Talcott v. United States

• Citation: 23 F.2d 897
• Decision Date: 05 March 1928
• Docket Number: No. 5144.,5144.
• Parties: TALCOTT v. UNITED STATES.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

23 F.2d 897 (1928)

TALCOTT v. UNITED STATES.

No. 5144.

Circuit Court of Appeals, Ninth Circuit.

January 30, 1928.

Rehearing Denied March 5, 1928.

Goldman & Altman, of San Francisco, Cal., and McClymonds & Wells, of Oakland, Cal., for plaintiff in error.

Geo. J. Hatfield, U. S. Atty., and T. J. Sheridan, Asst. U. S. Atty., both of San Francisco, Cal. (C. M. Charest, General Counsel, and F. W. Dewart, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for the United States.

Robert T. Devlin, William H. Devlin, and Devlin & Devlin, all of Sacramento, Cal., and Edward J. McCutchen, Warren Olney, Jr., J. M. Mannon, Jr., Perry Evans, Carey Van Fleet, and Morrison, Hohfeld, Foerster, Shuman & Clark, all of San Francisco, Cal., amici curiæ.

Before GILBERT, RUDKIN, and DIETRICH, Circuit Judges.

GILBERT, Circuit Judge (after stating the facts as above).

The main question here presented is whether, under the Revenue Act of 1918 (Comp. St. §§ 6371¼a, 6336 1/8a, et seq.) the one-half interest of the surviving wife in the community property of her deceased husband and herself, where both were domiciled in California, is subject to the federal estate tax. That question was before this court in Wardell v. Blum (C. C. A.) 276 F. 226, and it was there held that the one-half interest of a wife in the community property which on the death of her husband she held under the laws of California was not subject to the tax. A petition to the Supreme Court for certiorari was denied. 258 U. S. 617, 42 S. Ct. 371, 66 L. Ed. 793. In the present case the court below was of the opinion that the decision in Wardell v. Blum was impliedly overruled by the decision in United States v. Robbins, 269 U. S. 315, 46 S. Ct. 184, 70 L. Ed. 285, and its foundation was overturned in Stewart v. Stewart, 199 Cal. 318, 249 P. 197. The first of those cases arose, not under the estate tax provision of the Federal Revenue Act, but under the provision which imposes an income tax. We turn first to that case to ascertain what was the purport and scope of the decision so far as it affects the questions here involved. In the opinion in that case no reference was made to our decision in Wardell v. Blum, although it was brought to the court's attention by the briefs of both the parties. Nor did the court define the nature of the wife's estate in the community property further than to advert to the decisions of the Supreme Court of California and observe that the settled opinion, "at least with reference to the time before the later statutes," was "that the wife had a mere expectancy while living with her husband." Decision was not based, however, upon that view of the wife's estate, and in the syllabus it is recited that the ruling was made "without deciding whether the wife's interest is `a mere expectancy,' or something more." The court took the view that, even if it was "wrong as to the law of California," the income of the community property was subject as a whole to an income tax which was properly assessable against the husband. This was held in view of the husband's power over the community property and his right to the disposition of the same and the income therefrom, and the fact that the property, while liable for the payment of his debts, was not liable for those of his wife, under section 167 of the Civil Code of California. In other words, the substance of the decision is that the taxation of the income of community property under the Revenue Act does not depend upon the title to the property from which it is derived but upon the ownership and power of the husband over it and his right to dispose of the same, restricted only by a prohibition against gifts without his wife's consent, as defined in the decisions of the courts of California. From that view of the nature of the husband's right to the income the conclusion necessarily followed that the wife who receives no income is not taxable for income and would have no property out of which to pay an income tax. The denial of the writ of certiorari in Wardell v. Blum was not equivalent to an affirmance of the judgment. Hamilton-Brown Shoe Co. v. Wolf Bros., 240 U. S. 251, 258, 36 S. Ct. 269, 60 L. Ed. 629.

In Stewart v. Stewart the Supreme Court of California, upon an exhaustive review of its own prior decisions and the statutes concerning the rights of husband and wife in community property in that state, said: "We wish to say in conclusion that we are in accord with the intimations from time to time reflected by this court in the long line of its past decisions to the effect that the interest of the wife in the property of the community during the continuance of the marriage relation, while it has not yet reached the status of a vested interest therein, is and has always been from a time reaching back into the" time of the "Spanish and Mexican originals of our community property laws, a much more definite and present interest than is that of an ordinary heir. She has, by virtue of the share which in her own sphere she has contributed toward the acquisition and conservation of such properties, rights therein which have been always safeguarded against the fraudulent or inconsiderate acts of her husband with relation thereto and for the assertion and safeguarding of which she has been given access to appropriate judicial remedies, both before and after the time when her said rights and interests would ripen and become vested through the death of the husband or other severance of the marriage relation, whenever such rights and ultimate interests were affected by or threatened with such forms of invasion." In the course of the opinion, the court said that the decision in Roberts v. Wehmeyer, 191 Cal. 601, 614, 218 P. 22, "correctly disposes" of the case of Wardell v. Blum.

In Roberts v. Wehmeyer, the court had expressed its agreement with the decision in Wardell v. Blum, so far as it was based on "an interpretation of the Inheritance Tax Act of 1917 St. 1917, p. 880, to the effect that the part of the community property passing to the wife should not be subject to such tax," but went on to say that, "in so far as it relies on Arnett v. Reade, supra, as indicating that a wife has at all times had an interest or estate in the community property, we are constrained to disagree with it." In brief, the court in the Stewart Case approved the decision of this court in Wardell v. Blum only so far as it dealt with the state inheritance tax law of California of 1917. It disagreed with it so far as it placed reliance upon Arnett v. Reade, 220 U. S. 311, 320, 31 S. Ct. 425, 55 L. Ed. 477, as authority for the proposition that a wife has at all times had an interest or estate in the community property, a decision which was based upon the law of New Mexico.

The construction placed upon community property rights in California, together with the approval of Wardell v. Blum, as thus expressed in the Stewart Case, involves two propositions: First, that the interest of the wife in the community property in that state is "a much more definite and present interest than that of an ordinary heir," but yet not a vested interest; and second, that such an estate is not, in the opinion of that court, subject to the state inheritance tax. The decision as to the first proposition is binding upon us. As to the second, it is not material to the present discussion.

We have therefore to inquire whether the interest in the community property so defined is upon the death of the husband taxable within the terms of the Revenue Act of 1918. That act imposes a tax "upon the transfer of the net estate of every decedent." Section 402 (Comp. St. § 6336¾c) provides that the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all his property, real or personal, tangible or intangible. Section 402(b) provides: "To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower, courtesy, or by virtue of a statute creating an estate in lieu of dower or courtesy." Section 402(d) makes a distinction in favor of joint tenants and tenants by the entirety and relieves from the tax such portion of the property as may be shown to have originally belonged to the survivor and never to have belonged to the decedent. Was there in this case...