Tuthill v. Commissioner , 22 B.T.A. 887 ( 1931 )

H. S. TUTHILL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Tuthill v. Commissioner

Docket No. 42778.

United States Board of Tax Appeals

22 B.T.A. 887; 1931 BTA LEXIS 2046;

March 24, 1931, Promulgated

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Petitioner and his wife were joint venturers and the respondent erred in including the wife's share of profits in petitioner's income.

Robert T. Jacob, Esq., for the petitioner.

L. A. Luce, Esq., for the respondent.

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ARUNDELL

The respondent determined deficiencies in income taxes for the years and in the amounts as follows:

Year	Amount
1920	$1,334.77
1921	314.08
1922	575.31
1923	1,444.71

Petitioner alleges that the respondent erred in including in his income amounts which were the income of his wife.

FINDINGS OF FACT.

Petitioner and his wife, Gertrude Whiting Tuthill, were married in 1896. From that time until 1908 Mrs. Tuthill accumulated about $3,000, this sum being made up of gifts from her parents, gifts from her husband, and savings from her household allowance. In 1908 petitioner desired to join with E. M. Welch, C. R. Welch, and W. M. Welch in the purchase of the undertaking business of F. S. Dunning, Inc., which was for sale for the sum of $12,000. Petitioner's share of the purchase price was to be $3,000. He did not have sufficient cash to meet his share of the cost and asked his wife for a loan from her savings. She refused to make the loan, but offered to invest in the business on her own account and on an equal basis with her husband, i.e., to share in the profits and losses alike. She was somewhat familiar with the Dunning business, she knew the then owners, and felt that the project offered an opportunity to make a profit. The business was purchased, as contemplated, for $12,000, of which petitioner and his wife paid in $1,500 each. Welch, who managed the business, was advised that Mrs. Tuthill had purchased an equal share with petitioner.

Some time after 1908 the Dunning business was sold at a profit and the proceeds divided among the original investors. Thereafter, and through the taxable years, E. M. Welch purchased, managed, and sold a number of properties under arrangements the same as those under which the Dunning undertaking business had been purchased in 1908 and later sold. The agreement under which the parties did business was never reduced to writing. When E. M. Welch found a business that he wanted to buy he called upon petitioner and C.R. and W. M. Welch to contribute their shares, and when he sold a business he either distributed the proceeds or used the money to reinvest in other ventures. All the properties were purchased in the name of E. M. Welch, or Welch and Son, under which he sometimes operated.

The income of the Welch operations was from operating earnings of the business and profits from sales of the businesses. When distributions were made by E. M. Welch, checks were issued to petitioner for the full amount of his interest as well as that of his wife, but the wife's portion was so paid under her full authority and with her knowledge. Petitioner's wife was away from her home in Portland on account of the illness of her mother and herself and she considered it important that her money be so administered that petitioner would have it ready for immediate payment in case of a call from E. M. Welch.

For the years 1920, 1921, 1922, and 1923 petitioner and his wife filed separate returns. The respondent added to petitioner's income the amounts reported by Mrs. Tuthill as income from the Welch ventures.

OPINION.

ARUNDELL: The evidence discloses that E. M. Welch was the head of a group which since 1908 and through the taxable years has been engaged in the purchase, sale and operation of a number of undertaking establishments. Whenever Welch discovered what he regarded as a good purchase he would call on those interested with him to pay their proportionate part of the purchase price and the business would be acquired. The business would then be operated until the opportunity offered to sell to advantage. Each acquisition was a separate transaction, but all were conducted under substantially the same terms and arrangements between the parties.

The first purchase made by Welch was of the Dunning undertaking business in 1908. Petitioner and his wife each contributed $1,500 of their own money in the venture and on the sale of the business each received a proportionate share of the profits, amounting to approximately $2,000 each. The money was deposited in a joint bank account of petitioner and his wife and while the management of the fund was undoubtedly largely left to the discretion of petitioner, Mrs. Tuthill was consulted about many of the deals and was familiar with what was going on. The testimony is positive that she had an equal share in each of these ventures with her husband and the course of conduct between petitioner and his wife has been entirely consistent with that testimony.

In our opinion petitioner and his wife were joint venturers in the several Welch enterprises, and it was proper for the wife to report one-half of the income arising from their investment. ; .

Decision will be entered under Rule 50.