824; Good Manufacturing Co., 7 B. T. A. 202; Elgin Butter J. J. CARROLL, PETITIONER, ET AL.,1 v. COMMISSIONER OF INTERNAL Docket Nos. 47669, 51880–51892. Promulgated November 15, 1932. 1. PARTNERSHIP GIFT DEPLETION.-Where one member of a partnership owning timber lands makes a gift of a part of his interest in the partnership to his children and thereupon a new partnership is formed, with the children taken in as partners, the new partnership having the same assets as the old, no new basis arises for the allowance for depletion of timber, but it remains as before. Henry Wilson, 16 B. T. A. 1280, followed. 2. TIMBER-CAPITAL ASSET CAPITAL GAINS.-Where a partner- Moultrie Hitt, Esq., and G. Kibby Munson, Esq., for the petitioners, These 14 proceedings were consolidated for hearing. Thirteen of Proceedings of the following petitioners are consolidated herewith: Mrs. Lena Carter Carroll; A. L. Carter; Mrs. A. L. Carter; Mrs. E. A. Carter; Mrs. Lillie N. Carter; T. Carter, Jr.; Frank Haywood Nelms; Mrs. Frank Haywood Nelms; R. D. Randolph; Mr. Frankie Carter Randolph; Mrs. Jessie Carter Taylor; Judson L. Taylor; A. L. Carter, Administrator of the Estate of Maude H. Carter. Texas, and the other is an estate having its situs in Texas. Each of the petitioners has a beneficial interest in the assets and income of the partnership of W. T. Carter and Bro., which is engaged in the manufacture and sale of lumber, with its principal place of business at Camden, Texas. The respondent determined deficiencies against the several petitioners for the years 1923, 1924, and 1925, as follows, to wit: Deficiencies were determined for the years 1924 and 1925 against the estate of Maude H. Carter, but these have not been made the subject of an appeal. FINDINGS OF FACT. The facts were stipulated as follows: 1. On September 15, 1919, W. T. Carter, joined by his wife, Maude Holley Carter, gave to W. T. Carter, Jr., and Aubrey L. Carter, each, an undivided one-eighth (1/8) of his interest in the partnership of W. T. Carter and Bro., of Camden, Texas, and to W. T. Carter, Jr., and Aubrey L. Carter, as Trustees, holding for Mrs. Lena Carter Carroll, Mrs. Jessie Carter Taylor, Mrs. F. Haywood Nelms and Mrs. Frankie Carter Randolph, an undivided four-eighths (4/8s) of his said interest. Mr. and Mrs. W. T. Carter retained two-eighths (2/8s) community interest in said partnership. 2. On September 16, 1919, W. T. Carter, E. A. Carter, Jack Thomas, W. T. Carter, Jr., Aubrey L. Carter, and W. T. Carter, Jr., and Aubrey L. Carter, Trustees, formed a new partnership to be known as "W. T. Carter and Bro.' thereby continuing uninterruptedly the business of the old partnership which had been conducted under the same name. 3. The respective interest of the partners in the newly created partnership is as follows: W. T. Carter (and wife). E. A. Carter (and wife) Jack Thomas__-_ W. T. Carter, Jr--- Aubrey L. Carter_. Per cent 21.599 11. 516 2.088 10.7995 10. 7995 W. T. Carter, Jr., and Aubrey L. Carter, Trustees holding for: Mrs. Lena Carter Carroll‒‒‒‒‒ Mrs. Jessie Carter Taylor__. Mrs. Agnese Carter Nelms--- Mrs. Frankie Carter Randolph---- Per cent 10. 7995 10. 7995 10.7995 10.7995 100. 4. Mrs. Maude Holley Carter (now deceased) shared with her husband, W. T. Carter (also now deceased), a community one-half interest in the 21.599% partnership interest credited her husband; and Mrs. Martha D. Carter, wife of E. A. Carter (now deceased) shared in her husband's interest equally with him. 5. Mrs. Lillie N. Carter, wife of W. T. Carter, Jr., Mrs. A. L. Carter, wife of Aubrey L. Carter, J. J. Carroll, husband of Lena Carter Carroll, Dr. Judson L. Taylor, husband of Jessie Carter Taylor, F. Haywood Nelms, husband of Agnese Carter Nelms, and R. D. Randolph, husband of Frankie Carter Randolph, each have a community interest in the profits of the partnership other than the gains from sale or other disposition of the partnership's capital assets. 6. On September 15th, 1919, W. T. Carter, E. A. Carter and Jack Thomas, comprising the partnership of W. T. Carter and Bro., of Camden, Texas, owned, in addition to other property and assets, growing timber. 7. By reason of conveyance executed by W. T. Carter and wife, Maude Holley Carter, on September 15, 1919, each of the undernoted parties became the owner of an undivided interest equal to 10.7995 per cent of the assets of the partnership of W. T. Carter and Bro., and collectively owned 64.797 per cent of such partnership assets, and therefore of the growing timber which was a gift from their parents, W. T. Carter and Maude Holley Carter, to-wit: 8. The fair market value of the undivided interest in the timber assets on September 15th, 1919, conveyed by W. T. Carter and wife as above stated was not less than $7.50 per thousand feet log scale for pine timber and was not less than $4 per thousand feet log scale for hardwood timber. 9. The March 1, 1913, unit value of the undivided interests of W. T. Carter, E. A. Carter and Jack Thomas, in the timber assets of W. T. Carter and Bro., on September 15, 1919, the same having been acquired by them many years prior to March 1, 1913, is $4,937 per thousand for pine and $3.00 per thousand for hardwood. 10. (a) If the undivided interests of W. T. Carter, Jr., and Aubrey L. Carter as individuals, and W. T. Carter, Jr., and Aubrey L. Carter, as Trustees for Mrs. Lena Carter Carroll, Mrs. Jessie Carter Taylor, Mrs. Agnese Carter Nelms, and Mrs. Frankie Carter Randolph are entitled to be valued as of September 15, 1919, the date on which they acquired same by gift from their parents, then the value of the timber for depletion purposes on that date owned by the partners shall be $6.598 per thousand for pine and $3.648 per thousand for hardwood. (b) If W. T. Carter, Jr., and Aubrey L. Carter as individuals, and W. T. Carter, Jr., and Aubrey Carter, as Trustees for Mrs. Lena Carter Carroll, Mrs. Jessie Carter Taylor, Mrs. Agnese Carter Nelms, and Mrs. Frankie Carter Randolph are not entitled to this September 15, 1919, value for depletion purposes, then the value of the timber owned by the partners is $4.937 per thousand for pine and $3 per thousand for hardwood. 11. (a) In the year 1923 the firm cut 26,200,000 feet of pine and 7,170,000 feet of hardwood. 2,247,861 feet of pine were also cut by the Chester Lumber Company, under an agreement whereby said company was to pay the partnership of W. T. Carter and Bro. for said timber at the rate of $10 per thousand as cut by the Chester Lumber Company. Minor sales amounted to 200,000 feet of pine. (b) In the year 1924 the firm cut 28,423,843 feet of pine and 6,142,064 feet of hardwood. The Chester Lumber Company cut 5,480,477 feet of pine, which it paid for at the rate of $10 per thousand in accordance with the agreement above referred to. Minor sales amounted to 484,523 feet. (c) In the year 1925 the firm cut 26,570,966 feet of pine and 8,385,785 feet of hardwood. In addition the firm lost by drought 4,000,000 feet of pine. The Chester Lumber Company also cut 3,899,000 feet of pine, which it paid for at the rate of $10 per thousand, in accordance with the agreement above referred to. 12. (a) If depletion shall be computed in accordance with paragraph 10 (a) above, then the depletion sustained in the respective years is as follows: (b) If depletion shall be computed in accordance with paragraph 10 (b) above, then the depletion sustained in the respective years is as follows: 13. W. T. Carter and Bro., a partnership, is and always has been, engaged in the manufacture and sale of lumber at wholesale. The partnership agreement which was drawn up at the time the new partnership was formed on September 16, 1919 (referred to in paragraph 2 above), was attached to and made a part of the stipulation and is incorporated herein by reference. OPINION. BLACK: There are two issues in this proceeding and petitioners state them in their brief as follows: (1) Shall the petitioners, who were recipients of a gift on September 15, 1919, of an interest in the assets of the partnership of W. T. Carter and Bro., be denied a computation for depletion of the new partnership's timber which gives due consideration to the value of such timber on the day of the gift. (2) Shall the petitioners each be denied the election to compute the tax on his or her share of partnership profits derived from the sale by a manufacturer of lumber (not a corporation) of timber which has been owned for more than two years, under the provisions of section 206(b), Act of 1921, and sections 208(b), Acts of 1924 and 1926. It is contended by petitioners that there should be a revaluation of the timber assets of the new partnership as of the date of its organization, September 15, 1919, for depletion purposes in determining the distributive income of the respective partners. The respondent contends that no new basis was created for depletion purposes by the organization of the new partnership and that it remained as before. We agree with respondent in this contention. In the case of Henry Wilson, 16 B. T. A. 1280, F. A. Wilson and Winfred T. Wilson had acquired by gift from their father on January 2, 1918, a interest in a partnership known as Wilson Brothers & Company, which on that date owned a large acreage of standing timber, together with logging railroads and equipment. The Board held that the new partnership was not entitled thereby to a new basis of depletion of its timber. To the same effect is the case of Alpin J. Cameron, 8 B. T. A. 120, where a father made a gift of a $250,000 interest in a woolen mill to his son. It was contended that, so far as the son's interest was concerned, depreciation should be calculated upon the value of his interest in the depreciable assets of the partnership at the time of the gift. But the Board held to the contrary and denied taxpayer's contention. The Cameron case was before the Board again in 20 B. T. A. 305, and was decided in the same way as in the former case. |