Grise v. Commissioner ( 1927 )

' OPINION.

Steeni-iagen :

The petitioners contend that the effect of the contract and its performance is merely to give them the prescribed drawing account, and that this amount alone is income to each of them until under the contract the notes of $12,000 are discharged; that since in fact they did not receive any amounts in excess of the drawing accounts, no such amounts may be taxed as their income. But this is a disregard of the contracts and the acts of the parties to them in their performance. Grise in 1918 bought an interest in the partnership for $12,000 and agreed to pay for such interest out of his share of the partnership income. For this he gave his notes and, instead of taking his full distributable share in cash and therewith periodically discharging his notes, he by the contract authorized the partnership to apply part of his share on the notes. At the end of the year he had enjoyed income by the amount of such credits, had acquired pro tanto an unincumbered interest in the partnership, and to this extent was richer at the end of the year than at the beginning. The fact that he received credit on his notes instead of actual cash makes it no less income.

It may be, as petitioners contend, and we do not decide, that if the partners had agreed that Grise should have a distributable share of $200 a month and Lewis and Rebinan an equal distribution of the remainder until they had received $12,000 more than he, whereafter the distribution should be one-third to each, his taxable income up to that time would have been only $2,400. But the contract before us expressly provides otherwise, giving him at once a one-third interest in the proceeds and applying part thereof as purchase price. That the subsequent use of income does not affect its taxability is settled.

The situation is legally similar as to Allen, and as to both, the respondent is sustained.

Judgment will be entered on W days’ notice, under Bule 50.