Partner profit-share reduction on firm reconstitution was not a taxable gift where capital contributions matched revised shares.

Reduction of a partner's profit-sharing ratio on reconstitution of a firm was not treated as a taxable gift where the incoming partners and minors contributed capital in proportion to their revised shares. The existing partners merely withdrew excess capital corresponding to the reduction in their interests, and the relinquished share was not assigned to any identified recipient without consideration. On those facts, there was no transfer of property or gratuitous surrender within the statutory concept of gift, so gift-tax was not leviable.

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Issues: Whether reduction of a partner's profit-sharing ratio on reconstitution of a partnership firm, where incoming partners and minors contributed capital in proportion to their respective shares, constituted a gift chargeable to gift-tax.

Analysis: The reconstitution of the firm showed that the incoming partners and the minors brought in capital from their own sources in proportion to the revised profit-sharing ratios. The existing partners who suffered reduction in share had proportionately withdrawn excess capital, and there was no assignment of the relinquished share to any identified new partner or minor without consideration. On the facts, the reduction in share did not amount to a transfer of property or a gratuitous surrender attracting the statutory concept of gift.

Conclusion: The reduction in the partners' share ratios did not constitute a taxable gift and gift-tax was not leviable.

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