Guarini v. Commissioner

*105OPINION.

The Revenue Act of 1918, section 218 (a), provides:

That individuals carrying on business in partnership shall be liable for income tax only in their individual capacity. There shall be included in computing the net income of each partner his distributive share, whether distributed or not, of the net income of the partnership for the taxable year * * *.

The record of this case establishes the fact, which also appears to be admitted, that the amounts here in controversy were a part of the gains and profits of a banking partnership during the respective years 1919 and 1920, and although agreeing that the said amounts were partnership gains and profits, petitioners contend that such amounts should not be treated as taxable income of the partners because the state statutes require them to add such amounts to their fixed capital and surplus, and that, therefore, these amounts were not distributable to the partners. This line of reasoning may seem to *106have an element of plausibility but we are convinced that it is wholly unsound. The statutory requirements regarding the capital and surplus of a banking partnership may require additions to such capital and surplus from time to time and make it necessary for the partners to furnish such funds. The statutory requirement, however, is not that such additions to capital and surplus be taken out of current earnings, in fact such additions may be supplied from any other source, and the state statutory requirements would have to be complied with even though the business produced no gains and profits. We take it also to be true that when this partnership took from its current gains and profits the amounts here in controversy it did, in fact, first distribute such amounts to the partners, who thereupon paid in such amounts to the fixed capital and surplus of the partnership, and that the amounts in question were, therefore, distributed during the year in which they were earned, and there is no provision in any taxing statute permitting the deduction of such additions to capital or surplus from gross income.

The deficiencies in income taxes for the several years here wider consideration are redetermined to be as follows• Raymond Guarini, for 1919, $228.68; 1920, $2,4.15.59; 1921, $55.20; Domenico Candela, for 1919, $244-53; 1920, $2,046.13; 1921, no deficiency, and judgment will be entered accordingly.