Bagur v. C. I. R.

Decision Date26 September 1979
Docket Number77-2974,Nos. 76-4466,s. 76-4466
Parties79-2 USTC P 9607 Aimee D. BAGUR, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. Barbara M. HANSEN, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

M. Hepburn Many, New Orleans, La., for petitioner-appellant in No. 76-4466.

Meade Whitaker, Chief Counsel, I. R. S., Acting Asst. Atty. Gen., Aaron Rosenfeld, Gary R. Allen, Ernest J. Brown, Attys., Dept. of Justice, Tax Div., Washington, D. C., for respondent-appellee in No. 76-4466.

Barbara M. Hansen, pro se.

Victoria Welcome, Atty., Women's Law Centers, Inc., Dallas, Tex., for amicus curiae for Women's Law Centers, Inc.

M. Carr Ferguson, Acting Asst. Atty. Gen., Richard Farber, Crombie J. D. Garrett, Gilbert E. Andrews, Chief, Appellate Sect., Richard Farber, Atty., Charles L. Saunders, Act. Chief Counsel, Tax Div., U. S. Dept. of Justice, Stuart Seigel, IRS, Washington, D. C., for respondent-appellee C. I. R.

Appeals from The United States Tax Court.

Before WISDOM, AINSWORTH and CLARK, Circuit Judges.

WISDOM, Circuit Judge:

In the Louisiana community property system a wife has a present, vested, undivided one-half ownership of the property acquired during the marriage, including her husband's earnings. 1 The system is based on the concept of the family as a viable unit, the husband exercising his managerial control as "head and master" 2 in the best interests of the matrimonial partnership. The principle of equal ownership of the community served the Louisiana wife well as long as the family was a viable unit and as long as the husband managed the community in good faith. It has been difficult, however, for Congress and the Internal Revenue Service to fit the civilian community property system into a tax structure based essentially on common law principles of property and special tax principles based on control not formal title. 3

In these two cases before us, consolidated on appeal, the IRS asserts that an income tax is due by a wife on one-half of her husband's unreported earnings although she may have been living separate and apart from her husband, had no control of his income, and no knowledge of what it was or where it went. The plaintiffs are impoverished victims of their husbands' profligacy. The IRS has stripped clean one of the wives. The other is about to be stripped clean. This horrendous result flows from Louisiana law, not from federal tax law.

The position of the IRS is a rational result of accepting the Louisiana doctrine of community property. But it produces an anomaly. In most areas of tax law, courts follow the Supreme Court's admonition, "taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed". Corliss v. Bowers, 1930, 281 U.S. 376, 378, 50 S.Ct. 336, 74 L.Ed. 916, 917. "The power to dispose of income is the equivalent of ownership." Helvering v. Horst, 1940, 311 U.S. 112, 118, 61 S.Ct. 144, 147, 85 L.Ed. 75, 79. Here, unlike the government's argument in many tax cases, the IRS does not ask the Court to look through form to substance.

Even tax law must be "applied with a view of avoiding, as far as possible, unjust and oppressive consequences". Farmers' Loan and Trust Co. v. Minnesota, 1929, 280 U.S. 204, 212, 50 S.Ct. 98, 100, 74 L.Ed. 371. We must not, of course, permit a hard case to induce us to make bad law. We say, however, in view of a wife's half ownership of her husband's earnings, that for federal tax purposes a husband may have committed the Equivalent of the theft of the wife's share, in the circumstances these cases present. I.R.C. § 165(c) (3). 4 The equivalence of theft rests on the husband's bad faith appropriation to his uses of the wife's share of his earnings, over which his wife had no control, of which she had no knowledge, and from which she had little or no benefit. (We are not suggesting that in similar circumstances a husband could be prosecuted by the state for theft.) The plaintiffs did not rely on this theory, but we concluded that the interests of justice required us to consider it, and after oral argument we requested the parties to file briefs on the question. Further consideration of the problem persuades us that the facts must be fully explored in the trial court. Accordingly, we remand the cases to the Tax Court for it to determine whether the taxpayers are entitled to a theft loss deduction for the taxable years in question and, if so, the amount of the deduction.

I.

Mrs. Bagur. Aimee and Pierre Bagur were married in Louisiana. Before 1960, Mr. and Mrs. Bagur filed joint income tax returns. From 1960 through 1966, the taxable years in question, neither one filed any federal income tax returns.

According to Pierre Bagur's testimony before the Tax Court, he suffered extreme financial reverses in 1960. At that time, he sold his business and drifted into a new career as a real estate broker. He described his situation: it was "rather destitute economically. (I)t was a hand to mouth proposition . . . it got to the point where we were given notice to move at home about every three or four months." Mrs. Bagur knew there were financial problems but she did not know their nature or severity; Mr. Bagur never discussed his income or expenditures with his wife. Mrs. Bagur testified that there was no communication between them, even in 1960 and 1961 when they shared a house. After 1962 they rarely saw each other. She had no checking accounts or credit cards and did not own an automobile. All household bills were sent to her husband's office.

In 1962 the Bagurs' financial condition worsened. They received still another notice to vacate the house. Electricity, telephone, and gas were shut off. From 1962 until 1968, when Mrs. Bagur obtained a divorce, the taxpayer and her husband maintained separate domiciles in Louisiana. Mrs. Bagur lived in grinding poverty, often with the utilities cut off, sometimes with not enough to eat. Her three school-age children gave her a little financial assistance from time to time. Mrs. Bagur's health was poor; she was arthritic, anemic, and undernourished. Ground down but attempting to keep her head up, she worked sporadically in 1962, 1963, 1965, and 1966. Mrs. Bagur estimated that during the seven tax years in question her husband paid about $10,000 for food, rent, and other necessities.

Finally, the Bagurs were judicially separated in 1968. As a result of the settlement of the community, following her divorce, she received a piece of property estimated as worth between $2,000 and $3,000.

The Commissioner reconstructed Mr. Bagur's net profit during 1960 through 1966 and assessed tax deficiencies against Mrs. Bagur based on one-half of her husband's taxable income. The Commissioner also determined that Mrs. Bagur was liable for the taxes on wages she received during 1962, 1963, 1965, and 1966. Because Mrs. Bagur earned these wages while living separately from her husband, they were separate property under Louisiana law. La.Civ.Code Art. 2334. She was taxed, therefore, on the entire amount earned. The Commissioner also assessed penalties against Mrs. Bagur for failure to file income tax returns without reasonable cause, I.R.C. § 6651(a); for negligent failure to pay income tax for the years 1960 through 1962, I.R.C. § 6653(a); and for underpayment of estimated tax for 1962, 1963, and 1966, I.R.C. § 6654. The total amount owing is $3,860.27. The Tax Court held Mrs. Bagur liable for all the taxes and penalties assessed against her. 5

Ms. Hansen. Barbara and Donald Hansen, a design consultant, were married for twenty-eight years. They lived in several states, then removed to Lafayette, Louisiana, where they resided with their five children. They shared a residence during the taxable year in question, 1971; he was away a good part of the time. In that year Donald Hansen received commissions of $34,500. It was a windfall. What happened to the money is a mystery. The Internal Revenue Service was unable to collect the deficiency. At the hearing before the Tax Court Ms. Hansen represented herself. Counsel for the IRS informed the court that Mr. Hansen had been in dire straits. Ms. Hansen added that her husband suffered from severe depression. We were informed during oral argument that Mr. Hansen had committed suicide.

Mr. Hansen was in charge of the household bills, many of which apparently went unpaid. He doled out cash to his wife to buy food and gasoline. She made "everything the (three) girls wore". (Tr. 10). As the daughters and two sons grew older they contributed small amounts to their support. In Lafayette Ms. Hansen had no credit cards. She gave up her checking account when her checks were returned for lack of sufficient funds. She signed her last tax return in 1963 when Mr. Hansen was salaried in Florida and she had a small job. When from time to time she questioned her husband about income tax returns, he used to say to her, "Don't worry about it. It's all taken care of." (Tr. 8). Ms. Hansen estimated that she and the children received about $3,400 from her husband in the form of payments on their house, food, gas, and automobile upkeep.

For the children's sake, Ms. Hansen put up with her husband until 1972, when her youngest child was in high school. Ms. Hansen then instituted separation proceedings. She left the marriage with only a few household goods no cash, no securities, no automobile. The mortgagee foreclosed the mortgage on the home. Ms. Hansen now works for the local telephone company.

The Commissioner determined that Ms. Hansen owed taxes on one-half of the income, $34,500, her husband received in 1971. The Commissioner determined that Mr. Hansen incurred business expenses of $5,000 and decreased Ms. Hansen's share of the community income by $2,500. The tax deficiency assessed against her amounted to $3,064. The...

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