Opinion
Docket No. 9582.
1947-06-26
MARY LOUISE GUSTE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
William J. Guste, Esq., for the petitioner. D. Louis Bergeron, Esq., for the respondent.
The petitioner, a resident of Louisiana, had paraphernal property inherited from her father, consisting in large part of a one-third interest in ‘Antoine's‘ Restaurant. Her husband is an attorney. The restaurant was leased to her brother, the rental contracted for being deposited in bank in a joint account owned by the three heirs, and subject to the check of the brother-lessee. Though her husband acted for the heirs and petitioner in some matters, held, on the facts, that paraphernal property is not shown to have been under his administration so as to require income to be taxed as that of the community. William J. Guste, Esq., for the petitioner. D. Louis Bergeron, Esq., for the respondent.
This proceedings involves a deficiency in individual income tax for the year 1941 in the amount of $8,630.99.
The only issue involved is whether petitioner's husband, during the taxable year, 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, subject to corrections in the light of the evidence adduced. 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 a resident of New Orleans, Louisiana, and filed her income tax return for the year in question with the collector of internal revenue for the district of Louisiana. She is the wife of William J. Guste, an attorney associated with a law firm in New Orleans. She is the daughter of the late Jules Alciatore, hereinafter referred to as decedent, and of Althea Roy Alciatore, hereinafter referred to as the widow. She is also the sister of Roy L. Alciatore and Jules C. Alciatore. Decedent was the son of the late Antoine Alciatore, who was the founder of ‘Antoine's‘ Restaurant, located in the Vieux Carre of New Orleans and continuously operated by a member of the Alciatore family since 1840.
For a number of years, prior to decedent's death in 1934, Rol L. Alciatore had operated ‘Antoine's‘ under a leasing arrangement. The rental of $12,000 per annum was reported as income by decedent until September 11, 1934.
Decedent died on September 11, 1934, leaving a holographic will dated January 21, 1926. The will appointed the widow as executrix and left decedent's entire estate to her. The will was filed for probate and on October 3, 1934, the widow was appointed executrix by the court. As disclosed by the records in Succession of Jules Alciatore, Docket No. 209046 of the Civil District Court for the Parish of Orleans, Louisiana, the inventory filed with the court disclosed the new value of the estate to be $347,897.65, of which the decedent's half was $173,948.82 and the widow's half the same amount.
The widow renounced her legacy under the will, as well as any interest in the succession. As a result and as disclosed by the decree of the court dated July 19, 1935, the three children, including petitioner, each inherited a one-third interest of $57,982.94 in decedent's $173,948.82 estate. The widow was recognized as the surviving spouse and widow in community and, as such, was placed in possession of her undivided one-half interest, and the three children, including petitioner herein, as sole heirs at law, were recognized and, as such, were placed in possession of decedent's undivided interest.
After judgment of possession, previously referred to above, the properties were partitioned between the widow and the children, with the three children acquiring the restaurant properties, real estate, and equipment.
On March 31, 1936, petitioner and Roy L. and Jules C. Alciatore, as joint owners of the premises and equipment known and operated as ‘Antoine's,‘ executed a lease agreement under the terms of which Roy L. had the exclusive ownership and operation of ‘Antoine's‘ and to which he was to devote his best energies consistent with its long standing reputation and policies. He was required to pay as rentals all income after payment of all maintenance and operation costs and a special payment of $600 per month to himself. A payment was to be made monthly, beginning in April 1936, of $1,200 so long as the profits warranted it. In addition, on December 31 of each year the balance remaining in Roy L.'s personal accounts over and above $20,000 operating capital was also to be deposited in a special joint account, known for convenience as the ‘Roy L. Alciatore, Agent‘ account, but owned by the three heirs equally. The latter deposit was to be made after the books had been closed by the bookkeeper and the accounts verified by independent auditors. The agreement has been orally extended from year to year through 1941.
Roy L. Alciatore keeps his books on the accrual basis of accounting and files his individual income tax returns on the basis of a fiscal year ending August 31. The fiscal year herein involved is the fiscal year ended August 31, 1941, in so far as it relates to the operations of ‘Antoine's‘ and the rentals from the property, designated as Pleasant Street and Fairmont Drive. Roy L. Alciatore maintains three separate personal bank accounts wherein all receipts and disbursements from the operations, that is, sale of food and beverages, at ‘Antoine's‘ are deposited. There is a building account, separate from the restaurant books, called the ‘Jules C. Alciatore, et al.‘ account. At the end of each year, after the restaurant's books are closed, a liability of Roy L. Alciatore is set up on ‘Antoine's‘ books, to the heirs.
Neither petitioner nor Jules C. Alciatore takes any active part in the operations of ‘Antoine's.‘ Jules C. Alciatore, for a number of years has been absent from New Orleans, attending school, teaching, and serving in the United States Navy.
For the fiscal year ended August 31, 1941, the profit and loss statement of ‘Antoine's‘ disclosed the following:
+-------------------------------------------------------------------------+ ¦Gross revenue ¦ ¦$325,509.64¦ +-------------------------------------------------+-----------+-----------¦ ¦Less: ¦ ¦ ¦ +-------------------------------------------------+-----------+-----------¦ ¦Cost of food sold ¦$128,256.55¦ ¦ +-------------------------------------------------+-----------+-----------¦ ¦Cost of preparing and serving ¦20,961.86 ¦ ¦ +-------------------------------------------------+-----------+-----------¦ ¦General expenses ¦72,699.06 ¦ ¦ +-------------------------------------------------+-----------+-----------¦ ¦ ¦_________ ¦221,917.47 ¦ +-------------------------------------------------+-----------+-----------¦ ¦ ¦ ¦_________ ¦ +-------------------------------------------------+-----------+-----------¦ ¦Income ¦ ¦103,592.17 ¦ +-------------------------------------------------+-----------+-----------¦ ¦Other income ¦ ¦1,696.37 ¦ +-------------------------------------------------+-----------+-----------¦ ¦ ¦ ¦_________ ¦ +-------------------------------------------------+-----------+-----------¦ ¦Total income ¦ ¦105,288.54 ¦ +-------------------------------------------------+-----------+-----------¦ ¦Less amount paid Roy L. Alciatore under March 31,¦ ¦ ¦ +-------------------------------------------------+-----------+-----------¦ ¦1936, agreement ¦$7,200.00 ¦ ¦ +-------------------------------------------------+-----------+-----------¦ ¦Distribution: ¦ ¦ ¦ +-------------------------------------------------+-----------+-----------¦ ¦Petitioner ¦32,696.18 ¦ ¦ +-------------------------------------------------+-----------+-----------¦ ¦Jules C. Alciatore ¦32,696.18 ¦ ¦ +-------------------------------------------------+-----------+-----------¦ ¦Roy L. Alciatore ¦32,696.18 ¦ ¦ +-------------------------------------------------+-----------+-----------¦ ¦ ¦_ ¦105.288.54 ¦ +-------------------------------------------------------------------------+
The income from rentals on properties located at Pleasant Street and Fairmont Drive, based on petitioner's calendar year, was as follows:
+-----------------------------------------+ ¦Gross rentals ¦ ¦$1,543.35¦ +---------------------+---------+---------¦ ¦Expenses of operation¦$9,528.47¦ ¦ +---------------------+---------+---------¦ ¦Legal and auditing ¦1,150.00 ¦ ¦ +---------------------+---------+---------¦ ¦Loss from rentals ¦_ ¦10,678.47¦ +---------------------+---------+---------¦ ¦ ¦ ¦_ ¦ +---------------------+---------+---------¦ ¦ ¦ ¦9,135.12 ¦ +---------------------+---------+---------¦ ¦Distribution of loss:¦ ¦ ¦ +---------------------+---------+---------¦ ¦Petitioner ¦3,045.04 ¦ ¦ +---------------------+---------+---------¦ ¦Jules C. Alciatore ¦3,045.04 ¦ ¦ +---------------------+---------+---------¦ ¦Roy L. Alciatore ¦3,045.04 ¦ ¦ +---------------------+---------+---------¦ ¦ ¦_ ¦9,135.12 ¦ +-----------------------------------------+
The above receipts and disbursements from the two properties were not included in the operations of the restaurant, but in the ‘Jules C. Alciatore, et al.‘ account, which was kept by a part time bookkeeper, and periodically closed out in the ‘Roy L. Alciatore, Agent‘ account.
On October 22, 1937, June 6, 1939, and April 19, 1940, there were purchased for and issued to each of the three children annuity contracts as follows:
+-----------------------------------------------------------------------------+ ¦Oct. 22, 1937, New York Life Insurance Co ¦$28,709.40¦ +------------------------------------------------------------------+----------¦ ¦June 6, 1939, Equitable Life Assurance Society of the United ¦29,488.52 ¦ ¦States ¦ ¦ +------------------------------------------------------------------+----------¦ ¦Apr. 19, 1940, Metropolitan Life Insurance Co ¦28,805.70 ¦ +-----------------------------------------------------------------------------+
The payments for the above were made from the ‘Roy L. Alciatore, Agent‘ account. Since the inception of the above annuity contracts, petitioner has annually received income therefrom. No withdrawals could be made from said special account except by Roy L. Alciatore, who was the only one who could sign checks on the account.
In arriving at the net income they considered all income, including the income from petitioner's separate property, except from the sale of capital assets, as community income.
Emile G. Haro, Jr., is a part time bookkeeper for ‘Antoine's,‘ working under the supervision of Roy L. Alciatore. He is also bookkeeper for ‘Jules C. Alciatore, et al.‘ Haro on numerous occasions discussed with William J. Guste matters relative to the interests of the petitioner, and never discussed them with her. He was not familiar with the account known as ‘Roy L. Alciatore, Agent.‘ John D. Murphy and Louis C. Doody have been the independent certified public accountants of the various interests herein involved and, as such, have periodically verified the accounts and prepared the returns for the petitioner and her husband, as well as for her brothers and their spouses. Doody conferred with William J. Guste for information relative to petitioner's returns and her interests in the restaurant. Until the day of trial he had never seen or met the petitioner. The discussion as to the property would be the same whether as to petitioner or her brothers. He discussed problems as to the restaurant with Roy L. Alciatore, and legal and other problems as to the property with William Guste.
William J. Guste has been for a number of years the attorney and legal adviser for ‘Antoine's‘ and for the heirs of decedent, as well as for the estate. During the year 1941 he received legal fees of $1,000 in connection with the operation of ‘Antoine's.‘ He also received fees at various times for performing certain services for representing the interests of petitioner and her brothers. The petitioner was not familiar with the handling of the properties of the estate of Jules C. Alciatore or the operation of the restaurant. She trusted her husband and required no reports of him. She did not know the income from the restaurant. She had education in high school and a year in finishing school, but no business education. She had not worked in an office. Roy L. Alciatore discussed with Guste matters relative to the heirs' interests. The checks on the ‘Roy L. Alciatore Agent‘ account were prepared by Guste, who keeps the check book, but signed by Roy L. Alciatore. Guste attended to the matter of purchase of the annuities. Roy L. Alciatore had never discussed family property matters with either his sister or his brother. Guste handles a plantation in southwest Louisiana owned by the heirs.
On March 16, 1942, petitioner and William J. Guste filed their individual income tax returns for the calendar year 1941, disclosing a total net income of $51,753.40, which was divided between them on a community basis as follows: petitioner, $25,873.99; William J. Guste, $25,879.41. The Commissioner included the entire amount in the income of the petitioner.
OPINION.
DISNEY, Judge:
The issue here is concerned primarily with income from three sources: Income from the operation of ‘Antoine's‘ Restaurant; income from rentals on properties located at Pleasant Street and Fairmont Drive; and income from annuities. The only question presented is whether the paraphernal 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 this 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's interest in the restaurant and the two above mentioned properties was inherited by her from her father and thereby became her paraphernal or separate property. The evidence is clear that the complete operation of the restaurant is in the hands of petitioner's brother, Roy L. Alciatore, under a lease executed by the joint owners. Under the lease the profits of ‘Antoine's‘ Restaurant are placed in a special account, designated as ‘Roy L. Alciatore, Agent.‘ The record of income from the properties located at Pleasant Street and Fairmont Drive was kept in separate records under the name of ‘Jules C. Alciatore, et al.‘ There was some indication in the evidence that the supervision of this property, and also a plantation, was ‘handled‘ by petitioner's husband, but there was no evidence as to what management or administration was necessary. The same bookkeeper kept these records who kept the accounts for ‘Antoine's‘ Restaurant. The account known as ‘Jules C. Alciatore, et al.‘ was periodically closed out in the ‘Roy L. Alciatore, Agent‘ account. Petitioner claims, on brief, that her husband had complete control over this account, stressing the fact that the checks to disburse any funds therefrom were drawn in his office. We can not agree. The only way that money could be dispersed from the ‘Roy L. Alciatore, Agent‘ account was by Roy L. Alciatore's signature on the check. We place much more significance on the fact of the necessity of a signature on a check than of the mechanics of drawing it. Merely keeping the checkbook and drawing checks for proceeds from property managed by the brother, fails to indicate management by the husband.
It is true that petitioner's husband rendered some services for ‘Antoine's‘ Restaurant for which he received compensation, but it can not be said that these services were rendered as part of the administration or management of petitioner's paraphernal property, because her brother, Roy L. Alciatore, had complete control over the management of the restaurant through the lease. There is no evidence as to what part petitioner's husband had in the signing of the lease. According to the instrument, it was executed by petitioner. She also signed her income tax return for 1941, which was prepared by a certified public accountant.
There is no showing by the evidence that any administration or management is necessary in connection with the annuities here in question. Considering the testimony of Roy L. Alciatore, we can not conclude that the investigation of the companies in order to select the annuities and the questioning of the representatives of the companies and the papers and the contracts with such companies on the part of petitioner's husband were sufficient to constitute administration or management of this part of petitioner's paraphernal property. This testimony indicates that what was done on the investigation was done for all of the heirs having an interest in the ‘Roy L. Alciatore, Agent‘ account, and not for petitioner alone. Other evidence indicates that, when the time of petitioner's husband was taken in matters concerning the three heirs, he received compensation for such services, ‘because it does require some of his time.‘
The record does not disclose how the ‘Roy L. Alciatore, Agent‘ account is handled. The only evidence before us as to any disbursements from the account was the purchase of certain annuity contracts which were issued to each of the three children (of the decedent).
Petitioner, on direct examination, testified as follows:
Q Do you require any consent on your part for any action taken by your husband in respect to the handling of your estate?
A No, I trust him implicitly and I never know what is going on and I am perfectly happy.
Q Do you require any report to you as to what is being done?
A None whatever.
Q Do you place any restriction on the handling and control of your interest by your husband?
A Certainly not.
Such statements as these are too general to be considered as proof of actual administration or management on the part of the husband. Lack of requirement of reports is nothing, unless there is management of the nature required by the statute, to report. The statements smack of conclusion rather than of fact, and we must form a conclusion from all of the facts at hand. The mere disclaimer of interest in management of such property is not sufficient to show the management on the part of the husband. Rosemary Herold Lazard v. Commissioner, 153 Fed.(2d) 348, affirming 5 T.C. 277.
The Lazard case was decided under the Louisiana law which we are here considering, and it makes the following comment as to what is required of the husband to show that he is administering the separate property of his wife:
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.
In the Lazard case the wife endorsed checks received as proceeds from the paraphernal property and turned them over to her husband for deposit in his bank account and used for family purposes, yet we find no administration by the husband. We pointed out, citing Guss v. Mathews, 179 La. 1033, that collection of rents by a husband from paraphernal property is no indication of management by him. The proof here in our view is no stronger. Moreover, in the Lazard case we pointed out that any presumption of the husband's management from lack of actual administration by the wife separately and alone, in the language of section 2385, Louisiana Civil Code, is met by the presumption of correctness of the Commissioner's determination. The petitioner relies on such presumption, citing Bank of Coushatta v. Coats, 170 La. 163; 127 So. 587, but we think such presumption can not control here. The question is here one not of presumption, but of fact, as to whether the husband administered the paraphernal property. In the recent case of Clay v. United States, 161 Fed.(2d) 607, from Louisiana, the court points out that the wife may administer, though her husband assists under her authority, and particularly that certain corporations producing paraphernal income were in the hands of their officers, not of the husband. Here, obviously, the restaurant, the principal source of income, was not under the administration of the husband. We think no proper showing has been made that the husband acted as administrator and manager of his wife's estate.
It was held in the following cases that the husband was not shown to have administered the paraphernal property either separately and alone, or indifferently with the wife. Bank of Coushatta v. Coats, supra; Guss v. Mathews, supra; Trorlicht v. Collector of Revenue, 25 So.(2d) 547; Lucas v. Commissioner, 134 Fed.(2d) 319.
Commissioner v. Hyman, 135 Fed.(2d) 49, affirming 46 B.T.A. 992, relied on by the petitioner, in our opinion contains important facts not here present. The husband borrowed money, often acting without her knowledge. He paid all bills, using the paraphernal income if necessary. He had ‘entire charge of all business affairs relating to such property.‘ Though it is true that there is some similarity in the two cases, such as accountant's lack of contact with the wife, nevertheless, we consider that fact of lesser importance and not sufficient to govern. Under the Trorlicht and Lucas cases, supra, even turning property over to a husband, and the fact that the wife did not attempt to manage her own property, are not sufficient to demonstrate administration by the husband. The income from the paraphernal property is not shown to have been expended for the community— such as family living expense. A part, at least, was expended for the petitioner's separate interest, in the purchase of an annuity for her.
The petitioner urges inconsistency on the part of the Commissioner in his treatment of income from the paraphernal property in other years and his abandonment of a previous view, as to 1941, that there was a partnership arrangement. This would not control. Error is not to be perpetuated. Considering the activities of petitioner's husband in the light of the cases above examined, we conclude that there has not been sufficient showing that he administered petitioner's paraphernal property.
Decision will be entered for the respondent.