Florence L. Rogers, and Joe W. Stout and Eudora Stout v. Commissioner of Internal Revenue

HAYNSWORTH, Circuit Judge.

I

The principal question tendered is the tax consequence of the payment by a partnership to some of its partners of salaries, out of borrowed funds, which results in an impairment of the partnership capital account. Under the particular circumstances, the Tax Court held that the salaries were taxable to the recipients except to the extent they represented a return of capital actually contributed, and that the partners could deduct as business losses only the amount of their contributed capital. 1 We agree, though we question the conclusion that the payments impaired…