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supposed to acquire an ownership interest in the cause of action
that is the subject of such an agreement. The client, like the
owner or lessee of farmland who rents it to the tenant farmer,
transfers to the attorney an interest in the recovery that is
analogous to the tenant farmer’s share of the crop generated by
his farming activities on the land leased or made available to
him by the non-active owner or sublessor.
1 McKee et al., Federal Taxation of Partnerships and
Partners, par. 3.02[5], at 3-15-16 (3d ed. 1997), cites Smith v.
Commissioner, supra, and Luna v. Commissioner, supra, among
others, for the following propositions:
A profit-oriented business arrangement is not a
partnership unless two or more of the participants have
an interest in the partnership as proprietors. Thus an
agreement to share profits is not a partnership if only
one party has a proprietary interest in the profit-
producing activity. For example, the owner of a
business may agree to compensate a hired manager with a
percentage of the income of the business, or a broker
may be retained to sell property for a commission based
on the net or gross sales price. Even though both
arrangements culminate in the division of profits,
neither constitutes a partnership unless the
arrangement results in the parties becoming
coproprietors.
The Culbertson intent test has its greatest
continuing viability in connection with the elusive
distinction between coproprietorship arrangements and
other arrangements for the division of profits. A
number of objective factors may be taken into account
in determining whether participants intend to operate
as coproprietors or to share profits as third parties
dealing at arm’s length.
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