Comm'r of Internal Revenue

Tax Court of the United States.May 19, 1969
52 T.C. 288 (U.S.T.C. 1969)
52 T.C. 288T.C.

Docket No. 502-69 SC.



Robert W. Jorg, pro se. Gary R. DeFrang, for the respondent.

Robert W. Jorg, pro se. Gary R. DeFrang, for the respondent.

Petitioner and his wife lived together in the State of Washington from prior to Jan 1, 1966, until Sept. 1, 1966, when they were separated but not divorced. Petitioner and his wife lived in separate abodes in the State of Washington after Sept. 1, 1966, through the remainder of that year. Petitioner and his wife each had earnings from employment both prior and subsequent to Sept. 1, 1966. Prior to Sept. 1, 1966, substantially all the support of petitioner's child Robert Roy was paid from petitioner's earnings. After Sept. 1, 1966, most of Robert Roy's support was paid from petitioner's earnings but some items of Robert Roy's support were paid by petitioner's wife from her post Sept. 1, 1966, earnings. In February 1966 petitioner discovered that a window in a house owned but not currently occupied by him had been forced open. He found personal property, including a coin collection, missing. The fair market value of the missing property in February 1966 was at least $565 and its basis to petitioner was equal to or in excess of that amount. Petitioner suspected two juveniles of taking his property but did not report the suspected theft to the police, partially because of the 30 miles' distance of the sheriff's office, partially because of a hesitancy to accuse students in his school of theft without proof, and partially because he believed he would be unable to recover the property even if he reported that it was missing. Held: Under the law of the State of Washington petitioner's earnings for the entire year 1966 are community property but his wife's earnings after Sept. 1, 1966, are her separate property. Community expenses, which include child support, paid from community funds are considered as paid one-half by each spouse. Therefore, petitioner in 1966 did not as a matter of law pay over one-half of the support of his child Robert Roy. Held, further, petitioner in 1966 sustained a theft loss of $565 which he is entitled to deduct to the extent of $465.

SCOTT, Judge:

Respondent determined a deficiency in petitioner's income tax for the calendar year 1966 in the amount of $390.27.

The issued for decision are whether petitioner is entitled to a $600 dependency exemption for his son, Robert Roy, and to a deduction for a theft loss in the amount of $631 or any portion thereof.


Some of the facts have been stipulated and are found accordingly.

Petitioner who was a legal resident of Washougal, Wash., at the date of the filing of the petition in this case, filed an individual Federal income tax return for the calendar year 1966 with the district director of internal revenue for the district of Oregon. Prior to and during 1966 petitioner and Jeri Jorg were husband and wife. Up until September 1, 1966, petitioner and his wife, Jeri, and their four children lived together in the State of Washington. On September 1, 1966, petitioner and Jeri Jorg separated and lived apart from one another during the remainder of the year 1966. Both petitioner and Jeri were domiciled in the State of Washington during all of the year 1966.

The court which approved the separation gave custody of the four children to Jeri and directed petitioner to pay to Jeri $160 a month for her support and the support of their four children. Petitioner was given the right of visitation with his children, and from September 1, 1966, until shortly before Thanksgiving, he visited them about twice a month.

Petitioner's youngest child, Robert Roy who was 4 years old in 1966, was emotionally disturbed. Around the middle of November the juvenile authorities asked petitioner to take possession of Robert Roy and around Thanksgiving time petitioner brought Robert Roy to live with him. Prior to the time petitioner brought Robert Roy to live him, the child had been in the hospital in December. About the middle of December petitioner took Robert Roy out of the hospital and took him to a doctor in Portland.

During 1966 petitioner was a high school teacher. He received salary for the year 1966 in the total amount of $7,487.70. From January 1, 1966, through August 31, 1966, Jeri Jorg had earnings in the amount of $5,653.43 and from September 1, 1966, through December 31, 1966, she had earnings in the amount of $2,700.

During the period from January 1, 1966, to September 1, 1966, petitioner paid all the household expenses for all four of his children from his earnings. Jeri paid from her earnings some costs of nursery school for Robert Roy but spent most of her earnings on items for herself and her family.

After September 1, 1966, until Thanksgiving, the house in which Jeri lived with her four children including Robert Roy had a rental value of approximately $75 a month and utility costs for the house were approximately $40 a month. When petitioner's four children were living with him, petitioner spent on the average of $30 to $40 per child per month for groceries. Part of the time Robert Roy was living with Jeri between September 1 and Thanksgiving of 1966 he was in nursery school at a cost of about $60 a month. Jeri bought Robert Roy a jacket in December 1966 and a few things for Christmas.

After September 1, 1966, and before the end of that year, petitioner paid doctor and hospital bills for treatment of Robert Roy of at least $300 and paid $60 for his car in nursery school. Petitioner also bought some clothing for Robert Roy in October and November of 1966 for a cost of approximately $25.

After September 1, 1966, and prior to the end of that year petitioner also paid some doctor and hospital bills for one of his other children and paid for piano lessons for another one of his children. Because of the requirement of the court that petitioner make certain house payments, pay his wife $160 a month, and clear up doctor and hospital bills that were piled up, and also because of the cost of piano lessons for his daughter, petitioner found it necessary to and did borrow $500 at the end of November 1966.

Until the fall of 1965 petitioner and his family had lived in a house located in a rural area near Washougal, Wash. In the fall of 1965 they moved to Vancouver, Wash., and left the home near Washougal unoccupied until after petitioner and his wife were separated at which time petitioner moved back into this house and his wife and children continued to live in the house in Vancouver, Wash. Petitioner left some furnishings and other personal possessions in the unoccupied house. Petitioner usually went to the house near Washougal every weekend. On one weekend in February when he went to the house he found that a window in one of the bedrooms had been forced in and upon checking the items in the house found a Polaroid camera, a movie camera, and some camping equipment missing. The total fair market value of the missing items was approximately $200 and petitioner's basis for the items was in excess of that amount.

Petitioner replaced the window which had been pushed in with a new window. A few weekends later when petitioner when to his house near Washougal, Wash., he found the same bedroom window had again been pushed in and he found a coin collection with coins of a face value of $365 missing. The fair market value of the coins was substantially in excess of the face value but petitioner had acquired most of the coins himself over the years at face value as a hobby and had acquired the remaining coins by gift.

Petitioner suspected that his possessions were stolen by two juveniles, one aged 15 and one aged 16. These two juveniles lived near petitioner's house and he knew they had previously been accused of breaking into unoccupied houses. Petitioner did not contact the police partially because his house was 30 miles from the sheriff's office, partially because he felt that notifying the police would have been useless since the juveniles he suspected would have disposed of his property, particularly the coin collection, before he discovered the items to be missing, and partially because of the fact that since he was a high school teacher he felt it very inadvisable to press charges against students. There were a number of juveniles in the area of petitioner's house who had been in trouble and petitioner felt as a high school teacher he should not accuse the two of them he suspected without some proof and he felt he had no proof as to who took his property. About 2 years after petitioner's house was broken into, the house in which the two juveniles petitioner suspected had lived was razed. Petitioner saw a camping stove and lantern on a scrap heap near where the house had been which even in their condition he felt reasonable sure he recognized as part of the camping equipment he found missing in February 1966.

Petitioner on his Federal income tax return for 1966 reported total income of $7,488.85 of which $7,487.70 was salary. At the trial the parties stipulated that petitioner should have reported only $6,571.15 as total income arrived at by adding to one-half of petitioner's total earnings for 1966 on the basis that all of petitioner's earnings for that year was community property under the laws of the State of Washington, one-half of Jeri's earnings for the period January 1, 1966, to September 1, 1966. The parties agreed that a recomputation should be made under Rule 50 to give effect to this adjustment. Petitioner claimed a $600 dependency exemption for Robert Roy which respondent disallowed. Petitioner claimed a casualty loss which respondent disallowed, which disallowance petitioner conceded at the trial to be correct. Petitioner claimed a theft loss of $631 for property stolen from his house which respondent disallowed in full.


The facts we have set forth show that well over one-half of Robert Roy's support for the year 1966 was paid from petitioner's earnings. Only a small amount of support for Robert Roy was paid from Jeri's earnings either before or after September 1, 1966. However, the record is reasonably clear that after September 1, 1966, Jeri did pay from her current earnings some small items of support for Robert Roy.

Respondent does not argue to the contrary of the conclusion we have set forth in the immediately preceding paragraph as to the source of the funds used for Robert Roy's support in 1966. Respondent's position is that all earnings of petitioner and of Jeri for the period from January 1 to September 1, 1966, were community property, Poe v. Seaborn, 282 U.S. 101 (1930), and that any payments made from such funds for community obligations were as a matter of law made one-half by petitioner and one-half by Jeri. Section 26.16.205 of the Revised Code of Washington specifically provides that charges for support of their children are chargeable upon the property of both husband and wife or either. See also State v. Miller, 32 Wash.2d 149, 201 P.2d 136 (1948), in which it was held that a spouse's vacation expenses and money spent for the children are community expenses. Therefore, payments by either petitioner or Jeri from community funds for child support would be for a community purpose. It is therefore respondent's position that as of September 1, 1966, Robert Roy's support has as a matter of Washington community property law been paid equally by petitioner and Jeri. This contention is in accordance with the law of the State of Washington. State v. Miller, supra. Respondent contends that after September 1, 1966, petitioner's earnings remained community property but Jeri's earnings were her separate property. Since the record shows that all the support paid by petitioner for Robert Roy after September 1, 1966, was paid from his earnings, respondent contends that half of the amount so paid should be considered to have been paid by Jeri. The law of the State of Washington is that absent an agreement as to the husband's wages, those wages do not cease to be community property upon separation from his wife but before divorce. See Kerr v. Cochran, 65 Wash.2d 211, 396 P.2d 642 (1964), and Hokenson v. Hokenson, 23 Wash. 908, 162 P.2d 592 (1945).

It might be noted that since 1922 respondent has had outstanding a ruling to this effect, I.T. 1275, I-1 C.B. 201, which he reaffirmed in Rev. Rul. 61-52, 1961-1 C.B. 23. Respondent's I.T. 1275 is obviously a rule of convenience and is contrary to a strict interpretation of the law respecting dependency credit unless the parties have entered into a multiple-support agreement for which there was no statutory provision in 1922. I.T. 1275 involves a husband and wife who had no income except earnings which were community income. Their children were supported from their community funds. The husband and wife planned to file separate income tax returns each reporting one-half of the community income. They inquired of respondent which of them was entitled to the credit for the dependent children. Respondent concluded that ‘the husband and wife contribute equally for the support of the * * * dependents,‘ and then ruled that the ‘credit for dependents provided by section 216(d) of the Revenue Act of 1921 may be claimed by either husband or wife, but it cannot be divided between them.’Sec. 216(d) of the Revenue Act of 1921 allowed a dependency credit for a dependent ‘receiving his chief support from the taxpayer.’ Respondent's regulations, art. 304, Regs. 62, state in explanation of the credit for dependents that 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.' Respondent in his regulations, therefore, interpreted ‘chief’ to mean ‘over one-half’ but his ruling in I.T. 1275 does not conform to this interpretation.

The record shows that petitioner borrowed some money in late November 1966 but fails to show that any of Robert Roy's expenses were paid from these borrowings. We therefore are not faced with deciding whether these borrowed funds should be considered community funds. Our survey of the law of the State of Washington indicates to us that this question, if presented, would be a difficult one.

There is no evidence in this case of any agreement between petitioner and Jeri as to his wages or as to their community property.

We had an issue with respect to whether under California law prior to 1951, one-half of a husband's wages earned after separating from his wife was properly taxable to his wife. The situation was quite similar to that in the instant case except the wife had moved from California to a noncommunity property State. In that case, after separation the husband, under court order, paid the wife $740 a year for support of herself and their child. In a court-reviewed opinion we held that one-half of the husband's wages was includable in the wife's income as her community property share thereof. Marjorie Hunt, 22 T.C. 228 (1954). We held that the taxpayer's wife improperly reported the $740 she actually received from her husband in the year involved since this amount was not paid to her by the husband from his separate income but was paid to her by the husband as manager of the community dispensing funds to her from income which by law was one-half hers.

Respondent's counsel stated that it was because of respondent's acceptance of our decision in Marjorie Hunt, supra, that respondent stipulated at the trial that petitioner reported approximately $1,000 too much income on his return. Since petitioner accepted the adjustment by respondent reducing his reported income by approximately $1,000 he also has apparently agreed that he and Jeri had no agreement that his income after separation was not community property and that his income after their separation was community property.

The law of Washington with respect to a husband's wages earned after separation is now and was during the year 1966 substantially the same as the California law with respect to a husband's wages in 1948, the year involved in Marjorie Hunt, supra.

We therefore agree with respondent that payments for Robert Roy's support made from petitioner's earnings after September 1, 1966, and during the remainder of that year were payments from community funds.

Section 26.16.140 of the Revised Code of Washington provides that upon separation a wife's earnings become her separate property. Since Jeri made some payment toward Robert Roy's support after September 1, 1966, from her earnings which were her separate property, she has contributed over one-half of Robert Roy's support for the year 1966 if respondent is correct that payments of community obligations from community funds are considered to be made one-half by each the husband and wife.

In Mellie Esperson Stewart, 35 B.T.A. 406, 411 (1937), aff. 95 F.2d 821 (C.A. 5, 1938), we specifically held that the ‘gross income of the community shall be taxed equally between the two spouses and each granted the benefit of one-half of the deductions.’ In Ernest W. Clemens, 8 T.C. 121 (1947), we held that medical expenses for a family which were community expenses and which were paid from community funds were to be considered as paid one-half by each spouse relying on Mellie Esperson Stewart, supra.

In Robert A. Sharon, 10 T.C. 1177 (1948), decision vacated and remanded, in accordance with stipulation of the parties, by the Fifth Circuit on September 29, 1949, we held the deduction allowed by section 23(u), I.R.C. 1939, for alimony payments to a prior wife which amounts were collectible from community property properly to be divided between a husband and wife filing separate returns on a community property basis. In Raoul Walsh, 21 T.C. 1063, 1072 (1954), we followed our decision in Robert A. Sharon, specifically relying thereon.

We conclude in accordance with our numerous prior decisions that where community expenses are paid by community funds the expenses are equally divisible between the husband and wife.

We therefore conclude that petitioner is not entitled to a dependency exemption for Robert Roy since he did not as a matter of law pay over one-half of his support for the year 1966.

The issue with respect to whether petitioner is entitled to a deduction for a theft loss in 1966 is purely factual. Petitioner has shown that in February 1966 he discovered that property of a fair market value in excess of $565 was missing from his prior home. The basis to petitioner of this property was at least $565. This property was personal property of petitioner and not business property. Therefore, the only basis on which petitioner can show that he is entitled to a deduction for the loss of this property is to show that the loss comes under section 165(c)(3), I.R.C. 1954, as a loss of property from theft. Even if petitioner shows the loss to be from theft, he is entitled under section 165(c)(3) to deduct only $465 of the loss since theft losses of personal property are deductible only to the extent the loss exceeds $100.

Upon weighing all the evidence in this case we conclude that petitioner has shown his loss to be from theft. A window was pushed in indicating an unlawful entry into his house. There were juveniles in the neighborhood who had previously been believed to have entered unoccupied houses and to have taken property therefrom.

Although the record does not specifically so show, the fair inference from the record is that petitioner had no insurance on the property and no means of being compensated for the property unless the property could be recovered from the persons who had taken it. From all the evidence in the record we conclude that when petitioner discovered the theft there was no reasonable basis to believe that he could recover any of the property which had been taken or in any way receive compensation for that property. We therefore hold that petitioner is entitled to a deduction for a theft loss for the year 1966 in the amount of $465.

Decision will be entered under Rule 50.