Court Opinion

ID: 4628085
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:02:38.106976+00
Date Added: 2024-06-11T07:59:53.039611
License: Public Domain

FRED W. LEADBETTER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  PITTOCK-LEADBETTER COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Leadbetter v. CommissionerDocket Nos. 88588, 88589.United States Board of Tax Appeals39 B.T.A. 629; 1939 BTA LEXIS 1008; March 21, 1939, Promulgated *1008  1.  A taxpayer who had a home in Washington to which he and his family expected to and did return whenever they went away, and who also had a house in Oregon, which he had improved and hoped to resell, held, domiciled in Washington.  2.  A dificiency notice which merely determined that because a taxpayer and his wife were not domiciled in a community property state they should not be permitted to divide their combined income, does not constitute a determination that each item of divided income was the separate income of the taxpayer.  3.  A taxpayer on a cash basis may not deduct interest which has accrued but has not been paid during the taxable year.  4.  A corporation owning automobiles which were a personal convenience of its president and his family, who were its sole shareholders, held, not entitled to deduct depreciation and operating expense thereon.  5.  Amounts equivalent to deductions taken by a corporation for depreciation and operating expenses on automobiles owned by the corporation, but which were a personal convenience of its president and his family, who were its sole shareholders, held, not taxable to the president as the value of the use of the*1009  automobiles to him.  Earl S. Nelson, Esq., for the petitioners.  John H. Pigg, Esq., and Edward C. Adams, Esq., for the respondent.  STERNHAGEN *629  In Docket No. 88588, as to Fred W. Leadbetter the Commissioner determined a deficiency of $4,678.79 in petitioner's income tax for 1933, and of $1,410.28 for 1934.  Petitioner assails the determination (1) that he was domiciled in Oregon, contending that his domicil was in Washington and his wife's community income is not taxable to him; (2) that interest on a note in 1934 is not deductible in that *630  year; (3) that an amount should be included in income because of his use of automobiles belonging to the corporation.  In Docket No. 88589, as to Pittock-Leadbetter Co. the Commissioner determined a deficiency of $660.44 in the corporation's income tax for 1933.  Of several adjustments made by the Commissioner, the only one assailed is the disallowance of deductions for depreciation and expenses of operation of automobiles.  FINDINGS OF FACT.  1.  Petitioner Leadbetter, a native of Clinton, Iowa, migrated about 1890 to Oregon, where he first became connected with publishing firms in*1010  Portland, and later engaged successfully in the real-estate business and in the manufacture of wood pulp and paper.  He married Caroline Pittock in Portland in 1893, and they have four children.  In 1933 and 1934 he owned a dwelling house, known as Fern Lodge, near the village of Camas, Washington, about twenty miles northeast of Portland, and a cottage at Santa Barbara, California.  Another house in the Cedar Hill section of Portland was bought by petitioner in 1902 and was sold sometime before the hearing in 1938. 1 During 1933 and 1934 petitioner was the sole or major shareholder in and an officer of several corporations engaged in the operation of paper mills in Oregon, California, Florida and British Columbia, and was actively interested in the management of two mills in Oregon and one in Los Angeles.  He also owned two sawmills at Camas.  His business affairs required him to travel considerably.  He maintained no private office, but used the Portland office and facilities of the Oregon Pulp & Paper Co., of which he was president.  About 1919 petitioner had had a private office in the Oregonian Building in Portland, and had previously used the office of his father-in-law in that*1011  building.  Some time after his marriage in 1893, petitioner purchased a paper mill at Camas and moved there with his wife, buying and occupying two cottages on a lake shore about two miles from the village.  As his business prospered, he bought more land around this residence and also acquired the entire town site at Camas.  In 1898 he built the house called Fern Lodge, enlarged it thereafter as his family increased, and has constantly maintained it as a residence.  The structure is of logs, with partition walls of bark; it contains 20 bedrooms and a living room 30 feet by 50 feet.  It is comfortably furnished and equipped with heating facilities, electricity, and other modern conveniences.  A dining room and kitchen are located in a separate nineroom building, and there is also a garage, stable, gardener's residence, *631  and chicken house.  The place contains about 600 acres.  Since 1898 petitioner and members of his family have lived more of their time at Fern Lodge than anywhere else, and normally entertained*1012  their friends there.  This is the place they always called home.  In 1902 petitioner purchased a 16-room stone house in the Cedar Hill section of Portland, at a cost of $40,000.  He and his family spent a small part of each year in it; some of his children were born there, and later lived there in the autumn to attend school until the family went to California for the winter.  Petitioner expended eventually $200,000 on this place, and kept it constantly in habitable condition, but never completely furnished it, and never entertained in it.  It is now owned and occupied by his daughter and son-in-law.  After the birth of his youngest daughter, petitioner was advised by a physician that his wife and daughter should spend the winters in California, and in 1908 he purchased a dwelling house at Santa Barbara for $120,000.  Thereafter he and his family usually lived there from December to May.  In 1925 the house was destroyed by earthquake, its furniture was moved to the Portland house, and cottages were erected on the premises for the family's winter occupancy.  Petitioner has bought and sold many parcels of land in Portland.  On numerous deeds executed from 1901 to 1926, on his 1915*1013  and 1917 income tax returns, and in court testimony in 1920, he described himself as of Portland.  His name appears in the Portland city directories.  He is, and has been, a member of social clubs in Portland, Santa Barbara, and elsewhere.  In 1908 he was a registered voter of Portland, declaring the Cedar Hill house to be his residence.  In 1932 and 1936 he and his wife were registered voters of Camas, Washington.  In registering at hotels he usually stated Camas as his address.  In 1933 and 1934 petitioner was a resident of Camas, Washington.  2.  On July 31, 1934, petitioner Leadbetter owed the Leadbetter Lumber & Paper Co. in the aggregate $191,233.62, consisting of $179,528.23 cash advances to him and expenditures made by it on his behalf, $11,327.08 interest which it had paid on his debt, and $378.31, another item of interest paid by it for him.  On the same date the Leadbetter Co. owed him $25,801.22, and owed the Pittock-Leadbetter Co. $3,407.01, an aggregate of $29,202.23.  On that date Leadbetter gave the Leadbetter Co. his demand note for the net difference of $162,025.39.  On December 31, 1934, the Leadbetter Co.'s books showed $4,050.65 accrued interest on the note*1014  and a debit balance of $10,471.77 in petitioner's open account, which amount on that date was credited to the demand note, thus closing the open account.  The note was paid in 1936.  Petitioner's books and income tax returns are on the cash receipts and disbursements basis.  *632  3.  Petitioner Pittock-Leadbetter Co. was, in 1933 and 1934, a corporation the shares of which were owned by petitioner Fred W. Leadbetter and his family.  It bought and sold securities and grain futures and "handled some affairs over in the State of Washington." Leadbetter was its president and served without pay.  The corporation owned five automobiles which in the taxable years were used by Leadbetter and his family.  OPINION.  STERNHAGEN: 1 (a) Petitioner Leadbetter, on the postulate that he was domiciled in the State of Washington, included on his tax returns for 1933 and 1934 only his share of community income.  The Commissioner determined that he was "domiciled in the State of Oregon which state does not have the community property provisions", and hence transferred several items from the return of his wife to his return.  This petitioner assails and undertakes to prove his domicil in the*1015  taxable years to have been at Camas, Washington.  Since domicil is primarily determinable by evidence, direct and circumstantial, of intent, there is in the record the testimony of numerous witnesses, photographs, documents, and records covering many years.  Weighing this, we find ourselves without doubt that in the years 1933 and 1934 petitioner's home was at Camas, Washington, that this is where he and his family expected to and did return whenever they went away, that they thought of it as home, and that no other dwelling fulfills the long recognized conception of domicil.  The numerous facts and circumstances which the respondent has gathered weigh but lightly against the testimony of petitioner, his wife, his son, his daughter, his old friend, his neighbor, and his employee.  The only Oregon house upon which respondent could predicate his determination of Oregon residence is the Cedar Hill place, and that was the least used of the three and can hardly be said to have been really lived in at all by petitioner for many years.  Indeed, from a strict consideration of the evidence, we know not whether it was owned by him in the tax years, for the Commissioner made no determination*1016  at all about the Cedar Hill house and the evidence shows only that petitioner bought it in 1902 for $40,000, spent $200,000 on it altogether, occupied it only occasionally and never as a permanent home, and that at some unspecified time before the hearing it became the property of his daughter and her husband.  It takes but little evidence to overcome a general determination of domicil in the State of Oregon having such slight support.  ; affd., . *633  The respondent catalogs 15 particulars which he urges constitute a preponderance of evidence in favor of an Oregon domicil.  While they may not be disregarded, they amount in all to little as against the story of petitioner's domestic conduct for many years in and about the Camas place.  The ultimate and controlling fact has been found to be that petitioner was in 1933 and 1934 a resident of Camas, Washington, and it is concluded that he was domiciled in that state.  He was, therefore, entitled to avail himself of the effect of its community property law, *1017 , and the Commissioner was in error in denying it.  1 (b) The Commissioner made no determination whatever in the notice of deficiency which would reasonably have put the taxpayer on notice that even if he were domiciled in Washington some of the items of gross income which had been treated as community income were determined to have been separate income entirely taxable to petitioner.  The pleadings do not suggest such a question.  At the opening of the trial the respondent's counsel adverted to the possibility that there might be some unspecified items of separate income which had been improperly divided between petitioner and his wife as community property, although some items were conceded to have been clearly community items.  Nothing more definite was said on the subject of classifying income between cimmunity and separate items throughout the trial.  In respondent's brief, subsequently filed, a point is made that petitioner, even if domiciled in Washington, has not overcome the presumptive correctness of the determination because he has not proven that all of the divided items were community income, and therefore that he must*1018  be taxed upon all the items as separate property.  We think that, in the posture of the case as it was tried, this view must be rejected.  The Commissioner did not determine any items to have been petitioner's separate income, but only that petitioner's contention "that you and your wife should be permitted to divide your combined income for the years 1933 and 1934 on the community property basis has been denied", because of domicil in Oregon.  Petitioner assailed this and has, as we hold, established its error.  There was no reason to regard this apparently forthright determination as to domicil as covertly including an unspecified determination that each item of divided income was in fact and law the separate income of petitioner and therefore not divisible.  The petitioner was in fairness justified in reading and assailing the determination according to its plain terms, as an adverse finding of domicil, a reversal of which would carry with it the exclusion of the items which had been divided as community income.  If we were to judge the separate *634  or community character by the only indication there is in the record, namely, the list of terms applied to the items in the*1019  deficiency notice, such as "salaries", "interest", "rents", etc., it would be more reasonable to treat them all as community than as separate.  There is a presumption in Washington to that effect, . If as to any item this is not so, it is not unfair to expect a specific determination by the respondent which would call upon the taxpayer in due time to prepare to meet his burden of proof.  2.  The Commissioner disallowed the deductions taken by Leadbetter on his 1934 individual return for interest.  Being on the cash basis, petitioner could not deduct interest unless it was actually paid; accrued interest availed him no deduction, ; ; ; , and his right to deduct is not enganced by his giving a new note for interest, . The evidence shows sporadic bookkeeping entries balancing the accounts between petitioner and the corporation.  This does not support the*1020  petitioner's claim, and the Commissioner's determination is sustained.  3.  The corporation, Pittock-Leadbetter, took deductions on its 1933 and 1934 returns for depreciation and operating expenses of the automobiles.  The Commissioner disallowed these deductions and also added to Leadbetter's individual income amounts equivalent to such deductions, which he treated as the value of the use of the automobiles to Leadbetter.  Although the two proceedings of the ivdividual and the corporation were separately tried, they may appropriately be considered together as to these issues, since they are correlative aspects of the same facts.  We find nothing to support either the deduction taken by the corporation or the income attributed by the Commissioner to the individual.  Obviously the automobiles, even though technically owned by the corporation, were a personal convenience of the Leadbetter family.  Nothing in the corporation's business required their use or that he should be given their use as compensation, and the attempt by the corporation to support a conception of them as a business facility by the testimony that one was once used to transport a person to see a yacht with a view*1021  of chartering it from the corporation is a demonstration of the unsubstantial character of the petitioner's claim.  The Commissioner's disallowance of the corporation's automobile deductions is sustained, and his inclusion in petitioner's income of the amounts treated as the value of their use is reversed.  Decision will be entered under Rule 50.Footnotes1. Whether the Portland house was owned by petitioner in 1933 and 1934 does not appear from the evidence, although it seems to have been tacitly assumed that it was. ↩