4 T.C. 1169">*1169 These proceedings, consolidated for hearing, involve income tax deficiencies for 1940 and 1941 as follows:

The question in issue is whether the petitioner is taxable on all or upon only one-half of the income from a restaurant business, rentals from certain real1945 U.S. Tax Ct. LEXIS 183">*184 estate, and income from an oil and gas lease.

FINDINGS OF FACT.

Petitioner is a resident of Kalamazoo, Michigan. He filed his income tax returns for 1940 and 1941 with the collector of internal revenue for the district of Michigan, at Detroit.

Petitioner and his father entered into the restaurant business on a small scale at South Haven, Michigan, in 1925. They borrowed the capital to establish the business. Petitioner's father sold out his interest to petitioner's brother, Ward A. Webster, in 1926. Thereafter, until 1935, petitioner and his brother operated the business as partners. Their wives helped them in the business during that period. Petitioner's wife worked regularly; except for a part of 1929, as cashier, fountain girl, waiting on tables, making salads and sandwiches, and helping with the menus. During the busy season she sometimes worked as much as 12 or 14 hours a day. She received no regular compensation for her services but during the summer months of 1932 and 1933 she, and also the wife of the petitioner's brother, drew $ 10 per week.

4 T.C. 1169">*1170 In 1928 petitioner and his wife purchased a lot in South Haven, on which they built a house in which they thereafter1945 U.S. Tax Ct. LEXIS 183">*185 lived. The deed to the property was taken in their joint names. The money used to pay for the lot and to build the house all came out of the restaurant business.

In September 1935 petitioner sold his interest in the restaurant business to his brother, Ward A. Webster, for $ 14,000, receiving $ 4,000 cash and an interest-bearing promissory note for the balance. Petitioner deposited the cash received in a joint account in his and his wife's name at the Citizens State Bank, South Haven, Michigan.

Prior to February 26, 1936, petitioner and his wife made a number of trips to Kalamazoo for the purpose of selecting a site for a new restaurant. On that date a lease was taken on a vacant lot at 618 West Michigan Avenue, on which petitioner erected a "dining car" type building and opened a restaurant known as Hollys Grill. The lease was taken in petitioner's name. A loan of $ 6,000 was obtained from the F. H. A. on application made in the name of Hollys Grill and signed by petitioner and his wife. Petitioner and his wife both signed the promissory note given to secure the loan.

Soon after establishing the business in Kalamazoo petitioner and his wife opened an account at the American1945 U.S. Tax Ct. LEXIS 183">*186 National Bank of Kalamazoo in the name of Hollys Grill, in which they deposited funds transferred from their joint account at the South Haven bank. The signature card under which the account was opened stated that:

The undersigned desire to open a joint account in The American National Bank of Kalamazoo, and do hereby agree to all the rules and regulations governing checking accounts of said bank and funds therein deposited, and further agree that funds deposited to the credit of said account, or any part thereof, or any interest or dividend thereon, may be paid to any one of the undersigned whether the other or others be living or not, on receipt or acquittance of the person so paid.

It is hereby agreed that the interest of the undersigned in this account is and shall be joint and several and said bank is hereby authorized to offset and charge to said account any and all indebtedness due and or owing to it from the undersigned or either of them at any time it may so elect.

Petitioner's wife was authorized to draw, and did draw, a number of checks on the account in payment of operating expenses of the restaurant during 1940 and 1941.

Receipts from the restaurant business were deposited1945 U.S. Tax Ct. LEXIS 183">*187 in the "Hollys Grill" account at the American National Bank. At a later date another joint bank account was opened with the First National Bank of Kalamazoo. Transfers to this account from the Hollys Grill account at the American National Bank were made from time to time, which money was used for living expenses of the petitioner and his wife. Both petitioner and his wife drew funds from this account.

There was also deposited in the Hollys Grill account at the American National Bank the balance of the payments received from petitioner's brother on the sale of the business at South Haven and the rents on 4 T.C. 1169">*1171 the home which petitioner and his wife had built there before moving to Kalamazoo. These rentals amounted to $ 261.15 for 1940. There was also deposited in that account, in December 1938, $ 2,500 which petitioner and his wife borrowed on a mortgage on their South Haven residence on which they were jointly obligated.

On March 26, 1938, petitioner and his wife purchased a vacant lot at 645 West Michigan Avenue. The deed was made out to them as tenants by the entirety. The property was purchased with funds borrowed from petitioner's uncle and aunt on a promissory note1945 U.S. Tax Ct. LEXIS 183">*188 signed by both petitioner and his wife. The note was secured by a first mortgage on the property. It bore interest at 5 percent, payable monthly, and the principal was to be paid at the rate of $ 1,000 per year. The note was paid off and the mortgage discharged by August 14, 1943. During 1940 and 1941 the property was rented to a chain grocery store for use as a parking lot at an annual rental of $ 1,200.

On October 26, 1938, petitioner purchased a one-seventh interest in an oil and gas lease and oil well known as "Harpham" for $ 5,100, which he withdrew from the Hollys Grill account. The income from the one-seventh interest amounted to $ 3,721.87 in 1940 and $ 4,818.51 in 1941. This income was also deposited in the Hollys Grill account at the American National Bank.

In the fall of 1938 petitioner decided to open another restaurant in Kalamazoo. He acquired a lease on a three-story building located at 128 East Michigan Avenue, for which he paid $ 2,500 by check drawn on the Hollys Grill account. The ground floor of the building was used as a restaurant and the upper floors were rented. These rentals amounted to $ 215 for 1940 and $ 550 for 1941. Petitioner and his wife both1945 U.S. Tax Ct. LEXIS 183">*189 went to Chicago to purchase the equipment for the restaurant. This restaurant was also known as "Hollys Grill."

On December 15, 1938, petitioner executed a bill of sale to his wife of an undivided one-half interest in the restaurant business, conducted under the name of Hollys Grill, and also assigned to her a one-half interest in the leased property located at 128 East Michigan Avenue, an undivided one-half interest in the lease on the 618 West Michigan Avenue property, and an undivided one-half interest in his one-seventh interest in the oil and gas lease. These assignments were delivered to petitioner's wife and have been kept in her possession up to the present time. They covered substantially all of the property then owned by petitioner or petitioner and his wife, except that already held in their joint names.

On May 22, 1940, petitioner filed a gift tax return for 1938 in which he reported a gift of a one-half interest in the restaurant business, including equipment, stock, etc., of a declared value of $ 9,776.53 and also a one-half interest in the lease at 128 East Michigan Avenue to which no value was ascribed. It was stated in the gift tax return under 4 T.C. 1169">*1172 "Description1945 U.S. Tax Ct. LEXIS 183">*190 of Gift, Motive, and Donee's Name and Address" as follows:

One half interest in Dining Car and equipment including Stock and Fixtures located at 618 W. Michigan Ave. less Current Bills and Notes Payable.

To make wife partner in fact as well as name. For services rendered during the years 1926 to 1934. One Half interest in lease of vacant Store located at 128 E. Michigan Ave. and future interests.

To Mrs. H. D. Webster

2402 W. Main St.

Kalamazoo, Michigan

After the business was opened at Kalamazoo, and until some time in 1939, petitioner's wife continued to do about the same work at the restaurant as she had done at the restaurant in South Haven. She assisted in hiring the help, selecting uniforms and draperies, and preparing menus, and performed other duties of a supervisory nature. She was particularly busy at the time of the opening of the second restaurant at 128 East Michigan Avenue. As the business became better established she took a less active part in it and during the years 1940 and 1941 rendered services only in emergencies.

In 1939 and 1941 certain policies of fire insurance and other insurance on the restaurant properties and liability insurance covering the employees1945 U.S. Tax Ct. LEXIS 183">*191 were taken out in the name of "Hollis Webster, doing business as Hollys."

The property tax notices and tax receipts were made out to "H. D. Webster, Hollys Grill," or "Hollys Grill, H. D. Webster." The social security reports for the quarters ended March 31, 1940 and 1941, were signed by "H. D. Webster, doing business as Hollys Grill."

The net income from the restaurant business amounted to $ 8,378.01 for 1940 and $ 10,477.26 for 1941. Petitioner filed partnership returns in the name of "H. D. and Etna E. Webster" for 1940 and 1941 which showed distributable net income of $ 13,776.03 for 1940 and $ 13,364.78 for 1941. These amounts included all of the income of the restaurant business, the rentals received from the property at 645 West Michigan Avenue and 128 East Michigan Avenue and the South Haven residential property, and also the income from the Harpham oil and gas lease. Petitioner and his wife each reported one-half of the distributable income shown on the partnership returns in their individual returns for 1940 and 1941.

The respondent determined in his deficiency notices that there was no partnership between petitioner and his wife in 1940 or 1941:

* * * with respect to1945 U.S. Tax Ct. LEXIS 183">*192 the earnings of either a restaurant business; the earnings of certain rental properties; and/or the earnings of a certain working interest in an oil and gas lease and an oil well. Accordingly, the net earnings from said sources are held taxable to you for the year 1940 in the total amount of $ 13,776.03 [for the year 1941 in the respective amounts of $ 10,477.26, $ 1,750, and $ 4,818.51] under the provisions of Section 22 (a) of the Internal Revenue Code.

4 T.C. 1169">*1173 OPINION.

The evidence is that the restaurant business was begun by petitioner on a small scale, with borrowed capital, and that he and his wife worked together for many years in making it a success. The wife had a real stake in the business. This was recognized by petitioner from the beginning. The income from the business was all kept in joint bank accounts and petitioner and his wife were jointly obligated on loans which they incurred in its operation. Petitioner and his wife have always treated the earnings from the restaurant business, as well as other income, as belonging to them jointly. The assignments which petitioner made to his wife on December 15, 1938, of a one-half interest in the real estate and the1945 U.S. Tax Ct. LEXIS 183">*193 oil and gas lease were in recognition of her equitable interests in those properties.

The facts are much like those in Felix Zukaitis, 3 T.C. 814. We held in that case that a husband and wife were equal owners in a beer distributing business to which the wife had contributed capital and services over a long period of time and that the wife was taxable on one-half of the income of the business. See also Max German, 2 T.C. 474.

A different question would be presented if petitioner had been the sole owner of the business and his wife had made no contributions of capital of her own or her services. Cf. Schroder v. Commissioner, 134 Fed. (2d) 346; Mead v. Commissioner (C. C. A., 5th Cir.), 131 Fed. (2d) 323; certiorari denied, 318 U.S. 777">318 U.S. 777; Earp v. Jones, 131 Fed. (2d) 292; Tinkoff v. Commissioner, 120 Fed. (2d) 564; certiorari denied, 314 U.S. 581">314 U.S. 581.

In addition to the income from the restaurant business, petitioner and his wife also1945 U.S. Tax Ct. LEXIS 183">*194 received rentals from the several parcels of real estate and royalties from the oil and gas lease above described. There were three separate real estate properties, the South Haven residential property, the vacant lot at 645 West Michigan Avenue, Kalamazoo, and the upper floors of the restaurant building at 128 East Michigan Avenue. Title to the South Haven property was taken in the joint names of petitioner and his wife. We think that petitioner's wife was the owner of a one-half interest in the property and that she was taxable on one-half of the rentals therefrom.

Petitioner acquired the lease on the premises located at 128 East Michigan Avenue with funds withdrawn from the Hollys Grill account, in which was deposited all of the income from the restaurant business, as well as that of petitioner and his wife from other sources. The funds in that account were the property of both petitioner and his wife. Likewise, the lease purchased with those funds was their joint property and the income therefrom was joint. Moreover, petitioner's wife would be entitled to one-half of the rentals from the property by 4 T.C. 1169">*1174 reason of the assignment to her of a one-half interest in the1945 U.S. Tax Ct. LEXIS 183">*195 lease which petitioner made on December 15, 1938. That assignment was made in recognition of the wife's equitable interest.

What has been said of the 128 East Michigan Avenue property is also true of the 618 West Michigan Avenue property and the oil and gas lease. There is no question but that petitioner made valid assignments of a one-half interest in those properties to his wife on December 15, 1938. The income from the properties, we think, belonged in equal shares to petitioner and his wife regardless of whether they were partners in the restaurant venture. See Champlin v. Commissioner, 71 Fed. (2d) 23; McKee v. Alexander, 48 Fed. (2d) 838; First National Bank of Duluth, Administrator, 13 B. T. A. 1096; Alfred Hafner, 31 B. T. A. 338; Max German, supra.

Title to the 645 West Michigan Avenue property was taken by petitioner and his wife as tenants by the entirety. It has been held that under the laws of the State of Michigan the income from property so held is taxable equally to the husband and wife. Commissioner v. Hart, 76 Fed. (2d) 864;1945 U.S. Tax Ct. LEXIS 183">*196 affirming 27 B. T. A. 528; Herman Gessner, 32 B. T. A. 1258. In instances like the present one, where the income consists entirely of rentals and not from the conduct of any business enterprise, there could be no reason for taxing either spouse on more than his or her half.

Decisions will be entered under Rule 50.

Opper, J., concurring: The statement of facts makes it appear that this business was operated as a sole proprietorship, notwithstanding formal references to the wife as a "partner." If this were justified, it would seem to me to constitute acceptance of the masquerade of one well recognized method of doing business under the purely technical and insubstantial guise of a wholly different one. Cf. Gregory v. Helvering, 293 U.S. 465">293 U.S. 465. And a mere sharing in the profits after they were earned, no matter how meticulously engaged in, would not be sufficient. Burnet v. Leininger, 285 U.S. 136">285 U.S. 136.

The record, however, contains such evidence as the following:

Q. Will you tell us whether or not you and Mr. Webster ever discussed the policies and1945 U.S. Tax Ct. LEXIS 183">*197 the business of the restaurant?

A. Yes, of course we did.

This and similar indications of the actual operation of a partnership business constitute the factual premise for the result arrived at which would to my mind be the appropriate subject for inclusion in the findings of fact. Cf. Felix Zukaitis, 3 T.C. 814, 815, 819, with Max German, 2 T.C. 474. Since they appear in the record, however, the conclusion reached seems to me to be correct, and I concur in it.