Court Opinion

ID: 9651650
Source: CourtListenerOpinion
Date Created: 2023-08-23 16:30:01.909426+00
Date Added: 2024-06-11T18:12:37.130866
License: Public Domain

HANEY, Circuit Judge
(dissenting).
I think the majority misconceive the real point in this case. Dissertations on the law of community property are of little value here, if it is not applicable. The real issue here is: is the law of Washington, a community property state, applicable, or, is *360the law of Oregon, a non-community property state, applicable?
The permission to divide the husband’s income between the husband and wife in community property states, was probably one of the greatest discriminations against the people of 85% of the states in the union .that has recently occurred. Estimates of the loss to the government vary from $9,-000,000 to $60,000,000 annually. See Hearings before a Subcommittee of the Committee on Ways and Means, House Of Representatives, 73rd Cong., 2nd Sess., on H. R. 8396, pp. 2, 5, 11, 12, 48, 78. An annual loss of $10,000,000 for 20 years is two hundred millions of dollars. The indications are that the loss has been much greater. The people in the remaining 85% of the states have had to, bear the brunt of -such patent discrimination. If we are to uphold petitioner here, then there seems to be no reason why all people in non-community property states cannot take advantage of the precedent thus announced — a catastrophe to government finances.
The basis for a tax on income has been uniformly stated in the various income tax acts as the “net income of every individual”. (Italics supplied). It' can be seen, therefore, that the question is whether the income is income “of” the husband, alone, or income “of” both the husband and wife as a community. Such question is determined differently ' according to whether ownership is determined by the law of a community property estate, or by the law of 85%. of the states which have no community property system. It is apparent that the determination of- the question is actually a determination of the question as to1 which of these two groups of rules should apply.
In United States v. Robbins, 269 U.S. 315, 327, 46 S.Ct. 148, 149, 70 L.Ed. 285, the. guide was given as follows: “ * * * Even if we * * * assume -that the wife had an interest in the community income that Congress could tax if so minded, it does not follow that Congress could not. tax the husband for the whole. * * * ” Notwithstanding such clear implication, when the question as to the taxability of community income was presented to the Supreme Court, we find that the Commissioner had. conceded away his case. The answer to the determining question was never made, and the necessity therefor was obviated by a concession, shown to have been made in Poe v. Seaborn, 282 U.S. 101, 110, 51 S.Ct. 58, 75 L.Ed. 239, as follows: “The Commissioner concedes that the answer to the question involved in the cause must be found in the provisions of the law of the State [of Washington — a community property state].”
Based upon that concession, the Supreme Court held that the husband in his individual return need include only one-half,of the community net income. See, also, Goodell v. Koch, 282 U.S. 118, 51 S.Ct. 62, 75 L.Ed. 247; Hopkins v. Bacon, 282 U.S. 122, 51 S. Ct. 62, 75 L.Ed. 249; Bender v. Pfaff, 282 U.S. 127, 51 S.Ct. 64, 75 L.Ed. 252; United States v. Malcolm, 282 U.S. 792, 51 S.Ct. 184, 75 L.Ed. 714. The Supreme Court did not decide that to determine the question as to whom community income was taxable, the law of the state of the residence of the taxpayer or of the situs of the income, must be applied. In fact, the question was not presented. Moreover, in each of the cases cited, the taxpayer was a resident of the community property state in which the income was derived. That fact is absent here.
It is apparent, therefore, that the primary question to be decided here, is what law is to be applied. On that question, the parties, only by inference, have presented an argument. Petitioner Contends that the income must be considered community income because the instrument made by petitioner and his wife converted all the property from which the income was derived into community property, and because most of the property, other than that operated by the partnership, was purchased with community funds. We may assume, for the purposes of this decision, that if the law of Washington is applied, then petitioner’s contention is correct.
The statute simply levies taxes on the “net income of every individual” and the “surtax net income of every individual”. §§ 11, 12(a, b), Revenue Act of 1934, 26 U. S.C.A.Int.Rev.Acts, page 665. By § 181, partners are taxed “only in their individual capacity”, so that the question to be decided is whether or not the income in question is- the income “of” petitioner. As said, that question is to be decided by determining whether the law of Washington, a community property state, or the law of *361Oregon, and other states, non-community property states, is to be applied.
The test for determining the applicable law is stated in Burnet v. Harmel, 287 U.S. 103, 110, 53 S.Ct. 74, 77, 77 L.Ed. 199, as follows: “Here we are concerned only with the' meaning and application of a statute enacted by Congress, in the exercise of its plenary power under the Constitution, to tax income. The exertion of that power is not subject to state control. It is the will of Congress which controls, and the expression of its will in legislation, in the absence of language evidencing a different purpose, is to be interpreted so as to give a uniform application to a nation-wide scheme of taxation. * * * State law may control only when the federal taxing act, by express language or necessary implication, makes its own operation dependent upon state law. * * * ” See, also, Biddle v. Commissioner, 302 U.S. 573, 578, 58 S.Ct. 379, 82 L.Ed. 431; Founders General Co. v. Hoey, 300 U.S. 268, 275, 57 S.Ct. 457, 81 L.Ed. 639; Thomas v. Perkins, 301 U.S. 655, 659, 57 S.Ct. 911, 81 L.Ed. 1324.
By the levy of a tax on the net income “of” every individual, it is clear that Congress did not expressly provide that ownership of net income was determinable by any particular law. That it did not do so by implication is made clear by the cases holding that ownership was not to be determined by the law of the residence of the taxpayer or the situs of the property. Weiss v. Weiner, 279 U.S. 333, 49 S.Ct. 337, 73 L.Ed. 720; Burnet v. Harmel, supra; Lyeth v. Hoey, 305 U.S. 188, 59 S.Ct. 155, 83 L.Ed. 119, 119 A.L.R. 410. Thus, there is no compelling reason for extending this patent discrimination against the great majority of citizens of the United States by application of the device known as the community property law.
Interpreting the word “of” so as to give “a uniform application to ,a nationwide scheme of taxation” requires a holding that ownership of the income in question is not to be determined by the law of Washington, no matter how that law may designate it. Applying the law of the great majority of the states, including Oregon, and looking to “a uniform application to a nationwide scheme of taxation”, I think that the income in question was properly includable in petitioner’s return.