United States v. Pierotti, 10898.

• Decision Date: 02 April 1946
• Docket Number: No. 10898.,10898.
• Parties: UNITED STATES v. PIEROTTI.
• Court: U.S. Court of Appeals — Ninth Circuit

154 F.2d 758 (1946)

UNITED STATES v. PIEROTTI.

No. 10898.

Circuit Court of Appeals, Ninth Circuit.

April 2, 1946.

Sewall Key, Acting Asst. Atty. Gen., and Helen R. Carloss and Carlton Fox, Sp. Assts. to Atty. Gen., and Charles H. Carr, U. S. Atty., and Edward H. Mitchell, Asst. U. S. Atty., both of Los Angeles, Cal., for appellant.

A. Calder Mackay, Arthur McGregor, Howard W. Reynolds, and Charles J. Higson, all of Los Angeles, Cal., for appellee.

Before DENMAN, STEPHENS, and ORR, Circuit Judges.

ORR, Circuit Judge.

In this opinion appellant will be referred to as the Government and appellee as taxpayer.

The question involved is whether the property owned by taxpayer and her husband at the time of his death was held by them in joint tenancy or as so-called new style "post-1927" community property under California law.

In assessing the tax the Government included all the property held by the parties at the time of the husband's death. Taxpayer contended that only one-half should have been included. If the property was owned in joint tenancy the Government was correct in its position. If owned as community property (new style, post-1927) the contention of taxpayer must be sustained The trial court gave judgment in taxpayer's favor for the sum of $2,852; this included the amount assessed as a deficiency by the Commissioner of Internal Revenue, and interest thereon, which said sum was paid by taxpayer.

In its appeal from said judgment the Government poses three questions which we are asked to determine:

"1. Whether the claim for refund presented to the Commissioner the issue decided by the District Court, namely, that certain real property held by the decedent, Attilio Pierotti, and his wife, Jane S. Pierotti, as joint tenants with right of survivorship, was in fact `post-1927' community property and that hence only one-half thereof — the decedent's half — was includible in his gross estate tax purposes and, if not, whether the Commissioner waived any defects in the claim.

"2. Alternatively, whether a decree of the Superior Court of California, in and for Orange County, wherein and whereby it was adjudged and decreed that at the date of his death the property in question was owned jointly by him and his wife with right of survivorship, and that such tenancy was terminated by his death and title in fee simple thereto vested in her, establishes for the purposes in hand that such was the tenure of the parties in the property at his death under California law.

"3. Alternatively, whether there is evidence to sustain the District Court's finding that at the time of the decedent's death no interest was held by him in the property in question as a joint tenant, or, if there is, then whether the finding nevertheless is clearly erroneous."

On November 29, 1938, appellee, as executrix of her husband's estate filed an estate tax return in Orange County, California, in which she included one-half the value of two tracts of real property. The return stated that she and her husband owned the real property as joint tenants. The return also stated that "all property of decedent is claimed to be the community property of decedent and Jane S. Pierotti pursuant to agreement executed on or about the 20th day of November, 1928."

On June 27, 1940 taxpayer filed a claim for refund of this sum on the ground that "such tax was based upon the inclusion in the decedent's gross estate of the entire value of all real and personal property standing in the name of decedent and his said wife as joint tenants, whereas only one half of such value should have been included therein for the reason that decedent's said wife had acquired her joint tenancy interest in such property for full and adequate consideration."

On October 14, 1940 taxpayer filed an affidavit of one Albert Launer "in support of the claim and contention of Jane S. Pierotti that one-half of the properties reported by her * * * be not considered or treated as subject to return herein for federal estate tax." This affidavit stated that Launer had been employed in November 1928 as attorney for taxpayer and decedent to make necessary arrangements for all of decedent's property to be so vested that title thereto would be "new style" or "post-1927" California Community property within the provisions of § 161a of the Civil Code of California, enacted in July 1927.¹ The affidavit further stated that decedent had requested that his property be so vested between himself and his wife as to cause her the least inconvenience and expense on his death.

Mr. James S. Sheehy, an internal revenue agent, called at the office of taxpayer's present attorney and requested further information relative to the claim filed by taxpayer.

On November 20, 1940 taxpayer's counsel, in response to said request, by letter informed the local internal revenue agent that the land involved here had been transferred by means of a strawman conveyance to decedent and taxpayer in joint tenancy "after the oral agreement was made between Mr. and Mrs. Pierotti that all of their property would be new style community under the laws of the State of California, as provided by § 161a of the Civil Code, as amended by the Legislature in 1927."

On February 1, 1941 the Government rejected the claim for refund. On December 16, 1942 taxpayer instituted this suit for refund, basing her claim in Paragraph V of the complaint upon the ground that "the Commissioner included in the decedent's gross estate the entire value of all real and personal property standing in the name of decedent and his wife as joint tenants, whereas only one-half of such value should have been included therein, for the reason that said property was community property in which plaintiff had a present, equal, and existing interest by virtue of the provisions of Sec. 161a of the Civil Code of California."

The Government, by its amended answer, admitted the allegations of Paragraph V of the complaint. The amended answer contained certain allegations pertaining to an affirmative defense which the Government, in its brief, states is not material here.

In the Government's pre-trial memorandum in the District Court taxpayer's theories of recovery were discussed as follows: "Plaintiff apparently has two theories upon which she will base her contention * * *. First, she will, we assume, endeavor `to show' that, at some time prior to the acquisition or transformation of the property into joint tenancy, the decedent orally `declared' the property to be California community property of the type attributable to the toil or talents of one of the spouses exerted after July 29, 1927."

The trial court found that decedent and taxpayer orally agreed to transform their property into "new style" California community property and that pursuant to that agreement and by means of strawman conveyances they had taken title to the realty involved here as joint tenants. The court further found that all decedent's property was community property as defined by California Civil Code § 161a, and gave judgment for taxpayer in the full amount claimed.

The Government then, in its objection to the form of the second findings of fact, raised, for the first time, the question of a variance between taxpayer's claim and her complaint. The contention was that the claim asked a refund on the ground that taxpayer as a joint tenant had paid full and adequate consideration for her half of the land, whereas the complaint and the proof showed that only one-half the land should be included in the gross estate because it was "new style" community property, and that therefore there was a fatal variance. The trial court, in answer to this contention, held that "The evidence discloses that the Commissioner had evidence before him whereby the plaintiff's theory of recovery was fully available to him. Nor was counsel for the Government caught by surprise, as the pre-trial statement presented to the court clearly indicated he was fully aware of the theory upon which plaintiff hoped to recover. If any variance existed, in my opinion, the same was waived."

Section 3772(a) (1)² of the Internal Revenue Code (26 U.S.C.A. Int.Rev.Code, § 3772) and § 81.96 of Treasury Regulations

105³ require that a claim for refund must be filed in accordance with the regulations and must set forth in detail each ground on which a refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof. These regulations further provide that a claim will not be considered defective solely by reason of the fact that it is not made on the form prescribed by the Treasury.

The tax in question was paid on November 21, 1939. Therefore, taxpayer had three years from that date to file her claim for refund.⁴ Here taxpayer filed her formal claim in June 1940 and in October and November of that year two years before the statute of limitations would run on her claim supplemented it with the affidavit and letter hereinbefore referred to. The affidavit and the letter each clearly indicated that at least one of the grounds on which taxpayer claimed as refund was that the property in question was "new style" community property and for that reason but one-half its value should be included in her husband's gross estate.

The Supreme Court of the United States has held that a notice fairly advising the Commissioner of Internal Revenue of the nature of taxpayer's claim which could nevertheless be rejected by him because too general or not complying with formal requirements, may be amended after the statute of limitations has run to correct the lack of specificity.⁵ It would therefore seem clear that supporting documents adding new and alternate grounds for refunds, filed with the Commissioner two years before the statute of limitations had run, may be considered as amendments or additions to the original claim.

The principal requirement of the law and the regulations is that the Commissioner be apprised of the...