Court Opinion

ID: 4616358
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:34:18.387924+00
Date Added: 2024-06-11T07:55:05.866726
License: Public Domain

J. D. TAYLOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Taylor v. CommissionerDocket No. 9560.United States Board of Tax Appeals9 B.T.A. 1053; 1928 BTA LEXIS 4314; January 3, 1928, Promulgated *4314  The respondent's determination that income received by petitioner while a resident of Arizona from his interest in Georgia and Massachusetts partnerships acquired prior to his removal thereto, was separate income, approved.  Theodore B. Benson, Esq., for the petitioner.  Brice Toole, Esq., for the respondent.  MORRIS*1053  This proceeding is for the redetermination of deficiencies in income tax.  The deficiency notice sets out the determination of the respondent with respect to each of the years as follows: YearDeficiency in taxOverassessment1920$3,833.9619211922$11.351923416.63Total4,250.5911.35The petition alleges that respondent erroneously included in taxpayer's income his wife's one-half share thereof, which, under the community property laws of Arizona, simultaneously with the receipt thereof, became the property of the wife.  FINDINGS OF FACT.  The taxpayer during the years 1920 to 1923, inclusive, was a married man residing with his wife in the State of Arizona.  Prior to moving thereto, in the spring of 1919, he resided in the State of Georgia, where he was engaged in the cotton brokerage*4315  business as a member of the partnership of John Mallock & Co.  He was also a member of a Massachusetts partnership operating under the same name and engaged in the same business.  The Georgia partnership was organized in 1898 and discontinued in 1921.  The Massachusetts partnership was organized in 1916 and incorporated in 1924.  Since moving to Arizona, Taylor has been the active manager of the Martin Cotton Co., a corporation organized under the laws of Arizona by him and his eastern associates to engage in the cotton brokerage business in that State, and which, prior to his removal thereto, was managed by men who proved incompetent.  *1054  For the years 1920, 1922, and 1923, the petitioner and his wife submitted separate returns on the community property basis, each reporting therein one-half of the income accruing to Taylor from the Massachusetts partnership and for the year 1920 from the Georgia partnership.  They also returned dividends and interest as community income, on stocks and Liberty bonds standing in his name prior to and after their removal to Arizona.  Salary was also reported in equal amounts by them.  For 1921 a heavy loss was sustained and a joint return*4316  was filed for that year.  The respondent treated the income from the partnerships, the dividends and the interest as separate income and taxed it to the petitioner.  No adjustment was made on the salary item.  OPINION.  MORRIS: In determining the questions presented by this proceeding we will address ourselves only to those years for which the respondent has determined deficiencies.  As to the remaining years we are without jurisdiction.  . The allegation of error found in the petition is sufficiently broad to cover the income of the petitioner from all sources.  The evidence submitted related to but three sources, viz, the income received from two partnerships, the dividends received on capital stock, and the taxable interest received on Liberty bonds.  The brief which was submitted by counsel for the petitioner related only to the first mentioned source of income.  For the purpose of this opinion we will consider the principal question to be whether the income from such partnership interests constituted community income, or separate income, when the same was received while petitioner was residing in a community*4317  property State.  The petitioner states that the question to be decided is whether income from the partnerships in Georgia and Massachusetts, both engaged in the cotton brokerage business and in both of which the petitioner was a member, was income from services or income from property, and concludes that it was income from services rendered to his associates and himself in conducting the Arizona branch of the business, and therefore under the laws of Arizona (section 3850, Revised Statutes, 1913) community income.  The contention of the respondent is that the petitioner came into Arizona possessed of certain property, that such property constituted his separate property, and that any increase, rents, issues or profits from such separate property remained his separate income.  Section 3848 of the Arizona statutes.  The sections of the Revised Statutes of Arizona (1913) relied on by both parties are as follows: *1055  CHAPTER III RIGHTS OF MARRIED PERSONS 3848.  All property, both real and personal, of the husband, owned or claimed by him before marriage and that acquired afterward, by gift, devise or descent, as also the increase, rents, issues and profits of the same, *4318  shall be his separate property, and all property, both real and personal of the wife, owned or claimed by her before marriage, and that acquired afterward by gift, devise or descent, as also the increase, rents, issues and profits of the same, shall be her separate property.  3850.  All property acquired by either husband or wife during the marriage, except that which is acquired by gift, devise or descent, or earned by the wife and her minor children while she lived or may live, separate and apart from her husband, shall be deemed the common property of the husband and wife, and during the coverture personal property may be disposed of by the husband only; but husband and wife must join in all deeds and mortgages affecting real estate except unpatented mining claims, which may be conveyed by the husband or wife only, as provided by the laws of this state relating to conveyances; provided that either husband or wife may convey or mortgage separate property without the other joining in such conveyance or mortgage.  It is clear that whatever property was acquired by the petitioner while a resident of the State of Georgia was his separate property.  The statutes of Arizona have but*4319  one section, as far as we can ascertain, which relates to property rights of nonresidents who move into that State.  Section 3857 of the Revised Statutes of Arizona (1913) provides that, "The marital rights of persons married out of this State, who may move to this State, shall, in regard to property acquired in this State during the marriage be regulated by the laws of this State." If the income in question was derived from separate property taken into Arizona by the petitioner it was separate income as under the provisions of section 3848 of the Arizona statutes, the increase, rents, issues and profits from such property remain the separate property of the spouse owning the same.  In , the court, in considering the question of property brought into the State of Washington, had this to say: Therefore without entering into reasons for the rule we are clear that personal property acquired by either husband or wife in a foreign jurisdiction is by law of the place where acquired, the separate property of one or the other of the spouses, continues to be the separate property of that spouse when brought within this state; and it being*4320  the separate property of that spouse owning and bringing it here, property in this State, whether real or personal, received in exchange for it, or purchased by it, if it be money, is also the separate property of said spouse.  The community property theory in Arizona is in accord with the view prevailing in the State of Washington, which is that the wife's interest in the community estate is a vested legal one, the same as the interest of any other partner in partnership property.  ; ; ; . The leading case in Arizona on this question is . The only foundation for the petitioner's conclusion that the income in question was derived from services is his statement in the brief that the nature of the business was such that capital was usually unnecessary and not a material factor in the production of income.  He introduced no evidence, however, in support of the fact basis upon which his conclusion rests.  The case was submitted on the pleadings and the revenue*4321  agent's report which was introduced in evidence by the petitioner.  We are unable to satisfactorily analyze the character of the interests acquired by the petitioner in the two partnerships for the reason that the partnership contracts are not before us, nor was there any testimony with respect thereto.  An interest in a partnership is acquired by contract, either express or implied.  The terms of the partnership contracts are determinative of the kind and character of each partner's interest.  This interest is acquired by a contribution to the common fund, and such contribution may be services, capital or a combination of both.  If the petitioner's interests were acquired by a contribution of capital, they would be his separate property in Georgia.  The record is silent as to the date he acquired his partnership interests, and how he acquired them, but it is a fact that he was a member of both partnerships and actually engaged in their business while domiciled in Georgia.  We do not know how the partnerships operated the businesses, how much capital was invested therein or whether capital was an essential factor in the production of income.  The revenue agent's report shows that salary*4322  was reported in the returns, and presumably it was received as manager of the Arizona corporation.  If that be true, the parties themselves have placed a value upon the services rendered by the petitioner in Arizona, and the respondent has allowed the amount thereof as community income.  The petitioner contends that if it be admitted that he had substantial investments in the partnerships of Georgia and Massachusetts, the income from such partnerships in excess of interest on his investment would still be community income, and relies in support thereof on the California case of . We have examined that case and also its companion cases of the , and , but are of the opinion that they are not controlling of a community property status existing under the Arizona statutes and their interpretation by the courts of that State.  Section 3848 of the Revised Statutes of Arizona (1913) specifically provides that the increase, rents, issues and profits of separate property shall be separate property. *1057  It is therefore our opinion*4323  that the evidence introduced is not sufficient to overcome the presumption of the correctness of the respondent's determination with respect to the income from the petitioner's partnership interests.  It also follows from the foregoing opinion that the dividends on the stocks and interest on the Liberty bonds are the petitioner's separate property.  Judgment will be entered for the respondent.Considered by TRAMMELL, MURDOCK, and SIEFKIN.