Digan v. Commissioner

FRANK J. DIGAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Digan v. Commissioner Docket No. 77529. United States Board of Tax Appeals 35 B.T.A. 256; 1937 BTA LEXIS 904; January 12, 1937, Promulgated *904 Out of the sale price of real property in New York, a husband caused an amount to be paid directly by the purchaser to the wife, who had theretofore refused to release her dower. The husband claimed that the amount so paid to the wife was no part of his gross income. Held, the entire sale price inured to the husband and was property used to measure his taxable gain. Benedict Ginsberg, Esq., for the petitioner. Willis R. Lansford, Esq., for the respondent. STERNHAGEN *256 The Commissioner determined a deficiency of $1,551.81 in petitioner's income tax for 1930, and a "25% delinquency penalty" of $387.95. He added to the total net income reported on the return an "additional profit on sale of real estate $15,879.45", made up principally by reducing the March 1, 1913, value thereof from $40,000, used by petitioner, to $22,400. The petitioner assails this reduction and seeks to prove also the alleged cost of capital improvements. He also claims that part of the sale proceeds must be excluded from his income because paid directly by the purchaser to his wife because of her release of dower. The Commissioner, by amended answer, sought*905 to increase the deficiency by reducing the personal exemption and increasing the penalty; but these are renounced in his brief filed after the hearing. FINDINGS OF FACT. Petitioner, a resident of New York City, in 1930 sold the land and building at 159 East 46th Street, New York, for $100,000 payable cash, $30,000; a purchase money mortgage, $55,000; and the assumption of an existing mortgage, $15,000. The contract of sale was made *257 by petitioner and his wife as sellers. The purchase money mortgage contained this provision: The interest payments above mentioned to be divided in two parts, one half payable to Frank J. Digan and one half to Mary Digan, and at the maturity of the mortgage the principal shall likewise be divided and payable one half to each of the mortgagees. Petitioner's wife had refused to join in the contract of sale until he agreed to give her half the proceeds. She received directly from the purchaser $15,000 of the $30,000 cash payments. Petitioner bought the property in 1910 for $20,000. Thereafter, sometime around or before 1913, he made some improvements, consisting of a new roof, bath room improvements, plumbing repairs and replacements, *906 electric wiring and fixtures, and removal of partitions and masonry, at a cost of at least $4,000. OPINION. STERNHAGEN: The petitioner seeks the exclusion of $15,000 from the sale price in computing his gain, claiming that this was not received by him, but was paid to his wife as purchase price of her dower. This contention must be rejected. The property was purchased and owned by him and he sold it for $100,000. While his wife was "endowed of the third part" thereof as dower, Real Property Law § 190, McKinney's Consolidated Laws of New York, this was inchoate and was not sold by her, but released. ; ; . Whether the $15,000 was given by petitioner to his wife directly, as inducement for joining in the conveyance, or assigned to her out of the forth-coming price, it is nevertheless to be regarded as part of the sale price which inured to him for the property which he alone owned. Cf. *907 . The petitioner cites , and there is indeed some support in that opinion for his position. But the court was apparently primarily concerned with whether the $40,000 paid to the taxpayer's estranged wife was by way of alimony, as the Board had held. As to the wife's position in respect of dower, we must in this case act upon the New York decisions upon the law of New York, even if they be at variance with the law of Pennsylvania, which alone was under consideration in the Frank case. If sustained, the petitioner's theory would afford a widespread means of artificially shifting the incidence of tax. Dower is generally provided for, not only in New York but in other states. If the sale price of property owned and sold by a husband is to be *258 attributed to the wife to the extent that she demands it as an inducement to release her dower, there is little reason for a husband to be charged with any gain from a sale. This has never been suggested heretofore and it is difficult to believe that the statute may be regarded as contemplating it. Cf. *908 . The Commissioner has correctly treated the $100,000 as realized by the petitioner. The petitioner assails the Commissioner's computation of the basis. By section 113(b), Revenue Act of 1928, the basis is the larger figure as between cost (with proper adjustments for depreciation) and March 1, 1913, value. If a taxpayer relies upon a basis greater than cost, he must prove the March 1, 1913, value. . This the petitioner has failed to do, and it matters not that the proof was too difficult. The Commissioner has given him a basis higher than original cost by $2,400, and has computed depreciation on the building to a figure which the petitioner does not dispute. This has not been shown to be in error. The payment for improvements in an uncertain amount, which petitioner sought to establish at $8,000 and which has been found at not less than $4,000, does not serve on this record to change the basis used by the Commissioner, for it does not clearly enough appear that the improvements were made before March 1, 1913, or to what extent, or how their cost should be adjusted by depreciation. *909 There is no evidence on the subject of the penalty, and it must therefore be affirmed. Reviewed by the Board. Judgment will be entered for the respondent. LEECH LEECH, dissenting: The petitioner owned real estate. His wife then owned a dower right in that real estate. That right, even though inchoate, was her valuable right, measurable in money. Ferguson v. Dickson,300 Fed. 961; McCaughn v. Carver, 19 Fed.(2d) 126; United States v. Mitchell, 74 Fed.(2d) 571. She could not be divested of it without her consent. If the purchaser had bought from the husband, alone, his interest in the property, for half the consideration paid here for the interests of both the husband and wife in the property, and in another transaction secured a quitclaim deed from the wife for her rights in the same property for the other half of the consideration paid here, it certainly would not be held that the husband was taxable on the consideration paid to the wife for the rights she and she, alone, owned and could relinquish. It seems to me that, in effect, is the situation here. Frank v. Commissioner, 51 Fed.(2d) 923.*910