Opinion
Docket No. 6383.
1947-06-26
MELANIE DENNERY MARKS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Gibbons Burke, Esq., for the petitioner. D. Louis Bergeron, Esq., for the respondent.
The petitioner, a resident of Louisiana, had paraphernal property. Held, on the facts, that it was administered by her husband, and the income was community income and improperly taxed to the petitioner only. Gibbons Burke, Esq., for the petitioner. D. Louis Bergeron, Esq., for the respondent.
This proceeding involves a deficiency in individual income taxes for the years 1939, 1940, and 1941, in the respective amounts of $2,374.24, $3,893.02, and $4,715.94.
The only issue involved is whether petitioner's husband, during the years 1939, 1940, and 1941, had the ‘administration‘ of her separate property to such an extent as to entitle him to report one-half of the income therefrom as his community one-half.
A stipulation of facts was filed. We adopt same by reference and find the facts therein set forth. Such parts thereof as it is considered necessary to set forth are included with other facts found from evidence adduced in our findings of fact.
FINDINGS OF FACT.
Petitioner is an individual and is a resident of New Orleans, Louisiana. Her tax returns for the period here in question were filed with the collector for the district of Louisiana. She was the daughter and only child of Charles Dennery, hereinafter referred to as the decedent, who died on February 23, 1939, and of Jeanette Frank Dennery, who died on November 9, 1919, as well as the granddaughter of Melanie Frank. Since October 20, 1931, she has been married to Sidney L. Marks, who is also a resident of New Orleans, Louisiana. Since prior to his marriage to petitioner and up to the time he went into military service in 1942, Sidney L. Marks was the manager for Louisiana of the New Orleans ordinary agency of the Prudential Insurance Co. of America. From 1932 to 1941 he derived approximately $6,000 to $18,000 annually from such source. His military service ended on November 20, 1944, and since then he has returned to his former employment.
Petitioner's mother died intestate, leaving her undivided one-half interest in the community property of herself and decedent to petitioner. According to the record of the District Court of New Orleans, the inventory disclosed the net value of petitioner's interest in the estate as $135,401.96.
Decedent from 1894 to 1923 operated a baker's supply business as a sole proprietorship in New Orleans, Louisiana. On January 2, 1923, the business was incorporated under the laws of the State of Louisiana under the name of Charles Dennery, Inc. The capital stock issued and outstanding on February 9, 1927, was $240,000, represented by 2,400 shares of the par value of $100 per share. Its sales aggregated $1,000,000 per annum for the years 1939, 1940, and 1941, and at the end of each of those years its balance sheets showed total assets of $525,922.04, $540,955.64, and $563,809.77, respectively.
Vesoul Realty & Investment Co., hereinafter referred to as Vesoul, is a corporation organized under the laws of the State of Louisiana on December 8, 1920, with its principal office located in New Orleans, Louisiana. It was organized as a holding company by Charles Dennery, members of the Dennery family, and Marcus Salmon, who had been a business associate of decedent for over 20 years. Its assets consisted of real estate holdings and investments in stocks, bonds, and mortgages. The capital stock issued and outstanding was $300,000, represented by 3,000 shares of the par value of $100 per share. Vesoul reported net income as follows: 1939, $60,697.23; 1940, $22,584.13; 1941, $23,701.13. Its balance sheets at the end of each of the same years disclosed total assets of $420,850.56, $417,220.26, and $422,286.33, respectively.
On January 22, 1932, petitioner personally receipted for $35,757.57 as her portion of the estate of Melanie Frank, her grandmother, which she received from the executor thereof. The securities constituting her share of the estate were actually delivered to the petitioner's husband. They were deposited in a bank box in the name of both husband and wife.
During 1934 and 1935 decedent transferred to petitioner 940 shares of Vesoul stock. After this distribution to petitioner, decedent was the owner of 200 shares.
Decedent carried a number of insurance policies on his life, made payable to either his estate or to petitioner. Among the policies were two with the Prudential Insurance Co. of America and one with the Metropolitan Life Insurance Co., each in the amount of $10,000. The Prudential policies were originally assigned by decedent to the petitioner on June 6, 1932; however, on December 5, 1934, decedent made an outright assignment thereof to petitioner. The Metropolitan policy was irrevocably assigned to the petitioner by decedent on November 20, 1934.
On February 23, 1939, decedent died testate, leaving a net estate of $459,825.54. Sidney L. Marks, his son-in-law, Marcus Salmon, a business associate for over 20 years, and Maurice Dennery, a brother who had also been a business associate of long standing, were named executors. Under the will and codicils, which were executed December 27, 1935, petitioner took a substantial part of the estate.
Prior to his death decedent had an interest in a pool or joint venture owned jointly by members of his family and operated under the name of ‘Charles Dennery et als.‘ It was organized in January 1921. On February 23, 1939, its net worth was $1,090,483.56. The ownership therein did not include either petitioner or her husband.
After the death of decedent the name was changed to ‘M. Dennery et als.‘ The petitioner had a 45 per cent interest in the ownership therein from January 1, 1940, to July 29, 1940, and a 38 per cent interest thereafter to December 31, 1942.
On July 29, 1940, petitioner, acting through her duly authorized agents and attorneys in fact, at the suggestion of her husband, created a trust estate out of her separate property for the benefit of her two children, Margaret Dennery Marks, born February 11, 1933, and Charles Dennery Marks, born November 20, 1935. The corpus of the trust consisted of 400 shares of Vesoul stock, valued at $56,340, and a 7 per cent interest in and to the pool known as ‘M. Dennery, et als.,‘ valued at $46,614.65. The trustees appointed were Sidney L. Marks, Marcus Salmon, and Maurice Dennery.
Neither the petitioner nor her husband were officers or directors of either Charles Dennery, Inc., or Vesoul, or manager of the pool prior to decedent's death. Thereafter her husband became a director in both corporations, and a manager of the pool, though he was not the owner of any interest in any of them. The only reason he became a director or manager was to take care of his wife's interests. She was not an officer or director of either corporation.
Rosen, Kammer, Wolff, Hopkins, and Burke have been the attorneys for the Dennery interests for a number of years. Rosen had also been a business confidant and traveling companion of decedent. Petitioner had known him all her life and had implicit trust in him. The interests which the attorneys represented were decedent, petitioner, Charles Dennery, Inc., Vesoul, Charles Dennery et al., and M. Dennery et al. The business address and principal place of business of the various companies and pools is 524 Magazine Street, New Orleans, Louisiana. Sidney Weil is the chief accounting officer of the companies and pools.
Petitioner has a savings account and two checking accounts at the Whitney National Bank of New Orleans. The checking accounts are under the names of Mrs. Sidney L. Marks and Mrs. Melanie D. Marks. In addition, petitioner and her husband, Sidney L. Marks, have had a safe-deposit box in that bank since January 14, 1932.
As to the checking account under the name of Mrs. Sidney L. Marks, all deposits therein made are monthly checks of $100 received from her husband, whereas substantially all deposits made to the Melanie D. Marks checking account are $1,200 monthly checks received from the ‘M. Dennery et als.‘ account. Petitioner writes approximately 40 to 50 checks monthly on her Melanie D. Marks account and 10 to 15 checks monthly on her Mrs. Sidney L. Marks account.
The income from the paraphernal property for the taxable year was returned on a community basis. The Commissioner included the entire amount in the income of the petitioner.
OPINION.
DISNEY, Judge:
During the taxable years petitioner received income from certain property consisting mainly of stocks in two family corporations, an interest in a family ‘pool‘ or informal partnership, and interest from insurance proceeds, left on deposit with insurance companies, which she owned as her separate or paraphernal property, as it is called in the law of Louisiana. The only question presented is whether the separate property of petitioner was ‘administered‘ by her husband.
Pertinent provisions of the Louisiana Civil Code are as follows:
Art. 2383. Definition.— All property which is not declared to be brought in marriage by the wife, or to be given her in consideration of the marriage or to belong to her at the time of the marriage, is paraphernal.
Art. 2384. Wife's right to administer.— The wife has the right to administer personally her paraphernal property, without the assistance of her husband.
Art. 2385. Wife failing to administer paraphernal property— Management by husband.— The paraphernal property, which is not administered by the wife separately and alone, is considered to be under the management of the husband.
Art. 2386. Fruits of paraphernal property— Ownership.— When the paraphernal property is administered by the husband, or by him and the wife indifferently, the fruits of the property, whether natural, civil, or the result of labor, belong to the conjugal partnership, if there exists a community of gains. If there do not, each party enjoys, as he chooses, that which comes to his hands; but the fruits and revenues, which are existing at the dissolution of the marriage, belong to the owner of the things which produce them. (As amended, Acts 1871, No. 87.)
Art. 2387. Wife— Assumption of administration of paraphernal property.—The wife who has left to her husband the administration of her paraphernal property, may afterwards withdraw it from him.
Art. 2402. Property forming community. * * * This partnership or community consists of the profits of all the effects of which the husband has the administration and enjoyment, either of right or in fact, of the produce of the reciprocal industry and labor of both husband and wife, and of the estate which they may acquire during the marriage, either by donations made jointly to them both, or by purchase, or in any other similar way, even although the purchase be only in the name of one of the two and not of both * * *
Petitioner relies on the one case of Commissioner v. Hyman, 135 Fed.(2d) 49, which affirmed the opinion of the Board of Tax Appeals, 46 B.T.A. 992. The question there was the same as in the instant case. The court in the Hyman case held that the taxpayer's husband managed and administered her separate property, and the facts were recited in the opinion of the Board as follows:
* * * Her (taxpayer) husband had entire charge of all business affairs relating to such property and conducted all correspondence in reference to the same without conference with taxpayer unless it was necessary to have her signature to some legal document. The husband made purchases and sales and borrowed money on his wife's securities, often acting without her knowledge. He paid all bills, using the income from petitioner's property when necessary. The accountant who kept the records of petitioner's business transactions had no contact with petitioner and never met her or communicated with her until the day of the hearing, all of his instructions being received from the husband. The husband did not act as a mere agent of his wife (cf. Risher v. Risher (1934), 179 La. 1; 153 So. 1; Guss v. Matthews (1934), 179 La. 1033; 155 So. 765), nor did he act under a power of attorney.
Article 2385 raises a presumption that the administration of the wife's separate property is under the management of the husband if the wife fails to administer it separately and alone. In Bank of Coushatta v. Coats, 170 La. 163; 127 So. 587, it appears that all that it is necessary to show is that the wife disavows any claim of management of her paraphernal property and with such arises the presumption that the separate property is under the administration of the husband. However, in a later decision, the Court of Appeals of Louisiana, in Trorlicht v. Collector of Revenue, 25 So.(2d) 547, recognized the presumption, but stated that the question depended on ‘whether the husband had a hand in the management or administration of the separate property of the wife.‘ In other words, the question is one of fact. Rosemary Herold Lazard v. Commissioner, 153 Fed.(2d) 348, holds that the presumption under the Louisiana Code that the husband is administering the separate property of the wife is not sufficient to overcome the presumption of correctness of the Commissioner's determination.
The Lazard case makes the following comment as to what is meant by leaving the administration of the wife's property to the husband:
What is meant by leaving the administration of the wife's property to the husband is the exercise of a voluntary election by which the wife abandons her own rights of authority and control and suffers the husband to manage, not as her agent and subject to her authority, but as if the property were his own. Miller v. Handy, 33 La.Ann. 160, 164; Risher v. Risher, 179 La. 1; Guss v. Mathews, 179 La. 1033.
The court in the Trorlicht case held that the facts did not show that the husband, either separately and alone or indifferently with the wife, administered the property. The court had the following to say as to its holding on the facts:
* * * We say this because we think that the mere clipping of coupons from bonds or the assisting of the wife in going to the bank box, or the giving of advice now and then, does not constitute such an administration by the husband as is contemplated by the Code * * * .
The Supreme Court of Louisiana, in Guss v. Matthews, 179 La. 1033; 155 So. 765, made the following statement in holding that the husband did not administer the wife's separate property:
* * * The testimony shows, however, that the husband never at any time administered this property. On the contrary, it was always under the control and management of Mrs. Mathews. After the couple left Jonesville, where all the property was situated, it was looked after by relatives of Mrs. Mathews, who collected the major portion of the revenues and remitted them to her by check at Bunkie, La. Some of these checks went into the hands of Mr. Mathews, who cashed them and used the proceeds. Mrs. Mathews testified that she always consulted her husband with reference to business transactions, but that she had never at any time left her property to his management. He gave testimony to the same effect, and their testimony is corroborated by that of her relatives in Jonesville who looked after the property for her.
Using these cases as a guide as to what does and does not constitute the administration or management of the wife's separate property by the husband, within the intendment of the statute, we conclude, after examination of all facts of record, that the husband of petitioner here exercised such control over her separate property that the income therefrom should be considered as constituting part of the community income. As noted above, the question is one of fact. It is evident that the husband took an active part in the management of her separate property. He is well acquainted with business operations because of the position he holds with the insurance company with which he is connected. He was elected to the board of directors of the two family corporations in which petitioner owned stock and he owned none. The same is true for the family ‘pool‘ or informal partnership. Petitioner owned a substantial interest, while the husband owned no interest, yet he was elected to a place on its managing board. She was not a director in either corporation. Her husband served as director of the corporations and as manager of the ‘pool‘ only to take care of his wife's interests. Recently in Clay v. United States, 161 Fed.(2d) 607, a Louisiana community property case, the Court, in concluding there was no management by the husband, indicated that it considered important the facts that the husband was not a director of corporations from which the wife's paraphernal income was obtained, and attended stockholders' meetings thereof with his wife's express power of attorney. Here, the facts are to the contrary. He was a director and did not act under her power of attorney. We think the husband did not merely conduct her affairs as her agent, but had general management within that term in the statute.
Decision will be entered for the petitioner.