Brittingham v. Commissioner

JUAN F. BRITTINGHAM, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

JUAN G. BRITTINGHAM, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Brittingham v. Commissioner

Docket Nos. 13557, 16535, 18435, 18535.

United States Board of Tax Appeals

13 B.T.A. 375; 1928 BTA LEXIS 3262;

September 13, 1928, Promulgated

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Where citizens of the United States reside in a foreign country, the laws of which give to a wife a vested interest in community property, held, under section 1212 of the Revenue Act of 1926, separate income-tax returns filed by husband and wife are proper, and the respondent may not tax the entire income to the husband.

Zach Lamar Cobb, Esq., for the petitioners.

Clark T. Brown, Esq., for the respondent.

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MARQUETTE

These proceedings involve the same question. They are for the redetermination of deficiencies in income taxes asserted by the respondent for the years 1921, 1922, and 1923. The alleged deficiencies arise from the disallowance by the respondent of the community property basis of reporting income. The amounts are as follows: As to Juan F. Brittingham, for 1921, $4,998.15; for 1922, $2,008.90; for 1923, $2,905.53; and as to Juan G. Brittingham, for 1922, $331.07.

FINDINGS OF FACT.

The proceedings were submitted upon the following stipulation of facts:

It is stipulated and agreed by and between the parties, through their respective attorneys, that the following facts are true and may be so found by the United States Board of Tax Appeals:

(1) At all times material herein the petitioner, Juan F. Brittingham, is and was an American citizen, having his place of residence and domicile and living in the City of Gomez Palacio, in the State of Durango, Republic of Mexico.

(2) The taxes in controversy for the years set forth in the respective petitions and in the amounts set forth therein arise from the Commissioner's action in setting aside the returns of the taxpayer, Juan F. Brittingham, and wife, which were submitted on the community property basis, and in holding the petitioner liable for taxes upon the entire income.

(3) The petitioner, Juan F. Brittingham, and his wife were married by voluntary and legal marriage at said City of Gomez Palacio, State of Durango, Republic of Mexico, on September 1, 1911, have continued to live together as husband and wife ever since, lived there throughout the taxable years, and since their marriage have never lived anywhere else in Mexico.

(4) That the petitioner, Juan F. Brittingham, and his wife, filed returns covering the full income received by the husband for the years in question on said community property basis, and paid the amounts shown on said returns. All of such income accrued and was received by the husband in the City of Gomez Palacio, State of Durango, Republic of Mexico, and the said entire income accrued to the husband from his industrial profession, and from the fruits, accretions, and interest received by him as shown in the returns:

(5) That the constitution of the Republic of Mexico now contains and at all times material herein contained articles 40 and 43, as follows:

ART. 40: It is the will of the Mexican people to constitute themselves into a democratic, federal, representative republic, consisting of States, free and sovereign in all that concerns their internal affairs, but united in a federation according to the principles of this fundamental law.

ART. 43: The integral parts of the Federation are: The States of Aguascalientes, Campeche, Coahuila, Colima, Chiapas, Chihuahua, Durango, Guanajuato, Guerrero, Hidalgo, Jalisco, Mexico, Michoacan, Morelos, Nayarit, Nuevo Leon, Oaxaca, Puebla, Quaretaro, San Luis Potosi, Sinaloa, Sonora, Tabasco, Tamaulipas, Tlaxcala, Vera Cruz, Yucatan, Zacatecas, the Federal District, the Territory of Lower California, and the Territory of Quintana Roo.

(6) That the Civil Code of the State of Durango now contains, and at all times material herein contained, as the same was enacted on the 30th day of May, 1900, and promulgated on the 1st day of June, 1900, under Title X thereof, relating to the contract of matrimony in relation to the property of the spouses, and under chapter 1 of said title relating to general rules, articles as follows:

ART. 1816: The voluntary and legal marriage shall be governed by the provisions relative to an ordinary partnership in all that which is not included in this Title.

ART. 1823: The husband is the legal manager of the conjugal partnership. The wife shall only administer when there is an agreement or judgment which so provides, in case of absence or impediment of the husband, or when the latter may unjustifiably abandon the conjugal domicile.

And under Chapter IV of said title, relating to "Legal Marriages" are contained articles under the subject of Separate Property, as follows:

ART. 1849: Each conjugal partner is the owner of the property which he or she had at the time of celebrating the marriage, and of that which each possessed before that, although not then the owner thereof, if he or she shall acquire same by Prescription during the partnership.

ART. 1850: Each is also the owner of the property which he or she may acquire during the partnership, by inheritance or by legacy. Constituted in favor of one or the other. And on the subject of Community Property, it contains article 1858, subdivisions I, VI and VII, as follows:

ART. 1858: The following constitutes the assets of the legal partnership:

I. All the property acquired by the husband in military service, or by either of the conjugal partners in the exercise of a scientific, mercantile, or industrial profession, or occupation, or by mechanical work, or by fortunate circumstances. VI. Property acquired by an "onerous" title during the partnership at the cost of the common fund, whether the acquisition be made for the community or for only one of the consorts. VII. The fruits, accretions; rents and interests received, or becoming due, during the partnership proceeding from the community property or from the individual property of either of the consorts.

(7) That by a decree issued by President Carranza of Mexico in 1917, the community system of marital property was abolished within the federal district and territories, with certain reservations applicable to marriages previously contracted, and that said decree contains the following language:

Married foreigners residing in the country, or who may in the future establish a residence therein, or who in the future may contract a legitimate marriage therein, subject to the provisions of this law in so far as it concerns the goods they may possess in the Republic and with respect to the effects which their matrimonial state may give rise therein.

(8) That two qualified attorneys, whose names appear in Exhibit B, attached to the petition, to wit, Ismael Pizarro Suarez, and J. Flores Magon would, if present before the Board, testify as set forth in said Exhibit B, and that said Exhibit B may be considered as the deposition of said attorneys.

(9) That the above stipulation applies to the appeals of Juan F. Brittingham v. Commissioner of Internal Revenue, Docket Nos. 13557, 16535, and 18435, and with the following exception, applies to the case of Juan G. Brittingham, Docket No. 18535, to wit, that Juan G. Brittingham was married on September 7, 1911, whereas Juan F. Brittingham, as heretofore set forth, was married on September 1, 1911.

Exhibit B, referred to in paragraph (8) of the stipulation, is as follows:

DECEMBER 24, 1926.

Mr. JUAN F. BRITTINGHAM,

Gomez Palacio, Dgo.

DEAR MR. BRITTINGHAM: The undersigned Mexican lawyers do hereby state our legal opinion on the point you submitted to your consultation.

The query is about the effectiveness and force for you and your wife, of the Law called of "family relations", issued in 1917 which abolished the community property system.

As admitted in the official statement dated December 3, 1925, such decree abolished the community "within the Federal District and territories"; FEDERAL TERRITORIES.

Such decree is not in force along the whole territory of the Republic. The States of the Nation are absolutely independent in their internal regime, exactly like they are in the United States of America, according to Art. 40, of the Federal Constitution, which reads:

"ART. 4o. It is the will of the Mexican people to constitute themselves into a democratic, federal, representative republic, consisting of States, free and sovereign in all that concerns their internal affairs, but united in a federation according to the principles of this fundamental law."

Article 43 reads:

"ART. 43. The inegral parts of the Federation are: The States of Aguascalientes, Campeche, Coahuila, Colima, Chiapas, Chihuahua, Durango, Guanajuato, Guerrero, Hidalgo, Jalisco, Mexico, Michoacan, Morelos, Nayarit, Nuevo Leon, Oaxaca, Puebla Quaretaro, San Luis Potosi, Sinaloa, Sonora, Tobasco, Temaulipas, Tlaxcala, Vera Cruz, Yucatan, Zacatecas, the Federal District, the Territory of Lower California, and the Territory of Quintana Roo."

Some States of the Republic have admitted the Law on family relations; but the State of Durango has not accepted it. Therefore, the ancient law that establishes the community property system is in force in your domicile Gomez Palacio, State of Durango.

Yours very truly,

(Signed) ISMAEL PIZARRO SUAREZ,

J. FLORES MAGON.

OPINION.

MARQUETTE: There is but one question involved in these four proceedings, viz: Did the respondent err in refusing to allow the petitioners and their wives to make separate returns of community income?

The record shows that the decree of President Carranza, in 1917, abolishing the community system of property was not applicable to the State of Durango until the people of that State adopted it; the record also shows that the State of Durango had not adopted the Carranza decree either before, or during any of the taxable years. The decree, therefore, does not affect Mexican citizens living in Durango.

The petitioners, although not citizens of Durango, reside there. By the law of Durango, their domicile, marriage is considered a conjugal partnership. By the same laws the husband is the legal manager of this partnership. He has charge of its affairs and is to conduct them. The wife has nothing to do with such management, except when an agreement or judgment so provides. This gives the husband a status, relative to the conjugal property, which is closely analogous to that of the husband under the laws of Louisiana and of Texas. In both these States the courts have decided that the wife has a present, vested interest in the Community property.

The case of Zemurray v.United States, decided February 20, 1928, 64 Ct.Cls. 769, involved the community property law of Louisiana. The husband had made a single return as to all income of himself and wife; later, he sought to amend by filing separate returns, each spouse claiming one-half of the income. This was denied, the court holding that, as the husband had full power of management of the community gains, including power to dispose of them, he might lawfully choose to make one single income-tax return and pay the taxes due thereon. The court cites United States v. Robbins,269 U.S. 315">269 U.S. 315, and thinks that it applies in the Zemurray case in this, viz: that, regardless of the nature of the wife's interest, the Government could tax the income in the husband's hands. But the Zemurray case, in its facts, is clearly distinguishable from the cases now before us.

The Robbins case was decided January 4, 1926. On February 26, 1926, there went into effect a new revenue act, section 1212 of which reads:

SEC. 1212. Income for any period before January 1, 1925, of a marital community in the income of which the wife has a vested interest as distinguished from an expectancy, shall be held to be correctly returned if returned by the spouse to whom the income belonged under the State law applicable to such marital community for such period. Any spouse who elected so to return such income shall not be entitled to any credit or refund on the ground that such income should have been returned by the other spouse.

This Board has had occasion to consider the effect of that statute; and in R. W. Ramming,6 B.T.A. 188">6 B.T.A. 188, it was held that the section above quoted precluded the respondent from taxing to the husband, living in Texas, the entire income of the community, it appearing that under Texas laws the wife's interest was vested rather than contingent. We think the present proceedings are in the same circumstance. The Texas statute, article 4622, provides that:

All property acquired by either husband or wife during marriage, except that which is the separate property of either, shall be deemed the common property of the husband and wife, and during coverture may be disposed of by the husband only.

This expression is much stronger, with respect to the husband's dominion over the community property, than the laws of Durango. It would seem, therefore, that, having decided that a wife takes a vested interest under the Texas law, she would likewise have a vested interest under the more favorable law of Durango. Having such a vested interest, section 1212 of the 1926 Revenue Act precludes the respondent from refusing the separate returns of the petitioners and their wives. See also John Henry,6 B.T.A. 131">6 B.T.A. 131; G. D. Rigsby,6 B.T.A. 194">6 B.T.A. 194.

As the deficiency is based solely on the question of the separate returns, we must hold that no deficiency exists.

Reviewed by the Board.

Judgment will be entered for the petitioners.