Humphrey v. Commissioner

¶1dissenting: I find it impossible to adopt the view that an amount received by an individual from his erstwhile partners in consideration for his retirement from the partnership and for his interest therein includes a “ gain from the sale or exchange of capital assets ”, as required by the Revenue Act of 1928, section 101 (c) (1), such “ capital assets ” being defined in subdivision (8) as “ property held by the taxpayer for more than two years.” I agree that the nonnegotiable notes do not involve income for 1929, and I agree that the partner may not be regarded as selling the specific assets of the partnership and that the duration of his property holding is not to be taken as that of the partnership’s holding, although it is interesting that the $142,626.99 which he was to receive upon retirement was, as shown by the evidence, computed entirely upon the market value of the assets on the date of retirement. But it seems to me an empty formula of words that an interest in a partnership is itself property and that to end it for cash is there! ore a sale of property, irrespective of its relation to the partnership assets. Surely if one, say a lawyer, has been a member of a service partnership for 10 years and quits for a cash consideration, the transaction would hardly be called per se a sale or exchange of property held more than two years. Yet this seems to me to decide as much. That “ sale or exchange ” is not to be loosely applied is indicated by John H. Watson, Jr., 27 B. T. A. 468, and Arthur E. Braun, Trustee, 29 B. T. A. 1161, 1177, in which the amount received upon the termination of an obligation was held not derived from a sale or exchange of the obligation. Likewise the amount received upon the termination of a partnership should, in my opinion, also be excluded unless there is evidence of a sale or exchange.