Max J. Kuney, Jr., and Constance K. Kuney v. United States

Appellants seek to recover taxes that they allege were illegally collected for the tax years 1958 through 1963. This suit for recovery was brought following denial of their claims for refund. Judgment of the District Court was in favor of the United States, and this appeal followed.

Prior to 1952, taxpayer Kuney, Junior, and his father were engaged as partners in the heavy construction business in the State of Washington. In 1952 interests in the family partnership were transferred by taxpayer and his father to trusts for the benefit of the minor children of each trustor, pursuant to § 704(e) of the Internal Revenue Code of 1954, 26 U.S.C. § 704 (e), dealing with family partnerships. The following year the operating business was transferred to a corporation controlled by taxpayer and his father, with the partnership retaining only the business assets — machinery, equipment, land and buildings — which were rented to the corporation. Partnership income thereafter was limited to the rentals received from the corporation.

The family partnership and both trusts were the subject of an earlier action for refund involving the tax years 1952-1954, and the opinion of this court in Kuney…