Before EVANS, and MAJOR, Circuit Judges, and BRIGGLE, District Judge.
The plaintiff brought suit to recover judgment for $111,493.02 and interest thereon, which sum had been paid by him as Federal income taxes for the years 1939, 1940, and 1941 and which he asserts were improperly assessed against him.
At the conclusion of the trial the Court made findings of fact and conclusions of law in favor of the defendant. Upon a judgment entered in accordance with them, the plaintiff prosecutes this appeal.
There is here involved a factual controversy.Plaintiff insists that the evidence conclusively establishes the existence of a valid partnership made up of his wife and three children and himself, and furnishes no support for a finding that such partnership did not justify tax returns upon the basis of five equal divisions of the profits of the business.
Briefly, the facts: Plaintiff from 1919 until January, 1940, was a dealer in scrap iron at Fort Wayne, Indiana. On the latter date he entered into a written agreement with his wife and three daughters whereby he sold a one-fifth interest in his business to each of them and in writing recognized them as co-partners.
The agreement recited that each was to pay him $6,414.46 for her one-fifth interest and each executed to him her note therefor. The wife and two of his children each paid $200 and another daughter paid $500 into the partnership. Two of his daughters were, respectively, twelve and fourteen years of age. After the execution of this agreement, plaintiff conducted and managed the business as before.
The notes were satisfied when the partners indorsed taxpayer's checks issued to them in payment of the distributive shares of the profits of the business.
During the years 1940 and 1941 the capital employed by the company was $32,073.30. The net profit for 1940 was $60,320.35, and the net profit for 1941 was $153,972.15.
Prior to the execution of this agreement taxpayer maintained a bank account at the Lincoln National Bank at Fort Wayne, Indiana, subject only to his check or to that of his appointee. It continued after the execution of the agreement, under the same style and the bank received no notice of any change in relation in the partnership. Plaintiff continued in sole control of the management and conduct of the business.
Entries were made upon the company's books to show the distribution of profits to plaintiff and his wife and children. Checks for profits were drawn to the wife and children and were deposited in the bank but in each instance in the name of the individual "by Samuel Appel." He had sole control over these accounts. He withdrew the money from the business account to pay the deficiency income taxes involved in this suit. He charged the same to profits accruing on the books to himself, his wife and his daughters. He gave his note to each of them for $20,000.
On April 1, 1942, a supplementary agreement was executed between plaintiff, his wife and three daughters extending the term of the partnership. It provided for its termination by the plaintiff at any time upon his giving his partners a thirty days' written notice of his intention.
For the tax years 1940 and 1941, plaintiff reported one-fifth of the income of the business as his income. The Commissioner assessed an income tax against plaintiff for all the income of said business. Plaintiff then paid the deficiency and filed timely claims for refund which were denied.
The District Court found that the aforesaid agreement of plaintiff with his wife and children effected no change in the economic status of plaintiff with respect to the business and concluded that the income from the ...