TAXATION-INCOME TAX-VALIDITY OF FAMILY PARTNERSHIP WHERE PARTNER'S SERVICES ARE TO BE PERFORMED IN FUTURE

Authors

Daniel W. Reddin, III S.Ed., University of Michigan Law SchoolFollow

Abstract

In 1939, petitioner sold certain ranch properties and half of his herd of blooded cattle to his four sons, accepting their notes in return. A firm consisting of petitioner and his sons was then formed, and a bank account was opened upon which any of the members of the firm could draw. Two of the sons were minors, but all were ranch-reared and experienced in cattle raising. The sons paid part of the notes with their shares in the proceeds from firm sales, and petitioner forgave the rest. Military duty disrupted the plan by which all the sons were to work on the ranch, and at the time of the hearing only two had rendered services in the partnership enterprise. The firm filed a partnership return for 1940. The Commissioner determined a deficiency against the petitioner for that year, attributing all the income of the firm to him. The Tax Court held that the firm was not a partnership for tax purposes, since the capital contributed did not "originate" with the sons and the services rendered by them were not "vital," in the sense required by the Tower and Lusthaus decisions. On appeal, held, reversed. Where it is contemplated that a family member will contribute capital or "vital" services, they may be forthcoming either presently or at some future time. Culbertson v. Commissioner, (C.C.A. 5th, 1948) 168 F. (2d) 979·

Recommended Citation

Daniel W. Reddin, III S.Ed., TAXATION-INCOME TAX-VALIDITY OF FAMILY PARTNERSHIP WHERE PARTNER'S SERVICES ARE TO BE PERFORMED IN FUTURE, 47 Mich. L. Rev. 595 (1949).
Available at: https://repository.law.umich.edu/mlr/vol47/iss4/21