Stanton
v.
Comm'r of Internal Revenue

Tax Court of the United States.Feb 14, 1950
14 T.C. 217 (U.S.T.C. 1950)
14 T.C. 217T.C.

Docket Nos. 18215 18246.

1950-02-14

LYMAN A. STANTON AND BERTHA W. STANTON, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.ESTATE OF LOUIS F. SPRINGER, DECEASED, MARY E. SPRINGER, EXECUTRIX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

L. P. Mattingly, Esq., and Leo W. Crown, Esq., for the petitioners. William Schwerdtfeger, Esq., for the respondent.


A and B were members of a partnership established in 1943 to engage in the business of handling coarse flour on a brokerage basis and the purchase and sale of millfeed. On January 4, 1944, each conveyed the whole of his partnership interest to himself as trustee under a declaration of trust in which a member of his immediate family was named as sole beneficiary. Immediately thereafter A and B, as trustees, together with the other partners, formed a new partnership which continued without interruption the operation of the business in the same manner and under the same name as the prior partnership. Held, that the income realized in 1944 from the partnership interests conveyed in trust was taxable to A and B rather than to the trusts and the beneficiaries named therein. L. P. Mattingly, Esq., and Leo W. Crown, Esq., for the petitioners. William Schwerdtfeger, Esq., for the respondent.

These cases, consolidated for trial and opinion, involve deficiencies in individual income tax for the calendar year 1944 in the following amounts: Docket No. 18215, $52,863.24; and Docket No. 18246, $46,228.13.

The sole issue presented is whether the income realized in 1944 from partnership interests transferred in that year by Lyman A. Stanton and Louis F. Springer, deceased, to trusts created by them was taxable to the petitioners or to the trusts and the beneficiaries named therein.

The petitioners do not contest various other adjustments made by the respondent to their tax liabilities for 1944 in the notice of deficiency.

FINDINGS OF FACT.

Lyman A. Stanton, hereinafter sometimes referred to as Stanton, and Bertha W. Stanton are husband and wife, residing in Chicago, Illinois, and their joint income tax return for the calendar year 1944 was filed with the collector of internal revenue for the first district of Illinois.

The decedent, Louis F. Springer, hereinafter sometimes referred to as Springer, prior to his death on January 24, 1946, was a resident of Chicago, Illinois. He filed his individual income tax return for the calendar year 1944 with the collector of internal revenue for the first district of Illinois.

During the taxable year in question, Stanton was an independent rye and malt broker and a director and general manager of Red Wing Malting Co., a corporation with its office in Chicago, Illinois. The other directors of the Red Wing Malting Co. were the following:

Hall Adams, secretary and sales manager of Guardian Safety Seal Co., of Chicago, Illinois, manufacturers of bottle caps, seals, and labels for distilleries and wineries.

A. L. Burdick, residing in Minneapolis, Minnesota, in charge of the Electric Stell Elevator Division of the Russell Miller Milling Co. His duties consisted of supervising the handling, warehousing, merchandising, billing, and selling of the company's grain at its terminal in Minneapolis.

Frank M. Leahy, a resident of New York was the purchasing agent for the National Distillers Co., one of the three largest distilling companies in the country.

Louis F. Springer, a resident of Chicago, Illinois, and general purchasing agent for Allied Mills, manufacturers of commercial feed for livestock and poultry.

Each of the foregoing directors owned approximately 20 per cent of the stock of the Red Wing Malting Co.

In the latter part of 1942 there was a shortage of corn. For that reason, Stanton concluded that distillers would be required to use granular flour (a wheat product) instead of corn for the production of the large quantities of alcohol.required in the manufacture of munitions.

At a meeting of the board of directors of the Red Wing Malting Co., in December, 1942, Stanton advised his fellow members of the board that a fairly good volume of business could, in his opinion, be developed in the sale of granular flour. It was Stanton's opinion that little capital would be required, because it was the type of business ordinarily conducted on a straight brokerage basis. Upon Stanton's recommendation, a partnership was formed and a written partnership agreement, executed under date of January 8, 1943, was entered into for a term of two years. The agreement provided that the business would be conducted under the name of ‘Feed Sales Company,‘ that it would begin business with a paid-in capital of $500, and that the income and losses were to be shared by the partners in proportion to their capital contributions, which were as follows:

+-------------------------+ ¦Hall Adams ¦5.00% ¦ +------------------+------¦ ¦A. L. Burdick ¦23.75%¦ +------------------+------¦ ¦F. M. Leahy ¦23.75%¦ +------------------+------¦ ¦Louis F. Springer ¦23.75%¦ +------------------+------¦ ¦Lyman A. Stanton ¦23.75%¦ +-------------------------+

Under the terms of the partnership agreement, Stanton was appointed manager of the partnership business, on a part time basis, at a salary of $7,200 per year, and it was provided that a successor manager might be appointed by the partners at any time without prior notice to Stanton. The partnership agreement provided that: ‘No partner shall sell or assign all or any part of his interest in the partnership without the consent in writing of all of the other partners to such sale or assignment.‘

The Feed Sales Co. had no warehouse and no inventory. The partnership shared office space with the Red Wing Malting Co. and with Stanton in his capacity as an independent grain broker. Stanton and the office force would divide their time between the three businesses as the circumstances required.

Upon the organization of Feed Sales Co., Stanton, as its manager, contacted the Russell Miller Milling Co., Standard Milling Co., Kansas City Flour Mills, Shallenberger, Schultz & Bejohn, the Rickard Co., and four or five smaller mills and made arrangements to sell their production of granular flour as a broker for the customary brokerage of 50 cents per ton. At the same time he arranged for Feed Sales Co. to buy millfeed, a byproduct of the manufacture of granular flour, from these mills and resell it at O.P.A. prices. All agreements were oral only. The reason the millfeed was not sold on a brokerage basis was that under O.P.A. regulations the mills were not allowed to pay brokerage for its sale. O.P.A. regulations did permit a purchaser at O.P.A. ceiling to resell this product at an advance in price of 50 cents per ton.

Flour mills were receptive to Stanton's solicitation for the reason that they had no sales force trained in the sale of these products and felt that by engaging Feed Sales Co. they were avoiding the need for new sales personnel in that field.

The business of Feed Sales Co. succeeded beyond the expectations of the partners. The great demand for granular flour and millfeed continued until the end of the war in 1945. All sales of granular flour and millfeed were in carload lots and without exception where shipped direct form the mills to the purchasers. The Feed Sales Co. would receive payment from its customers on the granular flour or millfeed it handled within four or five days.

The original paid-in capital of $500 was sufficient until April or May, 1943, at which time the partnership found it necessary to borrow funds for the purchase of millfeed. At that time it borrowed approximately $35,000 form the Red Wing Malting Co. which it repaid within 30 to 45 days. Thereafter, and during the taxable year in question, the brokerage commissions and earnings were sufficient to carry the business without further financing from outside sources.

Burdick advised Stanton that the Russell Miller Milling Co. had an idle mill, and suggested that he contact its executive vice president with the view to having this mill placed in operation for the production of granular flour, and to negotiate an arrangement for Feed Sales Co. to sell its product. The Russell Miller Milling Co. subsequently opened its idle mill and sold it products through the Feed Sales Co.

Springer, as purchasing agent for Allied Mills, purchased approximately 60 per cent of all the millfeed handled by Feed Sales Co. during the taxable year. Leahy, as purchasing agent for National Distillers, bought large quantities of granular flour from the partnership.

On January 4, 1944, Lyman A. Stanton transferred his entire 23.75 per cent interest in Feed Sales Co. to himself as trustee under a declaration of trust in which his mother, Bertha A. Stanton, was named as the sole beneficiary. Because of the provision in the partnership agreement which required that no partnership interest in Feed Sales Co. could be assigned without the consent of all of the other partners, the other partners were necessarily advised, in advance, of Stanton's contemplated action. Thereupon, Louis F. Springer and A. L. Burdick also decided to transfer their partnership interest to trusts under which their respective wives were named beneficiaries.

The pertinent provisions of the Stanton trust were as follows:

1. The Trustee shall pay the grantor's mother, Bertha Aldrich Stanton, from the net income of the trust estate, the sum of Two Hundred Dollars ($200.00) each month, and in addition thereto, at the end of each calendar year, or as soon thereafter as the amount thereof can be determined, shall pay to her out of the balance of the net income of the trust estate, if any, for the preceding calendar year, one-half of the said remaining net income.

2. Out of the income of the trust estate for each calendar year, if any, remaining after the distributions * * *, there shall be paid any Federal income taxes due on said undistributed income, and the balance shall become a part of and be added to the principal of the trust estate.

3. This trust shall continue in full force and effect for the period of fifteen (15) years from the date hereof, at which date it shall cease and determine, provided, however, that if the death of the grantor's mother, Bertha Aldrich Stanton, occurs prior to the expiration of fifteen (15) years from the date hereof, then and in that event, the trust shall cease and terminate with her death.

4. Upon the expiration of this trust, if Bertha Aldrich Stanton then be living, the Trustee shall pay over to her, as her sole and absolute property, the entire principal of the trust estate, together with all accumulations of income not therefore distributed. In the event this trust terminates with the death of the said Bertha Aldrich Stanton, as provided in paragraph three (3) hereof, the entire principal of the trust estate, together with all undistributed income thereof, shall be distributed as the said Bertha Aldrich Stanton may have appointed by her last will and testament, or if she shall have failed to exercise the power of appointment, hereby conferred upon her, the said entire trust estate shall be transferred and conveyed to her issue, and if there be no issue surviving her, then to her lawful heirs.

5. This declaration of trust and assignment and transfer to himself, as Trustee of the trust property, is made by the grantor without reserving to himself any right, power or authority to annul, cancel or revoke the same.

6. The Trustee shall have, with respect to any and all property at any time held by him, hereunder, the following powers:

(a) To retain any such property as an investment without regard to the proportion such property, or property of a similar character, so held, may bear to the entire amount of the trust estate, whether or not such property is of the class in which trustees are authorized by law or any rule of court to invest trust funds;

(b) To sell at either public or private sale, and to grant options to purchase, any such property, either for cash or on credit, or partly for cash and partly on credit; also to exchange any such property;

(c) To invest and reinvest in, and to acquire by exchange, property of any character, including, but not being limited to, bonds, notes, debentures, mortgages, certificates of deposit, and common and preferred stocks, without being limited to the class of securities in which trustees are authorized by law or any rule of court to invest trust funds;

(d) To participate in any plan or reorganization, consolidation, merger, combination or similar plan, to consent to such plan and any action thereunder, or to any contract, lease, mortgage, purchase, sale, or other action by any corporation; to deposit any such property with any protective, reorganization, or similar committee, to delegate discretionary power thereto, and to share in payment of its expenses and compensation, and to pay any assessments levied with respect to such property; and to accept and retain any property which may be received under such plan, whether or not of the class in which trustees are authorized by law or any rule of court to invest trust funds.

(e) To exercise all conversion, subscription, voting and other rights of whatever nature pertaining to any such property, and to grant proxies, discretionary or otherwise, with respect thereto; and to retain any property which may be acquired by the exercise of such rights, whether or not the same is of the class in which trustees are authorized by law or any rule of court to invest trust funds.

(f) To do all such acts, take all such proceedings, and exercise all such rights and privileges, although not hereinbefore specifically mentioned, with relation to such property as if the absolute owner thereof, and in connection therewith to enter into any covenants or agreements binding the trust estate.

(g) To make division or distribution of property in kind and for such purposes to determine the value thereof.

7. In the event of the death of the undersigned, or of his resignation or inability to act as trustee, then City National Bank & Trust Co., of Chicago, Illinois, shall become the trustee hereunder, with all the rights and duties herein conferred upon the trustee with respect to the receipt and distribution of income and principal of the trust estate, provided, however, that all funds coming into the hands of the said successor trustee, and not currently distributed under the terms hereof, shall be invested and reinvested only in bonds rated ‘Class A‘ or better.

Under date of January 4, 1944, Louis F. Springer conveyed to himself as trustee all right, title and interest in and to his entire 23.75 per cent interest in the partnership, Feed Sales Co., under a declaration of trust identical in all material provisions to the declaration of trust executed on the same date by Stanton, except for the following provisions:

1. The Trustee shall pay the grantor's wife, Mary Ethel Springer, from the net income of the trust estate, the sum of One Hundred Dollars ($100.00) each month, and in addition thereto, at the end of each calendar year, or as soon thereafter as the amount thereof can be determined, shall pay to her out of the balance of the net income of the trust estate, if any for the preceding calendar year, one-half of the said remaining net income.

3. This trust shall continue in full force and effect for the period of ten (10) years from the date hereof, at which date it shall cease and determine, provided, however, that if the death of the grantor's wife, Mary Ethel Springer, occurs prior to the expiration of ten (10) years from the date hereof, then and in that event, the trust shall cease and terminate with her death.

4. Upon the expiration of this trust, if Mary Ethel Springer then be living, the Trustee shall pay over to her, as her sole and absolute property, the entire principal of the trust estate, together with all accumulations of income not theretofore distributed. In the event this trust terminates with the death of the said Mary Ethel Springer, as provided in paragraph three (3) hereof, the entire principal of the trust estate, together with all undistributed income thereof, shall be distributed as the said Mary Ethel Springer may have appointed by her last will and testament, or if she shall have failed to exercise the power of appointment, hereby conferred upon her, the said entire trust estate shall be transferred and conveyed to her lawful heirs.

The money which Mrs. Springer received from the L. F. Springer trust was placed on deposit in a bank account in Mrs. Springer's name created for that purpose. The only withdrawals from this account were used to pay income taxes of such funds.

Under date of January 4, 1944, the partnership agreement executed January 8, 1943, and under which the business of Feed Sales Co. had been conducted was terminated and a new partnership agreement was executed for the term of one year, adopting in all respects the provisions of the first partnership agreement, excepting that the partners and their respective interests in the capital and income of the partnership were:

+-------------------------------------------------------------+ ¦Hall Adams ¦5.00% ¦ +------------------------------------------------------+------¦ ¦F. M. Leahy ¦23.75%¦ +------------------------------------------------------+------¦ ¦A. L. Burdick, as trustee for Helen S. Burdick under a¦ ¦ +------------------------------------------------------+------¦ ¦declaration of trust dated Jan. 1, 1944 ¦23.75%¦ +------------------------------------------------------+------¦ ¦L. F. Springer, as trustee for Mary E. Springer under ¦ ¦ +------------------------------------------------------+------¦ ¦declaration of trust dated Jan. 4, 1944 ¦23.75%¦ +------------------------------------------------------+------¦ ¦L. A. Stanton, as trustee for Bertha A. Stanton under ¦ ¦ +------------------------------------------------------+------¦ ¦declaration of trust dated Jan. 4, 1944 ¦23.75%¦ +-------------------------------------------------------------+

The trust established by Burdick, with his wife as beneficiary, was essentially similar to that established by Stanton and Springer.

At the expiration of the term of the partnership agreement in January, 1945, it was extended for the term of one year. At the expiration of the term of the partnership as extended, the partnership business was continued without written extension until the death of Louis F. Springer on January 24, 1946, as of which date, on advice of counsel, the Springer trust was withdrawn from the partnership. Upon their withdrawal, the trusts received their proportionate share of the partnership assets.

After the withdrawal of the trusts from the partnership, a new partnership was organized under the name ‘Feed Sales Company,‘ in which Adams, Burdick, Leahy, and Stanton were members. With the end of World War II, the demand for granular flour terminated and the supply of millfeed ceased and the character of the business changed.

The principal purpose of Lyman A. Stanton in establishing the trust for his mother was to provide her with a source of financial security which, in the event of his death, would not be subject to possible litigation. He and his wife were estranged and his wife and mother were not on friendly terms. Federal income tax saving was also a factor. At the time the trust was established, Stanton was supporting his mother and she had no other source of income. When the trust was created, his mother was 78 years of age and Stanton was her only child.

The balance sheet for the Feed Sales Co. for the year ended December 31, 1943, disclosed assets, liabilities, and partners' capital accounts in the following amounts:

+-------------------------------------+ ¦ASSETS ¦ +-------------------------------------¦ ¦ ¦¦ ¦ +-------------------------++----------¦ ¦Cash on hand and in banks¦¦$24,305.54¦ +-------------------------++----------¦ ¦Accounts receivable ¦¦29,673.62 ¦ +-------------------------++----------¦ ¦ ¦¦ ¦ +-------------------------++----------¦ ¦Total assets ¦¦53,979.16 ¦ +-------------------------++----------¦ ¦ ¦¦ ¦ +-------------------------------------+

LIABILITIES AND NET WORTH Liabilities: Accrued taxes $82.90 Partners' capital: H. Adams $1,587.30 F. M. Leahy 7,352.24 A. L. Burdick 7,652.24 L. F. Springer 19,652.24 L. A. Stanton 17,652.24 Total partners' capital 53,896.26 Total liabilities and net worth 53,979.16 The balance sheet for the Feed Sales Co. for the year ended December 31, 1944, disclosed assets, liabilities, and partners' capital accounts in the following amounts: ASSETS Cash on hand and in banks $65,017.30 Accounts receivable 41,362.66 Total assets 106,379.96 LIABILITIES AND NET WORTH Liabilities: Accrued taxes 519.50 Partners' capital: H. Adams $2,794.26 F. M. Leahy 13,266.55 A. L. Burdick, trustee 13,266.55 L. F. Springer, trustee 13,266.55 L. A. Stanton, trustee 63,266.55 Total partners' capital $105,860.46 Total liabilities and net worth 106,379.96

In its partnership return for 1944, Feed Sales Co. reported ordinary net income in the amount of $265,885.46, distributed as follows:

+-----------------------------------------+ ¦Hall Adams ¦$13,294.26¦ +------------------------------+----------¦ ¦Allan L. Burdick, trustee ¦63,147.80 ¦ +------------------------------+----------¦ ¦L. F. Springer, trustee ¦63,147.80 ¦ +------------------------------+----------¦ ¦Lyman A. Stanton, Jr., trustee¦63,147.80 ¦ +------------------------------+----------¦ ¦Frank M. Leahy ¦63,147.80 ¦ +------------------------------+----------¦ ¦ ¦ ¦ +------------------------------+----------¦ ¦Total ¦265,885.46¦ +-----------------------------------------+

The full distributable shares of partnership income were reported in fiduciary income tax returns filed by the trustees of the Stanton and Springer trusts for 1944, which returns also disclosed that distributions of $32,598.90 to Bertha A. Stanton and $32,023.90 to Mary E. Springer had been made in 1944. These amounts were reported by the above named beneficiaries in their individual income tax returns for 1944.

In each case the notice of deficiency issued by the respondent held that the income of the Feed Sales Co. in the amount of $63,147.80, which was reported by the trust, was taxable to the petitioner under the provisions of section 22(a) of the Internal Revenue Code.

OPINION.

ARUNDELL, Judge:

The only issue in this proceeding involves the taxability of income derived in 1944 from partnership interests which were conveyed by Stanton and Springer to trusts established by them for the benefit of members of their immediate families.

In the case of both Stanton and Springer, all right, title, and interest in and to their respective partnership interests passed irrevocably to the trust each established. The trust instruments conferred on each in his fiduciary capacity as sole trustee full and unlimited control and dominion over the interest conveyed. The record discloses that, following the creation of the trusts, Stanton, Springer, and Burdick, as trustees, immediately entered into a new partnership agreement for the term of one year with Adams and Leahy, continuing without interruption the operation of the business in the same manner as it had been conducted prior to the transfer of their interests to the trusts.

In taxing to the petitioners the $63,147.80 received by each trust from the Feed Sales cO. in 1944, respondent claims that his determination may be supported by either of two established tax principles. Relying upon the rationale of Helvering v. Clifford, 309 U.S. 331, the respondent contends that Stanton and Springer retained such effective control and dominion over the trust corpora, consisting of their respective partnership interests, that they were in substance, even after executing the trust agreements, still partners in the firm. Respondent submits, as an alternative argument, based upon cases such as Lucas v. Earl, 281 U.S. 111, and Helvering v. Horst, 311 U.S. 112, that the income distributed to the trusts was taxable to Stanton and Springer because they were the persons who in reality earned the income of the partnership.

The petitioners challenge the respondent's determination, contending that in establishing the trusts Stanton and Springer divested themselves of every material attribute of ownership in the partnership interests conveyed. In support of the argument that this feature defeats their tax liability for the trust income, the petitioners rely on cases such as Simmons v. Commissioner, 164 Fed.(2d) 220; Henson v. Commissioner, 174 Fed.(2d) 846; Clifford R. Allen, Jr., 12 T.C. 227.

The fact that Stanton and Springer, in creating the trusts in question, completely surrendered all ownership of their partnership interests in not controlling. Where income is derived from capital, the tax liability for such income follows ownership. Harrison v. Schaffner, 312 U.S. 579; Helvering v. Horst, supra; Helvering v. Clifford, supra. Where income flows from labor, the issue is, Who ‘earned‘ the income? Commissioner v. Tower, 327 U.S. 280; Doll v. Commissioner, 149 Fed.(2d) 239; Helvering v. Horst, supra; Lucas v. Earl, supra. Where the income stems from combined labor and capital, the test is the personality who or which ‘produced‘ the income. Doll v. Commissioner, supra; Burnet v. Leininger, 285 U.S. 136.

In our opinion, the facts of the instant case bring it within the third category and narrow the question presented to one involving a determination of the persons or elements responsible for the production of the income respondent seeks to tax to Stanton and Springer.

The record is replete with evidence that the income of the Feed Sales Co. was primarily due to the personal efforts of its five original partners and the use to which they put the capital invested rather than the capital contribution each made upon the formation of the partnership. Their contacts and experience in the industry, and the fact that the principal occupations of at least four of the five partners involved the purchase or sale of the products handled by the partnership were the factors primarily responsible for the unusual success of the business.

The relative unimportance of capital is best illustrated by the fact that the five original partners contributed only $500 in establishing the business. Coarse flour, which was used in large quantities by distillers in the manufacture of alcohol, was handled by the partnership on a straight brokerage basis. Apparently the only occasion upon which the business found it necessary to raise additional capital was early in its existence, when it borrowed $35,000 from the Red Wing Malting Co. to finance the first purchases of millfeed. Payment for the goods it sold was customarily received by the partnership within 4 or 5 days and the particular loan from the Red Wing Malting Co. was discharged within 30 or 45 days thereafter. At the time the trusts in question were established, the business had sufficient cash accumulated to finance all purchases of millfeed on its own account.

Moreover, the partnership had no employees or offices of its own, but instead shared those employed by the Red Wing Malting Co. and Stanton's individual brokerage business. It had no tangible assets other than miscellaneous office furniture, cash on hand, and accounts receivable.

It is also interesting to note that the original capital contribution of Hall Adams, the only partner whose principal occupation was wholly unrelated to the business of the partnership, was 5 per cent of the total paid-in capital of $500, in contrast to the 23.75 per cent interest held by each of the other four partners. However, on this nominal investment of $25, Adams realized distributable profits from the business of $13,294.26 in 1944. The relation of the percentage of profits realized to the amount of capital committed is further evidence of the unimportance of capital in the business as compared with the ability, experience, and business acumen of the partners themselves.

Petitioners contend that the Feed Sales Co. was not a personal service business, arguing that the participation of Stanton or any of the other partners was not essential to its continued success. They point out that the demand for the products it handled far exceeded the supply and that the principal task was not to locate purchasers, but to effect an equitable distribution of the available supplies among its many customers. This evidence, in our opinion, does not establish the fact that the partnership was not a personal service business but, at most, shows that the artificial demand created by war conditions did not require the partners to devote the care and attention to the business which would have been necessary under normal economic conditions.

Nor do we consider the circumstance that Stanton received a salary of $7,200 from the partnership during the taxable year as controlling of the issue herein. In cases analogous to this, we have disregarded the fact that a salary was paid to the transferor or to an independent manager where the evidence indicated that the transferor in substance continued to be the person responsible for the production of the income flowing from the property conveyed. Cf. J. H. Henson, 10 T.C. 491 (reversed, Henson v. Commissioner, supra); Robert E. Werner, 7 T.C. 39.

In conveying their partnership interests to the trusts in question, both Stanton and Springer invested themselves, as trustees, with the fullest possible control over the trust property; specifically, to do all such acts, take all such proceedings and exercise all such rights and privileges with relation to the property as if they were the absolute owners thereof.

The reservation of such powers and the naming of themselves as trustees, in our opinion, is clear evidence that neither Stanton nor Springer intended the transfers to result in the withdrawal of the partnership interests from the business or the introduction of outside parties into the management of its affairs. The trust instruments preserved the right of each to participate in the control and management of the partnership to the same extent as if he were still the actual owner of the partnership interest. In short, the execution of the trust instruments effected no substantial change in the business or the relation of the parties to it other than the bare transfer of the ownership of Stanton's and Springer's partnership interests from themselves as individuals to themselves as trustees. Had the income in question been derived primarily from the ownership of the interests so conveyed rather than from the use or employment of such interests, the tax consequences for which the petitioners contend might well have followed.

Moreover, Stanton's and Springer's conveyance of their respective partnership interests to the trusts did not deprive them of the opportunity to recapture the going business at a later date. The partnership agreement under which the trusts came into the business as partners was only for the term of one year. Although this original agreement was extended in January, 1945, for an additional year, it is interesting to note that all three trusts withdrew from the partnership within a short time after the death of Springer in January, 1946, and the business was thereafter continued by a new partnership, consisting of Stanton, Burdick, Adams, and Leahy, under the same name of Feed Sales Co.

In our opinion, all of the evidence herein leads irresistibly to the conclusion that the $63,147.80 paid over by the Feed Sales Co. to the Stanton and Springer trusts in 1944 was ‘produced‘ by the concerted efforts of the five original members of the partnership through their unique knowledge, experience, and contacts in the industry. Here, as in Robert E. Werner, supra, the bare legal title to the property involved was not the essential element in the production of the income under the circumstances shown. The law is now well established that income is taxable to the person or persons who earn it and that such persons may not shift to another or relive themselves of their tax liability by the assignment of such income, whether by a gift in trust or otherwise. Lucas v. Earl, supra; Helvering v. Horst, supra; Dolly v. Commissioner, supra; Robert Lubets, 5 T.C. 954 (appeal dismissed, CCA-1); Louis Visintainer, 13 T.C 805; cf. Albert Nelson, 6 T.C. 764; Hogle v. Commissioner, 132 Fed.(2d) 66. Therefore, the respondent's determination, that the net incomes of Stanton and Springer for 1944 should each be increased by the amount of $63,147.80 representing the profits paid by the partnership to each trust, is sustained.

Our decision herein makes it unnecessary to treat the question of whether trust income in 1944 is taxable to the petitioner under the principles of Helvering v. Clifford, supra. However, our conclusion would be the same regardless of the fact that the trust instruments might be regarded as effecting a complete and irrevocable disposition of the partnership interests of Stanton and Springer within the meaning of the Clifford doctrine.

Decision will be entered under Rule 50.