OPINION.
Smith, Judge:
We think that the respondent correctly determined that petitioners are taxable on all of the partnership earnings. It is too plain for argument that the real purpose of petitioners in attempting to bring their wives and Arthur Koppy into the partnership was to reduce taxes on their shares of the partnership earnings. While that fact alone might not condemn their acts (Gregory v. Helvering, 293 U. S. 465), it does give point to our inquiry as to whether the arrangements which they made were genuine and of substance.
The formation of the partnership was not intended to bring any new capital into the business or to procure the services of any of the alleged partners. Ella Koppy, wife of Louis Koppy, had taken an active part in the business from its inception, working at the office for about three days a week. However, she performed those services as an employee and received regular pay for what she did. There is no evidence that her services were worth more than she was paid or that she ever made any contribution either of services or money to the business. She continued to do the same things under the alleged partnership that she had done before.
Arthur Koppy also worked for the company during his school vacations and sometimes weekends and was paid for his services. The evidence is that he worked as an apprentice making tools and dies. He was 16 years of age in 1941.
Helen DeKorse, wife of petitioner Jacob DeKorse, took no active part in the business and knew nothing about it except what her husband told her. She devoted most of her time to household duties. She had no claim whatever to any interest in the business or its earn ings except through the alleged gift from her husband of one-half of his 40 percent interest.
Petitioners were in complete control of the business and were wholly responsible for its conduct at all times.
The evidence does not show what was done, if anything, to complete the gifts to the wives and Arthur Koppy of proportional interests in the assets of the business, referred to in the corporate resolution of February 28, 1941. Petitioner Koppy's testimony on this point was in part as follows:
Q. Was there ever any assignment of any assets that came from the Koppy-DeKorse Tool and Die Company, and which were placed in this partnership, was there any assignment of any of those assets to these individuals as such, to your wife or to your son?
A. You mean did they turn them back into the company?
Q. No, I am asking you if you ever made any formal assignments of any interests that you had in those assets that came from the corporation, and repre' sented the assets going into the partnership?
A. We made out a lot of papers around that time, I am not in a position to state definitely which is which.
Q. What assets did the Koppy-DeKorse Tool and Die Company own, in 1941, when they dissolved?
A. They owned the building, they owned the equipment, everything that wasn't subject to payments, work in process.
Me. Pugh: That is contained as part of the Petitioner's Exhibit here, the assets.
Q. Now, did you make any attempt to deed to your wife or minor son, any part of this real estate?
A. Deed, no.
Q. You made no bills of sale of any kind with respect to the assets of the corporation, did you?
A. There was a bill of sale somewhere mixed up in the picture, but I don't know just exactly where.
There was never any actual division of the assets and no time at which the wives or Arthur Koppy could have exercised any independent control over their alleged interests in them.
The facts here are very much like those in Mead v. Commissioner, 131 Fed. (2d) 323; certiorari denied, 318 U. S. 777, where the taxpayer dissolved a wholly owned corporation, made a gift to his wife of a one-half interest in the assets, and then undertook to make his wife an equal partner with him in the business. The business was general insurance and real estate. Holding the husband taxable on all of the income from the business, the court said:
Taxation being a practical matter in which substance controls over form, the question turns upon whether the business was in reality a genuine partnership or was operated in partnership form for the purpose of tax avoidance. [Cases cited are United States v. Phellis, 257 U. S. 156; Weiss v. Steam, 265 U. S. 242; Gregory v. Helvering, 293 U. S. 465; Higgins v. Smith, 308 U. S. 473; Helvering v. Clifford, 300 U. S. 331; Tinkoff v. Commissioner, 120 Fed. (2d) 564; certiorari denied, 314 U. S. 581.] If it was a bona fide partnership and the income thereof represented á mutual investment of capital or services by the partners, such income was divisible between the two for tax purposes; but, if everything of value to the business was contributed by one of them, all of the profits were actually earned by that individual and were properly taxable solely to him. [Cases cited are Lucas v. Earl, 281 U. S. 111; Corliss v. Bowers, 281 U. S. 376; Griffiths v. Helvering, 308 U. S. 355; Jones v. Page, 102 Fed. (2d) 144; Covington v. Commissioner, 103 Fed. (2d) 201.] *
It thus appears, or at least the Board had the right to infer fronl the evidence, that Mrs. Mead made no actual contribution to the capital of the partnership, contributed no services, had no voice in the conduct of the business, and received a portion of the profits, not as a partner, but only by reason of her marital relationship.
See also O. William Lowry, 3 T. C. 730; Frank J. Lorenz, 3 T. C. 746; affd., 148 Fed. (2d) 527; Schroder v. Commissioner, 134 Fed. (2d) 346; Francis Doll, 2 T. C. 276; affd. (C. C. A., 8th Cir.), 149 Fed. (2d) 239.
Viewing the transactions here as a whole, we think that what the petitioners intended to do was not to make out and out gifts of the assets of the business to their wives and Arthur Koppy, but was to give them portions of the income from the business so as to avoid income tax liability thereon, a thing not countenanced by our income tax laws. Burnet v. Leininger, 285 U. S. 136; Helvering v. Horst, 311 U. S. 112; Helvering v. Eubank, 311 U. S. 122. We sustain the respondent in his determination that petitioners are taxable on all of the income from the business for 1941 in the proportion of their proprietary interests therein. In determining such income, deductions should be made of the salaries paid to Ella Koppy and Arthur Koppy.
The next question is whether petitioner Louis Koppy is taxable on the earnings of his minor son, Arthur, in 1940 and 1941. Those earnings amounted to $301.48 in 1940 and $636.48 in 1941.
Under the revenue acts applicable for years prior to 1944 the Commissioner's regulations and rulings required a parent to report in his (or her) return the earnings of a minor child, if under the laws of the state where they resided the parent had a right to such earnings. It is provided in section 19.51-3 of Regulations 103, applicable to the years 1940 and 1941, that:
If under the laws of a State the earnings of a minor belong to the minor, such earnings, regardless of amount, are not required to be included in the return of the parent. In the absence of proof to the contrary, a parent will be assumed to have the legal right to the earnings of the minor and must include them in his return.
Petitioner does not question that under the laws of Michigan a father has the right to the earnings of his minor son. In his brief petitioner cites cases in which the Supreme Court of Michigan has so held. For instance he quotes in his brief from Van Sweden v. Van Sweden, 250 Mich. 238; 230 N. W. 191, as follows:
The right of a father to the services of a minor son is unquestioned. The right runs back into the mists of the common law and, earlier than that, is found in Roman law, digested by Justinian. At all periods, the father could waive the right. Emancipation of a son by a father involves no such formality as oldtime manumission of a slave. It may be special or general, partial or complete. It may be express, or established by circumstances. There was at least special and partial emancipation as a consequence of the hiring of the son by the father under an agreement to pay the son wages.
Petitioner contends, however, that he was relieved of the obligation of reporting Arthur's earnings because lie, Arthur, had been emancipated. We have found on the evidence of record that this was not the fact. It is true that Arthur was permitted to receive his earnings and spent them as he pleased, but petitioner continued to furnish him a home and support him throughout both years and to exercise over him the usual care of a parent for a minor child. Emancipation means more than merely permitting a minor to keep his own earnings. It is •defined in Bouvier's Law Dictionary as "An act by which a person who was once in the power or under the control of another is rendered free."
The Supreme Court of Michigan, in Yost v. Grand Trunk Ry. Co., 163 Mich. 564; 128 N. W. 784, quoted the following from Tiffany on Persons & Domestic Eelations, at pp. 261 and 262:
A parent is only entitled to the services and earnings of his child while the child is supported by him. Although the general principle is clear and unquestioned that the father is entitled to the services of his minor child, and to all that such child earns by his labor, yet it seems to be equally clear that, as the right of the father to the services of the child is founded upon his duty to support and maintain his child, if he should fail, neglect, or refuse to observe and perform this duty, his right to the services of his child should cease to exist; and such we hold to be the law.
In Cohen v. Delaware L. & W. R. Co., 150 Misc. 450; 269 N. Y. S. 667, 671, 672, it was said:
That a minor child may be emancipated by its parents' consent, express or implied, is well-established law. Stanley v. National Union Bank, 115 N. Y. 122, 134, 22 N. E. 29. The meaning of emancipation is, not that all of the disabilities of infancy are removed, but that the infant is freed from parental control, and has a right to his own earnings. Commonwealth v. Graham, 157 Mass. 73, 76, 31 N. E. 706, 16 L. R. A. 578, 34 Am. St. Rep. 255.
*
The effect of emancipation is to deprive the parent of control over the child, so long as the emancipation continues. It involves a surrender of the right to the care, custody, and earnings of the child, as well as a renunciation of parental duties.
In Mulder v. Achterhof, 258 Mich. 190; 242 N. W. 215, it was said: "Allowing a minor to retain small earnings as spending money is not in and of itself proof of emancipation."
There is no evidence here that petitioner did any more towards emancipating his son than to permit him to have his own earnings. It is clear that this did not constitute an emancipation. We think that the respondent correctly included in the returns of petitioner Louis Koppy his son Arthur's earnings for 1940 and 1941.
The remaining issue, which was raised by the respondent in his amended answer, relates to the gain realized by petitioners upon the liquidation of the Koppy-DeKorse Tool & Die Co., a corporation, on February 28, 1941. Actually, there is no controversy between the parties on this issue, since it was stipulated at the hearing that the facts on which the respondent based the increase in the deficiencies are as stated by the respondent in his amended answer. Those facts show the cost to petitioners of all their shares in the corporation, the time of their acquisition, and the value of the assets that were distributed to them in the liquidation. The determination of petitioners' gain and the amounts thereof which are recognizable under the capital gain provisions of the statute are matters of simple computation. The increased deficiencies resulting from such computation will be allowed to the extent of the amounts claimed by the respondent in his amended answer.
[Reviewed by the Court.
Decisions will T>e entered under Rule 50.
Mellott, /., concurs only in the result.
Arundell and Van Fossan, JJ., dissent.