TAXATION--INCOME TAX--FAMILY PARTNERSHIPS--APPLICATION OF THE TOWER-LUSTHAUS DOCTRINE

Authors

Earl R. Boonstra S.Ed., University of Michigan Law SchoolFollow

Abstract

Respondent and his four sons formed a partnership in 1939. The sons contributed cattle and property purchased from respondent who accepted their notes in return. Subsequently, part of the notes were forgiven and part paid from shares of the firm proceeds. A firm bank account was opened on which all members could draw. It was planned that all the sons would render substantial services to the partnership. However, the plan was disrupted when the two eldest were called to military duty, and the two minor sons continued their education. A partnership return was filed for 1940. The Commissioner determined a deficiency against the respondent, which the Tax Court upheld on authority of the Tower and Lusthaus cases. The circuit court of appeals reversed, holding that the vital services required by the Tower Lusthaus doctrine could be contributed presently or at a contemplated future time. On appeal, held, reversed. The intention to contribute capital or services sometime in the future is insufficient to establish a partnership for tax purposes. In addition, the Tax Court having erroneously applied an objective standard test not justified by the Tower and Lusthaus decisions, the case is remanded to it for a determination in accordance with this opinion. Commissioner v. Culbertson, 335 U.S. 883, 69 S.Ct. 1210 (1949).

Recommended Citation

Earl R. Boonstra S.Ed., TAXATION--INCOME TAX--FAMILY PARTNERSHIPS--APPLICATION OF THE TOWER-LUSTHAUS DOCTRINE, 48 Mich. L. Rev. 238 (1949).
Available at: https://repository.law.umich.edu/mlr/vol48/iss2/15