Hafner v. Commissioner

ALFRED HAFNER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Hafner v. Commissioner Docket Nos. 48389, 57132. United States Board of Tax Appeals 31 B.T.A. 338; 1934 BTA LEXIS 1111; October 16, 1934, Promulgated *1111 1. INCOME - Held, petitioner and his wife owned jointly, one-half interest each, certain investments and that petitioner is taxable only upon one half of the profits, dividends, and interest received from such investments. 2. DEDUCTION - Loss. - Held, taxpayer entitled to loss deduction on worthless stock only in year worthlessness actually occurred. Proof merely of ascertainment of the worthlessness in taxable year, held insufficient. Newton K. Fox, Esq., for the petitioner. T. M. Mater, Esq., for the respondent. LEECH *338 These consolidated proceedings seek redetermination of income tax deficiencies in the amounts of $6,178.34 for 1926, $5,141.82 for 1927, and $10,215.80 for 1928. As to all three years, petitioner assigns as error the respondent's inclusion in income, the gains, dividends, and interest derived from property, investments, and money alleged to have been owned by himself and his wife, jointly; respondent's refusal to permit petitioner to report only one half of such income and to deduct one half of the losses sustained, interest paid, taxes, expenses, and depreciation with respect to such property and investments. *1112 As to the year 1926, petitioner, also, assigns error in respondent's disallowance of a claimed loss deduction on account of alleged worthless stock. *339 FINDINGS OF FACT. Petitioner and his wife are residents of New York City, and for the years in question each filed separate income tax returns. They were born in Switzerland, but became naturalized American citizens in 1904. In 1889 petitioner came to the United States and was employed by the firm of G. E. Stechert & Co., engaged in importing and selling books. Since that time he has been engaged in the same business. In 1894 petitioner married E. Louise Hafner, who, between that year and 1905, received approximately 20,000 Swiss francs as an inheritance. Those funds were deposited in the joint bank account maintained in New York City by petitioner and his wife pursuant to their mutual understanding that they owned jointly, one half each, all of their property, real and personal, regardless of the name in which the legal title stood. Such agreement was in accordance with their understanding of the law of Switzerland that all property of husband and wife was owned jointly, each having a one-half interest therein, *1113 unless a declaration to the contrary was published in a certain manner. Their agreement that each owned a half interest in all their property and the gains and profits therefrom, has continued throughout the years, including those here in controversy. Since 1894 petitioner and his wife have maintained only one joint bank account, against which each drew checks. Since 1900 petitioner and his wife have jointly purchased and sold securities. The purchase money was drawn from the joint bank account and the profits, dividends, and interest derived from such securities were deposited in their joint bank account. Throughout the succeeding years, including those here in controversy, petitioner has maintained a detailed written record of all securities purchased and sold and such account is headed, list of stocks purchased and sold for Alfred and E. Louise Hafner. During the years in question, petitioner and his wife also carried a joint marginal account with certain brokers. The funds employed for the purchase of securities and the interest and charges paid to the brokers were withdrawn from the joint bank account. Checks were signed by either petitioner or his wife. The profits*1114 derived from such stock trading account were deposited in their joint bank account. Most of the securities purchased were taken in petitioner's name as a matter of convenience. Petitioner and his wife consulted with each other as to all purchases and sales. In 1923 the property located at 31 East 10th Street, New York City, and chiefly occupied by G. E. Stechert & Co., was purchased with funds from the joint bank account. Record title was taken *340 in petitioner's name, but the understanding between petitioner and his wife was that the property was owned jointly, each having a one-half interest therein. Rents received from such property were deposited in their joint bank account, including the years in question. In 1908 the property located at 439 West 147th Street, New York City, was purchased with funds from the joint bank account. Record title thereto was taken in the name of E. Louise Hafner, but petitioner and his wife understood that each had a half interest. The rents derived from such property were deposited in their joint bank account, including the years in controversy. Prior to 1926 petitioner purchased 200 shares of Boissanault Co. stock for $600*1115 and 100 shares of Eastern Steel Castings Co. stock for $2,000. In 1926, upon inquiry, petitioner was advised by his brokers that such stock was worthless. In preparing their separate returns for the years 1926, 1927, and 1928, petitioner and his wife each intended to report one half of the gains, profits, dividends, and interest derived from their various investments in various securities and real estate, but such income was not divided in exact equal parts between them by the accountant who prepared their returns. In determining the deficiencies in controversy, the respondent has included in petitioner's gross income, certain amounts reported on his wife's returns. OPINION. LEECH: The record contains considerable evidence seeking, apparently, to establish that respondent erred in including in petitioner's income, the entire net profits derived from G. E. Stechert & Co. during the years here involved, upon the ground that one half of such income was that of his wife. Neither in the petition nor the amendments thereto, made at the hearing, is that error assigned nor facts declared sustaining it. Ordinarily, at least, such failure is fatal to the consideration of an issue, *1116 thus formally raised for the first time on brief. ; . Moreover, the evidence on this question is unconvincing. The petitioner, though returning only one half the gains, dividends, and interest derived from the ownership and sale of real estate and securities, here formally in issue, returned as his own income for all the years here involved, the entire net income received from G. E. Stechert & Co. The evidence that in 1916 petitioner created a partnership by giving his wife a 4 percent interest and his sister-in-law a 1 percent interest in the business, the status of which ownership during the years now involved is not explained, even considered with petitioner's reason therefor, is inconsistent with his *341 primary position that his wife owned a one-half interest through his ownership in the business. Upon this failure in pleading and proof, we sustain the respondent as to that item. The principal issue remaining here is, Did petitioner and his wife own jointly, one-half interest each, excepting only the petitioner's interest in G. E. Stechert & Co., all of the securities and real*1117 estate owned by them, so that, each was entitled to one half of the gains, dividends, and interest derived from such investments and each was entitled to a deduction of one half of the expenses, interest, depreciation, and losses sustained in connection with such investments? No question has been raised as to the allowable deductions, except as to the deduction of $2,600 claimed for 1926 as a loss sustained on worthless stock. The evidence submitted by petitioner and his wife is clear, convincing, and uncontradicted upon this question. In 1894 petitioner and his wife established a joint bank account to which the wife contributed a substantial sum. Whether they each deposited an equal sum of money is immaterial, for where money is deposited in a bank in the name of husband and wife, it will be presumed to belong to each equally. ; . Furthermore, at that time petitioner and his wife agreed that all their money and property should be owned jointly, a one-half interest each, and such agreement has continued throughout the succeeding years, including those here in controversy. *1118 Their original commingled joint funds and through the years the increments thereto, have been invested in various properties. Under the Married Woman's Acts of New York, a wife is regarded as sole with regard to her property rights and may unite with her husband in the purchase of property with her separate funds and where husband and wife each contribute to a joint investment, they become tenants in common, each having all the rights and incidents of such ownership. ; ; ; 106; N.Y.S. 113; ; . Upon consideration of the facts in this case and the law of New York, we conclude that the beneficial ownership of all of the property, real and personal, except the interest in G. E. Stechert & Co., held by petitioner and/or his wife during the years in question, was owned jointly, each owning a one-half interest. Accordingly, petitioner is taxable upon only one half of the income from such investments and entitled to deductions of only one half of the expenses interest, depreciation, *1119 and losses in connection therewith (cf. ; First National Bank of*342 ; ; ), and the respondent erred in determining otherwise. With reference to the claimed loss of $2,600 in the year 1926, section 214(a)(5) of the Revenue Act of 1926 provides for a deduction of "Losses sustained during the taxable year * * *." The loss on the stock was sustained in the year in which the stock actually became worthless, . Petitioner has shown only that the worthlessness was ascertained in 1926 and has failed to establish the year in which the worthlessness occurred. Respondent's disallowance of a deduction in 1926 on account of such alleged loss, is sustained. Decision will be entered under Rule 50.