*4196 The partnership relationship is not shown by the evidence to have existed among the petitioners and their wives during the taxable years.
*92 These proceedings are for the redetermination of deficiencies in income taxes as follows: G. M. Harrington for 1920 in the amount of $6,309.03; for 1921 in the amount of $1,423.29. L. W. MacDonald for 1920 in the amount of $6,487.94; for 1921 in the amount of $1,401.02.
The proceedings were consolidated and heard together as both involve the same issue, namely, whether the respondent erred in *93 taxing the net income of the partnership of MacDonald and Harrington for the taxable years to the two petitioners above named instead of to four persons, consisting of the petitioners and their wives, to whom the petitioners claim the net income should have been taxed.
FINDINGS OF FACT.
The petitioners are residents of San Francisco, Calif. On January 15, 1918, the two petitioners above named formed a partnership and engaged in the wholesale lumber business. No articles of partnership were drawn up, the*4197 partnership agreement being oral. About the middle of 1919 the petitioners began to consider taking their wives into the partnership with them and they formed the intention of making their wives partners from the beginning of 1920 but no partnership agreement in writing was drawn up at that time. They consulted with an attorney with respect to taking their wives into the partnership and he advised that no written articles of partnership were necessary "so long as the partnership books reflected the interests of the partners and showed the actual interests and liabilities of all the partners, including their wives if they were taken in."
No change whatever was made in the partnership books at the time the new partnership is alleged to have been formed in 1920 until the first withdrawals of profits were made by the respective wives of the petitioners. Neither during the years 1920 or 1921 nor at any time prior thereto were any articles of copartnership drawn and executed, but in 1924 a partnership agreement was executed by the two petitioners and their respective wives. This partnership agreement was dated January 1, 1920.
During the years involved the firm letterheads and stationery*4198 always carried the names of the two petitioners only as partners.
Neither of the wives of the petitioners contributed anything to the partnership except that Mrs. Harrington advanced some money to the petitioner, Harrington, when he entered the partnership originally in 1918. The petitioner Harrington secured a one-half interest in the partnership at that time for such money as was put into the business by him, whether secured from his wife or money that he had on hand.
No bill of sale or other instrument in writing was executed whereby any interest in the business was transferred to the petitioners' wives except the instrument which was executed in 1924. Neither of the wives of the petitioners took any active part in the conduct of the affairs of the business. Neither of them had any capital account on the books and no entries were made with respect to them except the profits which were credited to their account. The petitioners' wives *94 were given a check when they desired to withdraw any amounts credited to them. The checks could be signed only by one of the petitioners. No restriction was placed upon the amount of money that the wives of the petitioners could*4199 withdraw so long as it did not exceed their credit balances, but for convenience it was agreed that they would draw a stipulated amount. A check for $300 was made out to them each month and this was later raised to $400 per month.
OPINION.
TRAMMELL: That husband and wife, under the law of California, may enter into relationship of partners and carry on business in that form is clear. Section 158, Civil Code of California. Under the law of that State no particular form of agreement is required to constitute the partnership. It was not questioned in this proceeding by the respondent that the petitioners had the right under the law of California to take their wives into the partnership with them, the only question being whether the partnership was actually formed and was in existence during the years 1920 and 1921 composed of the petitioners and their wives. The respondent has determined as a fact that the petitioners and their wives were not partners. The petitioners are required to introduce evidence to overcome the presumption of the correctness of the respondent's determination. In our opinion, there is not a preponderance of evidence to establish the partnership relation*4200 among the petitioners and their wives. The wives took no part in the affairs of the business. There were no entries made upon the books with respect to the wives except the profits at the end of the years which were credited to their account. There is no evidence that the wives entered into the relationship of mutual agency with their husbands, or that their wives entered into such an agreement with the petitioners as to constitute them partners, and the actual conduct of the parties as well as the other evidence in the case leads us to the conclusion that the partnership was not formed until 1924, when the articles of copartnership were executed, notwithstanding the fact that this agreement was dated January 1, 1920. There is no testimony that this agreement executed in 1924 incorporated any verbal agreement which had theretofore been entered into.
In view of the foregoing, it is our opinion that the partnership relationship did not exist among the petitioners and their wives during 1920 and 1921.
Judgment will be entered for the respondent.