Court Opinion

ID: 4623944
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:54:06.414381+00
Date Added: 2024-06-11T07:56:26.953763
License: Public Domain

LAURA ALLEN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Allen v. CommissionerDocket No. 19438.United States Board of Tax Appeals14 B.T.A. 723; 1928 BTA LEXIS 2938; December 13, 1928, Promulgated *2938  Where husband and wife, living together and residents of Washington, file separate returns, the husband reporting all of the community income in addition to the income on his separate property, and the wife reporting the income on her separate property, the Commissioner may not include in the wife's return one-half of the community income.  United States v. Robbins,269 U.S. 315">269 U.S. 315, followed.  Jay C. Allen, Esq., for the petitioner.  George G. Witter, Esq., and Brice Toole, Esq., for the respondent.  ARUNDELL*723  The respondent has determined a deficiency of $320.59 in income tax for the year 1924, in connection with which the petitioner claims he erred in including in her taxable income one-half of community property income, and in disallowing as a deduction from gross income the sum of $525 expended in clearing certain land.  *724  FINDINGS OF FACT.  The petitioner and her husband are residents of Seattle, Wash.  They were married April 18, 1905, and have been living together continuously since that date.  At the time of their marriage, each spouse owned certain property in his or her individual capacity.  *2939  On a number of occasions after their marriage the petitioner and her husband purchased property jointly.  By agreement, she paid a stipulated part of the purchase price out of her separate property and her husband paid the balance out of his individual estate or out of community property, depending upon his financial condition.  During, and for some time prior to, 1924 the petitioner was engaged in the real estate business in Seattle.  Most of her time was devoted to the acquisition of property.  The sales she made of property were usually handled through other real estate dealers.  During the year 1924 the petitioner's husband was a member of the law firm of Allen and Griffith.  The petitioner had no connection with or financial interest in the firm, and did not know the amount of income her husband received as a member of the copartnership.  Since her marriage the petitioner has always kept the property she possessed at marriage, as well as earnings therefrom, separate and apart from community property and property possessed by her husband at marriage.  In the year 1924, as well as for years prior thereto, the petitioner reported the income received on her separate property*2940  and her husband returned the community property income and the income on his separate property.  During the spring of 1924 heavy rains and wind storms washed out part of the bank of a creek running through a 320-acre tract of land owned by the petitioner and blew a number of trees into the creek and across roads and paths of the land.  During the year the petitioner expended the sum of $525 in filling in the washout, placing sod on the filled washout, and in the removal of the trees and rubbish from the creek, roads, and paths.  Some of the trees were used for posts and as props for young trees.  Parts of the whole tract were purchased at various times after 1910 for the purpose of subsequently selling them in sections as part of a subdivision.  On an audit of petitioner's return, the respondent increased her taxable income by one-half of the community property income under the theory that a wife filing a separate return is required to include therein, in addition to the income on her individual estate, one-half of the community property income.  He disallowed the item of $525 on the ground that it was a capital expenditure.  *725  OPINION.  ARUNDELL: The major question*2941  we have for determination is whether or not community income under the laws of the State of Washington is taxable in whole to the husband or in equal part to the husband and wife.  Petitioner has filed a separate return in which she has reported the income from her own separate property and her husband has in his return reported the income from his own separate property and in addition the entire community income.  While conceding the right of the husband and wife to make a joint return, it is respondent's position that the husband and wife, having elected to report their income separately, each must return one-half of the community income.  The deficiency arises in part from the inclusion in the return of the wife of one-half of the community income.  After a careful review of the decisions of the State of Washington, we held, in the case of , that the wife's interest in community property under the laws of the State of Washington was a present vested interest and not contingent.  The statutes of that State, however, specifically place the management and control of the personal property with the husband "with a like power of disposition as*2942  he has of his separate property," (sec. 6892, Stats. of Washington, Rem. and Bal. Code, § 5917) and also place with the husband the management and control of community real property, though he is prohibited from selling or encumbering it unless his wife joins with him in executing the deed or other appropriate instrument.  (Sec. 6893 Stats. of Washington, Rem. and Bal. Code 5918.) While the debts contracted by the husband in the course of his regular business are prima facie conducted in the interest of the community and the community property is liable for the debts so contracted by the husband, ; ; ; , the community fund is not liable for the wife's debts contracted without the husband's consent, ; . The husband has the disposal of the fund, although there are restrictions on him in the matter of gifts, etc.  The answer to the questions we have stated in the opening sentence of our opinion we believe is to be found in the Supreme*2943  Court's decision of , wherein it is stated, after discussing the community property laws of the State of California: But the question before us is with regard to the power and intent of the Revenue Act of February 24, 1919, c. 18, Title II, Part II §§ 210, 211; 40 Stat. 1057, 1062.  Even if we are wrong as to the law of California and assume that the wife had an interest in the community income that Congress could tax *726  if so minded, it does not follow that Congress could not tax the husband for the whole.  Although restricted in the matter of gifts, etc., he alone has the disposition of the fund.  He may spend it substantially as he chooses, and if he wastes it in debauchery the wife has no redress.  See . His liability for his wife's support comes from a different source and exists whether there is community property or not.  That he may be taxed for such a fund seems to us to need no argument.  The same and further consideration lead to the conclusion that it was intended to tax him for the whole, for not only should he who has all the power bear the burden, *2944  and not only is the husband the most obvious target for the shaft, but the fund taxed, while liable to be taken for his debts, is not liable to be taken for the wife's, Civil Code, § 167, so that the remedy for her failure to pay might be hard to find.  The reasons for holding him are at least as strong as those for holding trustees in the cases where they are liable under the law.  § 219.  See Regulations 65, Art. 341.  That the excerpt just quoted is not dicta appears not only from the language itself, but it has been specifically held to be controlling in the case of ; . It is clear from the Robbins decision that it was not only within the power of Congress to tax the husband for the entire community income, but it was the intention of Congress so to do.  The attempt of the respondent to tax the wife for one-half of the community income is, in our opinion, without authority of law and his action is disapproved.  One minor point remains to be decided and that is whether an item of $525 should be deducted as an expense or whether it should be capitalized.  While some portion of*2945  the amount expended may perhaps be characterized as an expense and as such deducted, we are not satisfied that the entire amount should be so treated.  In the absence of specific evidence permitting of a segregation there is no course open but to sustain the respondent.  Reviewed by the Board.  Judgment will be entered under Rule 50.MILLIKEN MILLIKEN, concurring in the result: I do not understand that we are called upon to decide whether the husband and wife may file separate returns of community income.  The husband filed a return reporting the entire community income.  The wife filed a return reporting only the income from her separate property.  The decision of the majority, with a minor exception not here material, leaves the parties just as they filed their returns.  I believe this proper.  However, if and when a proper case arises presenting the question decided in the prevailing opinion I will then take occasion to set forth my views on that subject.  LOVE agrees with the concurring opinion.