Court Opinion

ID: 4633706
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:14:29.960574+00
Date Added: 2024-06-11T07:58:06.245600
License: Public Domain

WILLIAM R. TRACY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  HELEN GREGORY TRACY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Tracy v. CommissionerDocket Nos. 45513, 45514.United States Board of Tax Appeals25 B.T.A. 1055; 1932 BTA LEXIS 1434; April 5, 1932, Promulgated 1932 BTA LEXIS 1434">*1434  1.  Held that petitioners have not shown that the respondent erred in holding that a certain marginal stock-trading account was owned by petitioner William R. Tracy alone instead of by him and his wife equally, that the income therefrom is taxable to him alone, and that the interest paid to the broker for carrying the account is deductible by him alone.  2.  Held that since the record does not disclose that any part of the taxes on real estate in Michigan owned by the petitioners "jointly" were paid by petitioner, Helen Gregory Tracy, the respondent's refusal to allow her to deduct any portion thereof must be approved.  3.  Held that only one-half of the income from certain real property in Florida held by husband and wife "jointly" is taxable to the husband.  4.  Upon the evidence held that petitioner William R. Tracy realized no income from the Mair Trust.  Edward S. Reid, Jr., Esq., for the petitioners.  Bruce A. Low, Esq., for the respondent.  MCMAHON 25 B.T.A. 1055">*1055  These are proceedings, duly consolidated for hearing and opinion, for the redetermination of deficiencies in income tax as follows: Docket No.YearDeficiency455131925$7,102.09455131926571.72455141926311.231932 BTA LEXIS 1434">*1435  In each of Dockets 45513 and 45514 it is alleged that the respondent erred: (1) In holding that stocks in the trading account of William R. Tracy and his wife, Helen Gregory Tracy, with Otis & Company of Detroit were owned solely by William R. Tracy and not by him and his wife jointly, that dividends and gains from the capital of said stocks were income of William R. Tracy alone, and that interest charged for the carrying of said stocks by the broker, Otis & Company, was deductible by William R. Tracy alone, instead of holding that such income and deductions should be divided equally between William R. Tracy and Helen Gregory Tracy; (2) In holding that property taxes on real estate in Michigan owned by William R. Tracy and Helen Gregory Tracy as tenants 25 B.T.A. 1055">*1056  by the entireties were deductible by William R. Tracy alone, instead of holding that such deductions should be divided equally between William R. Tracy and Helen Gregory Tracy; and (3) In refusing to allow as a deduction one-half of a loss on the sale of the temporary residence in Pontiac, Michigan, owned by William R. Tracy and Helen Gregory Tracy as tenants by the entireties.  It is also alleged in Docket No. 1932 BTA LEXIS 1434">*1436  45513 that the respondent erred: (1) In holding that rents from real estate in Florida owned by William R. Tracy and Helen Gregory Tracy as tenants by the entireties were income of petitioner alone, rather than income to each equally; and (2) In holding that William R. Tracy realized income from the so-called Mair Trust.  In their brief petitioners abandoned the assignment of error regarding the loss on the sale of the temporary residence at Pontiac, Michigan.  FINDINGS OF FACT.  The petitioners, husband and wife, are residents of Bloomfield Township, Oakland County, Michigan.  Petitioner William R. Tracy was vice president of the Oakland Pontiac Motor Company, in charge of sales upon a salary during a portion, at least, of the period 1925-1926.  Tracy had a marginal stock trading account in his own name with Otis & Company, Detroit brokers, previous to January 1, 1925.  In the latter part of 1924 he discussed with his wife, Helen Gregory Tracy, the advisability of making this a joint account in the names of both of them, and she agreed to this.  On or about January 1, 1925, William R. Tracy wrote the broker a letter, which was received by it in due course, as follows: 1932 BTA LEXIS 1434">*1437  Please make a joint account of my transactions with your firm in the name of W. R. and Helen Tracy, effective January 1, 1925.  Orders for transactions in this account will be given to you for the writer.  Everything in the account at that time had been put there by Wm. R. Tracy.  Purchases and sales were made in Detroit by the broker upon telephone orders from Tracy, and executed in New York City.  The account was to be put on a joint basis for convenience and because of its effect on inheritance taxes in the event of Tracy's death; also to bring it in line with the practice of the two petitioners of holding their real estate jointly and his theory that what they accumulated was hers as much as his.  25 B.T.A. 1055">*1057  After discussing the subject with her and writing the letter, he told her he had directed the broker to make the account joint.  She acquiesced in his direction to the broker.  There was no change made in the books of the broker to conform to his direction until two years later, December 31, 1926.  Upon request, in the interim, the books would have been changed by the broker and the change made retroactive.  Otis & Company would have considered the account joint1932 BTA LEXIS 1434">*1438  after the receipt of the letter, if any question arose, notwithstanding that there had been no change made in its books until December 31, 1926.  Wm. R. Tracy did all the trading in the account after the letter was written the same as before.  Helen Gregory Tracy never traded in the account, gave orders to the broker, or drew upon it.  It was his view that she could trade in and draw upon the account if it was in such condition that withdrawals could be made.  It was her understanding that she could give orders, make purchases, and trade in the account; that the account would be hers if he died; and that, notwithstanding the letter, she did not think she would have to get further authority to trade in it if it was a joint account.  In joint accounts with Otis & Company either party could draw on the account independently of the other, and withdraw dividends or excess of funds, if properly margined; and Otis & Company would have permitted either Mr. or Mrs. Tracy to do this and would have taken orders from either after receipt of the letter.  At that time Otis & Company did not use joint account forms in dealing with their customers.  Neither Tracy nor his wife had a stock1932 BTA LEXIS 1434">*1439  trading account with any other broker.  The evidence discloses that on January 1, 1925, there were in the account with Otis & Company the following shares of stock: "200 Fisher Body, 35 F.B.O. Pfd., 1,408 Gen. Motors, 15 Gen. Motors, 7, Pfd." The evidence further shows that there was owing at that time to Otis & Company on the account the amount of $76,187.46.  During the years 1925 and 1926 dividends and proceeds from sales of stock were credited, and carrying interest charges and amounts due on purchase price of stocks were debited to the account.  At December 31, 1926, there were in the account the following shares of stock: "200 U.S. Steel, 411 Gen. Motors, 133 Otis Steel Pri. Pref., 200 Hudson, and 500 Dodge A." There was owing to Otis & Company on the account at that date the amount of $63,763.10.  The respondent added to the net income, as reported by William R. Tracy for the year 1925, the amount of $5,772.76, which Helen Gregory Tracy had returned in her income-tax return for that year, purporting to represent one-half of the dividends upon the stocks 25 B.T.A. 1055">*1058  held in the stock trading account with Otis & Company.  Respondent held that the stocks were owned by William1932 BTA LEXIS 1434">*1440  R. Tracy and that the full amount of the dividends was returnable by him.  Dividends returned by William R. Tracy were further increased by the respondent by the amount of $1,868.12.  The respondent also increased the income reported by William R. Tracy for the year 1925 by the amount of $16,906.25, which had been reported by Helen Gregory Tracy in her return for that year.  This amount represented one-half the profits derived on the sale of stocks in the stock-trading account with Otis & Company.  The respondent increased the deduction claimed in 1925 by William R. Tracy on account of interest paid to Otis & Company by the amount of $2,451.21 representing the one-half of such interest which had been claimed as a deduction by Helen Gregory Tracy.  The respondent increased the deduction claimed in 1925 by William R. Tracy on account of taxes paid by the amount of $284.09 representing one-half of the taxes paid on real estate located in Michigan, which William R. Tracy and Helen Gregory Tracy owned jointly.  This amount had been deducted by Helen Gregory Tracy as income in her return for the year 1925.  The respondent also increased the income reported by William R. Tracy for 19251932 BTA LEXIS 1434">*1441  by the amount of $323.65, representing one-half of the rent from real property located in Florida.  This real property in Florida was owned jointly by William R. Tracy and Helen Gregory Tracy.  Helen Gregory Tracy had included this amount in her income for the year 1925, but the respondent held that the full amount of the rent is taxable to her husband.  In her return for the year 1926 Helen Gregory Tracy claimed as a deduction an amount of $3,953.86, purporting to represent one-half of the total amount of interest paid to Otis & Company upon the stock-trading account.  Such claimed deduction was disallowed, but the respondent allowed William R. Tracy to take such amount as a deduction as well as a like amount which he had claimed as a deduction for interest, in computing his net income for the year 1926.  There was stricken from Helen Gregory Tracy's reported income for 1926 by the respondent an amount of $4,850.13, purporting to represent one-half of the total dividends upon the stocks in the stock-trading account with Otis & Company.  This amount was included in the income of William R. Tracy for the year 1926.  In her return for the year 1926 Helen Gregory Tracy claimed as1932 BTA LEXIS 1434">*1442  a deduction an amount of $612.33 as taxes.  The respondent disallowed this deduction with the following statement: "Taxes on local property, South Haven property, and property in Cleveland, originally 25 B.T.A. 1055">*1059  claimed by you, have been allowed as a deduction on your husband's return." The respondent added to the net income as shown by William R. Tracy in his return for 1926 an amount of $889.68, representing income from the Mair Trust.  The Mair Trust was organized in 1926 and was a trust to buy and sell land in Oakland County, Michigan, wherein petitioner William R. Tracy and other persons were beneficiaries.  The respondent determined that this trust was an association taxable as a corporation and William R. Tracy, the trustee, and the other beneficiaries acquiesced in such determination.  The income of the Mair Trust has been assessed to the Mair Trust as an association.  No distribution was received by William R. Tracy from the Mair Trust in either of the years 1925 or 1926.  OPINION.  MCMAHON: In their brief the petitioners abandoned the assignment of error regarding the loss on the sale of a temporary residence at Pontiac, Michigan, and the respondent's determination1932 BTA LEXIS 1434">*1443  in that regard will not be disturbed.  The remaining issues, in so far as they relate to petitioner Helen Gregory Tracy, apply only to the year 1926, but petitioner William R. Tracy raises issues as to both the years 1925 and 1926.  The first question to be determined is whether the respondent erred in taxing to petitioner William R. Tracy the full amount of the gains and dividends from the stocks in the marginal stock-trading account with Otis & Company, and in holding that all the interest paid to Otis & Company for carrying the account should be deducted by him, instead of holding that such income and deductions should be divided equally between the two petitioners.  No question is raised by the petitioners as to the correctness of the amounts determined by the respondent as representing such gains, dividends and interest.  The respondent has held that the account was owned by petitioner William R. Tracy.  Petitioner contends that the account was owned by the two petitioners as joint tenants and that each is entitled to return one-half of the gain and dividends and to deduct one-half of the interest in computing their net income.  It is the position of the petitioners that Tracy1932 BTA LEXIS 1434">*1444  in 1924 made a gift to his wife of a one-half interest in the account in question.  In , the court quotes with approval the following from : Among the indispensable conditions of a valid gift are the intention of the donor to absolutely and irrevocably divest himself of the title, dominion, and control of the subject of the gift in praesenti at the very time he undertakes 25 B.T.A. 1055">*1060  to make the gift; * * * the irrevocable transfer of the present title, dominion, and control of the thing given to the donee, so that the donor can exercise no further act of dominion or control over it; * * * In , it is stated: Gifts inter vivos of personal property, to be effective, must be accompanied by the delivery of the possession, the donor parting with all present and future dominion over it; * * * In , it is stated: The rule as laid down in Cyc. is as follows: "To constitute a valid gift inter vivos the purpose of the donor to make the gift must1932 BTA LEXIS 1434">*1445  be clearly and satisfactorily established, and the gift must be completed by actual, constructive, or symbolic delivery without power of revocation." To the same effect is ; . The Board has heretofore held in , that "a gift, if it is one in fact, is an unqualified giving up of dominion over the property itself and everything appertaining thereto." Have the petitioners shown that William R. Tracy intended to divest himself of ownership and control over any portion of the account in question and make a gift to Helen Gregory Tracy?  We believe not.  In his letter of January 1, 1925, to Otis & Company, Tracy stated: "Please make a joint account of my transactions," and "Orders for transactions in this account will be given to you for the writer." It does not appear that he told his wife what was in the letter, except that he told her he had directed the broker to make the account.  joint, or that she understood that she could draw on the account.  There was no explanation offered of the delay in the change in the broker's books.  It does not expressly1932 BTA LEXIS 1434">*1446  appear that Mrs. Tracy assumed any liability for losses or otherwise; that she could trade in or draw upon the account or do anything else with the account; or that the directions contained in the letter to the broker could not be revoked by Tracy at any time.  The letter calls for a mere change in name and is limited to his transactions.  It does not appear that the reservation contained in the last paragraph of the letter was brought to her attention.  We construe this paragraph to mean that she could not on her own account give orders to buy or sell.  It does not appear that Tracy or his wife or the broker had a clear understanding of what took place or was intended to take place.  If a gift was intended, there should have been no equivocation about it.  The intention to make a gift should have been shown clearly.  The limitations of the letter negative the theory of a gift.  25 B.T.A. 1055">*1061  See ; , where the Supreme Court of Florida stated: [3] In the case of an alleged gift from husband to wife, there must be clear and convincing evidence of a delivery of the property by the husband with the intention1932 BTA LEXIS 1434">*1447  of divesting himself of all dominion and control of it and of vesting it in the wife, and the evidence of the circumstances of a gift of an unindorsed chose in action should be full, clear, and convincing.  * * * We hold that the petitioners have not met the burden of showing that the respondent erred in holding that this account in the years in question belonged to William R. Tracy alone, that the income therefrom is taxable to him in its entirety, and that the interest paid to Otis & Company for carrying the account is deductible by him alone.  The respondent's determination in these regards is approved.  The testimony of the witness Savage deals with joint trading accounts created by express written agreements, formally entered into, in Detroit, subsequent to 1925-1926, the period in question, and as these are quite different from the one before us in this proceeding, his testimony is of no assistance.  Each of the petitioners alleges that the respondent erred in holding that property taxes on real estate in Michigan owned by them as tenants by the entireties are deductible by William R. Tracy alone.  The evidence discloses that the respondent increased the deduction claimed1932 BTA LEXIS 1434">*1448  in 1925 by William R. Tracy, on account of taxes paid, by the amount of $284.09, representing one-half of the taxes paid on real estate located in Michigan which the two petitioners owned jointly.  The evidence discloses that for the year 1926 the respondent disallowed a deduction of an amount of $612.33 claimed by Helen Gregory Tracy and allowed it as an additional deduction in computing the tax liability for William R. Tracy for the year 1926.  These taxes, according to the deficiency letter, represent "taxes on local property, South Haven property, and property in Cleveland." Petitioners contend that under the revenue acts the owners of property are the proper parties to deduct taxes, that each of the petitioners owned an equal interest in the property, and that the taxes should be deductible by each in equal proportions.  There is no evidence that Helen Gregory Tracy paid any part of them, or that William R. Tracy did not pay the full amount thereof.  In this situation there is no basis in fact for disturbing the respondent's determination as to the deductibility of these taxes.  On the contrary there is a presumption here that his determination is correct.  Upon the record1932 BTA LEXIS 1434">*1449  we must hold that the respondent did not err in this respect.  It is alleged by the petitioner William R. Tracy that the respondent erred in holding that rents from real estate in Florida25 B.T.A. 1055">*1062  owned by him and Helen Gregory Tracy as tenants by the entirety were income of William R. Tracy alone, rather than income to each of them equally.  The evidence discloses that the respondent increased William R. Tracy's reported net income for the year 1925 by the amount of $323.65, representing one-half of the rent from real property located in Florida.  However, the respondent has not held, and the evidence does not show, that this property was owned by the two petitioners as tenants by the entirety.  It simply shows that such property was owned by them "jointly." In this situation there is a presumption that each petitioner owned a one-half interest therein, since there is no evidence to the contrary.  ; ; ; 1932 BTA LEXIS 1434">*1450 ; ; , and cases cited; ; Thompson on Real Property, section 1768, 1771; 33 C.J. 837, 909. The determination of the question of who is properly taxable upon the income from the property depends upon the rights of each to the ownership and possession of such income.  As to such rights we are bound by law of Florida.  ; ; and ; . Respondent cites section 5867 of the Compiled General Laws of Florida, 1927, which is to the same effect as section 3948 of the Revised General Statutes of Florida, 1920, which applied in the years in question in this proceeding.  That statute provides as follows: The property of the wife shall remain in care and management of the husband, but he shall not charge for his care and management, nor shall the wife be entitled to sue her husband for the1932 BTA LEXIS 1434">*1451  rent, hire, issues, proceeds, or profits of her said property.  However, in ; , the Supreme Court of Florida had the following to say with regard to a similar provision of the General Statutes of Florida of a prior year: [1] Under the act of March 6, 1845, brought forward in the General Statutes as section 2589, "the property of the wife shall remain in care and management of the husband, but he shall not charge for his care and management, nor shall the wife be entitled to sue her husband, for the rent, hire, issues, proceeds or profits of her said property." The contention of the plaintiff in error might be sound, were it not for the provision of the Constitution of 1885, art. 11, § 1, declaring that "all property, real and personal, of a wife owned by her before marriage, or lawfully acquired afterwards by gift, devise, bequest, descent, or purchase, shall be her separate property, and the same shall not be liable for the debts of her husband without her consent given by some instrument in writing, executed according to the law respecting conveyances by married women." 25 B.T.A. 1055">*1063 1932 BTA LEXIS 1434">*1452  The Constitution has thus vested her with the Property in her separate estate, instead of the mere title thereto, which only she enjoyed prior to the Constitution of 1868, of which our present Constitution is an amendment.  May the Legislature, against the will of the wife, say to her that the husband shall have absolute dominion over her "property"?  To so hold, it seems to us, would cut down the larger word "property" to the narrow word "title," and say to the makers of the Constitution: "You were ignorant of the meanings of the two words; the change you made was a thoughtless one, and we shall again enthrall the wife, however skillful and competent she may be in matters financial, under the yoke of the husband, however incompetent in such matters, or controlled by his appetite for strong drink or gambling, or other dissipations." [3] The limit the Legislature can go in this direction is to make the husband the agent of the wife as to her separate property, confirmed in her by the organic law, only so long as it may be mutually agreeable, the husband serving without compensation; buy the Legislature may not interfere with her dominion over that property, created and fixed1932 BTA LEXIS 1434">*1453  in her by the higher law, to the extent of placing it irrevocably in the control of her husband.  * * * It is, however, asserted that the question is no longer open in this State.  Assuming that the court may estop itself from obeying the mandate of the Constitution we shall proceed to examine our previous holdings.  In , the precise point decided was that the income from the wife's property would not be subjected or sequestrated for the husband's debts, under the Constitution of 1868.  Following up this decision, we held, in , that the husband alone could not mortgage the crops grown upon her separate property.  In , and , we recognized some life in the statute to the extent only of holding that, the wife consenting actively or silently, the husband might be her responsible agent in the management and control of her property.  There may be expressions in some of these opinions looking1932 BTA LEXIS 1434">*1454  to a larger scope to the statute; but such expressions are not necessary to the decisions, and are not binding.  It would be too severe a load upon an absolute separate property in an estate to compel the owner to go into the courts in order to be relieved of a statutory burden placed thereon; but we do not see that it is necessarily beyond the power of the Legislature, in recognition of the traditional headship of the family, to declare that the husband shall remain in the care and management of the wife's separate estate, without compensation, so long as that arrangement is agreeable, to both parties.  * * * See also ; , wherein it is said: "It seems therefore, to be settled that the rents and profits of a wife's separate statutory property are her property." We hold that each petitioner herein was entitled to one-half of the rent from the Florida real estate in question and that the petitioner William R. Tracy is taxable upon only one-half of the rent 25 B.T.A. 1055">*1064  received from such property in the year 1925.  See 1932 BTA LEXIS 1434">*1455 . From the above cited Florida decisions we are of the opinion that if William R. Tracy collected the one-half of the rents from the property in question to which his wife was entitled, he did so merely as her agent.  Receipt of rent by an agent is receipt by the principal.  . It is also alleged that the respondent erred in holding that petitioner William R. Tracy realized income in 1926 in the amount of $889.68 from the Mair Trust.  In the petitioner it is alleged: The so-called Mair Trust was organized in 1926, and was a trust to buy and sell lands in Oakland County, Michigan, wherein petitioner and other persons were beneficiaries.  This trust was determined by the Department of Internal Revenue, to be an association, taxable as a corporation, and petitioner, the trustee, and the other beneficiaries acquiesced in such determination.  The Mair Trust made no distribution of income in 1926.  The income of the Mair Trust has been assessed to the Mair Trust as an association.  In his answer the respondent admitted all the above allegations in the petition, except that he denied that1932 BTA LEXIS 1434">*1456 the Mair Trust made no distribution of income in 1926.  At the hearing petitioner William R. Tracy unqualifiedly testified, and such testimony was not controverted, that he received no distribution whatsoever from the Mair Trust in either of the years 1925 or 1926.  The respondent contends that since the petitioner William R. Tracy did not produce any books to prove that the amount in question was not paid to him, there is a presumption that if the available documents and records had been produced they would have been injurious to the petitioner.  However, we are not advised that there were any documents or books which would bear upon this question, and, even if there were, it is our opinion that they would not be better evidence of amounts received by petitioner than petitioner's own testimony under oath.  Such evidence, if produced, might have been cumulative merely.  See ; , cited in respondent's brief. The case of , also cited by respondent is not in point.  There, the defendant, having certain records1932 BTA LEXIS 1434">*1457  in its possession and refusing to produce them after due notice, it was held that the plaintiffs had a right to introduce secondary evidence of their contents, and that in such situation there is a presumption that the secondary evidence is correct, and that the primary evidence if offered by the party refusing to offer it although in a position to do so, would be prejudicial to such party.  25 B.T.A. 1055">*1065  We hold that the respondent erred in including the amount of $889.68 in William R. Tracy's income for the year 1926.  Reviewed by the Board.  Judgment will be entered under Rule 50.LANSDON and MATTHEWS concur in the result.  MURDOCK and LEECH dissent.