his share of the net profits of the deal. In his Federal income tax return for 1939 petitioner reported $3,650 as short term gain from the sale of the mortgage above described.

In making the purchase and sale of the mortgage option Sklarow knew nothing about any participation in the transaction by Israel Richter. Nowhere in the deal was Israel Richter recognized as a party to it.

After petitioner had given Sklarow his check for $500 to use as a deposit with the bank as earnest money to secure the purchase of the mortgage, petitioner had a conversation with his brother, Israel, in the presence of his mother, in which he agreed to make Israel a subpartner with him in whatever profits he might make from the venture, Israel agreeing that if the property was ultimately acquired under foreclosure of the mortgage he would lend his services toward putting it on the market as a subdivision. He had no training or experience whatever in subdividing real estate and putting it on the market. After the transaction was consummated and petitioner had received from Sklarow a check for his one-half of the profits, he paid over to Israel approximately one-half of the profits which he received. This payment to Israel was not made in one lump sum, but was included in several payments which extended into 1940 and approximated onehalf of petitioner's share of profits from his joint venture with Sklarow. The last of these payments is evidenced by a check for $255.40 dated November 15, 1940, which was paid to Harry E. Martin, Inc., Philadelphia, Pennsylvania, and was paid to that corporation for the benefit of Israel Richter in the purchase of an automobile for his personal use.

In an income tax return filed for the year 1939 by Israel Richter he listed as net income $4,300 and paid tax thereon. He did not state on this return the source of this $4,300 income.

Israel Richter was not a party to the joint venture or partnership between petitioner and Harry Sklarow which negotiated the purchase and consummated the subsequent resale of the Shipley farm mortgage option. Israel Richter was a subpartner with petitioner in petitioner's one-half share of the profits to be derived from the purchase and sale of the Shipley farm mortgage option by the joint venture or partnership between petitioner and Sklarow.

OPINION.

BLACK, Judge: The issues in this proceeding may be summarized as follows:

(1) Whether in the taxable year petitioner was the head of a family and entitled to the $2,500 exemption which the statute provides for the

is not lost by reason of actual failure to provide support for the family. In ruling upon that contention, among other things, we said:

It is true that under local law a husband is a head of a family and has a primary legal duty to support his wife; nevertheless, where he has neglected his legal duty and failed to exercise his legal rights as a head of a family, then, in applying a provision of a revenue act, we believe that it is in accord with the intendment of Congress to hold that another person who acts as head of the family under exercise of a moral obligation was the head of the family for purposes of taxation.

* *

(4) Actual relationship by blood, marriage, or adoption, supported by legal or moral obligation. There can be no question, we think concerning the fulfillment of this essential required by the regulations under the facts of the instant case.

Therefore, in pursuance of the Treasury regulations, supra, defining who is "head of the family," which have been approved many times by this and other courts, and following Annette Loughran, supra, we sustain petitioner as to issue 1.

It is, perhaps, proper that we mention that petitioner in his income tax return did not claim any credit for dependents. The Commissioner in his determination of the deficiency disallowed petitioner's claimed exemption of $2,500 as head of the family and substituted a personal exemption of $1,000 as a single man. In addition the Commissioner allowed petitioner a credit of $733 for dependents. The assignment of error in the petition attacks the correctness of the Commissioner's action in disallowing petitioner's claimed credit of $2,500 as the head of a family, but makes no mention of the Commissioner's determination that petitioner was entitled to a credit of $733 for dependents. Respondent in his answer does not affirmatively allege that he erred in allowing $733 credit for dependents. The credit for dependents which the Commissioner has allowed is apparently based upon a credit of $400 for Emanuel Richter, who was a minor maintained in the household for the entire year 1939, and the remaining $333 is apparently based upon a computation for the part of the year in which petitioner's mother was living, she having died after a long illness in the latter part of 1939. This credit for dependents granted to petitioner in the determination of the deficiency appears to be in accordance with the Treasury regulations. At any rate no issue is raised by the pleadings concerning this credit for dependents and, therefore, in a recomputation under Rule 50 it will remain undisturbed. Issue 2.-It is clear that petitioner's profits from the purchase and sale of the Shipley farm mortgage option were from a joint venture, or partnership, which he had with Harry Sklarow, and petitioner's brother, Israel, was in no sense a member of that partnership or joint

venture. Harry Sklarow testified that Israel was not a party in the deal and that he did not know him in any of the stages of the transaction. We do not understand that petitioner contends to the contrary, because he has requested us to make the following findings of fact with respect to the Shipley farm mortgage transaction:

24. That HARRY SKLAROW and B. NATHANIEL RICHTER entered said deal as equal partners.

25. That B. NATHANIEL RICHTER had specifically entered into a partnership agreement with ISRAEL L. RICHTER as to the remaining one-half of the deal; B. NATHANIEL RICHTER to provide the money, ISRAEL L. RICHTER to develop, sell, distribute and promote a lot subdividing project.

Thus the substance of petitioner's contention is that, while it is true that he and Harry Sklarow were partners and joint venturers in the purchase and sale of the Shipley farm mortgage and each was entitled to receive one-half the profits therefrom, nevertheless, petitioner is taxable on only one-half of his share of the profits because, prior to the earning of his share of the profits, he had entered into a subpartnership agreement with his brother, Israel, under which Israel was to receive a one-half interest in petitioner's share of the profits. Even though petitioner did enter into a subpartnership agreement with Israel under which Israel was to receive one-half of petitioner's share of the profits from the deal, and subsequently payments were made to Israel of approximately one-half of petitioner's share of the profits, it does not relieve petitioner from taxation on his one-half share of the profits which were received by him from the joint venture or partnership between petitioner and Sklarow. See Burnet v. Leininger, 285 U. S. 136; George M. Cohan, 11 B. T. A. 743; affd., 39 Fed. (2d) 540. Following the Supreme Court's decision in Burnet v. Leininger, supra, we hold that in the instant case whatever right Israel had to one-half of petitioner's share of the profits from his partnership or joint venture agreement with Sklarow in the Shipley farm mortgage deal was derived from his agreement with petitioner to be a subpartner in his interest and rested upon the distributive share which petitioner had and continued to have as a member of the partnership or joint venture of Sklarow and Richter, in which joint venture or partnership Israel was in nowise a member. The amount of petitioner's share of the net profits in that partnership or joint venture is not in dispute. Petitioner concedes that it is as computed by the Commissioner in his deficiency notice. These profits are all taxable to petitioner under Burnet v. Leininger, supra.

The Commissioner is sustained under issue 2.

Decision will be entered under Rule 50.

MINNESOTA MORTUARIES, INC., PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 2355. Promulgated November 6, 1944.

Petitioner, whose shares were owned by two individuals, derived more than 50 percent of its income in each of the taxable years from leasing certain of its buildings to an operating company, most of the shares of which were owned by petitioner. Held, the income derived from such leases was not personal holding company income under section 353 (f) of the Revenue Act of 1936, as amended, and petitioner was not a personal holding company during any of the taxable years.

Leland W. Scott, Esq., for the petitioner.

Edward C. Adams, Esq., for the respondent.

The respondent determined deficiencies in personal holding company surtax and 25 percent penalties thereon for failure to file personal holding company surtax returns (Form 1120-H) for the taxable years 1938 to 1941, inclusive, as follows:

The principal issue is whether petitioner was a personal holding company during each of the taxable years. The determination of this issue involves the question as to whether amounts received by petitioner for the use of its properties during the taxable years constituted personal holding company income under section 353 (f) of the Revenue Act of 1936, as amended, and under the corresponding provisions of the subsequent revenue acts. A second issue is whether petitioner is liable for the 25 percent penalties for failure to file personal holding company surtax returns.

Petitioner filed its income and excess profits tax returns with the collector for the district of Minnesota.

FINDINGS OF FACT.

Some of the facts have been stipulated. The stipulation is incorporated herein by reference.

The petitioner is a corporation organized under the laws of the State of Delaware. During the taxable years it kept its books and filed its returns on the cash basis. It did not file personal holding company re

turns (Form 1120-H) for any of the taxable years. Petitioner's business during each of the taxable years was the owning, holding, and management of real estate and shares of affiliated corporations and other personal property.

Prior to 1929 Walter P. Quist and N. O. Welander were separately engaged in the funeral direction business. In 1929 they entered into negotiations for the merger of their separate businesses. After discussions which continued over a period of seven or eight months, they decided to separte the holding and management of the real property necessary to the conduct of the business from the professional and personal service side of the business. They felt that in this way they could establish a more efficient plan of operation in that the cost of the individual funeral could be more easily determined. It was also believed that this arrangement would facilitate a profit-sharing plan which they had in mind for their employees, based solely upon the personal service of the employee. It was also considered advisable to separate the hazards and risks incident to the operating business from the business of holding and managing the real property. Pursuant to these discussions, two Delaware corporations were organized in 1929; namely, Welander-Quist Co. and Funeral Service Chapels, Inc. Quist and Welander transferred all of the properties of their individual undertaking businesses to the Welander-Quist Co. in exchange for all of that company's capital stock. With the exception of one qualifying share issued to a third party, the stock of the corporation was divided equally between Quist and Welander. Thereafter, the Welander-Quist Co. transferred the operating equipment and all of the other personal property held by it to Funeral Service Chapels, Inc., in exchange for most of that corporation's stock. After this transfer, the Welander-Quist Co. owned the real property and the Funeral Service Chapels, Inc., owned the equipment and other operating assets. In 1937 the name of the Welander-Quist Co. was changed to Minnesota Mortuaries, Inc., and the name of Funeral Service Chapels, Inc., was changed to Welander-Quist Co. During the taxable years the funeral directing business was operated by the Welander-Quist Co. and the title to the real property used in the operating business was in the name of petitioner, Minnesota Mortuaries, Inc. The funeral parlors of the Welander-Quist Co. were housed in buildings owned by petitioner. In each of the taxable years the Welander-Quist Co. paid petitioner $18,000 for the use of petitioner's real estate.

During the taxable years petitioner's capital consisted of 1,500 outstanding shares, of which Walter P. Quist and N. O. Welander each owned 750 shares. During the taxable years petitioner owned 85 percent of the issued and outstanding shares of the Welander-Quist Co. The remaining issued and outstanding shares of this company

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