Opinion
Docket No. 59600.
1959-03-31
THEODORE MILGROOM, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
James B. Muldoon, Esq., for the petitioner. Chester M. Howe, Esq., for the respondent.
James B. Muldoon, Esq., for the petitioner. Chester M. Howe, Esq., for the respondent.
1. Respondent disallowed exemptions claimed by petitioner on account of three children for the reason that he ‘failed to substantiate (his) claim to these dependency credits.’ Held, facts of record warrant conclusion that the children received more than one-half of their support from petitioner during the taxable year and that petitioner is entitled to such dependency credits.
2. During taxable year and prior to petitioner's divorce from his wife, petitioner and his wife sold their home, located in Massachusetts, to which they held title as tenants by the entirety. At the time of the sale, taxes and mortgage interest were due and payable with regard to this property. As a part of the sale transaction the purchasers paid the taxes and interest and deducted the amount of such payments from the purchase price of the property. Under law of Massachusetts petitioner was obligated to pay all taxes and interest on such property, and was entitled to possession of proceeds from its sale. Held, total amount of such taxes and interest so paid deductible by petitioner.
Respondent determined a deficiency in petitioner's income tax for the year 1953 in the amount of $414.60, with the explanation that ‘(e)xemptions for three children are disallowed as you failed to substantiate your claim to these dependency credits.’ By an ‘Amendment to Answer’ respondent claimed that the deficiency should be increased by the sum of $71.86 on the ground that of the deductions allowed to petitioner for interest and taxes on real estate in the total amount of $584.26 only one-half thereof, or $292.13, was properly allowable.
FINDINGS OF FACT.
We find the facts stipulated to be as stipulated and incorporate herein by this reference the stipulation and the exhibit attached thereto.
Petitioner, who is an accountant, lives in Boston and filed his income tax return for the year 1953 with the director of internal revenue for the district of Massachusetts, reporting his income on the cash basis. In this return petitioner reported gross income in the amount of $3,925.99 and net income in the amount of $3,329.26. He claimed exemptions on account of himself and three children, and took deductions on account of real estate taxes and mortgage interest in the respective amounts of $240 and $344.26.
In October 1952 petitioner and his then wife purchased a home in Natick, Massachusetts, taking title as tenants by the entirety.
In 1953 petitioner was separated from his wife. In April of that year the Probate Court at Cambridge, Massachusetts, granted a divorce decree nisi to petitioner. In that decree the custody of the three children was awarded to petitioner's wife with petitioner having the right ‘to see and have said children every Sunday and on alternating Saturdays beginning May 2, 1953 and for one month vacation in the summer.’ Petitioner was ordered to pay to his wife for the maintenance of the children the sum of $30 a week. The decree of divorce did not become absolute until October 29, 1953.
From January 1 to June 1, 1953, petitioner's wife and his three children lived in the home at Natick. This home was sold at no profit by petitioner and his wife on June 18, 1953. During the balance of the year 1953 the wife and the three children lived with the wife's parents in their rented apartment in Brookline, Massachusetts.
From January 9 to April 24, 1953, petitioner voluntarily paid to his wife for the support of his children the sum of $25 a week pursuant to an agreement made by his attorney and his wife's attorney to obviate the necessity of a support order. From April 29 to December 26, 1953, petitioner paid $30 a week for the support of his children, pursuant to the court order. During the period April 30 to December 31, 1953, petitioner expended $175 on meals for his children. In that year the children were 6 years, 4 years, and 1 year old. He was not informed by his wife that she expended any money for the support of the children in 1953. In connection with the occupancy of the home in Natick during the period January 1 to June 1, 1953, petitioner expended for electricity, telephone, water, and fuel the respective amounts of $20.60, $23.34, $44.30, and $53.43. During this same period petitioner expended the sum of $15 for a medical bill for one of the children.
In 1953 petitioner paid a total of $1,710.83, or an average weekly payment of $32.90 for the support of his children. During the 2 years prior to 1953 the average weekly cost to petitioner for the support of two children was approximately $20 a week. The standard of living for the children in 1953 was the same as in the 2 prior years.
Petitioner's three children received more than one-half of their support from petitioner in 1953.
The purchase price of the home in Natick, purchased by petitioner and his wife in 1952, was the sum of $13,990. Of this amount $990 was paid in cash and a mortgage executed securing the balance. The cash payment of $990 was made up partially by the cash proceeds from the sale of another house, the title of which was held in the names of petitioner and his wife as tenants by the entirety, and partially by savings from petitioner's ‘disability monthly check from the Veterans Administration.’ The payments made on the house referred to in the preceding sentence were from petitioner's funds. During the period when petitioner and his wife held title to the home in Natick, no payments were made by petitioner on account of mortgage principal due, mortgage interest, or real estate taxes. At the time this property was sold in June 1953 there was unpaid mortgage interest due in the sum of $344.26 and unpaid real estate taxes due in the sum of $240. These amounts were paid by the persons who purchased this Natick property from petitioner and his wife and were credited against the sales proceeds.
OPINION.
KERN, Judge:
The first question presented herein is whether petitioner is entitled to exemptions for his three children during the year 1953. The resolution of this question depends on whether the children received more than one-half of their support from petitioner during that year. Respondent disallowed the exemptions because petitioner, according to the deficiency notice, ‘failed to substantiate (his) claim to these dependency credits.’ The only testimony adduced at the trial herein was that of petitioner. Neither party called other witnesses. There is nothing to cause us to disbelieve or even doubt any part of petitioner's testimony. We are troubled only by the problem of whether this testimony, together with the facts stipulated, is sufficient to warrant a decision of this issue in favor of petitioner.
Respondent has not determined that petitioner's children did not receive more than one-half of their support from petitioner during the taxable year. He has merely disallowed the exemptions because of petitioner's failure ‘to substantiate (his) claim to these dependency credits.’ It is established by the record that petitioner contributed $1,710.83 (an average weekly payment of $32.90) to the support of his children during 1953, that his wife through her attorney agreed on the sum of $25 a week as an amount to be paid for the support of the children pending the divorce action, that the court having jurisdiction over the divorce action ordered the payment of $30 a week ‘for the maintenance of said children,‘ that the average weekly cost of the support of two children in 1951 and 1952 was the approximate amount of $20, and that the standard of living of the children in 1953 was no higher than in prior years. In view of the pleadings and record herein it is our opinion that the facts established by the stipulation and petitioner's testimony warrant the conclusion that petitioner's children received more than one-half of their support from petitioner during the taxable year and that petitioner is therefore entitled to the dependency credits claimed by him and disallowed by respondent.
The deductibility of the full amount of the taxes and interest paid in 1953 depends on whether they were obligations owed by petitioner and whether they may be considered as having been paid by him in the taxable year.
The common law conception of a tenancy by the entirety exists in Massachusetts. See Robert C. Cooley, 27 B.T.A. 986, affd. 75 F.2d 188, and cases therein cited. Accordingly, petitioner was liable for the payment of all taxes and mortgage interest with regard to the property held in the names of petitioner and his wife as tenants by the entirety at the time when they were paid. F. C. Nicodemus, Jr., 26 B.T.A. 125.
A more difficult question is whether the taxes and interest may be considered as having been paid by the petitioner. As a matter of mechanics the remittances by which they were paid were made by the persons purchasing the real estate who thereupon subtracted the amounts paid from the purchase price payable to the entirety composed of petitioner and his then wife. Thus in effect they were paid from the proceeds of the sale of the property held in the names of petitioner and his wife as tenants by the entirety. The crucial question is whether petitioner was entitled to the receipt of the entire amount of those proceeds or whether he was entitled to the receipt of only half of any payments made on account of such proceeds. This is a question upon which State law is controlling. See 10 Mertens, Law of Federal Income Taxation sec. 61.04, and cases therein cited. In Robert C. Cooley, supra at 987, 988, we commented on the law of Massachusetts with regard to tenancies by the entirety as follows:
In Licker v. Gluskin (1929), 265 Mass. 403; 164 N.E. 613, the Supreme Judicial Court of Massachusetts, after analyzing the various decisions on the subject of estates by the entirety, said:
‘Thus by a series of decisions, it is established that the rights of a husband in an estate by the entirety are the same as they existed at common law.’
At common law the husband during coverture and as between himself and wife, had the absolute and exclusive right to the control, use, possession, rents, issues and profits of property held as tenants by the entirety. The common law rule is followed in Massachusetts.
The more recent case of Pineo v. White, 320 Mass. 487, 70 N.E.2d 294, reaffirms the law of Massachusetts on this point.
Since a husband is entitled under the law of Massachusetts to the possession of property held in a tenancy by the entirety, it would follow that he is entitled to the possession of the proceeds of such property. See Childs v. Childs, 293 Mass. 67, 199 N.E. 383. Therefore we conclude that petitioner was entitled to the proceeds of the sale of the property here in question, and when a part of such proceeds was, with his consent, expended for the payment of taxes and interest for which he was liable there was in effect a payment by him of such taxes and interest in their total amount.
Decision will be entered for petitioner.