The respondent has determined deficiencies in income tax against the petitioner for the years 1937, 1938, and 1939 of $184.17, $153.07, and $170.97, respectively. The issue to be decided is whether the business of selling shoes on a commission was conducted by the petitioner as an individual enterprise or by a partnership consisting of the petitioner and his wife.
FINDINGS OF FACT.
The petitioner is an individual and resides at 21 Ridgetop Drive, Richmond Heights, St. Louis County, Missouri. He filed his income tax returns for the years 1937, 1938, and 1939 with the collector for the first collection district of Missouri.
Prior to 1932, the petitioner, then a Spanish citizen, resided in Cuba. He was engaged with his brothers, Ralph Doll and Antonio Doll, in the business of selling shoes through a partnership by the name of F. Doll Co., of which the three brothers were the members There was a political uprising in Cuba and the petitioner came to the United States, locating in St. Louis, Missouri. He had previously married Cornelia Mitchell, an American citizen, and has since become a citizen of the United States himself.
After leaving Cuba, the petitioner made several trips to Puerto Rico, having in mind the developing of a market there for the sale of shoes. At or about the same time he, with his brother-in-law, A. L. Mitchell, planned to develop a business of selling St. Louis beer in Puerto Rico. On January 29, 1932, he opened a checking account with the First National Bank in St. Louis under the name of St. Louis Trading Co. and both he and Mitchell were authorized to draw checks on the account. The beer-selling business did not materialize, however, and the arrangement between petitioner and Mitchell was terminated.
Petitioner's business is and has been that of selling shoes strictly on a commission basis, and after leaving Cuba and coming to St. Louis he developed a market in Puerto Rico and after the political situation quieted in Cuba resumed the sale of shoes there. He receives no advances from the shoe manufacturers and his commissions are computed from the invoices of goods sold. In connection with his shoe-selling operations in Puerto Rico, he engaged the services of a salesman located there, while with respect to his business in Cuba he engaged the services of his brother, Antonio Doll. He sells the products of in excess of 40 manufacturers, most or a goodly number of them being located in St. Louis. All contracts with manufacturers under which the petitioner sells and has sold shoes were entered into by him personally. In issuing commission checks and for various purposes, the manufacturers have variously used the names F. Doll, Francis Doll, and St. Louis Trading Co.
During a part of 1932 and up to and including the taxable years here in question, the petitioner had offices at 1515 Washington Avenue, St. Louis, Missouri, in an office building owned by Craddock-Terry Shoe Co., a shoe manufacturing concern located in Lynchburg, Virginia. In lieu of the payment of rent for the office or offices occupied, the petitioner acted as agent for the Craddock-Terry Shoe Co. in the management of the building. The offices were equipped with the usual office furniture and fixtures and with shelves for sample shoes. Petitioner also had some filing cabinets at his residence in which certain papers connected with his shoe-selling operations were filed from time to time.
Under date of December 15, 1932, the following paper was signed by the petitioner and his wife, Cornelia M. Doll:
M. Fernandez F. Doll Antonio Doll Puerto Rico Division Manager Cuba Division
SAINT LOUIS TRADING COMPANY 1515 Washington Avenue Saint Louis, Missouri
Dec. 15th, 1932
— PARTNERSHIP AGREEMENT —
Mr. Francis Doll, of 429 Edgewood Drive, Clayton, Mo., heretofore, sole owner of the Saint Louis Trading Company, with sales offices at the Paul Brown Building, St. Louis, Mo. agrees to take as partner in his bussiness, his wife, Mrs. F. Doll, residing at the same address of the former owner and founder of the firm.
Mrs. Francis Doll, accepts to join the partnership of his [ sic] husband in the Saint Louis Trading Company enterprise.
Nature of this bussiness.
To sell on strictly commission basis, shoes made by American manufacturers for Export Trade.
Profits, Losses, Asets and Liabilities.
That both interested parties are to participate equaly, on the profits, losses asets and liabilities derived from this bussiness.
Management.
That Mr. Francis Doll, will undertake the management of this bussiness, to do as he sees fit, for the improvement of same, with full authority to appoint agents or representatives in foreign territories. In case of death, of Mr. Francis Doll Mrs F. Doll, (his wife) will then, undertake the same authority in regard to the management of the bussiness, and it will be her privilege then, to make the necessary appointments to continue this bussiness.
Income Tax
Federal and State Income Taxes, should be paid yearly to the Government on the Net Income and as per Inventory taken every year by the Saint Louis Trading Co, and as provided by the Law.
[Signed] FRANCIS DOLL [Signed] CORNELIA M. DOLL
At or about the time of the signing of the above mentioned paper, the petitioner listed the name of the St. Louis Trading Co. in the St. Louis telephone directory. At no time during the taxable years or prior thereto was there any display of a sign at the office indicating the conduct of a partnership business by petitioner and Mrs. Doll. Mrs. Doll contributed no capital to the shoe-selling business, she never contracted any debts in the name of the St. Louis Trading Co., nor did she ever in her own name or in the name of St. Louis Trading Co. enter into any contract to sell shoes on commission. No stock of shoes was kept on hand and there was no merchandise which might be inventoried. The books of account consisted of a cash book only, in which were recorded all commissions received by petitioner on the sales of shoes and all expenditures made in connection with that business, as well as personal expenditures of the petitioner. This cash book was kept in the name of St. Louis Trading Co., but no proprietorship or other account was set up showing the interest of any person in the business. There were no annual or other distributions or any setting aside between petitioner and Mrs. Doll of the income from the shoe-selling business or any crediting of such income to them on the cash book or elsewhere.
Mrs. Doll accompanied petitioner on one or more trips to Puerto Rico and Cuba. Up to the date of the hearing she had accompanied him on possibly four of his trips to Cuba. Petitioner made two or three such trips to Cuba and Puerto Rico a year. On the trips made by Mrs. Doll, she helped write orders and rendered other assistance. At other times, when she remained in St. Louis, she would do some work in the office or at her home. The work done by her did not require her presence at the office at all times and her attendance there was not regular. When the petitioner was in St. Louis and was crowded with work at the office, she would go to the office and help. She checked orders, kept such books of account as were kept, answered letters, and did the necessary filing. Some of the papers were filed in the cabinets at the residence and not at the office. At times buyers visited St. Louis and on such occasions they were entertained by petitioner and Mrs. Doll. If the petitioner was away on a selling trip, Mrs. Doll undertook the entertainment of the customers. At times when petitioner was absent from St. Louis and customers appeared, Mrs. Doll accompanied them to the selling offices of the various shoe manufacturers with which petitioner had a commission arrangement. At these offices, such selling as was done was done by salesmen of the manufacturers and not by Mrs. Doll. She did no selling.
For the services rendered by Mrs. Doll in connection with the shoe selling business, she received $200 per month. The amount of compensation was fixed by agreement between her and petitioner. The date when that agreement was reached is not shown, but apparently it was at or about the time petitioner began operating from St. Louis. The agreement that Mrs. Doll should receive $200 per month for her services continued up to and including the years here in question. Throughout the same period Mrs. Doll, for Federal income tax purposes, reported as her income the $200 per month so received. The petitioner, as his income, reported the entire income from the shoe-selling business and deducted as an expense of the business the $200 per month paid to Mrs. Doll. His returns were captioned "Francis Doll, Trading as St. Louis Trading Company."
In some instances the petitioner collected from customers for shoes sold and retained his commissions out of the amounts so collected. In most instances, however, the commissions were paid by check from the manufacturers. These checks were deposited in the account which had been opened under the name St. Louis Trading Co. with the First National Bank in St. Louis. Except for a short period in 1932 or 1933, when Mrs. Doll drew some checks on the account, all checks drawn on the account are and were drawn by the petitioner. Such withdrawals covered expenses incurred in the shoe-selling business, expenses of petitioner, the $200 per month payable to Mrs. Doll for services rendered, and amounts paid to her to cover household expenses. It does not appear that Mrs. Doll at any time received any checks representing or intended to represent a distributive share in the profits from the shoe-selling business. Aside from the above described account, the petitioner had no other bank account except one used by him for the deposit and disbursement of funds received from customers with which to pay freight on shipments or the bills of manufacturers who did not sell on credit. Mrs. Doll has a separate bank account in her own name.
An interpreter and foreign correspondent, and since June 10, 1941, export manager, of International Shoe Co., was told by petitioner and Mrs. Doll that they were operating as a partnership under the name St. Louis Trading Co. His best recollection was that this was in the summertime of 1932.
Matters pertaining to the conduct or disposition of the business upon the death of petitioner are covered by the petitioner in his will, the terms of which are not shown of record.
After the returns for the years 1937, 1938, and 1939 had been filed, the petitioner employed an accountant by the name of Norton in connection with his income tax matters. Upon learning of the above writing of December 15, 1932, Norton advised petitioner and Mrs. Doll that they were entitled to report the income from the shoe selling business on an equal basis of 50 percent to each and that such reporting would result in a saving of Federal income tax on the income as a whole. He prepared partnership returns for the years in question showing the income from the shoe-selling business as partnership income and petitioner and Mrs. Doll as equal partners. He prepared amended returns for both petitioner and Mrs. Doll, reporting the income from the shoe-selling business in equal shares. The petitioner filed claims for refund for the difference between the amounts paid as shown on his original returns filed for the years 1937, 1938, and 1939 and the amounts shown on the amended returns prepared by Norton for him. The partnership returns so prepared and filed were captioned "St. Louis Trading Company."
The respondent determined the deficiencies herein and mailed his notice thereof to the petitioner under date of March 17, 1941. The deficiencies resulted from the disallowance of depreciation deductions claimed and reduction of the amount of the personal exemption and credit for dependents claimed for each of the years 1937, 1938, and 1939. In addition, a claimed deduction of $250 as contributions for 1937 was also disallowed. In the deficiency notice, filing of the above claims for refund by petitioner was noted but no allowance in respect thereto was made.
On June 13, 1941, the petitioner filed his petition in this proceeding. No error is alleged with respect to the disallowance of any of the deductions above set forth or with respect to the reduction of personal exemptions and credits for dependents claimed, the sole error alleged being the respondent's failure to find that the petitioner and Mrs. Doll were equal partners in the shoe-selling business during the taxable years in question and to allow the petitioner's claims for refund filed. On July 15, 1941, the respondent filed his answer denying the existence of a partnership, as alleged by petitioner.
On October 23, 1941, Mrs. Doll filed a petition naming petitioner as defendant in the Circuit Court of St. Louis County, Missouri, captioned "Petition to Construe Partnership Agreement Dated December 15, 1932 and to Determine Rights of Plaintiff and Defendant in the Partnership Business, Assets and Profits." On November 11, 1941, the petitioner, as defendant, filed his answer to the above petition, admitting all material allegations. Hearing was had on February 25, 1942, and on March 10, 1942, the court entered its findings and decree to the effect that on December 15, 1932, the petitioner and Mrs. Doll had entered into a partnership agreement under which they were equal partners in carrying on a shoe selling business, under the name of St. Louis Trading Co.; that the agreement was then and had been continuously in full force and effect; that as partners, each had an equal interest in the assets and profits of the business and each was entitled to equal distributive shares of the profits of the business. No notice was given by the petitioner or Mrs. Doll to any Federal agency or official that any such proceeding had been instituted. Regardless of the proceeding in the Missouri court just described, there was never at any time any dispute or controversy between the petitioner and Mrs. Doll over the shoe-selling business or the profits therefrom.
OPINION.
TURNER, Judge:
It is contended by the petitioner that a partnership evidenced by the writing of December 15, 1932, was formed on that date, that under that agreement he and his wife became equal partners, and that thereafter all of the income from his shoe-selling activities was partnership income and not his individual income, as the respondent has determined.
The business here under consideration is that of selling shoes "on strictly commission basis" and the petitioner not only does not claim otherwise, but concedes that prior to December 15, 1932, the business and the income therefrom were wholly and solely his. The said writing so recites. Further, there is no claim that the method of producing the income, the source thereof, or the person or persons actually producing it were in any way changed by or after the execution of the December 15 writing. The petitioner in no way reliquinshed any of his powers or control over the shoe selling activities and the writing shows that he had no intention of doing so. He continued to be the principal in so far as the manufacturers were concerned, and in that connection we have not overlooked the statement by an employee of the International Shoe Co. to the effect that he was told by petitioner and Mrs. Doll that they were operating as a partnership. Mrs. Doll, during her testimony, conceded that she had no standing as a representative of the shoe companies and that if she desired to sell shoes, in the event of the petitioner's death, she would be required to negotiate her own sales arrangements with them. Furthermore, the petitioner in his testimony indicated that the force and effect of the writing of December 15 in so far as the rights of Mrs. Doll are concerned are to some extent dependent upon the provisions of his will, which of course, will not become effective until his death. In that connection, compare Estate of Eva Wasserman, 46 B.T.A. 1129.
As for Mrs. Doll, she contributed no capital to the shoe selling business and assumed and had none of the powers or authority normally inherent in a partner. She sold no shoes and never entered into any contract in her own name or in the name of the St. Louis Trading Co. to sell shoes. Neither did she at any time contract any debts or incur any obligations in the name of the St. Louis Trading Co. The powers and rights in respect to those things belonged to petitioner. She did render certain services, and the petitioner, in the course of his testimony, indicated that these services were regarded as her contribution to the claimed partnership. Even though there may have been some such thought in mind at or about December 15, 1932, it is apparent from what actually happened that she did not contribute her services to any partnership enterprise, but by another and different agreement received compensation therefore at a rate of $200 per month, which agreement continued up to and through the years here involved.
From the evidence of record, we are unable to conclude, as the petitioner would have us do, that the shoe-selling business was conducted as a partnership. The operation was that of the petitioner and the income was his income. We have here a situation comparable in most respects to that in Schroder v. Commissioner, 134 F.2d 346. As in that case, the business here was essentially that of petitioner and the earnings were mainly due to his personal activities and abilities. The court in the case cited referred to the proceeding as "another of those efforts to make future returns from personal services taxable to some one other than the real earner of them." Similarly we have here an effort on the part of the petitioner for income tax purposes to share his income. Considering, however, the fact that over the years up to and including the years here in question the petitioner has, in keeping with the actual conduct of his business, reported such income as his income and no change in the operation of the business or the disposition of the profits therefrom has at any time been made or attempted, except in the present retroactive effort to recover income tax already properly reported and paid, we have a most belated as well as ineffective effort. See Mead v. Commissioner, 131 F.2d 323. See also Lucas v. Earl, 281 U.S. 111, and Helvering v. Horst, 311 U.S. 112.
The petitioner contends that we are precluded from considering and deciding the question herein by the decree entered March 10, 1942, in a proceeding in the Circuit Court of St. Louis County, Missouri, styled "Cornelia M. Doll, Plaintiff, vs. Francis Doll, Defendant." He argues that the question is a question of property rights and that we are bound by the decision of the state court. He relies particularly on Freuler v. Helvering, 291 U.S. 35, wherein the Supreme Court did recognize and give effect to a decision of a state court determining property rights. The Supreme Court indicated, however, that the decision must have been entered in a proceeding where there was a real controversy to be determined and after such trial as would properly and fully present the facts and issues. On the other hand, the inference is clear that it would not recognize and give effect to the decision of a state court in a proceeding which was "collusive in the sense that all the parties joined in a submission of the issues and sought a decision which would adversely affect the Government's right to additional income tax." It is just such a case as the last described to which we are asked to give full force and effect. Both the petitioner and Mrs. Doll admitted that there was no difference, dispute or controversy between them, Mrs. Doll apparently being satisfied with the $200 per month received for the services which she rendered, the amounts received by her for household expenses on checks issued by petitioner, and any sums received and expended on the basis of the marital relationship. She testified that the filing of the suit in the local court was prompted by the respondent's determination against the petitioner here. The actual controversy sought to be litigated therefore was that between petitioner and the Federal Government and that is the controversy which the petitioner proposed to litigate before us when he filed his petition herein on June 13, 1941. While a hearing of some sort was had in the proceeding in the state court, the facts show that the petitioner, in his answer, admitted all of the material allegations contained in the petition filed by Mrs. Doll, and it is the decree entered in that proceeding that the petitioner contends is conclusive here. With that contention we do not agree. The proceeding was not a proceeding such as the Supreme Court had in mind in Freuler v. Helvering, supra. See and compare Botz v. Helvering, 134 F.2d 538; First-Mechanics National Bank of Trenton v. Commissioner, 117 F.2d 127; Masterson v. Commissioner, 127 F.2d 252; and Anna Eliza Masterson, 1 T.C. 315.
Decision will be entered for the respondent.