21 T.C. 1073">*1074 Respondent determined a deficiency in estate tax in the amount of $ 22,551.11. The statement attached to the deficiency letter made adjustments in gross estate and deductions by:

(a) Increasing the value of decedent's partnership interest from $ 41,339.35 to $ 111,346.14;

(b) Decreasing accrued salary from $ 33.32 to $ 0.00 (because accrued salary had been included in the increase in value of the partnership interest);

(c) Including in gross estate the amount of $ 1,800 representing the value of an automobile;

(d) Decreasing from $ 17,425.27 to $ 0.00 the amount1954 U.S. Tax Ct. LEXIS 254">*257 of debt claimed as a deduction;

(e) Increasing the deduction for administration expenses as follows:

The parties stipulated that additional costs and expenses incurred by the executor in administering the estate, including the costs and expenses incurred in connection with this proceeding, will be allowed as additional deductions in proceedings under Rules 50 and 51.

FINDINGS OF FACT.

Robert R. Gannon died testate on October 4, 1947, at the age of 58. At the time of his death, he was a resident of Montgomery, Alabama. The First National Bank of Montgomery, Montgomery, Alabama, was duly appointed executor of Gannon's estate. An estate tax return was filed by the executor of the Gannon estate with the collector of internal revenue for the district of Alabama. The executor elected to value the property included in the gross estate under section 811 (j) of the Internal Revenue Code.

Valuation of Partnership Interest.

At the time of his death, decedent and his two brothers, John F. Gannon and Carter N. Gannon, were partners, each owning a one-third 21 T.C. 1073">*1075 interest1954 U.S. Tax Ct. LEXIS 254">*258 in the partnership known as J. W. Gannon and Company.

Under date of January 1, 1936, the three brothers entered into a partnership agreement which provided, in part, as follows:

Section 3. The capital investment of each of said partners is $ 10,000.00. Each partner owns one third of the partnership assets. The capital of the partnership and the respective capital investment of each of the partners shall not be increased or decreased without the consent of all the partners.

Section 4. Until otherwise unanimously agreed, and as long as the profits of the business permit, the monthly salary of each of the partners for services rendered to the partnership shall be as follows:

Section 5. The net profit after payment of salaries shall be divided equally between the partners at such intervals as may be agreed upon by unanimous consent of the partners.

Section 6. Any undrawn salary or profit of any partner shall remain as such and shall not increase the capital holding of such partner.

* * * *

Section 8. The partnership shall continue until dissolved by mutual agreement or by any one of the partners who may1954 U.S. Tax Ct. LEXIS 254">*259 do so upon sixty days notice thereof in writing to the other partner.

Section 9. (a) The death of any one of the partners shall not terminate the partnership insofar as the survivors are concerned, and such death shall not empower the estate or any representative of the deceased partner to require the liquidation of the partnership or the winding up of its affairs, and the survivors shall at their option either continue the operation of the business until such time as said survivors mutually agree to discontinue or said survivors may cease business and liquidate the partnership assets and pay one third of the proceeds of the liquidation to the estate of the deceased partner.

(b) Should the survivors elect to continue the business the management thereof shall vest solely in the surviving partners and the estate or other representative of the estate of the deceased partner shall have no right to take any part in the management of the business but shall at all reasonable times have access to and the right to inspect the books of the business.

(c) Should the survivors elect to continue the business the value of the interest of the deceased partner in the business shall be ascertained 1954 U.S. Tax Ct. LEXIS 254">*260 as follows: The partners shall, on or about the first of each year, agree in advance on the net value of the partnership assets and the value of the interest of the estate of any partner who shall die during that calendar year shall be one third of said net value. It is accordingly agreed that the net value of the partnership assets for the current calendar year 1936 is $ 47,402.47, and should any one of the partners die during the current year 1936 the value of his share in the partnership assets shall be one third of that amount. Should the partners fail to agree in advance on the net value of the partnership assets, then the value thereof shall be agreed upon by the survivors and the estate of the deceased partner if they can reach an agreement, but if they are unable to agree then the said value shall be submitted to competent and disinterested appraisers, of whom the survivors shall select one, and the said estate shall select one and if the two so selected cannot agree then they shall select a third and 21 T.C. 1073">*1076 the finding of the majority shall govern. In determining the said value, the value of the goodwill of the business shall not be included.

(d) When the value 1954 U.S. Tax Ct. LEXIS 254">*261 of the interest of the deceased partner has become ascertained as hereinabove provided said interest shall be paid off or liquidated as follows: (1) If there is any group or partnership insurance obtained for the purpose of liquidating the interest of the deceased partner then the proceeds of such insurance shall be so used, except that if the funds derived from said insurance are insufficient to liquidate the interest of said deceased then the balance shall be paid as hereinafter provided, but if the funds derived from said insurance are more than sufficient to liquidate the interest of said deceased then excess shall belong to the surviving partners clear of any claim of the estate of the deceased partner. Prior to the death of any of the partners all such group or partnership insurance or other insurance on the life of any partner, the premiums on which are paid out of partnership funds shall name the partnership J. W. Gannon and Company as the beneficiary and shall not name any individual of the firm as beneficiary and all such insurance shall be the property of the partnership. (2) If there be no life or group insurance, or should the proceeds thereof be insufficient, the interest1954 U.S. Tax Ct. LEXIS 254">*262 of the deceased partner shall be paid off or liquidated in cash immediately if the surplus of the partnership will permit, in the sound opinion of the survivors, without handicap to the business, otherwise it shall be paid in three annual installments, payable one third thirty days after the date of death of said partner, one third one year after the date of the said death, and one third two years after the date of said death. Said installments shall not bear interest. All amounts so paid in liquidating the interest of a deceased partner shall be paid with partnership funds and there shall be no obligation on the part of the survivors to so pay out of their personal assets.

(e) Upon the death of any partner and until the estate of the deceased partner shall have been fully liquidated the monthly salaries drawn by each of the surviving partners shall not exceed the salary each was drawing immediately prior to the death of said partner.

* * * *

Section 10. During the existence of the partnership the unanimous assent of all partners shall be necessary for any affirmative action except dissolution and winding up of the affairs of the partnership as herein provided.

Section 11. No partner1954 U.S. Tax Ct. LEXIS 254">*263 shall sell, pledge or in any way encumber his interest in the partnership without the written consent of the other partners, but each of the partners may by will or by the laws of descent and distribution pass his interest in the partnership to his estate or such legatees as he may see fit, subject, however, to the provisions of this agreement and particularly Section 9 hereof.

Section 12. No partner shall obligate the partnership in any way without the consent of the other partners. No partner shall individually endorse or become surety or guarantor for any third party without the consent of the other two partners.

Each year, as provided in section 9 (c) of the partnership agreement, the partners executed a supplement to the agreement setting forth the net value for the current year, which was the purchase price of a deceased partner's interest in the event a surviving partner elected the option to purchase.

The supplementary agreement for the calendar year 1947 signed by all of the partners on January 31, 1947, was as follows:

21 T.C. 1073">*1077 Pursuant to Section 9 (c) of Partnership Agreement of the parties of Jan. 1, 1936, it is mutually agreed that the net values of the partnership1954 U.S. Tax Ct. LEXIS 254">*264 assets of the J. W. Gannon and Company, at the close of books January 1, 1947, is $ 124,018.05.

The investment account of R. R. Gannon is $ 41,339.35.

The investment account of C. N. Gannon is $ 41,339.35.

The investment account of John F. Gannon is $ 41,339.35.

(The investment accounts were reduced as of January 1, 1947 by personal withdrawal of each partner in the amount of $ 29,569.06. See General Journal Entry of Jan. 1st, 1947.)

The reduction in investment accounts referred to in the supplementary agreement of January 31, 1947, was accomplished before the agreed valuation was determined.

In his will the decedent referred to the partnership agreement and provided as follows:

The trustee shall proceed to collect the value of my share in the business of J. W. Gannon and Company according to the partnership agreement now existing between Carter N. Gannon, John F. Gannon, and myself, which said partnership agreement is annexed to this will and made a part hereof, and the trustee is hereby specifically directed to abide by the terms of such partnership agreement. * * *

The surviving partners elected to purchase decedent's interest in J. W. Gannon and Company1954 U.S. Tax Ct. LEXIS 254">*265 in accordance with section 9 (c) of the partnership agreement and the supplemental agreement thereto for the sum of $ 41,339.35, and pursuant to the will of decedent, the partnership agreement, and the supplemental agreement, the executor sold the decedent's interest in J. W. Gannon and Company to John F. Gannon and Carter N. Gannon for that price.

Decedent's will contains no bequests to his brothers. All of its provisions are for the benefit of his wife and children.

The partnership was engaged in the business of selling automobile supplies as a jobber or wholesaler. These supplies included automobile supplies, maintenance supplies, garage repair equipment, supplies for making seat covers, and automotive paint. The partnership had no patents, exclusive franchise, or exclusive right to purchase its products which put it in a different competitive position from other competitors or others that might go into that type of business.

There were six places of business engaged in the same or similar type of business as J. W. Gannon and Company in the city of Montgomery during the years 1947-1948. Their trade territory covered that part of Alabama south of the line from Siluria, Alabama, 1954 U.S. Tax Ct. LEXIS 254">*266 and that part of Florida bordering on Alabama. In addition to the six competitors in Montgomery, there were many other competitors adjacent to Montgomery selling in the same competitive territory.

Decedent was the oldest of the brothers. The work was pretty well divided, except that he was regarded as sales manager. He handled the larger jobs and called on the principal customers.

21 T.C. 1073">*1078 The sales made by the partnership were attributable largely to personal contacts by the partners and to the personality of, and good feeling toward, the salesmen in the trade territory. The partnership did no extensive advertising at any time. The average sales of the partnership monthly for 1947 were around $ 32,000. In 1948 (after the death of Robert R. Gannon) the average monthly sales dropped approximately 25 per cent.

The net earnings of the partnership (before deducting the partners' salaries provided for in the agreement) for the period from January 1, 1947, to October 4, 1947, were $ 61,861.70. The total salaries of the partners for the same period were $ 6,393.32, and the net earnings after salaries for the same period were $ 55,468.38. The value of decedent's share in said profits1954 U.S. Tax Ct. LEXIS 254">*267 was $ 18,489.46, to which should be added his accrued and unpaid salary in the amount of $ 33.32 or a total of $ 18,522.78.

The partnership did not carry on its books as an asset any item of goodwill.

We find, upon consideration of all of the facts, that decedent's interest in the partnership had no goodwill value.

Petitioner included in the estate tax return here in issue, as item 4, under "Other Miscellaneous Property," the amount of $ 33.32 as accrued salary. Respondent reduced the item to $ 0.00, but added $ 33.32 to his determination of the value of decedent's partnership interest. The inclusion of this item in gross estate is not contested, and we have followed respondent in including it as a part of the value of decedent's partnership interest.

We find, as ultimate facts, that, as of the applicable valuation date,

(a) The value of decedent's interest in the partnership known as J. W. Gannon and Company was $ 59,922.13; and

(b) that the value so found consists of the sum of $ 41,339.35 (the agreed price provided for in the agreement dated January 31, 1947) and $ 18,522.78 (representing decedent's share of the net earnings of the partnership, after salaries, for the period 1954 U.S. Tax Ct. LEXIS 254">*268 from January 1, 1947, to October 4, 1947).

Withdrawals From Partnership by Decedent.

The partnership, J. W. Gannon and Company, filed on March 26, 1948, in the Probate Court of Montgomery County, Alabama, a claim against the estate of Robert R. Gannon, claiming that the amount of $ 17,425.27 was due the partnership on the basis of a partnership book record of withdrawals by decedent for the period January 1, 1947, to October 4, 1947. The claim was paid by the executor out of the assets of the estate, and was deducted as a debt of the decedent on the estate tax return filed by the executor. The books of the business 21 T.C. 1073">*1079 showed the indebtedness to be owing at the time of decedent's death. The amount was not shown on the books as a withdrawal of earnings, and was not charged to decedent's investment account. It was shown separately as a debit balance in his personal withdrawal account. The account consisted of 125 to 150 different personal items paid for his account. The claim was paid by the executor by deducting the amount of $ 17,425.27 from the purchase price paid for Robert R. Gannon's partnership interest. We find as an ultimate fact that, as a result of said withdrawals, 1954 U.S. Tax Ct. LEXIS 254">*269 decedent was, at the time of his death, indebted to the partnership in the amount of $ 17,425.27, and that the debt was in fact paid out of his estate by his executor by allowance of credit as above set forth.

Ownership of Automobile.

Respondent has added the sum of $ 1,800 to decedent's gross estate representing the value of a 1947 Chevrolet sedan, acquired May 7, 1947, holding that decedent "had such an interest" therein "as to require inclusion of its value" in gross estate under the provisions of Internal Revenue Code section 811 (a).

The invoice for the automobile shows that it was "Sold to Mrs. Lucy N. Gannon." Title was transferred from R. R. Gannon to her name on May 20, 1947. A license was issued in her name. The automobile that was traded in on the purchase of the Chevrolet was registered in her name at the time of the trade-in. John F. Gannon testified that he handled the purchase of the automobile and that it was owned by Mrs. Gannon. We find as a fact that the automobile in question was the property of Mrs. Lucy N. Gannon at the time of her husband's death.

OPINION.

A. Agreed Valuation in Supplemental Partnership1954 U.S. Tax Ct. LEXIS 254">*270 Agreement Not Binding on Respondent.

Petitioner included the sum of $ 41,339.35 in decedent's Federal estate tax return as the value of decedent's interest in the partnership, J. W. Gannon and Company. Section 9 (a) of the partnership agreement provided that upon the death of one of the partners, the surviving partners had the right either to continue the operation of the business or to liquidate it. The agreement further provided that if the survivors elected to continue the business, the value of decedent's interest was to be ascertained on the basis of an agreement of the partners, entered into in advance, on or about the first day of each year, 21 T.C. 1073">*1080 shortly after the figures of the previous year became available. The amount so fixed was intended to be binding upon the surviving partners and the estate of the deceased partner, in the event of the death of a partner during the year, irrespective of the actual date of death during the year in question. The partners made it a practice each year from 1936 to 1947, inclusive, to file a supplemental statement fixing the agreed value for the particular year. The value for 1947 (the year of decedent's death) was determined1954 U.S. Tax Ct. LEXIS 254">*271 to be $ 41,339.35 as of January 1, 1947. The supplemental agreement was signed by all of the partners on January 31, 1947. The date of decedent's death was October 4, 1947.

Under the terms of the partnership agreement, the surviving partners had the option to purchase decedent's interest at the price agreed upon in the supplemental agreement, or to liquidate the partnership. The first alternative was selected, and the surviving partners gave appropriate notice to decedent's executor. Transfer of decedent's interest to the surviving partners was duly made, and the agreed price was paid to decedent's executor subject to a deduction not here material.

The partnership agreement contained no provisions for fixing the value of a partner's interest for the purpose of a lifetime transfer, and had no optional provisions for lifetime transfers. The agreement provided that the partnership should continue until dissolved by mutual agreement, or by any one of the partners upon 60 days' written notice to the other partners.

The value of a partner's interest as of January 1, 1947, was not determinative in fact of the value of such interest on October 4, 1947.

Respondent urges that upon the 1954 U.S. Tax Ct. LEXIS 254">*272 foregoing facts, the agreed valuation of decedent's partnership interest as of January 1, 1947, was not binding for Federal estate tax purposes. We sustain respondent's contention in this respect upon the authority of Estate of George Marshall Trammell, 18 T.C. 662, 668.

While petitioner does not concede the correctness of our view as expressed above, he does not assert a contrary view in his brief. His argument, and the authorities offered in support of his contentions, are rather directed to the proposition that the value agreed upon by the partners was in fact the fair market value of decedent's interest in the partnership, and that such value is not to be increased for Federal estate tax purposes by any amount attributable to goodwill.

B. Decedent's Interest in Partnership Had No Goodwill Value.

Having determined that respondent is correct in his contention that the value fixed in the supplemental partnership agreement is not 21 T.C. 1073">*1081 binding upon respondent for Federal estate tax purposes, we now examine the issue of whether or not any additional value is to be attributed to goodwill. In this respect we advert to the following:

No item 1954 U.S. Tax Ct. LEXIS 254">*273 of goodwill was set up on the books of the company. The testimony of one of the surviving partners was to the effect that the partners were of the opinion that there was no goodwill value. The business of the partnership was that of a jobber selling general auto supplies to retailers by personal and direct solicitation. The partnership did no substantial advertising. It had not patents or trade-marks, and had no exclusive agency or selling rights for the sale of any of its merchandise. It faced substantial competition from numerous organizations handling the same lines and carrying on business in the same way. Except for the services of employees, including salesmen, who received compensation for their services as such, the sales and ultimate earnings of the partnership were attributable to some extent to return on investment, but otherwise, and in the main, to the personal efforts and services of the partners, including direct contacts with customers by the partners. The partners were brothers, the deceased partner being the eldest. Decedent had maintained contacts with the larger customers, and had handled the larger accounts. He was also, in a sense, the sales manager. 1954 U.S. Tax Ct. LEXIS 254">*274 Counsel for respondent conceded at the trial that there was no issue of good faith in the fixing by agreement of the value of decedent's interest in the partnership.

Respondent, in urging the existence of a substantial goodwill value, refers to the substantial earnings of the partnership and urges that such earnings were not affected by the absence of one of the partners (who was away in the armed service for 21 months beginning in January 1943) or the fact that decedent had not been as active in the business in 1947 as he had been in previous years. Respondent does not mention (although he does not deny) that the sales of the partnership fell off 25 per cent in the year following decedent's death. Respondent also relies upon the use of a formula based upon principles set forth in A. R. M. 34, 2 C. B. 31, 32. We will discuss the formula at a subsequent point in our opinion, but we feel that the convenience of continuity of discussion makes it desirable at this point to refer to our opinion in Estate of Henry A. Maddock, 16 T.C. 324, 329-331. The facts involved in the Maddock case parallel so closely, in principle, the1954 U.S. Tax Ct. LEXIS 254">*275 facts of the instant case that we quote in extenso the analysis and views expressed by Judge Arundell in that case as follows (p. 329):

Respondent attributes the greater value he has determined to the good will of Maddock and Company which he claims resulted from "such factors as longevity, established name, established products, and stability of customers," and submits that such good will was evidenced by its record of high earnings.

The factors cited by respondent are all recognized elements of good will which, although intangible in nature, constitute a business asset which cannot be disregarded 21 T.C. 1073">*1082 in determining the actual worth of a business. * * * However, in fixing the value of good will of a business, it is equally important to recognize that good will exists as a valuable asset only as an integral part of a going business and cannot be sold, donated, or devised apart from the going business in which it was developed and to which it is thereafter inseparably attached. * * *

Thus, where a dispute as to the fair market value of a business interest revolves around the existence and the value of good will, it is necessary to determine whether the business possessed1954 U.S. Tax Ct. LEXIS 254">*276 good will of any appreciable value and whether the nature of the business and the circumstances surrounding its ownership and operation were such that whatever good will it may have possessed could have survived the transfer of all or a fractional part of the going business.

We are satisfied * * * that Maddock and Company possessed little if any good will of any appreciable value * * *.

The business of Maddock and Company was not unique. The partnership had no patents or trademarks, and with the exception of one minor item of marine paint, held no exclusive agency contracts. It manufactured none of the products it sold and the same nationally known brands were available to its customers at approximately 15 other like dealers in the Philadelphia area. Its advertising program was exceedingly modest in relation to its volume of sales and its retail or counter sales to the general public constituted but a very minor part of its business. * * * the success of the partnership business was dependent to a large extent upon the ability and experience of its salesmen who had been employed in the business on an average of 30 years. The partnership held no employment contracts with its salesmen1954 U.S. Tax Ct. LEXIS 254">*277 and at no time did it have any practical means of insuring the continuance of their services. Moreover, it appears from the testimony of various witnesses that both partners were active in the day-to-day operation of the business, and that of the two partners, the decedent was more widely known and enjoyed the reputation of being the dominant partner. It was certain that upon the death or withdrawal of either partner, the business would be deprived of his business ability and any good will attributable to his presence therein.

Respondent based his determination of the existence and the value of good will primarily upon the partnership's record of high earnings. In Estate of Leopold Kaffie, 44 B. T. A. 843, wherein the same issue was presented and the same formulae for the valuation of good will were employed by the respondent, we emphasized that it does not necessarily follow from the fact that a business enjoys large earnings that it possesses any appreciable good will. We pointed out that "the large earnings may be due to the efforts of the partners, to the exercise of business judgment, or to fortuitous circumstances in no wise related to good1954 U.S. Tax Ct. LEXIS 254">*278 will." In our opinion, such factors were chiefly responsible for the success enjoyed by Maddock and Company. Moreover, we think it is of particular significance that in determining the value of the decedent's interest herein, respondent selected a 10-year period of earnings from 1938 to 1947, inclusive, which period embraced 7 years of abnormally high business activity resulting from the demands of war production and postwar reconversion to consumer goods.

We now turn to a consideration of the significance, if any, of the principles of A. R. M. 34, 2 C. B. 31, 32 as reflecting upon the question of goodwill value in the instant case.

It is obvious that a formula does not of itself create goodwill value. On the other hand a formula may, in a proper case, be of great value in the solution of the difficult problem of determining goodwill value. 21 T.C. 1073">*1083 The advantage of the use of a formula, however, presupposes that it is sound in principle and that it is applied to proper primary premises of fact applicable to the special circumstances in relation to which it is used.

The respondent offered as his only witness the internal revenue agent who investigated1954 U.S. Tax Ct. LEXIS 254">*279 the Federal estate tax return here in question. No effort was made to establish that the agent was qualified to express an opinion as to goodwill value. Respondent's counsel twice stated that he was not asking the witness to express an opinion, but was merely asking him to state the manner in which he had calculated the value of the partnership as a whole, and the goodwill value which was included as one of the elements of his valuation. The Judge presiding in the case stated several times that he did not understand that the witness was offered as a qualified valuation expert, and counsel for respondent made no objection to these statements. Respondent apparently produced the witness solely to explain the calculations which went into the determination of valuation set forth in the deficiency notice, which mentioned unexplained lump-sum valuation figures. Respondent's brief appears to assume that the principles of A. R. M. 34 are self-operative, and that the premises upon which its application is based may be assumed.

We are, of course, mindful of the fact that the burden of proof is upon petitioner, but we are faced with the task of determining the probative value, if any, of1954 U.S. Tax Ct. LEXIS 254">*280 the affirmative testimony of the witness.

We need go no further than to mention that one of the significant factors on which the calculation of the witness was based was the assumption that the total average fair compensation for the services of the partners was $ 8,400. The witness took these figures from the partnership agreement. The most casual examination of the record discloses that the amounts provided for in the agreement for "salaries" were merely nominal, and had no relationship whatever to the fair value of the services of the partners or fair compensation therefor. A proper assessment of fair compensation or of the appropriate amount of the earnings of the partnership to be attributed to the services of the partners is an essential requirement for the application of the formula. We find that this factor was grossly underestimated by the agent, and that the possible usefulness of the formula dissolves with such underestimation. We have already expressed our opinion that the earnings of the partnership were attributable to return on investment and the activities of the partners, compensation to salesmen and other employees having been deducted in determining average1954 U.S. Tax Ct. LEXIS 254">*281 earnings which constituted likewise a factor in the application of the formula. We add that in considering our attribution of earnings to the services of the partners we were not influenced by the opinion testimony of the accountant who appeared as a witness for petitioner.

21 T.C. 1073">*1084 We find on the basis of the foregoing that the testimony of the internal revenue agent had no probative force in respect of valuation issues.

We conclude, upon our own analysis of the facts, and upon the authority of Estate of Henry A. Maddock, supra, that decedent's interest in the partnership had no goodwill value.

C. Decedent's Share of Partnership Profits From Agreed Valuation Date to Date of Death Included in Valuation of Partnership Interest.

Decedent's one-third interest in the net profits of the partnership, after salaries, from January 1, 1947, to October 4, 1947, was $ 18,522.78. We conclude that the value of decedent's interest in the partnership must be increased to reflect this amount. We realize that decedent's executor and the surviving partners construed the partnership agreement to the effect that decedent's estate was entitled to no part of these1954 U.S. Tax Ct. LEXIS 254">*282 profits, and it appears that no part thereof was paid to decedent or decedent's estate.

We are not called upon to resolve any issue between decedent's executor and the surviving partners on the question of whether or not decedent's estate should have received any share of the profits. We have already held that the agreed valuation of decedent's partnership interest was not binding upon respondent. We again call attention to the fact that the agreed valuation was as of January 1, 1947, and not as of October 4.

In order to aid us in our consideration of the valuation issue, petitioner's counsel attached to his brief as exhibit B an opinion of counsel addressed to the trust department of the First National Bank of Montgomery, Alabama. In reviewing the issue before us, we think it appropriate to quote one sentence of the opinion as follows:

My information is that the partners had established a custom of declaring net profits under Section 5 only on December 31 of a given year and that no demand for a determination at any other time was made at any period during 1947 by any of the partners, though apparently under the language of Paragraph 5 net profits might have been declared1954 U.S. Tax Ct. LEXIS 254">*283 at any time upon unanimous consent. [Italics supplied.]

The opinion does not consider whether the surviving partners could have refused, unreasonably, to determine and pay over to decedent his share of profits had he made appropriate demand as of October 4, 1947.

We call attention to the following possibilities under the partnership agreement:

(a) If the surviving partners had elected to liquidate the partnership upon decedent's death, his estate would have received one-third of the proceeds of liquidation, including profits (section 9 (a)).

21 T.C. 1073">*1085 (b) The same rights would have accrued to decedent in the event of dissolution of the partnership during his lifetime, whether by mutual agreement or upon notice by any of the partners (section 8).

(c) While decedent could not have sold his partnership interest during his lifetime without the consent of the other partners (section 11), his power to cause a dissolution might well have induced the other partners to buy his interest, or consent to its sale, had he desired to sell it. The remaining partners might have welcomed the opportunity to purchase his interest during his lifetime, if he had been willing to dispose of it.

We have1954 U.S. Tax Ct. LEXIS 254">*284 no doubt that if decedent had been a "willing seller" of his partnership interest on October 4, 1947, he would have insisted that his share of the profits be included in the selling price and that a "willing buyer" would have had no reasonable objection to his proposal.

We have noted the fact that petitioner elected the optional valuation date for the purpose of valuing decedent's interest in the partnership. It is clear that petitioner's election cannot affect the amount to be attributed to decedent's share of the earnings upon the facts in this case. In this respect, we need merely cite the material provisions of Regulations 105, section 81.11 as follows:

In valuing the gross estate under the optional valuation method, all of the property interests existing at the date of death which are a part of the gross estate as determined under the subsections of section 811, as amended, constitute the property to be valued as of one year after the date of the decedent's death, or as of the date of decedent's death, or as of some intermediate date. Such property is hereinafter referred to as "included property". "Included property" as of the date of the decedent's death remains "included1954 U.S. Tax Ct. LEXIS 254">*285 property" for the purpose of valuing the gross estate under the optional valuation method even though it is changed in form during the optional valuation period by being actually received, or disposed of, in whole or in part, by the estate. * * *

We hold, on the basis of the foregoing discussion, that the amount of $ 18,522.78, representing decedent's share of the partnership net earnings after salaries for the period from January 1, 1947, to October 4, 1947, must be added to the agreed valuation in determining the value of decedent's interest in the partnership for Federal estate tax purposes as of the agreed valuation date. The sum of $ 33.32, representing decedent's accrued salary, has been included in our valuation. Petitioner does not contest the inclusion of the latter amount in gross estate.

We have already found as a fact that decedent was indebted to the partnership at the time of his death in the amount of $ 17,425.27 on the basis of certain withdrawals; that claim for the above amount was filed in decedent's estate; and that the indebtedness was paid by deducting 21 T.C. 1073">*1086 the amount of the debt from the agreed value of decedent's1954 U.S. Tax Ct. LEXIS 254">*286 interest in the partnership. It is clear that the debt was one properly allowed under the laws of the State of Alabama, and, assuming the correctness of our finding that the amount in fact represented a debt, respondent does not dispute the proposition that, under ordinary circumstances, the item would be deductible under the provisions of Internal Revenue Code section 812 (b).

Respondent's contention is set forth in his brief as follows:

The Commissioner in his determination of the assets of J. W. Gannon and Company, and decedent's interest therein, took into account the $ 17,425.27 withdrawn by decedent; therefore, to allow the deduction under schedule K of the estate tax return would amount to a duplication of deductions.

Respondent's further reasoning appears to be to the effect that, if the value of decedent's interest in the profits of the partnership from January 1, 1947, to October 4, 1947, is not added to the value of decedent's interest in the partnership, the total of withdrawals by decedent during the same period should not be allowable as a debt. It is only in relation to this reasoning that we find any possible basis for the contention that the allowance of the debt1954 U.S. Tax Ct. LEXIS 254">*287 would amount to a duplication of deductions.

Since we have increased the value of decedent's interest by the amount of his share of partnership earnings for the above period, we assume that we have eliminated, in practical effect, the suggested duplication with which respondent is concerned.

Our finding that the 1947 Chevrolet sedan (included in gross estate by respondent at a value of $ 1,800) was in fact owned by decedent's wife at the time of his death is sufficient for us to hold that the item is not includible in gross estate under the provisions of Internal Revenue Code section 811 (a) in the light of the limited issue raised by respondent. Respondent admits that the record title was in the name of the wife, but asserts that the automobile was a "family" car and that decedent had such an interest therein as to require the inclusion of its value in gross estate. Respondent did not assert in his deficiency notice, or in the brief filed on his behalf, that this small item was the subject of a transfer in contemplation of death.

We find upon the record that petitioner has met the burden of proof by affirmative evidence that the automobile was owned1954 U.S. Tax Ct. LEXIS 254">*288 by decedent's wife at the time of his death, and that the record does not support respondent's contention that decedent had such an interest in the automobile (which interest is not described by respondent) which would require the inclusion of the value thereof in gross estate.

Since the issue of contemplation of death is nowhere suggested we find no reason to discuss it.

21 T.C. 1073">*1087 The parties have stipulated that the additional costs and expenses incurred by the executor in administering the estate, including the costs and expenses incurred in this proceeding, will be allowed as additional deductions under Rules 50 and 51.

Decision will be entered under Rule 50.