Drake v. United States
| Decision Date | 19 August 1986 |
| Docket Number | No. 85C 8970.,85C 8970. |
| Parties | John H. DRAKE II, Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Fred M. Ackerson, Mayer, Brown & Platt, Chicago, Ill., for plaintiff.
Anton R. Valukas, U.S. Atty., James J. Kubik, Asst. U.S. Atty., Chicago, Ill., Richard M. Prendergast, Dept. of Justice, Washington, D.C., for defendant.
John Drake II ("John") sues the United States under 28 U.S.C. § 1346(a)(1), claiming the Internal Revenue Service ("IRS") overassessed his income tax liability for 1982 and 1983. John has paid the assessed taxes and seeks a refund (see 26 U.S.C. §§ 6532(a) and 7422(a)).1 Now John has moved for summary judgment under Fed. R.Civ.P. ("Rule") 56. For the reasons stated in this memorandum opinion and order, the motion is granted and the refund ordered.2
John and his wife Linda ("Linda") were married in 1964 (¶ 2). In 1978 they purchased two Florida condominiums as investments, taking each by a warranty deed running to:
JOHN HAROLD DRAKE and LINDA L. DRAKE, husband and wife....
In 1980 Linda filed a divorce action in the Circuit Court of Cook County, Illinois (the "Circuit Court"). John and Linda entered into a marital settlement agreement (the "Settlement Agreement") February 20, 1981, and their marriage was dissolved March 9, 1981. In accordance with common practice, the Circuit Court's judgment for dissolution of marriage incorporated the Settlement Agreement by reference (¶ 5 and Ex. C).
Settlement Agreement ¶¶ 5(b) and (c) (Ex. C, at 13-15) provided for disposition of the condominiums:4
The parties hereto agree that JOHN shall have the option of purchasing the interest of LINDA in the above unit within thirty (30) days of the sale and closing of the marital residence as provided for hereinabove. JOHN agrees to pay to LINDA the sum of $38,000.00 representing her one-half interest in the net equity.... In the event that JOHN does not elect to purchase the interest of LINDA in said condominium unit the parties hereto agree that the above unit shall be placed on the market for immediate sale and that upon the sale and the closing thereof the net proceeds derived therefrom shall be equally divided between them....
On May 29, 1981 John exercised his option to purchase Linda's condominium interests, receiving two quit-claim deeds (¶ 7 and Exs. D and E).
On his 1982 and 1983 tax returns, John claimed 30-year straight-line depreciation deductions for his original (1978-acquired) interests in the condominiums (for that purpose he treated his original basis as one-half of their initial purchase price). But he claimed 15-year accelerated-cost-recovery-system ("ACRS") deductions under Section 168 for the interests he acquired from Linda in 1981. IRS audited those returns and assessed a deficiency, claiming John was not entitled to ACRS deductions on the interests acquired from Linda (¶ 9; see also Prendergast Aff. Ex. 3, at 3, the IRS worksheet for John's 1982 return).
Under Section 168(e)(1) ACRS deductions are not available for "property placed in service by the taxpayer before January 1, 1981." Section 168(e)(4)(B)(i) further excludes from ACRS treatment:
For its part the United States argues John is doubly barred from the claimed deductions:
John counters with several contentions:
Each side scores some points, but in the end John clearly prevails.
At the outset several issues must be cleared away. With rare exceptions property law (especially real-property law) is state law. Thus where the incidence of federal taxation turns on property ownership, state law usually determines who owns the property (Poe v. Seaborn, 282 U.S. 101, 110, 51 S.Ct. 58, 59, 75 L.Ed. 239 (1930); Estate of Stewart v. Commissioner, 79 T.C. 1046, 1048 (1982)). Further, where realty is concerned, the law of the state where the property is located controls (Stewart, 79 T.C. at 1048).
Under those principles ownership of the condominium interests is at least initially a matter of Florida law. But state property law has not developed to mesh seamlessly with the Code, and though this opinion must begin with a discussion of Florida law, it would be oversimplistic to end there.
John and Linda held the condominiums under deeds to them as "husband and wife." At common law such deeds would automatically make them tenants by the entirety, for husband and wife were "considered as one person in law" (2 Blackstone, Commentaries *182). Indeed that "amiable" fiction meant husband and wife had insufficiently separate existences to allow them to take together as joint tenants or tenants in common (Moynihan, Introduction to the Law of Real Property 230 (1962)).
In Blackstone's day a husband and wife taking an estate together as husband and wife necessarily took that estate by the entirety. But with the demise of the husband-and-wife-as-one-legal-person fiction, the rationale for automatic creation of tenancies by the entirety when property is conveyed to "husband and wife" has disappeared as well. Consequently the modern Florida rule, holding such a deed creates a tenancy by the entirety (Losey v. Losey, 221 So.2d 417, 418 (Fla.1969) (footnote omitted)):
rests "upon a rule of construction based on the presumption of intention," rather than on any peculiarity of marital incapacity.
Today the matter is one of choice. No actual unity compels the estate into being. Instead couples may take by the entirety if they wish, and a deed to them as "husband and wife" is — in Florida at any rate — sufficient to indicate that desire (id.).
But with husband and wife no longer treated as a legal unit, the key question here is not the mere presumptive creation of a tenancy by the entirety but rather its current significance, absent the common-law fictions and rote law-French quotations.7 Some time ago New Jersey Chief Justice Weintraub put his finger on the problem and suggested an answer (King v. Greene, 30 N.J. 395, 153 A.2d 49, 60 (1959) (dissenting opinion)):
Thus the modern tenancy by the entirety essentially describes a form of ownership bearing the characteristics of the old common-law estate but existing for the sake of those characteristics, not as a necessary result of a fictional marital unity. As MacGregor v. MacGregor, 323 So.2d 35, 38 (Fla.App.1975) said (emphasis in original):
An analysis of the reason for and basis of the rule precluding separate conveyances of entireties property in terms of this set of facts establishes, we think, that it may not be applied so as to render the MacGregors' individual conveyances void. The real, as opposed to the metaphysical reason for this rule, as in the case of the entire concept of the estate by the entireties (despite all the neo-Platonic references in the cases to the four "unities" which form its basis), is essentially to prevent the interest of one spouse in the entireties property from being adversely affected by the independent act of the other.
Tenancies by the entirety have two characteristics (aside from the requisite involvement of a married couple) that set them apart from other cotenancies:
See also Lang v. Commissioner, 289 U.S. 109, 111, 53 S.Ct. 534, 535, 77 L.Ed. 1066 (1933). In its argument the United States does not really focus on those practical aspects of the tenancy. Instead its whole rationale for John's pre-1981 "ownership" of the entire condominium property rests on the fictional unity of husband and wife as a single person and on the medieval theory of seisin "per tout et non per my." From a practical (rather than a "neo-Platonic") viewpoint, the United States' argument hangs from a gossamer thread.8
This...
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