corporate status. As the natural presumption would be just the opposite, i.e., that a limited partnership is a partnership unless clearly shown to possess all the qualities of a corporation, the correctness of the regulation may be questioned.

REGULATION. On the other hand, limited partnerships of the type of partnerships with limited liability or partnership associations authorized by the Statutes of Pennsylvania and of a few other States are only nominally partnerships. Such so-called limited partnerships, offering opportunity for limiting the liability of all the members, providing for the transferability of partnership shares, and capable of holding real estate and bringing suit in the common name, are more truly corporations than partnerships and must make returns of income and pay the tax as corporations. The income received by the members out of the earnings of such limited partnerships will be treated in their personal returns in the same manner as distributions on the stock of corporations. In all doubtful cases limited partnerships will be treated as corporations unless they submit satisfactory proof that they are not in effect so organized. A Michigan partnership association is a corporation. (Art. 1506.)

"PENNSYLVANIA" TYPE OF LIMITED PARTNERSHIPS.-Limited partnerships of the type referred to in article 1506 are those organized under the act of July 9, 1901,24 as amended by the act of April 12, 1917.25 Such partnerships have no general partners and cannot therefore claim to be partnerships for the purpose of income taxation.

Partnerships organized under The Uniform Limited Partnership Act of April 12, 1917,26 have both general and limited partners and therefore do not come within the scope of article 1506.

RULING. A partnership association or limited partnership organized under sections 8059-8078 of the Ohio Code is an association and not a partnership, within the meaning of section 1 of the Revenue Act of 1918, and is taxable as a corporation. (C. B. 2, page 11; O. D. 444.)

VIRGINIA PARTNERSHIPS.

RULING. Virginia partnership associations or limited partnerships formed under sections 2878 to 2886, inclusive, of the Virginia code of 1904, are to be treated as corporations or joint-stock companies for income tax purposes.

The status of Virginia limited partnerships formed under the act of March 14, 1918 (acts of Assembly of Virginia, 1918), must be determined in each case by consideration of the certificate of partnership and all pertinent facts. (C. B. 1, page 9; O. D. 334.)

24 P. L. 625; 3 Purdon's Digest 3464.

P. L. 38; Laws of Pennsylvania, 1917, page 67.
P. L. 37; Laws of Pennsylvania, 1917, page 55.

Partnerships composed of corporations.-As a general rule, a corporation cannot legally enter into a partnership.27 In a few places, as in Hawaii,28 this rule has been changed by statute. The reason for the general rule is that to allow a corporation to enter into partnership would be contrary to the general theory of the incorporation acts.29 For income tax purposes, however, it has been held that a partnership composed of corporations organized under the law of Hawaii should be classed as a partnership rather than as a corporation.30 The subject is not of enough general interest to warrant a full discussion in these pages.

Corporations

"Corporation" defined.—The law 31 merely states that the term "corporation" shall include "associations, joint-stock companies and insurance companies."

The regulations define joint-stock companies and associations as follows:

REGULATION. Associations and joint-stock companies include associations, common-law trusts, and organizations by whatever name known, which act or do business in an organized capacity, whether created under and pursuant to State laws, agreements, declarations of trust, or otherwise, the net income of which, if any, is distributed or distributable among the shareholders on the basis of the capital stock which each holds, or, where there is no capital stock, on the basis of the proportionate share or capital which each has or has invested in the business or property of the organization. A corporation which has ceased to exist in contemplation of law but continues its business in corporate form is an association or corporation within the meaning of section 2, but if it continues its business in the form of a trust, it becomes subject to the provisions of section 219. (Art. 1502.)

"Domestic corporation" defined.-The test of a domestic corporation, for the purpose of the Revenue Act, is the same as that applied to partnerships; that is it must be organized in the United States, which include only the states, the District of Columbia, and the territories of Alaska and Hawaii. Corporations created outside these limits are foreign corporations.32

20 R. C. L. 817. See also C. B. 5, page 16; A. R. M. 139.

28 Revised Laws of Hawaii, 1905, section 2631.

29 C. B. 3, page 18; Sol. Op. 36.

Haiku Sugar Co. et al. v. Johnstone, 249 Fed. 103, 161 C. C. A. 155. 31 Section 2.

32Section 2 (4).

The Treasury has held, however, that a corporation receiving a charter from the United States Court for China, and holding itself out to be a corporation under the laws of the United States, will, for tax purposes, be considered a domestic corporation.33 Corporations organized under the China Trade Act, 1922, are considered as domestic corporations for income tax purposes (see Chapter XVII).

Corporations distinguished from other types of organizations.-The Treasury has differentiated certain types of organizations.

SYNDICATES AND JOINT ADVENTURES.-The ordinary syndicates and joint adventures are held not to be associations.34 But a syndicate where" a shareholder's certificate entitles him to share in the distribution of profits during the life of the enterprise, to share in the distribution of assets upon dissolution, and to vote on questions affecting the management and control of the business," was held to be an association.35

MINING PARTNERSHIPS.-Mining "partnerships" in Colorado and Idaho have been held to be associations because the shares are transferable and because such an organization "in all its essential elements is precisely like a corporation." 36

ASSOCIATION DISTINGUISHED FROM PARTNERSHIP.

REGULATION. An organization the membership interests in which are transferable without the consent of all the members, however the transfer may be otherwise restricted, and the business of which is conducted by trustees or directors and officers without the active participation of all the members as such, is an association and not a partnership. A partnership bank conducted like a corporation and so organized that the interests of its members may be transferred without the consent of the other members is a joint-stock company or association within the meaning of the statute. Á partnership bank the interests of whose members can not be so transferred is a partnership. (Art. 1503.)

The distinction between a partnership and an association has been well stated by the Supreme Court of Illinois as follows: 37

C. B. 3, page 19; O. D. 661.

Art. 1507. See also C. B. I-1, page 2; I. T. 1156, quoted on page 37. * C. B. 4, page 9; O. D. 896.

C. B. 5, page 9; A. R. R. 652.

Hossack v. Ottawa Development Assn., 244 Ill. 274, 91 N. E. 439.

The transferability of the shares makes such an association different, not merely in magnitude but in other ways, from ordinary partnerships, because the association is not based upon mutual trust and confidence in the skill, knowledge and integrity of the other partners. The sale of shares by a member, the shares being transferable, is not a dissolution and the death of a member is not a dissolution.

A bank which had issued certificates of ownership was held not to be an association but a partnership. Certificates could not be transferred without the consent of the other members, and each member was liable for all debts.38

When other elements of a partnership relation were present, an unincorporated bank organized under the laws of Indiana was not denied classification as a partnership on the ground that the shares of members were transferable without the consent of other members, if such shares could not be sold or transferred without the consent of the board of directors to whom the authority was delegated by the members to say who should constitute the membership at all times.39

A private banking institution, unincorporated, where the interests were transferable without the consent of the other members, was held to be an association.40 Another bank was similarly held to be an association where the stockholders had a right to sell their stock to outsiders if the other stockholders refused to purchase such stock.41 A bank, in which the death of a member did not dissolve the organization and which was managed by officers and directors elected annually by the members, was held to be an association.42

In a case where the membership certificates were transferable without the consent of other members, where the death of a member did not have the effect of dissolving the organization, and where business was conducted by an executive committee, the organization was held taxable as an association.43

An association organized under Texas law as an unincorporated joint stock association was held taxable as a corporation because the shares were transferable, because the association was not bound by the acts of individual members but only by elected trustees, and because the members were not responsible for the debts of the

38 C. B. 5, page 9; O. D. 1083.

C. B. I-2, page 1; I. T. 1501. See also III-45-1859; S. M. 2597.

49 C. B. I-1, page 1; I. T. 1150.

41 C. B. II-2, page 3; I. T. 1770.

42 C. B. II-2, page 2; I. T. 1769.

43 III-33-1723; S. M. 1724.

association. The plaintiff contended that such an organization had been held to be a partnership under the laws of Texas and of a majority of the states.

The life of a corporation whose charter had expired was extended for a limited period for the purpose of winding up the affairs of the corporation. In the absence of tangible evidence that the business was carried on as a partnership during the winding-up period, it was held that the organization was taxable as a corporation.15

The charter of an Oklahoma corporation was canceled for noncompliance with the law. The business was continued by two individuals who agreed to share equally in profits and losses. Neither the corporate form nor organization was retained. held that the company was taxable as a partnership.46

It was

A corporation's charter expired. Its property was all conveyed to trustees. Later its corporate character was resumed by a law validating its existence. Held that it did not lose its separate identity as a corporation.47

TRUSTS AS ASSOCIATIONS.

The status of trusts under the federal income and capital stock tax laws has been materially changed by the decision of the U. S. Supreme Court in four cases 48 decided May 12, 1924. Although the cases in point arose in actions to recover capital stock taxes, the principles involved and the decision arrived at seem to apply equally to income taxes under the 1918 and subsequent acts, as well as to excess profits taxes under the 1918 and 1921 laws." The new regulation embodies the decision of the Supreme Court.

49

REGULATION. Holding trusts, in which the trustees are merely holding property for the collection of the income and its distribution among the beneficiaries, and are not engaged, either by themselves or in

Burke-Waggoner Oil Assn. v. Hopkins, 296 Fed. 492. C. B. III-1, page 1; T. D. 3582; now before U. S. Sup. Ct. on writ of error.

C. B. II-2, page 1; A. R. R. 2773.

"C. B. III-1, page 234; S. M. 1812.

C. B. II-2, page 210; I. T. 1814.

Hecht v. Malley; Howard v. Malley; Howard v. Casey, Crocker v. Malley, Advance Sheets, 68 L. Ed., 510; III-32-1711; I. T. 2061.

[Former Procedure.] The Treasury heretofore held that control by beneficiaries was the chief distinction. A full discussion of the Treasury's position will be found in Income Tax Procedure, 1924, pages 44-48.