Oakland Bank v. Commissioner , 23 B.T.A. 256 ( 1931 )

THE OAKLAND BANK, EXECUTOR OF THE ESTATE OF MARCEL LEMER, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Oakland Bank v. Commissioner

Docket No. 32824.

United States Board of Tax Appeals

23 B.T.A. 256; 1931 BTA LEXIS 1899;

May 15, 1931, Promulgated

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">*1899 1. Held, that where a husband, resident in California purchases a half interest in real estate, paying for the same with community funds, and at his instance has the deed to the same made to his wife and himself, the presumption is - nothing more appearing - that the interest which the wife takes therein is as tenant in common and is her separate property and the respondent erred in including such interest in the gross estate of her deceased husband for estate-tax purposes.

2. Held, further, that the profits received by the wife from a business partnership with her husband and another, which profits or funds were by her turned over to her husband and with her knowledge and consent deposited in banks to his account and never to hers, were, in the circumstances of the instant case, community property and upon the death of the husband such funds then in banks to his credit were by the respondent properly included in the gross estate of the decedent for estate-tax purposes.

Marshall Rutherford, Esq., for the petitioner.

Frank T. Horner, Esq., for the respondent.

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SEAWELL

">*257 The Commissioner determined a deficiency in estate tax of">*1900 $1,536.69 and in so advising the petitioner also stated that an additional assessment of tax in the amount of $64.64 would be made, due to the disallowance of the credit taken for State inheritance taxes paid.

The issue is whether the Commissioner erroneously included in the gross estate of the decedent as community property, for estate-tax purposes, a one-fourth interest, claimed as the separate property of decedent's widow, in certain real estate and cash in the amount of $28,039.67, representing one-third of the profits realized from a laundry business, which one-third of said profits is likewise claimed as the separate property of said widow.

Other errors assigned are abandoned.

FINDINGS OF FACT.

The decedent, Marcel Lemer, Died a resident of Oakland, Calif., on August 20, 1924. The Oakland Bank is the duly appointed, acting and qualified executor of the decedent's estate.

In his will dated November 9, 1918, decedent declared all of his property "community property and in accordance therewith, I give, bequeath and devise unto my beloved wife Veronique Lemer one-half of all my property." He also made certain money bequests to his daughter Alice and his sister-in-law">*1901 Melanie Haurat, and the residue of his estate was left in trust for the benefit of his wife and daughter upon certain specific terms.

The executor in preparing the Federal estate-tax return treated all property standing in the name of the decedent and his wife as community property, but included only one-half thereof in decedent's gross estate. In determining the deficiency in tax, the Commissioner approved the return as filed by the executor as to the status of the property listed therein and included the same in the gross estate of the decedent as community property and taxable as such. A protest filed by the executor against the Commissioner's tentative determination of the deficiency in tax treated all said ">*258 property as community property. Said property was also administered in the local probate proceedings as community property.

Prior to his marriage April 9, 1904, to his surviving spouse, the decedent was engaged in the laundry business in partnership with a Mr. Porte. Four pieces of real estate were owned and used by them in connection with their laundry business.

At the time of decedent's marriage with his surviving spouse, his interests in the laundry">*1902 business, including real estate and fixtures, had a value of about $5,000. At the time of her marriage to decedent, Mrs. Lemer owned no separate property and never thereafter acquired any from a third party by gift, bequest, devise or descent. The evidence indicates that all Mr. Lemer then owned or thereafter acquired was derived from his laundry business, to which he devoted his attention and services.

In September, 1918, the decedent bought the interest of said Porte in their laundry business and real estate used in connection therewith, paying therefor the sum of $15,000, deeds to the real estate being taken in the names of himself and wife and nothing in the deeds expressing an intention that the wife should take title otherwise than as tenant in common.

In October, 1919, the decedent and his wife made a sale of a one-third interest in the laundry business, not including the real estate, to his sister-in-law, Melanie Haurat, for $10,000 and at the same time the decedent, his wife and Miss Haurat entered into a partnership agreement for the operation of the laundry under the name of the Union French Laundry, upon the basis of a one-third ownership of the profits therefrom">*1903 in each, all to render service in connection with the operation of the laundry, which they did.

At the same time the decedent and his wife executed a lease of their real estate used for laundry purposes to the copartnership known as the Union French Laundry, which laundry was operated by said partners until decedent's death.

The profits from the laundry business were distributed regularly and equally to the partners, one-third to each, payments being made to them by checks. The checks so received by Mrs. Lemer were endorsed by her to the decedent, who deposited them in banks with her knowledge and consent, making such deposits sometimes in one bank and at other times in others, but the proceeds always being placed in bank accounts standing in his name, she having no bank account. The total amount of the proceeds of such checks now claimed as her separate estate and involved in the instant case is $28,039.67. A one-fourth interest in the real estate returned by the executor is the other item claimed as her separate estate.

">*259 OPINION.

SEAWELL: The provisions of the Federal law applicable to the issue involved are contained in section 302(a) of the Revenue Act">*1904 of 1924 and are as follows:

SEC. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated -

(a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate.

The applicable provisions of the Civil Code of California are found in the following sections:

§ 162. Separate property of the wife. All property of the wife, owned by her before marriage, and that acquired afterwards by gift, bequest, devise, or descent, with the rents, issues, and profits thereof, is her separate property. The wife may, without the consent of her husband, convey her separate property.

§ 164. * * * whenever any property is conveyed to a married woman by an instrument in writing, the presumption is that the title is thereby vested in her as her separate property.

* * * And in case the conveyance is to such married woman and to her husband, or to her and any other">*1905 person, the presumption is that the married woman takes the part conveyed to her, as tenant in common, unless a different intention is expressed in the instrument, * * *

§ 687. Community property. Community property is property acquired by husband and wife, or either, during marriage, when not acquired as the separate property of either.

The only contentions made by the petitioner are that one-fourth of the total valuation of the real estate conveyed by Porte to the decedent and his wife was her separate property and hence not subject to estate tax and that the sum of $28,039.67 received by her, being one-third of profits or income derived from the partnership laundry operations, was likewise her separate property and not subject to estate tax. The respondent determined that both interests were community property and subject to estate tax.

In our opinion, the decedent's wife, by virtue of the deeds from Porte conveying his half interest in certain real estate to her and her husband, became as to such a tenant in common, as provided by section 164 of the Civil Code of California, and, in the circumstances shown by the evidence in the instant case, the owner, as a separate">*1906 estate, of an undivided one-fourth interest in such real estate theretofore owned by Porte and her husband.

The purchase from Porte of the real estate in question was made, so the evidence indicates, with community funds and the deeds ">*260 thereto were made in the names of the decedent and his wife at his instance. Under such circumstances and in the absence, as here, of a different intention expressed in the deeds, Mrs. Lemer became a tenant in common and is presumed to have acquired her interest as a gift and as a separate estate. Civil Code of California, sec. 164; . See also .

The form of the conveyance is itself some evidence of an intent to make such a gift. ; ; . See also .

The presumption in favor of the wife's separate estate is not over come by any evidence adduced. It is our opinion, therefore, that the respondent erred in treating said one-fourth interest in real">*1907 estate as community property and including the value thereof as part of the decedent's gross estate for estate-tax purposes.

We are further of the opinion that the evidence is insufficient to establish the $28,039.67 received by Mrs. Lemer as her share of the profits from the laundry business as her separate property. The mere partnership agreement by which one-third of the profits of the laundry business was paid to Mrs. Lemer did not constitute such her separate estate. The manner in which she and her husband dealt with her checks for such profits, in our opinion, quite clearly indicates that neither considered such profits her separate estate, but that the proceeds of such were intended by both to be community property and as such were properly included in the gross estate of the decedent and subject to estate tax, as determined by the respondent. See ; , and authorities therein cited.

Reviewed by the Board.

Judgment will be entered under Rule 50.

MORRIS, STERNHAGEN, MURDOCK, and MCMAHON dissent.