H, the owner-operator of a bowling supply business, filed application for old-age insurance benefits in March 1959 at age 65, and became entitled to benefits beginning that month. H's net earnings were over $2,500 in 1959. In March 1961, H reported to the Social Security Administration that his net earnings for 1960 were $1,182. H explained that he and his wife had entered into a partnership beginning January 1, 1960, and that the $1,182 was his distributive share of the net income of $2,364 form the partnership. The question is whether a partnership existed between H and W for the year 1960 under the following circumstances.
In May 1958 H started a wholesale bowling supply business using money advanced to him by relatives, including $2,000 from W, his wife. Interest was always paid on all of these loans, including the one made to him by W. In November 1958, when business picked up, W began helping H at the store on a part-time basis, keeping the books, preparing invoices and taking orders by telephone. As the business developed W spent more time at the store and since October 1960 has been working full time. H has always spent most of his time away form the store selling bowling supplies and making contacts. H and W talked over what purchases to make, advertising to be done, etc., but H made the final decisions in all management matters. The business was not known to the public as a partnership and the business name, license, insurance, advertising, letterheads, etc., were in H's name only. H and W had a joint bank account but W never drew checks on it. Income tax returns for 1958 and 1959 showed H as sole owner of the business.
In October 1960, H had a signed agreement prepared in which it was asserted that he and his wife had been operating as a partnership since January 1, 1960, and that all profits would be shared equally from that date. The agreement also set forth the duties of the partners. H was shown to be in charge of purchasing, selling, and setting business policies; W to be in charge of the books and to act as office manager. However, there was no divestment of property interests by H; H continued to exercise control over the distribution of income and retained control of all management powers; and no change was made in the business name, license, insurance, advertising, or letterheads. H and W filed a partnership income tax return for 1960. H rendered substantial services in the business in all months of 1960.
If H and W were partners throughout 1960, as alleged, H's net earnings for 1960 would be $1,182 and his old-age insurance benefits would not be subject to deductions under section 203 of the Act. On the other hand, if H continued to be the sole proprietor of the business, his earnings for 1960 would be $2,364; and since he rendered substantial services in the business in all months of 1960, his benefits would be subject to deductions for all months of 1960 under section 203 of the Act, as in effect for that year.
Section 211(a) of the Social Security Act provides, in pertinent part, for the inclusion of the distributive share of income from a trade or business carried on by a partnership, as defined in section 211(d) of the Act, of which an individual is a member in computing the net earnings form self-employment of such individual. In determining whether a partnership existed within the meaning of section 211(d) of the Act, the question is whether the parties actually intended to join together for the purpose of carrying on the business and sharing in the profits or losses. Their intention in this respect is a question of fact to be determined form their agreement, their conduct, their statements, the testimony of disinterest 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 this case, there is evidence that the parties originally did not intend to conduct the business as a partnership. While a partnership return was filed for 1960 and the written agreement in October 1960 purported to show that the business had been a partnership since January 1960, no change of substance was effected in the conduct of the business. The business was not held out to the public as a partnership; H retained control over the assets essential to the business and made the final decisions in the management of the business and the distribution of income; and W's activity was that ordinarily exercised by a wife who renders assistance to her husband in the operation of his business.
Accordingly, it is held that W was not a partner of H in the operation of the business in 1960. Therefore, H's net earnings for 1960 were $2,364 and since he rendered substantial services in all month of 1960, his old-age insurance benefits were subject to deductions for all months of that year.
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