United States v. Mitchell

• Citation: 91 S.Ct. 1763,29 L.Ed.2d 406,403 U.S. 190
• Decision Date: 07 June 1971
• Docket Number: No. 798,798
• Parties: UNITED STATES et al., Petitioners, v. Anne Goyne MITCHELL et al
• Court: United States Supreme Court

29 L.Ed.2d 406

91 S.Ct. 1763

403 U.S. 190

UNITED STATES et al., Petitioners,

v Anne Goyne MITCHELL et al.

No. 798.

Argued April 20, 1971.

Decided June 7, 1971.

Syllabus

A married woman domiciled in Louisiana, where under state law the wife has a present vested interest in community property equal to that of her husband, is personally liable for federal income taxes on her one-half interest in community income realized during the existence of the community, notwithstanding her subsequent renunciation under state law of her community rights, since federal, not state, law governs what is exempt from federal taxation. Pp. 194—206 5 Cir., 430 F.2d 1 and 7 reversed.

William Terry Bray, Austin, Tex., for petitioners.

Paul K. Kirkpatrick, Jr., Washington, D.C., for respondent Anne Goyne Mitchell.

Patrick M. Schott, New Orleans, La., for respondent Frances Angello.

Mr. Justice BLACKMUN delivered the opinion of the Court.

The petition here, arising from two cases below, presents the issue whether a married woman domiciled in the community property State of Louisiana is personally liable for federal income tax on half the community income realized during the existence of the community despite the exercise of her statutory right of exoneration. The issue arises in the context in one case, of a divorce, and, in the other, of the husband's death.

I

Mrs. Mitchell and Mrs. Sims. The Commissioner of Internal Revenue determined deficiencies against Anne Goyne Mitchell and Jane Isabell Goyne Sims for the tax years 1955—1959, inclusive. These were for federal income tax and for additions to tax under § 6651(a) (failure to file return), § 6653(a) (underpayment due to negligence or intentional disregard of rules and regulations), and § 6654 (underpayment of estimated tax) of the Internal Revenue Code of 1954, 26 U.S.C. §§ 6651(a), 6653(a), and 6654. Mrs. Sims is the sister of Mrs. Mitchell. The determinations as to her were made under § 6901 as Mrs. Mitchell's transferee without consideration.

Anne Goyne and Emmett Bell Mitchell, Jr., were married in 1946. They lived in Louisiana. In July 1960, however, they began to live separately and apart. In August 1961 Mrs. Mitchell sued her husband in state court for separation. Upon his default, she was granted this relief. A final decree of divorce was entered in October 1962. In her separation suit Mrs. Mitchell prayed that she be allowed to accept the community of acquets and gains with benefit of inventory. However, taking advantage of the privilege granted her by Art. 2410 of the Louisiana Civil Code,¹ she formally renounced the community on September 18, 1961. As a consequence, she received neither a distribution of community property nor a property settlement upon dissolution of her marriage. This renunciation served to exonerate her of 'debts contracted during the marriage.'

Mrs. Mitchell earned $4,200 as a teacher during 1955 and 1956. From these earnings tax was withheld. Mr. Mitchell enjoyed taxable income during the five years in question. All income realized by both spouses during this period was community income.

Mrs. Mitchell had little knowledge of her husband's finances. She rarely knew the balance in the family bank account. She possessed a withdrawal privilege on that account, and occasionally exercised it. Her husband was in charge of the couple's financial affairs and did not usually consult his wife about them. She was aware of fiscal irresponsibilities on his part. She questioned him each year about tax returns. She knew returns were required, but relied on his assurances that he was filing timely returns and paying the taxes due. She signed no return herself and assumed that he had signed her name for her. In July 1960 she learned that, in fact, no returns had ever been filed for 1955—1959.

The deficiencies determined against Mrs. Mitchell were based upon half the community income. The Commissioner sought to collect the deficiencies from property Mrs. Mitchell inherited from her mother in 1964 and immediately transferred, without consideration to Mrs. Sims.

Mrs. Mitchell sought redetermination in the Tax Court. Judge Forrester held that under Louisiana community property law Mrs. Mitchell possessed an immediate vested ownership interest in half the community property income and was personally responsible for the tax on her share. He also ruled that this tax liability was not affected by her Art. 2410 renunciation. Mitchell v. Commissioner, 51 T.C. 641 (1969).

On appeal, the Fifth Circuit reversed, holding that by the renunciation Mrs. Mitchell avoided any federal income tax liability on the community income. Mitchell v. Commissioner of Internal Revenue, 430 F.2d 1 (CA5 1970).² Judge Simpson dissented on the basis of Judge Forrester's opinion in the Tax Court. 430 F.2d, at 7.

Mrs. Angello. Throughout the calendar years 1959—1961 Mrs. Angello, who was then Frances Sparacio, lived with her husband, Jack Sparacio, in Louisiana. Community income was realized by the Sparacios during those years, but neither the husband nor the wife filed any returns. In 1965 the District Director made assessments against them for taxes, penalties, and interest, filed a notice of lien, and addressed a notice of levy to the Metropolitan Life Insurance Company, which had a policy outstanding on Mr. Sparacio's life. The insured died in March 1966 and the notice of levy (for that amount of tax and interest resulting from imputing to Mrs. Sparacio half the community's income for the tax years in question) attached to the proceeds of the policy. The widow, who was the named beneficiary, sued the Metropolitan in state court to recover the policy proceeds. The United States intervened to assert and protect its lien. The case was then removed to federal court. The Metropolitan paid the proceeds into the court registry and was dismissed from the case.

Each side then moved for summary judgment. Judge Christenberry granted the Government's motion and denied Mrs. Angello's. Despite the absence of any formal renunciation by Mrs. Angello under Art. 2410, the Government did not contend that she had accepted any benefits of the community. On appeal, the Court of Appeals reversed, relying on the same panel's decision in the Mitchell case. Angello v. Metropolitan Life Ins. Co., 430 F.2d 7 (CA5 1970). Judge Simpson again dissented.

We granted certiorari in both cases, 400 U.S. 1008, 91 S.Ct. 564, 27 L.Ed.2d 621 (1971), on a single petition filed under our Rule 23(5).

II

Sections 1 and 3 of the 1954 Code, 26 U.S.C. §§ 1 and 3, as have all of their predecessors since the Revenue Act of 1917,³ impose a tax on the taxable income 'of every individual.' The statutes, however, have not specified what that phrase includes.

Forty years ago this Court had occasion to consider the phrase in the face of various state community property laws and of §§ 210 and 211 of the Revenue Act of 1926. A husband and wife, residents of the State of Washington, had income in 1927 consisting of the husband's salary and of amounts realized from real and personal property of the community. The spouses filed separate returns for 1927 and each reported half the community income. Mr. Justice Roberts, in speaking for a unanimous Court (two Justices not participating) upholding this tax treatment, said:

'These sections lay a tax upon the net income of every individual. The Act goes no farther, and furnishes no other standard or definition of what constitutes an individual's income. The use of the word 'of' denotes ownership. It would be a strained construction, which, in the absence of further defini- tion by Congress, should impute a broader significance to the phrase.' Poe v. Seaborn, 282 U.S. 101, 109, 51 S.Ct. 58, 75 L.Ed. 239 (1930).

The Court thus emphasized ownership. It looked to the law of the State as to the ownership of community property and of community income. It concluded that in Washington the wife has 'a vested property right in the community property, equal with that of her husband; and in the income of the community, including salaries or wages of either husband or wife, or both.' Id., at 111, 51 S.Ct., at 59. It noted that, in contrast, in an earlier case, United States v. Robbins, 269 U.S. 315, 46 S.Ct. 148, 70 L.Ed. 285 (1926), the opposite result had been reached under the then California law. But:

'In the Robbins case, we found that the law of California, as construed by her own courts, gave the wife a mere expectancy and that the property rights of the husband during the life of the community were so complete that he was in fact the owner.' 282 U.S., at 116, 51 S.Ct., at 61.

In companion cases the Court came to the same conclusion, as it had reached in Seaborn, with respect to the community property laws of Arizona, Texas, and Louisiana. Goodell v. Koch, 282 U.S. 118, 51 S.Ct. 62, 75 L.Ed. 247 (1930); Hopkins v. Bacon, 282 U.S. 122, 51 S.Ct. 62, 75 L.Ed. 249 (1930); Bender v. Pfaff, 282 U.S. 127, 51 S.Ct. 64, 75 L.Ed. 252 (1930). In the Louisiana case it was said:

'If the test be, as we have held it is, ownership of the community income, this case is probably the strongest of those presented to us, in favor of the wife's ownership of one-half of that income.' 282 U.S., at 131, 51 S.Ct., at 64.

The Court then reviewed the relevant Louisiana statutes and the power of disposition possessed by each spouse. It noted that, while the husband is the manager of the affairs of the marital partnership, the limitations upon the wrongful exercise of his power over community property are more stringent than in many other States. It concluded:

'Inasmuch, therefore, as in Louisiana, the wife has a present vested interest in community property equal to that of her husband, we hold that the spouses are entitled to file separate returns, each treating one-half of the community income as income of each 'of' them as an 'individual' as those words are used in §§ 210(a) and 211(a) of the Revenue Act of 1926....