Brent v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 18 February 1927 |
| Docket Number | Docket No. 8156. |
| Citation | 6 BTA 143 |
| Parties | MARY BRENT, EXECUTRIX, ESTATE OF EDWIN J. BRENT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Ralph W. Smith, Esq., for the petitioner.
George E. Adams, Esq., for the respondent.
This is a proceeding for the redetermination of a deficiency in estate tax in the amount of $1,779.89. Two questions are presented for determination; first, whether certain corporate stock was at the time of the death of decedent his separate property or community property, and, second, if it was community property, whether the wife's interest therein is subject to tax as a part of the estate of decedent. At the hearing the Commissioner amended his answer to allege that certain real estate and furniture, reported in the return filed as having been transferred to the wife of the decedent in 1910, should be considered as a part of the decedent's estate and tax computed thereon.
FINDINGS OF FACT.
Edwin J. Brent died a resident of California on February 8, 1923, leaving a will in which he nominated as executrix his wife, Mary Brent, who is now the duly appointed, qualified, and acting executrix of the estate of the decedent.
At the time of their marriage more than forty-five years ago the decedent and the petitioner possessed no property and neither of them, during the existence of the marriage, received any property by gift, bequest, devise, or descent, except certain assets given by the decedent to the petitioner as hereinafter set forth. For about thirty-five years they continuously resided together as husband and wife in the City of Los Angeles, Calif. At the time of establishing their residence in California they possessed no property. During the period of their residence in that State, Mary Brent worked and labored with her husband in the conduct and management of their store enterprises, and as a result of their mutual efforts the property represented in the estate of the decedent was accumulated.
For many years prior to 1920 the decedent and the petitioner conducted a furniture business under the name of the Brent Furniture Co. In the year 1920 a corporation was formed, capitalized at $500,000, the capital stock of which was issued in exchange for the assets of the business theretofore conducted by the decedent and the petitioner. At the time of the issuance of the stock the decedent caused a certificate for 2,465 shares to be issued in the name of Mary Brent, the petitioner, representing one-half of the stock which remained after issuance of a few qualifying shares. Thereafter, the decedent, in the presence of his attorney, handed the certificate issued in the name of his wife to her, stating, in substance, that as she had helped earn all that they had, it was his desire that she have one-half of it. She deposited the certificate in her own safe deposit box and has since kept it there.
The remaining half, 2,465 shares, of the stock of the company was issued to the decedent and was reported as a part of his estate in the estate-tax return filed.
On April 2, 1910, the decedent transferred by deed to the petitioner, Mary Brent, the premises occupied by them as their residence, and on the same date made a gift to her of the furniture and furnishings in the residence. The real estate and the furniture and furnishings were reported in the estate-tax return filed under the schedule provided for transfers, at the values, respectively, of $65,000 and $15,000, but were not included as a part of the decedent's taxable estate.
The Commissioner does not contend that the property turned in to the newly organized corporation was not community property under the laws of California, or that the shares issued directly to Mary Brent were not her separate property. His position is that the issuance of stock to Mary Brent effected a dissolution of the community in so far as the stock is concerned and that the stock retained by the decedent thereby became his separate property.
That the husband may relinquish in favor of his wife all claim to a portion of the community property, either by contract, Perkins v. Sunset Co. (1909), 155 Cal. 712; 103 Pac. 190, 193, or by gift, Cullen v. Bisbee (1914), 168 Cal. 695; 144 Pac. 968, 969, seems to be well settled, and in either event so much of it as he releases becomes her separate property. But does such act of the husband of itself render the remainder of the property his separate property? Does it remove the remainder of the property from the operation of the presumption that all property in the possession of either spouse during marriage is community property? The change by agreement of the spouses of a part of the community property to the separate property of one of them, or by the gift of a part of it by the husband to the wife, affects, as we see it, only the part transferred and the character of the remainder is not thereby changed. In Ives v. Connacher (1912), 162 Cal. 174; 121 Pac. 394, 395, the rule stated in Ballinger on Community Property is quoted with approval, as follows:
The root or property source, together with the time when acquired, are alone looked to as the criterion to determine what property is or is not common. * * * Property once impressed with the community character retains that impress during the existence of the community, unless alienated or exchanged.
The position taken by the Commissioner in this case amounts to saying that a husband by releasing to the wife a part of the community property, without any action on her part, can change the remainder of the property from community to his separate property. While the spouses may remove common property held by them from the operation of the community laws (secs. 158 and 159, Civil Code), an agreement between them is necessary to effect such a change. Stating it in another way, although the husband may alienate the community property, yet, during the time it is held by the community, it retains its character as community property unless there be a concert of action between the spouses to change it from community to separate property.
In the case before us, there is no evidence of any act on the part of either husband or wife to show that they intended the stock retained by the husband to become his separate property, and we are of the opinion that its community character was not changed by the issuance of a part of the Brent Furniture Co. stock to the wife.
We are thus brought squarely to the question of whether the wife's interest in the community property under the laws of California constitutes a part of the estate of the husband and as such is subject to the estate tax imposed by the Revenue Act of 1921. The petitioner relies on Wardell v. Blum, 276 Fed. 226, and contends that such decision is binding on the Board.
The Commissioner is seeking to tax as a part of the husband's estate that part of the community property which, upon the death of the husband, passed to the wife. The pertinent provisions of the Revenue Act of 1921 are sections 401 and 402, which sections, in so far as they are material, read as follows:
SEC. 401. That, in lieu of the tax imposed by Title IV of the Revenue Act of 1918, a tax equal to the sum of the following percentages of the value of the net estate * * * is hereby imposed upon the transfer of the net estate of every decedent dying after the passage of this Act, whether a resident or nonresident of the United States * * *.
SEC. 402. That the value of the gross estate of the decedent shall be determined by including the value of the time of his death of all property, real or personal, tangible or intangible, wherever situated —
(a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate;
(b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower, curtesy, or by virtue of a statute creating an estate in lieu of dower or curtesy * * *.
Is the wife's interest in the community property such that, within the meaning of the above quoted sections, there is no taxable transfer of it when it passes to her upon the death of the husband, and is that interest such that it is not included in the gross estate of the husband?
From the time of the laws passed by the first legislature (Stats. 1850, p. 254) the statutes of California have at all times defined community property, have provided that the husband shall have the management and control of such property, and have provided for its distribution upon the death of either spouse. From time to time amendments were added, but under all of the community property laws the state courts have held that during the continuance of the marriage relation the wife has not a present vested interest therein. Van Maren v. Johnson, 15 Cal. 308; Packard v. Arellanes, 17 Cal. 525; In re Burdick's Estate, 112 Cal. 387; 44 Pac. 734; Spreckels v. Spreckels, 172 Cal. 755; 158 Pac. 537; Stewart v. Stewart, 199 Cal. 318; 249 Pac. 197. At least such is the law as we find it up to and including the period here under consideration. There have been some differences in the expressions of the courts as to the wife's interest, but the prevailing view and that followed by the latest decisions is that the wife has no vested interest during the existence of the marital community even though her interest may be a more definite and present one than is that of an ordinary heir. See Roberts v. Wehmeyer, 191 Cal. 601; 218 Pac. 22, cited in United States v. Robbins, 269 U. S. 315; and Stewart v. Stewart, 249 Pac. 197, decided September 2, 1926.
The state statute with which we are concerned is section 1402 of the Civil Code, which, at the time of the death of the decedent whose estate is...
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