Commissioner v. Culbertson

337 U.S. 733 (1949)

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Nature of the Case

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Facts

Culbertson (P) was a rancher and operated his ranch from 1915 until 1939. He did this in partnership with Coon who was 79 years old in 1939 and who desired to dissolve the partnership because of ill health. The bulk of the partnership herd was sold. P wanted to keep the registered Herefords and offered Coon $65 per head. Coon agreed to the sale but only upon condition that P sell an undivided half interest in the herd to his four sons at the same price. Coon was very interested in maintaining the strain of cattle, and that P was too old to carry on work alone. The boys gave their father a note for $49,720 at 4 percent interest due one year from its date. A new $57,674 note was issued several months later to replace the earlier note. The note was paid in full by a credit for overcharge, gifts from P, and 1/2 of a loan procured by Culbertson & Sons partnership. The loan was eventually repaid from the proceeds of the operation of the ranch. The partnership agreement was oral. The local paper announced the transaction and formation of the partnership and a bank account was opened. The tax years under dispute were the years 1940 and 1941. During those years in question, the 24-year-old son worked on the farm with the 16 and 18-year-old brothers, and the 22-year-old went directly in the Army after graduation from college. The partnership return indicated a division of income along capital contributions. The IRS declared that P was the sole income beneficiary. The Tax Court sided with the IRS. The Court of Appeals reversed.