PFAFF ET AL., EXECUTORS,
v.
COMMISSIONER OF INTERNAL REVENUE
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The executors of a deceased physician challenged the Internal Revenue Commissioner's inclusion of the deceased's share of partnership accounts receivable in his 1935 gross income, arguing the accounts should not be taxed since the physician used the cash basis accounting method. The Supreme Court affirmed that the fair value of the decedent's interest in the accounts receivable must be included in his final year's income, holding that a cash basis taxpayer's share of partnership receivables is includable in gross income upon death or dissolution of the partnership.
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Mr. Justice Reed delivered the opinion of the. Court.
This case presents the same question as Helvering v. Estate of Enright, ante, p. 636. Petitioners are the executors of a deceased physician who during 1935 was a member of a medical partnership and entitled to forty per cent of its profits. He died December 25, 1935, on which date there were outstanding about $69,000 of partnership accounts receivable for services rendered to patients during his lifetime. His death worked a dissolution of the partnership under § 62(4) of the New York Partnership Law. The decedent’s interest in these ac counts came to over $27,000. Both he and the partnership were on a cash basis. Pursuant to § 42 of the Revenue Act of 1934 and article 42(1) of Treasury Regulations 86, the commissioner included the decedent’s share of the accounts receivable in his 1935 income, though only at about one-fifth of face value. The Board of Tax Appeals sustained the commissioner’s view of the statute, and also ruled that the valuation of the decedent’s interest in the accounts at one-fifth of face value was amply supported. The Circuit Court of Appeals, without writing an opinion, affirmed the Board. 113 F. 2d 114. Because of a conflict with the Third Circuit’s decision in the Enright case, supra, we granted certiorari.
There is no relevant difference between these facts and Helvering v. Estate of Enright. For the reasons stated in that opinion it was proper to include in the decedent’s 1935 income the fair value of his interest in the accounts.
Affirmed.
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- Pfaff v. Commissioner OF Internal Revenue, 113 F.2d 114 (2d Cir. 1940)