Stanley v. Commissioner ( 1929 )

OPINION

Akundell :

The petitioner admits that the decision of the Supreme Court of Kings County holding that he and Crapp were partners and that the latter was entitled to an accounting from the former for his copartnership interest, is binding upon him and should be followed by the Board, but argues that inasmuch as he had no intention of making Crapp a partner in his business, the amount he paid the latter as a result of the court’s decision is a deductible logs.

In view of the court’s decision, it must be regarded as established that the petitioner and Crapp were partners, and that as a result of the dissolution of the relationship, the petitioner was required to account to Crapp for his interest in the firm. The amount paid to Crapp in the year 1920, pursuant to the court’s decision, was for either his share of the property of the copartnership.or other interest in the firm. In any event, a payment made under such conditions can not be said to result in a deductible loss.

In increasing petitioner’s income by $5,050 for the taxable year 1920, the respondent appears to have proceeded on the ground that the annuitant died in November, 1920, and that there had been paid to him by the petitioner, under the annuity contract, the full amount payable during the years 1919 and 1920, or $1,450. I. T. 1484, C. B. 1-2, p. 66, followed by the respondent in making the determination, provides for the taxing of the excess of the principal over the amount paid, as income in the year in which liability for future payments ceases. Whether we treat the profit realized by the petitioner under the contract as income to him at the time of the execution or termination of the agreement, we must overrule the respondent’s action, since the contract was entered into, and the annuitant died in 1919, a year prior to the one before us.

Judgment will be entered under Buie 50.