*1131 Decedent and his wife orally agreed that all property owned or to be acquired by either should be community property. Held, the income from that property may be reported one-half by each spouse in the taxable years.
*869 These proceedings were brought for the redetermination of deficiencies in income taxes of petitioners for the years 1934 and 1935 in the following amounts:
| Petitioner | Docket No. | Year | Deficiency |
| Estate of J. Harold Dollar | 97282 | 1934 | $980.80 |
| Do | 98727 | 1935 | 8,688.18 |
| Agnes Barr Dollar | 97283 | 1934 | 3,545.72 |
| Do | 98728 | 1935 | 604.75 |
*870 Issues raised by these petitioners concerning total amounts of net income received by decedent and his wife have been conceded by the petitioners. The sole issue before the Board is whether or not certain income-producing property was community property of decedent and his wife during the taxable years.
FINDINGS OF FACT.
J. Harold Dollar, sometimes hereinafter called Dollar, whose estate is petitioner in Docket Nos. *1132 97282 and 98727, was a son of Robert Dollar, who controlled large shipping interests.
Petitioner in Docket Nos. 97283 and 98728 is a resident of San Rafael, California. She married Dollar in the year 1907, before he had reached 21 years of age.
At the time of their marriage, Dollar was employed as a clerk in one of his father's companies at a salary of $40 a month. At the time of their marriage Dollar and his wife discussed their property interests and had a general understanding that each was entitled to a one-half interest in the marital property.
The morning following the date of their marriage, Dollar and his wife sailed for China, where Dollar was to work for one of the Dollar companies.
For the next 20 years Dollar and his wife lived in China, making occasional business trips to this country. They also went to Europe on business.
In the year 1925 Dollar became seriously ill. Dollar and his wife returned to California with Robert Dollar at that time and deceased went directly to a hospital. In 1926 Dollar underwent an operation, which disclosed that he had cancer. He was not informed of his affliction until shortly before his death on April 7, 1936. He and*1133 Mrs. Dollar returned to China from time to time in 1929, 1931, and 1935.
Dollar and his wife sailed for China on the President Pierce on March 29, 1929. Shortly before sailing they had a talk about their property and affairs and generally agreed that both owned the property.
Dollar had no will prior to the year 1931. Dollar requested Keith R. Ferguson, the husband of his sister-in-law, to draw a will for him. After the will was drawn, Ferguson had a conference concerning it *871 with the Dollars at their home in San Rafael, California. The conference took place on the night before the will was executed. Ferguson had the unexecuted will with him and personally read the entire instrument to Dollar and his wife.
After naming Mrs. Dollar, Ferguson, and his brother, R. Stanley Dollar, as executors and trustees, the instrument provided:
I hereby declare that my wife Agnes Barr Dollar is the owner of one-half (1/2) of all the property, real, personal, or mixed, of which I may die seized or to which I may be entitled at the time of my death, all of said property being the community property of my wife Agnes Barr Dollar and myself.
After reading the above quoted*1134 paragraph to Dollar and his wife, Ferguson asked them whether they agreed that each had a one-half interest in all of their property. He received an affirmative answer to this question. In addition to the provisions hereinbefore mentioned, the instrument provided that certain trusts be established for the children of the deceased and provided a specific devise of certain San Rafael real property to his wife. This will was executed August 27, 1931.
In the year 1934 Ferguson was directed to draw another will for Dollar. The main reason for the second will was the fact that Robert Dollar II, the son, had reached his majority and Dollar desired that his son be appointed as executor along with Ferguson. Dollar eliminated the specific devise of the property at San Rafael to his wife.
A day or two before this second will was executed, Ferguson had a conference with Dollar and his wife, at which the proposed will was read to them. Ferguson explained to them the effect of the community property law in respect to their property at that time. Among other provisions, the instrument contained the following paragraph:
Inasmuch, as my beloved wife Agnes Barr Dollar is entitled under*1135 the law to one-half of the estate of which I may die possessed by reason of her community interest therein, I make no other provision for her in this will.
After reading the above quoted paragraph, Ferguson asked Dollar and his wife whether it was a fact that one-half of the property owned by deceased belonged to each of them. They replied in the affirmative.
The second will was executed on May 10, 1934, and was the final will of Dollar. Neither will provided for Mrs. Dollar in any manner other than as hereinbefore mentioned. Dollar died April 7, 1936.
For the year 1930 Dollar and his wife filed separate income tax returns, in which they each reported one-half of the dividends from all securities as community property. The 1930 returns were prepared *872 by R. H. Anderson, the financial secretary of deceased. Anderson was neither a lawyer nor a certified public accountant. The 1930 returns were examined by an internal revenue agent who reported that dividends from stocks which stood in the name of Dollar were not divisible community property and should have been returned as his income.
After the 1930 returns were filed James E. Olds, a certified public accountant, *1136 who was admitted to practice before the Internal Revenue Bureau, and who was not a lawyer, was employed to assist in the preparation of tax returns for the various Dollar interests. Olds assisted in the preparation of the income tax returns of Dollar and his wife for the years 1931 to 1934.
For the year 1931 a joint return was filed by Dollar and his wife.
For the year 1932, Dollar and his wife filed separate returns. Dollar reported all dividends from the Dollar Steamship Line and Admiral-Oriental Line as his separate income. This conformed with the findings of the internal revenue agent with respect to the 1930 returns.
For the year 1933, Dollar and his wife filed a joint return.
For the year 1934, separate returns were filed by Dollar and his wife. Dollar reported all dividends from the Robert Dollar Co. and the Dollar Investment Co. as his separate income.
The income tax returns of Dollar and his wife for the year 1935 were not filed until after the death of Dollar. Ferguson, as an executor of the estate of deceased, filed a formal protest with respondent, dated September 18, 1936, contending that a proposed additional assessment for 1934 income tax of decedent*1137 was erroneous. The protest stated that certain dividends which were reported by Dollar as separate income were, in fact, community income, divisible between him and Mrs. Dollar.
All of the stocks of the Dollar companies here in question stood in the name of Dollar.
For the year 1935 separate returns were filed for Dollar and his wife.
OPINION.
VAN FOSSAN: The only issue for our determination is whether or not certain stock was community property of Dollar and his wife during the years 1934 and 1935. Petitioners contend that decedent and his wife orally agreed, both before and after July 29, 1927, and before the taxable years, that all property owned by decedent was community property. Respondent argues that petitioners have not shown that deceased and Mrs. Dollar made an agreement converting all of decedent's property into community property.
*873 Before the amendment of the Code of California, July 29, 1927, a wife's interest in property was no more than an expectancy, Stewart v. Stewart,204 Cal. 546">204 Cal. 546; *1138 269 Pac. 439, and income derived from community property before that date was includible in the husband's income for Federal income tax purposes. United States v. Robbins,269 U.S. 315">269 U.S. 315. In 1927 the Legislature of California enacted a statute, effective July 29, 1927, giving each spouse a vested interest in the community but leaving the management in the hands of the husband. California Civil Code, sec. 172a. Income from community property acquired after that date belongs equally to husband and wife and should be reported separately by each in filing Federal income tax returns. United States v. Malcolm,282 U.S. 792">282 U.S. 792. Amendments which increase the community rights of the wife do not, however, give the wife a vested interest in property owned by the husband before their enactment. Spreckels v. Spreckels,116 Cal. 339">116 Cal. 339; 48 Pac. 228; Levell v. Metropolitan Life Insurance Co.,118 Cal. App. 426">118 Cal.App. 426; 5 Pac.(2d) 430. Nor is the income from such property divisible community income for purposes of the Federal income tax. *1139 Hirsch v. United States, 62 Fed.(2d) 128.
The passage of section 172a of the California Civil Code did not, of itself, affect Mrs. Dollar's interest in property acquired by Dollar prior to the effective date of that section. We must inquire, therefore, as to the existence of an agreement entered into after July 29, 1927, between decedent and Mrs. Dollar converting that property into community property in which she would have a one-half interest.
Under California law a husband and wife may make agreements concerning their interests in property. California Civil Code, sec. 158. They may, by agreement, convert separately owned property into community property. Yoakam v. Kingery,126 Cal. 30">126 Cal. 30; 58 Pac. 324. Such an agreement need not be in writing. In Kenney v. Kenney,220 Cal. 134">220 Cal. 134; 30 Pac.(2d) 398, the court said:
In the instant case the respondent testified that the parties had orally agreed both before and after marriage that all property then owned by them or subsequently acquired was to belong to them equally or as respondent put it, "fifty-fifty". That this agreement not only existed*1140 between the spouses but was in fact consummated by them during their marital life is established and confirmed by their acts * * *.
In the case of In re Sill's Estate,121 Cal. App. 202">121 Cal.App. 202; 9 Pac.(2d) 243, the court said:
* * * Without regard to the presumption found in section 164 of the Civil Code, it is well settled that the separate property of either or both spouses may be transmuted into community property and this may be done without the necessity of any written agreement providing the agreement or understanding to that effect is fully consummated. (Estate of Kelpsch,203 Cal. 613">203 Cal. 613 (265 Pac. 214); Title Insurance & Trust Co. v. Ingersoll,153 Cal. 1">153 Cal. 1*874 (94 Pac. 94); Estate of Wahlefeld,105 Cal. App. 770">105 Cal.App. 770 (288 Pac. 870); Vieux v. Vieux,80 Cal. App. 222">80 Cal.App. 222 (251 Pac. 640); Martin v. Pritchard,52 Cal. App. 720">52 Cal.App. 720 (199 Pac. 846).) It clearly appears from the foregoing authorities that "the agreement or understanding between the parties is not required to be in any particular words and need not be attended with any particular formality as long as it may*1141 be fairly inferred from all of the circumstances in evidence that a community interest was intended by the parties. * * *
In the present case respondent contributed her separate property along with the separate property of the deceased to acquire and improve a place to be used as their home. It does not appear that they had previously given any thought to whether the property should be conveyed to the deceased or to respondent or to both of them. When confronted with making this decision deceased said nothing and respondent said it made no difference. Immediately thereafter deceased assured respondent that "It is just as much yours as it is mine; this is our home." While the parties did not formally agree in precise words that the property should be community property, it is a fair inference from all the circumstances that such was their intention and understanding.
In Helvering v. Hickman, 70 Fed.(2d) 985, the Circuit Court of Appeals for the Ninth Circuit affirmed our decision that a husband and wife might orally agree that the earnings of each should be separate property so that the earnings of the wife were not taxable to the husband.
*1142 In the present cases, the income from the property in question is divisible between decedent and Mrs. Dollar only if they agreed after July 29, 1927, that the property was owned by the community. Mrs. Dollar testified that throughout the period of their marriage she and her husband had considered all marital property to be owned by each equally. The testimony of both witnesses of petitioners convincingly demonstrates that decedent and Mrs. Dollar agreed that all property was owned by the community.
Respondent contends that petitioners have not shown any definite date of agreement after July 29, 1927. The evidence does not definitely fix the date upon which the decedent and his wife agreed concerning their property interests. It is clear, however, that they first made such an agreement at the time of their marriage. The agreement was reaffirmed at various times throughout the period of the marriage. Before sailing for China in 1929, they again agreed that all property was community property. Finally, the wills of 1931 and 1934 and written evidence of the oral agreement between Dollar and his wife that they had an equal interest in the property. Respondent points out that*1143 the wills are of no value because wills speak only as of the date of death of the testator. Here, however, the wills were not in evidence as testimentary dispositions but were offered in support of the oral agreement of the spouses. The wills are strong corroboration of the testimony of the witnesses. Although purported oral agreements should be given close scrutiny, the present facts withstand the most minute inspection.
*875 Respondent urges that the acceptance by decedent and Mrs. Dollar of the revenue agent's report on their 1930 returns indicates that they did not intend the property to be held by the community. This fact is not conclusive. Until the 1935 returns were filed no lawyer assisted in the preparation of the tax returns of decedent and his wife. The fact that Dollar included the entire income of certain stock in his income tax returns can not be taken as an admission that the property was not community property. At the most, it is merely an indication that deceased believed that the income was his income for Federal income tax purposes. Such action is consistent with the acceptance of the agent's report.
Decedent and Mrs. Dollar, after July 29, 1927, reaffirmed*1144 a valid agreement which converted the separate property of each into community property. We hold, therefore, that the income from the property in question was divisible community income and one-half was includible in the gross income of each spouse during the years 1934 and 1935.
Decisions will be entered under Rule 50.