The opinion of the court was delivered by: WATSON
These actions were brought to recover refunds of income taxes which, plaintiffs allege, were collected from plaintiffs contrary to law for the years 1944, 1945 and 1946. The four cases were tried together by the Court without a jury.
From the stipulations of fact and the legal evidence, the Court makes the following
1. Plaintiffs Harry Dickstein and Samuel Dickstein are citizens of the United States of America and residents of the City of Scranton, Commonwealth of Pennsylvania, and were such in the years 1944, 1945 and 1946. Each plaintiff filed federal income tax returns for each of the above-mentioned years, upon the cash and calendar year basis, with defendant, who was the duly commissioned, qualified and acting United States Collector of Internal Revenue for the Twelfth (12th) Collection District of Pennsylvania with his offices in the City of Scranton, Pennsylvania, and was such at the time these suits were instituted.
2. In 1913, plaintiff Samuel Dickstein organized a business of manufacturing pants and overalls under the name of Anthracite Overall Manufacturing Co. in the City of Scranton, Pennsylvania. In 1916, plaintiff Harry Dickstein was admitted as a partner; in 1920, Joseph M. Harris was admitted as a partner and, in 1941, Herbert Dickstein, a son of plaintiff Harry Dickstein, was admitted as a partner.
3. In 1924 plaintiffs and Joseph M. Harris formed a partnership with Theodore Koppelman to manufacture pants and trousers under the firm name of Lackawanna Pants Manufacturing Company, in which plaintiffs and Joseph M. Harris had a two-thirds (2/3) capital interest and Theodore Koppelman had a one-third (1/3) capital interest.
4. On January 3, 1927, plaintiffs entered into a new written agreement of partnership with Joseph M. Harris and Theodore Koppelman for the business of Lackawanna Pants Manufacturing Company. Under this agreement, each plaintiff owned a capital interest in the business equal to sixteen and two-thirds (16 2/3) per cent of the total.
5. Theodore Koppelman was the only partner who devoted his full-time services to the business and only he received a salary in addition to the return on his capital investment in the business.
6. The practice among the partners was to allow portions of the profits, derived from the operation of the business, to remain in the partnership to provide capital needed for the development of the company.
7. In 1942 Koppelman and plaintiffs discussed a plan under which trusts would be established for the benefit of various members of their families.
8. Koppelman and plaintiffs agreed to the creation of the trusts and, after discussing the plan with Joseph M. Harris, agreed with Harris' suggestion that members of their families, rather than an outside institution, act as trustees.
9. On March 20, 1942, as of February 2, 1942, each plaintiff, as a grantor, executed certain trust indentures. Each agreement established separate trust funds for the beneficiaries and trustees were also designated in the indentures. Under the trust indentures executed by plaintiff Harry Dickstein, he and Eva Dickstein, his wife, were named as trustees. Eva Dickstein was also a beneficiary as were Herbert L. Dickstein, a son, Miriam Raker, a married daughter, and Shirley E. Dickstein, a daughter. Plaintiff Samuel Dickstein and Howard Dickstein, his son, were co-trustees of the trusts established by Samuel Dickstein. Howard was also a beneficiary with George and Stanley Dickstein, his brothers. Each grantor assigned to the trusts a share of his capital interest in the Lackawanna Pants Manufacturing Company in the amount of $ 52,000, which sum was to be divided equally among the various beneficiaries.
10. The trustees were obligated, under the terms contained in the indentures, to manage the trust property without in any way limiting the rights and privileges of the general partners to operate and conduct the business as they had done theretofore.
11. The trustees were vested with almost complete discretion in the administration of the trust estates. They had the power to continue to hold the trust estates in the partnership; to sell or to dispose of the trust estates; to join in and become a party to any reorganization, consolidation or capital readjustment of any firm or corporation in which the trust funds were invested, or to participate in any protective plan or agreement for the trust estates; and they had the power ...