Bagur v. Comm'r of Internal Revenue

• Decision Date: 29 July 1976
• Docket Number: Docket No. 8325-74.
• Citation: 66 T.C. 817
• Parties: AIMEE D. BAGUR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

66 T.C. 817

AIMEE D. BAGUR, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 8325-74.

United States Tax Court

Filed July 29, 1976.

During the years in issue, H and W were married residents of Louisiana, but they lived together only part of such period. Held: Throughout their marriage, W owned a vested interest in one-half of H's income and must report such income. The modification in Louisiana law made by Creech v. Capital Mack, Inc., 287 So.2d 497 (La. 1973), does not affect the holding of United States v. Mitchell, 403 U.S. 190 (1971). Held, further, failure to file and negligence penalties applied. M. Hepburn Many, for the petitioner.

Joseph R. Goeke, for the respondent.

SIMPSON, Judge:

The Commissioner determined the following deficiencies in, and additions to, the petitioner's Federal income tax:

+----------------------------------------------------------------+
                ¦      ¦            ¦Sec. 6651(a) 1  ¦Sec. 6653(a)  ¦Sec. 6654  ¦
                +------+------------+-----------------+--------------+-----------¦
                ¦Year  ¦Deficiency  ¦addition         ¦addition      ¦addition   ¦
                +------+------------+-----------------+--------------+-----------¦
                ¦      ¦            ¦                 ¦              ¦           ¦
                +------+------------+-----------------+--------------+-----------¦
                ¦1960  ¦$230.00     ¦$57.50           ¦$11.50        ¦---        ¦
                +------+------------+-----------------+--------------+-----------¦
                ¦1961  ¦271.00      ¦67.75            ¦13.55         ¦---        ¦
                +------+------------+-----------------+--------------+-----------¦
                ¦1962  ¦605.00      ¦142.63           ¦30.25         ¦$15.56     ¦
                +------+------------+-----------------+--------------+-----------¦
                ¦1963  ¦1,034.30    ¦255.41           ¦51.72         ¦28.45      ¦
                +------+------------+-----------------+--------------+-----------¦
                ¦1964  ¦192.00      ¦48.00            ¦9.60          ¦---        ¦
                +------+------------+-----------------+--------------+-----------¦
                ¦1965  ¦372.00      ¦17.75            ¦18.60         ¦---        ¦
                +------+------------+-----------------+--------------+-----------¦
                ¦1966  ¦1,155.97    ¦288.55           ¦57.80         ¦32.29      ¦
                +----------------------------------------------------------------+
                

The Commissioner now concedes that for the years 1963 through 1966, the petitioner is not liable for the addition to tax under section 6651(a) for failure to file a timely return and the addition to tax under section 6653(a) due to negligence. The principal issue to be decided is whether the petitioner owned one-half of the income earned by her husband for the years 1960 through 1966 under the Louisiana community property laws. We must also determine whether the additions to tax not conceded by the Commissioner are applicable.

FINDINGS OF FACT

Some of the facts have been stipulated, and those facts are so found.

The petitioner, Aimee D. Bagur, had her legal residence in Merced, Calif., at the time of filing her petition herein. She filed no Federal income tax returns for the years 1960 through 1966.

During the years in issue, the petitioner was married to Pierre E. Bagur, Jr. She and her husband lived at the same address in Louisiana until September 29, 1962, when they separated; thereafter, they maintained separate domiciles in Louisiana. They were divorced in 1968. The petitioner did not obtain a legal separation from bed and board prior to her divorce.

Mr. Bagur operated a business whereby he acted as a commissions agent and also as a real estate broker during the years in issue. He kept practically no records in his business, and his business was constantly in debt. The parties have stipulated the amounts of income earned by Mr. Bagur. Mr. Baur never discussed his business affairs with the petitioner. For some years prior to 1960, the petitioner and Mr. Bagur filed joint Federal income tax returns signed by each of them. Mr. Bagur filed no returns for the years 1960 through 1966.

The petitioner suffered from various illnesses and was employed intermittently during the years in issue. The parties have stipulated the amounts earned by the petitioner. After separating from her husband, she estimated that she received about $10,000 from him for food, rent, and other necessities. As a result of the settlement of the community following her divorce from Mr. Bagur, the petitioner received a piece of real property, which Mr. Bagur estimated to be worth between $2,000 and $3,000.

The petitioner was aware in 1960 that individuals were required to file Federal income tax returns. She did not sign a joint return with her husband for the years 1960 through 1962 and did not ask him whether he had filed returns for such years.

In his notice of deficiency, the Commissioner determined that the income earned by Mr. Bagur was community property under the laws of Louisiana and that the petitioner was required to report one-half of such income. He also determined that the petitioner had wages which she failed to report in 1962, 1963; 1965, and 1966.² Finally, he determined that the failure-to-file penalty and negligence penalty were applicable for all the years in issue and that the penalty for underpayment of estimated tax for 1962, 1963, and 1966 are applicable. He has since conceded that the failure-to-file and negligence penalties are not applicable for the years 1963 through 1966.

OPINION

Section 1 imposes a tax on the taxable income ‘of’ every individual who is a citizen or resident of the United States. Sec. 1.1-1(a), Income Tax Regs. ‘The use of the word ‘of’ denotes ownership.' Poe v. Seaborn, 282 U.S. 101, 109 (1930). Since State law determines the ownership of income, we must look to the laws of Louisiana to determine whether the petitioner ‘owned’ a share of the community income earned by her former husband. United States v. Mitchell, 403 U.S. 190, 195 (1971); see Poe v. Seaborn, supra at 111. If the petitioner had a vested interest in the community income, she must report and pay a tax on one-half of such income. See United States v. Malcolm, 282 U.S. 792 (1931); Hopkins v. Bacon, 282 U.S. 122 (1930); Goodell v. Koch, 282 U.S. 118 (1930); Poe v. Seaborn, supra. However, if the petitioner's interest in the community property was a mere expectancy, she was not required to report one-half of the community income. United States v. Robbins, 269 U.S. 315 (1926).

In Bender v. Pfaff, 282 U.S. 127, 131 (1930), the Supreme Court found that under Louisiana law, a wife had an interest in the income of the community that ‘is not a mere expectancy during the marriage.’ Thus, the Court held that each spouse owned one-half of the community income. In United States v. Mitchell, supra, it was argued that since, on the dissolution of the community, a wife could renounce her share of the community property, she should not be treated as the owner of a share of the income during the existence of the community. However, the Supreme Court rejected such argument and held that her interests in the income during the existence of the community were such as to constitute ownership of one-half of the income.

The petitioner argues that these Supreme Court decisions are no longer applicable because of a recent decision by the Supreme Court of Louisiana concerning the nature of the wife's interest in community income. In Pfaff and Mitchell, the United States Supreme Court relied, in part, on Phillips v. Phillips, 160 La. 813, 107 So. 584 (1926), in determining the rights of the wife under Louisiana law. The Phillips case has recently been overruled in part by Creech v. Capitol Mack, Inc., 287 So.2d 497 (La. 1973). The issue to be decided is whether this change in Louisiana law affects the nature of the wife's interest in the community income for Federal income tax purposes.

In Phillips v. Phillips, supra, the issue for decision was whether a wife failed to acquire one-half of the community estate when she did not formally accept such interest on the dissolution of her marriage. In deciding that she need not accept formally her interest, the court stated that:

The wife's half interest in the community property is not a mere expectancy during the marriage; it is not transmitted to her by or in consequence of a dissolution of the community. The title for half of the community property is vested in the wife the moment it is acquired by the community * * * (Phillips v. Phillips, 107 So.at 588.)

The court also pointed out in dictum that its prior opinion in Guice v. Lawrence, 2 La.Ann. 226 (1847), was erroneous. In that case, the court said that the wife's interest was ‘a mere expectancy’ and held that the community assets could be used to satisfy the antenuptial debts of the husband since the wife acquired no title in the community assets until the dissolution of the community.

Since the decision in Phillips, the courts of Louisiana have consistently held that the wife acquires a vested interest in the community assets from the time they are acquired by the community. See Gebbia v. City of New Orleans, 249 La. 409, 187 So.2d 423, 425 (1966); Azar v. Azar, 239 La. 941, 120 So.2d 485, 487 (1960); Thigpen v. Thigpen, 231 La. 206, 91 So.2d 12, 19 (1956); Succession of Helis, 226 La. 133, 75 So.2d 221, 222 (1954); Succession of Wiener, 203 La. 649, 14 So.2d 475, 477 (1943); Smith v. Succession of Smith, 298 So.2d 146, 148 (La. Ct. App. 1974). In Messersmith v. Messersmith, 229 La. 495, 86 So.2d 169, 173 (1956), the court stated:

There is nothing more fundamental in our law than the rule of property which declares that this community is a partnership in which the husband and wife own equal shares, their title thereto vesting at the very instant such property is acquired. * * *

In Creech v. Capitol Mack, Inc., supra, the issue to be decided was whether an antenuptial debt of the husband could be collected from the community property. The court discussed its prior opinion in Guice v. Lawrence, supra, and pointed out that although the...