Earl v. Commissioner of Internal Revenue

• Decision Date: 25 February 1929
• Docket Number: No. 5602.,5602.
• Parties: EARL v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

30 F.2d 898 (1929)

EARL v. COMMISSIONER OF INTERNAL REVENUE.

No. 5602.

Circuit Court of Appeals, Ninth Circuit.

February 25, 1929.

Warren Olney, Jr., J. M. Mannon, Jr., Henry D. Costigan, and Robert L. Lipman, all of San Francisco, Cal., for petitioner.

Mabel Walker Willebrandt, Asst. Atty. Gen., and Sewall Key and Millar E. McGilchrist, Sp. Asst. Attys. Gen. (C. M. Charest, Gen. Counsel, and Prew Savoy, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.

Before RUDKIN and DIETRICH, Circuit Judges, and BEAN, District Judge.

BEAN, District Judge.

This is a petition for review of a decision of the Board of Tax Appeals. Section 1001, Revenue Act of 1926; 26 USCA § 1224. The petitioner is, and was during the times hereinafter mentioned, a married man domiciled in the state of California. In 1920 and 1921, the years here involved, he earned for personal services the sums of $24,839.00 and $22,946.20. He and his wife made separate income tax returns for the years stated, each returning one-half of the above amounts. The Commissioner of Internal Revenue ruled that the entire amount of the petitioner's earnings was taxable to him, and no part to his wife, and as a result determined that there was a deficiency in the tax paid by the petitioner in the sums of $2,420.12 for 1912, and $2,432.46 for 1921. From this decision the petitioner appealed to the Board of Tax Appeals, where the ruling of the Commissioner was sustained.

There is no dispute as to the facts. On the 1st day of June, 1901, the petitioner and his wife entered into a contract in writing as follows: "It is agreed and understood between us that any property either of us now has or may hereafter acquire (of any and every kind) in any way, either by earnings (including salaries, fees, etc.), or any rights by contract or otherwise, during the existence of our marriage, or which we or either of us may receive by gift, bequest, devise, or inheritance, and all the proceeds, issues and profits of any and all such property shall be treated and considered, and hereby is declared to be received, held, taken and owned by us as joint tenants, and not otherwise, with the right of survivorship."

This agreement has been continuously lived up to by the petitioner and his wife throughout the years, and at the time it was made a bank account was opened in their joint names and subject to the check of either, and in this account all incomes, including earnings of the petitioner, have been deposited immediately upon their receipt. It was by reason of these facts that separate income tax returns were made by the petitioner and his wife.

The question for decision is whether the contract referred to is a valid and binding obligation, and such as a husband and wife may legally make, and, if so, whether under its provisions the personal earnings of the petitioner immediately became the joint property of himself and wife as soon as earned, or was there an interval before the title passed to their joint estate during which time such earnings were impressed with the community property status, and returnable by and taxable to him, under U. S. v. Robbins, 269 U. S. 315, 46 S. Ct. 148, 70 L. Ed. 285.

Sections 162, 163, and 164 of the Civil Code of California provide that all property owned by either spouse before marriage or thereafter acquired by gift, bequest, devise, or descent, with the rentals, issues, and profits thereof, is separate property, and all other property acquired after marriage by either spouse belongs to them as community property, but by the same law a husband and wife may enter into any engagement or transaction with the other respecting property which either might if unmarried (section 158), and they may hold property as joint...