Sneed v. Commissioner , 220 F.2d 313 ( 1955 )

HOLMES, Circuit Judge.

The relevant facts in these cases are the same, and both appeals may be disposed of in one opinion. The proceedings involve income taxes for the years 1940 and 1941. Jurisdiction of this court is invoked under Section 1141(a) of the Internal Revenue Code, as amended by Section 36 of the Act of June 25, 1948, 26 U.S.C.A. § 1141(a). The petition for review was filed on June 24, 1952. The Tax Court, 17 T.C. 1344, held that the decedent’s estate was taxable on only one-half of the community income for the periods here involved, and that the estate was entitled to deduct the amounts paid the widow under the provisions of the decedent’s will.

J. T. Sneed, Jr., the husband of Brad Love Sneed, died testate on October 15, 1940. Prior to and at the time of his death, they were residents of Texas and owned certain community property situated in said state. The estate of the decedent and the surviving widow filed separate income-tax returns for the years 1940 and 1941; each reported one-half of the income derived from property of the former community. The income in question here accrued after the death of J. T. Sneed, Jr. There is no evidence in the record in this case as to when or how the widow actually received manual possession of the income which she reported in her income-tax returns for the years 1940 and 1941, but it is conceded that she did receive it. The will of J. T. Sneed, Jr., and its pertinent provisions have been construed by the Texas Court of Civil Appeals, sitting at Amarillo, in Sneed v. Pool, 228 S.W.2d 913.

In Texas, the community property system is inherent in the local jurisprudence. It was the law under the Spanish and Mexican sovereignties, was retained by the Republic of Texas, and was continued in force when Texas was admitted into the United States . The basic idea of this community property law is that under it the husband and wife, upon marriage, become partners as to subsequent acquets or gains, with the profits to be equally divided upon its dissolution. During the marriage the husband is the manager of the partnership property and of the separate capital contributed to the partnership, including the wife’s total property. The individual capital of each spouse consists of the property owned at marriage, and the property acquired after marriage by inheritance or by gift to the individual. Upon the dissolution of the partnership, the individual capital of each spouse is restored before the division of the profits.

On the death of the husband in Texas, as in Louisiana, the wife’s share of the community is freed from the restrictions of his exclusive management, and the wife acquires exclusive possession thereof, as well as important new powers of control and disposition of it. The marital partnership is dissolved upon divorce or death, and the survivor holds his or her half interest in the property of the former community as a tenant in common with the heirs of the decedent, but the surviving wife’s half of the community vests in her subject to the payment of the community debts. Caddell v. Lufkin Land & Lumber Company, Tex. Com.App., 255 S.W. 397.

In the instant case, when the marital partnership was dissolved by the death of the husband, all income thereafter accruing to the property which belonged to the former community estate was attributable in equal portions to the surviving spouse and to the decedent’s estate, and was taxable one-half to said survivor or her representative and one-half to said estate. Since the surviving wife and decedent’s executor have each elected to report one-half of the income accruing to the property belonging to the former Texas Community, the Tax Court did not err in holding that the Commissioner may not require the decedent’s estate to report all of said income. This ruling is not in conflict with Barbour v. Commissioner, 5 Cir., 89 F. 2d 474, 476, wherein the court held that, either as executors of the deceased husband or as trustees for the benefit of the others entitled to the income, the executors should have reported it and paid the tax thereon. The court said: “When and if Mrs. Barbour receives this profit from the executors she should, of course, account for and pay the taxes on it. Until she does, she may not be required to.” The law never requires the doing of an idle thing, and it would be a useless procedure at this time to require the executors to pay the widow’s tax and collect it from her, since she has already paid it. The executors were required to pay it or see that it was paid; and if they had paid it, fidelity to their cestui que trust would have required them to make a separate return for the widow’s portion of the income.

The Barbour case is limited to its particular facts wherein the widow had neither paid the tax nor received the income on her half of the community estate; it does not exclude the filing of separate returns for the widow and the estate of her deceased husband; the wife’s interest in community property was equal to that of her husband during his life; she and her husband were entitled to make separate returns; and the death of her husband did not deprive her of this right. Hopkins v. Bacon, 282 U.S. 122, 51 S.Ct. 62, 75 L.Ed. 249; United States v. Rompel, 326 U.S. 367, 694, 66 S.Ct. 191, 90 L.Ed. 137; Vernon’s Civil Statutes of Texas, Vol. 13, pp. VII-VIII.

As stated in the Barbour case, supra, the law is not concerned with the form of return that should have been made, since exactly the same amount might have been arrived at in a different way. The executors in this case are not only the personal representatives of the deceased, but they are the liquidators of the widow’s interest in the former community property. To her is owed the duty that trustees owe to a cestui que trust. The wife’s interest in the community estate was inside of the husband’s succession at the time of his death, but costs connected therewith and his funeral expenses were not chargeable to her. She may dispose of her part of the community property subject to community debts and charges; but since the executors held in trust the widow’s half of the community property, and were collecting the income from it, they might have been required to file a separate income-tax return, and pay the tax for her; the primary liability was on them to do it; but since they refused or failed to do it, and since her part of the taxes was due and unpaid by the executors (who were her agents or trustees), there was no legal or equitable reason why she might not attend to it for herself. In Henderson’s Estate v. Commissioner, 5 Cir., 155 F.2d 310, 164 A.L.R. 1030, this court said that the question of the executor filing a separate return with respect to the widow’s one-half interest was not before the court, since she had filed her return and paid the tax.

As to the payments made to the widow under the codicil to the will of J. T. Sneed, Jr., these items were paid under a provision that bequeathed to her a fixed annuity of $15,000 so long as she remained a widow. The annuity was payable as a fixed charge before any distribution of the net income of the estate. She included the amounts in her income-tax returns for the years 1940 and 1941, respectively. Regardless of the general rule in construing a provision of this kind, in respect to this particular will and codicil, a Texas court of competent jurisdiction has held that the amount is payable only out of income, and that the annuitant, not the estate of J. T. Sneed, Jr., was obligated to pay the income taxes thereon for the years in question. That decision was followed by the Tax Court in the disposition of this point, and we approve its ruling with reference thereto. Sneed v. Pool, Tex.Civ.App., 228 S.W.2d 913.

The judgment in each of the above numbered cases is affirmed. 17 T.C. 1344. See, also, Poe v. Seaborn, 282 U.S. 101, 51 S.Ct. 58, 75 L.Ed. 239; West v. American Telephone & T. Co., 311 U.S. 223, 61 S.Ct. 179, 85 L.Ed. 139; United States v. Rompel, 326 U.S. 367, 369, 694, 66 S.Ct. 191, 90 L.Ed. 137; Fernandez v. Wiener, 326 U.S. 340, 359, 66 S.Ct. 178, 90 L.Ed. 116; Bishop v. Commissioner, 9 Cir., 152 F.2d 389; Henderson’s Estate v. Commissioner, 5 Cir., 155 F.2d 310; Blackburn’s Estate v. Commissioner, 5 Cir., 180 F.2d 952; Arnold v. Leonard, 114 Tex. 535, 273 S.W. 799. In the Henderson case, supra, 155 F.2d at page 315, this court said:

“As agents of the widow, or trustees of her one-half of the community property, the petitioners should keep a separate account of their collections and disbursements in her behalf. Their fiduciary relation to her is distinct from their relation to the estate. Her income should not be commingled with the funds of the estate except when necessary to pay community debts. Even then it must be accounted for separately. Distinctly different fiduciary functions require separate accountings. There is a fundamental difference between the executors of a deceased husband’s estate and the same individuals in the capacity of liquidators of the wife’s one-half interest in the community property. So far as the duty to account is concerned, it is as if different persons had been appointed to each office.” Affirmed.