The opinion
E. R. KAUFMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
MRS. E. R. KAUFMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Kaufman v. Commissioner
Docket Nos. 12811, 12812.
United States Board of Tax Appeals
9 B.T.A. 1180 ; 1928 BTA LEXIS 4271 ;
January 12, 1928 , Promulgated
*4271 Where income of the husband is exempt from taxation because derived from services performed for a State government, that income retains its exempt status in the hands of his wife who under the community property laws of that State is entitled to one-half of his income.
Victor Canfield, Esq., for the petitioners.
Brice Toole Esq., for the respondent.
MORRIS
*1180 These proceedings are for the redetermination of deficiencies in income tax of $625.57 against each of the above named petitioners *1181 for the taxable year 1921 arising from the inclusion in the income of each of the petitioners of one-half of certain compensation received by E. R. Kaufman, as hereafter set forth. The proceedings were upon motion consolidated for hearing and decision.
FINDINGS OF FACT.
Petitioners are residents of Lake Charles, La., and were married and living together on December 31, 1921. E. R. Kaufman is an attorney, having been admitted to the bar of Louisiana in 1912, and has practiced law in Lake Charles since that time. He was appointed by the governor of the State of Louisana as attorney to the tax collector of Calcasieu Parish, La., and took *4272 the oath of office to that position on September 5, 1916. The tenure of office of the tax collector is during good behavior.
The duties of the office were to see that the delinquent licenses were collected and inheritance taxes were duly assessed and collected, and, in the event of a suit being brought by the tax debtor, to defend those suits. In October, 1919, suit was filed agains the tax collector of Calcasieu Parish and other officials by the Union Sulphur Co., and it was Kaufman's duty to represent all of the officials subject, however, to the supervision of the attorney general of the State. An answer was filed to the suit in January, 1920, and by June, 1920, the evidence was submitted to the court, Kaufman representing the tax collector during the presentation of the evidence, and the case closed except as to the argument. During the next two or three months a new governor was elected and a new attorney to the tax collector of Calcasieu Parish was appointed. The Union Sulphur case having already been set for argument, Kaufman argued it in December, 1920, the other attorney also appearing of record. The fee of $17,751.13 accruing for his services in connection with the *4273 suit was paid directly to him by check from the tax collector in 1921 after he had been succeeded in office and after decision in favor of defendants had been rendered by the court. Such fee was based upon statutory law, and was not dependent upon any contract entered into for this particular case.
The petitioners did not return the amount of the fee as taxable income. The respondent added one-half of the amount thereof to the income of each of the petitioners for the year in question.
OPINION.
MORRIS: The respondent in his answer admits that salaries of State officials and salaries and wages of employes of a State are not liable to income tax under the Revenue Act of 1921, and that the position of attorney to the tax collector of any parish in the State of Louisiana is created by statute and the attorney is a regular State employe *1182 as defined by regulations issued by authority of the Revenue Act of 1921. The statement attached to the deficiency letter gives as the reason for including the compensation in question in income that "no part of the fee was earned prior to the termination of the suit and since you (E. R. Kaufman) did not hold the office of attorney *4274 for the tax collector at the time the suit was concluded and the fee was earned."
We can not agree with the respondent's reason for the inclusion of the compensation in income. The evidence is clear that during E. R. Kaufman's tenure of office as attorney to the tax collector of Calcasieu Parish, a suit was instituted by the Union Sulphur Co. against said collector; that as his attorney the statute required him to defend the suit. After having represented the collector up to and during the presentation of the evidence, he was succeeded in office by an appointee of a newly elected governor. He subsequently argued the case, however, and was given the statutory fee. His compensation was not determined by any contract entered into for that particular case, but was received for services which he started to perform and almost concluded admittedly as an employe of a State, and which he did furnish by reason of such prior employment. We can not agree with respondent's position that no part of the fee was earned prior to the termination of the suit. The decision of the court merely fixed the amount of the compensation. All the services were performed, except the argument of the case, *4275 during petitioner's tenure of office. In view of the respondent's admission, the facts presented do not warrant the narrow interpretation contended for by him.
The respondent advances the additional ground for the denial of the exemption to Mrs. Kaufman that the rule of the exemption of salaries of employes of a State has no application to her as she did not receive such income for services rendered as an employe of a political subdivision of the State of Louisiana. This contention is based upon an erroneous conception of community income. The earnings of the husband from personal services become immediately a part of the community. Any exemption from taxation in relation to those earnings immediately attaches to the total amount, and whatever right the wife may have to report one-half thereof can not affect its taxable status and convert into taxable income that which was exempt when it came into the community. In view of the respondent's admission and our conclusion, based thereon, that the compensation in question was exempt when it came into the community, one-half thereof is not made subject to tax on respondent's ruling that petitioners may file returns on a community *4276 property basis.
Reviewed by the BOARD.
Judgment will be entered for the petitioners on 15 days' notice, under Rule 50.