Dunham v. Commissioner

WALTER E. DUNHAM, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Dunham v. Commissioner Docket No. 66308. United States Board of Tax Appeals 27 B.T.A. 1068; 1933 BTA LEXIS 1245; April 6, 1933, Promulgated *1245 Where funds were withdrawn from a joint bank account of husband and wife in which the owners have equal rights, and invested in shares of stock with the understanding that profits from the stock would be divided equally between them, only one-half of the gain realized from the sale of shares of the stock is taxable to the husband. Nelson Trottman, Esq., for the petitioner. Frank A. Surine, Esq., for the respondent. ARUNDELL *1068 Proceeding are for the redetermination of a deficiency of $2,021.29 in income tax for 1929. The issue is whether any amount in excess of one-half of the profits realized from a marginal stock account is taxable to the petitioner. FINDINGS OF FACT. The petitioner is a resident of Glenellyn, Illinois. In 1899 he married and has lived with his wife continuously since that time. At or about the time of their marriage the petitioner and his wife agreed that each would have an equal interest in the income of the other, and ever since then they have maintained joint checking accounts, subject to the withdrawal of funds on deposit by either. The joint bank account maintained in 1929 was opened in 1923 in an Illinois*1246 bank in the name of Walter E. Dunham and Belle S. Dunham. All of the income of each, with some minor exceptions, *1069 was deposited to the credit of the account. Most of the money deposited in the account represented salary of the petitioner. During 1929 each depositor drew against the account without consulting the other. During the latter part of 1928 the petitioner and his wife agreed to use funds in their joint account for marginal tradings in stock for their equal benefit. Thereafter, in accordance with this agreement, the petitioner opened a marginal stock trading account in his name with Laidlaw and Company, New York City. The money deposited with the broker at the time the account was opened and other deposits made with it during 1929 were withdrawn from the joint bank account by the petitioner by agreement with his wife. Gains realized from the sale of stock purchased with the funds so deposited were credited to the stock account. The petitioner and his wife discussed and agreed upon every purchase made under the stock account. The purchasing and selling orders to the broker were given by the petitioner. The gain realized in 1929 from sales of stock*1247 in the stock account aggregated $23,884.75. The petitioner and his wife filed separate returns for 1929. In their returns each reported one-half of the profit realized from the sale of stock in the marginal stock account. In his return the petitioner claimed as a deduction the sum of $551.66 as interest. Most of the amount represents interest charged by the broker on the stock account. In his audit of the returns, the respondent treated all of the gains derived from the stock account as income of the petitioner. OPINION. ARUNDELL: The joint checking account of petitioner and his wife was opened in 1923, and maintained throughout 1929, pursuant to an understanding of many years that each would have an equal interest in the income of the other. The Illinois courts hold that deposits made in a joint bank account by one of the payees under the circumstances present here constitutes a gift to the other, and that the rights of the parties in the account are equal. ; *1248 ; ; . The title of the payees in such an account has been held to be a vested interest. ; . It was from this account, in which each had an equal interest, that the petitioner and his wife decided to withdraw funds to open and maintain a marginal stock-trading account. They agreed upon not only the initial deposit made with the broker, but the several others made during 1929 from funds withdrawn from the account. The *1070 agreement of the wife was obtained for all purchase orders issued to the broker. The uncontradicted testimony of the petitioner and his wife is that before entering into the stock-dealing venture they agreed that the benefits therefrom would be shared equally. Under this agreement, the wife was entitled to one-half of the profit from sales of stock held in the account. The fact that the stock account was in petitioner's name is not important. The gains realized from sales of stock credited to the stock account were held in trust for the joint owner. *1249 . The respondent erred in taxing the petitioner on more than one-half of the profit of $23,884.75 realized in 1929 from the sale of stock in the account. ; ; . The case of , affirmed in , relied upon by the respondent, is clearly distinguishable. There was no proof in that case, as there is here, that the wife was to have a one-half interest in the property purchased from funds withdrawn from the joint bank account. Decision will be entered under Rule 50.