Appeal from United States Board of Tax Appeals.
Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.
There are three cases here, involving income taxes for the year 1922, on petition for review from an order of redetermination of the United States Board of Tax Appeals. These cases were consolidated for hearing and decision. 20 B.T.A. 305.
For a number of years prior to 1920, Alpin J. Cameron and William P. Denegre were partners trading in Pennsylvania, as wool spinners, under the name of A. J. Cameron & Co. In 1920, Alpin W. Cameron, the son of Alpin J. Cameron, was made entitled to receive a quarter share of the partnership's earnings. At this time the father gave the son a $250,000 interest in the assets of the firm. The gift was accomplished by transferring that amount on the books of A. J. Cameron & Co. from the father's capital account to a similar account of the son. No revaluation of assets was made by A. J. Cameron & Co.
The several taxpayers contend that a new partnership resulted from the gift to Alpin W. Cameron and that the allowance for depreciation of the partnership should be determined on the basis of the fair market value of the assets contributed to the partnership on that date.
The Board felt that, even if a new partnership was actually formed on January 1, 920, then there was no basis for a new rate of depreciation, for there was no new cost to the old partners and no evidence of the identity of the particular part of the depreciable assets which the new partner had acquired.
Assuming the conclusion of the Board on this theory of the case to be right, yet the same conclusion may be reached on the ground that the transfer of part of the assets by the father to the son did not constitute a dissolution of the partnership.
The real question in this case is whether or not on any ground there should be a revaluation of the assets of the partnership trading under the name of A. J. Cameron & Co. because of the admission of the son as a partner on January 1, 1920.
Section 218(a) of the Revenue Act of 1921 (42 Stat. 227, 245) provides that partners shall be liable for income tax only in their individual capacities and that the net income of each partner shall include his distributive share of the net income of the partnership.
The net income of a partnership is computed as if the partnership were an individual. Section 218(c), Revenue Act of 1921 (42 Stat. 227).
Section 214(a) of the Act of 1921 (42 Stat. 239) provides:
"That in computing net income there shall be allowed as deductions: * * *
(8) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence. In the case of such property acquired before March 1, 1913, this deduction shall be computed upon the ...