The opinion of the court was delivered by: SMITH
The decedent Hamilton F. Kean was, prior to his death on December 27, 1941, a general partner in the brokerage firm of Kean, Taylor & Company. The partnership was organized pursuant to a written agreement, a true copy of which is annexed to the complaint, for a term of one year, and succeeded 'to the assets and business of a partnership' theretofore existing under the same name. The agreement expressly provided for the termination of the partnership on December 31, 1941.
The sixth paragraph of the partnership agreement reads as follows: 'No partner shall retire from the partnership without giving ninety days written notice thereof. In the event of the death of any partner, other than Hamilton F. Kean, his interest in the firm shall terminate at the close of business On The Last Business Day Of The Month In Which His Death Shall Occur, at which time a balance shall be struck, and the interest of each partner shall be ascertained. In case of the decease of the said Hamilton F. Kean, his capital shall remain in the business for The Life Of The Partnership As A Special Partner, and his estate shall be entitled to four (4%) per centum interest and twelve (12%) per centum of the profits, or losses to the amount of his capital, Calculated, From The Same Date And In The Same Manner As Specified Above. The surviving partners shall have the right to terminate his interest in the firm by the payment to his estate of the amount of his interest in the firm, upon one month's notice in writing to his executors. In no case, however, shall any estimate be put upon the good will or firm name in ascertaining the amount due any partner of the estate of any deceased partner.' (Emphasis by the Court).
Pursuant to the terms of the agreement the partnership business was continued, notwithstanding the earlier death of the decedent, until December 31, 1941; the capital of the decedent was permitted to remain in the business 'as a special partner.' The capital interest of the decedent was valued by the surviving partners at $ 446,220.68, and this valuation was apparently accepted by his executors upon settlement of the accounts between them and the surviving partners. It should be noted that the correctness of this valuation is not conceded by the Government.
The executors of the decedent's estate filed an income tax return for the taxable year which ended with decedent's death on December 27, 1941. They claimed as deductions, in addition to others not here in question, a loss from partnership in the amount of $ 63,960.22, determined as of December 31, 1941, the end of the partnership term. The losses claimed as deductions were based upon the purported depreciation in value of assets held in the capital account of the partnership, to wit, securities, New York Stock Exchange seat, and New York Curb Exchange seat. These assets were neither sold nor exchanged; they were retained in the capital account during the life of the partnership.
The executors of the decedent's estate here claim as a deductible loss, as they did in the claim for refund, a sum equal to the depreciation of the decedent's interest in the partnership, based on the purported depreciation in the value of the capital assets held by the partnership. This loss is claimed as an accrued loss within the meaning of Section 43 of the Act. The contention is here made, as we understand the argument of the plaintiff, that the loss should be treated as an ordinary ...