Kelley v. Commissioner

THOMAS F. KELLEY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Kelley v. Commissioner

Docket No. 7036.

United States Board of Tax Appeals

9 B.T.A. 834; 1927 BTA LEXIS 2502;

December 23, 1927, Promulgated

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Evidence held to establish that certain moneys invested in a coal business were the earnings of husband and wife, as partners. Such investment was their joint property and the income therefrom is not taxable in whole to the husband where separate returns are filed.

George D. Wick, Esq., for the petitioner.

P. M. Clark, Esq., and C. C. Holmes, Esq., for the respondent.

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PHILLIPS

This proceeding is instituted for the purpose of securing a redetermination by the Board of the determination by the Commissioner of a deficiency in income tax for the year 1920 in the sum of $1,898.99.

FINDINGS OF FACT.

Petitioner is a resident of Snow Shoe, Pa. In 1913, a job-printing business was bought by petitioner and his wife at a cost of about $400. Petitioner paid $225 or $250 and his wife paid $150 or $175. Both husband and wife were active in the business. The husband set up the type and the wife did the press work. There was an oral agreement between them that each was to have an equal interest in the business. After they had operated the printing business for about two years, they purchased a grocery store with the accumulated profits from the printing business, which they continued to operate. Petitioner and his wife worked in both the grocery store and printing shop.

In 1917, petitioner's brother, John P. Kelley, asked petitioner and his wife to loan him $6,000 which had been saved by them from the operation of their business. The $6,000 was loaned to John P. Kelley and was repaid by him in 1919 by a transfer of a one-fourth interest in the Lucas Coal Co.

The petitioner and his wife filed separate returns and each reported one-half of the income from their one-fourth interest in the Lucas Coal Co. In computing the deficiency the Commissioner included in petitioner's income the entire one-fourth distributive share of the net profits of the Lucas Coal Co. for 1920, said one-fourth share amounting to $30,863.58.

OPINION.

PHILLIPS: The sole question here involved for determination is whether the petitioner was the owner of a one-fourth interest in the Lucas Coal Co., a partnership, or whether he owned a one-eighth interest, as contended by petitioner.

In Pennsylvania, where her inability to contract with her husband has been removed by statute, a married woman may enter into partnership with her husband. . From the evidence we are of the opinion that the grocery store and printing shop were their joint enterprises. Each spouse invested capital in the initial undertaking. There is no evidence that the wife advanced her money to petitioner as a loan or as a gift. Both contributed services to both businesses. The evidence is that petitioner and his wife agreed to work as partners. The profits made from their joint enterprises went towards the acquisition of a one-fourth interest in the Lucas Coal Co., which became their joint property. One-half of the earnings from this interest in the Coal Company belonged to petitioner's wife. We conclude that the Commissioner erred in including more than one-eighth of the earnings of that company in petitioner's income.

It was alleged in the petition and admitted in the answer that the Commissioner erroneously excluded from income of the petitioner 7 1/7 per cent of the net profits of the Kelley Brothers Coal Co. for 1920. This error should be corrected in the recomputation.

Dicision will be entered accordingly on 15 days' notice, under Rule 50.

Considered by MARQUETTE, MILLIKEN, and VAN FOSSAN.