Petitioners Brief — United States v. Mitchell (No. 798)

Sen | SEE ER eye ee

‘atutes involved ________- ARE 2S ape gy eae

ee ee

Respondents are personally liable for federal

income taxes on their one-half interest in

community income realized during the

existence of the community _-_------------

EE RO A RR

4 2. Under Louisiana law, the wife owns

E* one-half of all community income as

2 and when it is earned___________-_-

3. Federal law taxes the wife on the one-

half share of community income

which, under Louisiana law, she

RES ERR 7 a a

4. Louisiana law exempting the wife’s

separate property from community

obligations does not bar collection

from such property of the federal

Soames We OUR... SS co. wo...

(I)

aS ae SES

SS ke, ee ee .

Pasa OS A ARNEL at pe OS

Wy

on

OwWwwnnn =f

leon)

we

14

20

24

25

21

21

Cases—Continued ie

Austin v. Strong, 117 Tex. 263, 1 S.W. 2d 872,

rehearing denied, 3 S.W. 2d 425 12

Azar v. Azar, 239 La. 941, 120 So. 2d 485____ 10

Bender v. Pfaff, 282 U.S. 127 1

8, 9, 18, 14, 15, 19, 4

Blair v. Commissioner, 300 U.S. 127

Brassac v. Ducros, 4 Rob. La. 335

Breaux v. Decuir, 49 So. 2d 495

Burnet v. Harmel, 287 U.S. 103 9, 14, 2

Commissioner v. Cavanagh, 125 F. 2d 366,

affirming 42 B.T.A. 1037

Commissioner v. Estate of Bosch, 387 U.S. 456.

Commissioner v. Harmon, 323 U.S. 44

Commissioner v. Hyman, 135 ¥. 2d 49

Cunningham v. Zane, 189 Wash. 176, 245 Pac. -

Dernham & Kaufmann v. Rowley, 4 Idaho 753,

44 Pac. 643

Fernandez v. Wiener, 326 U.S. 340

Fox v. Weissbach, 76 Ariz. 91, 259 P. 2d 258.

Gebbia v. City of New Orleans, 249 La. 409,

187 So. 2d 423

Gilmore v. United States, 290 F. 2d 942, re-

versed on other grounds, 372 U.S. 39

Goodell v. Koch, 282 U.S. 118

Grolemund v. Cafferata, 17 Cal. 2d 679, 111 P.

Helvering v. Stuart, 317 U.S. 154

Henderson’s Estate v. Commissioner, 155 F. 2d

Hill v. Commissioner, 32 T.C. 254

Hopkins v.“Bacon, 282 U.S. 122

Hunt v. Commissioner, 22 T.C. 228

Cases—Continued Page

Kimes v. Commissioner, 55 T.C. No. 81 (de-

i 2, DOPE 6 cco ccuwensens 18, 22

Messersmith v. Messersmith, 229 La. 495, 86 So.

Sivan’ i 2 RS SES lp ae 10, 22

Morgan v. Commissioner, 309 U.S. 78_..----- 9, 14

Phillips v. Phillips, 160 La. 813, 107 So. 584- 10

Poe v. Seaborn, 282 U.S. 101__------------- 6,

8, 9, 13, 14, 17, 19, 23, 24

Poindexter v. Louisiana & A. Ry. Co., 170 La.

dad i ei le ae i i2

Ramos v. Commissioner, 429 I. 2d 487___-.--- 21

Rosenwald, E., & Son v. Baca, 28 N.M. 276,

Lehi dockmo wk nn nadnta ene ss 12

Saenger v. Commissioner, 69 I’, 2d 633-- --- - - 18

Simmons v. Cullen, 197 I’. Supp. 179_ ~~~ --- 17

Shambaugh v. Scofield, 132 ¥’. 2d 345. ____--_- 20

Smith v. Donnelly, 65 I’. Supp. 415_--------- 18

United States v. Bess, 357 U.S. 51__--------- 20

United States v. Dallas Nat’l Bank, 152 F. 2d

Rd ida is ae thud Pe wake in ark a ot ip wishin 20

United States v. Davis, 370 U.S. 65. _-------- 23

United States Fidelity & Guaranty Co. v.

Green, 252 La. 227, 210 So. 2d 328__.---_- 10

United States v. Heffron, 158 F. 2d 657,

certiorari denied, 331 U.S. 831_.._-------- 20

l’nited States v. Malcolm, 282 U.S. 792_-_---- a

14, 16, 17, 18, 23

United States v. Overman, 424 I’. 2d 1142_-__.- 21

United States v. Stapf, 375 U.S. 118_..------- i)

Van Antwerp v. United States, 92 F. 2d 871_- 17, 23

Warburton v. White, 176 U.S. 484___------- i)

Ward v. Trimble, 20 So. 2d 765._....------- 12

Wiener, Succession of, 203 La. 649, 14 So. 2d

TEE SVs aang TaN ERE aL CIP NR ny ie

IV

Statutes:

Act of January 12, 1971, P.L. 91-679, 84

SARL REC Ca a a a ee 18

Internal Revenue Code of 1939, §§ 11, 12.... ,

Internal Revenue Code of 1954 (26 U.S.C,

1958 ed.):

Ne” SRE ea a 6, 8, 15, 19, 24,95

hat ck tela ch cing ala e+ iat ae »

XSI ae ier Rr eam cate

EL A AEG SS en AR al 19

ee ce ts ie 20, 25

i os wide isis dda lace 9

SSE Cee on

Sec. 6653... ..-- peg apa AES Fee lg ge 19

Sec. 6901... - isthe AeA hla i Bee cites ashe oes os

Revenue Act of 1917, c. 63, 40 Stat. 300, 303,

aR Sir icpaged AP Oana a anes \

Revenue Act of 1918, c. 18, 40 Stat. 1057,

MEd rik tlk Si nates Seis § eee \

Revenue Act of 1921, ¢. 136, 42 Stat. 297,

EINE 28 nerd Gaskins a dents enwmnieadias

Revenue Act of 1923, c. 280, 42 Stat. 1507,

NS ba hitarain: eich his ea wuieas a Bale teeda \

Revenue Act of 1924, c. 234, 43 Stat. 253,

AT Baeisaa vine Fea .

Revenue Act of 1926, c. 27, 44 Stat. 9, §§ 210,

SRR SE ERI 2 eee ag CIR CHING 8,14

Revenue Act of 1928, c. 852, 45 Stat. 791

a es a a ge lf

Revenue Act of 1932, c. 209, 47 Stat. 169

Ue ee te ie ae, ,

Revenue Act of 1934, c. 277, 48 Stat. 680,

UM ith a ae a S

Revenue Act of 1936, c. 690, 49 Stat. 1648,

DER, Webs punanih daw a ticwckuw eon oe §

~ Statutes—Continued hee

Revenue Act of 1938, ¢. 289, 52 Stat. 447,

chime pdm cba indps ninihuKis wae 8

Ariz. Rev. Stat. Ann., §25-214(B)._.-----_-- 12

Civil Code, West’s Ann. Calif. Codes, §5121_- 12

OE) eee 12

West’s La. Stat. Ann., Civil Code:

ae sed diy: draslee wine ms Wie ae we 9, 26

Ena

load, iis gin adm b Seeman 10, 26

SS eee Se.

Nev. Rev. Stat., §123.210..........-..-.-- 12

N.M. Stat., 1953, Ann., §57-3-9........--.-- 12

Family Code, Vernon’s Tex. Codes Ann.,

§5.61.__- ‘ baie i2

Rev. Code of Wash. Ann. a §26. 16. 020... 12

Miscellaneous:

1 de Funiak, Principles of Community Prop-

cians ain Reine 9, 10, 11, 12, 13

Rule 23(5), Rules of the Supreme Court-- - - - 1

S. Rep. No. 1622, 83d Cong., 2d Sess... ----- 20

Treasury Regulations on Income Tax (26

we 6 RM FE | |) a eeenepnee ttre 20

Yn the Supreme Gourt of the Bnited States

OcronerR TERM, 1970

No. 798

Uxitep STaTES OF AMERICA AND COMMISSIONER OF

INTERNAL REVENUE, PETITIONERS

v.

Anne Goyne MIrcHeELL, Frances ANGELL, ET AL.’

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE FIFTH CIRCUIT

BRIEF FOR THE PETITIONERS

OPINIONS BELOW

The opinion of the court of appeals in Mitchell and

Sims * v. Commissioner (R. 73-82) * is reported at 430 F.

ao cases are combined in this brief, as they were in the

ursuant to Rule 23(5).

Shee sabell Goyne Sims is a party to this litigation only

because she was a transferee without consideration of property

previously owned by Mrs. Mitchell. On uncontroverted facts, the

Tax Court determined (R. 64-66) that Mrs. Sims was liable for

the taxes assessed against Mrs. Mitchell under the transferee

liability provision of the Internal Revenue Code of 1954 (Section

6901). There is, we think, no real dispute now as to this determina-

tion, and a finding by this Court against Mrs. Mitchell would

te binding against Mrs. Sims.

*“R.” references are to the separately bound record appendix.

(1)

—

2d 1. The findings of fact and opinion of the Tax Cour

CR. 51-66) are reported at 51 'T.C. 641,

The opinion of the court of appeals in Angello v. My

tropolitan Life Ins. Co. and United States (R. 125-

128) is reported at 430 F. 2d 7. The findings of fact

and conelusions of law of the district court (R. 120-

122) are not reported.

»

—

JURISDICTION

In Mitchell the judgment of the court of appeals (R,

83) was entered on June 23, 1970. In Angello the judg.

ment of the court of appeals (R. 129) was entered oy

June 22, 1970. By order dated September 17, 1970, Mr.

Justice Black extended the time for filing a petition fora

writ of certiorari to and including October 5, 1970,

The petition was filed on October 2, 1970, and certio-

rari was granted on January 18, 1971. The Juris-

diction of this Court rests on 28 U.S.C. 1254(1).

QUESTION PRESENTED

Whether a married woman domiciled in the commu:

nity property state of Louisiana is personally liable for

federal mcome taxes on her vested one-half interest in

community income realized during the existence of the

community, if she subsequently renounces her commu:

nity rights or fails expressly to accept them.

STATUTES INVOLVED

The pertinent provisions of the Internal Revenue

Code of 1954 (the “Code’’) and the Louisiana Civil Code

are set forth in the Appendix, infra, pp. 25-26.

3

STATEMENT

1, MITCHELL

During the tax years in question, 1955 through 1959,

Mrs. Mitchell resided with her husband in, and under

the community property laws of, Louisiana, All

income realized by both spouses in these years was com-

munity income. Mrs. Mitchell’s personal earnings dur-

ing this period totalled about $4,200, from which income

taxes were withheld and credited against the deficiency

subsequently assessed against her and her husband.

Mrs. Mitchell was unaware of her hushand’s finances

or how much money he made during this time. She rarely

knew the balance in the couple’s joint bank account;

nevertheless, she had withdrawal privileges on the ac-

count and from time to time withdrew community

funds from it. Mr. Mitchell, however, was in charge of

the couple’s financial affairs and did not usually consult

with his wife on such matters. (R. 15, 35, 42, 45, 53-54.)

Neither Mrs. Mitchell nor her husband filed federal

income tax returns for any of the five years in issue.

Mrs. Mitchell knew of her husband’s fiscal irresponsi-

bility and repeatedly questioned him each year about the

preparation of income tax returns. At no time did she

participate in the preparation or filing of any return.

Instead, she relied on her husband’s assurances that he

was filing timely returns and paying the taxes due, and

assumed that he signed her name to the returns. In July

of 1960, she learned that no returns had in fact been

filed. (R. 15, 34-36, 41-42, 46, 54.)

Mrs. Mitchell separated from her husband in that same

month. In August of 1961 she filed suit against Mr. Mit-

418--292—71——_2

4

chell requesting a separation from bed and board and

that she be allowed to accept the community of acquets

and gains with benefit of inventory in accordance with

Louisiana law. On September 14, 1961, Mrs. Mitchel]

was judicially separated from her husband, and a final

decree of divorce was ordered on October 11, 1962, She

formally renounced the community of acquets and gains

pursuant to Article 2410 of the Louisiana Civil Code by

instrument dated September 18, 1961, and received

neither a distribution of community property nora

property settlement upon dissolution of the marriage,

(R. 15, 49-50, 54-55.)

The Commissioner determined deficiencies in income

taxes and penalties against Mrs. Mitchell for one-half

of the community income for 1955 through 1959, and

sought to collect the deficiencies from certain separate

property which Mrs. Mitchell inherited from her

mother and then transferred, without consideration, to

her sister (see note 2, supra). Mrs. Mitchell sought a

redetermination of the deficiencies in the Tax Court

(R. 6-10). That court held that under Louisana con-

munity property law Mrs. Mitchell had an immediate

vested ownership interest in one-half of all community

income when and as earned, by either spouse, and was

personally responsible for the federal income tax on

her share. As to the renunciation under Article 2410, it

ruled that the pre-existing federal tax liability arising

by virtue of Mrs. Mitchell’s ownership of her share of

the community income was not affected by this later act

undertaken in accordance with state law. (R. 51-66.)

On appeal, the \ifth Circuit reversed, with one judge

dissenting, holding that by her renunciation of the

5

| community Mrs. Mitchell avoided any federal tax lia-

bility on the community income (R. 73-82).

2. ANGELLO

During the tax years in question, 1959 through 1961,

Mrs. Angello resided with her then husband, Jack Spar-

acio, also in, and under the community property laws of,

Louisiana. Although they realized community income in

each of these years, neither Mrs. Angello nor her hus-

band filed income tax returns for any of the years. (R.

104-105, 109, 120-121.)

The District Director of Internal Revenue made as-

sessments against them for federal income tax liabili-

ties for the three years involved. The United States

then filed a notice of federal tax lien with the Recorder

of Mortgages, Parish of New Orleans, and addressed a

notice of levy to the Metropolitan Life Insurance Com-

pany, which had issued a life insurance policy to Mr.

Sparacio. Upon Mr. Sparacio’s death, the notice of levy

attached to the proceeds of the policy. Mrs. Angello, who

was the beneficiary of the policy, filed suit in state court

against Metropolitan to recover the proceeds, and the

United States intervened to assert its lien. Upon its mo-

tion, the case was removed to the federal district court.

After removal, Metropolitan paid the proceeds into the

court registry and was dismissed from the case. (R. 88-

89, 106-107, 120-121.)

The district court granted the government’s motion

for summary judgment. It held Mrs. Angello liable for

federal income taxes on her one-half of the community

meome for 1959 through 1961, and ordered collection of

6

the taxes from the interpleaded funds, which it con F

cluded were Mrs. Angello’s separate property unde §

Louisiana law. On appeal, the Fifth Circuit reverse,

with one dissent, relying on the decision of the Salhi:

panel in Mitchell (R. 125-128) *

SUMMARY OF ARGUMENT

Section 1(a) of the Code imposes a tax on the incon

‘of every individual.” Although the Code does not Spee:

ify what is included in this phrase, this Court supplieda

definition in Poe v. Seaborn, 282 U.S. 101, and held that

income is taxed to its owner. Ownership, in turn, is de.

termined by reference to state law.

Under Louisiana law, marriage constitutes a partner.

ship between the spouses, in which each Spouse Owns ah

equal share, All income realized during the marriage is

community income, and each spouse owns a one-half

share of such income at the very instant it is earned,

Management of the marital partnership is entrusted tv

the husband. In recognition of this fact, the wife's sep-

arate property ordinarily is exempt from community

debts. But neither feature of the Louisiana property

system impairs the wife’s ownership rights.

Federal law controls what state-created interest

shall be taxed and, as Seaborn holds, taxes income to its

* Although no formal statutory renunciation occurred in Angel:

/o, as in Mitchell, the court of appeals stated there was no evidence

to indicate that Mrs. Angello expressly accepted the benefits or

liabilities of the community upon its dissolution, and treated the

case as presenting the same issue as, and thus controlled by the

court's ruling in, Mitchell. The dissenting judge accepted this

characterization. (R. 127.)

ee

wm tsidh td oA

‘se

7

owner. In Bender v. Pfaff, 282 U.S. 127, this Court con-

frmed that a Louisiana wife ‘“owns”’ and thus is taxed

on her share of income, even though state law delegates

management powers to the hushand and exempts the

wife from personal liability for community debts. And

in United States v. Malcolm, 282 U.S. 792, the Court

- made it clear that the wife not only is entitled to report

separately her income share, but should do so.

In the instant cases, the Fifth Circuit held that Sea-

born, Pfaff and Malcolm merely entitle, but do not re-

quire, the wife to return her share of community income.

If she does not assume liability for the community debts,

hy express agreement or by accepting the benefits of the

community on its dissolution, then she is not personally

liable for those debts, including the federal tax obliga-

tion with respect to her share of the community income.

The holdings below are bottomed on the provisions of

Louisiana law which exonerate the wife from individ-

ual liability for community claims. But state exemption

statutes have no bearing on the collection of the federal

income tax. The Code provides that the tax levied

against an individual may be collected from any proper-

ty belonging to that individual irrespective of state ex-

emption laws as to such property. The federal statute

expressly recognizes certain properties as exempt, but

the wife’s separate property is not among these and may

therefore be taken in satisfaction of her individual

liability for the taxes on her community income share.

a

8

ARGUMENT

RESPONDENTS ARE PERSON ALLY LIABLE FOR FEDERAL INCOME

TAX ON THEIR ONE-HALF INTEREST IN COMMUNmTy

INCOME REALIZED DURING THE EXISTENCE OF THE

COMMUNITY

1, INTRODUCTION

Since its earliest days, the federal income tax has

been levied against the taxable income “of every indi-

vidual.” Section 1(a) of the Code (Appendix, infra, p.

25).° The Code does not, however, specify what is

included in this phrase and furnishes no other standard

or definition of what constitutes an individual’s income.

In Poe v. Seaborn, 282 U.S. 101, this Court resolved

the problem in the context of community property. Se

also Bender v. Pfaff, 282 U.S. 127, involving community

property in Louisiana. It held that “use of the word

‘of’ denotes ownership” (282 U.S. at 109), and thus

established that, under the federal taxing scheme, in-

come is taxed to its owner. Accord, Blair v. Commis-

stoner, 300 U.S. 127-131. In its Seaborn opinion, the

* The quoted phrase first appeared in Sections 1 and 201 of the

Revenue Act of 1917, c. 63, 40 Stat. 300, 303. It has since been

employed in every successor enactment. See Sections 210 and 211,

Revenue Act of 1918, c. 18, 40 Stat. 1057, 1062; Sections 210 and

211, Revenue Act of 1921, c. 136, 42 Stat. 227, 233; Act of March 4,

1923 (amending Section 210 of the Revenue Act of 1921), c. 280,

42 Stat. 1507; Sections 210 and 211, Revenue Act of 1924, c. 234,

43 Stat. 253, 264, 265; Sections 210 and 211, Revenue Act of 192%,

c. 27, 44 Stat. 9, 21, 22; Section 11, Revenue Act of 1928, c. 852,

45 Stat. 791, 795, 796; Sections 11 and 12, Revenue Act of 1932,

c. 209, 47 Stat. 169, 174; Sections 11 and 12, Revenue Act of 1934,

c. 277, 48 Stat. 680, 684; Sections 11 and 12, Revenue Act of 1936,

c. 690, 49 Stat. 1648, 1653; Sections 11 and 12, Revenue Act of

1938, c. 289, 52 Stat. 447, 452-453; Sections 11 and 12, Internal

Revenue Code of 1939.

9

Court admonished (282 U.S. at 110) that the proper

focus in determining the question of ownership is state

law, and the rights and legal interests that law creates,

but that once that matter is determined, federal law

controls the imposition of the tax.’ It is within this

framework, and within the further standard that the

law ‘‘is to be interpreted so as to give a uniform appli-

eation to a nationwide scheme of taxation’’ (Burnet v.

Harmel, 287 U.S. 103, 110), that we consider whether a

wife residing in Louisiana—a community property

state—is, under applicable state law, the ‘‘owner” of,

and thus taxable on, her one-half share of community

income, and, if so, whether the tax on that share may

be collected from her separate property.

2. UNDER LOUISIANA LAW, THE WIFE OWNS ONE-HALF OF ALL

COMMUNITY INCOME AS AND WHEN IT IS EARNED

By the law of Louisiana, every marital status subject

to that law “superinduces of right [a] partnership or

community” of the spouses with respect to property ac-

quired during the existence of the community. Article

2399, Louisiana Civil Code (Appendix, infra, p. 26).'

* See Commissioner v. Estate of Bosch, 387 U.S. 456; Morgan v.

Commissioner, 309 U.S. 78, 80-81. See also United States v. Stapf,

3175 U.S. 118; Helvering v. Stuart, 317 U.S. 154; Warburton v.

White, 176 U.S. 484.

"See Fernandez v. Wiener, 326 U.S. 340; Bender v. Pfaff, 282

US. 127. The community property system of Louisiana and the

seven other community property states (Arizona, California,

Idaho, Nevada, New Mexico, Texas, and Washington) is based

o the Spanish system, which also views the community of

property as being in the nature of a partnership between the

spouses. See 1 de Funiak, Principles of Community Property

70-71, 263-264 (1943) (hereinafter de Funiak).

10

The community thus created, according to the Supreme

Court of Louisiana, ‘‘is a partnership in which the hys

band and wife own equal shares, their title thereto Vest.

ing at the very instant such property is acquired * * *”

Succession of Wiener, 203 La. 649, 657, 14 So. 2d 475,

477." In this system, husband and wife are viewed as hay.

ing each contributed equal effort in the acquisition of all

marital property, including income. In recognition of

this fact, each has an equal and presently vested owner.

ship right in all the marital property. United States

Fidelity & Guaranty Co. v. Green, 252 La. 227, 210 So,

2d 328; Azar v. Azar, 239 La. 941, 120 So. 2d 485; Phillips

v. Phillips, 160 La. 813, 107 So. 584; Dixon v. Dizon’s Br.

ecutors, 4 La. (Old Series) 188. And it makes no differ-

ence which spouse actually provides the capital or per-

forms the services giving rise to an acquisition. The

essential concept is that the labors of both spouses con-

bine to produce all marital property, and thus each

spouse is the immediate half-owner of all such property.

Succession of Wiener, supra, 203 La. at 665-666, 14 So.

2d at 480. See de Funiak 166-167.

Under this system, management of the community

is entrusted to the husband. In general, he has exclusive

authority to deal with and dispose of the community

property, as long as he does so for the benefit of the

* In Messersmith v. Messersmith, 299 La. 495, 507, 86 So. 2d 169,

173, the court again emphasized :

There is nothing more fundamental in our law than the

rule of property which declares that this community is a

partnership in which the husband and wife own equal

shares, their title thereto vesting at the very instant such

property is acquired.

Accord, Gebbia v. City of New Orleans, 249 La. 409, 415-416, 187

So. 2d 423, 425.

—

marital partnership. Article 2404, Louisiana Civil Code

(Appendix, infra, p. 26).’ But these management pow-

ers do not—and indeed by state law could not—defeat

the wife’s ownership rights. Succession of Wiener,

supra, 203 La. at 667-668, 14 So. 2d at 481. Rather, the

husband’s rights as manager of the community are

vested in him, not because he is the sole owner, but be-

eause by state law he is named the agent of the com-

munity, through whom the community must act. The

husband is merely the manager of the marital partner-

ship, as explained in Succession of Wiener, supra, 203

La. at 669, 14 So. 2d at 481-482:

It is obvious, therefore, that the wife’s interest

in the community property in Louisiana does not

spring from any fiction of the law or from any

gift or act of generosity on the part of her hus-

band but, instead, from an express legal contract

of partnership entered into at the time of mar-

riage. There is no substantial difference between

her interest therein and the interest of an ordi-

nary member of a limited or ordinary partner-

ship, the control and management of whose af-

fairs has, by agreement, been entrusted to a

managing partner. The only real difference is

that the limitations placed on the managing part-

ner in the community partnership are fixed by

law, while those placed on the managing partner

in an ordinary or limited partnership are fixed by

convention or contract. * * *

11

Louisiana law provides further protections for the

wife, in view of her passive role with respect to the man-

*Under Spanish law the husband was the exclusive manager

of all community affairs. To a greater or lesser degree, he retains

that position in all of the community property states. See de

Funiak 322-326.

a

agement of the community, by shielding her from th

marital creditors. Community debts must be satisfied

from community property, Article 2403, Louisiang

Civil Code (Appendix, infra, p. 26), and the wife’s sep

arate estate cannot ordinarily be reached.” See Ward,

Trimble, 20 So. 2d 765 (La. C.A., 2d Cir.). Upon dis.

solution of the community, the wife may retain her pro-

tected status. If she is willing to renounce her interes

in the community, she is not responsible for any commu-

nity debts, although perforce she does not share in the

community’s assets. Article 2410, Louisiana Civil Code

(Appendix, infra, p. 26). This privilege, too, had its

genesis in the Spanish system, and while, as a matter of

state policy, it does affect the state-defiined rights of

12

*° In every community property state, the wife generally is not

personally liable (in the sense that her separate property is ex-

empted) for the community debts. See:

Arizona: Ariz. Rev. Stat. Ann., § 25-214(B); Fow v. Weiss.

bach, 76 Ariz. 91, 259 P. 2d 258.

California: Civil Code, West’s Ann. Calif. Codes, § 5121; Grole.

mund v. Cafferata, 17 Cal. 2d 679, 111 P. 2d 641.

Idaho: Idaho Code, § 32-911; Dernham & K. aufmann v. Rowley.

4 Idaho 753, 44 Pac. 643.

Nevada: Ney. Rev. Stat., § 123.210.

New Mewico: N.M. Stat. 1953, Ann., § 57-8-9; EF. Rosenwald &

Son v. Baca, 28 N.M. 276, 210 Pac. 1068.

Texas: Family Code, Vernon’s Tex. Codes Ann., § 5.61; Austin

v. Strong, 117 Tex. 263, 1 S.W. 2d 872, rehearing denied, 3 S.W.

2d 425.

Washington: Rev. Code of Wash. Ann., § 26.16.020; Cunning-

ham v. Zane, 139 Wash. 176, 245 Pac. 913.

This rule follows from the Spanish law, under which only the

contracting spouse—who generally could only be the husband, as

community manager—was personally liable for the community

debts. de Funiak 447. That is the law of Louisiana. See Poin-

dexter v. Louisiana & A. Ry., 170 La. 521, 1°8 So. 297; Breaus v.

Decuir, 49 So. 24 495 (La. C.A., 1st Cir.).

13

- ereditors vis-d-vis the wife, it does not alter the wife’s

vested ownership interest in the community.” Instead,

it merely provides an opportunity for her to forego the

’ benefits, and thus avoid some of the burdens, that would

otherwise attach to that ownership.

Clearly, then, under Louisiana law the wife is the

owner of one-half of all community property immedi-

ately upon its acquisition. To be sure, that ownership

is subjected to the managerial powers of the husband

(whose rights are circumscribed by state law) and pro-

tected from the claims of community creditors, both

of which are matters of state policy. But the fact re-

mains that the wife’s ownership exists from the very

moment community property is acquired, and her in-

terest in such property is equal and equivalent to that

of her husband. That was the whole basis of the decisions

in Poe v. Seaborn, supra, and Bender v. Pfaff, supra.

"See de Funiak 620-628. De Funiak observes (id. at 621) :

This right of the wife to renounce or repudiate must

not be misconstrued as an indication that she had never

owned and possessed her share, for the fact was not

denied; but she did have, under the principles of com-

munity property, the right to revoke her ownership and

possession.

Brassac v. Ducros, 4 Rob. La. 335, on which the court below re-

lied (R. 78), must be read in this light. Thus the statement in

Brassac that if the wife renounces, the community is, as to her, as

though it never existed, is, in context, correct. There, the claimant

asserted that the wife was, under state law, bound by certain acts

of her husband, notwithstanding her subsequent renunciation. The

court rejected this claim. As a matter of state law on the question

tefore it, the court’s declaration was proper. But, as we show below

(infra, pp. 20-21), provisions of state law do not control the col-

lection of federal income taxes.

14

3. FEDERAL LAW TAXES THE WIFE ON THE ONE-HALF SHARE OF Coy.

MUNITY INCOME WHICH, UNDER LOUISIANA LAW, SHE OWNS

While state law creates legal interests, the federal

statutes determine when and how they shall be taxed."

Louisiana law prescribes the legal interests of the wife

with respect to community property, including incone.

As seen, that 'aw declares that the wife has a present,

vested interest in all community property, equal to that

of her husband and amounting to ownership. The ques-

tion remaining is whether the federal law levies a tax

against the wife upon her share of the community in-

come. That question was before this Court in Poe y.

Seaborn, supra, and its companion cases, and the an-

swer is clear: the wife, as owner of the income, is taxed

on it. ,

Seaborn involved the determination of the proper feé-

eral taxes payable by a husband and wife residing in the

community property state of Washington.” Seaborn re-

fused to report the entire amount of community income

22 Morgan v. Commissioner, supra, 309 U.S. at 80-81; Burnet v.

Harmel, supra, 287 U.S. at 110.

8 This was one of five cases instituted by the government to de-

termine whether, under the Revenue Acts of 1926 and 1928, mar-

ried taxpayers in the states of Washington, Arizona, Texas,

Louisiana and California were entitled to split the community

income equally for income tax purposes. Poe v. Seaborn, 282 US.

101 (Washington) ; Goodell vy. Koch, 282 U.S. 118 (Arizona);

Hopkins v. Bacon, 282 U.S. 122 (Texas) ; Bender v. Pfaff, 282 US.

127 (Louisiana); and United States v. Malcolm, 282 U.S. 72

(California). The decisions in these cases confirmed the right -

of married taxpayers in community property states to divide the

community income equally between them and to report their re-

spective shares of such income in separate returns. The conse-

quence was the amendment of the tax laws in 1948 to make “split

incomes” available to all married taxpayers, in order to avoid

discrimination.

15

in his return. Instead, he and his wife made separate tax

returns, each reporting one-half of the community in-

come, on the theory that each owned, and was taxable on,

his or her one-half share. As noted earlier, the Court first

ruled that the statutory predecessor of Section l(a) of

the Code, imposing the federal income tax on the income

“of every individual,”’ levies the tax against the owner

of the income. It then considered in detail the provisions

of Washington law defining the rights and obligations

of the spouses, and held (282 U.S. at 111) : “itis clear the

wife has, in Washington, a vested property right in the

community property, equal with that of her husband ;

and in the income of the community, including salaries

or wages of either husband or wife or both.”’ Since the

federal tax is against the owner, and since husband and

wife each owned one-half of the community income, the

Court sustained the separate reporting of equal parts of

the total community income by Mr. and Mrs. Seaborn.

In the case on this question from Louisiana, Bender

v. Pfaff, 282 U.S. 127, the Court likewise found that the

wife had a present vested interest in her share of the

community income, and accordingly upheld the right of

the spouses to divide the community income in separate

tax returns. The Court’s analysis of Louisiana law

coincides with that made above, pages 9-13; and its

opinion includes the following significant observations

concerning the Louisiana community property system

(282 U.S. at 131-132) :

If the test [for federal tax purposes] be, as we

have held it is, ownership of the community in-

come, this case is probably the strongest of those

presented to us, in favor of the wife’s ownership

of one-half of that income. * * * The statutes

RSA Por OM Res eT a -_

PRI EATS CFOS RIE PT RR NERS -

ia =.

16

speak of a marriage superinducing as a matter of

right, [a] “partnership or community” of acquéts

or gains. Repeatedly the statutes refer to the re.

lationship as a “partnership or community.” The

decisions of the Supreme Court of Louisiang

clearly recognize the wife’s ownership of one-half

of all the community income. * * *

* os * *

While the husband is the manager of the affairs

of the marital partnership, the limitations upon

the wrongful exercise of his power over commun-

ity property are more stringent than in many

states which have a community system. * * *

* 7 * a +

Inasmuch, therefore, as, in Louisiana, the wife

has a present vested interest in community prop-

erty equal to that of her husband, we hold that

the spouses are entitled to file separate

ie. “> >.

This does not mean, as the court below concluded (R.

79), that the wife may refuse to return her one-half

share of community income when she does not choose,

under state law, to assume personal liability for con-

munity indebtedness. Once it is determined that the wife

} owns such income, rules of state law regarding her per-

: sonal responsibility for the debts of the community are

: irrelevant. As the owner of the income, she is taxable

j on it and must report it.

This is the necessary import of United States y. Mal-

colm, 282 U.S. 792. There, the Ninth Circuit certified

to the Court two questions (282 U.S. at 793-794) :

“1. Under the applicable provisions of the Rev-

enue Act of 1928 must the entire community in-

come of a husband and wife domiciled in Cali-

ihe a aoe CPL oA hoes pt AL edad lal

)

17

fornia be returned and the income tax thereon be

paid by the husband?

“2. Has the wife under § 161(a) of the Civil

Code of California such an interest in the commu-

nity income that she should separately report and

pay tax on one-half of such income?” [Emphasis

supplied. ]

On the authority of Seaborn and its companion cases,

the Court answered the first question “No” and the sec-

ond question “Yes.” In every case since this ruling—

until the Fifth Cireuit’s decisions here—the courts

have uniformly interpreted Malcolm as establishing

that the wife not only is entitled, but is required, to re-

turn one-half of the community income, either in her

own separate return or by filing a joint return with her

husband. See, e.g., Commissioner v. Cavanagh, 125 F.

2d 366 (C.A. 9), affirming 42 B.T.A. 1037; Van Ant-

werp v. United States, 92 F. 2d 871 (C.A. 9) ; Simmons

vy. Cullen, 197 F. Supp. 179 (N.D. Cal.) ; Gilmore v.

United States, 290 F. 2d 942 (Ct. Cl.), reversed on other

“The Board of Tax Appeals’ discussion in the Cavanagh case

of the impact of Malcolm is enlightening (42 B.T.A. at 1044) :

* * * income must be reported [for federal income tax

purposes} by the individual to whom the statute attributes

it. Clearly, therefore, the petiticner’s wife is taxable on

one-half of the community income. She is the owner

thereof, although not entitled to present possession. This

appears to be the inescapable conclusion to be drawn from

the Supreme Court's opinion in the Malcolm case, supra.

Consequently, there is no longer the situation where-

under the wife may at her option return one-half of the

income. Since she now must do so it follows *hat the peti-

tioner is taxable only on the other half of tiv entire com-

munity property. * * *

Accord, Hunt v. Commissioner 22 T.C. 228, 230. See also Commis-

sioner v. Harmon, 323 U.S. 44, 50-51 (Douglas, J. dissenting.)

18

grounds, 372 U.S. 39; Kimes v. Commissioner, 55 T¢

No. 81 (decided February 22, 1971) ; Hill vy. Commis.

stoner, 32 T.C, 254; Hunt v. Comm issioner, 22 T.C, 2%

And the Fifth Cireuit seemed to follow this rule befoy

its decisions in the present cases. See Com missioner y

Hyman, 135 F. 24.49 (C.A.5) ; Saenger v. Commissioner

69 F. 2d 633 (C.A. 5); Smith v. Donnelly, 65 F. Supp,

415 (E.D. La.) ; ef. Henderson’s Estate v. Commissioner

155 F.2d 310 (C.A.5)."

In sum, the holdings of the Fifth Circuit in the pres

ent cases are at odds with this Court’s conclusion jy

Seaborn and its companion cases that the wife is th

owner of her one-half share of community income, In

effect, the court below has held that the wife’s “owner.

ship” is so qualified by the husband’s broad managerial

powers and by the state statutes exempting her generally

from personal liability for community debts that she is

not individually responsible for taxes on her share of

community income unless she agrees otherwise. But

arguments based on precisely the same features of state

*® Malcolm involved California community property law, whik

the instant cases arose in Louisiana. But plainly the reach of the

Malcolm rule is not restricted to the California system, as even the

Fifth Court has, until now, apparently recognized. And the

rationale of the court below is patently at odds with Malcolm.

Its ruling is grounded on the fact that in Louisiana only the hus-

band is personally liable for community debts. Essentially the

same situation prevails in California (see note 10, supra), and thus.

in our view, Malcolm must be overruled if the decisions below ar

permitted to stand. The Tax Court, however, recently distin-

guished Mitchell as turning on “the peculiarities of Louisiana

law” and refused to follow it in a California community property

situation. Kimes v. Commissioner, 55 T.C. No. 81, slip op. at 1i,

note 7 (decided February 22, 1971).

ose at ASD SN ak ee

19

6

jaw were advanced in the Seaborn and related cases,’

and rejected by this Court. Indeed, in the Louisiana

case, the Court concluded (Bender v. Pfaff, supra, 282

US. at 132), that despite these features of local law “the

wife has a present vested interest in community prop-

- erty equal to that of her husband.’’ It follows, since the

_ wife owns her share, that under the terms of the federal

taxing statute (Section 1(a) of the Code) she is liable

for the tax levied on her income.”

%* Tt was on these grounds that the government argued in the

Seaborn group of cases that the wife could not separately return

her share of the community income, but instead the husband had

to report the entire community income in his return. See Brief

for the Collector, pp. 10-18, Poe v. Seaborn, supra, No. 15, O.T..,

1930; Brief for the Collector, pp. 9-18, Goodell v. Koch, supra,

No. 106, O.T., 1930; Brief for the Petitioner, pp. 10-18, Hopkins

v. Bacon, supra, No. 84, O.T., 1930; Brief for the Petitioner, pp.

10-18, Bender v. Pfaff. supra, No. 86, O.T., 1930. In Seaborn the

Court explicitly rejected the government's contention that the

husband’s managerial authority made the wife's interest in the

community income less than “ownership”, and held that while

under Washington law, as in other community property jurisdic-

tions, the husband had broad powers of management, to the ex-

clusion of the wife, he could exercise such powers only as the agent

and on behalf of the community (282 U.S. at 111-113). Without

discussion, the Court did likewise in Bender v. Pfaff, supra. the

Iouisiana case, where the government also relied on the provisions

of Louisiana law exempting the wife from personal liability for

comunity obligations, including Section 2410 of the Louisiana

Civil Code, which permits the wife to renounce her community

interest. See Brief for the Petitioner, Bender v. Pfaff, supra, pp.

37-38.

“Only recently, Congress recognized the fundamental premise

oa which the decisions in the Seaborn test cases rest—that the wife

incommunity property states owns one-half of all community in-

come. See Act of January 12, 1971, P.L. 91-679, 84 Stat. 2063,

amending Sections 6013 and 6653 of the Code. Section 60153(e)

ERR Be eT YIN LEI EEN TEN A PNR RR SN

i

:

;

witb Aya icon obbesten le Aa VE Me Wert Neg hie

)

20

4, LOUISIANA LAW EXEMPTING THE WIFE’S SEPARATE PROPERTY FROM

COMMUNITY OBLIGATIONS DOES NOT BAR COLLECTION FROM svcy

PROPERTY OF THE FEDERAL TAXES SHE OWES

Sections 6321 and 6331(a) of the Code (Appendix,

infra, p. 25) provide that the United States may collet

the taxes due it from ‘‘all property and rights to prop-

erty’’ belonging to the person liable therefor. The only

property exempt from levy is enumerated in Section

6334(a), and Section 6334(¢) provides that “[n ]otwith-

standing any other law of the United States, no prop-

erty or rights to property shall be exempt from

levy * * *’’ other than that specified in Section 6334(a)."

The language of the statutes is unmistakable. There isno

exemption for separately owned property. Moreover,

the pertinent Treasury Regulations, Section 301.633+

1(¢), provide that:

No provision of a State law may exempt prop-

erty or rights to property from levy for the col-

lection of any Federal tax. Thus, property ex-

empt from execution under State personal or

homestead exemption laws is, nevertheless, sub-

ject to levy by the United States for collection of

its taxes.

(2) (A), as amended, specifically suspends, in the limited circum-

stances to which it applies, the rule by which one spouse is, under

state community property rules, the one-half owner of income

resulting from the activities of the other spouse. The new law

does not apply to any case in which the spouses do not file a joint

return.

18 Because it was already established that “[p]rovisions of State

law cannot grant an exemption from levy,” the statute speaks only

of other federal laws. S. Rep. No. 1622, 83d Cong., 2d Sess. 578

(1954).

«oo ete tare

SE St la Dea eS

21

In accordance with these statutes and regulations, it

has heretofore uniformly been held that state exonera-

tion provisions cannot defeat the right of the United

States to collect the tax from the person owing it. Aqut-

lino v. United States, 363 U.S. 509, 513-514; United

States v. Bess, 357 U.S. 51, 56-57 ; United States v. Hef-

fron, 158 F.2d 657 (C.A. 9), certiorari denied, 331 U.S.

$31; United States v. Dallas Nat’! Bank, 152 F.2d 582,

585 (C.A. 5) ; Shambaugh v. Scofield, 132 F.2d 345, 346

(C.A. 5). As recently as last year, the Ninth Circuit

ruled that Washington and Arizona laws exempting the

husband’s interest in community property from his

premarital debts could not defeat collection of his pre-

marital federal income tax liability from his interest

in the community. United States v. Overman, 424 F.2d

1142; In re Ackerman, 424 F.2d 1148. In short, just as

the exoneration provisions of community property law

do not impair the basic ownership interest of the wife,

they likewise do not bar collection by the United States,

out of a wife’s separate property, of taxes which she

owes.

The court below held to the contrary essentially on

the ground that the tax on community income is a

community debt and that, as a coramunity obligation,

it “does not become her separate obligation unless

she expressly accepts such liability or accepts the

benefits of the community upon its dissolution”’ (R.

127).” In the court’s view, in the absence of such

*In its Angello opinion, the Fifth Circuit made clear (R.

127) that a wife need not formally renounce her interest

under Article 2410 in order to avoid federal tax liability (see note

4, supra). She may do so if state law exorerates her separate prop-

SEAS AO DARA NaS ORR ATR OS eR a Ne Ne dae

Sel Pa eet ot

i RN ee

22

acceptance, only the community, as an entity, or the

husband, as its manager, is liable for the tax.

But the marital community is not a separate taxpar-

ing entity under the Internal Revenue Code and ha;

never been recognized as such. Rather, as we have show,

the marital partners individually own and are taxed o

their shares of community income, and thus are indi-

vidually liable for the tax on their shares.” In this

respect, the marital partnership in a community prop.

erty state is no different than an ordinary partner

ship, which is not a taxpaying entity under the Code,

and each of whose partners is individually responsible

for the taxes on his share of the partnership income.

See Section 701 of the Code. A partner's liability for

tax on his share of partnership income would not be

terminated by his renouncing the income or giving

away his partnership interest. There is no greater

reason for terminating an existing liability here.

erty from community obligations and she does not accept individ.

ual responsibility for those obligations. The court has since con-

firmed this in Ramos v. Commissioner, 429 F. 2d 487, wher

it relieved a Texas wife of personal liability even though ther

is no renunciation provision in Texas law.

*° Of course, this does not. preclude the wife from seeking

reimbursement from her husband for the amount of taxes on

community income which she pays with her separate funds

For state law purposes, it may well be that federal taxes on

community income are a community debt, for which the hus

band is principally responsible. See JWessersmith vy. Messer.

smith, supra, 229 La. at 516-517, 86 So. 2d at 176. But this

cannot. affect the wife's liability to pay federal taxes on her

share of the income. Cf. Himes v. Commissioner, supra. slip

op. at 14-15, notes 3-4.

2A NOMI AEA TAR PEM NEE LEE ICRA OS tae KE

23

Nor do we believe that the tax on the wife’s share of

community income could be collected from the husband

as manager of the community. The Malcolm case estab-

lished that, at least in California, the husband is not re-

quired to report and pay tax on the entire community

income, but only on the one-half that he owns pe rsonally.

See Van Antwerp v. United States, supra; see also, Gil-

more Y. United States, supra; Commissioner Vv.

Cavanagh, supra. The same result would follow in Lou-

isiana, since the federal collection laws control there, as

well as in California. Thus, under the decision below, if

the wife fails to file a joint or separate return, and does

not accept the liabilities or benefits of the community

on its dissolution, her one half of the community income

would apparently escape taxation.

Indeed, under that decision, the owner of the

income (the wife), though the tax is computed on

the basis that it is her income, may avoid /iability for

the tax on that income by actions taken long after the

close of the taxable year in which the income is received.

This would be unique in the tax laws. Moreover, a hus-

band reporting half of the community income on his tax

return might later find that he was liable for the tax

on all of it. By the time of the subsequent events it might

be too late for the government to proceed against the

husband for further tax. Such uncertainties and such

divergence of treatment are wholly inconsistent with

the purpose of Congress to enaet laws which would

“give a uniform application to a nationwide scheme

of taxation.” Burnet v. Harmel, supra, 287 U.S. at

110; compare United States v. Davis, 370 U.S. 65, 70-71.

It is clear that the effect of Poe v. Scaborn and the

related cases, particularly when followed by the ‘split

GI CR RR ig ip tin lela Rye, “Vv eRe AMIE LONELY, | 5 AE:

q

te

a

§

8

$

q

i

}

@

o

z "

3

=

24

income”’ provisions of 1948, was to establish a nation.

wide scheme of taxation on a uniform basis. It js

equally clear that the decision below destroys that

uniformity on a local basis. The decision is contrary

to the words of Section 1(a) of the Code, as those

words were construed in Poe v. Seaborn, supra, and in

Bender v. Pfaff, supra. It introduces an wnwar.

ranted complexity into a field where this Court’s de.

cisions, and the subsequent enactments of Congress,

have gone far to eliminate complexity and to establish

effective uniformity. The development represented by

the decision below is highly undesirable, and is unwar-

ranted by any words in the statute or by doctrine.

CONCLUSION

For the reasons stated, the judgments of the court

of appeals should be reversed, and the cases remanded

to that court.

Respectfully submitted.

Erwin N. Griswo.p,

Solicitor General.

JOHNNIE M. WALTERS,

Assistant Attorney General.

MatTrHew J. ZINN,

Wo. Terry Bray,

Assistants to the Solicitor General.

CROMBIE J. D. GARRETT,

DanteEL B. Rosenpaum,

Attorneys.

Marcu 1971.

APPENDIX

- Internal Revenue Code of 1954 (26 U.S.C., 1958 ed.) :

SEC. 1. TAX IMPOSED.

(a) Rates of taz on individuals.—A tax is hereby

imposed for each taxable year on the taxable income

of every individual * * *.

* * * * *

sec. 6321. LIEN FOR TAXES.

If any person liable to pay any tax neglects or

refuses to pay the same after demand, the amount

(including any interest, additional amount, addition

to tax, or assessable penalty, together with any costs

that may accrue in addition thereto) shall be a lien

- in favor of the United States upon all property and

rights to property, whether real or personal, belong-

ing to such person.

* * * * *

SEC. 6331. LEVY AND DISTRAINT.

(a) Authority of Secretary or delegate—If any

person liable to pay any tax neglects or refuses to pay

the same within 10 days after notice and demand, it

shall be lawful for the Secretary or his delegate to col-

lect such tax (and such further sum as shall be sufficient

to cover the expenses of the levy) by levy upon ail prop-

erty and rights to property (except such property as is

exempt under section 6334) belonging to such person

or on which there is a lien provided in this chapter for

the payment of such tax. * * *

* * * * *

(25)

ee

0 an PRD cit at ed) Ve ee gOS TOES AM BA ee

Sis

Being torte ton asl & *

‘

ee NN SER RTO OPC ENS RT) RUA AR AE

‘the partnership or community of gains; he admin-

26

West’s La. Stat. Ann., Civil Code:

Art, 23895. Community of property by operation of law

Art. 2399. Every marriage contracted in this State,

superinduces of right partnership or community of

acquets or gains, if there be no stipulation to th

contrary.

> = > .

Art. 2403. Debts falling into community

Art. 2403. In the same manner, the debts contracted

during the marriage enter into the partnership o

community of gains, and must be aquitted out of the

common fund, whilst the debts of both husband ané

wife, anterior to the marriage, must be acquitted out

of their own personal and individual effects.

Art. 2404. Rights and restrictions of husbands as mas-

ter of community

Art. 2404. The husband is the head and master of

isters its effects, disposes of the revenues which they

produce, and may alienate them by an onerous title

without the consent and permission of his wife.

* * * ~ >

Art. 2410. Exoneration of wife or heirs by renuncie

tion of community

Art. 2410. Both the wife and her heirs or assigns

have the privilege of being able to exonerate them-

selves from the debts contracted during the marriage,

by renouncing the partnership or community of gains

US. GOVERNMENT PRINTING OFFICE: 197!