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advances of costs they make to their clients.61 In addition,
local law and ethical rules prohibiting the assignment of claims
to attorneys would be obstacles to the making of the capital
contribution that is the prerequisite to the formation of a
partnership.62 See Luna v. Commissioner, 42 T.C. 1067 (1964), and
Estate of Smith v. Commissioner, 313 F.2d 724 (8th Cir. 1963),
affg. in part, revg. in part, and remanding 33 T.C. 465 (1959),
which rejected arguments by service providers that they had
entered into partnership agreements that entitled them to capital
gain treatment of what was held to be compensation income.63
Although I agree with our rejection in Bagley v.
Commissioner, 105 T.C. 396 (1995), of the partnership/joint
venture analogy, we did not go far enough in exploring the
consequences of other arrangements that don’t amount to
partnerships or joint ventures and yet result in the division of
61 See, e.g., Canelo v. Commissioner, 53 T.C. 217 (1969),
affd. 447 F.2d 484 (9th Cir. 1971).
62 Although secs. 1.721-1(a) and 1.707-1(a), Income Tax
Regs., contemplate arrangements in which a partner makes property
available for use by the partnership without contributing it to
the partnership, such arrangements are considered to be
transactions between the partnership and a partner who is not
acting in his capacity as a partner. If this were the only
transaction between the putative capital partner and the putative
partnership, it would appear that no contribution of property to
the partnership would have occurred.
63 Other examples of unsuccessful efforts by assignment to
transmute ordinary income into capital gain may be found in
Commissioner v. P.G. Lake, Inc., 356 U.S. 260 (1958), and Hort v.
Commissioner, 313 U.S. 28 (1941).
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