partners contributed. At first it appears that each partner contributed one-fourth of all of the assets of every kind, tangible and intangible, formerly owned by the corporation. The certificate of partnership so provides. On the other hand, the partnership agreement provides that the name "Charles R. Sligh Company" is the property of Charles R. Sligh, Jr., and "its use is a valuable privilege." Also, any trade-mark, trade name, insignia or device containing the above name is the property of Sligh. Upon dissolution of the partnership, Sligh is to receive, without any obligation to make payment therefor, the trade name, etc., and no one except Sligh shall have any right to engage in business under the name of Charles R. Sligh Co., notwithstanding any good will value acquired during past conduct of the business. The above provisions clearly constitute the retention by one of petitioners of exceedingly*154 valuable property rights in the business of Charles R. Sligh Co. The business had been founded under the name of Sligh Furniture Co. by Sligh's father; Sligh used his own name when Lowry and Sligh organized the new business in 1933. Obviously, the trade name had value in itself as the name of *741 the business and in the use thereof in trade-marks, yet Sligh's wife certainly did not acquire any interest in this valuable part of the assets of the business, and neither did Lowry's wife.
The general business of the partnership was stated to be the manufacture of furniture, but it was provided in the partnership agreement that the general partners could engage in any other business within the general scope of furniture manufacture, without the consent of the limited partners. Within such broad powers, the general partners had complete control over the assets of the business, so that they could use the portions allegedly contributed by their wives, without their consent, and venture into unprofitable fields, if it so turned out, free from any liability to the limited partners. Nevertheless, losses are to be borne equally by all of the partners. It is difficult to conceive of *155 a more complete retention of control of business assets than this provision envisages, and it must be kept in mind that petitioners, the alleged donors of interests in the assets to their wives, have in reality retained exceedingly broad control over the use of the property. It would be unreal to view the arrangement as falling into two steps, entirely separate, under which the wives first received full dominion and then, by their own volition, gave all of the control back to petitioners. As far as the record shows, the wives had no voice whatsoever in the drafting of the partnership agreement or the certificate of partnership.
Finally, as a further item in the powers retained by petitioners, they had the sole voice in the matter of distributing the profits of the business. No profit can be distributed until the general partners affirmatively so decide. The right to receive income from property is one of the most important incidents of ownership. Here, the alleged donees of one-fourth interests in the property of the business do not have an unfettered right to receive income from their alleged interests or property, for they have no voice in deciding what of the profits shall *156 remain in the business and what shall be distributed. Upon dissolution of the firm, the general partners may purchase the interests of the limited partners according to values to be determined by appraisers.
The conduct of the parties in the taxable years in the matter of distributions of partnership profits is important. No distributions of profits were made, except for amounts to pay the income taxes of the wives and a small amount to purchase a car for Lowry's wife.
The question here is whether what was done, apart from the tax motive, was in reality what petitioners contend was done. Cf. Gregory v. Helvering, 293 U.S. 465">293 U.S. 465. Did petitioners divest themselves of ownership in one-quarter, each, of the assets of the corporate business, putting complete ownership of property, or of undivided interests in property, in their respective wives, so that they, in turn, were in a *742 position to contribute capital to the partnership? Upon the facts, we believe this question can be answered only in the negative. Without question, the alleged gifts were made with full understanding that a plan devised by petitioners would be carried out. The wives*157 could use the interests they received, which are difficult to describe with any certainty, in view of an abundance of restrictions and ambiguities, only as petitioners dictated and prescribed. See George H. Whiteley, Jr., 42 B. T. A. 402; affd., 120 Fed. (2d) 782; certiorari denied, 314 U.S. 657">314 U.S. 657; Empire Trust Co., Executor, 41 B. T. A. 839; affd., 119 Fed. (2d) 421; F. Coit Johnson, 33 B. T. A. 1003; affd., 86 Fed. (2d) 710. Petitioners, it is concluded, did not relinquish their dominion and control over the interests in property which they purportedly gave to their wives by way of transfers of stock in the corporation, and, therefore, they did not make bona fide gifts to the wives. Francis E. Tower, 3 T. C. 396. It follows that the wives did not make contributions to the capital of the partnership, and they were not carrying on a business with petitioners in a partnership within the provisions of section 181 of the Internal Revenue Code.
Respondent's*158 determinations are sustained.
Decision will be entered for the respondent.
Black, J., dissenting: The general facts in these proceedings do not appear to be in dispute. At the conclusion of the general findings of fact the majority of the Court has made the following ultimate findings of fact:
Petitioners did not relinquish domination and control over any part of the assets of the corporation by reason of the gifts of stock in the corporation to their wives, and, consequently, the wives did not contribute any property to the capital of the partnership.
I do not agree to the correctness of the above ultimate findings of fact. I think it is contrary to the findings of fact which have preceded it. Based on the general findings of fact which the majority has made, I would find ultimate facts as follows:
Petitioners Lowry and Sligh made irrevocable gifts to their wives of 450 shares each of Charles R. Sligh corporation stock. When this corporation was liquidated and dissolved in December 1938, the wives became the owners of their proportional part of the assets of the corporation. The partnership agreement entered into December 16, 1938, between petitioners and*159 their wives created a legal, valid partnership between them with ownership of partnership profits as fixed in the partnership agreement. The earnings of the partnership thereafter allocable to the respective partners under the terms of the partnership agreements were the income of the respective partners to whom allocable.
*743 Inasmuch as I do not agree to the ultimate findings of fact made by the majority to which I have called attention above, it of course follows that I do not agree to the conclusions reached in the majority opinion, which are typified by the concluding part of the opinion, reading as follows:
* * * Petitioners, it is concluded, did not relinquish their dominion and control over the interests in property which they purportedly gave to their wives by way of transfers of stock in the corporation, and, therefore, they did not make bona fide gifts to the wives. Francis E. Tower, 3 T.C. 396">3 T. C. 396. It follows that the wives did not make contributions to the capital of the partnership, and they were not carrying on a business with petitioners in a partnership within the provisions of section 181 of the Internal Revenue Code.
There is *160 a well settled line of cases holding that a husband engaged in a mercantile or manufacturing business can make his wife a partner in the business by making a bona fide gift to his wife of an interest in the business and then entering into a partnership agreement with the wife, she giving as her contribution to the capital of the partnership the interest given to her by her husband. Some of these cases are Richard H. Oakley, 24 B. T. A. 1082; Kell v. Commissioner, 88 Fed. (2d) 453; Rose v. Commissioner, 65 Fed. (2d) 616; Jasper Sipes, 31 B. T. A. 709; Walter W. Moyer, 35 B. T. A. 1155. In the Moyer case we said:
* * * The question to be determined, therefore, is whether the petitioner actually made a gift to his wife of an interest in the business in the amount of $ 100,000. If he did make a gift to his wife, she made a contribution to the business and hence had an interest in the partnership. * * *
As I have already stated, I think the evidence shows that in the instant case the petitioner did make bona fide gifts to*161 their wives and a legal, valid partnership was formed. Therefore I think the line of cases which I have cited above controls. Clearly the instant proceedings are distinguishable from that line of cases which holds that a husband whose earnings are from personal services such as fees from medical practice, attorney fees, accounting fees, insurance commissions, or engineering fees may not make his wife a partner and have his personal service earnings taxed as partnership income. Among such cases are Mead v. Commissioner, 131 Fed. (2d) 323; Schroder v. Commissioner, 134 Fed. (2d) 346; Earp v. Jones, 131 Fed. (2d) 292; Tinkoff v. Commissioner, 120 Fed. (2d) 564, affirming Board of Tax Appeals memorandum opinion; Thomas M. McIntyre, 37 B. T. A. 812; Harry C. Fisher, 29 B. T. A. 1041; affd., 74 Fed. (2d) 1014.
The earnings of the Charles R. Sligh Co., a limited partnership, during the taxable years here involved were not personal service earnings. That fact *162 appears too clear for argument. Therefore, in the instant proceedings I think the decision should be for the petitioners and *744 I dissent from the view that the entire partnership earnings are taxable to petitioners, as the majority opinion holds.
Disney, J., dissenting: I agree with what Judge Black has said in his dissent; but it seems to me that the majority view fails to give weight to certain basic law on the subject of gifts. It would appear that the most that could be said of the situation presented in the facts would be that there were gifts, subject to the condition that the wives should enter into the partnership. The law on this subject appears to be condensed and well stated in Corpus Juris Secundum on gifts. In section 36 we read:
The mere fact that a gift is accompanied by a condition or qualification, not inconsistent with the vesting of title in the donee, does not necessarily render it invalid. * * *
The same section also says: "A gift inter vivos must be absolute and, with respect to the immediate vesting of title in the donee, unconditional. * * *"
Section 37 says: "* * * In other words, a condition subsequent accompanying a gift not affecting the*163 donee's title to the property is valid * * *."
From the facts in this case I can not escape the conclusion that nothing relative to the partnership was inconsistent with the vesting of title in the donees and therefore that, under the above authority, gifts were complete. There is nothing, therefore, to negative the idea of donative intent. No power of revocation was retained. Ownership vested permanently in the grantees. There was no mere fleeting pretense of conveyance with the corporation or other entity put to death after three days, as in Gregory v. Helvering, 293 U.S. 465">293 U.S. 465. There was no temporary reallocation of family income as in Helvering v. Clifford, 309 U.S. 331">309 U.S. 331. Moreover, even if I considered that case a touchstone by which we may test all or practically all matters of family fiscal arrangements -- which I do not -- I would be forced to pay close attention to the reference which the Court makes: "* * * where, as in this case, the benefits directly or indirectly retained blend so imperceptibly with the normal concepts of full ownership * * *."
Such thought is impelling that before taxing one person*164 upon the income flowing from property owned, under standards and concepts laid down by the ordinary rules of law, to another, we should be able to find not merely some contractual relation retained by a donor, but the retention of something which at least approximates a power which "blends so imperceptibly with the normal concepts of full ownership" *745 that taxation should follow. We are not dealing here with mere attenuated subtleties in legal concepts, but with plain, long established, and clearly defined legal principles and definitions contributing to the law of gifts. If in this tax question we do not have such guides, by what are we to be guided? Certainly we are not to regard merely the intent or lack of intent to escape taxation, unless we are not to follow United States v. Isham, 84 U.S. 496">84 U.S. 496; Gregory v. Helvering, supra; and many others forbidding us to pay attention to that idea only. Yet, that seems to be the real basis of the criteria applied in the majority opinion; for if under the above authority the gift is valid and complete, if title is vested and intended to be vested in the donee, *165 regardless of any other conditions not inconsistent with such title vesting, I am unable to perceive a basis of questioning the transfer, unless it be that of examining the tax intent. Again quoting Corpus Juris Secundum as a convenient summary of the law, in 38 C. J. S. 801, on gifts, we notice:
* * * A gift is not defeated simply because the donor is given the right of access to the property, or because the donor is given custody and control over the property as the donee's agent.
On page 807, we find:
* * * The donee may also lend the subject of the gift to the donor, or deliver it to him as his agent or bailee, without affecting the validity of the gift.
Page 806 says: "* * * Thus, a gift is not rendered ineffectual by donor's retention of possession where he holds as the donee's agent or bailee."
I see nothing in the instant case beyond the reasonable application of the above principles. In addition, it is to be noted that the gift of stock to Sara H. Lowry was made by her husband in May 1937, while the partnership was not formed until December 1938. She had signed her husband's note for $ 15,000 in connection with his purchase of stock, and had been, from about January*166 1937, director of the corporation. At the time of the gift of stock to her there was some discussion of doing business in a form other than the corporate form. Although we have often considered as one transaction various transactions sufficiently closely connected to justify that conclusion, I believe we have never considered as an integer transactions so far removed in time as are the gift of the stock to Sara H. Lowry and the formation of the partnership here, with so little connection as the fact that there was merely some discussion at that time of changing the form of business. Nothing definite, nothing contractual in such discussion justifies, in my opinion, the tie-up with the formation of the partnership more than one and one-half years later; and at least in the case of Sara H. Lowry, the unconditional donee of stock, we should not say that there is such connection between gift in May *746 1937 and the partnership of December 1938 as to justify striking down the reality of the partnership. This attention to the particular situation of Sara H. Lowry by no means indicates that in my opinion a different conclusion should be arrived at as to Charlotte K. Sligh. I therefore*167 respectfully dissent.