Johnson v. Commissioner

¶1OPINION.

¶2It is by now well settled that a withdrawing partner is chargeable with ordinary income on his share of the partnership profits, whether currently distributed or not, up to the time of his withdrawal. LeSage v. Commissioner, (C. A. 5) 173 F. 2d 826; Louis Karsch, 6 T. C. 1327. This is so notwithstanding that he sells his interest to the continuing partner.

¶3Respondent has determined the deficiency here as though petitioner’s 50 per cent partnership interest terminated on May 20. The sole question is whether there was a termination of that 50 per cent interest at any earlier time.

¶4That there was no change in the equal profit sharing ratio prior to the sale of petitioner’s interest is clear from petitioner’s own testimony.1 And the purpose of restricting the drawing accounts in April was not to change the profit ratio but rather to make an interim agreement “until [as petitioner testified] we came to some settlement of selling out to one another.”

¶5Nor was petitioner’s interest terminated at an earlier time.- It was not until May 20 or later that the identity and price of the partnership interest to be sold were settled. Only then did petitioner cease to be entitled to his full partnership earnings. LeSage v. Commissioner, supra.

¶6Since petitioner no longer contests the figure to be used as net partnership income, we find no error in the deficiency.

¶7Decision will he entered for the respondent.