Hale v. Anglim, 10505.

• Decision Date: 01 February 1944
• Docket Number: No. 10505.,10505.
• Citation: Hale v. Anglim, 140 F.2d 235 (9th Cir. 1944)
• Parties: HALE v. ANGLIM, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Ninth Circuit

140 F.2d 235 (1944)

HALE v.ANGLIM, Collector of Internal Revenue.

No. 10505.

Circuit Court of Appeals, Ninth Circuit.

February 1, 1944.

L. W. Wrixon, of San Francisco, Cal., for appellant.

Samuel O. Clark, Jr., Asst. Atty. Gen., Tax Division, Sewall Key, Helen R. Carloss, Arthur Manella, and James P. Garland, Sp. Assts. to the Atty. Gen., and Frank J. Hennessy, U. S. Atty., and Esther B. Phillips, Asst. U. S. Atty., both of San Francisco, Cal., for appellee.

Before WILBUR, MATHEWS, and HEALY, Circuit Judges.

WILBUR, Circuit Judge.

This is an appeal from the judgment of the District Court denying recovery of personal income taxes payment of which is alleged to have been erroneous.

Appellant is the widow of Prentis Cobb Hale, Sr., who died November 21, 1936.Decedent's will declared that his entire estate consisted of his separate property, and established a trust of specified stocks and other properties, the income from which was to be paid to appellant for life and on her death the corpus distributed to Prentis Cobb Hale, Jr., the son of appellant and decedent.Appellant made claim that, contrary to the declaration of the will, a substantial portion of the estate was community property, to half of which she was entitled by the law of California.Her claim was compromised by an agreement between her and her son, dated June 18, 1937.By that agreement her community property right was recognized and evaluated at $340,000.It was agreed that "in satisfaction of the said one-half interest in the said community property"she should receive outright by decree of partial distribution in the estate certain stocks and real estate designated by the will as part of the corpus of the trust.These properties were severally evaluated by the agreement and amount to $338,672 in all.The agreement released certain other stocks from the trust provision of the will so that they fell into residue, to which the son was entitled under the will.Other securities remained in the trust pursuant to the terms of the will.Separate paragraphs of the agreement provided that dividends received by the estate on stocks distributed to appellant and to her son under the agreement should be credited to appellant and to her son, respectively.The agreement did not evaluate the dividends so to be credited to appellant; in fact they amounted to $6,230.

On July 14, 1937, the probate court by decree of partial distribution distributed to appellant the stocks to which she was entitled under the agreement.On December 22, 1937, a further decree of partial distribution distributed to her all dividends received by the estate on those stocks.Appellant paid personal income tax on the dividends so received by her.She now seeks to recover the amount of that tax upon the ground that the dividends were received by her not as income but as part of the principal amount for which she compromised her community property claim.

In the case of Lyeth v. Hoey, 305 U.S. 188, 59 S.Ct. 155, 83 L.Ed. 119, 119 A. L.R. 410, it was held that amounts received in compromise of an asserted claim of heirship would be considered as having been received by inheritance, and so not subject to income tax.We may assume, as appellant contends, that the principle of that case would likewise exempt from income tax amounts received in compromise of her community property claim; but the record does not sustain her contention that she so received the dividends in question.By the death of appellant's husband the community was dissolved, and half of the net community property immediately became the property of appellant.Calif. Prob.Code, § 201;In re Estate of Coffee, 19 Cal.2d 248, 120 P.2d 661;In re Estate of King, 19 Cal.2d 354, 363, 121 P.2d 716.All subsequent income from such property was appellant's income, taxable to her as such.It may be true, as appellant contends, that the estate could use its income to discharge appellant's community property claim; but there is no evidence that that was done here.Every implication of the evidence is that appellant received the dividends as her income, arising from property that was hers from the date of her husband's death.

The preamble of the settlement agreement evaluated at $340,000 appellant's half interest in the community property "at the time of the death of the said Prentis Cobb Hale, Sr."The dividends were not mentioned in paragraph 1, which enumerated and evaluated assets totaling $338,672 to be distributed to appellant"in satisfaction of the said one-half interest in the said community property."Paragraph 8 provided that net dividends received by the estate on stocks enumerated in...