Docket No. 5784.

11 T.C. 831 (1948)


United States Tax Court.

Promulgated November 22, 1948.

Attorney(s) appearing for the Case

James E. Denning, Esq., for the petitioner.

Conway N. Kitchen, Esq., for the respondent.

By this proceeding petitioner challenges respondent's determination of deficiencies in income taxes for the calendar years 1935, 1936, and 1937, and assertion of penalties for filing false and fraudulent returns, against "Mr. Martin T. Manton and Mrs. Eva M. Manton, Husband and Wife," as follows:

                           Year                            | Deficiency | 50% penalty
1935 ----------------------------------------------------- |  $6,877.27 |   $3,438.64
1936 ----------------------------------------------------- | 115,220.92 |   57,610.46
1937 ----------------------------------------------------- |  51,607.89 |   25,803.95

Petitioner asserts that the respondent erred in determining (1) that she was liable for any income tax for the years 1935, 1936, and 1937, and (2) that she was liable for any penalties under section 239 (b) of the Revenue Acts of 1934 and 1936. The issues are whether the returns filed for the taxable years were joint returns; whether, if they were joint returns, petitioner is liable for the deficiencies and penalties determined; and whether, if she is liable, the extent of her liability can be determined in this proceeding.


Petitioner is Eva M. Manton, whose husband, now deceased, was Martin T. Manton, sometimes hereinafter called Manton, whose petition was presented in a related case in Docket No. 5785. Manton filed Federal income tax returns for the years 1935 and 1936 with the collector of internal revenue for the second district of New York, and for the year 1937 with the collector of internal revenue for the first district of New York. All returns were made on Form 1040. The 1935 and 1936 returns bore the same names and address in the space provided therefor as follows:

PRINT NAME AND ADDRESS PLAINLY BELOW ________________MARTIN T. and EVA M. MANTON___________________________ (Name) (Both husband and wife, if this is a joint return) ________________CHAMBER 2403, __________U. S. COURT HOUSE_____________ (Street and number, or rural route) ________________FOLEY SQUARE, NEW YORK CITY___________________________ (Post office) (County) (State)

The caption on the 1937 return differed, the address given being Bayport, Long Island, New York. The answer "Yes" was given to the question asked in the 1935 and 1936 returns: "Is this a joint return of husband and wife?" and to the question asked in the 1937 return: "Are items of income or deductions of both husband and wife included in this return?" All the returns were signed only by Manton, although space was provided for the wife's signature.

In the 1935 and 1936 returns Manton reported a taxable net income of $172.55 and $1,542.30, respectively, and in the 1937 return he reported a net loss of $11,819.94. Neither the income nor deductions reported in any of the returns were designated therein as being the separate income or deductions of the husband or wife.

Martin T. Manton was employed by the Federal Government as Judge, United States Circuit Court of Appeals, during the taxable years. On his returns he claimed an exemption for his annual salary of $12,500. The other income, and the deductions, reported on the 1935, 1936, and 1937 returns were as follows:


    Dividends on stock of domestic corporation -----------------------   $6,026.00
    Interest paid on loans -------------------------------------------    2,601.24
    Taxes paid (property and local at Bayport, L.I.) -----------------    3,252.21


      State Laundry Corp ---------------------------------------------   $3,006.50
      Texas Corp -----------------------------------------------------       19.50
      National Cellulose Corp ----------------------------------------    7,224.00
      Interest paid on notes and loans payable -----------------------    8,707.70


       State Laundry, Inc --------------------------------------------   $3,006.50
       Atlas Corp ----------------------------------------------------       13.53
       Texas Corp ----------------------------------------------------       33.75
       Oystermen's National Bank -------------------------------------       25.00
       National Cellulose Corp ---------------------------------------    2,998.90
       Tel. and Tel --------------------------------------------------       60.00
   Interest on bank deposits, notes, mortgages, etc ------------------      144.00
   Gain from sale of stock of National Cellulose Corp ----------------   22,732.72

   Contributions (Catholic and other charities) ----------------------    1,500.00
   Interest paid:
       On additional assessment of Federal income taxes --------------    5,424.34
       On notes ------------------------------------------------------    4,287.46
       Park Avenue ---------------------------------------------------      227.97
   Taxes paid on real estate, at Bayport, L. I., and on Chamberlain
       Avenue --------------------------------------------------------    4,748.06
   Personally guaranteed notes of Forest Hills Terrace Corp. paid ----   24,651.51

Petitioner took no part in the preparation of the returns for any of the taxable years here involved, and she had never seen such returns until shown photostats of them by her attorney previous to the hearing in this proceeding.

No part of the income or deductions reported in any of the three returns was attributable to petitioner in her individual capacity. During the years 1935, 1936, and 1937 petitioner received no dividends, paid no interest on loans, paid no taxes on property, had no capital gains, contributed no property of her own to charities, and paid nothing on any guarantee.

The returns filed by Martin T. Manton for the years 1935, 1936, and 1937 were not the joint returns of Martin T. Manton and petitioner.


OPPER, Judge:

This is a related proceeding to that in Docket No. 5785. The two are bottomed upon the same deficiency notice, which was addressed jointly to the husband, who is petitioner in the other proceeding, and to the wife, who is petitioner here. The two proceedings have not been consolidated, and the single issue which we find it necessary to dispose of in this opinion is whether the present petitioner is liable for any part of the deficiency determined in the notice in question.

Respondent's claim is that this petitioner is severally liable for the amount of the deficiency, and, that being so, we see no reason why petitioner can not appear here severally and contest that liability independently of that asserted against her husband. Respondent makes no contention that this can not be done, and we are aware of no jurisdictional or procedural reason for forbidding what is manifestly an appropriate method for testing the issue presented. See Myrna S. Howell, 10 T.C. 859; Joseph Carroro, 29 B. T. A. 646, 650. We have found in the other proceeding, memorandum opinion entered herewith, that the deficiency and fraud penalties were properly determined as to the husband. The question remains whether this petitioner is to any extent liable therefor.

Before the amendment to section 51 (b) made by the Revenue Act of 1938, the rule was apparently settled, first, that there could be no joint return of husband and wife unless items of income or deduction were attributable to each; and, second, that the mere fact that a return was denominated a joint return, unless signed by both parties, see Myrna S. Howell, supra, was not conclusive. William W. Kellett, 5 T.C. 608.

Respondent's interpretation of the 1934 Act,1 which was not materially different from that in force in 1936, was that "A statement in an income tax return to the effect that the return is a joint return does not necessarily constitute it a joint return. In order for a joint return properly classified as such to be filed by a husband and wife, both spouses must have had some income or deductions in the year for which the return is filed and the return must include the income and deductions of both spouses." I. T. 2875, XIV-1 C. B. 81. He also consistently maintained the position that, if a return was in fact a joint return, the liability was joint and several. I. T. 1575, II-2 C. B. 144; G. C. M. 13704 (1934), XIII-2 C. B. 141.

Congress took account of this administrative interpretation2 when, for the first time, in 1938 it provided "In the case of a husband and wife living together the income of each (even though one has no gross income) may be included in a single return made by them jointly, in which case * * * the liability with respect to the tax shall be joint and several."

The undisputed facts incorporated in our findings are that the petitioner wife had no items of income or deductions for the years in question, all of which are governed by the 1934 and 1936 Acts. She did not sign the returns, authorize their filing, nor indeed have knowledge of their preparation or contents. It follows that, as of the time these returns were filed, they were not the joint returns of petitioner and her husband, and consequently they were not petitioner's returns. John Kehoe, 34 B. T. A. 59.

The consequence is that we never reach the principle which respondent seeks to invoke, that a wife was jointly and severally liable with her husband even before 1938 for the tax due upon a joint return and possibly also for the penalties for fraud, see Joseph Buchhalter, 29 B. T. A. 600, in the filing of such a return. George W. Schoenhut, 45 B. T. A. 812; Cole v. Commissioner (C. C. A., 9th Cir.), 81 Fed. (2d) 485, reversing 29 B. T. A. 602. The rule is not extended even by respondent beyond an application to joint returns, and since, as we have found, the returns in question were not of that character, there is no basis for imposing a liability upon petitioner.

The deficiency as to her must be disapproved.

Decision will be entered for the petitioner.


1. SEC. 51. * * *

* * * * * * *

(b) HUSBAND AND WIFE.—If a husband and wife living together have an aggregate net income for the taxable year of $2,500 or over, or an aggregate gross income for such year of $5,000 or over—

(1) Each shall make such a return, or

(2) The income of each shall be included in a single joint return, in which case the tax shall be computed on the aggregate income.

* * * * * * *

2. Ways and Means Subcommittee Report, 75th Cong., 3d sess., p. 49:

"Since a joint return does not show the respective incomes and deductions of the husband and wife, individually, and since under the statute a single tax is computed upon the aggregate income, the Bureau of Internal Revenue has taken the position for many years that the filing of such a return by husband and wife creates a joint and several liability on their part for the tax on their aggregate net income; and that deficiencies, penalties, and interest may be collected from either or both of them.

"The Bureau's interpretation has been sustained by the Board of Tax Appeals in various cases but was rejected by a divided court in Cole v. Commissioner (81 F.2d 485).

"In the opinion of your subcommittee the Bureau's position is sound; and to avoid further confusion and litigation it is recommended (Recommendation No. 41) that an amendment be inserted in the statute to make it clear that if a husband and wife choose to file a joint return, each of them will be liable for the tax upon their aggregate income, and for any deficiencies, penalties, and interest in respect of the joint return which may thereafter be determined * * *." [Emphasis added.]

See Joseph Carroro, supra.


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