DocketNumber: Docket No. 2191
Citation Numbers: 1944 U.S. Tax Ct. LEXIS 174, 3 T.C. 407
Judges: Arundell,Opper
Filed Date: 3/6/1944
Status: Precedential
Modified Date: 1/13/2023
*174
Upon disposition of California community property by the administrator of the deceased husband's estate,
*407 This proceeding is to test the correctness of the Commissioner's determination of a deficiency in income tax for the year 1941 in the amount of $ 7,226.05. Concessions have reduced the amount in controversy to $ 3,780.05. The sole issue is the proper basis for computing loss and depreciation on the widow's share in community property in process of administration. The parties are in complete agreement as to the propriety and amount of the deductions, once the proper basis for computation is determined. The facts have been stipulated and are set forth only in so far as is deemed necessary*175 to decide the legal question in issue.
FINDINGS OF FACT.
The petitioner is the administrator of the estate of James F. Waters, who died on May 10, 1941. The return was filed with the collector of internal revenue for the first district of California at San Francisco, California.
The decedent and his wife were residents of California. Subsequent to July 29, 1927, they acquired and operated as community property a horse-racing stable, consisting of horses and equipment. The respective interests of the decedent and his wife are agreed to have been present, existing and equal interests, under the management and control of the husband. The maintenance and operation of this stable constituted the carrying on of a trade or business.
For the remainder of the year after the death of Waters the gross income from the operation of the stable was $ 30,060. Ordinary and necessary expenses for that period were $ 28,996.52. Some of the horses were sold at a loss or died. Depreciation was suffered during that time. The petitioner, in the income tax return for the year included in income the entire winnings of the stable, and deducted expenses, losses, and allowances for depreciation, which*176 losses *408 and depreciation were computed on the basis of cost to the community.
The Commissioner, in his deficiency notice, included in the income of the estate only one-half of the gross winnings, and allowed as deductions one-half of the expenses, losses, and depreciation. The losses and depreciation deductions were computed by using as a basis the fair market value of the property at the date of decedent's death. The Commissioner now agrees with the theory of the return, except that he contends the basis for losses and depreciation should be the value at the date of death. The petitioner concedes that the basis of one-half of the property should be value at the date of death, but contends that the remaining one-half, the widow's share of the community property, should be allowed depreciation and loss on the basis of cost.
OPINION.
At the time of decedent's death he and his wife were residents of California and were the owners of certain property acquired subsequent to July 29, 1927, which property was held by them under the community property laws of California.
Section 161 (a) of the Civil Code of California, which became effective on July 29, 1927, provides that "The*177 respective interest of the husband and wife in community property during continuance of the marriage relation are present, existing and equal interests under the management and control of the husband * * *." The ownership of the wife in community property acquired subsequent to the effective date of section 161 (a) has been held sufficient to exclude such property from the gross estate of the husband upon his death,
*178 The Circuit Court of Appeals for the Ninth Circuit held in 1940 that upon the death of the husband the income from California community property acquired
Two years later the same court considered a Washington statute substantially similar to this amended California statute, and concluded that because the entire estate was subject to administration in the estate of the deceased husband, the income was "owned" by the executor or administrator and should be returned in its entirety by him.
Prior to these decisions by the Ninth Circuit Court of Appeals respondent was guided by
We have already pointed out that
With these considerations in mind, we now turn to
(5) Property transmitted at death. -- If the property was acquired * * * by the decedent's estate from *181 the decedent, the basis shall be the fair market value of such property at the time of such acquisition * * *
*410 The question thus put is whether the widow's half of the community property "was acquired by the decedent's estate from the decedent."
As we have already pointed out, the wife had a present, existing and equal interest in the property with her husband, and upon the death of the husband the wife's share does not pass as a part of his estate, but immediately belongs to her. Thus, it seems clear that her property could not be "acquired by the decedent's estate from the decedent." Therefore, upon disposition of community property by the administrator of the deceased husband's estate, the proper basis for gain or loss of the widow's undivided one-half share is cost (adjusted) to the community.
Nothing in the
The basis for depreciation is the same as the adjusted basis for determining gain or loss. (Sec. 114 (a).) Therefore, the above holding is dispositive of this issue.
Opper,
Inferentially, the logical result will be to deny those deductions to the widow, notwithstanding that they may represent a loss to her, with respect to her property. Depreciation, like other losses, is a perquisite of the owner of property accorded for the purpose of compensating him. It does not inure to the benefit of a taxpayer who may lose nothing.
If the conclusions so indicated are sound, the issues decided by the prevailing opinion might never arise. For the basis to the estate of *411 property which still belongs to the widow would be meaningless doubletalk. However, I am in accord with the result reached because, as the case is presented by the parties, these questions are not even suggested; and I think a taxpayer is entitled to be put on notice of an adverse position it will be called upon to meet. See
1. 581 - The executor or administrator is entitled to the possession of all the real and personal property of the decedent, and to receive the rents, issues and profits thereof until the estate is settled or until delivered over by order of the court to the heirs, devisees or legatees. * * *↩
2. Probate Code - 201 - Upon the death of either husband or wife, one-half of the community property belongs to the surviving spouse; the other half is subject to the testamentary disposition of the decedent, and in the absence thereof goes to the surviving spouse, subject to the provisions of