Boyter v. C. I. R., 80-1792

• Citation: 668 F.2d 1382
• Decision Date: 30 December 1981
• Docket Number: No. 80-1792,80-1792
• Parties: 82-1 USTC P 9117 H. David BOYTER and Angela M. Boyter, Appellants, v. COMMISSIONER OF INTERNAL REVENUE SERVICE, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 1382

668 F.2d 1382

82-1 USTC P 9117

H. David BOYTER and Angela M. Boyter, Appellants, v. COMMISSIONER OF INTERNAL REVENUE SERVICE, Appellee.

No. 80-1792.

United States Court of Appeals Fourth Circuit.

Argued May 4, 1981.

Decided Dec. 30, 1981.

Paula M. Junghans, Baltimore, Md. (Marvin J. Garbis, Garbis & Schwait, P.A., Baltimore, Md., on brief), for appellants.

James A. Riedy, Tax Div., Dept. of Justice, Washington, D.C. (John F. Murray, Acting Asst. Atty. Gen., Michael L. Paup, Richard Farber, Tax Div., Dept. of Justice, Washington, D.C., on brief), for appellee.

Before WINTER, Chief Judge, and RUSSELL and WIDENER, Circuit Judges.

WINTER, Chief Judge:

Taxpayers (H. David Boyter and his sometime wife, Angela M. Boyter), both of whom are domiciled in Maryland, ask us to reverse the Tax Court and to rule that for the tax years 1975 and 1976 they successfully avoided the "marriage penalty" of the Internal Revenue Code. The "marriage penalty" results from the fact that a man and woman who are husband and wife on the last day of the taxable year, each having separate income, are taxed, in the aggregate, in a greater amount if they file either joint or separate income tax returns than would be the case if they were unmarried. ¹ The Tax Court ruled that the Boyters were legally married at the end of tax years 1975 and 1976, and therefore were subject to the higher tax rate, since their purported Haitian and Dominican Republic divorces (granted on December 8, 1975 and November 22, 1976, respectively) were invalid under the law of Maryland, the state of the Boyters' domicile. The Tax Court therefore sustained the Commissioner's deficiency assessments for unpaid taxes. In view of this conclusion the Tax Court apparently thought it unnecessary to decide the Commissioner's alternative argument that even if the divorces would be recognized in Maryland, the taxpayers should be treated as husband and wife for federal income tax purposes under the "sham" transaction doctrine.

Without expressing a view on the correctness of what was actually decided, we remand the case to the Tax Court for further findings as to the applicability of the sham transaction doctrine.

I.

Taxpayers were married in Maryland in 1966 and were domiciled in Maryland during the tax years in issue, 1975 and 1976. Both are employed as federal civil service employees and have not insubstantial earnings. They filed joint federal income tax returns and reported their income as married individuals filing separately from 1966 to 1974.

Probably as a result of dinner table conversation with a friend who had been recently divorced, taxpayers came to the realization that their combined federal income tax liability would be lower if they were able to report their respective incomes as unmarried individuals. They were also aware that the Internal Revenue Code provides that the determination of whether an individual is married shall be made as of the close of the taxable year. 26 U.S.C. § 143(a)(1).

Taxpayers thus concluded that if they obtained a divorce decree at the end of the taxable year (here, December 31) they would be entitled to file their returns as unmarried individuals. It seems clear, as the Tax Court found, that at least through 1976 taxpayers never intended to and never did physically separate from each other prior to or subsequent to either of the divorces that they obtained. Rather, they continued to reside together through the tax years in question in the home they purchased in 1967.

Late in 1975 taxpayers traveled to Haiti. Through an attorney, whose name they had obtained from a Baltimore public library and who in correspondence had quoted them an attractive estimate of his fee and expenses, they obtained a decree of divorce. The action was instituted by Angela Boyter and the divorce decree was granted on the ground of incompatibility of character notwithstanding that the parties occupied the same hotel room prior to and immediately after the granting of the decree. Moreover, Angela Boyter testified before the Tax Court that her character was not incompatible to that of David Boyter. She testified also that the sole reason for her obtaining the divorce was "because the tax laws, as currently written, caused us to pay a penalty for being married." Indeed she testified that she advised her Haitian counsel "that we got along quite well and planned to continue to live together ..." ² Shortly after the Haitian court granted the divorce, taxpayers returned to their matrimonial domicile in Maryland and were remarried in Howard County, Maryland on January 9, 1976. For the calendar year 1975 taxpayers filed separate income tax returns claiming the rates applicable to unmarried individuals.

In November of 1976 taxpayers traveled to the Dominican Republic where David Boyter, as the moving party, obtained a divorce decree on November 22, 1976. Again the parties traveled together to and from the Dominican Republic. Whether they occupied the same hotel room is not shown by the record. The record does show, however, that although the Dominican decree was granted on the ground of "incompatibilities of temperaments existing between (the parties) that has made life together unbearable," Angela Boyter denied that she had ever said anything which would serve as a basis for such a finding by the Dominican Republic court. David Boyter testified before the Tax Court that he would not characterize the grounds as "totally" true. As he explained it: "I understood that these were strictly legalistic terms."

The taxpayers returned to Maryland to their matrimonial domicile and they were remarried on February 10, 1977. For calendar year 1976 they filed separate federal income tax returns claiming the rates applicable to unmarried individuals.

The Commissioner determined a deficiency in income taxes for each of the taxpayers for 1975 and 1976 and taxpayers sought review in the Tax Court. The Tax Court sustained the deficiencies. Although the government argued that the divorce decrees should be disregarded for federal income tax purposes because a year-end divorce whereby the parties intend to and do in fact remarry early in the next year is a sham transaction, the Tax Court expressed no view on this argument. Rather, it undertook an elaborate analysis of Maryland law with respect to the validity of the divorce decrees and concluded that Maryland would not recognize the foreign divorces as valid to terminate the marriage. On this basis, the Tax Court entered judgment for the government.

II.

We agree with the government's argument that under the Internal Revenue Code a federal court is bound by state law rather than federal law when attempting to construe marital status. Eccles v. Commissioner, 19 T.C. 1049, aff'd, 208 F.2d 796 (4 Cir. 1953). The difficulty with this approach in this case, however, is that the Maryland authorities do not establish beyond peradventure of doubt that the two divorces with which we are concerned are invalid under Maryland law. As the Tax Court stated, "the law in Maryland with regard to the recognition of migratory divorces obtained in a foreign country by Maryland domiciliaries has not been explicitly declared by either the legislature or the highest court of that state," although, as the taxpayers have demonstrated, a number of Maryland trial courts, explicitly and implicitly, have recognized the validity of migratory foreign divorces.

In this ambiguous state of the Maryland law, we would ordinarily be disposed to invoke the certification procedure authorized by Ann.Code of Md., Cts. & Jud.Proc. § 12-601 (1980), and ask the Maryland Court of Appeals for a definitive pronouncement on the validity of these bilateral foreign migratory divorces. ³

But there are other factors which must be considered. The Commissioner has made it clear to us both in his brief and in oral argument that he intends to press the contention, advanced in the Tax Court but not decided by it, that under the sham transaction doctrine taxpayers must be treated as husband and wife in computing their federal income taxes for the years 1975 and 1976 even if Maryland recognizes the validity of their migratory foreign divorces. ⁴ Of course, if the issue of their validity were certified to the Maryland Court of Appeals and that court ruled them invalid, that decision would decide this case. Significantly, however, if the Maryland Court of Appeals ruled them valid, further proceedings would still be necessary in a federal tribunal and those proceedings might result in an adjudication which would render the certification and the opinion of the Maryland court a futile, academic exercise with respect to final disposition of this case.

We think that certification is inappropriate here. Considerations of comity lead us to conclude that we ought not to request the Maryland Court of Appeals to answer a question of law unless and until it appears that the answer is dispositive of the federal litigation or is a necessary and inescapable ruling in the course of the litigation. ⁵ Certainly we have discretion as to whether to employ the Maryland certification procedure. Lehman Brothers v. Schein, 416 U.S. 386, 390-91, 94 S.Ct. 1741, 1743-44, 40 L.Ed.2d 215 (1974); Barnes v. Atlantic & Pacific Life Insurance Co., 514 F.2d 704, 705 n.4 (5 Cir. 1975). See generally Florida ex rel. Shevin v. Exxon Corp., 526 F.2d 266, 274-75 (5 Cir.), cert. denied sub. nom., Standard Oil Co. of California v. Florida ex rel. Shevin, 429 U.S. 829, 97 S.Ct. 88, 50 L.Ed.2d 92 (1976). We hold that that discretion ought not to be exercised to certify a question of state law where a question of federal law is present and undecided, the decision of which may be wholly dispositive of the case.

III.

We therefore turn to the question of whether in principle the sham transaction doctrine may be dispositive in this case. Although we hold that the doctrine may be applicable, we do not decide that...