Crail v. Commissioner , 46 B.T.A. 658 ( 1942 )

ESTATE OF JOE CRAIL, DECEASED, GLADYS S. CRAIL, EXECUTRIX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Crail v. Commissioner

Docket No. 105509.

United States Board of Tax Appeals

46 B.T.A. 658; 1942 BTA LEXIS 834;

March 17, 1942, Promulgated

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Held, that decedent and his wife, a California marital community, had an oral understanding and agreement transmuting separate property into community estate.

John J. Georgeson, C.P.A., and J. Marion Wright, Esq., for the petitioner.

Frank T. Horner, Esq., for the respondent.

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DISNEY

This proceeding involves income taxes for the calendar years 1936 and 1937. Deficiencies were determined in the respective amounts of $1,883.58 and $1,398.62. The question is whether certain income was that of the decedent alone, or of his marital community in California. From evidence adduced we make the following findings of fact.

FINDINGS OF FACT.

The income tax returns for the taxable years involved were filed with the collector for the sixth district of California at Los Angeles.

The decedent, Joe Crail, died on March 2, 1938. He was married on February 10, 1920, and from that date until his death the decedent and his wife were residents of California. He was a lawyer, and served as a Member of Congress.

Shortly before his marriage in 1920, the decedent promised to his fiancee, Gladys S. Hauser, and her mother, at the time that he asked for her hand in marriage, that his wife would have half of what he had and half of what he would make in the future. He mentioned that he had a half interest in a farm in Iowa and a successful law practice. He then owned, in addition, another small piece of property in Iowa and six parcels of real estate in California. On another occasion shortly prior to the marriage, the decedent and his wife had a conversation about property, at which time he stated that he wanted no trouble about property after they were married and wanted it clearly understood that everything he had, or that they would acquire after marriage, would be community property and that she would have a half interest. After his marriage the decedent acquired various properties, both before and after July 29, 1927. The properties from which was derived the income involved in this proceeding were substantially all acquired by the decedent prior to July 29, 1927, and one item, of fiduciary income, is from a trust interest owned by him prior to marriage. On various occasions after his marriage and both prior to and after July 29, 1927, the decedent made declarations, to his wife and to others, to the effect that all of the property was community. The wife was consulted by her husband before any purchases of property were made, and took part in viewing and considering all property prior to its purchase. Decedent made a will leaving all of his property to his wife. During his life he transferred certain property to his wife as her separate property.

In 1935 the decedent filed a protest, in writing, against findings of the revenue agent's report in which he stated in part:

* * * Everything that I have or that my wife has within the State of California is the community property of both of us. The only item mentioned above which was not earned during our married life is the item of $106.56, designated as fiduciary income. I did not own any interest in any of our oil lands or leases or royalties at the time of our marriage on February 10, 1920, and every interest in oil or gas lands or leases which either of us own has been acquired since the date of our marriage and are the result of our earnings during the existence of the marriage state. Community property is more often in the name of the husband than in the name of the wife. These oil interests which require attention and management were carried in my name but for the community account.

* * *

* * * The only property or income therefrom referred to in the Examiner's reports, which was not community property when it was acquired and which has not been community property ever since our ownership, is the fiduciary interest in the trust estate referred to in Item 6 of the Examiner's report, which was acquired by me several years before my marriage. But this property was transmuted or changed by me from separate property to community property many years ago, and has been held by us as community property practically ever since our marriage in 1920.

* * *

* * * Certainly there is no declaration in any of my income tax returns or the income tax returns of my wife that the income so reported is not community property. As a matter of fact and in all honesty, it is community property and it would be a wrong and an injustice to hold otherwise.

This protest was verified by the decedent.

The income tax return filed by the decedent for 1930 indicated that items of $5,000 salary from the United States and $500 from the Transport Oil Co. were community property. Other items totaling about $22,295.47 were not listed as being community. On his income tax return for the year 1931, out of total income items of $10,298.84, only the $5,000 salary from the United States was reported as community property. In a protest as to the year 1932 the decedent explained that as a Member of Congress he had been anxious not to have personal interest in matters there pending, hence did not theretofore take advantage of the right to report on the basis of community income. The decedent filed income tax returns for the years 1932 to 1936, inclusive, in which he reported all of his income as community, except small amounts of interest on bank deposits and income from fiduciaries for the year 1932.

The decedent and his wife entered into an oral agreement, trans muting his personal estate into community property.

OPINION.

DISNEY: Since the income here involved is from property shown to have been acquired by the decedent prior to July 29, 1927, in part prior to marriage in 1920, the question is whether there was transmutation of the husband's separate property into community estate. We are governed by California law on the question as to what constitutes community estate. ; . That an oral agreement is in that state sufficient can not be doubted, under many decisions, including ; ; ; . The respondent contends in substance that the evidence here indicates only statements by the decedent, and not a mutual oral understanding sufficient to the decisions of California. It is true that the evidence consists largely of statements made by the husband, but after consideration of all of the evidence, we are of the opinion that there was a transmutation of the husband's separate estate into community property. 31 C.J. 75 on this subject says:

Assuming the capacity of the parties to deal with each other, * * * property may be transmuted in character, as community or separate, by gift between the husband and the wife, either of the separate property of the husband or the wife to the community, or of the husband's or the wife's interest in community property to the other spouse.

The interest of a spouse in community property may be the subject of a gift between the spouses. ; ; . In , a husband purchased a piece of property, caused the deed to be made to his wife, and orally stated that he was giving her the property. The court held "The property became the separate estate of the wife by the gift." A husband may relinquish to his wife her separate earnings during the marital community and such relinquishment may be proved by the acts and conduct of the husband, indicating that he does not regard the earnings as community property. ; ; . The entire conduct of the husband here indicates community estate. In , the husband obtained possession of the wife's separate property and claimed same as community. The court said:

* * * But it is not essential in such a case for the husband to show any express agreement on the part of the wife. The gift or change in the status of the property may be shown by the very nature of the transaction or appear from the surrounding circumstances.

Applying the above cases to the instant situation, we conclude that the husband made a gift of his separate property to the marital community, and that there was a meeting of minds on its treatment as community estate. Though it is true that the record contains nothing showing a definite acceptance on the part of the wife of the husband's offer, nevertheless many of the husband's statements were made directly to his wife. No dissent on her part appears and it is plain from the history of the marital community that she considered the property to be what the husband called it, community estate, and acted upon that assumption. She was consulted with about purchases of property, viewed the properties with her husband, and with him considered them and their purchase. It is clear, we think, that the husband and wife mutually, because of conversations, statements. and acts, understood the property to be community. The wife, in our opinion, after making no dissent to her husband's repeated statements, and having treated the property accordingly, could not successfully have contended that the property was not community in a contest, for example, with his heirs. "The acceptance of a gift, beneficial to the donee and otherwise complete, will be presumed, unless the contrary is made to appear, even though the donee did not know of the gift at the time it was made." 28 C.J. 672. Where a gift is between members of a family living in the same house, requirements as to delivery are not strictly applied. 28 C.J. 638. Acceptance of an offer may be inferred from silence, if the relation of the parties or other circumstances impose a duty to speak. 13 C.J. 276. ; . In ), Holmes, J., held that a contract was completed by failure to dissent from the offer, for the parties were not strangers to each other and

* * * The proposition stands on the general principle that conduct which imports acceptance or assent is acceptance or assent, in the view of the law, whatever may have been the actual state of mind of the party, - a principle sometimes lost sight of in the cases. * * *

In , the Supreme Court of California considered the present question where there was a dearth of definite understanding between husband and wife and the court said:

* * * Now, it may well have been the case that the husband could recall no conversation between them in which such an agreement was distinctly expressed. His testimony strongly indicates this condition of memory. And yet it might also be true that the fact that there was such an agreement was perfectly well understood between them. In such case resort may be had to circumstantial evidence. The conduct and actions of the husband with respect to such earnings, indicating that he did not regard them as community property, or that he had relinquished to her the right to control and dispose of her receipts from that source, would be competent evidence and admissible to prove the agreement. * * *

, is similar to the instant situation in that it turned upon a statement by the husband to the wife (a single statement as contrasted with the various statements from the husband herein involved). The court says that "there was ample evidence" to justify the finding of community property. There property was placed in the name of the husband, who said to the wife: "Don't feel bad about it, you know it is just as much yours as it will be mine; this is our home." It is true that the wife made a minor contribution to the purchase price of the property involved, but the evidence did not show whether she had ever been repaid, and the mere fact of such contribution, without more, was no basis for communization of the property. The court said that particular words are not necessary to evidence an agreement for community property "as long at it may be fairly inferred from all of the circumstances in evidence that a community interest was intended by the parties."

In the light of all of the above, we can not but believe that there was sufficient of gift and mutual understanding between the husband and wife to satisfy the decisions of the California court upon this subject.

We therefore hold that the respondent erred in determining the deficiency upon the theory that the income here involved was the separate income of the husband.

Decision will be entered under Rule 50.