Clemens v. Commissioner

Ernest W. Clemens, Petitioner, v. Commissioner of Internal Revenue, Respondent Clemens v. Commissioner Docket No. 10026 United States Tax Court 8 T.C. 121; 1947 U.S. Tax Ct. LEXIS 307; January 23, 1947, Promulgated *307 Decision will be entered under Rule 50. 1. Community Property -- Commingling. -- Where the separate funds of the husband and the community funds are deposited in the same bank account, amounts paid for medical expenses may not be allowed as a deduction on the separate return of the husband unless it is shown by competent evidence that the expenditures were actually made from his separate funds. 2. Burden of Proof. -- The taxpayer's burden of proof is not sustained by a mere showing that the amount of community expenditures for the taxable year involved exceeded the net community income. 3. Contributions. -- Where the commingled funds are deposited to the account of the husband, a check for charitable contributions given by him may be assumed to be against his separate funds, since such contributions are not community expenses and the husband has no right to give his wife's interest to a stranger without her consent. Ernest W. Clemens pro se. Stanley B. Anderson, Esq., for the respondent. Harlan, Judge. HARLAN *122 The respondent determined a deficiency against petitioner in income and victory tax for the taxable year ended December 31, 1943, in the amount of*308 $ 1,536. The petitioner contests this deficiency in so far as it involves certain deductions for charitable contributions and medical expenses claimed by him in his income tax return. Due to the application of section 6, Current Tax Payment Act of 1943, both the years 1942 and 1943 are here involved. The question presented is whether contributions made by petitioner in amounts of $ 363 and $ 805 for the years 1942 and 1943, respectively, and medical expenses in the amount of $ 1,874.31 for the year 1943 are separate deductions of petitioner or are community deductions, where paid from a bank account in which both the petitioner's separate income and the community income of petitioner and his wife were deposited. The case is submitted on oral testimony and documentary evidence introduced at the hearing. FINDINGS OF FACT. Petitioner is an individual, residing at 303 Contour Drive, San Antonio, Texas. For the taxable years 1942 and 1943 he and his wife filed separate income tax returns with the collector of internal revenue at Austin, Texas. In petitioner's income tax return for 1942 contributions aggregating $ 456.95 were claimed as a deduction. Of the above amount, the sum of *309 $ 93.95 is shown as a community deduction and the sum of $ 363 is shown as a separate deduction of petitioner. In petitioner's income tax return for 1943 contributions aggregating $ 921.27 were claimed as a deduction. Of the amount claimed for 1943, the sum of $ 116.27 is shown as a community deduction of which petitioner took one-half or $ 58.13, and the sum of $ 805 is shown as a separate deduction of Ernest W. Clemens. In computing the deficiency in question the respondent determined that all contributions were community and disallowed $ 402.50 of the amount claimed for the year 1943. *123 During 1943 petitioner spent $ 3,295.75 for medical and dental services for the benefit of himself and his wife and minor son. Payment was made from time to time from February 2 to December 30, 1943, in varying amounts ranging from $ 3 to $ 500. In his return for 1943 petitioner claimed as a separate deduction medical expenses in the amount of $ 1,874.31, which represents the amount paid in excess of 5 per cent of the net income before the deduction for medical expenses. In the notice of deficiency the total contributions of $ 456.95 for 1942 and $ 921.27 for 1943 were held to be community*310 payments, deductible one-half by each spouse. It was further held that the total medical expense of $ 3,295.75 was a community deduction, divided equally between the petitioner and his wife, subject to the limitation provided in section 23 (x) of the Internal Revenue Code. As thus computed, the respondent determined that petitioner was entitled to only $ 167.83 as a deduction for medical expenses, instead of $ 1,874.31 claimed in the return, and restored to income the difference, or $ 1,706.48. All income, including the separate income of petitioner and the community income of petitioner and his wife, was in the first instance deposited in one account in the National Bank of Commerce, San Antonio, Texas. This account was kept in petitioner's name and he alone could draw checks against it. Petitioner also kept an account in the South Texas National Bank of San Antonio, into which funds were transferred by him and used to pay community expenses such as groceries, clothing, laundry, and sundry living expenses. This account was also kept in petitioner's name and checks drawn against it were usually made out by his wife and signed by him. On December 31, 1942, there was a balance *311 of $ 2,540.23 in petitioner's account in the National Bank of Commerce. At the end of the year 1943 there was a balance of $ 5,731.04 in the same account. The net community income for the year 1943 was $ 8,388.33. After payment of income taxes in the amount of $ 2,103.68, there was left a net community income of $ 6,284.65. In 1943 the house rent for the family home, amounting to $ 1,455, was paid by checks drawn on the National Bank of Commerce, and petitioner transferred to the South Texas National Bank the amount of $ 5,650. This amount was used entirely for household and other necessary expenses. The total amount so paid out was $ 7,105, or $ 820.35 more than the net community income after payment of income taxes. None of the contributions or the medical expenses here in question were included in the $ 7,105. Petitioner's net taxable separate income for the year 1942 was $ 21,458.16. In addition to this amount petitioner had nontaxable separate income in the amount of $ 24,888.40. In 1943 petitioner's net *124 taxable income was $ 24,234.73 and his nontaxable separate income was $ 17,910.35. Petitioner's separate deduction for interest paid was $ 5,255.87 for the year*312 1942 and $ 2,195.91 for the year 1943. The rate of interest paid by him varied from 4 per cent to 6 per cent. During 1943 petitioner paid off in excess of $ 30,000 on his separate indebtedness. These payments were made from the bank account in the National Bank of Commerce. OPINION. The amount of the contributions for charitable purposes and the amount of the medical expenses involved are not in dispute. Nor is there any question that the amount of $ 1,874.31, claimed by petitioner as an allowable deduction, is computed in accordance with the limitation applicable to medical expenses under section 23 (x) of the Internal Revenue Code. The only question presented is whether such expenditures are the separate deductions of petitioner, as claimed in his income tax returns, or whether they are community deductions of petitioner and his wife, who filed separate returns for the respective years 1942 and 1943. It is the contention of the respondent that they are community deductions. This contention is based upon the fact that the separate income of the petitioner and the community income of petitioner and his wife were deposited and commingled in one bank account. The petitioner admits*313 that both his separate income and that of the community were deposited originally in the National Bank of Commerce, but contends that all the community income was expended for community purposes and that the contributions and medical expenses here in question were paid by him from his separate funds and are therefore deductible by him. It appears from the record that during the taxable year 1943 the net community income as reported in the income tax return of both petitioner and his wife was $ 8,388.33 and the separate net taxable income of petitioner was $ 24,234.73. These funds were all deposited in the first instance in the same bank in petitioner's account, and were all checked out by him. During the taxable year expenditures for the benefit of the community were paid by petitioner as follows: Family and living expenses $ 5,650.00 Rent for family residence 1,455.00 Medical expenses 3,295.75 Total 10,400.75 It appears from the record that the community net income after the payment of income taxes was $ 6,284.65. It is obvious, therefore, that the expenditures made by petitioner for community purposes were *125 $ 4,116.16 in excess of the net community*314 income. From these facts the petitioner argues that there was not such a "commingling" of separate and community funds as to make it impossible to determine the source of the payments and, since the amount paid for rent and for family and living expenses was in excess of the net community income, the amounts paid for medical expenses and the contributions in question were paid from his separate income. It is well settled that spouses domiciled in a community property state may divide their community income equally in separate returns, and that deductions properly chargeable against such returns should be equally divided between the spouses, but, where contributions are made by one of the spouses from his or her separate funds, such spouse is entitled to deduct them in full, Mellie Esperson Stewart, 35 B. T. A. 406; affd., 95 Fed. (2d) 821. The burden, however, is on the spouse claiming the deductions to show by competent evidence that he or she is entitled to the deductions claimed. The medical expenditures here in question were undoubtedly community expenses and payable from community income, if any. It is true, as petitioner*315 argues, that as head of the family he was liable for its support, cf. Corbett v. Wade, 124 S. W. (2d) 889, and if the medical expenses were paid from his separate income he would be entitled to the deduction claimed, but the burden is on him to show that they were paid from his separate income. This he has failed to do. The record shows that the community expenditures were not all made at one time, but were made from time to time during the years. Some of these expenditures, such as rent and family living expenses, were not deductible from gross income, but a portion of the medical expenditures was deductible. Since the community net income was not sufficient to pay all the community expenses, petitioner has allocated all community income to the payment of nondeductible expenses and contends that the deductible portion was paid from his separate income. The evidence before us does not substantiate this contention. The medical expenses were community expenses, payable primarily from community income, cf. Clark v. First National Bank, 210 S. W. 677; In re Tompkins Estate, 11 Pac. (2d) 886;*316 Huber v. Huber, 167 Pac. (2d) 708; George W. Van Vorst, 7 T. C. 826, and when paid from a bank account where community and separate funds are commingled it may be assumed that they are paid from community funds unless there is evidence that they were paid from separate funds. It may well be that when checks were drawn for medical expenses there were community funds in the bank to meet them and when checks were drawn for rent or living expenses no community funds were available. The petitioner has offered no evidence to show that they were actually paid from his separate funds or that they *126 were charged against his separate account. The Commissioner's determination as to the medical expenses is therefore affirmed. As to the contributions in question, the situation is reverse. Contributions are not community expenses and the husband, who, as the manager of the community, is the agent of his wife in the management, control, and disposition of community property, Atkins v. Dodds, 121 S. W. (2d) 1010, may not give her interest to a stranger. Watson v. Harris, 130 S. W. 237.*317 It may be assumed, therefore, where, as here, there are commingled funds deposited to the account of the husband, that a check for contributions given by him is against his separate funds and not the funds of the community. Moreover, there is nothing in the record to indicate any consent by the wife to such contributions. We hold, therefore, that the contributions in question were made from the petitioner's separate funds and he is entitled to the deductions claimed for contributions. Decision will be entered under Rule 50.