*4290 A partnership of four members dissolved and one of the members received in exchange for his interest in the partnership and cash in a certain amount, assets of the partnership which cost the partnership more than the value of the partnership interest plus the cash. The three remaining members deducted their proportionate shares of the difference as losses. Amounts of losses determined.
*1123 These are proceedings for the redetermination of deficiencies in income taxes for the year 1922 in the following amounts:
| Stephen J. Slattery | Not shown. |
| W. J. Cameron | $875.55 |
| Estate of Robert H. Tietz | 1,251.44 |
Action of the respondent in disallowing as a deduction from income for 1922 of the proportionate share of each of the petitioners in a loss alleged to have been sustained jointly by all three in the disposition of certain paving contracts, is alleged as error. On motion the cases were consolidated for hearing and decision. The facts were stipulated.
FINDINGS OF FACT.
On January 1, 1922, the petitioners, Cameron and Slattery, *4291 were members of the partnership of W. J. Cameron & Co., of 400 Chamber of Commerce Building, Denver, Colo., doing business as contractors for paving and the like. The partnership was composed of four partners, including petitioners Cameron and Slattery, Robert H. *1124 Tietz, since deceased, whose estate is now represented in this proceeding by Louise C. Tietz, administratrix, and one J. H. Miller.
The aforesaid partnership continued in business from January 1, 1922, to March 21, 1922, on which latter date Miller withdrew from the partnership.
On March 21, 1922, the aforesaid partnership had among its assets certain contracts for paving representing a cost and expenditure to the partnership of $75,000 and these contracts were assigned by the partnership to Miller. In consideration of receiving these contracts from the partnership, Miller relinquished his one-fourth interest in the partnership assets which interest was estimated and agreed among the four partners to be worth $45,181.06. In addition to relinquishing his one-fourth interest in the partnership, Miller also agreed to pay to the three remaining members of the partnership the sum of $15,000 and in the event*4292 of the happening of contingencies as specified in the contract hereinafter referred to, agreed to pay the further sum of $4,818.94.
Miller actually paid to the three remaining members of the partnership the amount of $15,000, but he did not, and has never, paid the balance of $4,818.94.
Petitioners, Slattery, Cameron and Tietz, as parties of the first part, and Miller, as party of the second part, executed an agreement providing for the withdrawal of Miller from the partnership and the settlement of his interests, such contract being as follows:
CONTRACT.
THIS CONTRACT, Made and Concluded this 21st day of March, A.D. 1922, by and between W. J. Cameron, Robert H. Tietz, and Stephen J. Slattery, all of Denver, Colorado, parties of the first part, and James H. Miller, of Denver, Colorado, party of the second part, WITNESSETH, that,
Whereas, the parties of the first part and the party of the second part are now partners doing business under the firm name and style of W. J. Cameron & Company, and have been engaged in the general contracting business, which said partnership the parties hereto have decided to terminate; and,
Whereas, the party of the second part is desirous*4293 of taking over certain contracts taken in the name of said partnership, and certain property of the partnership, and withdrawing from said partnership; and
Whereas, the parties of the first part are desirous of continuing a co-partnership under the firm name and style of W. J. Cameron & Company, and of continuing the business of said firm.
Now, THEREFORE, in consideration of the premises, and of the mutual promises hereinafter set forth, and in further consideration of the transfers, assignment and money paid this date, it is hereby agreed by and between the parties hereto as follows:
1. That the co-partnership heretofore doing business under the firm name and style of W. J. Cameron & Company shall be this date dissolved and terminated, and settlement between the partners shall be made as hereinafter in this contract provided.
*1125 2. The parties of the first part hereby sell, assign, transfer, and set over unto the party of the second part all the right, title and interest of W. J. Cameron & Company and of the parties of the first part in and to those certain contracts in writing with the State Highway Department of the State of Colorado, being known as Federal*4294 Aid Projects, Nos. 129 and 133, dated September 1st and September 6th, 1921, said contracts providing for the construction of a cement pavement on Federal Boulevard from the Northern limits of the City and County of Denver in a northerly direction about eight and one-half (8 1/2) miles, also all tools and equipment purchased and used in the above contracts.
3. The parties of the first part hereby sell, assign, transfer, and set over unto the party of the second part all the right, title and interest of W. J. Cameron & Company and of the parties of the first part in that certain gravel screening plant and equipment and contract for land, said plant and said land being situated on the East side of Federal Boulevard and North of Clear Creek in Jefferson County, Colorado, and the parties of the first part agree to execute a quit-claim deed to the party of the second part of any interest in said land.
4. The parties of the first part hereby sell, assign, transfer, and set over unto the party of the second part all the right, title and interest of W. J. Cameron & Company and of the parties of the first part in and to that certain bank account known as the W. J. Cameron & Company*4295 Paving account at the International Trust Company of Denver, Colorado, said account being in the sum of Five Thousand Two Hundred Twenty-five and 89/100 Dollars ($5,225.89).
5. The party of the second part agrees to pay to the parties of the first part upon the execution of this agreement the sum of Nineteen Thousand Eight Hundred Eighteen and 94/100 Dollars ($19,818.94), Fifteen Thousand Dollars upon signing of this agreement and balance upon completion of Highway contract #129 and #133, and to accept the transfers and assignments made this date by this instrument in full consideration therefor, and in full satisfaction and payment for his interest in said partnership known as W. J. Cameron & Company.
6. The party of the second part hereby does sell, assign, transfer, and set over unto the parties of the first part all his right, title and interest in and to the partnership known as W. J. Cameron & Company, and all property and business of said partnership, except the property transferred to the party of the second part by this instrument.
7. The party of the second part hereby assumes all responsibility and liability for the further performance of said contracts with*4296 the State Highway Department of the State of Colorado, hereinbefore referred to, and agrees to hold W. J. Cameron & Company and the parties of the first part harmless from any claims or demands of any nature whatsoever which may arise hereafter form further operations under said contracts, and particularly to hold said W. J. Cameron & Company and said parties of the first part harmless on account of any liability which may arise by reason of the bond or bonds executed by W. J. Cameron & Company, or any of the parties of the first part, for the faithful performance of said contracts with said State Highway Department of Colorado.
8. The party of the second part hereby releases to the parties of the first part, the full and complete right to the use of the name of W. J. Cameron & Company, or any part thereof, and consents that said parties of the first part may hereafter conduct a co-partnership under said name of W. J. Cameron & Company, but without liability to the party of the second part hereafter.
*1126 9. The parties of the first part agree to hold and save harmless the party of the second part from any liability whatever arising from operations, or transactions*4297 of parties of the first part, or of W. J. Cameron & Company after the date of this agreement.
This agreement shall be binding upon, and inure to, the benefit of the heirs, executors, administrators, and assigns of the respective parties hereto.
IN WITNESS WHEREOF, the parties hereto have hereunto set their names and seals on the day and year first above written.
W. J. CAMERON. (SEAL.)STEPHEN J. SLATTERY. (SEAL.)
ROBERT H. TIETZ. (SEAL.)
Parties of the First part.
J. H. MILLER. (SEAL.)Parties of the second part.
ADDENDA:
The balance of payment, amounting to FOUR THOUSAND EIGHT HUNDRED EIGHTEEN AND 94/100 DOLLARS, is to be paid on or before Two Years from date, if there is a profit from the contracts of Federal Aid Projects Nos. 129 and 133, or from a future contract for the extension of Federal Boulevard paving, or from the operation of disposal of the sand and gravel plant.
W. J. CAMERON. (SEAL.)STEPHEN J. SLATTERY. (SEAL.)
ROBERT H. TIETZ. (SEAL.)
Parties of the First part.
J. H. MILLER. (SEAL.)Party of the second part.
The terms of the contract were met and complied with by the parties.
Miller made no profit on*4298 "the contracts of Federal Aid Projects Nos. 129 and 133, or from a future contract for the extension of Federal Boulevard paving, or from the operation or disposal of the sand and gravel plants," which are referred to and contained in the aforesaid contract.
In the computation of the alleged deficiency in tax of the petitioners for the taxable year 1922, the respondent has not allowed to the petitioners, nor to the partnership, W. J. Cameron & Co., the deduction of any loss on account of the transaction herein described and more specifically set forth in the contract as above.
OPINION.
SIEFKIN: As we construe the transaction set out in the above findings each of the three petitioners parted with a one-fourth interest in assets costing $75,000 or $18,750 each, and received (1) a twelfth interest (one-third of Miller's one-fourth interest) in the remaining assets of the former partnership; (2) a one-third interest in $15,000 cash paid by Miller; and (3) a one-third interest in a possible right to receive $4,818.94 (depending upon a future event *1127 which did not happen). We adopt the valuation placed by the parties upon Miller's interest. Based upon such value the*4299 net assets of the partnership were $180,724.24.
The assets of the partnership excluding the assets sold, were thus of a value of $120,543.18, assuming that the consideration paid by Miller for the contracts was their value. Upon such basis each petitioner, at the time of the transfer, received an interest in property worth $10,045.26, cash of $5,000 and the possibility of getting $1,606.31 more. We, therefore, hold that in 1922, when the contingency governing the last item was still undetermined, each petitioner had sustained a loss of $2,098.43 which was deductible in that year. Until it was determined that each would not receive an additional payment of $1,606.31 that portion is not deductible.
Reviewed by the Board.
Judgment will be entered on 15 days' notice, under Rule 50.