14 T.C. 17">*17 Petitioner challenges respondent's determination of deficiencies in income tax for the years 1944, 1945, and 1946 in the respective amounts of $ 17,085.07, $ 49,566.69, and $ 28,727.64. Respondent has conceded error in attempting to tax1950 U.S. Tax Ct. LEXIS 302">*303 to petitioner all the income of a certain trust for benefit of Samuel Feldman, petitioner's son. The only issue in contest is whether respondent was correct in refusing to recognize the trust as a partner in the firm of Brooks Clothes and taxing to petitioner that portion of the firm income credited to the trust.

FINDINGS OF FACT.

Petitioner resides in Baltimore, Maryland, and he filed his income tax returns for 1944, 1945, and 1946 with the collector for the district of Maryland.

In 1934 petitioner opened a business in Norfolk, Virginia. Later in that year the business was incorporated, and petitioner's brothers, Jack, Al, Edward, and Julius Feldman, became corporate officers. The original business consisted of several retail clothing stores. Within two years factories were acquired and subsequently the retail business expanded. On December 1, 1941, the five brothers executed a written partnership agreement, continuing the business under the name of Brooks Clothes. At that date the capital of the partnership was $ 250,000, to which contributions were made in the following proportions: Petitioner, 35 per cent; Jack, 20 per cent; Al, Edward, and Julius, 15 per cent each. The1950 U.S. Tax Ct. LEXIS 302">*304 agreement provided, among other matters, that profits were to be shared and losses borne in proportions equal to the capital contributed. Each of the partners was to be delegated certain duties. Only Jack had authority to sign checks or contracts. The agreement provided that the concurring vote of four partners was necessary to determine whether the profits of the business should be withdrawn or credited to capital. The agreement further provided that upon the death of any one of the partners the legal representatives of the deceased partner should sell to the partnership, and the partnership should purchase, the interest of the deceased 14 T.C. 17">*18 partner in the partnership; each of the surviving partners to be obligated to purchase and pay for such portion of the interest of the deceased partner as the value of his interest might bear to the total value of the interest of all the surviving partners. In addition, the instrument provided that, notwithstanding any other provisions of the agreement, upon the death of petitioner and Jack Feldman the partnership business should be liquidated as promptly as possible.

Petitioner's son, Samuel Feldman, was born on May 30, 1929. In 19381950 U.S. Tax Ct. LEXIS 302">*305 or 1939 Samuel started to work at the Baltimore store, engaging in tasks such as wrapping packages, delivering clothes to customers, and running errands. From that time Samuel worked regularly in the Baltimore store on Saturdays, in the evenings after school hours and before the store closing time of 9 p. m., and during the summer vacation months. In 1942 Samuel began to take on the duties of a salesman and cashier. Samuel was encouraged by all the partners to take an active part in the business. His education and activities were directed towards that end. In 1942 petitioner proposed that he give to Samuel part of his interest in the business. At that time the only other male child of the Feldman brothers was one infant. The brothers were interested in taking in members of the younger male generation. However, they would not have accepted as a partner an individual outside of the family. Petitioner was aware of the tax advantages which he might gain.

On July 1, 1942, petitioner executed a declaration purporting to assign an interest in the partnership to Maurice Feldman, as trustee, for the benefit of petitioner's son, Samuel. Maurice Feldman, petitioner's brother, was a1950 U.S. Tax Ct. LEXIS 302">*306 physician and had not previously been associated with the business. He agreed to serve as trustee. The following are the provisions of the trust instrument:

Whereas, I, the undersigned Herman Feldman, of Baltimore City, State of Maryland, have this day caused the transfer of a certain portion of my interest in the partnership business known as Brooks Clothes, to my brother, Maurice Feldman, as Trustee, for the benefit of my son, Samuel Feldman, as hereinafter provided, I do by these presents make known and declare the terms of the said transfer and trust.

1. Together with my brothers, Jack Feldman, Al Feldman, Julius Feldman, and Edward Feldman, I am a member of a partnership engaged in the clothing business in Baltimore City under the firm name of Brooks Clothes. My share in the said partnership has until this date been a thirty-five per cent (35%) interest in its capital and net profits. In order to provide an independent estate for my son, Samuel Feldman, I have this day, with the consent of my partners, caused to be assigned on the books of the partnership thirteen per cent (13%) interest in the capital of the said business (and the same has been charged to my thirty-five 1950 U.S. Tax Ct. LEXIS 302">*307 per cent (35%) interest) to my brother, Maurice Feldman, in special trust and confidence, nevertheless, to hold the said interest for the use and benefit of my son, Samuel Feldman, until he shall have attained the age of twenty-one (21) years.

14 T.C. 17">*19 2. (a) The said Trustee is hereby specifically authorized to engage in the clothing business as a partner in Brooks Clothes; or in the event of the termination of the said partnership or his withdrawal therefrom, in his sole discretion to invest, and from time to time to reinvest, the proceeds in any other business, or to purchase stocks, bonds or other securities of any form, or real or personal property, and he is hereby authorized to mortgage, lease, sell or otherwise deal in such property to the fullest extent.

(b) The said Trustee shall pay all necessary expenses of the trust, including taxes, and shall retain and add to the corpus of the estate any net income or profits from his investment in the said partnership, or from any reinvestment of the trust property, and shall make no distribution to my said son during the period of his minority for any cause whatsoever. Any share of the profits of the business that may, under the partnership1950 U.S. Tax Ct. LEXIS 302">*308 agreement, be credited to the said Trustee in excess of the necessary expenses, including taxes, may in his discretion and with the consent of the other partners be permitted to remain with the partnership as an account payable to the Trustee, or may be reinvested by him in the said partnership business, or may be otherwise invested. Any deficiency which may be charged against the Trustee by reason of losses of the partnership shall be considered as an account receivable, or may be charged to the Trustee's capital account, as he and the other partners may agree. The Trustee may repay any such deficiency out of any funds in his possession, and he is authorized for this purpose to raise cash by the sale of any investments or assets in his hands. In selling assets of the trust estate, the Trustee is hereby given full power and authority, and persons dealing with him shall not be required to look to the application of the purchase money. After the said beneficiary shall have attained the age of twenty-one (21) years, the trust shall terminate and the Trustee shall turn over and deliver all of the trust property, both principal and income then remaining in his hands, unto my said son, 1950 U.S. Tax Ct. LEXIS 302">*309 free, clear, and discharged of all trusts.

(c) In the event of my death before my son has attained the age of twenty-one years, the Trustee may, in his sole discretion, expand for the use and benefit of my son any income or profits which may have accrued, or may thereafter accrue, upon the trust property.

3. Any payment made by the Trustee to the beneficiary shall be made into the hands of the said beneficiary personally and not unto any other person whatsoever, whether claiming by his authority or otherwise, so that the said property may not be liable for the debts, contracts, or engagements of such beneficiary, or be taken in execution, attachment or garnishment or other legal or equitable proceedings while in the hands of the Trustee; nor shall any payments of principal or interest be subject to anticipation during the minority of my said son.

4. In the event of the resignation or inability of the said Trustee to serve, my wife, Fannie Feldman, shall become trustee in his stead, and if for any reason she is unavailable then such other person as the said Trustee may designate in writing shall succeed him as Trustee. In the event of the death of the above named Trustee, my wife, 1950 U.S. Tax Ct. LEXIS 302">*310 Fannie Feldman, shall succeed him in the trust, and if she is unavailable the new trustee shall be such other person as the above named trustee, Maurice Feldman, may appoint in his last will and testament. Any successor trustee shall be clothed with the same power, authority and discretion as the original trustee, and both the original trustee and any successor shall be excused from the necessity of furnishing bond and shall not be liable for mistake of judgment or negligence but only for wilful breach of trust committed mala fide.

5. If my said son, Samuel Feldman, should die before the entire trust property, including principal and income, shall have been distributed to him in 14 T.C. 17">*20 accordance with the terms of this Declaration of Trust, then the trust property shall pass to such person as he may appoint in his will; and if he leaves no will or fails to make such designation the trust property shall pass free, clear and discharged of the trust to his mother, if living, otherwise to his sister, Shirley Ann Katz.

6. The Trustee above named and any successor trustee shall serve without compensation.

7. I hereby declare that I have retained and shall have no beneficial interest 1950 U.S. Tax Ct. LEXIS 302">*311 whatsoever in the said trust property, the said transfer being made in consideration of natural love and affection, and I hereby relinquish all power to revoke or modify this trust or to exercise any control over its administration.

On July 1, 1942, the six Feldman brothers, petitioner, Jack, Al, Julius, Edward, and Maurice as trustee, executed an agreement stated to be supplemental to the original partnership agreement. That supplemental agreement provided as follows:

Jack Feldman, Al Feldman, Julius Feldman and Edward Feldman, co-partners with Herman Feldman in the partnership business conducted in Baltimore City under the firm name of Brooks Clothes, do hereby agree with Maurice Feldman, Trustee for Samuel Feldman, as follows:

1. The said co-partners consent to the transfer by Herman Feldman to Maurice Feldman, as trustee under the Declaration of Trust of this date, of thirteen per cent (13%) of the capital of the said partnership, and hereby accept the said trustee as an additional partner in Brooks Clothes; and they agree that thirteen per cent (13%) of the net profits thereof shall be payable to Maurice Feldman, Trustee, as distribution of profits may from time to time be made1950 U.S. Tax Ct. LEXIS 302">*312 to the partners, as hereinafter provided in paragraph 5 of the original partnership agreement of December 1, 1941, as amended; and it is understood and agreed that neither the said Trustee nor the beneficiary named in the trust shall receive any salary or drawing account from the said partnership independent of services rendered merely on account of the fact that the Trustee is a partner hereunder.

2. The Trustee shall not participate in the purchase of any deceased or withdrawing partner's interest, but Herman Feldman shall participate in such purchase to the extent provided in the original partnership agreement of December 1, 1941, as though no trust had been created.

3. Paragraph 5 of the partnership agreement of December 1, 1941, is hereby amended to read as follows:

5. The partners shall be entitled to share in the profits of the business, and shall bear all losses happening in the course thereof, in the following proportions:

Out of the first $ 20,800.00 of net profits in each of the periods, January 1 to June 30 and July 1 to December 31, in each year, the partners shall receive as their respective shares the following:

Kern, Judge, concurring: I1950 U.S. Tax Ct. LEXIS 302">*327 concur in the result, in spite of the very slight variances between the facts here present and those existing in other cases involving the question of the validity of a family partnership which reached a different result. The decision of a family partnership case necessitates the consideration and the weighing by the trial judge of many factors. Those factors material to such a decision have been enumerated in the Culbertson case. The weight to be given any of those factors must necessarily be a matter for the judicial discretion of the judge presiding over the trial of the case (of course, within limits of reason). In the instant case, the judge writing the majority opinion herein has considered the factors enumerated in the Culbertson case as material to the solution of the problem posed. He has accorded weight to the several factors considered in a manner consistent with reason and sound discretion. I, therefore, concur with his ultimate factual conclusion.

Black, J., dissenting: I am unable to agree with the majority opinion, which holds that the trust for Samuel Feldman, petitioner's minor son, was not a partner in the business partnership known as 14 T.C. 17">*27 1950 U.S. Tax Ct. LEXIS 302">*328 Brooks Clothes. The holding that the trust for Samuel Feldman was not a partner is based upon an ultimate finding of fact made by the majority as follows:

The parties did not, acting in good faith and with a business purpose, actually intend that the trust join together with petitioner and his brothers as a partner in carrying on business.

How the majority is able to make such a finding in face of the facts in the record of evidence as disclosed by the findings of fact which immediately precede it, is more than I can see. A trier of facts may not draw inferences which are altogether contrary to the facts proved and have no substantial evidence to support them. To use the language of the United States Court of Appeals for the District of Columbia in the recent case of Wenig v. Commissioner, 177 Fed. (2d) 62, reversing a memorandum opinion of the Tax Court:

We neither question nor depart from the findings of basic facts as made by the Tax Court. But we think its conclusions are not within the realm of legitimate inference from the record as a whole or from the specific facts found. * * *

Such is my view in the instant case. I have carefully 1950 U.S. Tax Ct. LEXIS 302">*329 read and examined the findings of fact submitted by Judge Opper, who tried the case, and adopted by the majority, and, with the exception of the ultimate finding to which I have just made reference, these facts seem full and fair. I am unable to find in them a single fact which, in my judgment, justifies the ultimate finding that the parties did not, in good faith, intend to take the trust in as a partner.

What are the facts? Briefly, they are these: Petitioner Herman Feldman and four of his brothers were partners together in a clothing business, and Herman owned a 35 per cent interest therein. He decided in 1942 to give his son Samuel a 13 per cent interest in this business, and he did so through the medium of a trust. The provisions of this trust indenture are incorporated in the findings of fact and they seem to me to show a perfectly valid, irrevocable trust by which petitioner conveyed 13 per cent of his interest in Brooks Clothes to the trustee for the benefit of his son Samuel. Of course, it is true that this conveyance of the 13 per cent interest in Brooks Clothes to the trustee did not make the trust a partner in the business. One can not give a part of his interest 1950 U.S. Tax Ct. LEXIS 302">*330 in a partnership business to someone else and make that other person a partner in the partnership business, especially where there are other partners involved. They have to be consulted and give their consent before the trust can be made a partner. Therefore, if petitioner had stopped with the conveyance of 13 per cent of his interest to the trust, the trust would not have thereby become a partner and it might well be that petitioner would still be taxable on 35 per cent of the profits of the partnership, even though he would have to account to the trust for 13 per cent of the profits. Cf. Lucas v. Earl, 14 T.C. 17">*28 281 U.S. 111">281 U.S. 111. But petitioner did not stop there. He and his brothers who were partners in Brooks Clothes got together and agreed to take the trust into the partnership. The findings of fact state:

On July 1, 1942, the six Feldman brothers, petitioner, Jack, Al, Julius, Edward, and Maurice as trustee, executed an agreement stated to be supplemental to the original partnership agreement.

Then follows the supplemental agreement, which, so far as I can see, was a perfectly good legal agreement whereby Maurice, as trustee, was made a member1950 U.S. Tax Ct. LEXIS 302">*331 of the partnership. Thereafter the trust was paid its full share of the profits in accordance with the agreement and on October 1, 1946, when the partnership was dissolved and the business was incorporated, stock in the new corporation was received by the trustee for Samuel Feldman in proportion to the trust's interest in the partnership. What more than the foregoing facts would a taxpayer have to prove in order to establish the bona fides of a partnership? I am at a loss to know. In holding that petitioner has not met his burden of proof to show the bona fides of the partnership, the majority opinion, among other things, says:

Assuming that capital was a vital income-producing factor, no showing is made of what function that capital performed. No aid is thereby furnished in solving the dilemma that, if the capital transferred to the trust was an essential element of the earning power of the business, the gift could not have anticipated its withdrawal by the trustee, since that would have destroyed or crippled the enterprise; whereas if it was not, no, essential contribution was made by the trust. * * *

Just what is meant by the foregoing language is difficult for me1950 U.S. Tax Ct. LEXIS 302">*332 to understand. If by it is meant that a trustee of a trust which has received a conveyance of an interest in partnership property can not become a partner in that partnership by proper agreement entered into with the other partners using the interest conveyed to the trust as its contribution to the capital of the partnership, then it seems to me that holding is contrary to the weight of authority and is wrong. Cf. Thompson v. Riggs (CA-8), 175 Fed. (2d) 81. The Thompson v. Riggs case was a case tried before a jury in the United States District Court for the Eastern District of Arkansas. The jury found that the six trusts involved had become, by agreement of the parties, bona fide members of the J. A. Riggs Tractor Co., a partnership. From the judgment of the District Court entered on this verdict, the collector of internal revenue appealed. The United States Court of Appeals affirmed the judgment, holding that there was substantial evidence to support the verdict of the jury. The circumstances as to how the six trusts became members of the partnership in that case were briefly these: Riggs, Sr., owned a 60 per cent interest in the partnership1950 U.S. Tax Ct. LEXIS 302">*333 of J. A. Riggs Tractor Co. and his son owned 40 per cent. To use the language of the court:

14 T.C. 17">*29 Taxpayer was then in bad health and desired to retire from active management and to have his son take over control. To accomplish these purposes and to provide for his wife and the family of his son (wife and four children), he irrevocably created six separate individual trusts, conveying to each a 5% interest in the partnership business from his 60%. Right after creation of the trusts, a new partnership contract was executed by taxpayer, his son, and the trustees of the six trusts. * * *

The court concluded on these facts and other facts in the record that there was a valid partnership for Federal income tax purposes.

While there are some differences in the facts of the instant case from the Thompson v. Riggs, case, supra, I would not think these facts are sufficiently different to distinguish the two cases.

For the foregoing stated reasons, I respectfully dissent from the majority opinion.