BRATTON, Circuit Judge.
M. E. Trapp, hereinafter referred to as the taxpayer, and his wife, Lou Strang Trapp, have been residents of Oklahoma since sometime prior to 1907. The taxpayer filed with the Collector of Internal Revenue for the District of Oklahoma the required income tax return for the year 1940 and paid the tax calculated thereon. The income derived from oil and gas produced from leases covering lands in Texas was returned as community income, one-half returnable by the taxpayer and the other one-half by his wife. On redetermination, the Commissioner of Internal Revenue treated the entire income from such source as income of the taxpayer and imposed a deficiency assessment. The deficiency with accrued interest in the aggregate amount of $2,454.42 was paid under protest and a claim for refund was seasonably filed. The Commissioner having failed to render a decision on the claim within six months after the date of its filing, this action was brought. It was alleged in the complaint that the income derived from the leases was community income of the taxpayer and his wife; that one-half of such income was taxable as her income; and that the Commissioner erred in treating it otherwise. And by way of estoppel by judgment it was further alleged that in a proceeding involving the liability of the taxpayer for tax on income derived from such leases for the year 1935, the Board of Tax Appeals determined and adjudicated that the income was community income subject to tax accordingly. In its answer the United States admitted most of the facts alleged in the complaint, but denied that the gain from the leases was community income, and further denied that the interest of the taxpayer in the leases had been effectively adjudicated by the Board of Tax Appeals.
The cause was tried to the court without a jury. Determining that the portion of the taxable gain attributable to the cash paid for three of the leases, known as the King, Crisp, and Bob White leases, was separate income of the taxpayer and that the portion of the taxable gain attributable to the labor, talent, and skill of the taxpayer in acquiring, developing, and managing such leases was community income of the taxpayer and his wife; determining that all of the taxable gain from the other three leases, known as the Moseley, Milas, and Fenn leases was separate income of the taxpayer; determining that the rights of the taxpayer and his wife in the leases had not been effectively adjudicated by the Board of Tax Appeals in such manner as to constitute estoppel by judgment; taking into consideration other minor items about which there is no controversy here; and making the calculation on that basis; the court entered judgment for the taxpayer in the sum of $1,317.21. The taxpayer appealed.
The judgment is challenged on the ground that the court erred in holding that the evidence of the taxpayer was insufficient to overcome the presumption of correctness attached to the findings of the Commissioner. It is argued that the presumption of correctness attached to the findings of the Commissioner merely means that in the absence of evidence to the contrary the action of the Commissioner will be upheld but that once evidence is adduced proving that the findings are erroneous, the presumption vanishes and the case is wide open; and that the positive evidence of the taxpayer abundantly overcame the presumption that the action of the Commissioner was correct and showed affirmatively the existence of a family partnership between the taxpayer and his wife. The presumption of correctness attached to the action of the Commissioner disappears in a case of this kind when evidence sufficient to sustain a contrary finding has been introduced. Crude Oil Corp. v. Commissioner, 10 Cir., 161 F.2d 809.
It is the general rule that a partnership is created when two or more persons unite their money, goods, labor, or skill in the conduct of a business or trade with a community of interest in the profits and losses. And that general rule has application in a case of this kind involving liability for income tax when the existence of a partnership becomes a material issue. Commissioner v. Tower, 327 U.S. 280, 66 S.Ct. 532, 90 L.Ed. 670, 164 A.L.R. 1135. But viewed in the light of the material findings of fact made by the trial court, it is clear that there was no bona fide family partnership or other like relation between this taxpayer and his wife, within the intent and meaning of pertinent income tax legislation. Commissioner v. Tower, supra; Lusthaus v. Commissioner, 327 U.S. 293, 66 S.Ct. 539, 90 L.Ed. 679.
Error is assigned upon the failure of the court to sustain the plea of estoppel by judgment. Where a second suit between the same parties or their privies is on the same cause of action as the first, the final judgment rendered in the former action constitutes res judicata as to all matters actually litigated and as to every issue, claim, or defense which might have been presented. But where the later suit between the same parties or their privies is on a different cause of action, the judgment in the first action operates as an estoppel only in respect of the issues, claims, or defenses which were actually litigated and determined. Brown-Crummer Inv. Co. v. City of Purcell, Okl., 10 Cir., 128 F.2d 400; Bowles v. Capitol Packing Co., 10 Cir., 143 F.2d 87. These general principles have application to actions relating to income taxes. Tait v. Western Maryland R. Co., 289 U.S. 620, 53 S.Ct. 706, 77 L.Ed. 1405; Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, 92 L.Ed. 898. But the doctrine of estoppel by judgment is to be applied narrowly in cases involving income taxes for different years. Gillespie v. Commissioner, 10 Cir., 151 F.2d 903, certiorari denied, 328 U.S. 839, 66 S.Ct. 1014, 90 L.Ed. 1614; Pelham Hall Co. v. Hassett, 1 Cir., 147 F.2d 63.
The next contention is that the court erred in holding that any of the income from the operation of the leases was separate income of the taxpayer. It is argued that the law of Texas governs the classification of the income from the operation of the leases as to whether it was separate or community income; that under the law of that state gains derived from the operation of oil and gas leases separately owned by the husband constitute community gains if his skill, labor, or supervision is employed in the operation; that the taxpayer contributed his services, labor, and skill in the acquisition, development, and operation of the leases; and that therefore the gains derived from that source constituted community income. Legal rights and interests are created by state law. The federal revenue acts merely determine when and how rights and interests created in that manner shall be taxed. Burnet v. Harmel, 287 U.S. 103, 53 S.Ct. 74, 77 L.Ed. 199; Poe v. Seaborn, 282 U.S. 101, 51 S.Ct. 58, 75 L.Ed. 239; Goodell v. Koch, 282 U.S. 118, 51 S.Ct. 62, 75 L.Ed. 247; Hopkins v. Bacon, 282 U.S. 122, 51 S.Ct. 62, 75 L.Ed. 249; Morgan v. Commissioner, 309 U.S. 78, 626, 60 S.Ct. 424, 84 L.Ed. 585, 1035. The question whether the income derived from the oil and gas produced from these leases was separate or community income must be determined by the law of Texas, even though the taxpayer was a resident of Oklahoma. Hammonds v. Commissioner, 10 Cir., 106 F.2d 420; Noble v. Commissioner, 10 Cir., 138 F.2d 444.
The rule in Texas that marital rights in lands are regulated by the law of that state, regardless of the residence of the spouses, is subject to the qualification that where property is acquired in that state through purchase with funds which are the separate property of one of the spouses, or in exchange for separate property of one of them, the character of the funds or of the property given in exchange is transmitted to the property acquired. Separate property remains separate through all its mutations and changes so long as it can be clearly traced and identified. Hammonds v. Commissioner, supra; Noble v. Commissioner, supra.
The King, Crisp, and Bob White leases were purchased by the taxpayer with funds earned and accumulated in the operation of the bond business in Oklahoma, and they were neither community nor partnership funds. In addition to the funds expended in the purchase of the leases,
The Moseley, Milas, and Fenn leases were different. The taxpayer and a partner acquired them together. Each partner contributed one-half of the purchase price. The taxpayer borrowed the money with which his part was paid. His wife did not obligate herself for the borrowed funds. She had nothing to do with the purchase. And she had no interest in the property. In significant distinction from the findings relating to the King, Crisp, and Bob White leases, the court did not find that the taxpayer contributed any services in connection with the acquisition, development, or management of these leases. No finding to that effect was requested by the taxpayer, and no exceptions were taken to the findings of the court. The net gain derived from these leases was taxable to the taxpayer without division. Noble v. Commissioner, supra.
But it is argued in effect that even though the portion of the income attributable to the cash consideration paid for the leases be deemed separate income and the portion attributable to the services rendered by the taxpayer be deemed community income, the entire income was commingled with other funds in such manner that the whole thereof must be treated as community income. It is the law in Texas that where separate and community funds are so inextricably confused and commingled that they cannot be traced or identified, the entire fund is to be treated as community property. McFaddin v. Commissioner, 5 Cir., 148 F.2d 570. But no such case is presented here. The gain derived from these leases during the taxable year in question has not become so confused and commingled that it is impossible to trace and identify it with reasonable certainty.
Finally, complaint is made that the court erred in denying the motion of the taxpayer for a new trial on newly discovered evidence. A motion for new trial is addressed to the sound judicial discretion of the trial court, and the action of the court thereon will not be disturbed on appeal unless it constitutes a manifest abuse of discretion. Metropolitan Life Insurance Co. v. Banion, 10 Cir., 106 F.2d 561; Viles v. Prudential Ins. Co. of America, 10 Cir., 107 F.2d 696, certiorari denied, 308 U.S. 626, 60 S.Ct. 387, 84 L.Ed. 523; Dyess v. W. W. Clyde & Co., 10 Cir., 132 F.2d 972. There was no abuse of discretion in the denial of the motion in this case.
The judgment is affirmed.