1. Findings of fact of the Board of Tax Appeals, when not
challenged as unsupported by evidence, are conclusive on review. P.
285 U. S.
2. A husband who was a member of a partnership agreed with his
wife that she should be an "equal partner" with him in his interest
in the company, and should share equally with him the profits and
(1) The agreement did not make the wife a member of the
partnership without the consent of the other partners, but
amounted, at most, to an equitable assignment of one-half of what
her husband should receive from the partnership, she in turn
agreeing to make good to him one-half of the losses he might
sustain by reason of his membership in the firm. P. 285 U.S. 139
Page 285 U. S. 137
(2) The husband's distributive share of the net income of the
partnership was taxable to him individually under the Revenue Acts
of 1918 and 1921. Lucas v. Earl, 281 U.
. P. 285 U. S.
(3) The wife's interest being derived from and dependent upon
the husband's distributive share, taxation of the whole as his
income is not unconstitutional. Hoeper v. Tax Commission,
284 U. S. 206
distinguished. P. 285 U. S.
51 F.2d 7 reversed.
19 B.T.A. 621 affirmed.
Certiorari, 284 U.S. 608, to review a judgment reversing an
order of the Board of Tax Appeals.
Page 285 U. S. 138
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
The respondent sought a redetermination of deficiencies in
income taxes for the years 1920 to 1923. The question related to
the income earned on respondent's share in a partnership, known as
the Eagle Laundry Company, doing business in Cleveland, Ohio. By
virtue of an agreement made with his wife, respondent insisted that
she was "a full equal partner with him in his interest in the
partnership," and that each should return and pay tax upon one-half
of the income attributable to that interest. The Commissioner
determined that respondent was taxable upon the whole of the income
earned on his share in the partnership, and the Board of Tax
Appeals affirmed that decision. 19 B.T.A. 621. The Circuit Court of
Appeals reversed the order of the Board, 51 F.2d 7, and this Court
granted a writ of certiorari.
The question arises under § 218(a) of the Revenue Acts of 1918
and 1921 (40 Stat. 1070; 42 Stat. 245) which provided:
"That individuals carrying on business in partnership shall be
liable for income tax only in their individual capacity. There
shall be included in computing the net income of each partner his
distributive share, whether distributed or not, of the net income
of the partnership for the taxable year. . . ."
There is no challenge to the findings of fact made by the Board
of Tax Appeals as being unsupported by evidence, and they must be
treated as conclusive. Phillips
Page 285 U. S. 139
Commissioner, 283 U. S. 580
283 U. S.
-600. Upon these findings, which are set forth in the
margin, [Footnote 1
] it cannot
be maintained that the agreement between the respondent and his
wife made her a member of the partnership. That result could not be
achieved without the consent of the
Page 285 U. S. 140
other partner or partners, [Footnote 2
] and there is no finding of such consent. The
mere communication of the fact that the agreement had been made was
not enough. It does not appear that there was any attempt to change
the ownership of the partnership assets or the control of the
partnership enterprise. It was the husband's interest that was the
subject of the agreement. [Footnote
] His wife was to be an "equal partner with him" in that
interest. The business of the firm was continued as before.
Complying with the statute, [Footnote 4
] the partnership returns, verified by the
husband for the years in question, stated that the names of the
partners were "C.P. Leininger and M. T. Monaghan, each owning
one-half." 19 B.T.A. at 623. The "Leininger interest" remained in
the name of the respondent on the partnership books. His wife took
no part in the management of the business, and made no contribution
to its capital. The profits received from the partnership went to
the respondent, no checks on the firm being drawn to the wife. Upon
the facts as found, the agreement with Mrs. Leininger cannot be
Page 285 U. S. 141
have amounted to more than an equitable assignment of one-half
of what her husband should receive from the partnership, she in
turn agreeing to make good to him one-half of the losses he might
sustain by reason of his membership in the firm.
The respondent urges that the assignment to his wife was of
one-half of the "corpus" of his interest, and that this "corpus"
produced the income in question. The characterization does not aid
the contention. That which produced the income was not Mr.
Leininger's individual interest in the firm, but the firm
enterprise itself -- that is, the capital of the firm and the labor
and skill of its members employed in combination through the
partnership relation in the conduct of the partnership business.
There was no transfer of the corpus of the partnership property to
a new firm, with a consequent readjustment of rights in that
property and management. If it be assumed that Mrs. Leininger
became the beneficial owner of one-half of the income which her
husband received from the firm enterprise, it is still true that
he, and not she, was the member of the firm, and that she had only
a derivative interest.
The statute dealt explicitly with the liability of partners as
such. Applying to this case, the statute provided that there should
be included in computing the net income of Leininger his
distributive share of the net income of the partnership. That
distributive share, as he himself stated in his return on behalf of
the partnership, was one-half. In view of the clear provision of
the statute, it cannot be said that Leininger was required to pay
tax upon only a part of this distributive share because of the
assignment to his wife. The case of Lucas v. Earl,
281 U. S. 111
analogous. There, the husband made a contract with his wife by
which his salary and fees were to be "received, held, taken and
owned" by them as joint tenants. The Court recognized that a
Page 285 U. S. 142
"to the effect that the statute seeks to tax only income
beneficially received, and that, taking the question more
technically, the salary and fees became the joint property of Earl
and his wife on the very first instant on which they were
But the case was deemed to turn on the import and reasonable
construction of the taxing act. "There is no doubt" said the
"that the statute could tax salaries to those who earned them,
and provide that the tax could not be escaped by anticipatory
arrangements and contracts, however skillfully devised to prevent
the salary, when paid, from vesting even for a second in the man
who earned it. That seems to us the import of the statute before
us, and we think that no distinction can be taken according to the
motives leading to the arrangement by which the fruits are
attributed to a different tree from that on which they grew."
pp. 281 U. S.
-115. This ruling was not disturbed by Poe v.
Seaborn, 282 U. S. 101
which pointed out the distinction. Id.,
p. 282 U. S.
We find no reason to doubt the validity of the tax. The
Congress, having the authority to tax the net income of
partnerships, could impose the liability upon the partnership
directly, as it did under the Revenue Act of 1917 (40 Stat. 300,
303), or upon the "individuals carrying on business in
partnership," as in the statutes here involved. The Congress could
thus tax the distributive share of each partner as such, as in
Lucas v. Earl, supra,
it taxed the salary and fees of the
person who earned them. A different situation was presented in
Hoeper v. Tax Commission of Wisconsin, 284 U.
, where the question related to the earnings of
the wife and the income which she received from her separate
estate. For that which thus belonged to her, the Court held that
her husband could not be taxed. In the instant case, the right of
the wife was derived from the agreement with her husband, and
Page 285 U. S. 143
rested upon the distributive share which he had, and continued
to have, as a member of the partnership.
The decree of the Circuit Court of Appeals is reversed, and the
order of the Board of Tax Appeals affirmed.
Circuit Court of Appeals reversed.
Board of Tax Appeals affirmed.
The findings of the Board of Tax Appeals are as follows:
"In 1898, a partnership known as Eagle Laundry Co. was organized
by petitioner and one M. G. Monaghan, each owning a one-half
interest. In 1904, Monaghan died and his wife, Mary T. Monaghan,
succeeded to his interest in the firm and on the books of the
company. In 1920, Mary T. Monaghan transferred by bill of sale her
interest to her children. The entire Monaghan interest was
thereafter carried on the books in the name of Marcus A. Monaghan.
The partnership returns for the years 1921, 1922, and 1923 filed by
the Eagle Laundry Co. disclose the partners to be petitioner and M.
T. Monaghan, and the income to be distributable one-half to each.
Each of the three children of Mary T. Monaghan, however, returned a
proportionate part of the income for taxation."
"During the latter part of 1920, a written agreement
confirmatory of a preexisting oral agreement, was entered into
between petitioner and his wife wherein its was acknowledged that
petitioner's wife had been and was a full equal partner with him in
the interest in the Eagle Laundry Co., entitled to share equally in
the profits and obligated to bear equally any losses. The contract
was effective from the beginning of 1920. The written agreement was
not produced, probably having been lost in a fire at the plant. The
fact of this transfer was communicated to Marcus A. Monaghan, who
represented the owners of the other one-half interest in the Eagle
Laundry Co. The Leininger interest always stood in the name of C.P.
Leininger on the partnership books, but Mrs. C.P. Leininger
returned one-half of the profits of the Leininger interest for
"Petitioner and his wife maintained, prior to and throughout the
period here involved, a joint bank account on which each could draw
unrestrictedly. The profits received from the partnership were
deposited in this account by Leininger, no checks on the
partnership being drawn to the wife. After the execution of the
agreement, the wife also maintained a small personal account in
which were deposited checks received on account of earnings on her
personal investments. Mrs. Leininger took no part in the management
of the business, and made no contribution to its capital. There was
never any formal accounting between petitioner and his wife."
Channel v. Fassitt,
16 Ohio, 166; Pagel v.
6 Ohio App. 199, 207, 208; McNamara v.
3 Ohio Fed.Dec. 543, 546, Fed.Cas. No. 8910, 1 Bond
302; Fourth Nat. Bank v. New
Orleans & Carrollton Railroad,
11 Wall. 624,
78 U. S.
-629; Burnett v. Snyder,
76 N.Y. 344, 349;
Cohan v. Commissioner,
39 F.2d 540, 542.
See Nixon v. Nash,
12 Ohio St. 647, 650; Fourth
Nat. Bank v. Carrollton Railroad, supra; Case v. Beauregard,
99 U. S. 119
99 U. S. 124
Burnett v. Snyder, supra; Rockafellow v. Miller,
507, 510, 14 N.E. 433; Mitchel v. Bowers,
15 F.2d 287,
288; Cohan v. Commissioner, supra; Harris v. Commissioner,
39 F.2d 546, 547.
Section 224 of the Revenue Acts of 1918 and 1921 (40 Stat. 1074,
42 Stat. 250) provided:
"That every partnership shall make a return for each taxable
year stating specifically the items of its gross income and the
deductions allowed by this title, and shall include in the return
the names and addresses of the individuals who would be entitled to
share in the net income if distributed and the amount of the
distributive share of each individual. The return shall be sworn to
by any one of the partners."