*3014 Petitioner and his wife with two others formed a partnership to engage in the real estate business, the profits from which were divided equally between the four partners. The wife's portion of the profits was taxed by respondent as income of the petitioner. Held, that the profits belonged to the wife and should not have been included in petitioner's income. L. F. Sunlin,6 B.T.A. 1232">6 B.T.A. 1232, and Earle L. Crossman,10 B.T.A. 248">10 B.T.A. 248.
*125 This proceeding is for the redetermination of deficiencies in income taxes for 1919, 1920, 1921, and 1922. The deficiency letter sets forth the deficiency for each year and the total thereof as follows:
| Year | Deficiency in tax |
| 1919 | $5,129.15 |
| 1920 | 12,082.74 |
| 1921 | 10,107.94 |
| 1922 | 10,510.10 |
| Total | 49,831.63 |
There is no explanation of the discrepancy between the sum of the deficiencies for the respective years and the total as set forth above.
The deficiencies result from respondent's determination that under the*3015 laws of the State of Michigan a husband and wife can not be partners, and, therefore, their distributive shares of the profits of the alleged partnership were income of and taxable to the husband.
FINDINGS OF FACT.
On April 1, 1910, Ernestine Kahn and Margaret Kahn acquired by deed from Robert L. Robertson and wife each an undivided one-half interest in a parcel of real estate and improvements thereon which was situated on the corner of Woodward and Seward Avenues, Detroit, Mich. On April 22, 1910, Ernestine Kahn and Margaret Kahn acquired by deed from Mary R. Schmidt each an undivided one-half interest in a parcel of real estate with improvements thereon which was situated on Woodward Avenue adjoining the property acquired on April 1, 1910. Prior to the organization of the Kahn Realty Co., hereinafter set forth, ten or more leases to portions of these parcels on Woodward and Seward Avenues were entered into by Ernestine Kahn and Margaret Kahn as lessors in their own names. The cost of these two parcels was approximately $16,000.
*126 On November 24, 1911, Ernestine Kahn and Margaret Kahn by one deed conveyed these two parcels to Louis Kahn, who in turn on November 25, 1911, by*3016 two deeds conveyed an undivided one-half interest therein to Albert and Ernestine Kahn, and an undivided one-half interest therein to Julius and Margaret Kahn. Thereafter Albert, Ernestine, Julius and Margaret Kahn treated this property as an asset of the enterprise known as the Kahn Realty Co. The value of the two parcels had increased very little between their acquisition in 1910 and November 25, 1911.
On or about November 25, 1911, Albert and Ernestine Kahn and Julius and Margaret Kahn entered into an oral agreement to conduct a real estate business, to be known as the Kahn Realty Co., in Detroit, Mich. Ernestine Kahn, wife of Albert Kahn, and Albert Kahn were citizens and residents of Detroit. Margaret Kahn, wife of Julius Kahn, and Julius Kahn were then also citizens and residents of Detroit, but during the tax years in question and prior thereto have been citizens and residents of Youngstown, Ohio.
On August 6, 1914, a certificate signed by all four parties, was filed in compliance with Act No. 164 of the Public Acts of 1913 of Michigan, entitled "An Act to require the filing of certificates of co-partnership, etc." The certificate signed and filed reads as follows:
*3017 STATE OF MICHIGAN, County of Wayne. ss.
We, the undersigned, do hereby certify in pursuance of Act No. 164 of the Public Acts of the State of Michigan, 1913, that we intend now to carry on a business, in the City of Detroit, State of Michigan, as Co-partners under the firm name and style of Kahn Realty Company.
Business address Detroit, Michigan.
which said co-partnership is to continue for a period not longer than seven years as limited by the partnership contract.
And we do further certify that the full names of the persons composing said partnership together with the Post Office addresses of said persons are as follows, viz:
| NAME | RESIDENCE ADDRESS | CITY OR TOWN |
| Albert Kahn | 62 Rowena Ave. | Detroit |
| Ernestine Kahn | 62 Rowena Ave. | Detroit |
| Julius Kahn | 104 Lothrop Ave. | Detroit |
| Margaret Kahn | 104 Lothrop Ave. | Detroit, Mich. |
In Witness Whereof, We have this thirtieth day of July 1914 A.D. made and signed this certificate.
ALBERT KAHN
ERNESTINE KAHN
JULIUS KAHN
MARGARET KAHN
At the expiration of the 7-year period set forth in the foregoing certificate of copartnership, the individuals continued the business *127 under the same*3018 style and name and in the same manner and fashion as formerly. On or about August 31, 1925 they filed a new certificate of copartnership, signed by each individual, with the county clerk, which provided that the copartnership should continue until its termination by action of the copartners and the filing of notice thereof with the county clerk.
The Kahn Realty Co. bought and sold properties, erected buildings, rented buildings, and made various kinds of investments in stocks and bonds. The business was managed from its inception by Louis Kahn, although numerous documents such as mortgages, deeds and leases were signed by all four parties. A rubber stamp was adopted and extensively used in the business, as follows:
Albert, Ernestine, Julius and Margaret Kahn, doing business as Kahn Realty Company,
Per
Louis Kahn signed a large number of leases as agent and as attorney in fact for all four parties, a power of attorney running to him having been executed by all of them on January 25, 1916.
Conveyances of real estate for the Kahn Realty Co. were taken in the names of Albert Kahn and Ernestine Kahn, his wife, and Julius Kahn and Margaret Kahn, his wife, some conveyances*3019 carrying the added phrase, "doing business as Kahn Realty Company." During its existence the Realty Company has acquired approximately 50 or 60 parcels of real estate.
A number of suits have been started in each year from 1915 to date, in the names of all four parties, in the courts in the City of Detroit and Wayne County, for repossession of various premises leased and for collection of rents, and in some instances appeals were taken to higher courts of the State of Michigan. In these suits the parties plaintiff were denominated as follows:
Albert, Ernestine, Julius and Margaret Kahn as Kahn Realty Co., Plaintiffs, vs. Defendant.
or
Albert Kahn, Ernestine Kahn, Julius Kahn, and Margaret Kahn, doing business as Kahn Realty Company, Plaintiffs, vs. Defendant.
*128 Additional investment of funds in the properties of the Kahn Realty Co. from its inception to date have been largely provided from accumulated income, the major portion thereof being reinvested. As a result of these reinvestments the property holdings of the firm have increased so that the net worth of the Kahn Realty Company as shown by the books during the tax years in question was as follows:
| Dec. 31, 1918 | $429,627.60 |
| Dec. 31, 1919 | 446,014.86 |
| Dec. 31, 1920 | 508,978.38 |
| Dec. 31, 1921 | 453,849.48 |
| Dec. 31, 1922 | 486,493.72 |
*3020 When profits of the Kahn Realty Company were distributed the petitioner's wife received her distributive share and deposited it in her bank account. She, together with her associates, assumed the obligations contracted by or assessed against the firm, and paid such obligations or assessments out of the company's funds. The city taxes were assessed against and paid by the Kahn Realty Co., although title to the property taxed was in the individuals composing the company.
The correct net income of Albert Kahn, excluding only his distributive share of the net income of the Kahn Realty Co., was, in the calendar years under review, as follows:
| 1919 | $183,751.38 |
| 1920 | 218,075.62 |
| 1921 | 192,446.03 |
| 1922 | 219,070.49 |
The net income of the petitioner set out in the foregoing paragraph included in the respective years the following items:
| Year | Dividends on stock of domestric corporations | Taxable interest on Liberty bonds | Capital net gain |
| 1919 | $33,600.13 | $271.40 | |
| 1920 | 26,789.56 | 782.70 | |
| 1921 | 8,818.70 | 475.00 | |
| 1922 | 5,850.05 | 63.33 | $160.00 |
The personal exemption to which the petitioner was entitled in each of the respective years was as*3021 follows:
| 1919 | $2,400 |
| 1920 | 2,400 |
| 1921 | 2,000 |
| 1922 | 2,000 |
*129 The correct total net income of the Kahn Realty Co. was, in the calendar years under review, as follows:
| 1919 | $29,557.26 |
| 1920 | 40,686.57 |
| 1921 | 55,746.08 |
| 1922 | 69,526.85 |
The net income of the Kahn Realty Co. set out in the foregoing paragraph consisted in the respective years of the following items:
| Year | Dividends on stock of domestic corporations | Profit on sale of real estate | Rents from real estate (net) |
| 1919 | $107.50 | $901.16 | $28,548.60 |
| 1920 | None. | 10,025.04 | 30,661.53 |
| 1921 | None. | 3,678.92 | 52,067.16 |
| 1922 | None. | 4,040.72 | 65,486.13 |
The Kahn Realty Co. filed income-tax returns upon partnership forms for each year from 1914 to date purporting to show four equal partners, namely Julius Kahn, Margaret Kahn, Albert Kahn and Ernestine Kahn.
The petitioner, Albert Kahn, and his wife, Ernestine Kahn, filed original separate income-tax returns for each of the years 1915 to 1922, inclusive, in which each reported separately a one-fourth share of the net income of the Kahn Realty Co.
The respondent in the computation of the deficiencies alleged*3022 in this proceeding, credited in each year one-half of the income of the Kahn Realty Co. to the petitioner, Albert Kahn, none to his wife, Ernestine Kahn, and one-quarter each to Julius Kahn and his wife, Margaret Kahn, the latter two being resident and domiciled in Youngstown, Ohio.
OPINION.
MORRIS: The question presented for determination is whether the petitioner should be taxed on his wife's distributive share of the net income of the Kahn Realty Co. The respondent contends that under the laws of the State of Michigan a husband and wife can not be partners in a business enterprise and that the income of the husband and wife from the Kahn Realty Co. is taxable to the petitioner.
The principle involved here has been carefully considered and disposed of by the Board in the proceedings of ; . The facts in this proceeding bring it within the doctrine laid down in the above cited cases. It follows that the respondent's action was erroneous.
Judgment will be entered under Rule 50.