Opinion
This case having been heard by the Court of Claims, the court, upon the stipulation of the parties, makes the following special findings of fact:
1. The plaintiff, Steiner B. Hurd, formerly Steiner B. Steiner, who died in the month of January, 1932; plaintiff is also the widow of Eugene Steiner, and under his will the sole beneficiary of his estate.
2. Eugene Steiner was one of two children of Lillie B. Steiner, who died in the month of August, 1927; the other child being Adele S. Fisher. The estate of Lillie B. Steiner consisted of real property, situated in the county of McLennan, state of Texas, and upon the death of Lillie B. Steiner was inherited by Eugene Steiner and his sister, Adele S. Fisher, and thereafter operated as a jointly owned property under the management of J.W. Price.
3. During the year 1928 the net distributable income derived from the property owned and held by Eugene Steiner and his sister, Adele S. Fisher, in two equal undivided parts, amounted to the sum of $40,991.29 of which a one-half share, or $20,495.64, was income of the said Eugene Steiner and the other one-half share, or $20,495.64, was income of Adele S. Fisher.
4. In reporting the taxable income derived from said jointly owned property for the year 1928, Eugene Steiner, Adele S. Fisher, and the plaintiff, as the wife of Eugene Steiner, reported the income from the property as partnership income distributable to them in three equal parts. The amount of said income reported by Eugene Steiner was the sum of $6,235.81, upon which he paid a tax of $57.14.
5. Eugene Steiner and his wife, Steiner B. Steiner, now Steiner B. Hurd, filed separated returns for the year 1928, but when the Commissioner examined the information return of the partnership of Eugene Steiner, Adele S. Fisher, and Steiner B. Steiner, he held that the income reported was in face derived from jointly owned property of Eugene Steiner and Adele S. Fisher in the net distributable amount of $40,991.29 for the year 1928, and that such income was taxable to Eugene Steiner and Adele S. Fisher in equal one-half parts each.
6. The net income of $6,235.81 reported by Eugene Steiner for the year 1928 was increased by the Commissioner of Internal Revenue in the amount of $13,527.37 and a deficiency in tax of $722.42 was assessed against Eugene Steiner and subsequently paid by him on December 11, 1931, together with interest accrued in the amount of $94.86. The amount of tax assessed against Eugene Steiner for the year 1928 is the sum of $779.56, of which $57.14 was assessed and paid at the time he filed his return for the year 1928.
7. On April. 27, 1932, the plaintiff, as executrix of the estate of Eugene Steiner, the said Eugene Steiner having died subsequent to the year 1928, filed a claim for refund of $704.64 collected from Eugene Steiner as taxes on his net income for the year 1928. The ground of the claim for refund is that the net income upon which a tax of $779.56 was assessed and collected from Eugene Steiner for the year 1928 was community income under the law of the state of Texas, and that only one-half of the net income of $19,763.18, determined by the Commissioner as the net income of Eugene Steiner for the year 1928 should be taxed as income to him. On November 17, 1932, the claim was rejected.
8. On April 4, 1934, the plaintiff, as the executrix of the estate of Eugene Steiner, filed an application with the Commissioner of Internal Revenue requesting that the claim for refund of November 8, 1932, be reopened and reconsidered on the basis of a decision of the United States Circuit Court of Appeals for the Fifth Circuit, rendered March 24, 1934, in the case of Commissioner v. Anna Davis Terry, 69 F.2d 969.
9. On April 20, 1934, the Commissioner of Internal Revenue acknowledged receipt of the application of April 4, 1934, to reopen the claim. On June 27, 1934, the Commissioner wrote a letter to the attorney and legal representative of the plaintiff which indicated the action taken by the Commissioner on the application of April 4, 1934. A copy of this letter is attached to the petition herein marked Exhibit B, and made part hereof by reference.
10. On May 7, 1935, James A. Councilor, attorney in fact for the estate of Eugene B. Steiner, addressed a communication to the Commissioner of Internal Revenue in which he requested that in view of the decision of the United States Circuit Court of Appeals for the Fifth Circuit in the case of Commissioner v. Wilson, 76 F.2d 766, decided April 4, 1935, that the Commissioner recede from the position taken by him in the letter of June 27, 1934, denying the application for the reopening of the claim for refund for the year 1928 on the basis of the invalidity of article 4613 of the Revised Statutes of Texas 1925.
11. It is agreed between the parties that if the court holds that the net income of Eugene Steiner for the year 1928 is community income under the laws of Texas, the tax liability of the said Eugene Steiner on his one-half part of said community income for the year 1928 is $166.51; and that there would be an overpayment of tax and interest for the year 1928 in the amount of $695.26, with interest from December 11, 1931. That the tax liability of the plaintiff, as the wife of Eugene Steiner, on her part of the community income for the year 1928 is $166.51, of which $57.14 has been paid on 3/13/29. [Copyrighted Material Omitted] Robert A. Littleton, of Washington, D.C., for plaintiff.
Guy Patten, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, WILLIAMS, and WHALEY, Judges.
GREEN, Judge.
The plaintiff and her former husband (the taxpayer), now deceased, were citizens of the state of Texas during the period under consideration.
Two questions are involved in this case. One is whether the income of the husband derived in 1928 from rents of property acquired by him after marriage by gift, devise, or descent was at that time his separate property and taxable to him alone. The other is whether the claim for refund made by plaintiff was reconsidered so as to extend the period of limitations for recovery of an overpayment.
The determination of the first of these questions requires a construction of the Constitution of the state of Texas and the validity thereunder of a statute enacted by the Legislature of the state in 1925 by article 4613 which provides that "the rents and revenues derived" from real property of the husband acquired by him after marriage "by gift, devise, or descent, * * * shall be his separate property."
The income upon which the tax in controversy was levied was derived by the husband from real property acquired by descent. The Commissioner, in accordance with the terms of this statue, did not regard this income as community property,but assessed the tax against the husband upon the basis of his being the owner in entirety. The plaintiff, however,r contends that article 4613 was invalid under the Constitution of the state of Texas.
The question thus raised must be determined in accordance with the holdings of the courts of that state. It is true that Arnold v. Leonard, 114 Tex. 535, 273 S.W. 799, held a similar provision unconstitutional as to the wife's separate estate under certain provisions of the Constitution, but enforced another part of the same statute. Subsequently, in Stephens v. Stephens, Tex.Civ.App., 292 S.W. 290, 292, decided Feb. 23, 1927, the provision quoted from article 4613 was considered. The opinion stated:
On February 10, 1921, the date of the marriage between appellee and appellant, the law of 1917 (Laws 1917, c. 194), providing that the rents and revenues from the separate land from either spouse should be separate property, had been passed. This law, and the 1921 amendment thereto (Laws 1921, c. 130), on the account of the insufficiency of the caption to the bill, were held invalid. It was also held unconstitutional as to the wife's separate estate, as here separate property rights could neither be increased nor diminished because defined and fixed by section 15, art. 16, of the Constitution of the state. Arnold v. Leonard, 114 Tex. 535, 273 S.W. 799.
"The Constitution does not define the separate rights of the husband. The 1925 Compiled Statutes of Texas, art. 4613, adopted by the Legislature, re-enacted the provision making the rents and revenues from the husband's separate land the separate property of the husband, and, in our opinion, cures the defective caption to the bill." In the case last cited the question was whether oil derived from land which was the separate property of the husband was community property. The court went on to say that the record showed that a large portion of the oil in controversy for which pay was received was delivered "after article 4613 of the 1925 Statutes became effective," but in its final decision made a ruling which rendered it unnecessary to apply the provisions of that article. Nevertheless, we think the clear implication of the decision is that the provision under consideration was constitutional as to the property of the husband.
Plaintiff relies to some extent upon Commissioner v. Terry, 69 F.2d 969, decided March 24, 1934, in which the Circuit Court of Appeals for the Fifth Circuit held that income from the wife's separate property in Texas was community income in which each spouse had a half interest and was taxable one-half to each, but it will be observed that this is a different question from the one involved in the case at bar, the determination of which is controlled by the case of Stephens v. Stephens, supra.
Plaintiff relies mainly upon the decision of the Circuit Court of Appeals for the Fifth Circuit in Commissioner v. Wilson, 76 F.2d 766, decided April 4, 1935. In that case the court held that the provision of article 4613 was unconstitutional in so far as it undertakes to make the "rents and revenues derived" from the separate property of the husband his separate property. We think the opinion in the case last cited does not give sufficient weight to the decisions of the Texas courts, and the fact that the Constitution contains nothing forbidding such legislation. Consequently, we are unable to agree in the conclusion expressed therein.
As part of the reason for the decision made in the case last cited it is stated that the course of legislation in Texas indicates a purpose to treat the husband and wife alike in fixing their separate estates as against the community. This may be granted, but we think it affords no reason for holding provisions invalid which do not conflict with the Constitution. Hopkins v. Bacon, 282 U.S. 122, 51 S.Ct. 62, 75 L.Ed. 249, cited in the decision of the Circuit Court of Appeals, in our opinion, has no bearing as it dealt with what was conceded to be community property and the question to be determined was altogether different from the one involved in the case before us.
The Texas legislature in 1929 passed an act to amend articles 4613 and 4614, Acts 1929, c. 32, § 1, Vernon's Ann.Civ.St.Tex. arts. 4613, 4614, which had the effect of repealing the provisions with reference to the husband's separate estate as of the date of its enactment. But this action, as we think, merely tends to show that the Legislature considered the provisions of article 4613 as valid with reference to the husband's estate and in accordance with the "course of legislation" enacted the amendment in order that husband and wife might be treated alike. This amendment would not affect the taxable status of the taxpayer during the year for which the tax was assessed.
It follows from what we have said above that the challenged acts of the Commissioner of Internal Revenue must be sustained. This conclusion makes it unnecessary that we should pass upon the other questions raised and discussed by the respective parties, and the petition must be dismissed.
LITTLETON, Judge, did not hear this case and took no part in its decision.