Schumacher v. Commissioner

J. P. SCHUMACHER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Schumacher v. Commissioner Docket No. 59612. United States Board of Tax Appeals 32 B.T.A. 1242; 1935 BTA LEXIS 831; August 22, 1935, Promulgated *831 1. A statute of Texas granting to alines the same rights in personal property as accorded to citizens of the United States by the nation of which the alien is a subject, is an enlarging provision and the alien is not required to prove the law of the foreign nation unless he claims greater rights than the law of Texas grants to citizens. 2. Petitioner's distributive share of partnership income held divisible on a community property basis. 3. Petitioner, an alien, held to be a resident of the State of Texas. 4. Commissioner sustained on the issue of the statute of limitations because of the provisions of H.J. Res. 340, approved June 16, 1930. Ernest H. Emery, C.P.A., for the petitioner. Bruce A. Low, Esq., for the respondent. BLACK *1242 The respondent has determined and has assessed against the petitioner deficiencies in income tax for the years 1927, 1928, 1929, and *1243 1930 in the respective amounts of $1,414.38, $6,719.44, $12,518.19, and $5,038.02. The major part of the deficiency for each year arises from respondent's refusal to permit the petitioner and his wife to report income on the community property*832 basis. The right of petitioner and his wife to so report is the principal issue. Another is whether assessment and collection for 1927 and 1928 are barred by the statute of limitations. Other issues raised by the pleadings, pertaining to credit for dividends for 1930 and deductions for automobile expenses for 1929 and 1930, have been settled by stipulation. FINDINGS OF FACT. The petitioner was born in Holland in 1891. His business and profession is that of a geologist and geophysicist. He received his scientific training at the University of Lausanne in Switzerland, graduating with the degree of Doctor of Sciences in 1920. In 1917 the petitioner was married in Lausanne, Switzerland, to Marie Louise Ingold, and has lived with her since that time. One child, a son, was born of this marriage in Holland, in 1924. After graduation from the University of Lausanne the petitioner entered the employ of the Royal Dutch Shell Co. at The Hague, Holland, as a geologist. In July or August of 1920 he was sent by that company to Mexico to do petroleum geology work. He remained in Mexico until November 1922, when he was sent to Texas to do similar work. In April 1923 he returned*833 to the office of the Royal Dutch Shell Co. at The Hague. While working in Texas petitioner first came in contact with geophysical methods which were then being used in that area by the Royal Dutch Shell Co. Geophysical instruments are used to make gravity surveys of subsurface conditions, the purpose being to detect structures which might be favorable to the accumulation of oil. The instruments are used with the greatest success in the Salt Dome areas adjacent to the Gulf of Mexico. In June or July of 1923 petitioner gave up his employment with the Royal Dutch Oil Co. and devoted himself to the study of geophysical methods. He made several trips to Budapest in this connection and had two instruments made there at a cost of $10,000. After the instruments were delivered to him the petitioner entered the United States as a temporary visitor and went to Houston, Texas, arriving there in July 1925. His wife and child joined him there in December 1925, they also being admitted as temporary visitors for a period of one year under the Immigration Act of 1924. Petitioner made a geological survey for an oil company in 1925 and in December of that year he and three other men organized*834 a partnership known as the Torsion Balance Exploration Co. The partnership agreement was executed *1244 in Houston, Texas, where the firm has since maintained its only office. The partnership engaged in the business of making gravity surveys and doing consultant work for clients, who for the most part were oil companies. The petitioner attended to the technical work of the firm, principally supervising the field work and compiling and computing the results of the geophysical surveys, and writing reports to the clients of the partnership. More than $100,000 has been expended by the partnership for geophysical equipment. During the period July 1925 to December 31, 1930, the petitioner left the United States three times. The first time was in 1927, when he went to Europe for about three months on a combined business and pleasure trip. In 1929 he went to South America for a period of about three months for the purpose of visiting groups of men who were working there under contracts which the partnership had with two oil companies. Later in 1929 he went to Europe on a combined business and pleasure trip. From time to time between 1926 and 1932 petitioner and his wife*835 and child applied to the Department of Labor for extension of their stays as temporary visitors. In each case their applications were granted. In April 1931 the petitioner left Houston, Texas, on a trip around the world, returning to Houston, in April 1932. On his reentry in April 1932 he was admitted as a quota immigrant. On each of petitioner's absences from the United States he left his personal effects, such as household articles and books, at Houston, Texas. Petitioner's distributive share of the income of the Torsion Balance Exploration Co. for the taxable years was as follows: 1927, $27,044.60; 1928, $70,891.03; 1929, $106,431.35; 1930, $14,404.63. For each of the years 1927 to 1930, inclusive, petitioner and his wife filed separate income tax returns on a community property basis. The respondent has added to petitioner's income the amounts reported by petitioner's wife. Petitioner's income tax return for 1927 was filed on March 6, 1928, and his return for the year 1928 was filed on January 2, 1929, and in each case the amount of tax shown thereon was assessed and paid. Additional assessments for the years 1927 and 1928 were made by the respondent on May 2, 1931, and*836 April 29, 1931, respectively. In 1925, after a discussion with the United States Consul at Amsterdam, Holland, petitioner came to this country, as above stated, on a temporary visitor's visa, which was renewed from time to time by the immigration authorities, instead of coming here as a quota immigrant, because he knew his business was going to require him to make trips to other countries and he was advised that his reentry into the United States would be facilitated by this method rather *1245 than to have to secure a reentry permit each time as a quota immigrant. Petitioner was a resident alien of the United States during each of the taxable years in question and his place of residence was Houston, Texas. OPINION. BLACK: There is no dispute here as to the amount of income. That has been stipulated. The income was originally reported as community income, petitioner and his wife each returning one half. The respondent added to petitioner's income the portion returned by the wife and in the notice of deficiency stated as his reason therefor that "a non-resident alien is not entitled to report income on the community basis." Petitioner says he was a resident alien, *837 his residence being in the State of Texas. Respondent, assuming domestic residence for the purpose of argument, counters with two propositions. First, that a partner's distributive share of partnership income is taxable in whole to the partner and is not divisible between husband and wife on a community property basis. Second, that under the provisions of Texas statutes it is necessary that petitioner prove that the country of which he was a subject, Holland, grants community property rights to citizens of the United States resident in that country. If either of the latter propositions is correct it will not matter whether petitioner was a resident or nonresident during the taxable years. To sustain his contention that partnership income may not in any event be divided, counsel for the respondent cites a number of cases. Upon examination these do not seem to us to be in point. For instance, Lucas v. Earl,281 U.S. 111, and Burnet v. Leininger,285 U.S. 136, are not community property cases. In *838 Larsen v. Burnet, 50 Fed.(2d) 308, the taxpayer was a member of a partnership organized in Oregon, a noncommunity state. He originally claimed the right to report his income as community income but later conceded error in that respect, and the case was decided on another point. The respondent's contention here is contrary to the holding of Rucker v. Blair, 32 Fed.(2d) 222, which arose in the State of Washington, a community property state. There the husband was a member of a partnership and the court held that his "distributive share [of the partnership income] was community income, and was properly returned as such." To the same effect are the published rulings of the Bureau of Internal Revenue. See I.T. 1576, C.B. II-1, p. 144; G.C.M. 9422, C.B. X-1, p. 245; G.C.M. 9825, C.B. X-2, p. 146. In accordance with these holdings, we are of the opinion that petitioner was entitled to treat as community income his distributive share of the partnership income if it is shown that his *1246 status was such as to make him subject to the community property laws of Texas. The provisions of the Texas statutes which*839 respondent says make it necessary for petitioner to prove that Holland extends community property rights to citizens of the United States are as follows: ART. 4627. (4629) (2975) (2859) Rights of persons married elsewhere. - The marital rights of persons married in other countries who may remove to this State shall, in regard to property acquired in this State, during the marriage, be regulated by the laws of this State. ART. 177. (15) (9) Personal property. - Aliens shall have and enjoy in this State such rights as to personal property as are or shall be accorded to citizens of the United States by the laws of the Nation to which such alien shall belong or by the treaties of such Nation with the United States. The first provision quoted, article 4627, would seem to make petitioner's acquisition of property in the State of Texas subject to the community property statutes. There seems to be no question but that the income here involved was acquired during the residence of petitioner and his wife in Texas, and was not acquired as the separate income of either, hence under article 4619 of Vernon's Civil Statutes it would be "the common property of the husband and wife. *840 " But respondent says that article 177 quoted above makes it necessary for petitioner to prove that citizens of the United States residing in Holland are accorded communal rights in property and the privilege of reporting income on the community property basis under the laws of that Nation. The courts of Texas do not take that view. In Southwestern Surety Ins. Co. v. Vickstrom,203 S.W. 389, under similar provisions of earlier statutes it was contended that certain claimants of workmens' compensation could not be beneficiaries by reason of their being aliens and had not proved that the foreign country where they lived accorded like privileges to citizens of the United States. The court held that statute to be "an enlarging and not a restricting act", and stated as follows: * * * In other words, the provisions of our law must first be looked to in determining the rights which would in any event accrue to an alien, regardless of whether or not his own country granted reciprocal ones to our citizens: but if it did, and then went further and accorded more than we had first provided for, our law, in the absence of restrictive provisions, express or implied, would*841 ipso facto become expanded until it comprehended the additional benefits allowed by that of the foreigner's domicile. Under the rule of the above case, as we understand it, an alien in Texas is accorded at least rights equal to those of a citizen. If he seeks more, then, and only then, must he prove his rights thereto under the laws of the foreign nation. In the case before us the petitioner asks only that he be granted the same rights as citizens of Texas. He does not ask more and consequently there is no necessity for him to prove either the law of Holland or make claim under any treaty with that nation. *1247 As indicated above, the parties differ as to whether petitioner was a resident or nonresident alien in the taxable years. Article 1022 of Regulations 74 provides in part as follows: An alien actually present in the United States who is not a mere transient or sojourner is a resident of the United States for purposes of the income tax. Whether he is a transient or not is determined by his intentions with regard to the length and nature of his stay. A mere floating intention, indefinite as to time, to return to another country is not sufficient to constitute*842 him a transient. If he lives in the United States and has no definite intention as to his stay, he is a resident. One who comes to the United States for a definite purpose which in its nature may be promptly accomplished is a transient; but if his purpose is of such a nature that an extended stay may be necessary for its accomplishment, and to that end the alien makes his home temporarily in the United States, he becomes a resident, though it may be his intention at all times to return to his domicile abroad when the purpose for which he came has been consummated or abandoned. An alien whose stay in the United States is limited to a definite period by the immigration laws is not a resident of the United States within the meaning of this article. There are expressions in the above quotation, which, taken alone, are favorable to either side of the question. The respondent places stress on the last sentence of the quoted provision and says that that rules the question here. We do not believe that that is decisive. In the first place there is some degree of inconsistency between that sentence and the latter part of the preceding one in that a stay may be "limited to a definite*843 period" but may nevertheless be "an extended stay", as was true in this case. Moreover, we are inclined to doubt the validity of the last sentence in so far as it purports to establish conclusively the ultimate fact of nonresidence based entirely on the one fact of limitation of stay and regardless of other facts. Irrebuttable presumptions are not favored. Cf. Heiner v. Donnan,285 U.S. 312. In view of the varying definitions of the term "residence" the question is one to be determined by all the facts and circumstances in each case. Cf. L. B. Peeples,27 B.T.A. 879. The petitioner in this case came to the United States in 1925 and engaged in business in Texas. He was joined by his family in the same year. His business headquarters and his home have been in Texas ever since 1925. During his several temporary absences from the United States he maintained his business connections and headquarters in Texas, left personal property there, and each time he returned there, manifestly regarding it as his home. Even though it might be held that petitioner had not established a domicile in Texas during the taxable years in question, nevertheless*844 it seems clear that he had established a residence there and such fact made him a resident alien. As to the Federal income tax in the United States, it seems to be definitely settled by the case of Bowring v. Bowers, 24 Fed.(2d) 918; writ of certiorari denied in 277 U.S. 608, that residence alone *1248 would make one liable to the tax even though he had an established domicile in a foreign country. The case was the rather extreme one of a man who had a domicile in England but was engaged in business and lived with his family in New York most of the time for more than twenty years. The court said: "It is true that residence is ordinarily used as the equivalent of domicile in statutes relating to probate administration and succession taxes. So, as might be expected in the Revenue Acts, the word 'resident', when employed in the portion of these acts dealing with the Estate Tax law, means 'domiciled' and has been so construed by the practice and regulations of the Department * * *. But in personal and income taxes domicile has played no necessary part and residence at a fixed date has determined the liability for the tax." Petitioner's*845 testimony is that he came to this country as a so-called "visitor" under the immigration laws rather than as a quota immigrant, for the reason that the nature of his business made it necessary for him to be able to leave and reenter the United States without delay. He adopted the course of entering on a visitor's visa on consular advice, and his explanation of the reason therefor seems reasonable. Petitioner's conduct in establishing business and domestic headquarters in Texas and his maintenance of them over a period of years convince us that he should be classified as a resident alien during the taxable years. It follows from what we have thus far held that petitioner was entitled to return his income on a community basis. Counsel for petitioner concedes that in the event of such holding the assessments were timely under the Joint Resolution of Congress (H.J. Res. 340) approved June 16, 1930, which extends the statutory period in certain community property cases. Upon the issue of the statute of limitations, the Commissioner is sustained. Decision will be entered under Rule 50.