Court Opinion

ID: 4611113
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:48:18.875491+00
Date Added: 2024-06-11T07:54:11.410024
License: Public Domain

EUGENE W. SMALL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Small v. CommissionerDocket No. 49551.United States Board of Tax Appeals27 B.T.A. 1219; 1933 BTA LEXIS 1215; April 26, 1933, Promulgated *1215  Petitioner, a married man who filed a separate income tax return for the year 1927, is not entitled to deduct from his gross income the amount of real property taxes paid by him upon property which he had in a previous year transferred to his wife and which in the year in question was owned by her, since such taxes were not imposed upon him by the taxing authority.  George J. Mintzer, Esq., and Eugene W. Small, Esq., for the petitioner.  Frederick K. Slanker, Esq., for the respondent.  MCMAHON *1220  This is a proceeding for the redetermination of a deficiency in income taxes for the year 1927 in the amount of $236.83.  It is alleged that the respondent erred in disallowing the amount of $1,120.80, representing taxes paid by petitioner on the family home maintained by petitioner while title was in his wife.  FINDINGS OF FACT.  Petitioner is an individual, with residence in New York City.  The parties entered into the following stipulation of facts: The petitioner, during the calender year 1927, had a wife, Grace W. Small, and four minor children.  He bought the property known as 57 West 70th Street, Borough of Manhattan, City of New*1216  York, in or about the year 1920, and at the time of acquisition of this property he executed a purchase money bondmortgage, $20,000 of which is still unpaid.  Petitioner personally obligated himself on the bond, and he has paid the interest on the indebtedness to date.  Immediately upon the acquisition of the property, the petitioner installed his family therein, and he has maintained the property as the family home to the present time.  The petitioner, prior to 1927, transferred title to the property to his wife.  This transfer was duly recorded with the proper recording officer.  Title to the property stood, during the entire year 1927, in the name of his wife, and she owned the property.  When the property was transferred, it was upon the verbal understanding that it be continued as the family home, and it has been so continued.  Petitioner and his wife filed separate income tax returns for the calendar year 1927, photostatic copies of which are attached hereto and made a part of this stipulation as though fully set forth herein.  Petitioner personally paid real estate taxes upon the property known as 57 West 70th Street, Borough of Manhattan, City of New York, in the year*1217  1927, in the amount of $1,120.80.  In his income tax return for the year 1927, he deducted said sum.  This deduction was disallowed by the respondent, and the deficiency occasioned by such disallowance is the amount in controversy herein ($236.83).  The mortgage which petitioner executed secured the payment of $21,000 to a bank as mortgagee and provided for payments of $200 at intervals of six months until September 1, 1923, when the balance of $20,000 was to be paid, with interest at 6 per cent.  In the mortgage it was provided, among other things, that the petitioner as mortgagor should pay all taxes, assessments or water rates, and in default thereof, the mortgagee might pay the same, and that the whole principal sum should become due after default in the payment of any installment in principal or interest for 30 days, or after default in the payment of any tax, water rate or assessment for 60 days after notice and demand.  *1221  In the bond which petitioner executed to the bank at the time of the purchase of the property in question, the petitioner acknowledged himself to be indebted to the bank in the sum of $21,000, and therein it was provided that all the covenants*1218  and agreements made by the petitioner in his mortgage were made a part of the bond.  It was also provided in the bond that the principal sum of $21,000 should become due at the option of the obligee after default in the payment of interest for 30 days after default in the payment of any taxes, assessment or water rates for 60 days after notice and demand, after default in the payment of any installment of principal, or after any other default, or upon the happening of any event which under the terms of the mortgage might render the principal sum due or payable.  The transfer of the premises in question by petitioner to his wife was accomplished by a deed executed February 14, 1925, at which time petitioner was confined to a hospital.  He at that time told his wife that he had been informed that he had narrowly escaped death from an embolism and that there was a possibility of another embolism; that he had thought of the fact that he had not made a will; that in the case of his death the house would go to his children and her, but that he wanted to have the house continued as the family residence, and that he thought the best way to do that was to convey the house to her then and*1219  have her take it on the condition that she would continue it as a family residence.  His wife consented.  He stated to his wife that if he recovered he would continue to maintain the house as a family residence and pay all the expenses.  There was no written agreement or understanding between petitioner and his wife at the time of the transfer of the property either that the premises would be used as a family home or that petitioner would pay the taxes.  The deed recites a consideration of $100 and "other good and valuable considerations." By such deed the property was conveyed to petitioner's wife, "her heirs, legal representatives and assigns, forever." The deed provided that the property was transferred "subject to all liens and encumbrances of every nature or kind whatsoever now affecting said premises." There was no encumbrance upon the property in question other than the mortgage.  This deed was recorded in the office of the register of the County of New York on February 18, 1925.  Petitioner left the hsopital a few months after the execution of the deed to his wife and has since continued to pay the taxes and interest upon the property.  The taxes which petitioner paid upon*1220  this property in 1927 were paid out of his own moneys.  The petitioner and his wife returned and paid income taxes in the respective amounts of $7,404.01 and $2.52 for the year 1927.  The petitioner's wife, in her return for the year 1927, did not deduct either the taxes or the interest upon the property in question.  *1222  OPINION.  MCMAHON: The question here presented is whether petitioner, a married man who filed a separate return of income in 1927, is entitled to deduct an amount of $1,120.80 which he paid in that year out of his own moneys as taxes upon property which he had in a previous year transferred to his wife, with the verbal understanding that it would be continued as the family residence and that he would, while living, continue to pay all the expenses thereof, and which was owned by her during the year in question.  Section 214(a) of the Revenue Act of 1926 provides that there shall be allowed as deductions, "Taxes paid * * * within the taxable year * * *." In , we stated: * * * He also paid $776.85 representing taxes on the home of petitioner and his wife which he had given her at the time of*1221  their marriage, title to which stood in her name and which she in fact owned.  There is no doubt that if a joint return had been filed the payment of these taxes would have been a deduction on such joint return.  But, as separate returns were filed and the taxes were upon property of the wife, they are deductible only when and if paid by her and not by him.  ; ; ; ; . The above case was affirmed by the Court of Appeals of the District of Columbia in . It is true that in the instant proceeding the petitioner, by a personal bond and a mortgage which he executed, and which was in default, had obligated himself to the mortgagee to pay the taxes upon the property, and that he also stated to his wife at the time he transferred the property to her that he would continue to maintain the property as a family residence and pay all the expenses.  These circumstances were not present in *1222 , but the difference is immaterial.  Whatever obligations devolved upon the petitioner in the instant proceeding were contract liabilities with third persons. In order to be entitled to a deduction for taxes paid, a petitioner before us must show not only that he paid the taxes, but that the taxes were imposed upon him by the taxing authority.  ; ; ; ; affd., in ; ; affd., ; and . The petitioner has not shown that the taxes in question were imposed upon him.*1223  We find nothing in the law of New York, particularly sections 9 and 55(a), chapter 62, of the New York Laws of 1909 and subdivision (6) of section 254 of chapter 52 of the New York Laws of 1909, cited by the petitioner, to indicate that the realty taxes in question were imposed upon the petitioner.*1223   It does appear, however, from section 71 of chapter 62 of the New York Laws of 1909, cited by the respondent, that petitioner's wife, being the owner of the property, is personally liable for such taxes if her name was correctly entered on the assessment roll.  We do not know that the petitioner's wife was not personally liable for the taxes in question, since the petitioner, upon whom is placed the burden of proof, has not shown that his wife's name was not correctly entered on the assessment roll.  Cf. . The sections of the New York Laws referred to above are set forth in the margin.1*1224 Petitioner contends that there was virtually a trust estate reserved to the petitioner and his family by the verbal reservation respecting the continuance of the property as a family home and that it was the duty and interest of the petitioner to maintain this estate and pay the taxes necessary to maintain it.  However, petitioner cited us no authority in support of this contention, and we see no merit in it.  In view of this contention of the petitioner, the following portion of the court's opinion in , is pertinent: * * * Petitioner, on the other hand, insists that he is entitled to a deduction from his income by reason of his duty as husband to support his family and also because under the Ohio law he has certain rights of dower (in most States called curtesy) in his wife's real estate.  Added to this, if *1224  we correctly understand petitioner's contention before the Board, as shown in his evidence, he claims to hold an equitable title to the property growing out of the initial payment by him of $8,000, and out of this he deduces an obligation on him to pay the taxes and the interest.  We are unable to find any substance*1225  in any of these contentions, or to perceive either a legal or equitable title to the property.  * * * Taken together, we are unable to reach any other decision than that he intended a gift to his wife of the full and absolute title to the property, though doubtless with the purpose, as between them, of discharging the encumbrance so that the dwelling house should eventually be hers discharged of debt, and, if that be true, it is not necessary to cite authority to the effect that the voluntary payment by him of her taxes or of interest primarily due by her should not entitle him to a deduction therefor under the revenue laws.  We hold that the respondent did not err in disallowing the claimed deduction.  Decision will be entered for the respondent.Footnotes1. § 9.  Place of taxation of real property. Real property shall be assessed as of July first in the tax district in which it is situated.  In all cases the assessment shall be deemed as against the real property itself, and the property itself shall be holden and liable to sale for any tax levied upon it.  § 55-a.  Errors in assessment-rolls. An error in the description of a parcel or portion of real property shall not invalidate the assessment against such parcel or portion, if such description is sufficiently accurate to identify the parcel or portion.  The entry of the name of the owner, last known owner or reputed owner of a separate parcel or portion of real property shall not be regarded as part of such assessment, but merely as an aid to identify such parcel upon the roll.  § 71.  Collection of taxes; sale of personal property. * * * If the owner of a parcel or portion of real property is a resident of the tax district in which such parcel or portion of real property is assessed, and his name is correctly entered on the assessment-roll, he shall be personally liable for the tax assessed against such parcel or portion of real property.  * * * § 254.  Construction of clauses and covenants in mortgages and bonds. * * * * * * 6.  Mortgagor to pay all taxes, assessments or water rates.↩ A covenant "that the mortgagor will pay all taxes, assessment or water rates and in default thereof, the mortgagee may pay the same" must be construed as meaning that until the amount hereby secured is paid, the mortgagor will pay all taxes, assessments and water rates which may be assessed or become liens on said premises, and in default thereof the holder of this mortgage may pay the same, and the mortgagor will repay the same with interest, and the same shall be liens on said premises and secured by the mortgage.