JOINT ADVENTURE - RELATIONSHIP DISTINGUISHED FROM THAT OF EMPLOYER-EMPLOYEE

Authors

Wayne E. Babler, University of Michigan Law SchoolFollow

Abstract

The taxpayer had an arrangement whereby he planned to furnish the Russian Government with shrapnel shells by farming out the various stages of manufacture to several different companies. A Canadian corporation, also having a contract for furnishing shrapnel, made arrangements with the taxpayer whereby the latter cancelled his contract and went in with the Canadian corporation. Under this arrangement the taxpayer was to furnish his manufacturing arrangement, plans, tools, gauges, drawings, etc., and to get fifteen per cent of the profits on the present contract and five per cent of the profits on future contracts of a similar nature. An American corporation was formed to put the plan in effect, the taxpayer being a director and general manager. The principal contract was completed and the goods delivered. Shrapnel on another contract were completed but they exploded before delivery. After much litigation the Canadian court, King's Bench Division, found the Canadian corporation liable to the taxpayer on the first contract, and that it could not set off the loss suffered on the second contract. In an appeal from a .finding by the tax board that the taxpayer's profits were "income" within the taxing statute, it was held that the relationship was that of joint adventure, and not that of employer-employee, as contended, and therefore the profits were assessable at the lower figure as "net capital gain," instead of "income." First Mechanics National Bank of Trenton v. Commissioner of Internal Revenue, (C. C. A. 3rd, 1937) 91 F. (2d) 275.

Recommended Citation

Wayne E. Babler, JOINT ADVENTURE - RELATIONSHIP DISTINGUISHED FROM THAT OF EMPLOYER-EMPLOYEE, 36 Mich. L. Rev. 664 (1938).
Available at: https://repository.law.umich.edu/mlr/vol36/iss4/14