Estate of Miller v. Commissioner

The Tax Court upheld the Commissioner’s determination of a deficiency in petitioner’s income taxes for the calendar years 1946-1947. Prior to 1946, Miller Paint Co., was a partnership, composed of three brothers, who, as sole owners of the partnership business, had inherited it from their father. The partnership operated a store business selling paint and related products at retail and wholesale and did some manufacturing of paint. The partnership’s only property was personal property. It carried on its business on premises leased from another partnership composed of the same members.

In May, 1946, pursuant to a pre-ar-ranged plan, the members of the partnership organized a corporation, and transferred to it the operating assets of the *730 partnership with some cash, and took in equal parts, the shares and notes of the corporation. Payments were made on these notes in the years in question; such payments being made out of income received and earned by the corporation. Petitioner’s decedent treated the payments received as a return of principal. -The Commissioner’s finding of a deficiency is based upon his challenge of this treatment. His position was that the notes issued by the…