CIR v Suter; J.

JBL Reyes

Summary: Partners of a limited partnership married. The CIR consolidated the income of the partnership and its
partners, due to this, and assessed a deficiency in the income tax of Suter. Suter contested this consolidation, which the
CTA upheld. The CIR petitioned to the SC, who upheld the CTA. The partnership, being a limited one, cannot be dissolved
or disregarded for income tax purposes, being organized for legitimate business purposes and not as mere alter egos to
the partners. Neither did the law allow consolidation, which it only did as an exception for general co-partnerships.

- William J. Suter “Morcoin” Co., Ltd., was a limited partnership engaged in importing & distributing
phonographs, TVs, radios, and other amusement machines.
o It was formed in Sept 30, 1947 by William Suter, the general partner, and Julia Spirig & Gustav Carlson,
the limited partners, contributing P20k, P18k, and P2k respectively.
o It was registered with the SEC on Oct 1, 1947.
o It has an office, uses invoices, bills, and letterheads bearing its trade name, maintains its own books of
account, and had a quota allocation with the Central Bank.
- In 1948, Suter & Spirig got married, and Carlson sold his share to them.
- In 1959, the CIR consolidated the income of the firm and noted a deficiency income tax for Suter of P2,678 for
’54 and P4,567 for ’55. Suter protested this assessment and requested its cancellation, but he was denied. He
raised it to the CTA, who reversed the CIR. Hence this petition by the CIR to the SC.

Issues:

1. Was the partnership dissolved after the marriage of the partners & the acquisition of the share of Carlson? NO.
a. Universal partnerships are dissolved if the partners get married, as A1782 provides “Persons who are
prohibited from giving each other any donation or advantage cannot enter into universal partnership”,
and married people are prohibited from donating to each other.
b. However, Morcoin is not a universal partnership, since that requires either that the object of the
association be all the present property of the partners, or else all that the partners may acquire by their
industry or work during the existence of the partnership.
i. Clearly, Suter, Spirig, and Carlson contributed specific amounts, and neither of them was an
industrial partner (who offers expertise, instead of money). Thus, not all their property.
c. Also, marriage in itself isn’t one of the causes which provide for dissolution of partnership under the CC.
2. Should the corporate personality of the partnership be disregarded for income tax purposes, since Suter &
Spirig, being married, formed a single, taxable unit? NO.
a. The capital contributions of each of the partners were separately owned and contributed before the
marriage, and after they married, still were part of each spouses’ exclusive property, as provided for in
A1396 of the Spanish CC: “… that which is brought to the marriage as his or her own.”
b. While S24 of the Internal Revenue Code merges general co-partnerships (compañias colectivas) with the
personality of their individual partners for income tax purposes, this rule is exceptional and cannot be
extended by mere implication to limited partnerships.
c. The rulings cited by the CIR are inapplicable, as in those cases, the corporations cited were mere
business conduits or alter egos of the stockholders. This is not true for this case, where the limited
partnership is not a mere business conduit, but was organized for legitimate business purposes, filing its
own tax returns and dealing with its own customers prior to the marriage of its partners.
d. Also, since regularity is presumed, we cannot presume, and the records do not show, that the partners
married to dodge the tax laws.

Held: CTA decision affirmed.