Court Opinion

ID: 9636681
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:38:57.106412+00
Date Added: 2024-06-11T18:04:55.925174
License: Public Domain

DENMAN, Circuit Judge (concurring).
I concur in reversing the decision of the Board of Tax Appeals. The pertinent sections of the Revenue Act of 1928 are as follows:
“§ 11. Normal Tax on Individuals.
“There shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax equal to the sum of the following: * * *
“§ 12. Surtax on Individuals.
“(a) Rates of surtax. There shall be levied, collected, and paid for each taxable year upon the net income of every individual a surtax as follows: * * *
“§ 51. Individual Returns. * * *
“(b) Husband and wife. If a husband and wife living together have an aggregate net income for the taxable year of $3,500 or over, or an aggregate gross income for such year of $5,000, or over' — ■
“(1) Each shall make such a return, or
“(2) The income of each shall be included in a single joint return, in which case the tax shall be computed on the aggregate income.” (45 Stat. 795, 796, 807, 26 U.S.C.A. §§ 11, 12 notes and § 51 (b) (1,2) and note.
Apart from the requirement to construe such taxing legislation in favor of the taxpayer, it seems to me clear that subparagraph (2) of Section 51 (b) must be interpreted with reference to sections 11 and 12 which alone provide for the normal and surtax taxation. These two sections say that such taxation shall be levied, collected and paid “upon the net income of every individuals It is therefore my opinion that subparagraph (2) of 51 (b) should be interpreted to read as follows:
“(2) The income of each shall be included in a single joint return, in which case the tax shall be computed on the aggregate income,” to determine the tax upon the net income of the Individual spouse. ;
*490The Commissioner would have the section in effect read: “(2) The income of each shall be included in a single joint return, in which case the tax shall be computed on the aggregate income,” to determine the tax upon the net aggregate income ■of two individual incomes and then to be "levied, collected and paid” under rates imposed by sections 11 and 12 only on individual incomes.
The first seems the necessary interpretation of the terms of an act, which, in every paragraph upon which the assessment necessarily depends, makes the word “individual” or individual income the controlling factor. If this is not the logically necessary interpretation, there is at least an ambiguity as between the first and the second which must be resolved in favor of the taxpayer. McFeely v. Commissioner of Internal. Revenue, 296 U.S. 102, 56 S.Ct. 54, 80 L.Ed. -, decided by the Supreme Court, November 11, 1935.
The procedure under such an interpretation would be simple. The aggregate income of the two individual taxpayers would be found in the manner prescribed by Treasury Regulation 74, Article 381.
“Art. 381. Individual Returns.— * * * “Where the income of each [husband and wife] is included in a single joint return, •the tax is computed on the aggregate income and all deductions and credits to which either is entitled shall be taken from such aggregate income.”
. , , , , , , , . This computed total tax of the two mdividuals should then be apportioned between the two individuals m proportion to the net income of each individual. In this case it is stipulated that the net income of the husband is $9,614.47, and the net income of the wife is $253,479.41, and the total net income of the two, $263,093.88. The percentage of each in this total is the percentage of the tax computed on the joint return total, which should be assigned to each “individual.”
The fact that there are no specific regillations of the Treasury Department providing how the apportionment should be made does not warrant an interpretation of the statute which, in sections 11 and 12, specifically provides that the tax should be levied, collected, and paid “upon the net income of every individual” into a tax imposing a joint and several liability on the .aggregate income of two individuals.
The stipulated record shows that the deficiency was not assessed upon such an apportionment between the spouses. It also gives all the facts necessary for the required computation of the tax of each of the two spouses, which is the ultimate fact to be determined by the Board of Tax Appeals. Since that stipulation does not contain the return, “which is merely an evidentiary fact not necessary to compute 'the tax liability,” it is not proper for appellee’s brief to argue as if i't were before us> as follows: “On the return that was filed by husband and wife in the present case it was and is impossible for the Commissioner to prorate the income. What the petitioner means is that she has now cornputed the individual incomes and has submitted them to this court, even though they were not ascertainable on the return as 'made. However, the ability of this Court to prorate the tax on the evidence before it cannot alter the fact that for the Commissioner to do so on the return was impossible.”
There was submitted in evidence on the appeal, with the consent of both parties, a blank form 1040, similar to the one used in appellant’s return. 1928 Regulations 74, articles 381, 383, and 385 required the use of this form- This form, although provided by the Department for a joint return, made no provision for all of the items necessary for the computation of the net income of each Person. Article 385 requires that Each taxpayer should carefully prepare his return as fully and clearly to set forth the data therein called for. The data appellee claims (but does not prove) was not returned with the form, was not called for" by the regulation.
However, here there is no evidence to show that, in addition to satisfying the printed requirements, the actual return did not have all the data necessary and sufficient to compute the tax if the taxpayer’s contention prevailed and that the commissioner’s stipulated determination was not .based upon such data.
It is inconsistent for the commissioner to insist that his stipulated segregations and redeterminations are to be divided up between those that are unfavorable and those that are favorable to the taxpayer, and the latter rejected if we determine the principles underlying the tax in a way favorable to the taxpayer. The plain .intent of the stipulation is to the contrary,
Even if the items of the joint return were affirmatively shown not sufficient .for the commissioner’s computation, such in*491sufficiency, whether or not caused by the improper form of the return blanks furnished the taxpayer, is no justification for an assessment shown by the stipulation not to be warranted by the taxing statute.
There is no merit in the suggestion that in the few community property states such an interpretation would make assessment difficult in the determination of what is separate and what is community property. The same difficulty is encountered if separate returns are filed.
Appellee claims that it has long been a practice of the department to assess against each spouse a tax based on the total income of both. Here again the record is bare of any evidence to that effect and this court cannot take judicial notice of such a practice. The “office decision,” I. T. 1575, as is stated by the Treasury Department itself, does “not commit the department to any interpretation of the law.” Hence the office decision is neither a departmental interpretation nor evidence that it has been followed in such assessments. So far as concerns this appeal, we are required to construe section 51 (b) (2) of the act and article 381 of Regulations 74 as matters de novo.
In another case, on a record in which the Commissioner establishes the claimed long-continued practice of the Treasury Department and its recognition in repeated congressional enactments, this decision may well have no binding effect.