Bender v. Pfaff, 5809.

• Decision Date: 28 February 1930
• Docket Number: No. 5809.,5809.
• Citation: 38 F.2d 649
• Parties: BENDER, Collector of Internal Revenue, v. PFAFF.
• Court: U.S. Court of Appeals — Fifth Circuit

38 F.2d 649 (1930)

BENDER, Collector of Internal Revenue, v. PFAFF.^*

No. 5809.

Circuit Court of Appeals, Fifth Circuit.

February 28, 1930.

Edmond E. Talbot, U. S. Atty., and John W. Harrell, Asst. U. S. Atty., both of New Orleans, La., C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and T. H. Lewis, Jr., Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for appellant.

Monte M. Lemann and Chas. E. Dunbar, Jr., both of New Orleans, La. (Spencer, Gidiere, Phelps & Dunbar and Monroe & Lemann, all of New Orleans, La., on the brief), for appellee.

Before BRYAN and FOSTER, Circuit Judges, and SIBLEY, District Judge.

FOSTER, Circuit Judge.

In this case there is no dispute as to the facts. Appellee, William Pfaff, and his wife are citizens of Louisiana, domiciled in New Orleans, with their matrimonial community under the laws of that state existing. For the year 1927 they made separate returns for federal taxes, each for one-half of the community income of $30,526.26. Neither had any separate income. The Commissioner of Internal Revenue held that the entire income of the community should have been returned by the husband and determined a deficiency of $1,348.56, which was paid under protest, and this suit followed. The jury was waived, and the District Court, for reasons given in a well-considered opinion (Pfaff v. Bender, 38 F.(2d) 642), which exhaustively reviews the statutes and jurisprudence, both state and federal, pertinent to the issues presented, held in favor of appellee on the ground that the wife in Louisiana has a vested interest in the community property entitling her to file a separate return for one-half of the community income. We need not review the opinion of the District Court and the authorities therein cited. We refer to it with approval, however, as authority for such general statements of the law of Louisiana as are hereinafter made.

Appellant contends that the vested interest of the wife is immaterial, as the husband has dominion and control of the community, and should be taxed for the whole of the community income. He relies for reversal upon the decision of the Supreme Court in the case of U. S. v. Robbins et al., 269 U. S. 315, 46 S. Ct. 148, 149, 70 L. Ed. 285. Whether this decision is controlling is really the only question presented. Of course, considered practically, this involves the amount of taxes to be paid. If the husband must return the whole income, the surtaxes will be greater.

Prior to the decision in the U. S. v. Robbins, supra, following an opinion by Attorney General Palmer, rendered in 1921 (32 Op. Attys. Gen. 435), construing the Revenue Act of 1918 (40 Stat. 1057), spouses in Louisiana and other states having community property laws, except California, were permitted by the Treasury Department to make separate returns of the community income and pay taxes accordingly.

From time to time, as new revenue laws were considered and adopted, attempts were made to incorporate clauses to avoid the effect of Attorney General Palmer's holding, but without avail.

The Revenue Act of 1926 (44 Stat. 9), under which this case arises, is practically identical with previous acts in its provisions as to returns and assessment. It taxes incomes of individuals, and permits a wife to make a separate return of her income. In the case of partnerships, each member may return his share of the firm's profit as his individual income.

In the case of U. S. v. Robbins, supra, the Supreme Court held, as did Attorney General Palmer, that in California a wife has merely an expectancy during the existence of marriage, with no vested interest in the community property, and is not entitled to make a separate return. Had the opinion stopped there, the existing rule of the Treasury Department would not have been disturbed in the least. Unfortunately for the peace of mind of the taxpayer, the concluding paragraph of the opinion went further. The court said:

"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 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 Garrozi v. Dastas, 204 U. S. 64, 27 S. Ct. 224, 51 L. Ed. 369. 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...