Commissioner v. Rabenold

SWAN, Circuit Judge. The taxpayers are husband and wife who filed a single joint return of their income for the year 1933, pursuant to section 51(b) (2) of the Revenue Act of 1932, 47 Stat. 188, 26 U.S.C.A. § 51(b) (2). Their return showed no tax liability but the commissioner’s audit disclosed a deficiency and a deficiency notice addressed to them both was mailed. The deficiency has been stipulated to be $3,578.59. Of the ordinary net income of the taxpayers, 85 per cent, was the husband’s and 15 per cent, the wife’s. In addition to ordinary net income the wife had a capital net gain of some $19,000. The husband had no capital net gain. On the basis of a single joint return $1,101.48 of the agreed deficiency is attributable to ordinary net income subject to the normal and surtax rates, and $2,-477.11 is attributable to capital gain subject to the capital net gain rate. The ordinary net income of the wife included interest on tax-free covenant bonds upon which a tax was paid at source in the sum of $74.25, and this sum has been allowed as a credit in determining the amount of the total deficiency; it was deducted from normal tax and surtax amounting to $1,-175.73 in arriving at the amount of $1,-101.48 stated above. Before the Board the commissioner contended, as he still does, that husband and wife were jointly and severally liable for the entire deficiency, but the Board apportioned it between them on the basis of their respective incomes, finding the husband’s deficiency to be $999.37 and the wife’s $2,579.22. These amounts are not disputed, if apportionment is permissible. The case presents to this court for the first time the question whether a husband and wife who elect, to file a single joint return are jointly and severally liable for any deficiency which may be determined upon an audit of the return. In two other circuits the question has been answered in the negative. Cole v. Commissioner, 9 Cir., 81 F.2d 485, 104 A.L.R. 420; Crowe v. Commissioner, 7 Cir., 86 F.2d 796. These decisions have been followed by the Board in Darling v. Commissioner, 34 B. T.A. 1062; Flaherty v. Commissioner, 35 B.T.A. 1131; Hyman v. Commissioner, 36 B.T.A. 202; Seder v. Commissioner, 38 B.T.A. 874. Although the precise point is new to this court, our prior decisions in Van Vleck v. Commissioner, 2 Cir., 80 F.2d 217, certiorari denied, 298 U.S. 656, 56 S.Ct. 676, 80 L.Ed. 1382; Pierce v. Commissioner, 2 Cir., 100 F.2d 397, 121 A.L.R. 647, and DeMuth v. Commissioner, 2 Cir., 100 F.2d 1012, certiorari denied, 307 U.S. 627, 59 S.Ct. 822, 83 L.Ed. 1510, May 1, 1939, point toward a negative answer. In those cases we said that husband and wife did not become “a taxable entity” by exercising the privilege of filing a joint return but each spouse “remained a separate and distinct taxpayer.” All that the statute provides is that “the tax shall be computed on the aggregate income.” The privilege is granted unconditionally, without declaration that they shall be jointly liable for the tax so computed. Only by implication can an intention be inferred to make them a taxable entity or to impose joint and several liability on both spouses. Taxing statutes are not to be extended by implication; doubts must be resolved against the government. Gould v. Gould, 245 U.S. 151, 153, 38 S.Ct. 53, 62 L.Ed. 211; Crooks v. Harrelson, 282 U.S. 55, 61, 51 S.Ct. 49, 75 L.Ed. 156. Consequently, in spite of the practical administrative inconveniences if the deficiency must be apportioned between them, we think the Board’s ruling was right. In the Revenue Act of 1938 section 51 was rewritten and there was inserted in clause (b) the express provision that “the liability with respect to the tax shall be joint and several.” 52 Stat. 476, 26 U.S.C. A. § 51(b). The petitioner argues that this provision should be deemed merely declaratory of existing law under prior revenue acts, and in support thereof refers to the House Committee report (H.Rep. No. 1860, 75th Cong. 3d Sess., pp. 29, 30) which reads: — 641 — “Section 51 of the hill restates in amplified form the provisions relating to filing returns in the case of individuals. “Section 51(b) of the bill expressly provides that the spouses, who exercise the privilege of filing a joint return, are jointly and severally liable for the tax computed upon their aggregate income. It is necessary, for administrative reasons, that any doubt as to the existence of such liability should be set at rest if the privilege of filing such joint returns is continued.” With at least equal plausibility the respondents reply that the reenactment of section 51(b) in the Revenue Act of 1936, 49 Stat. 1670, 26 U.S.C.A. § 51(b), carried into legislation the construction of no joint and several liability which the Cole case had previously put upon thé statutory language; hence an amendment was necessary in 1938 to change the law. If either argument is to be accepted the latter is the more persuasive. It is not apparent on what sound theory the Committee’s report, even if it could be interpreted as an express declaration that the Committee members understood the prior enactments to have imposed joint and several liability, can be supposed to control a court in the exercise of its judicial function of construing the applicable statute. As already stated, only by implication can such a liability be found in the 1932 Act, and taxing laws are not to be extended by implication. Accordingly the order is affirmed.