Docket No. 103773 103774.
05-19-1942
NATHANIEL SHILKRET, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. ANNE SHILKRET, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
J. Everett Blum, Esq., and Ralph W. Smith, Esq., for the petitioners. Samuel Taylor, Esq., for the respondent.
J. Everett Blum, Esq., and Ralph W. Smith, Esq., for the petitioners.
Samuel Taylor, Esq., for the respondent.
In Docket No. 103773, Nathaniel Shilkret, the respondent determined deficiencies in income tax for the years 1936 and 1937 in the respective amounts of $8,701.85 and $7,412.01. In Docket No. 103774, Anne Shilkret, the respondent determined deficiencies in income tax for the years 1936 and 1937 in the respective amounts of $1,447.83 and $849.68. In these proceedings respondent contends that the petitioners were not domiciled in California and that they were not entitled to divide the net income of Nathaniel Shilkret between them in separate returns for Federal income tax purposes. Respondent has added to the taxable income of Nathaniel Shilkret one-half of his gross income which entered into the net income reported by Anne Shilkret. Anne Shilkret reported as her net taxable income one-half of the net income, after deductions, of Nathaniel Shilkret. Respondent has made various adjustments in the net income of Nathaniel Shilkret. Petitioners concede that all of the adjustments made by the respondent are correct.
The only question is whether the petitioners were domiciled in California during the taxable years. Petitioners filed individual income tax returns with the collector for the sixth district of California for the taxable years.
FINDINGS OF FACT.
Nathaniel Shilkret and Anne Shilkret are, and at all times since their marriage in 1915 have been, husband and wife. Hereinafter, for convenience, Nathaniel Shilkret will be referred to as the petitioner.
Both Nathaniel Shilkret and Anne Shilkret were born in New York City and lived there continuously until the latter part of 1935. During the year 1935 they lived in an apartment at 241 Central Park West, New York City, which they leased. The lease period ran from October 1, 1935, to September 30, 1936. On August 10, 1936, Mrs. Shilkret signed a new lease on the apartment running from October 1, 1936, to September 30, 1937. The rental was $3,000 a year. Petitioner guaranteed the payment of the rent under the lease. When petitioner returned to New York in March of 1938, he returned to that apartment to live. Mrs. Shilkret returned there in 1937. They lived in the apartment on Central Park West until 1939 when they moved to a new apartment at 28 East 73d Street, New York City. During all of 1935 and until the date when the new apartment was taken on East 73d Street, the Shilkrets maintained the apartment at 241 Central Park West, and during this period all of their household furnishings were in that apartment. None of it was ever moved from the apartment. On October 31, 1935, Nathaniel Shilkret entered into an exclusive employment contract with RKO Studios, Inc., located in Hollywood, California, which ran for two years, with an option of renewal. At the end of the two-year period, the contract was not renewed and Nathaniel Shilkret returned to New York City in December of 1937, where he remained for a few weeks, and then returned to California, where he remained until March of 1938. In March of 1938 he returned to New York City, where he has resided ever since. During the period of petitioner's employment in California, he and Mrs. Shilkret resided in California, with the exception of short periods of time when one or both of them returned to New York City for short visits. Shortly after signing the contract with RKO, Nathaniel Shilkret left New York City on or about November 14, 1935. Mrs. Shilkret remained in New York City until February of 1936, when she joined her husband in California. The Shilkrets lived in hotels or furnished, rented places of abode during the period in which they resided in California. In one instance they leased an apartment for six months, and in another, they rented a furnished house for about one year and four months.
Nathaniel Shilkret, petitioner, is a well known musician, composer, and director. At the age of 12 years, he was a member of Victor Herbert's orchestra. At various times he has played with the New York Philharmonic Orchestra, Walter Damrosch, and the Metropolitan Opera orchestra. Until 1935 his professional work was in and near New York City. At the age of 20 years he became a musical director for the Victor Talking Machine Co. with which he has been associated in various capacities during most of his professional career. During his long association with the Victor Co. he performed diverse services, which included managing the foreign recordings department and conducting for outside artists in the making of Red Seal records. Around 1924 he began radio work, which he has continued up to the present time. Around 1929 he began work synchronizing for motion pictures. In 1934 petitioner changed his contract with Victor so that he no longer was a manager, but was only a recording artist, and he was free to enter into contracts with others. During a period of about 17 years, prior to 1935, petitioner had two orchestras which he had developed.
In 1932 petitioner formed the opinion that the competition of the radio industry with the recording field tended to diminish the business prospects of the recording business. He believed that the public was tending to turn its interest from recordings of music to the production of music offered by the radio. He became interested in sound reproduction in the motion picture industry and the techniques involved in making the scores for music for motion pictures. Also, he became interested in the new developments in the field of television. He believed that the development of television offered a new field, and that experience in the motion picture industry would constitute an important background for future work in the field of television, which, he believed, would become a new business in which he could use his experience and talent. Accordingly, he went to Hollywood in April of 1935, remaining there until June, for the purpose of meeting various people in the motion picture industry. In September of 1935 he received an offer from RKO Studios, Inc., through an agency. He had been discussing the possibility of a contract with RKO for some time. On October 31, 1935, he signed an exclusive two-year contract with RKO Studios as musical director, composer, and arranger at a salary of $1,000 a week for the first year and $1,100 a week for the second year. RKO had an option to renew this contract for a third year. As a part of the contract, in a letter dated October 31, 1935, supplementing the terms of the contract, RKO agreed to pay for petitioner's transportation from New York to Hollywood and to pay the expense of shipping to Hollywood his musical library and to provide space for the location of the library in the RKO Studios. RKO also agreed to furnish petitioner with return transportation to New York City and to pay the cost of transporting the library back to New York City in the event that they failed to exercise the option to renew the contract for a third year, providing petitioner left Hollywood within a period of two weeks after the date of the expiration of the contract. The provision covering the payment of shipping costs of the musical library by RKO was adopted at the suggestion of petitioner's attorney, in which suggestion petitioner agreed.
Petitioner began his work with RKO on November 18, 1935. Before he left New York City, he disbanded the two Shilkret orchestras. At the time petitioner went to Hollywood he entertained the hope that he would remain there to work in the motion picture industry. Before he left New York City in November of 1935, petitioner closed his bank account with the Central Hanover Bank & Trust Co.
While in California, petitioner changed the address on his life insurance policies to the address of RKO Studios, Hollywood, as the various premiums became due. He moved his securities from New York to California. He consulted with a Los Angeles investment broker about investments. He insured his musical library with an agent in Los Angeles in 1937, after an insurance policy with a New York agent expired. He joined the Hillcrest Country Club, near Hollywood, as a permanent member. He joined a musicians' union in Los Angeles as a permanent member. His son entered the law school at the University of Southern California in 1936.
Mrs. Shilkret did not go to California with petitioner in November 1935, but remained in New York City until February of 1936. Her brother was seriously ill of tuberculosis. In January of 1936 she sent her brother to California to join other members of the family who lived there. She remained in New York City to adjust some of her brother's affairs. When she joined petitioner in California in February of 1936, they lived in a hotel for a few weeks. Prior to Mrs. Shilkret's arrival, petitioner had lived in a hotel and in a furnished apartment. Petitioner leased a furnished apartment for six months after Mrs. Shilkret's arrival in California. Thereafter, the Shilkrets rented a furnished house, where they resided until the expiration of petitioner's contract with RKO in November of 1937. Petitioner and Mrs. Shilkret went to New York City for the Christmas holiday season in 1936 and 1937. Mrs. Shilkret remained in New York City after her return for the 1937 holiday season. After the holidays of 1937 ended petitioner returned to Los Angeles, where he lived in a furnished apartment until March of 1938.
During the time that Mrs. Shilkret resided with petitioner in California, she made a trip East during the spring of 1936 to attend the commencement exercises of her son at the University of Pennsylvania. She visited New York City during the Christmas holidays at the end of 1936, when she stayed in New York City for one or two months. She made a trip to New York City in the summer of 1937 to visit petitioner's mother, who was seriously ill at that time and died in September of 1937. Shortly after her arrival in California in 1936 Mrs. Shilkret opened a personal bank account with a local bank. Mrs. Shilkret contributed to charities in New York City as well as to charities having a national scope during 1936 and 1937. During the same years petitioner contributed to charities in New York and California, as well as to national charities.
At the time petitioner began his work with RKO Studios, his relations with the executives were very friendly. He was provided with a large staff and worked on only one picture at a time. However, shortly after he began his work with RKO there was a drastic reorganization in RKO, and the new executives initiated an economy program. Petitioner's staff was cut drastically and he was required to work on six or seven pictures at a time so that from July of 1936 until August of 1937 his working day averaged from eighteen to twenty-two hours. He became dissatisfied and consulted an attorney about his duties and obligations under his contract. The attorney advised him that he was not required under the terms of his contract to do such arduous work for such long hours. Petitioner's attorney took the matter up with the studio and after August of 1937 petitioner worked on only one picture at a time. Nevertheless, petitioner gained the impression that the RKO Studios were displeased about the incident and he felt that they would not exercise their option to renew his contract. He began conversations with the Metro-Goldwyn-Mayer Studios about the possibility of obtaining a contract from them. The RKO contract expired on November 18, 1937, and they did not renew the contract. Petitioner then entered into negotiations with M-G-M, which continued until March of 1938. The negotiations were not successful and petitioner returned to New York in March of 1938.
By remaining in California for longer than two weeks after the expiration of the RKO contract, petitioner forfeited his right to receive from RKO the cost of his return transportation to New York City and the cost of shipping his music library back to New York City. Petitioner rented space in Hollywood for his library and RKO transported it to that location. In the latter part of 1938 petitioner moved his music library back to New York City at a cost to himself of about $2,000.
In August of 1938 Shilkret's health was impaired. He underwent an operation in April of 1940 and was in a hospital until July of 1940. Shortly after leaving the hospital he broadcast on a program in Chicago for about seven weeks.
Petitioner and Mrs. Shilkret have never registered in California for purposes of voting. They were registered voters in New York State, where they voted in 1938 and 1940.
Petitioner and Mrs. Shilkret filed California state income tax returns, as residents, for 1936 and 1937. Petitioner filed his Federal income tax returns for the years 1938 and 1939 with the collector for the third district of New York. Mrs. Shilkret did not file any Federal income tax return for the years 1938 and 1939.
During 1936 petitioner received interest on bank deposits in five New York banks and interest on mortgages in New York. During 1937 petitioner received interest on deposits in one New York bank and in one California bank. During 1936 Mrs. Shilkret held title to two pieces of improved property in New York City.
The income reported in petitioner's return for 1936 included $52,966.67 from RKO, $8,772.96 from radio broadcasts, $1,334.02 from song royalties, and song arrangements, and $1,645.49 interest on New York mortgages and bank accounts. Deductions were taken for contributions by petitioner and his wife, which were made chiefly to New York charities. Deductions were taken for rent for three New York offices in the amounts of $550, $2,862.51, and $426.65, total, $3,839.16. The income reported in the return for 1937 included $49,572.85 from RKO; $4,781.87 from radio, recordings, and transcriptions; $3,173.81 from song royalties; $1,376.99 dividends; and $2,796.93 interest on New York mortgages. Petitioner deducted $483.33 as office rent in New York, claiming that he used one room in his New York apartment in lieu of the offices he had kept in 1936 in New York. Contributions made by Mrs. Shilkret in 1937 were chiefly to New York charities.
Petitioner did not give up his New York domicile in 1935, or in subsequent years. Petitioner did not acquire a domicile in California in 1935, or in subsequent years. During 1936 and 1937 petitioner and Anne Shilkret were domiciled in the State of New York.
OPINION.
HARRON:
Nathaniel and Anne Shilkret were domiciled in the State of New York in 1935. They resided in California during 1936 and 1937, when Nathaniel Shilkret, called petitioner as a matter of convenience, was employed by the RKO Studios in Hollywood under a two-year contract of employment. The petitioner contends that he and his wife were domiciled in California during the taxable years. If that contention is sustained, they were entitled to divide between them the net income of petitioner for income tax purposes under Federal recognition of the community property law of California, under which law one-half of the earnings and income of one spouse is the property of the other spouse.
Petitioner asserts that he moved to California with an intention, then, of remaining there for an indefinite time and that he acquired a fixed, present domicile there in 1935, at the earliest, or during 1936. He asserts that all of his acts, his state of mind, and his then intentions about the present and the future, were such that he acquired a new domicile.
The question is chiefly a question of fact, but three legal tests must be met by petitioner, in this case particularly, because petitioner's contention involves proof of abandonment of an original domicile, for it appears that at all times up to the time of this controversy petitioner was domiciled in the State of New York. To establish a change of domicile petitioner must prove that he (1) abandoned the original domicile, (2) moved to and resided in a new domicile, and (3) had an intent of remaining, permanently and indefinitely, in the new domicile. Corpus Juris Secundum, vol. 28, p. 30; Kenna, "Residence and Domicil" (1934), p. 194; Beale, "Conflict of Laws", vol. 1, p. 145, sec. 18.2; 9 R. C. L. 553. "Mere absence from a fixed home, however, long continued, can not work the change. There must be the animus to change the prior domicil for another. Until the new one is acquired, the old one remains." Mitchell v. United States, 21 Wall. 350. "A domicil when acquired is presumed to continue until it is shown to have been changed." Anderson v. Watt, 138 U. S. 694, 706.
The question must be decided against petitioner because he has failed to show that he abandoned his original domicile. The facts have been fully set forth in the findings. Upon due consideration of all of the evidence, it has been found as a fact that Nathaniel and Anne Shilkret were domiciled in New York State during the taxable years. The considerations which entered into arriving at this conclusion are as follows, as briefly as a summary of the facts permits:
When the lease on the New York apartment expired on September 30, 1936, it was renewed for another year, until September 30, 1937. Again, when the lease expired in 1937, it was renewed for another year, until September of 1938. That appears from the fact that Mrs. Shilkret returned to the apartment permanently at the end of 1937, petitioner returned there in March of 1938, and both lived there until 1939, when they moved to a new apartment in New York City. Retention of the apartment in New York and failure to move any household goods to California negative petitioner's assertion that he intended to live in California permanently and indefinitely at the time he went there. There is no convincing or even persuasive explanation for the two renewals of the New York lease in 1936 and 1937. Petitioner entered into the contract with RKO on October 31, 1935. Of course, with due regard for the usual difficulties of lawfully extricating oneself from lease obligations, it would have been only a matter of enforced delay, if the Shilkrets had not moved their household possessions to California until the lease expired in September of 1936 (see Behrensmeyer v. Kreitz, 26 N. E. 704, 712, referring to Louis Steffin), but the renewal of the lease in 1936 and the second renewal, in 1937, strongly indicates that there remained throughout an intention to return to New York. Due consideration has been given to the close proximity in the dates of the expiration of the RKO contract on November 18, 1937, and expiration of the New York lease on September 30, 1937. But, again, leaving out for the moment the question of the second renewal of the lease, it is difficult to understand why the Shilkrets made the first renewal in 1936. On March 15, 1937, tax day for the year 1936, they had not taken any of the steps usually taken when persons make a permanent move to a new home in a new locality. If it was a matter of delay in finding a home in California to purchase, as part of petitioner's testimony suggests, it is not reasonable to believe that the facilities for storing the furniture for a short time in California would not have occurred to persons who had a definite and fixed intent to establish a permanent home in California, as petitioner asks us to believe. Nor is it reasonable to believe that persons who had a present intent to establish a permanent home in California would, after carrying the New York lease well into the autumn of 1936, at a rental of $3,000 a year, consider it cheaper, or more economical to contract to pay another year's rental of $3,000, on September 30, 1936, rather than to move the household furnishings to California and store them in a warehouse until all requirements were met in selecting a new house. Mrs. Shilkret's explanations, that she was ill at the time the lease expired in September of 1936 and that she was unable to find an unfurnished house to suit her taste, have been considered. But, we believe that they are not entitled to receive much weight in the total considerations. The nature of her illness is not explained. Inability to locate an unfurnished house in or near Hollywood is difficult to believe, and, finally, the general situation does not appear to have been so complex that, if the parties had had a very firm desire to move to California in order to locate there permanently, they could not have found a way of moving their furniture to California and relinquishing the New York lease between October 31, 1935, and September 30, 1936, or September 30, 1937. If, also, as petitioner asserts, he intended to leave behind him all business activities in New York and to start new professional activities in the motion picture industry in California and devote himself to them for the rest of his life, the record does not provide any explanation of why, as things stood in September of 1936, petitioner did not terminate the New York lease and really move to California.
It appears to be closer to the realities of the whole situation to interpret petitioner's state of mind in 1936 relating to his future professional work to have been to stay in California if he found it profitable to do so at the end of his two-year contract; otherwise, to return to New York. Petitioner's retention, throughout the period of the RKO contract, of a place of abode in New York City was certainly a keeping of his "bridges" in New York, and such is indicative of retention of original domicile. See District of Columbia v. Murphy, 314 U. S. 441.
Nor does it appear that in his professional work, petitioner burned his bridges in New York. During the taxable years, and after he returned to New York, he continued to do radio broadcasts, which can be done in any place, New York or elsewhere. He refused to enter into a contract with MGM because they would not permit him to do radio work. Also, petitioner kept business offices in New York City, as his deductions for office rent in 1936 and 1937 show. Petitioner's alleged intent is negatived and contradicted by acts inconsistent with the avowed intent of establishing a domicile in California. District of Columbia v. Murphy, supra ; In re Beechwood, 254 N. Y. S. 473; Paul & Merten's Law of Federal Income Taxation, vol. 2, sec. 16.05, p. 60; Rosenberg v. Commissioner, 37 Fed. (2d) 808.
The filing of income tax returns in California lends no weight to petitioner's argument. He was a "resident" of California, as defined by the state income tax statute, and, as such, he was required to file a return for income from sources within the state, whether or not he was domiciled there. Cal. Stat. 1935, p. 1090, sec. 2 (k), and Cal. Stat. 1937, p. 1831, sec. 2 (k).
The weight of the evidence, in our opinion, supports the conclusion reached. Petitioner has failed to show that he took up residence in California with any present intention of residing there indefinitely and permanently without any actual intention of returning to New York as his permanent home; that he abandoned the original domicile in the State of New York. See United States v. Knight, 291 Fed. 129; affd., 299 Fed. 571; C. M. Weatherwax, 21 B. T. A. 861.
Petitioner contends, also, that regardless of domicile in California the income earned in California is community property for tax purposes. The same contention was made in Herbert Marshall, 41 B. T. A. 1064, 1068. The Board rejected this argument as unsound in the Marshall case and it is not entitled to consideration here.
Decision will be entered for the respondent in Docket No. 103773. Decision that there is no deficiency will be entered in Docket No. 103774.