DocketNumber： Docket No. 8519.
Citation Numbers： 11 B.T.A. 26, 1928 BTA LEXIS 3878
Judges： Morris
Filed Date： 3/16/1928
Status： Precedential
Modified Date： 10/19/2024
*3878 Where the income from the decedent's business was produced in part by separate property and in part by the efforts of the community, the value placed upon the decedent's services by the parties is accepted as a reasonable apportionment between community and separate income.
*26 This proceeding is for the redetermination of deficiencies in income tax for the years 1922 and 1923 in the amounts of $656.68 and $572.69, respectively. The deficiencies arise as the result of the respondent's determination that the decedent and his wife were not entitled to return their income for the taxable years as community income but that such income constituted the separate income of the decedent. The parties stipulated at the hearing that the facts set out in the revenue agent's report should be accepted as the evidence in this proceeding.
FINDINGS OF FACT.
H. F. Compton was married in 1888 and his first wife died in 1898. He was married to Anna L. Compton, his second wife, in 1900, and they lived together as husband and wife in the*3879 State of Washington until the death of Mr. Compton in 1923. Under his first marriage one child was born and under the second marriage three children were born.
In 1892, Compton started a retail lumber yard which by 1900 was selling between $40,000 and $50,000 of lumber a year and had a net worth of between $5,000 and $10,000. In 1922 the business had sales of about $120,000 and a net worth of about $25,000. Sales of $40,000 to $50,000 in 1900 would amount to as much actual lumber sold as sales of $100,000 to $120,000 in 1922.
At the time of his second marriage in 1900 Compton also had a small piece of lakefront on Lake Samamish and an apartment house or flat worth about $10,000. The apartment was later improved at a cost of $8,000.
The lumber business has always shown a profit and was the only source of income of Compton. Between 1900 and 1923, profits of about $50,000 have been drawn out of the business and invested in real estate and rental property. The rental property has never paid more than the cost of its taxes, depreciation and upkeep, so that no income was received from this source.
*27 At the time of Compton's death his net estate was appraised at*3880 about $125,000, so that while his rental property has produced no income it has increased in value.
On July 28, 1923, Compton turned all of his property over to a trust.
Preliminary to the formation of the H. F. Compton Trust, which was signed on the 28th day of July, 1923, Horace F. Compton and Anna L. Compton sought legal advice. At that time they considered their property as community property and accordingly made a deed on July 28, 1923, to Horace F. Compton, Anna L. Compton and Frank A. Compton, as Trustees of the H. F. Compton Trust. On the same date Horace F. Compton and Anna L. Compton, by bill of sale, conveyed to the same trustees that one certain lumber business, including all of the stock of merchandise, all equipment and all things pertaining to the business commonly known as Compton Lumber Co., in the City of Seattle. On the same date an agreement was entered into between Horace F. Compton and Anna L. Compton reciting as follows:
That whereas, there has heretofore been conveyed to Anna L. Compton certain property in the City of Seattle known as the home property; and
Whereas, certain other provisions have been made for the said Anna L. Compton;
NOW THEREFORE, *3881 in consideration of the conveyance to the said Anna L. Compton of the aforesaid home property as her sole and separate property and for other valuable considerations, IT IS NOW HEREBY STIPULATED AND AGREED by and between the parties hereto, that all other property or properties or interests in property, or choses in action, shall be, and hereby are declared to be, the sole and separate property of Horace F. Compton. * * *
This agreement is made to fix and determine the status of the property now held by both Horace F. Compton and Anna L. Compton, and each party hereto waives any right, title or interest in and to the property of the other, or hereafter acquired property.
This agreement was duly signed and acknowledged on the 28th day of July, 1923. Investigation shows that other consideration was, provisions being made in the trust and by the trustees of the trust, for the taking care of expenses incident to the keeping up of the present home of Anna L. Compton, and maintaining of the tract of land deeded to Anna L. Compton as trustee for her three children, all of which was done formally by the trustees in an action of the trustees on the 1st day of August, 1923. Other consideration*3882 was the provision made for Anna L. Compton and her three children in the trust and under the terms and provisions of the will of Horace F. Compton, executed on the 28th day of July, 1923, in which one-third of the estate goes to the wife and one-third to the three children by her, the other one-third going to the child by a former marriage. It appears that it was the intention of the parties on the 28th day of *28 July, 1923, to fix and determine the status of their properties which had at all times by them been considered as community property.
Horace F. Compton and Anna L. Compton, the present widow, were married in 1900. At that time the earning power of Compton was a small lumber business known as Compton Lumber Co., the conceded value being approximately $5,000. Compton was the owner of two or three pieces of real estate, no one of which was self-supporting, and all of which from 1900 on were supported and maintained and were improved and carried on by the earnings from the Lumber Company. The Lumber Company consisted of a retail lumber business, handled and managed by H. F. Compton. His whole effort was directed to his business and all of the increase of the estate*3883 was due to the turnover which he was able to make in the business, with the exception of the appreciation of the properties acquired, the most of which were acquired subsequent to his marriage to Anna L. Compton, the present widow. There has been no inheritance and has been no increase of the estate of Horace F. Compton by any means other than those hereinbefore set forth. No separate accounts were maintained and Mrs. Compton has at all times maintained the home, a great portion of the time without assistance, and has at all times been a helpmate of Compton, caring for him and his family of children, consisting of one child by a former wife and three children by her.
For 1920 and 1921 Compton and his wife filed joint returns, but for 1922 and 1923 they filed separate returns on a community property basis. In said separate returns they reported a total salary of $4,800 for 1922 and $4,200 for 1923, which was not changed by the respondent. The net income for 1922 was $15,684.53 and for the period January 1 to July 28, 1923, was $16,407.77. H. F. Compton died November 15, 1923. The respondent held that all the income up to the time the trust was created constituted the separate*3884 income of the decedent.
OPINION.
MORRIS: The only question involved in this proceeding is whether the income was the separate income of the decedent as determined by the respondent, or community income as contended for by the petitioner. We have previously discussed at some length the sections of the Washington statutes relating to community and separate property and the decisions of the courts of that State construing those provisions. ; . We therefore deem it unnecessary to retrace the ground covered in those prior decisions. The conclusions therein reached were that property owned by the spouses at the time of marriage, together with the rents, issues, and profits therefrom, remained their separate property, *29 property not so owned, but acquired after marriage except as indicated above was community property, and where business income was produced in part by separate property and in part by the efforts of the community, and each of these two factors was substantial, the court will attempt to allocate such earnings, but if it appears*3885 that the income is to be attributed primarily to one element, the other element may be disregarded.
All of the income in the instant proceeding was derived from the operation of a retail lumber yard owned by the decedent at the date of marriage. Such income was partly attributable to the original investment, which was separate property, to the subsequent accretions thereto, and to the energy, industry and labor of the decedent, the fruits of which were community property. We can not say to which element the income is to be primarily attributed. The decedent and his wife, however, placed a value upon his services by reporting in their returns a total salary of $4,800 for 1922 and $4,200 for 1923, which was not changed by the respondent. Such apportionment appearing to be reasonable, it is held that the above salaries should be treated as community income, and the balance of the income as the separate income of the decedent. See