COMMISSIONER OF INTERNAL REVENUE v. SKAGGS.
No. 9174.
Circuit Court of Appeals, Fifth Circuit.
Sept. 22, 1941.
122 F.2d 721
Helen R. Carloss and Sewall Key, Sp. Assts. to the Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., and J. P. Wenchel, Chief Counsel, Bureau of Internal Revenue, and John M. Morawski, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for petitioner.
Robert Ash, of Washington, D. C., for respondent.
Before FOSTER, SIBLEY, and McCORD, Circuit Judges.
SIBLEY, Circuit Judge.
The taxpayer, L. L. Skaggs, was married in January, 1929, and has since been domiciled in Texas. In 1926 he had ac-
We assume that the Safeway Stores is a Texas corporation and that its stock is personalty under the Texas law. Both parties concede that the law of Texas fixes the ownership of it and its proceeds, the question being whether under that law the gain realized by its sale is the separate property of Skaggs, or falls into the marital community. The provisions of the Texas Constitution and statutеs are quoted and discussed in Commissioner v. Wilson, 5 Cir., 76 F.2d 766, 768. In defining the separate property of husband and wife as that owned or claimed before marriage and that acquired afterwards by gift devise or descent, the statutes add “as аlso the increase of all lands thus acquired.”
There are cases in Texas in which it was shown that the gain realized came largely from the expenditure of the time and efforts of the spouse during the marriage, in which the claims of the community were recognized, but in such instances the proceeds of sale were not identified as arising wholly from the separate property.1 The Board‘s case of W. T. Carter, Jr., supra, was of that kind and was correctly distinguished on that ground in deciding the O‘Connor case, supra, 40 B.T.A. 489. We think the O‘Connor case is controlling here. 11 Am.Jur., Community Property, § 26. 23 Texas Jur., p. 142, § 114; 126 Am.St.Rep. p. 114, and cases cited.
As to the rents from the California realty, the question is whether their ownership is to be determined by the law of California or that of Texas. Both States have the law of the marital сommunity derived from the old Spanish law. By the Spanish law the rents of separate property fell into the community. 11 Am.Jur., Community Property, § 32. This is the law in Texas, so far recognized by the State Constitution that the effort to enlarge by statute the wife‘s separate estate by adding the rents to it was held unconstitutional. Arnold v. Leonard, 114 Tex. 535, 273 S.W. 799. We held in Commissioner v. Wilson, 5 Cir., 76 F.2d 766, that the part of the same statute which also added to the husband‘s separate estate the rents thereof was sо intimately connected with the unconstitutional provision as to fall with it. The Court of Claims, Hurd v. United States, 22 F.Supp. 421, reached a different conclusion, but the Texas legislature itself, Texas Laws 1929, C. 32, § 3, p. 66, declared: “The Legislature never would hаve provided, or attempted to provide, that the rents and revenue derived from the husband‘s separate property should be his separate estate if it had known that the correlative portion of the Statute, which provided that the rents and revenues derived from the wife‘s separate property should be her separate estate, was in conflict with the Constitution, as heretofore held by the Suрreme Court of Texas; and the fact that both of said correlative provisions, though unconstitutional, remain on the Statute Books and are, therefore, confusing and misleading,” was made the ground for eliminating bоth provisions as
In California, the Spanish law has been by valid statute modified so that the separate property of each spouse includes “the rents, issues, and profits thereof.”
Marriage is a very personal mattеr, and its incidents are in general regulated by the law of the matrimonial domicile. But the Spanish and French laws touching community property, and those of California and Texas and other States derived from them, аre held to be, in the vocabulary of the civilians, statutes real and not statutes personal; that is to say, they apply to things within a country‘s jurisdiction rather than to persons wherever they may be or go. Hammonds v. Commissioner, 10 Tenth Cir., 106 F.2d 420. It should follоw that things, whether movable or immovable, actually situate in a State and effectively within its power, should be governed by the law of that State. It is universally held that real or immovable property is exclusively subjeсt to the law of the country or State in which it is situated, and no interference with it by the law of any other sovereignty is permitted. 11 Am.Jur., Conflict of Laws, § 30. And the question whether property is real or personal is to be solved by the law of the place where it is actually located. Id., § 29. These rules apply to questions of the marital rights of spouses in property. 11 Am.Jur., Conflict of Laws, Sects. 50, 85; Id., Community Property, §§ 10, 11. The Board in this case reсognized that the California land was subject to California law only, and that the rents from it prior to accrual were a part of the land, but thought that after accrual the rents were mere choses in action having no actual situs and would take a fictional situs at the domicile of Skaggs for tax purposes, and thus fall under the Texas law and become the property of himself and wife. We think the reasoning too аrtificial and tenuous. The receipt of the rents, issues or profits of land constitutes its enjoyment. A deed or devise of the income from property gives a corresponding right in the property itself. Commissioner v. Terry, 5 Cir., 69 F.2d 969; Irwin v. Gavit, 268 U.S. 161, 45 S.Ct. 475, 69 L.Ed. 897. If the Texas community law can transfer to Skaggs’ wife a half interest in the rents and profits of his land in California, it in effect gives her a half interest in the land for the period of the marriage. An immature crop, like unaccrued rеnt, is a part of the land; and it becomes personalty when gathered—just as rent past due does—no longer passing with the land as part of it; but we think in neither case would the law of another State be effeсtive to change the ownership of the crop on its gathering, or of the rent on its becoming due. In Robinson‘s Succession, 23 La.Ann. 174, the marital community of a Louisiana couple sought to have the husband‘s separate estate account for cotton raised on his separately owned farm in Mississippi. It was held the cotton was separate property. In the Hammonds case, supra, a wife whose earnings were her own at her domicile in Oklahoma, received for her services an interest in an oil lease in Texas, which she converted into money and an oil payment. The oil lease was realty in Texas, and what came out of it, cash and oil, was held governed for federal tax purposes by the Texas community law and not by the law of her domicile. The rent on this California land was certainly the property of Skaggs at the moment it became due. We do not think the Texas law, being a statute real, operates to change the ownership instantly afterwards.
Skaggs in his brief says that at the trial before the Board he was misled by counsel for the Commissioner into thinking there would be no contention that the capital gain above discussed was separate, and so the stipulation of facts was not so full as it would have been, the truth being that Skaggs had from 1926 till July 1, 1929, been president and a director of Safeway Stores. The Commissioner amended his brief before the Board before its final decision was made, urging the point now said to have been abandoned. The petition to this court for review makes this point a prominent ground. Neither
FOSTER, Circuit Judge (concurring in part and dissenting in part).
I agree with the conclusion of the majority holding that the profit on the stock in the Safeway Stores is the separate property of the husbаnd. On the other hand, I consider the rent of the real estate in California was personal property of the husband. The situs was in Texas where he was domiciled and it fell into the community.