Harmon v. Commissioner , 13 T.C. 373 ( 1949 )

W. F. Harmon, Petitioner, v. Commissioner of Internal Revenue, Respondent

Harmon v. Commissioner

Docket No. 17505

United States Tax Court

13 T.C. 373; 1949 U.S. Tax Ct. LEXIS 83;

September 27, 1949, Promulgated

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Decision will be entered under Rule 50.

1. Under the principles enunciated in Commissioner v. Culbertson, 337 U.S. 733">337 U.S. 733, and under the facts, held, petitioner's wife and her alleged copartners in a two-family partnership had no intent, in good faith and acting with a business purpose, at the time of formation of the partnership that she join together with them in the present conduct of the enterprise. She was not a partner in the taxable years in question, and respondent's action in including in petitioner's gross income for those years her alleged distributive share of partnership income is upheld; held, further, petitioner's son and his copartners in the same partnership, in good faith and acting with a business purpose, intended at the time of formation of the partnership that he join together with them in the present conduct of the enterprise. He was a partner in the taxable years in question, and respondent erred in including in petitioner's gross income for those years the distributive share of partnership income of petitioner's son.

2. Cost of repairs to personal residence damaged by storm and flood, less insurance proceeds received, held, a proper measure of loss of value of the damaged property, and deduction under section 23 (e) (3) of the Internal Revenue Code of casualty loss thus computed is allowed.

James D. Dye, Esq., for the petitioner.

Elmer L. Corbin, Esq., for the respondent.

Harlan, Judge. Disney, J., concurs only in the result. Black, J., dissenting. Van Fossan, J., agrees with this dissent.

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HARLAN

Respondent determined deficiencies in petitioner's income tax for 1943 and 1944 in the respective amounts of $ 42,241.34 and $ 25,457.54. Computation of the deficiency for 1943 involves income for both 1942 and 1943 because of the Current Tax Payment Act. Two issues are presented for decision: (1) Did respondent err in including in petitioner's gross income for 1943 and 1944 the distributive shares of income of the partnership Kuhlmann & Harmon Machine Tool Co. attributable to the partnership interests of petitioner's wife, Gladys M. Harmon, and of petitioner's son, Jack D. Harmon? (2) Did respondent err in disallowing petitioner's claimed deduction for casualty loss in the sum of $ 674.80 for 1944?

FINDINGS OF FACT.

Petitioner is a resident of Wichita, Kansas. The returns for the periods here involved were filed with the collector of internal revenue for the district of Kansas, at Wichita, Kansas. Petitioner is a machinist and tool and die maker by trade. In 1931 he and Grover F. Kuhlmann entered into partnership in Wichita, Kansas, for the manufacture of tools, dies, jigs, machine castings, etc., under the name of Kuhlmann & Harmon Machine Shop, which operated as such until July 1, 1942.

At that time petitioner and Kuhlmann were both married and living with their wives. Petitioner was married to Gladys M. Harmon. He had one son, Jack D. Harmon, 16. Kuhlmann was married to Daisie E. Kuhlmann. He had one son, Frederick Kuhlmann, 23.

On August 21, 1942, Grover F. Kuhlmann, William F. Harmon, Frederick Kuhlmann, Jack D. Harmon, Daisie E. Kuhlmann, and Gladys M. Harmon entered into an agreement in writing, effective as of July 1, 1942, which recited that the partnership business formerly operated by Grover F. Kuhlmann and William F. Harmon had been dissolved as of June 30, 1942, and provided for the operation of the business from and after July 1, 1942, by the six individuals as a partnership under the name of Kuhlmann & Harmon Machine Shop. Rights of majority were conferred upon Jack D. Harmon by the District Court of Sedgwick County, Kansas, August 21, 1942, when he was slightly less than 17 years of age.

On December 31, 1942, a supplemental partnership agreement was entered into by and between the same parties for the purpose of changing the name of the partnership to Kuhlmann & Harmon Machine Tool Co. On February 24, 1944, Grover F. Kuhlmann died and his interest in the partnership passed to and became the property of Frederick Kuhlmann. On February 28, 1944, the remaining partners executed an agreement whereby they agreed to continue the partnership, in which style it continued to operate until December 31, 1944, when the Kuhlmann family sold their interests in the partnership to some Wichita businessmen and withdrew from the business. The old partnership was dissolved by written agreement as of that date. The Kuhlmann & Harmon Machine Tool Co. continued operations after December 31, 1944, as an alleged partnership between William F. Harmon, Jack D. Harmon, Gladys M. Harmon, and the purchasers of the Kuhlmann interests until September 30, 1945, at which time William F. Harmon, Jack D. Harmon, and Gladys M. Harmon purchased the interests of the other alleged partners. The business was transferred to "Harmon Machine Company, Inc.," the stock of which was owned and held as follows: W. F. Harmon, 167 shares; Jack D. Harmon, 166 shares; Gladys M. Harmon, 166 shares; and M. W. Immel, 1 share.

Under the terms of the partnership agreement of July 1, 1942, each of the six individuals owned an undivided one-sixth interest in the business and shared in the profits and losses in the same ratio. The agreement also contained, among others, the following provisions:

Sixth: The management and control of the affairs of said partnership shall be vested in First and Second Parties. [Grover F. Kuhlmann and William F. Harmon.] In event of the death or inability of either the First or Second Party to act as managing partner, such managerial authority shall pass from First Party to Third Party [Frederick Kuhlmann] and from Second Party to Fourth Party [Jack D. Harmon]. In event both the First and Third Parties shall depart this life, or for other reason be unable to act in their managerial capacity, and either Second Party or Fourth Party shall then be in being and otherwise capable of executing such managerial powers, Second or Fourth Party shall continue as managing partner. To like effect, if Second and Fourth Parties shall each be deceased, or for any other reason incapable of exercising managerial powers herein conferred, and if either First or Third Party then be in being and otherwise capable of exercising such powers, First or Third Party shall then continue as managing partner. Such managing partners shall have and are hereby given:

(a) The sole and exclusive control over the management and conduct of the business by said partnership transacted.

(b) The sole power and authority to contract and incur liabilities for and on behalf of said partnership.

(c) The sole power to borrow for and on behalf of said parnership from time to time such sum or sums of money which in their sole discretion and judgment is necessary and requisite to the continuation and conduct of the business of said partnership, and to mortgage, pledge or otherwise encumber its assets to secure the re-payment of such monies so borrowed.

(d) To make all contracts for and on behalf of said partnership, generally, in the conduct of its business.

(e) To employ and discharge all employees, including any of the other partners who may be so employed in respect to the transaction of the business and affairs of said partnership.

(f) To otherwise carry on and transact or cause to be carried on and transacted, under their sole supervision and control, all of the other business of said partnership.

(g) To determine whether or not at any accounting period, as hereinafter expressed, the profits, if any, of said partnership shall be apportioned and distributed, in whole or in part to the partners, or retained and continued in use in the business of said partnership.

It is understood and agreed that the managing partners shall consult and confer with the other partners before taking any steps resulting in any substantial change in the operation or policies of the partnership affairs, or the sale of any portion of the partnership assets other than in the usual course of business, or in any manner affecting the partnership business unusually as judged by the ordinary operation of said partnership business.

Seventh: Each of the partners shall devote the whole or such part of his time and attention to the partnership business as may be determined and directed by the managing partners and in doing so, shall diligently and faithfully employ himself therein.

Eighth: * * * Parties of the First and Second Part respectively shall have a drawing account from the partnership funds of Seventy-five and no/100 ($ 75.00) Dollars a week.

Parties of the Fifth and Sixth part [Daisie E. Kuhlmann and Gladys M. Harmon] respectively, shall each have a drawing account of One Hundred and no/100 ($ 100.00) Dollars per month. At the time of the annual accounting there shall be charged respectively to the share of the profits of the partners constituting First Party, Second Party, Fifth Party and Sixth Party, such sums by each so withdrawn. Until Parties of the Third and Fourth part, respectively, shall be steadily employed in the partnership business, they shall be entitled to weekly withdrawals from the partnership funds in an amount only equal to that which they would receive if employed by it at an hourly wage. As long as such intermittent employment shall continue such two shares of such two parties in the profits of said business shall be totalled and in determining proper distributions there shall then be deducted therefrom the total of the amounts withdrawn by such two parties during the immediate preceding accounting period and the balance shall be divided equally to determine each of said two partners' distributive shares in such profits. After parties of the Third and Fourth Part, respectively, shall each be steadily employed in the partnership business, then each shall have a drawing account in an equal amount with the other, such amount of such drawing account to be determined by the managing partner or partners, and at the time of annual accounting such withdrawal shall be charged respectively to the profits of each in determining the two partners' distributive shares in profits, if any. * * *

On June 30, 1942, prior to the time the new partnership agreement was executed, the capital account appeared on the books of the partnership as follows: G. F. Kuhlmann, $ 79,538.50; W. F. Harmon, $ 79,251.77; total $ 158,790.27.

On July 1, 1942, the effective date of the partnership agreement, Grover F. Kuhlmann and William F. Harmon assigned in equal parts to Daisie E. Kuhlmann, Gladys M. Harmon, Frederick Kuhlmann, and Jack D. Harmon all their right, title, and interest in a certain account receivable in the sum of $ 44,330.12, due the assignors as of July 1, 1942, from Boeing Airplane Co., Wichita, Kansas. As of the same date Grover F. Kuhlmann and William F. Harmon gave to each of their respective sons and wives the sum of $ 8,351.30 in the form of a personal check in that amount delivered to each of them. Grover F. Kuhlmann and William F. Harmon paid gift taxes on these transfers. The four recipients of these gifts immediately contributed them to the partnership as their capital contributions, so that as of July 1, 1942, the capital account appeared as follows:

	G. F. Kuhlmann	Daisie E.	Frederick
Total		Kuhlmann	Kuhlmann
$ 158,790.27	$ 40,670.83	$ 19,433.83	$ 19,433.83

		Gladys M.	Jack D. Harmon
Total	W. F. Harmon	Harmon
$ 158,790.27	$ 40,384.12	$ 19,433.83	$ 19,433.83

The capital accounts of Gladys M. Harmon and Jack D. Harmon remained the same after July 1, 1942, through 1942 and 1943 except for the credit of profits and the debit of withdrawls, until December 31, 1943, when they were charged with the respective amounts of $ 13,587.41 and $ 20,455.25, representing the transfer from Gladys and Jack to W. F. Harmon and the W. F. Harmon account was credited with the total, $ 34,042.66. These transfers were made for the purpose of compensating W. F. Harmon for payments he made out of his individual account as a result of renegotiation and for income tax, so that the three accounts would be equal. After these transfers the three capital accounts of the Harmon family each showed a balance of $ 23,984.98.

As of January 23, 1943, the six partners entered into an agreement in writing fixing drawing accounts of Grover F. Kuhlmann and William F. Harmon at $ 3,000 each per month, effective January 1, 1943, and further fixing drawing accounts of Jack D. Harmon and Frederick Kuhlmann at $ 500 each per month effective June 1, 1943. The drawing accounts of Grover F. Kuhlmann and William F. Harmon were subsequently adjusted by a written agreement providing for salaries of $ 20,000 each per year, payable monthly from and after January 23, 1943, such salaries to be treated as a business expense before apportionment of profits. On July 1, 1944, the five partners who had survived G. F. Kuhlmann's death entered into an agreement in writing fixing the salaries of the managing partners, W. F. Harmon and Frederick Kuhlmann at $ 20,000 and $ 6,500 per year respectively.

Petitioner had been married to Gladys M. Harmon in 1919. When the business first started in 1931, she did the typing of business correspondence at home. She did this work until 1933 or 1934, when the business could afford part time help. After the formation of the partnership she came down to the office and went through the shop two or three times per week as a routine matter. She did not attempt to do any particular job or to devote full time to the business. She attended all partnership business meetings, which were called when the need arose, sometimes once or twice weekly, sometimes at less frequent intervals.

Jack D. Harmon had attained considerable proficiency as a tool and die maker prior to the formation of the partnership. When he was 10 years old, his father, petitioner herein, bought him a lathe and a complete set of tools. He installed them in the basement of the family home and began to teach Jack the tool and die-making trade. Almost anything that could be done in a big plant could be done with this equipment on a small scale. Jack was taken to the plant as a small boy by his father on Sundays and evenings and trained in the use of shop equipment. He was apt and liked the work. His training was pushed by his father. He was operating a lathe in the plant when he was so small he had to stand on a box to reach his work. Shortly after age 10 he machined and built the major part of a two-cycle miniature gasoline engine of aluminum and steel.

During the summer of 1941 Jack D. Harmon worked full time at the plant in the production shop. The work consisted of milling work, drill press work, and lathe work on aluminum forgings for B-17s under a contract with Boeing. It was skilled work. He operated all the machines on the job under the supervision of checkers from the Boeing plant who checked the job.

During the school year 1941-1942 Jack D. Harmon worked at the plant Saturdays, vacations, and a portion of his evenings. After the close of school in May of 1942 he returned to the plant and began work in the tool and die shop on a full time basis, building jigs, tools, fixtures, mill fixtures, and the general line of tools built in a tool and die shop. He worked a regular shift. He did the same class and character of work as other tool and die workers. He was so engaged at the time of the formation of the partnership on July 1, 1942.

Jack D. Harmon worked full time in the business during July and August of 1942. In September 1942 Jack D. Harmon returned to high school for his senior year. Throughout the school year he worked in the tool and die shop Saturdays, vacation periods, and a portion of his evenings. The plant operated two ten-hour shifts. He worked the day shift during the summer months and on the night shift during the school months except during holidays and vacation periods, when he generally worked the day shift. During the school year he usually worked six or seven hours on the night shift, not every night, but several evenings a week. During this war period the high school made special class arrangements so that students could work in the plants without interference with class work.

On graduation from high school in May of 1943 Jack D. Harmon returned to the plant on a full time basis. He worked full time during June, July, and August of 1943. In addition to his work as a tool and die maker, he sat in on the bidding work and discussed the number of hours estimated to be necessary to build a job, the principal factor in bidding on tool and die work. He made a trip to Kansas City with his father to bid on work.

In the early part of September 1943 Jack D. Harmon had an appendicitis operation and was incapacitated for work for several weeks. He was called into military service on November 23, 1943, before he had returned to work. He served in the Naval Air Corps from that date until July 1, 1946. During that time he acquired the equivalent of seven semesters of college training in the field of mechanical engineering.

On release from service Jack D. Harmon returned immediately to the business on a full time basis. At that time the Harmon Machine Co. had succeeded to the business of the partnership. He is vice president of that corporation. He is a licensed professional engineer and shop superintendent of the Harmon Machine Co. He plans all shop work, outlines the method of machining and manufacturing the work undertaken by the corporation, and prepares the cost estimates and bids on all jobs. He supervises an average of 75 to 85 employees.

The partnership here in question was formed July 1, 1942, with an intent on the part of Jack D. Harmon and of his copartners, in good faith and acting with a business purpose, that he join together with them in the present conduct of the enterprise. Jack D. Harmon was a partner in the operation of the business in 1942, 1943, and 1944.

No such intent existed as to Gladys M. Harmon, either on her part or on the part of her copartners. Gladys M. Harmon was not a partner in the operation of the business in 1942, 1943, and 1944.

In 1938 petitioner purchased a house at 1819 East Waterman Street, Wichita, Kansas, as a home for himself and family, at a cost of $ 5,500. In May 1944 the house was damaged by a severe rain and hail storm, followed by flood. The storm started as a rain storm, followed by a heavy hail which knocked holes in the roof and damaged all roofs in the vicinity. The rain was followed by a flash flood, which flooded the entire area, surrounding petitioner's residence. The water filled the basement and stood above the first floor, soaking up on the papered walls above the baseboard of the first floor.

Holes in the roof caused by the hail required repair. The walls of the first floor required new paper. The first floor of the house had to be sanded and varnished and the baseboards and woodwork reenameled. The water had to be pumped from the basement, the knotty pine walls of the basement recreation room refinished, and the celotex ceiling on the recreation room replaced. The recreation room had to be entirely refinished. Petitioner paid a total of $ 801 for repairs.

Petitioner had only hail insurance coverage and received $ 126.20 in hail insurance proceeds. His insurance did not cover losses due to rain storm and flood. The amount spent for repairs was reasonable and not in excess of the amount necessary to restore the damaged property to its condition prior to the storm and flood. Petitioner claimed a casualty loss on nonbusiness property under section 23 (e) (3) of the code on his 1944 income tax return of $ 674.80, the difference between the amount spent for repairs and the amount of insurance proceeds received. Respondent disallowed the deduction in full for "lack of substantiation." The reasonable market value of the property immediately prior to its damage was $ 10,000. Immediately after the damage the reasonable market value was somewhat less than $ 9,200.

OPINION.

The first issue is whether Gladys M. Harmon, petitioner's wife, and Jack D. Harmon, petitioner's son, should be recognized for income tax purposes as his partners for the taxable years 1943 and 1944.

We have found as a fact that the partnership here in question was formed July 1, 1942, with no intent on the part of Gladys M. Harmon or of her alleged copartners, in good faith and acting with a business purpose, that she join together with them in the present conduct of the enterprise, and that Gladys M. Harmon was not a partner in the operation of the business in 1942, 1943, and 1944. We have found that such an intent did exist as to Jack D. Harmon, both on his part and on the part of his copartners and that Jack D. Harmon was a partner in the operation of the business in 1942, 1943, and 1944.

In so finding we have borrowed from the language of the Supreme Court in the recent case of Commissioner v. Culbertson, 337 U.S. 733">337 U.S. 733, and we have endeavored to apply the principles set forth in that case. As was said therein (p. 1214):

* * * The question is whether, considering all the facts -- the agreement, the conduct of the parties in execution of its provisions, their statements, the testimony of disinterested persons, the relationship of the parties, their respective abilities and capital contributions, the actual control of income and the purpose for which it is used, and any other facts throwing light on their true intent -- the parties in good faith and acting with a business purpose intended to join together in the present conduct of the enterprise. * * *

It is quite clear that there was nothing in the conduct of Gladys M. Harmon after the partnership agreement was signed which gave evidence of any intention on her part to be a bona fide partner in the enterprise. She did not participate in the daily business of the partnership. She merely made cursory visits to the plant two or three times weekly. To be sure, she attended partnership meetings. But in the absence of any other participation by her in the partnership business and in the face of the provision of the partnership agreement that the management and control of the affairs of the partnership were to be vested in petitioner and in Grover Kuhlmann, this mere attendance of Gladys M. Harmon at partnership meetings does not show a genuine intention either on her part or on the part of her alleged partners that she be a partner.

As to the abilities of Gladys M. Harmon, the only evidence we have is that she typed the office correspondence at home in the first year or two of the business, in the early 1930's. The ability to perform this service at a period so remote from the date of the formation of the partnership and from the years at issue here is certainly not evidentiary as to an intent on the part of Gladys M. Harmon at the time of the formation of the partnership to be a partner in the "present conduct of the enterprise." ( Commissioner v. Culbertson, supra.)

As for the purported capital contribution of Gladys M. Harmon to the partnership, it is true that the entire amount -- consisting of cash and interest in an account receivable -- had been received by her as a gift from her husband on the day the partnership was formed and that she contributed it to the partnership on that same day. This circumstance alone would not prevent her from being a partner, for, as Commissioner v. Culbertson, supra, points out (p. 1217):

* * * If the donee of property who then invests it in the family partnership exercises dominion over that property -- and through that control influences the conduct of the partnership and the disposition of its income -- he may well be a true partner * * *. In the Tower and Lusthaus cases we distinguished between active participation in the affairs of the business by a donee of a share in the partnership on the one hand and his passive acquiescence to the will of the donor on the other.

But, as we have already pointed out, there is nothing to indicate active participation in the affairs of the business by Gladys M. Harmon or a sharing on her part in the management and control. All the indications are of passive acquiescence on her part to the will of petitioner in the running of the business. In these circumstances we can only say that her purported capital contribution was, again in the language of the Culbertson case, "mere camouflage."

We must accordingly hold that respondent did not err in including in petitioner's gross income for 1942, 1943, and 1944 the distributive share of income of the partnership Kuhlmann & Harmon Machine Tool Co. attributable to the alleged partnership interest of Gladys M. Harmon.

The situation is different as to Jack D. Harmon, the son of petitioner. From the time of the formation of the partnership on July 1, 1942, until he was incapacitated by an operation in September 1943, shortly before his entry into the military service, Jack D. Harmon worked steadily in the plant. He worked a regular shift during the summer months of those two years, and about six or seven hours nightly several nights a week during the school year. He had been trained in this work since he was 10, his training was pushed by his father, and he showed considerable ability in the work. In spite of his youth, there is no doubt that Jack D. Harmon made a valuable contribution to the partnership by his labors in the shop, the heart of the enterprise. Moreover, in addition to his work as a tool and die maker, he also sat in on the bidding work and he attended the partnership meetings.

To be sure, the partnership agreement provided, as already stated, that the management and control of the affairs of the partnership were to be vested in petitioner and in Grover F. Kuhlmann. But, indicative of the greater responsibility which was placed in Jack D. Harmon than in Gladys M. Harmon, the agreement also contained the provision that upon the death or inability of petitioner to act as managing partner, such managerial authority would pass to Jack D. Harmon. Moreover, it is clear that Jack D. Harmon, through his daily work at the plant, was far more able to make a useful contribution at the partnership meetings than was Gladys M. Harmon, who was only an occasional visitor at the plant. Though he was only 16, he had a thorough knowledge of shop operations. Of course, his words could not have carried as much weight as those of the older, more experienced men, particularly the two fathers, in the partnership. But that is often the case where a younger man is in partnership with an older one. That it is the case does not prevent the younger man from being a partner. It is quite clear, as we have found, that both Jack D. Harmon and his copartners intended that he join together with them in the "present conduct of the enterprise," in the language of Commissioner v. Culbertson, supra, and that he was truly a partner with them in the taxable years here in question.

Jack D. Harmon was unable to perform services for the partnership during 1944 because of his induction into the Naval Air Corps at the close of 1943. However, having acquired the status of a partner, he was not divested of it during 1944 by his entrance into the military service. In fact he used his time during military service to the greatest possible advantage of the partnership by taking special training in mechanical engineering and acquiring seven semesters of college credit in this field.

The capital contribution of Jack D. Harmon to the partnership was like that of Gladys M. Harmon in that it also was received by him as a gift from petitioner on the day the partnership was formed and was contributed by him to the partnership on that same day. However, his "substantial contribution to the control and management of the business" ( Commissioner v. Tower, 327 U.S. 280">327 U.S. 280) adequately supports our determination that he intended to be and was a bona fide partner for tax purposes with petitioner. ( Commissioner v. Culbertson, supra.) Therefore, we must hold that respondent erred in including in petitioner's gross income for 1943 and 1944 the distributive share of Jack D. Harmon in the income of the partnership.

The second issue is whether petitioner is entitled to deduct in 1944 as a casualty loss under section 23 (e) (3) of the Internal Revenue Code^{*107 the sum of $ 674.80 as a result of damage to his personal residence in 1944 from a hail and rain storm followed by flood. Respondent does not dispute the fact that the house was damaged by casualty. Nor does he dispute the fact that petitioner paid $ 801 for repairs and collected $ 126.20 insurance. But he does contend that petitioner is not entitled to charge off as a loss the difference of $ 674.80.}

Both petitioner and respondent agree that the measure of a casualty loss on nonbusiness property under section 23 (e) (3) of the code is the difference between the fair market value of the property immediately before and after the casualty, but not in excess of the adjusted basis of the property, and diminished by any insurance recovered. Helvering v. Owens, 305 U.S. 468">305 U.S. 468. It is respondent's position that petitioner has failed to establish the fair market value of the property both immediately before and immediately after the storm, and that therefore his claim should be disallowed.

The petitioner testified that his property was of the value of approximately $ 10,000 just before the casualty. Such testimony is admissible from the owner of property even though he have no expert knowledge in real estate values. United Statesv. 3969.59 Acres of Land, 56 Fed. Supp. 831; Lovejoy v. Darien, 41 Atl. (2d) 98. We have no testimony as to the value of the property immediately after the casualty, but there is very clear evidence that the cost of the necessary repairs to the property was $ 802.21; that such repairs did not care for all of the damage; that the amount paid for repairs was not excessive; and that the repairs did not increase the value of the property. Under such circumstances, the cost of repairs has been accepted as evidence of the loss of value of the damaged property as a result of a casualty. Murphy v. Hawthorne, 117 Ore. 319; 244 Pac. 79.

Therefore, we hold that respondent erred in disallowing the deduction of $ 674.80 claimed by petitioner on his 1944 return as a casualty loss to nonbusiness property under section 23 (e) (3) of the code.

Decision will be entered under Rule 50.

BLACK

Black, J., dissenting: I am unable to agree to the holding of the majority that Gladys M. Harmon was not a member of the partnership of Kuhlmann & Harmon Machine Shop, the name of which was later changed to Kuhlmann & Harmon Machine Tool Co. This holding of the majority is based upon an ultimate finding of fact which reads as follows:

The partnership here in question was formed July 1, 1942, with an intent on the part of Jack D. Harmon and his copartners, in good faith and acting with a business purpose, that he join together with them in the present conduct of the enterprise. Jack D. Harmon was a partner in the operation of the business in 1942, 1943, and 1944.

No such intent existed as to Gladys M. Harmon, either on her part or on the part of her copartners. Gladys M. Harmon was not a partner in the operation of the business in 1942, 1943, and 1944.

I agree with the conclusion in the above finding that Jack D. Harmon was a partner, but I do not agree that Gladys M. Harmon was not a partner. How, in the face of the findings of fact which preceded it, the majority could make a finding that there was no intent that Gladys should be a partner is more than I can see. It seems to me that it is a finding which is wholly unjustified by the facts. To use the language of the United States Court of Appeals for the District of Columbia in the recent case of Wenig v. Commissioner, decided July 18, 1949, reversing a memorandum opinion of the Tax Court:

We neither question nor depart from the findings of basic facts as made by the Tax Court. But we think its conclusions are not within the realm of legitimate inference from the record as a whole or from the specific facts found. * * *

Such is my view in the instant case. I do not comprehend the logic of the finding that Mrs. Harmon was not a member of the partnership. She signed the very same partnership agreements that the other members signed. When the business was finally incorporated on or about September 30, 1945, she received her portion of the corporate shares, which was 166, thus clearly indicating that her interest was recognized from the time of the first partnership in 1942 until the business was incorporated in 1945. It is true that Mrs. Harmon did not contribute any capital which "originated with her" as that phrase was used by some prior to the Supreme Court's decision in Commissioner v. Culbertson, 337 U.S. 733">337 U.S. 733. But the Supreme Court made it clear in the Culbertson case that the contribution of so-called "original capital" is not necessary in order for one to become a member of a partnership. On that point, the Supreme Court said:

The Tax Court's isolation of "original capital" as an essential of membership in a family partnership also indicates an erroneous reading of the Tower opinion. We did not say that the donee of an intra-family gift could never become a partner through investment of the capital in the family partnership, any more than we said that all family trusts are invalid for tax purposes in Helvering v. Clifford, supra. The facts may indicate on the contrary that the amount thus contributed and the income therefrom should be considered the property of the donee for tax, as well as general law purposes. * * *

In the instant case the findings of fact of the majority contain the following paragraph:

On July 1, 1942, the effective date of the partnership agreement, Grover F. Kuhlmann and William F. Harmon assigned in equal parts to Daisie E. Kuhlmann, Gladys M. Harmon, Frederick Kuhlmann and Jack D. Harmon all their right, title and interest in a certain account receivable in the sum of $ 44,330.12, due the assignors as of July 1, 1942, from Boeing Airplane Company, Wichita, Kansas. As of the same date Grover F. Kuhlmann and William F. Harmon gave to each of their respective sons and wives the sum of $ 8,351.30 in the form of a personal check in that amount delivered to each of them. Grover F. Kuhlmann and William F. Harmon paid gift taxes on these transfers. The four recipients of these gifts immediately contributed them to the partnership as their capital contributions, so that as of July 1, 1942, the capital account appeared as follows:

Total	G. F. Kuhlmann	Daisie E.	Frederick
		Kuhlmann	Kuhlmann
$ 158,790.27	$ 40,670.83	$ 19,433.83	$ 19,433.83

		Gladys M.	Jack D. Harmon
Total	W. F. Harmon	Harmon
$ 158,790.27	$ 40,384.12	$ 19,433.83	$ 19,433.83

If the foregoing facts, taken in connection with other undisputed facts in the record, do not make Gladys a member of the partnership, then I fail to understand the meaning of the Supreme Court's decision in the Culberston case. It is my view that the facts of the instant case clearly show that it was the intention of all the parties who signed the partnership agreement that Gladys M. Harmon should become a member of the partnership, that thereafter she was recognized as a partner in the business and did, in fact, become a member, and there is no reason to hold that she was not a partner if the Supreme Court's decision in the Culbertson case is to be given effect.

I, therefore, dissent from the majority opinion wherein it holds that Mrs. Harmon was not a partner.

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Footnotes

• 1. SEC. 23. DEDUCTIONS FROM GROSS INCOME.

  In computing net income there shall be allowed as deductions:

  * * * *

  (e) Losses by Individuals. -- In the case of an individual, losses sustained during the taxable year and not compensated for by insurance or otherwise --

  * * * *

  (3) of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from theft. * * *↩