Louis Brandeis

“ The obligation of the Mellons to pay, under the federal law, taxes on the profits made in 1920 from sales of whisky is in no way affected by their fiduciary obligation under the law of the State to account to the Frick estate for its interest in the two partnerships being liquidated. The surviving partners continued during 1920 to conduct the business from which they earned profits. On such income the federal law required that taxes be paid. It did not require that the payments be made from the partnership assets. ”

“ Section 212 (b) of the Revenue Act of 1918 provides that the net income shall be computed 'in accordance with the method of accounting regularly employed in keeping the books of' the taxpayer, and it is not shown that the method employed clearly failed to reflect net income.
Second. The fact that the partnerships had been dissolved by Frick's death before 1920 does not affect the liability of the Mellons as surviving partners for income taxes on their distributive shares of the net profits made in that year. ”

“ On that day those three individuals formed two partnerships in which each partner was to have a one-third interest. In January, 1919, they caused to be transferred to the partnership called A. Overholt & Company all the assets of the corporation of that name; and to the partnership called West Overton Distilling Company, all the assets of that corporation. These assets included large whisky inventories in bonded warehouses. Neither corporation had distilled any whisky after 1916. Liquidation of the businesses of each had been started by the two corporations in 1918 ”

“ It is well settled that in the interpretation of the words used in a federal revenue act, local law is not controlling unless the federal statute 'by express language or necessary implication, makes its own operation dependent upon state law.' 'The state law creates legal interests, but the federal statute determines when and how they shall be taxed.' Burnet v. ”

“ Finally, the Mellons contend that in 1928 and 1929 the Commissioner determined that no profit was realized until final liquidation of the partnerships in 1925, and that ico me taxes for that year have been collected on this theory and not yet refunded. ”