Commissioner v. Jackson Investment Co.
United States Court of Appeals for the Ninth Circuit
346 F.2d 187 (1965)
Facts
When Ethel Carter retired from her late husband’s construction company, George W. Carter Company, Jackson Investment Company and West Shore Company (plaintiffs) were the two remaining partners. The three partners signed an “Amendment of Limited Partnership Agreement of George W. Carter Co.” that explicitly recognized that the prior partnership agreements did not provide for any goodwill payments, “but George W. Carter Company will nevertheless make a payment to Ethel M. Carter in respect to goodwill as herein provided.” The partnership paid Ethel a total of $60,000 in three annual payments, including $19,650 in return for Ethel’s 15 percent interest in partnership assets and $40,350 as “a guaranteed payment, or a payment for good will.” Jackson Investment and West Shore deducted their respective shares of the payments from partnership income on their tax returns for those three years. The tax commissioner (defendant) assessed deficiencies against both companies on the ground that the payment for goodwill was not deductible. Jackson Investment and West Shore petitioned the tax court for review. The tax court—with six judges dissenting—decided against the commissioner, reasoning that the amendment was not part of the partnership agreement. The tax commissioner appealed.
Rule of Law
Issue
Holding and Reasoning (Barnes, J.)
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