SSR 62-17. NET EARNINGS FROM SELF-EMPLOYMENT -- PARTNERSHIP -- HUSBAND AND WIFE
- A wife started a grocery store with her own funds. Her husband later joined with her in the enterprise. For many years thereafter, each contributed full-time services and shared equally in the management. The business was known as a partnership by nearly everyone with whom they dealt. The business bank account and all licenses were in both their names. There were no formal articles of partnership or other express agreements, but each exercised equal responsibilities and each took from the funds of the business amounts as needed for personal use or for the family. Held, a partnership existed and one-half of the partnership income or loss is includible in computing the husband's "net earnings from self-employment" for social security purposes.
H filed application for old-age insurance benefits and stated that he and his wife, W, had been partners on a 50-50 basis in the operation of a small grocery store. W had started the store in 1935 with her own funds. After she had operated the store individually for 6 or 7 months, H joined her in its operation but contributed no additional capital. From that time on, H and W worked full time in the store, and the enterprise became known as a partnership by nearly everyone with whom they dealt. The store bank account was in both their names as were all licenses. The lease of the premises, however, was in H's name and accounts with two of the many wholesalers were in his name alone. H and W engaged in all phases of the business and had equal responsibilities with respect to it. However, they never executed any formal articles of partnership nor entered into an express agreement regarding the operation of the business or the division of profits. Neither H nor W took any set amount from the business funds; instead each was free to withdraw money as needed for personal use or for the family. No records were kept showing capital interests or profit distributions.
Section 211(a) of the Social Security Act provides in pertinent part, for the inclusion in an individual's net earnings from self-employment of the distributive share of income or loss from a trade or business carried on by a partnership of which he is a member. In determining whether a partnership, exists, the question is whether the parties actually intended to join together for the purpose of carrying on the business and sharing in the profits and losses or both. Their intention in this respect is a question of fact, to be determined from their agreement, their conduct, their statements, the testimony of disinterested persons, the relationship of the parties, their respective abilities and capital contributions, the actual control of income and the purposes for which it is used, and any other facts throwing light on their true intent.
In the present case, it is clear that H and W exercised a community of power in the management and operation of the business, in the disposition of profits, and apparently in the responsibility for losses. Viewed in the context of all the facts, i.e., sharing of management and other functions, holding out the business to others as a partnership, and the freedom on H and W to use funds for business or personal purposes at the discretion of either one of them, all of the elements necessary to find that a partnership had been created are present.
Accordingly, it is held that H and W were partners in the operation of the grocery store. It is reasonable to conclude in this case, since there was not an expressed partnership agreement and adequate records are lacking, that after more than 25 years in business each of the parties would have equal capital interest in the partnership. They shared equally in the rendition of services and management responsibilities and had an equal right to use the proceeds to meet their expenses. Also, there is no evidence that the income or loss from the business should be allocated in any particular manner. Consequently, it is further held that they have equal shares in such income or loss, and, therefore, that one-half of the net income from the store is includible in H's net earnings from self-employment.