accountant, deputy trustee, and trustee may not be separated, in which event at least 80 per cent of the total compensation for personal services was not received in one taxable year, as is also required by section

107.

Petitioner argues, however, that he comes squarely within the provisions of section 107 because the trustee fees which he received in 1943 were for personal services rendered over a period of 15 years as an assistant to the trustees, deputy trustee, and substitute trustee of the Henry D. Lee trust estate.

We hold that respondent's determination on this issue is proper. After careful consideration of the entire record we can not agree with petitioner that his services as assistant to the trustees and as deputy trustee should be tacked to his services as trustee. We think rather that those services were complementary to and a part of his duties as an accountant for the trust estate, for which he received a remuneration separate and additional to that paid for his services as trustee. The facts disclose that his appointment as deputy was for the purpose of facilitating his duties as accountant to the trust and that the appointment was not intended to and, in fact, did not make him a trustee. Petitioner at no time prior to his appointment in 1942 acted as a trustee. He never shared in the 5 per cent trustees' fees allowed for disbursement of income prior to his appointment as trustee on November 6, 1942. No additional income was ever authorized for any duties as a deputy separate and apart from those as accountant.

Petitioner argues that the fact that he received more than the other trustees at the distribution of the trust estate indicates that his remuneration covered a period longer than that during which he served as trustee. We do not agree. It may be true that during the period in which he was a trustee he worked considerably more than the other trustees. But this does not militate against the fact that the amount in question was paid to petitioner as a trustee, in which capacity he served for a period of substantially less than 36 months.

We therefore conclude that the services performed prior to 1942 were those of an accountant and may not be considered together with his duties as trustee. It follows that petitioner does not qualify for any benefits under section 107, since his services as trustee did not. cover a period of 36 calendar months or more.

Decision will be entered under Rule 50.

893857-51- -81

RUSSELL GIFFEN, Petitioner, v. CommisSIONER OF INTERNAL
REVENUE, RESPONDENT.

RUTH P. GIFFEN, PETITIONER, V. COMMISSIONER OF INTERNAL
REVENUE, RESPONDENT.

Docket Nos. 16514, 16515. Promulgated June 26, 1950.

On the facts, held, (1) the four children of petitioners were not partners with their parents in the limited partnership of Russell Giffen & Co. and petitioners were taxable equally on all the partnership net income, and (2) respondent properly computed the income of petitioners from Russell Giffen & Co. on the basis of the fiscal year elected by the partnership rather than on the basis of the calendar year employed by petitioners in their individual tax returns.

Joseph Chanslor Kimble, Esq., T. Newton Russell, Esq., Olliver M. Jamison, Esq., and Gilbert H. Jertberg, Esq., for petitioners. W. F. McFarland, Esq., for the respondent.

The above entitled cases were consolidated for hearing. Respondent determined deficiencies in petitioner Russell Giffen's income and victory taxes for the calendar year 1943 in the amount of $26,757.22, and in his income tax for the calendar year 1944 in the amount of $110,447.97. Respondent determined deficiencies in petitioner Ruth P. Giffen's income and victory taxes for the calendar year 1943 in the amount of $50,018.07, and in her income tax for the calendar year 19!! in the amount of $132,537.97. Since the taxable year 1943 is in issue, the income tax liability of petitioners for the taxable year 1942 is also involved, due to the forgiveness features of the Current Tax Payment Act of 1943. Three questions are raised for our determination in this proceeding:

(1) Were petitioners' four children partners for Federal income tax purposes in the limited partnership, Russell Giffen & Co., during the period from October 15, 1941, through March 31, 1944?

(2) If it is held that the children were not such partners, were petitioners taxable on the whole of the partnership income, notwithstanding purported transfers to the children of property interests invested in the partnership capital?

(3) If petitioners' children are not recognized as partners, did respondent err in computing the income of petitioners from Russell Giffen & Co. on the basis of the fiscal year elected by the partnership other than on the basis of the calendar year employed by petitioners!

FINDINGS OF FACT.

Part of the facts were stipulated and are so found.

During the taxable years 1942, 1943, and 1944 petitioners Russell Giffen and Ruth Giffen resided in Fresno County, California, and each filed individual income tax returns with the collector for the first district of California. They were married on November 21, 1924, and have resided in California ever since. They have four children, Patricia, born June 27, 1925; Michael, born March 23, 1926; Carolyn, born November 13, 1927; and Price, born October 24, 1928.

During the early years of marriage Russell Giffen engaged in a farming enterprise of his own in Kern County, California. This venture ended in failure, and in 1927 he moved his family to Mendota in Fresno County, California, which is in the western part of the San Joaquin Valley. This area was undeveloped plains country devoted principally to sheep grazing. Only a limited amount of crops was grown on this land, since there was no gravity water available from nearby streams.

From 1927 until about 1932 Russell Giffen worked first as a day laborer and then as a salaried employee on a ranch in this territory. He earned extra money buying and selling remnants of cotton crops in the neighborhood. During this same period Ruth Giffen ran a clubhouse for boarders at the ranch where her husband worked, and the income therefrom was used to lodge and feed her family. Thus Russell Giffen was able to invest all his salary in cotton crops, the quantity of which he was able to increase gradually. Together petitioners discussed, planned, and saved to launch a farming venture of their own. About 1932 Russell Giffen was able to lease 80 acres of farm land and grow cotton on it. In each of the next few years he gradually expanded the acreage he had under cultivation. To finance the cotton crops he used his own savings and he also borrowed money from a branch of a credit concern, Anderson-Clayton Co.

Russell Giffen was convinced that the dry uncultivated plains country was susceptible to large scale cultivation by means of deep well irrigation and in 1934 he bought a small tract of land to test whether enough water could be found underground to support a crop. After many months of trial and error a test well pumped up a satisfactory supply of water. Following this success AndersonClayton Co. financed this farming experiment on a year to year basis. In about 1937 Russell Giffen harvested his first crop on this land. Thereafter, by purchase and by lease, he continued to expand the amount of barren land placed under cultivation, and the harvest he reaped grew larger each year.

On July 3, 1941, all the farming property, real and personal, owned by the Giffens consisted of community property achieved by labor

and capital contributed by Russell and Ruth Giffen after 1927. On that day they entered into a series of written property agreements whereby all their farming property, real and personal, was transmuted from property held in community to property held as tenants in common in equal shares.

Several reasons persuaded the Giffens to make this change in their ownership of the farming property. In the last few years the farming venture had shown promise of blossoming into a considerable financial success, even though the total amount of outstanding indebtedness was large and their property was heavily encumbered. Petitioners felt at last they had something of real value and desired to get their business affairs, which had been operated on a day to day basis, on a sound financial footing. Furthermore, lengthy consultations with tax counsel made them fear that the community property status in California, with all its tax advantages, might be abolished. Thus, by their property agreements petitioners hoped to secure permanently the right of Ruth Giffen to a portion of their farming property. regardless of the fate of community property.

In addition to planning a change in their community property status, petitioners had discussed at length the possibility of forming a corporation or partnership for their farming business and giving their children a proprietary interest therein. They had talked this matter over with counsel on many occasions and were aware of the tax savings inherent in either of these forms of business organizations. Equally important, petitioners for many years had given considerable thought to their children's future and wondered what they might do for them if the farming venture ever paid off. Such thoughts had originated in 1932, when both Ruth Giffen and two of her children were stricken with tuberculosis and forced to bed.

At the time of the property agreements of July 3, 1941, petitioners were still uncertain as to the expedient form in which to conduct the farming business and as to the best means for giving the children share in the enterprise. All the farm assets which were used in operations prior to formation of the tenancy in common remained in the enterprise thereafter. Russell Giffen continued to manage the entire conduct of the business as before.

After July 3, 1941, the discussion between petitioners and their counsel centered on the children and the form of business to be adopted. Russell and Ruth Giffen desired to give their sons and daughters separate parcels of the farming property, but it was impossible to convey such independent estates to them at that time, due to the fact all the property was encumbered with indebtednesses owing to AndersonClayton Co. This creditor looked to Russell Giffen to pay off his obligations from the proceeds of his farming enterprise. Finally,

petitioners determined to operate as a limited partnership and include their children as limited partners, with the hope that the business would be successful enough at some future time that the children might realize independent estates from their interests therein. A limited partnership agreement was drawn up, naming Russell Giffen a general partner and his wife and children as limited partners. This agreement was submitted to Anderson-Clayton Co. for its approval, not only because of present indebtednesses owed it, but because of future financing which would be necessary. Consent to the proposed partnership was given upon the promise of Russell Giffen that all the net income of the partnership would be retained and applied in reduction of indebtedness to Anderson-Clayton Co. until it was paid off, and because under the agreement full management control was vested in Russell Giffen.

In September, 1941, petitioners instructed their attorneys to proceed with the necessary legal steps to form the limited partnership. On October 14, 1941, Ruth Giffen was appointed guardian of the estates of the four minor children by order of the Superior Court of California in and for the County of Fresno. On the same day petitioners executed an instrument whereby each transferred to each of the four children one-sixteenth of his respective undivided half interest in the farm property, subject to one-sixteenth of the liabilities outstanding from the operation of the farm business. The transfers were expressly conditioned upon an order by the court having jurisdiction over the estate of each child authorizing Ruth Giffen to accept the gifts on their behalf, to invest the gifts in the limited partnership, and to execute the articles of limited copartnership on their behalf.

On October 13, 1941, by order of the Superior Court of California, Ruth Giffen was authorized as guardian of the estates of each of her children to carry out the steps upon which the transfers to the children were conditioned. The petitioners each filed a gift tax return setting forth the transfers to each child and paying the tax thereon.

On October 15, 1941, Russell Giffen, Ruth Giffen for herself individually, and their four minor children severally by their guardian, Ruth Giffen, executed a certificate of limited partnership, reflecting formation of a limited partnership doing business under the name of Russell Giffen & Co. On the same day other papers necessary for formation of a limited partnership in California were excuted, published, and recorded.

The partnership agreement named Russell Giffen as general partner and his wife and children as limited partners. It stated that the assets of the partnership were to consist of the assets of the tenancy in common of Russell and Ruth Giffen, subject to the liabilities outstanding against them. Six-sixteenths of the capital was stated to be the con