Gillette v. Commissioner

CARL W. GILLETTE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Gillette v. Commissioner Docket No. 27010. United States Board of Tax Appeals 18 B.T.A. 434; 1929 BTA LEXIS 2050; December 5, 1929, Promulgated *2050 Where property is purchased with funds owned jointly by husband and wife, in the circumstances proved in this proceeding, the income from such property is the income of the husband only to the extent of his ratable interest in the investment. R. L. Slaughter, Esq., for the petitioner. L. A. Luce, Esq., for the respondent. LANSDON *434 The respondent has asserted a deficiency in income tax for the year 1922 in the amount of $8,768.38. For his causes of action the petitioner alleges (1) that the Commissioner erroneously increased his income for the taxable year by the addition thereto of an amount that was in fact the income of his wife, and (2) that depletion of an interest in a certain oil and gas lease was erroneously computed in the taxable year. FINDINGS OF FACT. The petitioner is an individual with his residence and place of business at Tulsa, in the State of Oklahoma. From the date of their marriage down to and throughout the taxable year petitioner and his wife had an agreement, orally entered into, that in all their business operations they were to share in investments and income therefrom in the proportion of 60 per cent and*2051 40 per cent. A memorandum of this agreement was attached to their principal books of account and was known to their bookkeeper during the taxable year. Upon the organization of the Woodward Park Addition, a corporation, in 1919, the petitioner and his wife purchased one-third of the capital stock thereof, in the respective proportions of 60 per cent and 40 per cent. Dividends received from such stock were reinvested in oil leases in 1921, and later some additional investments were made in real estate. The Woodward Park Addition, hereinafter sometimes called the corporation, earned large profits in 1921, but declared no dividends in that year. In lieu of current dividends, it made many cash advances to the petitioner and to the majority owner of its stock in 1921, evidenced by promissory notes which were paid by charges against dividends declared early in 1922. It was from such advances that the petitioner, near the close of 1921, purchased an interest in an oil and gas lease, which he sold at a profit in 1922. Title to the *435 entire lease was taken in the name of the petitioner, but his wife and three other persons were beneficial owners of parts thereof. Petitioner*2052 and his wife made separate income-tax returns for the year 1922, in which they reported as income 60 per cent and 40 per cent, respectively, of the dividends paid by the corporation on one-third of its capital stock, and the gain realized for the gas and oil lease acquired as above set forth. Upon the audit of such returns the Commissioner held that all gain realized from the sale of the interest in such lease, which the petitioner alleges was owned jointly by himself and his wife, was the income of the petitioner, added such amount to his reported income, and determined the deficiency here in controversy. OPINION. LANSDON: The petitioner adduced no evidence in respect of his claim for additional depletion of an oil and gas lease for the year 1922. The determination of the respondent as to this issue is approved. The only remaining question here is whether all the gain realized from the sale in 1922 of an undivided interest in a certain gas and oil lease, then standing in the name of the petitioner, should be included in his income for that year. The petitioner contends that such interest was purchased with funds that belonged jointly to himself and wife, in the proportion*2053 of 60 per cent and 40 per cent, and that the transaction was the investment of dividends earned in 1921 by one-third of the stock of the Woodward Park Addition, a corporation that was owned by himself and wife in the proportions set forth above. The respondent agrees that such stock was so owned and that the income therefrom in 1921 belonged to the petitioner in the ratable proportions claimed, but contends that there is no evidence that the interest in the gas and oil lease, sold at a profit in 1922, was purchased with such income. The record discloses that the Woodward Park Addition, Inc., declared no dividends of record in 1921, but made loans of $6,000 to the petitioner and took promissory notes as evidence thereof, and that such notes were paid in 1922 by the simple process of deducting their amount from dividends declared that year by the corporation from its earnings of 1921 and paid to the petitioner and his wife. We are convinced that the advances made to the petitioner by the corporation in 1921 were distributions of current earnings in anticipation of dividends presently to be declared and paid to petitioner and his wife, respectively, in proportion of their stock ownership; *2054 but even if the $6,000 was borrowed from the corporation or from other sources, it in nowise affects the contention of the petitioner, who has *436 proved that all amounts used in the business operations of himself and wife and all returns therefrom belonged to them ratably, in the respective percentages above set forth. This was the money used to purchase the interest in the oil and gas lease that was sold at a profit in 1922, and whether it was a distribution of earnings or a loan, it was invested in property for the joint account of husband and wife. The petitioner and his wife both testified to the agreement that they should share in their investments and the income therefrom in the proportion of 60 per cent and 40 per cent. The bookkeeper who kept the accounts of the Gillettes testified that their arrangement was known to him. No evidence in rebuttal was introduced by the respondent or elicited in cross-examination. We are convinced that the amount which the respondent seeks to add to the income of the petitioner was the income of such petitioner's wife. Cf. *2055 ; . Decision will be entered for the petitioner, under Rule 50.