DocketNumber: Docket No. 7176-74
Citation Numbers: 1978 U.S. Tax Ct. LEXIS 69, 70 T.C. 775
Judges: Wilbur
Filed Date: 8/25/1978
Status: Precedential
Modified Date: 10/19/2024
*69
Petitioner, a resident of Louisiana, and her husband began living separately and apart sometime in 1967. Petitioner's husband filed a petition for divorce on Mar. 26, 1970, and a final judgment of divorce was rendered on Dec. 9, 1971. Under Louisiana law, the marital community is retroactively dissolved as of the date the petition for divorce is filed.
*776 Respondent determined a deficiency of $ 12,410.79, in petitioner's Federal income tax for 1970 and an addition to tax under
(3) Whether petitioner is liable for the addition to tax under
FINDINGS OF FACT
Some of the facts have been stipulated and are found accordingly.
Petitioner Mary Ellen Brent had her legal residence in New Orleans, La., at the time her petition was filed herein. The Federal income tax return of the petitioner for the taxable year 1970 was filed with the Service Center in Austin, Tex., on December 1, 1972.
Petitioner was married to Dr. Walter H. Brent, Jr., on April 1, 1950, in the State of Louisiana. She and Dr. Brent began to live separately and apart in February 1967. On March 26, 1970, Dr. Brent filed a petition for divorce against petitioner. A final judgment*72 of divorce was rendered on December 9, 1971. Throughout their marriage, Dr. Brent and petitioner resided in the State of Louisiana.
On his 1970 return, Dr. Brent reported net income from his medical practice as an orthopedic surgeon of $ 75,207.51. Dr. Brent excluded one-half of his income, or $ 38,278.69 (including incidental investment income), as being owned by, and the *777 property of, Mrs. Brent. However, the only money he gave to Mrs. Brent was $ 4,800 ($ 400 per month) in alimony pendente lite. Mrs. Brent has some separate property which she inherited from her father, also a physician, from which at least a part of the proposed deficiency may be paid. Mrs. Brent was never given access to her husband's financial records nor any of his business records. Dr. Brent did not provide her with a copy of his 1970 return or any of the information on which it was based.
In his notice of deficiency, respondent determined that the income earned by Dr. Brent in 1970 was community property under the laws of Louisiana and that petitioner was required to report one-half of such income on her return. The amount of income earned by Dr. Brent in 1970 and total deductions allowable*73 against his 1970 income are not in dispute.
Respondent also determined that petitioner was liable for the failure to file penalty under
OPINION
The first issue is whether, in Louisiana, a wife who is living apart from her husband, owns a vested one-half interest in the income earned by her husband, which she must report on her separate income tax return.
This question has been thoroughly explored in
Petitioner also argues, however, that since, under Louisiana law, a judgment of divorce is retroactive to the date the petition for divorce is filed, petitioner had no taxable interest in her husband's earnings after March 26, 1970, the date the petition for divorce was filed.
With respect to community income, as with respect to other *778 income, Federal tax liability depends on ownership.
Article 155 *76 of the Louisiana Civil Code Annotated (West 1972) provides that the judgment of separation from bed and board carries with it the separation of goods and effects and is retroactive to the date on which the petition for separation was filed. Although by its terms, article 155 applies only to a judgment of separation from bed and board, it is clear that it gives retroactive *75 effect to both judgments of separation and of divorce.
Pursuant to article 155, the rights of the respective parties in the community property are determined as of the date the petition for separation or divorce is filed. In the instant case, petitioner has no interest in her husband's earnings and income after March 26, 1970; these earnings are his separate property. See
In doing so, we emphasize that the parties agree that under Louisiana law the marriage was dissolved as of the date the petition for divorce was filed (March 26, 1970). Petitioner has no ownership rights in her husband's income after that date. Unlike much of the earlier litigation (
In
Respondent nevertheless argues that the community continues in existence during the divorce proceedings. Whether or not respondent is technically correct on this point, it is clear that the property rights of a divorced couple -- which is the central focus herein -- are determined as of the petition date. For example, the court stated in
There is another area in which the trial court erred * * *. The lower court*80 used the date of the judgment of divorce as the date from which the various debits and credits for expenditures made or items received should be calculated. However, Article 155 of the Civil Code is quite clear in its pronouncement that the community is dissolved as of the date of the
Additionally, in
Even if there is a measure of semantic truth in respondent's assertion, it completely misses the point. Once the petition for divorce is filed, the community immediately undergoes a real change, and is essentially in a state of settlement on the road to dissolution.
But the critical question is not whether the community continues to exist in some form on its way to dissolution, but whether under Louisiana law petitioner has any ownership rights to the income of her husband for the period between petition and divorce. The answer is clearly "no," for as noted, "the various debits and credits for expenditures made or items received should be calculated" as of the filing of the petition, when the community is dissolved.
Respondent also argues that the retroactive effect of the divorce decree under Louisiana law*83 should not be recognized for tax purposes. Respondent has in the past insisted on tenacious adherence to State law even though it produced results that the Supreme Court in
*84 In
In
The respondent's citation of
For the most part the cases cited by respondent involve action by individuals or by a State court at their behest "purporting to relate back to a prior date but which actually reflected an intention or design originating subsequent to that date."
This is simply not true of the Louisiana statute before us. The divorce proceeding was not brought nor the statute in issue enacted for the purpose of directly affecting income tax liability. Moreover, the property rights on which the liability for the tax is based fall as a natural consequence of divorce, and these rights are clearly defined under State law. The instant case therefore stands in contrast to those situations where there is potentially collusive action in the State courts to obtain a given tax result. We therefore hold that, at least under the peculiar and distinct circumstances presented by Louisiana law, that the State retroactivity provisions should be given effect for tax purposes. Whatever validity respondent's position may have in some other factual context, respondent's choice to ignore the State retroactivity provisions here is inappropriate.
Respondent further argues that even if the provisions of article 155 are controlling in determining Federal income tax *784 liability, Federal income taxes are exempted*89 from the article's retroactive effect by the article itself. The statute provides in part:
Art. 155 The judgment of separation from bed and board carries with it the separation of goods and effects and is retroactive to the date on which the petition for same was filed, but such retroactive effect shall be
Respondent contends that the Federal tax collector is one whose rights have been "validly acquired in the interim." We disagree. This relief provision was meant to protect creditors who would otherwise be prejudiced by their reliance on the community. This need to protect creditors is further emphasized by the rule in Louisiana that community debts are not the personal liabilities of the wife.
The final issue is whether petitioner is liable for the addition to tax under
Petitioner has presented no evidence which might demonstrate reasonable cause. While petitioner suggests that she was unaware of the income earned by her husband in 1970, we note that she had sufficient separate income to require the filing of a Federal income tax return. Under these circumstances, we must sustain respondent's determination.
1. All section references are to the Internal Revenue Code of 1954, as amended, unless otherwise stated.↩
2.
"The judgment of separation from bed and board carries with it the separation of goods and effects and is retroactive to the date on which the petition for same was filed, but such retroactive effect shall be without prejudice (a) to the liability of the community for the attorneys' fees and costs incurred by the wife in the action in which the judgment is rendered, or (b) to rights validly acquired in the interim between commencement of the action and recordation of the judgment. Upon reconciliation of the spouses, the community may be re-established by husband and wife jointly, as of the date of the filing of the suit for separation from bed and board, by an act before a notary and two witnesses, which act shall be recorded in the conveyance office of the parish where said parties are domiciled, but which act shall be without prejudice to rights validly acquired in the interim between rendition of the judgment and recordation of the act of reconciliation."↩
3.
"The effects of a divorce shall not only be the same as are determined in the case of a separation from bed and board, but it shall also dissolve forever the bonds of matrimony, between the parties, and place them in the same situation with respect to each other as if no marriage had ever been contracted between them."↩
4. Even without regard to the retroactive effect of the divorce decree, a wife's earnings, while she is living separate and apart from her husband, are her separate property.
5. It is clear that
6. Respondent has not found this situation inconvenient in somewhat similar contexts. Proposed regulations under sec. 1239 (treating gains as ordinary income on certain sales between spouses) provide that spouses separated by an interlocutory decree of divorce will not be considered as husband and wife if the sale involved is made under a divorce decree and the decree is subsequently finalized.
7. Art. 150 states:
"From the day on which the action of separation shall be brought, it shall not be lawful for the husband to contract any debt on account of the community, nor to dispose of the immovables belonging to the same, and any alienation by him made after that time, shall be null, if it be proved that such alienation was made with the fraudulent view of injuring the rights of the wife."↩
8. Art. 149 states:
"During the suit for separation, the wife may, for the preservation of her rights, require an inventory and appraisement to be made for the movables and immovables which are in possession of her husband, and an injunction restraining him from disposing of any part thereof in any manner."↩
9.
10. In commenting on
"There are strong reasons for not permitting the parties to effect retroactive changes in gifts to minors that will alter their tax characterization under sec. 2503(c). The need for certainty under sec. 2503(b) would be undermined and potential abuse invited by allowing taxpayers, with the benefit of hindsight, to retroactively amend the terms of a gift subsequent to the transfer in trust (but still prior to the time the beneficiaries of the trust reach majority)."↩
United States v. Mitchell , 91 S. Ct. 1763 ( 1971 )
Smith v. Viser , 117 So. 2d 673 ( 1960 )
Mildred F. Redmon v. United States , 471 F.2d 687 ( 1972 )
Daine v. Commissioner of Internal Revenue , 168 F.2d 449 ( 1948 )
Roberts v. Roberts , 325 So. 2d 674 ( 1976 )
Poe v. Seaborn , 51 S. Ct. 58 ( 1930 )
Foster v. Foster , 246 So. 2d 70 ( 1971 )
Malone v. Malone , 260 La. 759 ( 1972 )
Arnold Van Den Wymelenberg, as of the Estate of Eleanor Van ... , 397 F.2d 443 ( 1968 )