O'MALLEY v. Yost

• Decision Date: 24 January 1951
• Docket Number: No. 14166.,14166.
• Parties: O'MALLEY, Collector, v. YOST.
• Court: U.S. Court of Appeals — Eighth Circuit

186 F.2d 603 (1951)

O'MALLEY, Collector, v. YOST.

No. 14166.

United States Court of Appeals Eighth Circuit.

January 24, 1951.

I. Henry Kutz, Special Asst. to the Atty. Gen. (Theron Lamar Caudle, Asst. Atty. Gen. Ellis N. Slack, Robert N. Anderson, and George D. Webster, Special Assts. to the Atty. Gen. and Joseph T. Votava, U. S. Atty., Omaha, Neb., were with him on the brief), for appellant.

Joseph J. Cariotto, Lincoln, Neb., for appellee.

Before GARDNER, Chief Judge, and WOODROUGH and THOMAS, Circuit Judges.

THOMAS, Circuit Judge.

This is a suit brought in the district court by Yost, the appellee, a resident and citizen of Nebraska, against O'Malley, Collector of Internal Revenue for the district of Nebraska, to recover a deficiency income tax assessed against the appellee for the year 1944 and paid under protest. The case was tried to the court, judgment was entered for the taxpayer, and the Collector appeals.

The material facts are these. In his income tax return for 1944 Yost reported the sale of a rental residence property owned by him for $6,450. As one item of expense claimed to have been incurred in the sale, he deducted the sum of $2,951.11, which was disallowed by the Commissioner, and a deficiency was assessed and paid with interest in the sum of $1,077.61, the amount of the judgment from which this appeal was taken.

The explanation of the claimed deduction is that Yost was divorced from his wife in 1942 in a state court of Nebraska. See Yost v. Yost, 143 Neb. 80, 8 N.W.2d 686. The divorce was not absolute, however, but only from bed and board and for separate maintenance. Under the laws of Nebraska a valid conveyance of real property cannot be made by a husband so divorced without the joinder of his spouse, unless she is a non-resident of the state. Moore v. Markel, 112 Neb. 743, 201 N.W. 147; McCullough v. St. Edward Electric Co., 101 Neb. 802, 165 N.W. 157, 158; Zvacek v. Posvar, 118 Neb. 163, 223 N.W. 792.

The rights of a wife in her husband's real estate under Nebraska law are aptly stated by the Supreme Court of that state in the McCullough case supra, as follows: "This right of the wife is a peculiar one under the statute. She takes by descent, but is not technically an heir in the sense that a conveyance by her husband would defeat her right. She takes the property of her husband whenever the conditions are such that an heir would take, and the husband cannot defeat her claim by his voluntary conveyance. The right is substituted for the right of dower and is in many respects analogous to that right."

The purchaser of the rental property, therefore, required a deed executed by Yost and his divorced wife; but she refused to join with him therein unless she received one-half of the net sale price, or $2,951.11, which sum he paid to her in order to enable him to complete the sale.

It was stipulated that "This was not a scheme or device on the part of taxpayer for the avoidance of Federal income tax. It was the object of the taxpayer to take advantage of the opportunity to sell the property and it was the intention of the wife to prevent that sale unless she secured an equivalent of one-half the net proceeds thereof."

The trial court concluded "that the $2,951.11, which the Taxpayer paid to his wife so that he could convey good title was * * * a deductible expense in determining the gain on the sale of the property." Yost v. O'Malley, D.C. 88 F.Supp. 626, 628.

In so holding we think the court erred. The nature and character of the divorced wife's marital rights in the taxpayer's property are controlled by the laws of Nebraska, but the taxability of the compensation paid for the relinquishment of those rights is governed by the federal income tax act. Blair v. Commissioner of Internal Revenue, 300 U.S. 5, 57 S.Ct. 330, 81 L.Ed. 465; Freuler v. Helvering, 291 U.S. 35, 54 S.Ct. 308, 78 L.Ed. 634.

The rule has been often stated that authority to take any deduction from income is a matter of grace and it must be...