Court Opinion

ID: 4619018
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:39:47.995323+00
Date Added: 2024-06-11T07:55:33.965077
License: Public Domain

T. C. PHILLIPS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Phillips v. CommissionerDocket No. 12802.United States Board of Tax Appeals9 B.T.A. 153; 1927 BTA LEXIS 2649; November 18, 1927, Promulgated 1927 BTA LEXIS 2649">*2649  The petitioner and his wife, residents of the State of Oklahoma, filed separate returns for 1923, in which each reported one-half of the income received from property acquired while residents of the State of Texas.  Held, that such a method of reporting income was correct.  Hubert L. Bolen, Esq., for the petitioner.  D. H. Green, Esq., for the respondent.  GREEN 9 B.T.A. 153">*153  In this proceeding the petitioner seeks a redetermination of his income tax for the calendar year 1923, for which the Commissioner determined a deficiency of $922.80.  The petitioner and his wife filed separate returns.  The question is whether the petitioner, having filed a separate return for the year 1923, may be compelled to pay a tax upon the wife's share of the income of an estate accumulated under the community property laws of the State of Texas.  FINDINGS OF FACT.  The petitioner is an individual residing in Oklahoma City, Okla. During the period from 1889 to January, 1923, he resided at Bowie, Tex., and thereafter in Oklahoma City.  The petitioner and his wife were married on January 31, 1906.  At the time of his marriage he 9 B.T.A. 153">*154  was engaged in the business1927 BTA LEXIS 2649">*2650  of money lending and was worth about $108,000, which was all invested in personal property.  A large part of his investments were in the stock of the following banks: the First National Bank of Bowie, Tex., the Mangum National Bank at Mangum, Okla., the First National Bank of Woodward, Okla., and the First National Bank El Dorado, Okla.; the remainder was in notes.  The petitioner was still the owner of the above-mentioned bank stock during the taxable year 1923.  During the period in which the petitioner resided in Texas, his estate was increased by "swapping around." He did business as a money lender with every one that he could and made what profit he could on such transactions.  In prior years while residing in the State of Texas, the husband and wife filed separate income-tax returns in which they reported their proportionate share of the community income.  In the year in question no income was acquired from real estate.  Income was, however, received from personal property and $4,500 was received as dividends from the banks at Woodward and Mangum, Okla.  The record is silent as to what part of the personal property owned by the taxpayer prior to his marriage had been disposed1927 BTA LEXIS 2649">*2651  of before the taxable year but it does indicate that the estate during the period in which the petitioner and his wife lived in Texas was considered and treated as community property.  On or before March 15, 1924, the petitioner and his wife each filed separate income-tax returns for the calendar year 1923 and each reported thereon his half of the total aggregate income.  Their separate returns were prepared in the office of the collector of internal revenue at Oklahoma City, Okla., with the assistance of a deputy collector, and were signed and filed as prepared.  Subsequently, the petitioner was advised by telephone by the office of the collector of internal revenue that an error had been made in his returns and he was requested to call at the office to correct it.  In response to this request, the petitioner appeared at the office of the collector and was informed that he would have to make a joint return for himself and wife and that he and his wife would not be permitted to file separate returns.  The deputy collector then prepared a single joint return for the petitioner and his wife for the calendar year 1923 and included therein the combined income of husband and wife.  The1927 BTA LEXIS 2649">*2652  single joint return was signed by the petitioner under the protest that he and his wife were entitled to file separate returns.  The deputy collector who prepared the returns testified that the original returns were destroyed at the time of the preparation of the joint return but that he could not remember whether they were destroyed by the petitioner or by himself.  The Commissioner denied the petitioner's protest and computed the tax on the basis of a joint return resulting in a deficiency in the sum of $922.80.  9 B.T.A. 153">*155  OPINION.  GREEN: The petitioner herein contends that he is entitled to have his income determined and his tax computed upon the basis of the separate returns filed by him for the taxable year 1923, and that the respondent's action in combining his income with that of his wife, and computing the tax upon the whole thereof, is erroneous.  It appears that the petitioner, some time before March 15, 1924, filed with the collector of internal revenue for the Oklahoma district, where he then resided, separate income-tax returns for himself and wife.  These returns were subsequently destroyed and a single joint return was filed.  Section 223 of the Revenue Act1927 BTA LEXIS 2649">*2653  of 1921 provides two ways in which returns for husband and wife living together may be filed.  Each has a right to file a separate return or the income of each may be included in a single joint return.  Either is a correct and proper return, but the return that is filed is the return, and the only return, recognized by law.  Having once made the election and filed separate returns, the petitioner could not be compelled to file a return or pay tax on the other basis.  See R. Downes, Jr. v. Commissioner,5 B.T.A. 1029">5 B.T.A. 1029. The record shows that the petitioner was a resident of the State of Texas from 1889 until January, 1923, at which time he moved to Oklahoma City, Okla.  He was married in 1906, at which time his estate consisted entirely of personal property, part of which was invested in bank stock, some of the banks being located in the State of Oklahoma, which said Oklahoma bank stock he still owned during the taxable year.  His taxable income for the year in question came partly from dividends on the Oklahoma bank stock and partly from his share of the community estate built up by the reinvestment of the income from the personal property owned by him prior to1927 BTA LEXIS 2649">*2654  his marriage.  The only reference in the record to property other than the Oklahoma bank stock owned prior to marriage is of Texas bank stock which was unproductive during the year 1923.  Article 4621, Vernon's Anno. Civ. Stats., Sup. 1918, declares: All property, both real and personal, of the husband owned or claimed by him before marriage, and that acquired afterwards by gift, devise or descent, as also the increase of all lands thus acquired, and the rents and revenues derived therefrom, shall be his separate property.  It accordingly follows that the stock in the Oklahoma banks at all times remained his separate property and that upon his removal to the State of Oklahoma the income from said stock was his separate income and properly so returnable.  The remainder of the income is derived from the estate that was built up during the period of residence in Texas, in which State the income from personal property was community income.  See Willcutt v. Willcutt,278 S.W. 236">278 S.W. 236. 9 B.T.A. 153">*156  It appears to be well established by the Texas courts that the interests of the spouses in the community property are beneficially equal, but the legal title is in the1927 BTA LEXIS 2649">*2655  husband, the wife's interest being vested but equitable.  See 35 Harvard Law Review, p. 62; Burnam v. hardy Oil Co., 108 Tax. 555.  When property is brought from one State to another, rights vested by the law under which it was acquired are recognized and protected.  Abraham B. Johnson et al. v. Commissioner,7 B.T.A. 820">7 B.T.A. 820. The income other than that from the Oklahoma bank stock which was derived in 1923, comes from a source, the legal title to which was in the petitioner, with a vested equitable interest of one-half in his wife.  A similar situation may be illustrated by the following hypothetical case.  A and B, residents of Texas, each invest $1,000 in a Texas oil lease, the title to which is taken in the name of A.  Oil is discovered and the property sold for 100,000.  A invests the proceeds in securities, taking title in himself, and subsequently they both move to Oklahoma, where they reside when the dividends are paid.  In the illustration given there is no question that both A and B should report their share of this income in their separate returns.  To refuse to allow the wife to report income from property in which she had a vested1927 BTA LEXIS 2649">*2656  equitable interest would be depriving her of such rights.  It is held, therefore, that the income from the husband's separate property in the amount of $4,500 is his separate income, tax tax upon which should be paid by him, and that the remainder of the income was the joint income of both the husband and the wife, one half of which was properly returnable by each.  Reviewed by the Board.  Judgment will be entered after 15 days' notice, under Rule 50.MILLIKEN dissents.