This conveyance was not recorded. Petitioner's wife, as trustee, gave her note in the amount of $ 20,973.20 to petitioner.

On January 11, 1941, at the suggestion of Lemm to facilitate the improvement of the nonincome-producing properties, an agreement was entered into by petitioner, petitioner's wife as trustee, Lemm, 12 T.C. 146">*151 Katheryn E. Lemm (Lemm's mother), Cecelia E. Goodman, and Mathilda M. Kirchner, as follows:

Partnership Agreement

Dated Jan. 11, 1941 (effective Jan. 1) between the respective undersigned owners of fractional interests in the equity of non-income producing properties located in the District of Columbia known as (a) Lot 24 Square E.1264 [2401 Q Street], (b) Lot 20 Square 99 [1240 -- 20th Street], (c) Lot 23 Square E.1264 [2501 Q Street], and (d) a $ 500 equity in Lots 817-9-20-22 Square 1923 [3130 Wisconsin Ave.], 1949 U.S. Tax Ct. LEXIS 281">*292 -- the percentage of ownership therein by each party being set forth opposite the respective signatures of the parties hereto.

It is agreed that if the vacant piece of ground in the 1300 block of Conn. Ave. [1359 Connecticut Ave.] can be bought for not more than $ 1800 cash (and the approximate balance of $ 31,000 of the purchase price can be paid by giving mortgages thereon), the same shall be bought and improved and each to bear his or her proportionate cost in the same proportion as applies to the above. That upon completion of construction on any item and the ascertainment of the cost thereof, each party to bear his or her proportionate part thereof.

The parties agree to work harmoniously together in the hopes that several or all of these properties may be improved and thus relieve the present carrying charges, and that nothing shall be done or decisions made with respect thereto without consent of all.

Witness their hands and seals.

1949 U.S. Tax Ct. LEXIS 281">*293 Prior to January 2, 1941, petitioner and Lemm each owned a one-half interest in the 2401 Q Street and 1240 20th Street properties. Some time prior to the execution of the agreement of January 11, 1941, the latter transferred three-fourths of his interest in such properties 12 T.C. 146">*152 and in the 2501 Q Street property to Cecelia E. Goodman, Mathilda M. Kirchner, and his mother, each receiving one-fourth thereof.

The building on the 2501 Q Street location was completed in May or June 1941. It was then rented to the United States Government, which occupied the premises during the taxable years. There was a first trust of $ 300,000 and a second trust of approximately $ 30,000 on the property. After the property was rented, it required no management, services, or care on the part of the coowners other than the receipt of the rental checks, the property being in the custody and care of the Public Buildings Administration.

A contract for the purchase of 3130 Wisconsin Avenue was entered into on November 18, 1940, with the intention of erecting thereon an apartment house. A down payment of $ 500 was made, of which petitioner contributed $ 250 and Lemm, Cecelia E. Goodman, Mathilda M. 1949 U.S. Tax Ct. LEXIS 281">*294 Kirchner, and Lemm's mother each contributed $ 62.50. A verbal understanding was had, however, with Henry W. Heine, president of a building and supply company, that the latter would refund $ 250 of the $ 500 down payment and, in addition, provide the necessary cash to obtain title to the property and to do all other financing required, for which he would receive a one-half interest. Subsequent to January 11, 1941, title was obtained in the name of Heine and A. Edward McGarry. Petitioner and Lemm did not know the exact relationship between Heine and McGarry and always dealt with Heine. The latter furnished the necessary funds to obtain title and also arranged for a construction loan in June 1941, in the amount of $ 700,000. With moneys thus secured, an eight-story apartment building was constructed on the premises. In the construction of the building, Heine was the "main man." He dealt with the subcontractors, was in daily contact with them, and saw to it that they obtained the required materials. Upon the completion of the building in the early part of 1942, it was placed under the management of a real estate firm, which managed and operated the property, including the renting1949 U.S. Tax Ct. LEXIS 281">*295 of apartments, the collection of rents, and the payment of expenses. Such firm managed the property during the years here involved. No services were required of the coowners of the property in connection with the operation or management thereof. On October 14, 1943, the interest of Heine was acquired by the other coowners.

The 1359 Connecticut Avenue property was acquired in May 1941 for the purpose of erecting thereon a two-story building, the lower floor of which was to be used as a restaurant. The acquisition and development of the property was handled by Lemm. The petitioner knew very little about it. Nicholas J. Gaston, a business broker, 12 T.C. 146">*153 participated with Lemm in the acquisition. Gaston represented some experienced restaurant operators who were interested in establishing a restaurant on the first floor of such building and who deposited $ 2,300 as security for rent. A prospective tenant for the second floor deposited $ 500, making a total of $ 2,800. The purchase price was about $ 32,000, of which $ 1,100 or $ 1,200 was paid in cash and the remainder was covered by a first and a second mortgage. An additional loan of $ 8,280 was made to finance the construction1949 U.S. Tax Ct. LEXIS 281">*296 of the building. Upon completion of the building, the first floor was occupied by the above mentioned restaurant operators, who provided all of their own fixtures and equipment. No janitor or maintenance services were required, each tenant taking care of his own. Management of the building was turned over to a rental agency. No services of any kind in connection with the property were required of the coowners thereof. Upon acquisition of title, Gaston received an undivided one-third interest, which was later purchased by the other coowners.

The petitioner, at the time of his marriage, was a bricklayer and made subcontracts in that connection. The buildings on the three above mentioned properties were erected and completed by subcontractors other than petitioner.

It was the practice of Lemm and petitioner and their transferees to keep record title to the various properties in the name of a "straw" or nominee, who in turn would give deeds to the coowners evidencing their interest, which deeds were not recorded. When any change occurred in the ownership, or a new mortgage was made, new deeds were executed and given to the coowners to bring their interests up to date. The prior1949 U.S. Tax Ct. LEXIS 281">*297 deeds were surrendered and marked canceled on the face thereof. Thus the contract of purchase of the Wisconsin Avenue property was made in the name of James Y. Wilson, a straw, who had no actual interest in the contract. Title was taken in the names of Heine and McGarry and the deed to them was recorded. However, in the latter part of April 1941, Heine requested Lemm to prepare a deed from him to a straw, as he did not want to hold record title to the property in his name. On May 19, 1941, Heine and McGarry and their respective wives conveyed the property to petitioner, which conveyance was recorded on June 12, 1941. On June 19, 1941, petitioner and his wife conveyed by deed a one-fifth undivided interest in the property and rental income thereof to his wife as trustee of the four trusts hereinbefore mentioned, and an undivided one-fourth interest to Lemm, Cecelia E. Goodman, Mathilda M. Kirchner, and Lemm's mother, which deeds were not recorded. On October 14, 1943, Heine and his wife conveyed their undivided one-half interest in the property to 12 T.C. 146">*154 petitioner, which conveyance was recorded on October 20, 1943. On October 19, 1943, petitioner and his wife conveyed an1949 U.S. Tax Ct. LEXIS 281">*298 undivided two-fifths interest in the property to petitioner's wife, as trustee, and an undivided one-half interest to Lemm, Cecelia E. Goodman, Mathilda M. Kirchner, and Lemm's mother, each taking an undivided one-eighth interest as a tenant in common, which two conveyances were not recorded. The deeds of June 19, 1941, were surrendered to Lemm and across the face thereof was written the following: "This deed cancelled October 19, 1943, by the execution of new deed dated October 19, 1943, to bring it up to date." The deed of October 19, 1943, to petitioner's wife as trustee was similarly canceled on June 12, 1947, when a new deed from petitioner conveying an undivided two-fifths interest (one-tenth for each trust) in the 3130 Wisconsin Avenue and 2501 Q Street properties, and other properties, was given in place of the prior deed. The deed of June 12, 1947, contained the following provision:

This deed may be withheld from record to facilitate execution of necessary papers by a single record title holder; it being agreed that all leases and rental arrangements from time to time affecting any and all of said real estate, heretofore or herefter executed or made by grantor (including1949 U.S. Tax Ct. LEXIS 281">*299 trusts signed and moneys received from refinancing), were and will also be for the proportionate benefit of grantee; and grantor therefor hereby assigns an undivided one-tenth interest therein to the aforesaid grantee under each trust, making a total of two-fifths under the four trusts.

Record title to the 1359 Connecticut Avenue property was in the name of Mary Jane Hovis, who had no interest in the property. She conveyed on May 9, 1942, a four-fifteenths undivided interest in the property to petitioner's wife as trustee, which conveyance was not recorded. It was canceled on October 19, 1943, when a new deed conveying to such trustee an undivided two-fifths interest in the property was executed. This latter deed was not recorded and was subsequently canceled upon the sale of the property.

Record title to the 2501 Q Street property was in petitioner's name. As to this property, petitioner and his wife executed two deeds on June 19, 1941, one, conveying a two-fifths undivided interest to his wife as trustee and the other conveying a one-half undivided interest to Lemm and his transferees, as of which date prior deeds held by them were canceled. The June 19, 1941, deeds were canceled1949 U.S. Tax Ct. LEXIS 281">*300 as of October 19, 1943, and new deeds executed on October 19, 1943, which deeds were canceled on June 12, 1947, and new deeds executed. None of the deeds, except the original deed to petitioner, was recorded.

Keeping record title in the name of a straw or nominee is a practice generally followed in the District of Columbia where property is owned by more than one person. It facilitates dealing with the property in 12 T.C. 146">*155 that the signature of only one person and his spouse, if any, is required. It also facilitates title searches. Another reason for the practice is that some owners do not wish their interests in real property to be of record. Lemm did not want his interest to be disclosed of record.

Books of account were set up and kept by Lemm. Petitioner knew very little about the books of account. Capital accounts were set up for each one of the parties to the agreement of January 11, 1941, in which their respective interests in the properties were credited. The net income in their respective shares was also credited to each account.

During the years 1941 to 1943, payments out of income aggregating $ 93,300 were made on the principal of loans outstanding on the properties1949 U.S. Tax Ct. LEXIS 281">*301 involved.

Petitioner and Lemm each received a salary of $ 3,600 for each of the years 1942 and 1943. In most instances, Lemm, who represented all the parties to the agreement of January 11, 1941, made final decisions. He did most of the work required in connection with the properties. Lemm entered into contracts with subcontractors, which contracts were signed by petitioner as record owner.

During 1942 petitioner's wife, as trustee, received $ 3,000 and during 1943 she received two payments of $ 1,600 each from the net rentals. The amounts were used for the payment of income taxes for the trusts and insurance of the beneficiaries. None of it was used for household expenses, for the support of petitioner and his wife, or for the payment of any of their obligations.

The petitioner's wife visited the Wisconsin Avenue premises during the construction of the building thereon on the average of about twice a week. At such times, she talked with the superintendent. She recommended the painting subcontractor for that building, who had done similar work on the 2501 Q Street property and in petitioner's home. She also recommended the plastering, painting, and roofing subcontractors for1949 U.S. Tax Ct. LEXIS 281">*302 the 2501 Q Street building. During the construction of that building she also visited there from time to time. She made some objections as to the proposed plans for and use of the second floor of the building on 1359 Connecticut Avenue. It was later rented to another tenant, who remodeled the second floor to suit himself.

On or about March 16, 1942, petitioner filed a gift tax return for 1941 in which he reported gifts of the aggregate stated value of $ 12,801.50, including a gift on January 2, 1941, in trust to his four minor children in the aggregate stated value of $ 3,144, and a gift to his wife as of June 3, 1941, of a one-half interest in the equity in an apartment house known as 1916 R Street, Northwest, Washington, D. C., of the stated value of $ 9,657.50.

12 T.C. 146">*156 Fiduciary income tax returns were filed for 1941, 1942, and 1943 for each of the four trusts involved herein.

Partnership returns (Form 1065) for the years 1938 to 1943, inclusive, were filed in the name of "Jerry Maiatico." In the returns for 1938 and 1939 the partners were stated to be the petitioner, Grace Burnap Everett, and Lemm. In the 1940 return the partners consisted of petitioner and Lemm. The partners1949 U.S. Tax Ct. LEXIS 281">*303 designated in the 1941 return were the same as reported in the 1942 and 1943 returns. The income reported in the partnership returns for 1942 and 1943 consisted of rentals received from the 2501 Q Street, 1359 Connecticut Avenue, and 3130 Wisconsin Avenue properties. The net income reported for 1942 and 1943 was $ 47,771.90 and $ 80,601.09, respectively. The share of each partner in that net income and the time devoted to the business of the partnership by each partner are stated in the returns for 1942 and 1943 as follows:

The address of Cecelia E. Goodman was given on the returns as Columbia, Missouri, and the addresses of both Katheryn E. Lemm and Mathilda M. Kirchner were given as Minneapolis, Minnesota.

1949 U.S. Tax Ct. LEXIS 281">*304 The reported distributions to petitioner and Lemm in 1942 and 1943 included a salary of $ 3,600.

In his returns for 1942 and 1943 the petitioner reported the respective amounts of $ 7,657.19 and $ 10,940.44 as received from the "Jerry Maiatico" partnership. In determining the tax liability of petitioner for 1943, the Commissioner included in petitioner's taxable income for 1942 the amount of $ 16,105.60 and for 1943 the amount of $ 29,360.11, the amounts distributable to petitioner's wife as trustee for their four children as shown in the partnership returns. The Commissioner's explanation for such adjustments as given in the notice of deficiency was as follows:

It is held that no part of the rental income distributed on the partnership return filed under the name of Jerry Maiatico, Woodward Building, Washington, D. C., to the trusts created for the benefit of Mary Rose Maiatico, Michael Maiatico, 12 T.C. 146">*157 Rose Marie Maiatico, and Anna Maiatico is taxable to the beneficiaries of the trusts but is taxable in full to you.

OPINION.

The respondent contends that the net rental income reported in the 1942 and 1943 partnership returns as distributable to petitioner's wife as trustee for1949 U.S. Tax Ct. LEXIS 281">*305 each of their four minor children is taxable to petitioner under section 22 (a) of the Internal Revenue Code and the rule enunciated in Helvering v. Clifford, 309 U.S. 331">309 U.S. 331, and Harrison v. Schaffner, 312 U.S. 579">312 U.S. 579. He further contends that the agreement of January 11, 1941, was ineffective to constitute Rose Maiatico, as trustee, a partner with the owners of the other fractional interests in the various properties held by them.

Although the petitioner maintains that the January 11, 1941, agreement created a valid partnership for income tax purposes, his contention, upon which most of his argument is based is that income derived from a fractional interest in real property owned absolutely by petitioner's wife, as trustee, is not taxable to petitioner, citing George K. Brennen, 4 T.C. 1260; Paul G. Greene, 7 T.C. 142; and Edwin F. Sandberg, 8 T.C. 423. In those cases it was held that income derived from real property held by husband and wife as tenants by the entirety was taxable one-half to each spouse. The petitioner 1949 U.S. Tax Ct. LEXIS 281">*306 concedes that the tenancy of the petitioner and his wife, as trustee, is a tenancy in common. He contends, however, that the rule is the same with respect to the income therefrom.

It is well settled that, in order to sustain a family partnership for tax purposes, it must be shown that the members of the family taken into the partnership either invested capital originating with them or substantially contributed to the control and management of the business, or otherwise performed vital additional services, or did all of these things. Commissioner v. Tower, 327 U.S. 280">327 U.S. 280; Lusthaus v. Commissioner, 327 U.S. 293">327 U.S. 293. The capital contributed to the partnership was transferred by petitioner to his wife, as trustee, as a gift, except for the fractional interest in the 2501 Q Street property, for which the wife as trustee gave her note in the amount of $ 20,973.20. The trust estate provided no income and presumably the note was to be paid out of the income or proceeds of the property if and when improved and rented or disposed of.

The children, beneficiaries of the trusts, were minors and there is no evidence that they contributed1949 U.S. Tax Ct. LEXIS 281">*307 any services whatsoever. As to the services performed by petitioner's wife, the evidence is somewhat contradictory. The evidence does not disclose that she substantially contributed to the control and management of the business, or otherwise 12 T.C. 146">*158 performed vital additional services. When asked what the work of his wife consisted of with respect to the business connected with the properties involved, petitioner stated:

Well, she go around on the job. She come out to see how everything getting along, just like the rest. They was doing the same thing. I was doing the same thing myself. We had a superintendent on the job. We had engineer on the job. And anyone was practically doing anything except watching the job grow.

The partnership returns disclose that petitioner's wife and Cecelia E. Goodman, Katheryn E. Lemm, and Mathilda M. Kirchner each contributed 5 per cent of their time to the business. The returns also disclose that the last named three partners were not residents of the District of Columbia, their addresses being given as Columbia, Missouri, and/or Minneapolis, Minnesota. Whatever services were rendered by the wife were minor and of such a character as services1949 U.S. Tax Ct. LEXIS 281">*308 often performed by a wife interested in the business affairs of her husband. On the other hand, the record discloses that whatever essential services were required in the control and management of the properties and in their improvement and securing the financing therefor were performed by petitioner, Lemm, and former coowners whose interests were acquired. After the three properties from which the income was derived in the taxable years were improved, two were operated and managed by rental agencies, and the other required no management or services, the tenant taking care of the same.

In 327 U.S. 280">Commissioner v. Tower, supra, the Supreme Court stated that if the end result of the creation of a family partnership, though valid under state law, is that income produced by the husband's efforts continues to be used for the same business and family purposes as before the partnership, failure to tax it as the husband's income would frustrate the purpose of section 22 (a), and that "By the simple expedient of drawing up papers, single tax earnings cannot be divided into two tax units and surtaxes cannot be thus avoided."

In 309 U.S. 331">Helvering v. Clifford, supra,1949 U.S. Tax Ct. LEXIS 281">*309 the Supreme Court stated:

* * * Technical considerations, niceties of the law of trusts or conveyances, or the legal paraphernalia which inventive genius may construct as a refuge from surtaxes should not obscure the basic issue. That issue is whether the grantor after the trust has been established may still be treated, under this statutory scheme as the owner of the corpus. * * * In absence of more precise standards or guides supplied by statute or appropriate regulations, the answer to that question must depend on an analysis of the terms of the trust and all the circumstances attendant on its creation and operation. And where the grantor is the trustee and the beneficiaries are members of his family group, special scrutiny of the arrangement is necessary lest what is in reality but one economic unit be multiplied into two or more by devices which, though valid under state law, are not conclusive so far as § 22 (a) is concerned.

12 T.C. 146">*159 Herein the trustee is the wife of the grantor. The petitioner's investment in the properties involved was comparatively small except his investment in the 2501 Q Street property, the cost to him, according to his testimony, of four-fifths 1949 U.S. Tax Ct. LEXIS 281">*310 of his one-half undivided interest being $ 20,973.20. The 2501 Q Street property, the 3130 Wisconsin Avenue property, and the 1359 Connecticut Avenue property were improved with borrowed funds. On the Q Street property there were first and second trusts of approximately $ 330,000. On the Wisconsin Avenue property a construction loan of $ 700,000 was made. On the Connecticut Avenue property there were first and second mortgages of approximately $ 31,000 and an additional amount of $ 8,280 was borrowed to finance the construction of the building thereon. During the years 1941 to 1943, payments aggregating $ 93,300 out of the income from the property were made on the principal of the loans outstanding on the properties. At the outset, it was known that the income from the properties would necessarily have to be used for the payment of the loans and interest thereon, and that there would be little income, if any, which the trustee would receive and retain under her dominion and control. Neither did she have dominion and control of the corpus of each trust. The undivided interests in the properties were transferred to the trustee with the understanding that title of record would1949 U.S. Tax Ct. LEXIS 281">*311 be held by a straw "authorized to hold and deal with the property and/or proceeds without disclosing the interests of silent co-owners or designating that it was so held." The petitioner held record title as straw to the Wisconsin Avenue and the 2501 Q Street properties. None of the conveyances to trustee were recorded; neither were the trust agreements recorded. The net income allocated to the wife as trustee was not paid to her. She merely received $ 3,000 in 1942 and $ 3,200 in 1943, which amounts were used for the payment of income taxes for the trusts and insurance for the beneficiaries. Obviously, the trustee had no funds with which to pay such items. Petitioner, as well as Lemm, received a salary of $ 3,600 in 1942 and 1943. Thus the income allocated to petitioner and his wife as trustee, which was produced by the efforts of petitioner and others, not including his wife or children, continued to be used for the same business and family purposes as before the creation of the trusts and the partnership. So far as dominion and control over the properties and business were concerned, or so far as the use of the income derived therefrom was concerned, the creation of the 1949 U.S. Tax Ct. LEXIS 281">*312 trusts or the partnership made no substantial change.

The cases cited by petitioner are distinguishable. None of them disclose the peculiar circumstances involved herein. In each such 12 T.C. 146">*160 case title to the property involved was taken and held in the name of taxpayer and his wife. The wife had control in the sense that no conveyance thereof could be made without her signature and consent. In the Greene case, the checks for the rent of the property involved were drawn to the order of the taxpayer and his wife. In the Brennen case, the moneys derived from the coal lands were deposited in a joint account of taxpayer and his wife designated "Special." The wife assisted in the office work in connection with the mining operations. She made up pay rolls, signed checks, and took orders for the sale of coal and coke in the absence or disability of the taxpayer or either of the clerks. In the Sandberg case, the wife, among other things, always answered the telephone at their home, which was used as an office, took messages, handled invoices, and collected rents. When the properties were sold, the receipts were placed in bank accounts in the joint names of taxpayer and1949 U.S. Tax Ct. LEXIS 281">*313 his wife, to which each had full access.

In Euterpe Economos v. Commissioner, 167 Fed. (2d) 165, the taxpayer, sole owner of a cafeteria, created a trust for each of her minor children, naming her sister as trustee and agreeing to operate the cafeteria as partner with the trustee. Each trust received a one-fourth interest in the cafeteria, but neither the trustee nor the beneficiaries performed any services for the business. The court therein stated, in part, as follows:

* * * A gift of an interest in a family business, whether absolute or in trust, which makes no real change in the economic situation of the group or in the control or management of the business will not reduce the obligations of the donor to account for and pay income tax on the enterprise to the same extent as before the gift was made.

That petitioner transferred by deed an undivided interest in the properties to the trustee and that she thereby became a tenant in common is not determinative under the circumstances herein. As stated in Paul G. Greene, supra, cited by petitioner:

* * * mere passage of title to income-producing property through devices1949 U.S. Tax Ct. LEXIS 281">*314 which are valid under state law will not relieve the transferor from tax on the future income unless the passage of legal title is accompanied by a complete shift of economic benefits of ownership, direct and indirect. 309 U.S. 331">Helvering v. Clifford, supra. Thus the transferor may remain liable for tax on income even though title to the property from which it has been derived or to the income itself has "vested" in another under state law. Lucas v. Earl, supra; Commissioner v. Harmon, 323 U.S. 44">323 U.S. 44.

We hold that the partnership, so far as petitioner's wife as trustee is concerned, is not recognizable for income tax purposes, and that petitioner is taxable under section 22 (a) of the Internal Revenue Code12 T.C. 146">*161 on the income of the partnership for the taxable years distributable to petitioner's wife, as trustee for their four children, as shown in the partnership returns.

Decision will be entered for the respondent.