Fact: Queen Anne Avenue Associates ( “QAAA”) owned land and a building thereon acquired 15 years ago which was leased out to various commercial tenants. Karen King, her brother, Tom, and their two sisters are the owners of QAAA (25% partners each). Tom managed the QAAA, and prepared and filed the tax returns. Karen sued Tom, because she thinks that Tome mismanaged QAAA and sold the land and building in a low price, and she wants to ask for an increased portion of the proceeds from sale of the property based on its “true value”. The land and building was sold for $7.0 million in an all-cash sale. After closing of the sale, Karen received a 2012 Schedule K-1 from QAAA listing her reportable taxable gain as $500,000. Karen wants to
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See also sec. 761(a) (defining a “partnership” the same way). 18 A partnership is created for Federal income tax purposes when persons join together their property, labor, or skill for the purpose of carrying on a trade, profession, or business and there is a community of interest in the profits and losses. Commissioner v. Tower, supra at 286. In Commissioner v. Culbertson, supra at 742, the Supreme Court identified the task that a court must undertake in deciding whether a partnership exists for Federal tax purposes:
The question is not whether the services or capital contributed by a partner are of sufficient importance to meet some objective standard *** but whether, considering all the facts—the agreement, the conduct of the parties in execution of its provisions, 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—the parties in good faith and acting with a business purpose intended to join together in the present conduct of the enterprise. ***
See also Luna v. Commissioner, 42 T.C. 1067, 1077-1078 (1964).
Generally, each partner in a partnership contributes property or services, or both. Commissioner v. Culbertson, supra at 741. 19 In addition, a valid partnership is generally formed