Opinion
Docket No. 91349.
1963-03-14
DAVID R. PULLIAM PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Morrison Shafroth, Esq., for the petitioner H. Tracy Huston, Esq., for the respondent.
Morrison Shafroth, Esq., for the petitioner H. Tracy Huston, Esq., for the respondent.
1. GAIN— DIVORCE PROPERTY SETTLEMENT.— The husband realized long-term capital gain from a Colorado court divorce decree transferring real property to the wife. United States v. Davis, 370 U.S. 65.
2. LOSS— DIVORCE PROPERTY SETTLEMENT— FAMILY RESIDENCE.— A loss on the family residence transferred is not deductible.
3. DEDUCTION— ATTORNEYS' FEES— DIVORCE.— No part of attorneys' fees, though allocable to the property division, is deductible. United States v. Gilmore, 372 U.S. 39.
4. GIFT— TITLE TAKEN IN WIFE'S NAME.— Gain on a farm included in the decree conveyance was properly taxed to the husband although when he purchased the land he took title in his wife's name to obtain a grain allotment which he could not have obtained otherwise but treated the farm as his own at all times.
The Commissioner determined a deficiency of $14,717.59 in income tax of the petitioner for 1956. The issues for decision are whether the Commissioner erred in:
(1) Holding that the petitioner realized a long-term capital gain from the transfer of property to his wife by a court order in a divorce proceeding;
(2) Including in the computation a farm, the deed to which was in the wife's name;
(3) Failing to include the couple's residence in the computation; and
(4) Failing to allow deductions for the portion of all attorneys' fees paid by David in the divorce preceeding relating to the division of property.
FINDINGS OF FACT.
The petitioner filed his individual income tax return for 1956 with the district director of internal revenue for Colorado.
The petitioner and B. O'Nan Pulliam were married in 1925. They had no children. O'Nan filed a complaint in divorce on August 8, 1955, in which she asked for a division of property. David filed an answer on August 8, 1955, in which she asked for a division of property. David filed an answer on August 30, 1955, in which he joined in O'Nan prayer for the divorce ‘and that upon final decree the Court fix and determine the rights of the parties with reference to division of property.’ David and O'Nan had no agreement as to a property settlement. The court entered an interlocutory decree of divorce on October 10, 1955. The findings and opinion of the court on division of property were entered on February 14, 1956, and amended findings were entered on May 14, 1956. A final decree of divorce was entered on October 11, 1956, in which the court ordered and decreed that each party should retain all property standing in the name of that party at the beginning of the action ‘except for the real property hereinafter transferred to the plaintiff, B. O'Nan Pulliam by this decree.’ The order and decree of the court was to ‘act as and be a conveyance of the record title to the’ property described in the decree from David to O'Nan.
The following table shows the property thus transferred, the cost basis of the properties to David, and the fair market value of each on October 11, 1956:
+------------------------------------------------+ ¦ ¦ ¦Fair market ¦ +------------------------+---------+-------------¦ ¦Property ¦Basis ¦value on ¦ +------------------------+---------+-------------¦ ¦ ¦ ¦Oct. 11, 1958¦ +------------------------+---------+-------------¦ ¦Dry Land ¦$1,275.00¦$4,800.00 ¦ +------------------------+---------+-------------¦ ¦Garfield Avenue property¦9,161.28 ¦10,160.00 ¦ +------------------------+---------+-------------¦ ¦White Elephant Farm ¦5,054.20 ¦2,450.00 ¦ +------------------------+---------+-------------¦ ¦Oschner Farm ¦7,664.00 ¦36,000.00 ¦ +------------------------+---------+-------------¦ ¦Reichel Farm ¦7,664.00 ¦27,710.00 ¦ +------------------------+---------+-------------¦ ¦Vacant lots ¦12,000.00¦14,750.00 ¦ +------------------------+---------+-------------¦ ¦Lake Drive residence ¦56,025.91¦42,000.00 ¦ +------------------------------------------------+
The couple resided in the Lake Drive residence up to the divorce.
The Dry Land property was purchased by David in 1943 but he had title placed in O'Nan's name in order to obtain a larger grain-raising allotment than he could have obtained had been taken title. He managed and controlled that property and its earnings as his own. He did not intend to make a gift of the property and he was the equitable owner of that property until the decree gave it to O'Nan.
David paid his attorney in the litigation $2,017.40 in 1956, 70 percent of which related to the division of property. David also paid $4,000 to O'Nan's attorney in 1956, $3,500 of which related to the division of property.
David, on his 1956 return, claimed a deduction of $2,517.40 for legal and audit expenses. The Commissioner, in determining the deficiency, disallowed $2,012.15 of that amount.
The Commissioner, in determining the deficiency, held that David realized a long-term capital gain of $53,051.52 in 1956, as a result the court order transferring properties from David to O'Nan, and increased reported taxable income by 50 percent of the gain, or.$26,525.76.
All stipulated facts are incorporated herein by this reference.
OPINION.
MURDOCK, Judge:
The petitioner argues that there are no inchoate marital rights in Colorado, he did not transfer any property to his wife, and he received no release of any rights from her. He filed an answer in the divorce proceeding and participated actively in the litigation over the division of property. It is immaterial that the decree transferred the properties instead of requiring transfers by the petitioner. The decree was as effective as a release from the wife. It was never contested. This case is not distinguishable in principle from United States v. Davis, 370 U.S. 65, rehearing denied 371 U.S. 854. The Commissioner did not err in holding that the petitioner realized a long-term capital gain as a result of the decree of divorce.
The petitioner contests the amount of that gain on the ground that the Dry Land Farm should not be included in the computation for the reason that it already belonged to his wife but the loss on the residence should be included in that computation. The facts show that the petitioner did not intend to make or make a gift of the Dry Land Farm to his wife. The only support for his contention is the fact that title was taken in her name. The evidence shows, however, that the purpose for that was to gain additional grain-growing allowance rather than to make a gift. The petitioner paid for the property, managed it, controlled it, received all income from it, and treated it as his own. The Dry Land Farm was ‘Tract 1’ in the decree, which decree was ‘a conveyance’ of that property. The court thus regarded this farm as property of the husband. The gain on that property was properly a part of the petitioner's long-term capital gain.
It has been held consistently that loss from the disposition of one's residence is personal and not deductible. Sec. 165(c), I.R.C. 1954. Warren Leslie, Sr., 6 T.C. 488; Allen L. Grammer, 12 T.C. 34. No reason to depart from that rule has been shown here.
The petitioner must lose on his contentions that he may deduct a part of attorneys' fees paid by him to his attorney and to his wife's attorney. United States v. Gilmore, 372 U.S. 39. Cf. Arthur B. Baer, 16 T.C. 1418, modified 196 F.2d 646; F. C. Bowers, 25 T.C. 452, revd. 243 F.2d 904; Joseph Lewis, 27 T.C. 158, affd. 253 F.2d 821.
Decision will be entered for the respondent.