239 Syllabus INA CLAIRE, FORMERLY INA CLAIRE GILBERT, V. THE UNITED STATES [No. 44026. Decided October 7, 1940. Defendant's motion for new trial overruled January 6, 1941] On the Proofs Income tax; assessment under agreement as to community property. Where taxpayer and her husband, residents of the State of California, on May 31, 1930, entered into a written agreement under the terms of which all the income earned by each was to be the sole and separate property of the party receiving it, free from the community rights of the other under the laws of California, it is held that taxpayer's income for the years 1930 and 1931 was taxable in accordance with said agreement and not in accordance with the community property laws of the State. Hickman v. Helvering, 70 Fed. (2d) 985; Marshall v. United States, 88 C. Cls. 393; 308 U. S. 597. Same; reversal of credits without authority.-Where taxpayer and her husband requested and agreed in a written consent that any and all overassessments against either might be applied as credits against any deficiencies assessed against the other, and where in accordance with such agreement overassessments against her husband for the years 1930 and 1931 were applied as credits against the deficiencies assessed against plaintiff for said years, it is held that the Commissioner of Internal Revenue was without authority to reverse the credits without the consent of all parties, and plaintiff is accordingly entitled to recover. Same; "equitable estoppel."-Where plaintiff on May 25, 1935, filed claims for refund for the years 1930 and 1931, which were rejected on March 5, 1937, by the Commissioner, who in his letter of rejection refused to follow the decision in Helvering v. Hickman; and where subsequently the Commissioner decided he would follow the Hickman case, and accordingly plaintiff asked for reconsideration of her claim for refund; it is held that consideration of said claim was not precluded by "equitable estoppel." Same; functus officio.-Where consent filed by taxpayer and her husband on December 1, 1932, and June 1, 1933, at which times there was a deficiency outstanding against the plaintiff and overassessments against her husband, had been fully consummated; it is held that such consent agreements had become functus officio, and could not be subsequently availed of to rescind the action previously taken thereunder. Reporter's Statement of the Case 92 C. Cls. Same; claim for refund within time limits.-Recovery is limited to amounts paid for which claim for refund was filed within time limit, with interest at 6 percent from dates when payments were made. Same.-Where applications of overassessments of income taxes against taxpayer's husband to taxpayer's deficiency was made more than 2 years prior to the filing of claim for refund, it is held plaintiff is not entitled to recover any amount on account of these applications. The Reporter's statement of the case: Mr. Joseph D. Brady for the plaintiff. Mr. Joseph H. Sheppard, with whom was Mr. Assistant Attorney General Samuel O. Clark, Jr., for the defendant. Messrs. Robert N. Anderson and Fred K. Dyar were on the brief. The court made special findings of fact as follows: 1. During the years 1930 and 1931 the plaintiff was the wife of John Gilbert, from whom she was divorced by a final decree entered August 6, 1932. Each party was engaged in the motion-picture or theatrical business, and was a resident of Los Angeles, California. 2. On May 31, 1930, the plaintiff and her husband entered into a written agreement concerning their property, which, in substance, provided in part as follows: That no community property had been accumulated or acquired, and that all property belonging to either party was the separate property of each, having been acquired by money earned or with proceeds of investments prior to the marriage of the parties; and that all earnings, commissions, bonuses, or remunerations of any kind which should thereafter be received or acquired by either party were to be the sole and separate property of the party so receiving or acquiring the same, free from the claim of the other party to any community rights therein. 3. On July 15, 1931, plaintiff and her husband executed a property settlement in contemplation of a divorce. This property settlement made no changes in the foregoing agreement set out in finding 2. 239 Reporter's Statement of the Case 4. On March 14, 1931, plaintiff filed her Federal income tax return for the calendar year 1930, disclosing a net income of $55,922.24, and a resultant tax liability of $5,736.37, all of which was paid more than two years prior to the filing of the claim for refund hereafter mentioned. Plaintiff's husband, John Gilbert, filed his Federal income tax return for the calendar year 1930 on March 14, 1931, disclosing a net income of $410,153.72 and a tax liability of $93,204.05, all of which has been paid. 5. On March 15, 1932, plaintiff filed her Federal income tax return for the calendar year 1931, reporting a net income of $56,703.33 and a tax liability of $5,874.82, all of which was paid more than two years prior to the filing of the claim for refund. Plaintiff's husband, John Gilbert, filed his Federal income tax return for the calendar year 1931 on March 15, 1932, and reported therein a net income of $470,952.52 and a tax liability of $108,280.79, all of which has been paid. 6. After an audit the Commissioner of Internal Revenue determined that the income of the plaintiff and of John Gilbert for the calendar years 1930 and 1931 should, for Federal income tax purposes, be allocated according to the community property laws of the State of California; that is, one-half of the income of each should be attributed to the other. As a result of this ruling and certain other noncontested adjustments the Commissioner made the following determination: (a) Deficiencies in tax were asserted against plaintiff in amounts of $49,130.71 and $52,802.51 for the years 1930 and 1931, respectively; (b) Overassessments and overpayments were determined in favor of plaintiff's husband, John Gilbert, in amounts of $40,393.88 and $49,413.79 for the years 1930 and 1931, respectively. 7. The aforesaid deficiencies were duly assessed against the plaintiff with interest thereon on assessment lists approved by the Commissioner of Internal Revenue on March 11, 1933, as to the year 1930, and on September 16, 1933, as to the year 1931. The aforesaid overassessments in favor of John Gilbert were made the subject of Certificates of Overassessment which Reporter's Statement of the Case 92 C. Cls. were listed on Schedule of Overassessments No. 49399 approved by the Commissioner on March 16, 1933, as to the year 1930, and on Schedule No. 5116 approved by the Commissioner on November 16, 1933, as to the year 1931. The said Certificates of Overassessment were duly delivered to John Gilbert. These determinations were made with knowledge of the agreement of May 31, 1930, referred to in finding 2. 8. On December 1, 1932, the plaintiff and her husband executed a paper denominated a "Consent Providing for Crediting Overassessment against Deficiency" for the year 1930, which was duly filed with the Commissioner of Internal Revenue, and which reads as follows: Consent providing for crediting overassessment against deficiency We, the undersigned taxpayers, hereby request and agree to have any and all overassessments representing overpayments by either party of Federal Income Taxes, applied as credits against any additional Federal Income Taxes due from the other party: Provided further, That the amount, if any, of the overpayment which is in excess of the said deficiency is otherwise credited or refunded in accordance with Section 322 of the Revenue Act of 1928. Los Angeles, Calif. (Place) 12/1/32. (Date) JOHN GILBERT. INA CLAIRE GILBERT. On June 1, 1933, plaintiff and her husband executed another paper denominated a "Consent Providing for Crediting Overassessment against Deficiency" for the year 1931, which was duly filed with the Commissioner of Internal Revenue, and which reads verbatim as the above consent, except for its date. These consents were executed on forms which had been prepared and furnished by the Treasury Department for that purpose. 9. The deficiency assessed against the plaintiff for the year 1930 and interest was satisfied as follows: The deficiency assessed against the plaintiff for the year 1931 and interest was satisfied as follows: 10. On May 25, 1935, the plaintiff filed with the appropriate Collector of Internal Revenue claims for refund of taxes for the years 1930 and 1931 in the respective amounts of $44,111.01 and $52,473.19, plus interest paid thereon. On July 21, 1936, the Bureau of Internal Revenue wrote plaintiff proposing to disallow said claims for the reason stated, in part, as follows: Relative to the first issue, your attention is invited to General Counsel Memorandum 14198 (Internal Revenue Cumulative Bulletin XIV-1,261) in which it was held that agreements between the spouses with reference to future earnings would not, in the State of California, affect the otherwise taxable status of such earnings, and that the decision in the case of Helvering v. Hickman (70 Fed. (2d) 985, Court Decision 866, Internal Revenue Cumulative Bulletin XIII-2, 274) should not be considered as revoking General Counsel Memorandum 9938 (Internal Revenue Cumulative Bulletin X-2, 115) and General Counsel Memorandum 9953 (Internal Revenue Cumulative Bulletin XI-1, 13). In General Counsel Memorandum 9938, referred to above, it was held that under Section 161 (a) of the Civil Code of California, which became effective July 29, 1927, a husband's earnings in California constitute community income; and that an agreement between husband and wife domiciled in California, which provides that the husband's personal earnings and salary are his separate property and income, is not effective to preclude the 291825-41-CC-vol. 92-18 |