Commissioner of Internal Revenue v. Jacob (Jay) Paley and Lillian Paley

The sole question presented by the petition for review is whether or not the computation of the taxpayers’ net gains or losses under Section 117(j).of the Internal Revenue Code of 1939, 26 U.S.C. A. § 117(j), must include the taxpayers’ share of partnership gains or losses under Section 117(j).

, A stipulation of the parties was adopted by the Tax Court as its findings. of fact. As revealed by the stipulation and the -exhibits thereto, the facts material to this appeal may be summarized as follows.:

Taxpayers were husband and wife. They filed joint returns for the years 1948 and 1949. During the same period the husband was associated with Joseph M. Sehenck in a partnership (referred to therein as Arrowhead) which filed partnership returns for the fiscal years ending October 31, 1948 and October 31, 1949. The husband owned a 50% interest in the profits of the partnership.

In 1948 taxpayers sustained a casualty fire loss. It was stipulated that this loss was of the type described in Section 117 (j) of the Internal Revenue Act; and that the correct amount of the loss was $44,420.12. In 1949 the taxpayers sustained an individual proprietorship net loss in the amount of $106,214.98.…