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5. Whether Petitioners Are Liable for Increased
Deficiencies Due to Their Failure To Report Their
Distributable Shares in the Anis Partnership
Petitioners contend that they are not taxable on their
distributable shares in the Anis partnership (an ordinary loss of
$2,240 for 1995, a capital gain of $5,594 for 1998, and income of
$9,127 for 1999) because these amounts were not paid for
petitioner’s personal services. Petitioners contend that
petitioner gave his 22.375-percent interest in the Anis
partnership to his children and that the income in dispute was
generated by the Anis assets and thus is not includable in
petitioners’ income.
We disagree. Petitioner was the beneficial owner of and was
taxable on these items for the following reasons. First,
petitioner’s interest in the partnership derived from the
services he performed in the Anis litigation. Income is taxable
to the taxpayer who earns and controls it. Lucas v. Earl, 281
U.S. 111 (1930).
Second, petitioner intended to be a partner in the Anis
partnership. He attended partnership meetings. Smith contacted
petitioner, not his children, regarding partnership decisions and
other partnership matters. Partnership distributions and
correspondence were sent to petitioner’s office. Petitioner was
the only person who made cash contributions to the partnership
when there was a cash call.
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