Hammonds v. Commissioner

MAMIE S. HAMMONDS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. FRED P. BRANSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Hammonds v. Commissioner Docket Nos. 78210, 78211, 85896. United States Board of Tax Appeals 38 B.T.A. 4; 1938 BTA LEXIS 920; July 12, 1938, Promulgated *920 1. Petitioner Hammonds, married and domiciled with her husband in the State of Oklahoma, a noncommunity property state, acquired in 1930, for her services, certain oil and gas leases in the State of Texas, a community property state. These leases were sold in 1931, from which she derived income. Held, since the leases so acquired were her separate property under the law of Oklahoma, the presumption, under the law of Texas, that they were community property is overcome by that showing and, therefore, the income therefrom is her separate income, taxable to her. 2. The petitioners are not entitled to deduct depletion upon the amount of cash received by them in the sale of oil and gas leases. William Fleming,31 B.T.A. 623; affd., 82 Fed.(2d) 324, followed. 3. In the sale of oil and gas leases petitioners were to receive, in addition to the cash consideration received for the leases, certain payments out of the oil, if and when produced, and saved from the leased premises. Held, petitioners are entitled to percentage depletion on the in-oil payments received during the taxable years. William Fleming, supra, and Roy H. Laird,35 B.T.A. 75,*921 followed. 4. Petitioners are not entitled to deduct intangible drilling and development costs incurred under a turnkey job contract. O-W-R Oil Co.,35 B.T.A. 452, followed. 5. At the hearing respondent amended his answer and alleged that he had erred in allowing petitioner Branson credit for three dependents in 1932 and asked for an increased deficiency on that account. Held, the burden of proof to support such affirmative allegations is on respondent and he has not sustained it. Charles H. Garnett, Esq., and Fred P. Branson, Esq., for the petitioners. W. R. Lansford, Esq., for the respondent. BLACK *5 The respondent having determined deficiencies in income tax of $4,896.24 and $3,085.73 for the years 1931 and 1932, respectively, against petitioner Hammonds (No. 78210), and $734.19, $2,742.45, and $2,750.46, for the years 1931, 1932, and 1933, respectively, against petitioner Branson (Nos. 78211 and 85896), these proceedings are brought for the redetermination thereof and have been consolidated by order of the Board. The questions presented by the pleadings, which we shall set forth fully hereinafter, relate*922 to whether certain income derived by petitioner Hammonds from transactions consummated by her in Texas is community income; whether certain depletion claims are allowable; the disallowance of a certain deduction for intangible drilling and development costs; the improper determination of a loss in the drilling of a nonproductive well; and, plead affirmatively by the respondent, whether or not a certain claimed credit for dependents on the part of petitioner Branson was proper. FINDINGS OF FACT. Petitioner Mamie S. Hammonds and her husband, O. O. Hammonds, were married in 1906 and since 1927 have been bona fide *6 residents of Oklahoma City, Oklahoma. Petitioner Fred P. Branson is a lawyer and is a resident of Muskogee, Oklahoma. In or about May 1930 a group of individuals who were in possession of certain oil and gas leases in Texas prevailed upon petitioner Hammonds to assist in raising sufficient funds with which to finance the drilling of a well in Hunt County, about 150 miles from Gregg County, through the sale of oil and gas leases. She in turn sought the aid of petitioner Branson, who at first refused. Shortly thereafter, however, he was persuaded by her and*923 one Kelsey, at a conference at his hotel in Oklahoma City, to invest $1,000 in a wildcat well in Hunt County, Texas. On September 8, 1930, Branson visited the site of this proposed well. On September 9, 1930, shortly after his arrival there, he, Mrs. Hammonds, and others, drove to the county seat of Gregg County, where on the day following Mrs. Hammonds met one Reynolds, who held certain acreage under an agreement by which he was to begin drilling a well on or before October 1, 1930, on the "J. M. Hamby" lease. Reynolds, lacking funds, was unable to commence drilling under his agreement and in consequence was willing to assign his leases to Mrs. Hammonds, provided she could raise the funds required and would agree to drill the well on the leases. Before doing this, however, it was necessary to finance certain debts which he had contracted locally, aggregating several thousand dollars. Thereupon Mrs. Hammonds proposed to Branson, who was present at the time, that she could sell sufficient leases to drill the well if he, Branson, would liquidate Reynolds' debts and also perform the necessary legal work incident to such leases. Branson accepted. A parol agreement was entered into*924 between them in Gregg County on September 11, 1930, by which, in consideration of the Payment of Reynolds' debts by Branson and the performance of such legal services as would be required, he should receive a one-half interest in the leases and in the proceeds arising therefrom. On that day Branson began paying the debts of Reynolds with his personal checks and Reynolds made assignments of a number of leases to Mrs. Hammonds on or about September 15, 1930, covering certain described lands, substantially all in Gregg County, Texas, and on or about that date Mrs. Hammonds began carrying out her agreement to drill the well. She also at about that time procured other leases directly from certain owners. In these transactions she did not expend any money of her own. Petitioner Hammonds entered into a drilling contract with one Graddy on September 18, 1930, to whom she made it clear that she herself had no funds with which to finance the drilling and, furthermore, that such funds would necessarily be raised through the sale of leases. In this connection she traveled in various states selling *7 leases, her expenses being paid with funds supplied from a joint bank account with*925 her husband, who knew of and acquiesced in her ventures. In the aggregate petitioner Branson advanced a considerable sum of money to the venture under his agreement with petitioner Hammonds, and he also performed legal services in the defense of nine law suits and in the examination of all titles involved. During the year 1931 the petitioners sold and assigned a number of leases to each of four purchasers, viz., the Faith Oil Corporation, Sun Oil Co., Lucey Petroleum Co., and Frank Buttram, for which they were to receive $189,800 cash and the further sum of $451,850 to be paid out of a portion of the lessees' share of oil if and when produced therefrom. Of the cash payments, they received only $139,800 in 1931 by reason of the fact that checks in the amount of $50,000 given them by the Faith Oil Corporation were not paid. The controversy over the nonpayment of these checks was finally settled by petitioners accepting the notes of the maker, which notes were paid in installments over a period of years. Nothing was received by petitioners in 1931 on account of the payments to be made out of oil to be produced from the leases sold. Of the cash payments mentioned each received*926 one-half or $69,900. In 1932 the petitioners received $34,785 from the Faith Oil Corporation upon its said notes, of which sum each received one-half or $17,392.50. They also received in that year $51,111.02 on account of in-oil payments from said leases. Of this sum each received one-half or $25,555.51. In 1933 petitioner Branson received $34,437.92 from in-oil payments under leases sold by him and petitioner Hammonds in 1931. The assignments of the leases by petitioners to the four respective purchasers were substantially in the same form. In these assignments, petitioner Hammonds was joined by her husband, O. O. Hammonds. That to the Faith Oil Corporation is dated July 24, 1931, and is typical of all and reads in part as follows: THE STATE OF TEXAS COUNTY OF GREGG WHEREAS, Mamie S. Hammonds and Fred P. Branson are the owners of certain oil and gas leases in Gregg and Upshur Counties, Texas, on the lands hereinafter described and are owners of all rights thereunder or incident thereto; NOW THEREFORE, in consideration of the sum of Ten Dollars ($10.00) cash in hand paid by Faith Oil Corporation, a Texas corporation and of the further sum of Three Hundred Ninety Five*927 Thousand Dollars ($395,000.00) to be paid out of the oil produced and seved from the hereinafter described lands, and to be one fourth of all the oil produced and saved from the premises hereinafter described until the full sum of Three Hundred Ninety Five Thousand Dollars ($395,000.00) is paid, we the said Mamie S. Hammonds, joined by her husband, *8 O. O. Hammonds and Fred P. Branson, all of Oklahoma City, Oklahoma County, Oklahoma, the present owners of said leases hereinafter described and all rights thereunder and incident thereto, do hereby bargain, sell, transfer, assign and convey all our right, title and interest in and to said leases and rights thereunder, hereinafter described except the five acres specially excepted therefrom, to Faith Oil Corporation, its successors and assigns, to-wit: * * * As hereinbefore stated, Three Hundred Ninety Five Thousand Dollars ($395,000.00) is to be paid to Mamie S Hammonds and Fred P. Branson, each to receive one half thereof, out of the oil produced and saved from said leased premises which payments shall be made by the pipe line company or other purchaser of said oil and shall be one fourth (1/4) of all the oil produced and*928 saved from the above described land, until the full sum of Three Hundred Ninety Five Thousand Dollars ($395,000.00) is fully paid, which oil payment shall be made direct to the said Mamie S. Hammonds and Fred P. Branson or their heirs and assigns, one half to each by the purchaser or purchasers of said oil, when and as the same is run. It is understood and agreed that the said Three Hundred and Ninety Five Thousand Dollars ($395,000.00) is payable out of oil only if, as and when produced from said lands above described, and said oil payment does not constitute and shall not be a personal obligation of the assignee, its successors or assigns nor impose any implied obligation with respect to drilling or development except in contract of June 30, 1931 the intention being that said Three Hundred Ninety Five Thousand Dollars ($395,000.00) shall be paid only out of and to the extent of the proceeds of one fourth of the oil produced and saved from said premises, if, as and when produced. It is further agreed and understood that the oil payment herein specified shall bear none of the expenses of the development of said leases or any other burden. And for the same consideration the said*929 Mamie S. Hammonds joined by her husband, O. O. Hammonds and Fred P. Branson and their heirs and legal representatives, covenant with the said Faith Oil Corporation, its successors and assigns that they are the lawful owners of said leases and interest thereunder, and of the personal property thereon or used in connection therewith; that they have good right and authority to sell and convey the same and that said rights interest and property are free and clear from all liens and encumbrances, and that all rentals and royalties due and payable thereunder have been duly paid, and that they do hereby warrant and agree to defend the title to said leasehold estate, in the lands above described against the lawful claims and demands of all persons whomsoever. In 1932 the petitioners drilled an oil and gas well under a turnkey job contract at a cost of $18,650, of which one-third or $6,216.67 was allocated by the respondent to the cost of physical equipment and two-thirds or $12,433.34 to intangible drilling and development costs, which allocation was accepted by the petitioners. In 1933 the petitioners and one Flesher drilled an oil and gas well in Pottawatomie County, Oklahoma, at a*930 cost of $6,246.55. Petitioner Branson claimed a credit of $1,200 for dependents in his income tax return for 1932. In his determination of the deficiency for 1932 the Commissioner allowed the credit, but at the hearing affirmatively raised the issue that he had erred in allowing the *9 credit and asked for an increased deficiency. Branson in 1932 contributed much more than the sum of $1,200 to a brother who was in ill health, was unable to work, and had no means of support, and to nephews and nieces, one of whom was under 18 years of age and one of whom was sick and in ill health. Branson was the chief support in 1932 of his sick brother and his wife and several nephews and nieces, including the nephew who was under 18 years of age and the niece who was in ill health and unable to work and earn her own support. OPINION. BLACK: In these proceedings the amounts of the cash payments received by petitioners in the sale of Texas oil leases are not disputed. The amounts received by petitioners Hammonds and Branson from in-oil payments in 1932 and the amount received by petitioner Branson in 1933 are likewise not disputed. The questions which are at issue are as to*931 whether the amounts received by petitioner Hammonds as her part of the proceeds from the sale of the leases were her separate property and therefore her separate income, or represented the community property of petitioner Hammonds and her husband, O. O. Hammonds, and therefore their community income, taxable one-half to each on their separate returns, which were duly filed. Other issues concern the question of proper depletion allowances and one or two other issues of a more or less minor nature, which will be stated separately later. The first question which we shall consider is whether the income of petitioner Hammonds from the sale of oil and gas leases, entered into and consummated within the State of Texas, is community income of herself and husband under the community property laws of Texas, taxable one-half to her and one-half to him, notwithstanding they were residents of and domiciled in the State of Oklahoma at the time. In order to have a proper discussion of the point which we have here to decide, we must first determine whether the oil leases which were acquired by petitioner Hammonds in Texas in 1930 were personal property or represented an interest in real estate. *932 If the oil leases were personal property, then the decision is not difficult because there can be no question that, where either of the spouses who are domiciled in a noncommunity property state acquire personal property during coverture, the law of the domicile governs and not the law of the situs of the property. McKay on Community Property, sec. 641. In this proceeding both parties agree that the domicile of petitioner Hammonds was in the State of Oklahoma and that if the oil *10 leases acquired in Texas are properly classed as personal property the laws of Oklahoma control and the property would belong to the separate estate of petitioner Hammonds. However, it seems perfectly clear that under the laws of Texas the oil leases acquired in that state were not personal property, but represented an interest in realty. Stephens v. Stephens,292 S.W. 290; John O'Neil,16 B.T.A. 614. So we are led to inquire what law governs when one of the spouses domiciled in a state where the community property law does not prevail acquires real property in a community property state. The status of land and of the income from the sale thereof involves*933 a rule of property in respect of which we are bound by the law of the state where the land is situated. Rosalie Hampton,31 B.T.A. 853, and cases there cited. That much being decided we inquire, What is the rule of law in Texas applicable to real estate located there which has been acquired by one of the spouses where the husband and wife are domiciled in another state in which community property laws do not prevail? Looking to the Texas law we find that article 4619, sec. 1, vol. 13, Vernon's Annotated Texas Statutes, reads: All property acquired by either the husband or wife during marriage, except that which is the separate property of either, shall be deemed the common property of the husband and wife and * * * all the effects which the husband and wife possess at the time the marriage may be dissolved shall be regarded as common effects or gains, unless the contrary be satisfactorily proved. It seems rather clear that under the Texas decisions, the foregoing presumption applies to real estate acquired by nonresidents as well as residents. See Thayer v.*934 Clarke, 77 S.W. 1050. But this presumption which applies in favor of the community status of the real estate thus acquired is rebuttable both as to real estate acquired by residents of Texas and that acquired by nonresidents. The Court of Civil Appeals, in Thayer v. Clarke, supra, states what appears to be the rule in Texas, in the following language: We state briefly what in our opinion is the law upon the point: It is well settled that as to all personal property acquired during coverture the law of the matrimonial domicile controls, such property having in theory no fixed situs. As to all real estate so acquired the law of the state in which it is situated controls, so that in conveying or incumbering it, wherever the transaction may occur the evidence of the sale or incumbrance must be executed according to the requirements of the law of the state of its situs. * * * So if the husband buy real estate with his separate money, the real estate is his, wherever located. The presumption growing out of the fact of its acquisition during marriage, affects only the burden of proof and is a mere detail which becomes immaterial when the facts are established.*935 [Italics ours.] And the court went on to hold in that case that, it having been proved that the funds with which the real estate in Texas had been *11 acquired were the separate property of the husband, the real estate so acquired was his separate property. This decision of the Court of Civil Appeals in Thayer v. Clarke was affirmed in a per curiam opinion of the Supreme Court of Texas, reported at 81 S.W. 1274. Petitioner Hammonds concedes the force of this opinion against her if the oil leases in question had been purchased with her separate funds, but she contends that the leases were acquired as compensation for her individual efforts and services and that no money was paid for them. She contends further that under the laws of the State of Texas compensation earned by the wife for her services in Texas is the community property of herself and husband, and therefore the oil leases are community property. That would undoubtedly be true if the parties were domiciled in Texas, but they were not. It is true that, without proof of anything but that the leases were acquired during coverture, the presumption that the property is community property*936 would prevail. For example, if petitioner Hammonds had died while she was the owner of an interest in these oil leases, and her husband had brought suit in the Texas courts for a community interest in the leases and in support of his claim had proved that the leases were acquired during coverture and had stopped there, and Mrs. Hammonds' heirs had offered no proof in opposition and had not proved that the leases were acquired by Mrs. Hammonds' own individual efforts and industry while she was domiciled in Oklahoma, we think that in all probability under such circumstances the community property presumption of the Texas statutes would prevail, and the leases would be held to have been community property of petitioner Hammonds and her husband. But, as was said in Thayer v. Clarke, supra: "The presumption growing out of the fact of acquisition during marriage, affects only the burden of proof and is a mere detail which becomes immaterial when the facts are established." In the instant case the facts have been established. As we have already pointed out, it has been established that petitioner Hammonds was domiciled in the State of Oklahoma, and the oil leases were acquired*937 by her own separate efforts and industry. They were not acquired with joint funds belonging to petitioner and her husband. Under these circumstances, we think the oil leases were her separate property. One of the cases strongly relied upon by petitioner Hammonds in support of her contention that the leases were community property was the case of Joiner v. Joiner,87 S.W.(2d) 903, decided by the Court of Civil Appeals of Texas. In that case the wife after divorce from her husband sued him in the courts of Texas for a one-half interest in a large amount of property, including oil leases, situated in Texas, which had been acquired during coverture. It was conceded *12 that the domicile of the husband and wife was in the State of Oklahoma when the property in question was acquired. The lower court held against Mrs. Joiner and denied her any recovery. The Court of Civil Appeals of Texas reversed the lower court and held that Mrs. Joiner owned a one-half interest in the property. The court in its opinion likened property owned jointly by husband and wife in Oklahoma to community property owned by husband and wife in Texas. Undoubtedly this decision*938 did lend some support to petitioner's contention in the instant case, but, since the filing of briefs herein, the Joiner case has been reversed by the Supreme Court of Texas. See Joiner v. Joiner,112 S.W.(2d) 1049, decided by the Supreme Court of Texas, February 2, 1938. In its opinion the Supreme Court of Texas held that under the laws of Oklahoma there were two recognized classes of property owned by husband and wife - (1) that which was jointly acquired; and (2) that which was separately acquired. In discussing "jointly" acquired property the court said: "In several cases the Supreme Court of Oklahoma has defined 'jointly' acquired property within the meaning of section 672, 12 Okl.St.Ann.par. 1278, as property 'accumulated by the Joint industry of the husband and wife during marriage'. See Tobin v. Tobin,89 Okl. 12, 213 Pac. 884, 888 and Bruce v. Bruce,141 Okl. 160, 285 Pac. 30." In discussing "separately" acquired property, the court said: "The statutes of that state [Oklahoma] do not specifically define separate property but the decisions, in light of the definitions of 'jointly acquired' property, *939 have by necessary implication defined separate property as property acquired by either spouse as result of his or her separate earnings, skill, industry or labor." The court then held that the property in Texas, including real estate situated there, had been acquired during coverture by the separate industry and efforts of the husband, C. M. Joiner, and had been acquired while the parties were domiciled in Oklahoma, and under the laws of Oklahoma the property was the separate property of the husband and retained the same character in Texas, and that the wife was not entitled to recover any of it. The court concluded its opinion with this language: Under the decisions of the Supreme Court of Oklahoma, above mentioned, we have no hesitancy in expressing the conclusion that none of the properties in which plaintiff in this suit claims an interest were "jointly acquired" within the purview of the Oklahoma laws. This being true, the controversy with reference to the settlement agreement becomes of no consequence, as plaintiff had no interest whatever in said properties. We think the same logic requires us to hold that the interest in the oil leases acquired by petitioner Hammonds*940 by her own efforts and industry were under the laws of the State of Oklahoma her own *13 separate property and that the rule followed by the Supreme Court of Texas in the Joiner case and other cases is to recognize and apply the Oklahoma law in such a situation, even as to real estate located in Texas. This being so, we hold that respondent did not err in treating the income from the sale of the Texas leases as the separate income of petitioner Hammonds and not the community income of herself and her husband. On this point we sustain the Commissioner. We shall next consider other issues which have been raised by the pleadings. Two questions involving identical considerations may be disposed of together - (1) whether the petitioners are entitled to a depletion deduction of 27 1/2 percent of $139,800, cash received by them upon the sale of their leases in 1931, each being entitled to one-half thereof, and (2) whether they are entitled to depletion of 27 1/2 percent of $34,785, received by them in 1932 from the Faith Oil Corporation as a part of the original consideration paid by checks of that company which were bad and as a credit on notes given to replace those checks. *941 The petitioners concede that these issues are governed by decisions in William Fleming,31 B.T.A. 623; Roy H. Laird,35 B.T.A. 75; and Commissioner v. Fleming, 82 Fed.(2d) 324. Arguments advanced by the petitioners are merely by way of repetition of what has already been carefully considered in those cases, particularly respecting the distinction between those and Palmer v. Bender,287 U.S. 551, which, needless to say, we have carefully considered and find no reason to recede. It is clear from the facts in our findings that petitioners made an outright sale of the leases for a cash consideration and a further consideration to be paid out of oil if and when produced. Under the foregoing decisions petitioners are not entitled to depletion of the cash consideration and are entitled to depletion of the in-oil payments. The respondent now concedes two of the petitioners' contentions - (1) that they are entitled to a depletion deduction of 27 1/2 percent of $51,111.02 received by them in 1932 on account of in-oil payments from leases sold in 1931, each being entitled to one-half thereof, and (2) that petitioner*942 Branson is entitled to deduct depletion of 27 1/2 percent of $34,437.92, received by him in 1933 on account of in-oil payments to be made from leases sold in 1931, on the authority of Thomas v. Perkins,301 U.S. 655, and the cases above cited. Effect to these concessions will be given in a computation under Rule 50. Another contention of the petitioners is that they are entitled to deduct from income, as ordinary and necessary business expenses, the intangible drilling and development costs under a turnkey job contract, of $12,426.66 expended on the well drilled by them in 1932, each being entitled to one-half thereof. The respondent contends that this issue is controlled by our decision in O-W-R Oil Co.,35 B.T.A. 452. *14 This, the petitioners concede, offering argument against the correctness of that decision. Upon consideration of the argument presented we find no reason to recede from our former position. The Commissioner is sustained as to this issue. Petitioner Branson contends that he is entitled to deduct $2,082.18 as a one-third share of the $6,246.55 cost of drilling a nonproductive well known as the Brandenburg well, *943 alleging that the respondent allowed only $422.84 therefor. It of course requires no citation of authority to support the proposition that respondent's determination in the deficiency notice is presumed to be correct and the burden is on petitioner to show by evidence that respondent has erred. We find no evidence in the record which supports petitioner's contention on this point and therefore sustain the Commissioner's determination for lack of evidence to show that it was error. Finally, the respondent has affirmatively plead the erroneous allowance of a $1,200 credit for three dependents claimed by petitioner Branson for the calendar year 1932, at the same time asserting a claim for any increase in the deficiency for that year which may result from a correction of this alleged error. The burden to support this affirmative allegation is upon the Commissioner and we do not consider that he has discharged that burden. The only witness offered by respondent to prove his affirmative allegations was petitioner Branson, himself. The substance of Branson's testimony was that in 1932 he spent much more than the $1,200 claimed as credit for dependents, in support of his brother, *944 who was a Methodist preacher whose health broke down and was unable to work and had no means of support, and in support of his family, including his children and also in support of some nephews and nieces who were orphans. One of the nephews was under 18 years of age and one of Branson's nieces was sick most of 1932 and required a serious operation, the entire cost of which Branson paid. Branson testified that in 1932 he contributed practically the entire support of his brother, his wife, and these nephews and nieces. None of them were legally dependent upon him for support. He testified that an accountant made out his income tax return for 1932 and claimed the credit for three dependents upon information which Branson furnished him at that time, but that he is now unable to identify the names of which three of the relatives above referred to the credit for dependents was claimed. If the respondent had disallowed the deduction for dependents in his determination of the deficiency, the presumption of correctness would exist in his favor and we would hold that Branson's testimony above summarized would not be sufficient to overcome it. But the shoe is on the other foot. The burden*945 of proof is on respondent to sustain his affirmative allegations and we do not think *15 he has done so. Counsel for respondent seems to think that, because Branson frankly testified that none of the relatives to whom he contributed the chief support in 1932 were legally dependent upon him, that fact is sufficient to deprive him of the right of a credit for dependents. That is not true. The statute giving a credit for the support of dependents does not require that they live in the same household as the taxpayer who contributes the support, nor does it require that those who are supported shall be legally dependent upon the taxpayer. Those are some requirements for a credit as "head of a family" - see section 25(c) and the Commissioner's regulations thereunder - but not for the allowance of credit for dependents. Section 25(d) of the 1932 Act, providing for the credit for dependents, is printed in the margin. 1 *946 The Commissioner's regulation respecting credits for dependents, article 294 of Regulations 77, is also printed in the margin. 2 For aught we know the three dependents for whom petitioner Branson claimed credit in 1932 were his brother, a Methodist preacher, whose health broke down, leaving him unable to work; Branson's nephew, who was under the age of 18 years; and Branson's niece, who, although more than 18 years of age, was ill most of the year*947 and unable to earn her support because of her illness, all of her expenses being paid by Branson, including hospital and medical bills. Branson was the chief support of all three of these relatives in 1932, and, if they are the three for whom he claimed the credit for dependents, they may come within the classification provided in section 25(d) and the Commissioner's regulations thereunder. Certainly the nephew who was under 18 years of age would come within that classification. Cf. Crocker v. Helvering, 91 Fed.(2d) 299. Whether the physical disabilities of petitioner's brother and niece were sufficient to bring them within section 25(d) and the applicable regulations, we do not decide. Respondent has not proved to the contrary. The burden of proof is on him to establish his affirmative allegations. Because he has not done so we hold against him on this issue. Judgment will be entered under Rule 50. Footnotes 1. (d) CREDIT FOR DEPENDENTS. - $400 for each person (other than husband or wife) dependent upon and receiving his chief support from the taxpayer if such dependent person is under eighteen years of age or is incapable of self support because mentally or physically defective. ↩ 2. ART. 294. Credit for dependents. - A taxpayer, other than a nonresident alien who is not a resident of Canada or Mexico (see section 214), receives a credit of $400 for each person (other than husband or wife), whether related to him or not and whether living with him or not, dependent upon and receiving his chief support from the taxpayer, provided the dependent is either (a) under 18, or (b) incapable of self-support because defective. The credit is based upon actual financial dependency and not mere legal dependency. It may accrue to a taxpayer who is not the head of a family. But a father whose children receive half or more of their support from a trust fund or other separate source is not entitled to the credit. ↩