Petitioner's husband, Willis Mercer, died testate in 1941. time of his death all property owned by petitioner and her husband was community property. She was appointed executrix of his estate and administered the property in the Superior Court of Washington in and for Benton County.

During his lifetime Willis Mercer and petitioner executed substantially identical wills, in which each left to the other a certain interest in the decedent's share of the community property. The will of Willis Mercer, dated July 31, 1935, pursuant to which his interest in the community property was administered, reads in material part as follows:

Second: To my beloved wife, Myrtle Mercer, I give and bequeath all of my estate, both real and personal, for her uses and benefits in whatsoever way or manner the same may be necessary for her care and comfort and support, during the remaining period of her life. When she shall have passed away, I direct that such portion of my estate as shall remain shall be distributed among our children as follows:

To W. H. Mercer; Velma Mercer Travis; Wata Mercer Rolph; Milton Mercer and Frances Helen Mercer, I give and bequeath to each of them, share and share alike, a one-fifth interest in said residue of my estate.

On November 6, 1941, the Superior Court entered its order approving the final account and distributing the estate and discharging the executrix. That order provided in part as follows:

IT IS ORDERED that each and all of the assets of this estate, as shown by the inventory and supplemental inventory, and hereafter more particularly mentioned and described, be and the same are hereby distributed as follows, to-wit: An undivided one-half interest therein, constituting the community interest of decedent, be and the same is hereby distributed unto Myrtle Mercer, surviving wife of decedent, for her use and benefit in whatsoever way or manner the same may be necessary for her care and comfort and support during the remaining period of her life, and thereafter, in equal undivided shares unto W. H. Mercer, Velma Mercer Travis, Wata Mercer Rolph, Milton Mercer and Frances Helen Mercer Juzeler.

Petitioner did not include in her individual returns for 1942 and 1943 any portion of the income attributable to one-half of the property, as described in the order of distribution, which she considered to be acquired from Willis Mercer. However, she caused to be filed. for each of those years a fiduciary return, reporting therein one-half the total income and disbursements attributable to the property formerly owned by the community as the income of a trust in the name of the estate of Willis Mercer.

Petitioner kept no records in 1942 and 1943 segregating income or assets or reinvested assets left by Willis Mercer from her own income derived from any source. She maintained only one bank account, which was in her own name and in which all her receipts were deposited.

Petitioner's personal expenditures did not exceed $3,000 a year in either 1942 or 1943.

Respondent determined that income in the amount of $10,720.59 for 1942 and in the amount of $1,753.09 for 1943 reported in the fiduciary returns was taxable to the petitioner and accordingly asserted the deficiency which gave rise to the instant petition.

OPINION.

ARUNDELL, Judge: On behalf of the petitioner it is contended that either the will of the decedent or the decree of distribution of his estate created a trust, the income of which is taxable according to the provisions of section 161 (a) (1) of the Internal Revenue Code as "income accumulated or held for future distribution under the terms of the will or trust." We think the contention is untenable. No evidence aliunde has been submitted bearing on the intent of the testator, and all we have upon which to base our decision is the language of the testator's will. That instrument certainly was not artfully drawn to accomplish the purpose for which petitioner is contending, and we are wholly unable to spell out from its language any implied trust intent on the part of the testator.

In In re King's Estate, 144 Wash. 281; 257 Pac. 848, the Supreme Court of Washington stated that no testamentary trust will be declared except when it clearly appears that such was the testator's plain intention. Furthermore, if the will itself does not provide for a trust, then surely the decree of distribution, which is phrased in almost the identical wording of the will, can not have the effect of creating a trust.

Not only is there an absence of trust intent on the part of the decedent, but petitioner's actions do not demonstrate any understanding on her part that the property acquired by her should be held in trust. She kept no records segregating the alleged trust income from her own income, and she maintained but one bank account, in her individual name, and commingled therein both the income from her own half interest in the property of the former community and the income from the half interest acquired from her husband.

To us it appears that the more probable intent of the decedent was to give his wife a life estate in his interest in the community property, with full enjoyment of the income the property might produce during that period. Perhaps the somewhat peculiar phraseology employed is but recitative of the testator's motive in making the gift, but we think that in addition the testator wished to exempt her from the necessity of preserving the property intact for the remaindermen,

as in the case of more conventional life estates, and to allow her to consume such portion of the property itself as might be necessary for her comfort and support, should the rents, issues, and profits therefrom at any time prove insufficient for that purpose.

This construction seems to be in harmony with the decision of the Supreme Court of Washington in Porter v. Wheeler, 131 Wash. 482; 230 Pac. 640. In that case the testator's will bore a strong resemblance to the will of Willis Mercer. It provided:

I give and devise and bequeath to my wife Mary Wheeler Porter all the balance of my property real, personal and mixed of which I may die seized,

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to be used and enjoyed by her during her lifetime, and at her death, I will that all of said property not used for her support and comfort, go to my said son Alvah Porter.

And the court said:

We shall not attempt to give to this estate so vested in Mary Wheeler Porter any technical legal name. It seems to be something more than an ordinary conventional life estate, since the language of the will does not limit her right to the bare use of the property, in the sense of limiting her right to the income therefrom, with a view of preserving the property during her lifetime, but manifestly gives her the right to support and comfort from the property, even though it be consumed in furnishing her support and comfort during her lifetime.

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For the reasons stated, we conclude that the respondent's determination was correct and should be approved.

Decision will be entered for the respondent.

WILLIAM H. GROSS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 5949. Promulgated September 23, 1946.

Intrafamily partnership transaction held to result in taxable gift

under I. R. C., section 1002.

Harry J. J. Bellwoar, Jr., Esq., Theodore G. Rich, Esq., for the petitioner.

William H. Best, Jr., Esq., for the respondent.

By this proceeding petitioner seeks a redetermination of a deficiency of $51,818.06 in gift tax for the year 1942. A penalty for delinquent filing of $12,954.52 is also involved. Respondent now concedes the valuation used in arriving at the deficiency to be excessive, and that in the event a taxable gift is found, the amount should be reduced. accordingly.

The primary question is whether transfers of partnership interests between members of a family resulted in taxable gifts, under Internal Revenue Code, section 1002.

The facts were presented by stipulation and evidence adduced at the hearing. Those facts hereinafter appearing, which are not from the stipulation, are facts otherwise found from the record.

FINDINGS OF FACT.

The stipulated facts are hereby found accordingly.

Petitioner is an individual residing at Philadelphia, Pennsylvania. A delinquent gift tax return was filed with the collector of internal revenue, Philadelphia, first district of Pennsylvania.

Petitioner, some time prior to 1926, discovered a formula for a skin ointment. He gave this ointment the trade name "Mazon" and marketed it commercially with success. On December 31, 1941, Belmont Laboratories, Inc., a Pennsylvania corporation which marketed the skin ointment "Mazon" and a companion product "Mazon Soap," was liquidated and its assets distributed to its two stockholders, petitioner and Annie W. Gross, his wife. The net assets, rights, and property (tangible and intangible) of Belmont Laboratories, Inc., were received by petitioner and Annie W. Gross, in proportion to their stock ownership as a result of the liquidation, which was authorized and approved by its officers and stockholders. Petitioner received 80 per cent of the assets, and Annie W. Gross received 20 per cent thereof.

On January 1, 1942, petitioner, Annie W. Gross, B. Madalin Eckert (their daughter), and Walter L. Eckert, Jr. (their son-in-law), entered into an agreement of partnership, which provided substantially as follows:

The parties agreed to the formation of a partnership to manufacture, buy, sell, and deal in chemical compounds, and pharmaceutical preparations under the firm name and style of "Belmont Laboratories Company"; that petitioner and his wife as of the date of the agreement transferred and contributed capital assets "consisting of stock, fixtures, machinery, supplies, accounts, deposits, leases and automobiles ** designated in an inventory and valuation entered on the books of the firm as of this date," to be used in the conduct of the business; that:

4. No real estate or securities or other property excepting only such as may be required for the purposes of the business shall be purchased or sold by the partnership except with the consent of all of the members thereof. Title to any real estate or securities purchased or acquired on behalf of the partnership shall be taken in the name of the partnership.

It was further agreed that the partnership should continue for a term of one year and thereafter from year to year until written notice by a member desiring to terminate the agreement, given at least three months before the expiration of any year; that:

8. All profits, gains and increases which shall arise by reason of the operation of the partnership business shall be divided between them in the following shares

and proportions: William H. Gross 60%, Annie W. Gross 20%, B. Madalin Eckert 10% and Walter L. Eckert 10%. All obligations and losses that shall be incurred in the management and operation of the business of the partnership shall be discharged, paid and borne by the partners in like shares and proportions.

9. The said William H. Gross may draw out of the profits by equal monthly payments the annual sum of $21,000.00; the said Annie W. Gross the annual sum of $18,000.00; the said B. Madalin Eckert the annual sum of $5,200.00; and the said Walter L. Eckert the annual sum of $15,000.00 also by equal monthly payments; but if at the end of any general accounting period, it shall appear that the share of any partner of the net profits in such [period] shall not amount to the sum already drawn by him, then he shall immediately refund to the partnership such sum as he may have drawn out in excess of his net share of the profits.

10. On the last day of each quarter in every year of the partnership, a general accounting shall be taken of all moneys, debts and effects belonging or due to the partnership and of all liabilities thereof, and of all other property included in the partnership account; and the partners shall be entitled to receive their respective shares of the net profits of the business as soon after each quarterly accounting period as the general accounts have been settled. It is understood and agreed, however, that in the settlement of said accounts and calculation of profits, there may be set up for the purposes of the business such reserves for operation, accruals or contingencies as shall or may reasonably be required and that the amounts thereof shall not be withdrawn by the partners during the continuation of the partnership. The share of the net profits of each partner after deducting the amounts drawn by him shall be carried to his credit on the books of the partnership immediately after such quarterly account shall have been stated and may be drawn out by said partner at his pleasure.

11. If any partner shall with the consent of the other partners bring in or advance any additional capital or leave any part of his profits in the business, the same shall be considered a debt due to such partner from the partnership without interest, but the same shall not be drawn out except upon giving thirty days' written notice; and such partner shall be bound to draw out the same been stated and may be drawn out by said partner at his pleasure.

The agreement also provided that petitioner was to be the general manager of the business and in charge of its general policies and operations; that his wife was to be "assistant to the general manager," in charge during his absence; that petitioner's daughter was to be in charge of the books, records, office, correspondence, and filing, and that petitioner's son-in-law was to act as medical director in charge of research and all other medical matters. And it was provided that:

14. In all matters respecting the general policies of the partnership and the management and operation of the business, the expressed wish and opinion of the majority of the parties to this agreement shall govern and be binding upon the whole of said parties.

And that:

16. Each partner shall during the partnership devote his whole time diligently and faithfully to the partnership business, and shall not, either alone or in