Commissioner of Internal Revenue v. Jackson Investment Company, Commissioner of Internal Revenue v. West Shore Company

The Commissioner of Internal Revenue has brought this petition to review decisions of the Tax Court ( 41 T.C. 675 (1964)) involving federal income taxes for the taxable years 1956 through 1958. The amounts in controversy involve distributions made by respondents, Jackson Investment Company and West Shore Company, partners in George W. Carter Company, to a retiring partner, Ethel M. Carter. Petitioner concluded that the distributions were not deductible expenses, and, consequently, assessed deficiencies against Jackson in the aggregate amount of $9,848.18 and against West Shore in the aggregate amount of $15,577.85. The Tax Court, however, rendered a decision adverse to the Commissioner. The Commissioner subsequently petitioned for review, invoking this court’s jurisdiction under Section 7482 of the Internal Revenue Code of 1954.

The question presented for our consideration involves the construction of Section 736 of the Internal Revenue Code of 1954. That section, drafted as part of a series of provisions intended to clarify and simplify the tax laws with respect to partnerships, provides as follows:

The intended purpose of this provision was to permit the participants…