*809 By reason of oral agreement between petitioner and his wife, who were residents of California, their various properties were not owned in community, but each had an undivided one-half separate interest in them, and the petitioner is liable for income tax upon only one half of the income therefrom.
*88 The petitioner prosecuted an appeal from the decision of the Board entered in the above entitled proceeding May 26, 1933, pursuant to the Board's findings of fact and opinion promulgated May 24, 1933, to the Circuit Court of Appeals for the Ninth Circuit. The decision entered by the Board on May 26, 1933, showed deficiencies in income tax due from the petitioner for the years 1924 and 1925 of $19,036.61 and $9,752.59, respectively.
The last paragraph of the opinion of the Circuit Court of Appeals for the Ninth Circuit reads as follows:
The case is remanded to the Board of Tax Appeals with instructions to specifically find whether or not an oral agreement was entered into as testified *89 by*810 the husband and wife, and the terms thereof, and whether or not the income in question was derived from the community property of the spouses or their separate property.
FINDINGS OF FACT.
1. The petitioner and his wife, Marguerite S. Anderson, were married in 1914. At the time of marriage petitioner had no property and was working as assistant manager of the Beverly Hills Hotel, Beverly Hills, California, which was owned by his mother, Margaret J. Anderson, on a salary of $3,000 per annum. He continued in this position on the same basis of compensation until mustered into the military service in 1917 or 1918 when he went abroad.
2. At the time of their marriage, Marguerite S. Anderson received from her father, J. H. Slattery, a gift of $5,000 and at various times prior to 1920 gifts of money aggregating in all $20,000 or more.
3. Throughout the period from 1914 to 1923, inclusive, Marguerite S. Anderson worked on a full time basis for the Beverly Hills Hotel as hostess and assistant to the manager. She also was active in securing new patrons for the hotel. Her duties were very important and her services very valuable.
4. Early in 1916, John B. Joyce, of Boston, *811 a friend of Marguerite S. Anderson, told her he intended to buy an estate for his family. She informed the petitioner and they agreed to work jointly in effecting this sale, any commission earned thereby to be split, one half going to her as her separate property. They succeeded in locating a property which was purchased by Joyce and they received commission on the sale of $10,000, one half of which, pursuant to the agreement made between them, became her separate property.
5. After some negotiations petitioner and Marguerite S. Anderson decided to buy five vacant lots in Beverly Hills at a total cost of $13,200, each putting in $5,000 of the commission received. The remainder of the purchase price, $3,200, was obtained by Marguerite S. Anderson through a gift from her father. It was agreed by petitioner and his wife that each should own an undivided one half interest in these lots as tenants in common. These lots increased greatly in value and $30,000 was borrowed on two of the lots alone in 1923.
6. The petitioner took title to these lots in his own name without informing his wife of that fact. The latter supposed that the title to these lots was in their joint names*812 as tenants in common until May 1932, when in preparing for the hearing of this case the petitioner informed her that legal title to these lots and other properties owned equally by them was in his name. She then went to her attorney and with the consent of the petitioner, new deeds were drawn up and *90 recorded putting the legal title to these properties in both of their names as tenants in common.
7. While petitioner was away during the war, Marguerite S. Anderson remained with his mother and assisted in the management of the Beverly Hills Hotel. Prior to petitioner's return in 1919, his wife made an oral agreement, later approved by him, whereby petitioner and she were to assume the full active management of the hotel and were to receive as compensation therefor a salary of $3,000 per annum and, in addition, 50 percent of the net income of the hotel for each calendar year. This agreement required the full services of both petitioner and his wife and the services of Marguerite S. Anderson were considered very valuable by the petitioner's mother.
8. Petitioner and his wife agreed at the time the arrangement with his mother was made that one half of the compensation*813 from the hotel under this contract should belong to her as her separate property to deal with as she might choose. This agreement was made at the insistence of Marguerite S. Anderson.
9. During the years 1920 to 1923, inclusive, petitioner and his wife received from the Beverly Hills Hotel, in addition to the $3,000 annual salary, net profits from the operation of the hotel in the amount of approximately $140,000. As a matter of convenience the checks which were drawn by petitioner as manager of the hotel were made out to himself and deposited in a bank account for his wife and himself. These funds, together with other funds obtained through mortgaging the lots purchased by them in 1916, were invested in improvements on the vacant lots and in the purchase of other real estate and bank stock. Before making any investment petitioner and his wife consulted together and no investment was made without their joint consent. It was definitely agreed that all properties so acquired by them should belong to them equally and that her one-half interest should be her separate property.
10. Petitioner took title to all of these properties in his sole name, but without the knowledge*814 of his wife. This was done partly as a matter of business convenience and partly on the advice of an attorney, who stated that banks and finance interests were suspicious where property was held by a husband and wife together or where considerable property was held in the wife's name. Petitioner's wife did not learn until May 1932 that legal title to these properties was not partly in her name and immediately thereafter demanded that the legal status be changed to accord with their actual ownership. As a result legal titles to these various properties have been changed, showing that they are owned by petitioner and his wife as tenants in common.
*91 11. Federal income tax returns of petitioner and Marguerite S. Anderson for 1920 and subsequent years were prepared by a certified public accountant, E. P. Adams. At the time his 1920 return was being prepared the petitioner informed Adams that one half of the earnings from the hotel belonged to Marguerite S. Anderson and should be reported on a separate return. Adams, however, advised petitioner that under the regulations and rulings of the Treasury Department all of this income must be reported by the petitioner. Adams*815 prepared a joint return for petitioner and his wife which showed the salaries of them both separately, in brackets. Similarly, joint returns were filed for the taxable years 1921, 1922, and 1923. For the taxable years involved in this proceeding, 1924 and 1925, separate returns were filed by petitioner and his wife.
12. In the summer of 1923, petitioner, with the knowledge and consent of his wife, entered into negotiations with the Janss Investment Co. and Charles H. Christie for the acquisition of undivided interests in two real estate subdivision ventures. Contracts were entered into early in September 1923, whereby the property was acquired, the Janss Investment Co. undertaking actual work of subdivision and sales and keeping the books and records. These original contracts were made in the name of the petitioner alone, although he was acting for both himself and his wife. This fact was known by Christie, one of the syndicate members, prior to the consummation of the contracts. Edwin Janss, representing the Janss Investment Co., did not know of the interest of the petitioner's wife in the syndicates until after the contracts had been signed and the accounts had been set*816 up on the books of the Janss Investment Co.
13. On September 5, 1923, petitioner executed and delivered to Marguerite S. Anderson a letter as follows:
BEVERLY HILLS, CALIF.
September 5, 1923.
Mrs. MARGUERITE S. ANDERSON,
Beverly Hills Hotel.
Confirming our conversation relative to the Janss Investment and Charlie Christie land deal.
Charlie and I agree to purchase from Janss 120.5 acres for $180,750.00, (for one-half interest, Janss retaining one-half), payable $60,250.00 cash in September and October and notes for the balance of $120,500.00. On this deal I today paid $5,000.00 on the September installment. I also entered into an agreement to purchase from Charlie Christie a one-fourth interest in 107 acres, the total price of the acreage being $320,000.00 and our 1.4 will amount to $80,250.00. Under the agreement by which Charlie is buying this land from Janss, he is to pay $107,000.00 cash and notes for $214,000.00. The cash payments are to be made in September and October and I today paid $6,250.00 which is 1.4 of the cash payment due in Sept.
I understanding from you that you agree to these transactions and agree to payment of your proportion of the*817 cash payments from any fund now held *92 jointly by us and that you assume liability for your proportion of future payments, such liability to attach to your separate funds as well as those held jointly by us.
It is the belief of Janss and Charlie that with the placing of this property on the market, the notes will be off from the sale and we will not be called upon for cash to meet same.
Should you for any reason have occasion, in my absence or in case of any misunderstanding arising later, to secure further details relative to this, Dr. J. will give you same.
[Signed] STANLEY S. ANDERSON.
14. Petitioner's wife agreed to go into these ventures with the petitioner, she to contribute equally to all investments and to have a one-half interest therein as her separate property. Petitioner and his wife then went to Janss, who was in charge of the activities and records of the syndicates, and advised him that Marguerite S. Anderson owned as her separate property one half of the interests for which the petitioner had contracted, leaving with him a copy of the letter dated September 5, 1923. Janss ordered the letter placed in the file and gave instructions to his office*818 force that the approval and signature of Marguerite S. Anderson should be obtained in every instance where it was obtained from the petitioner.
15. In the accounts kept by the Janss Investment Co. for these syndicates the interests of petitioner and his wife were carried in the name of "Stanley S. Anderson" despite their instructions. About January 1, 1929, however, the Janss Investment Corporation, a new company, took over all the assets of the Janss Investment Co., including the syndicate interests. On the books of the new company separate accounts were set up for Stanley S. Anderson and Marguerite S. Anderson showing each to have exactly the same interest as the other. Both Janss and Christie understood throughout the years 1924 and 1925 that Marguerite S. Anderson owned as her separate property one half of the syndicate interests which appeared in the name of Stanley S. Anderson.
16. Marguerite S. Anderson signed all deeds and other instruments relating to the syndicates which the petitioner signed and also gave her approval to subdivision plans, price lists, and other matters the same as the other members of the syndicates. She also joined in all notes with the petitioner*819 and executed all deeds, leases, assignments with him, whether pertaining to the syndicates or other properties and in all respects acted as an owner of an undivided half interest in such property would act. She also took an active interest in the syndicates and other investments and was familiar with all transactions which occurred. On August 16, 1926, the Janss Investment Co. deeded back an undivided one-fourth interest in approximately 37 acres of the realty which had not then been sold, the conveyance being taken in the names of "Stanley S. Anderson and Marguerite S. Anderson."
*93 17. On February 4, 1924, the petitioner and Marguerite S. Anderson executed and delivered to Edwin Janss and Harold Janss a general power of attorney, which was duly recorded. On January 27, 1925, Marguerite S. Anderson executed and delivered to the petitioner a general power of attorney.
18. Prior to 1925 the petitioner kept no set of books. In October 1924 the bookkeeper of the Beverly Hills Hotel requested Adams, the accountant, to open up a set of books for the petitioner, furnishing him with the 1924 bank records and certain loose leaf sheets. From these Adams opened up a set of*820 books as of January 1, 1925. Adams did not consult with the petitioner, but set up all the properties as if owned solely by the petitioner. In 1926 the petitioner asked Adams if he was crediting Marguerite S. Anderson with one half of the earnings from the Young's Building, which stood on the lots purchased in 1916, advising him that one half belonged to her. Adams then marked this account "Joint M. S. Anderson."
19. On the closing of the books for 1925 Adams asked the petitioner about the status of notes which had been issued to the Janss Investment Co. and was informed that they had been paid out of the real estate syndicates in which the petitioner and his wife had interests. Prior to that time Adams had not known about these syndicates, but he immediately set up an account as of January 1, 1925, with the Janss Investment Co., which he marked "Joint M. S. Anderson." About the same time, Adams set up an account on the petitioner's books for "Marguerite S. Anderson" as of January 1, 1925, to which charges and credits were made.
20. Marguerite S. Anderson and petitioner each had an undivided one-half interest in these real estate syndicates and likewise Marguerite S. Anderson*821 and petitioner each had an undivided one half of all other properties held by them or either of them during the calendar years 1924 and 1925. Under their agreements there was no community property and each had an undivided one-half separate property interest in all their various properties and interests.
21. The respondent has erroneously included in petitioner's taxable net income for 1924 and 1925 the entire net income from all these properties instead of one half, the other one half being taxable to Marguerite S. Anderson on her separate property.
OPINION.
SMITH: In the opinion of the Circuit Court of Appeals for the Ninth Circuit remanding this case to the Board, the court stated:
We do not know from this statement of the Board whether or not they believed the testimony of the husband and wife with reference to the oral agreement between them. If they disbelieved this testimony by reason of the acts of the husband and wife which were more or less inconsistent with *94 their testimony that they had made such an agreement, of course the oral agreement cannot be considered by us. On the other hand, if the Board were acting upon the legal proposition that the*822 agreement if made was not binding or enforceable such conclusion is directly in the teeth of the statute of California (Cal. Civ. Code § 158">Cal. Civ. Code § 158) which permits the husband and wife to enter into an agreement with relation to their property, and agree that they shall hold their property in some form other than as community property is altogether clear from the authorities. In this connection it should be observed that there is a distinction between those cases in which the question involved is whether or not the earnings of one of the spouses is taxable to that spouse as his or her separate income, and those cases in which the question is whether or not after the property has been thus acquired its status has been or can be changed by the agreement between the parties. Such cases as Lucas v. Earl,281 U.S. 111">281 U.S. 111; Belcher v. Lucas,39 F.(2d) 74; and Helvering v. Hickman,70 F.(2d) 985, deal with the taxability of income to the spouse which earned it and do not deal with the income derived from property which has been acquired by the spouses and is held by them under the contracts entered into between them modifying the status*823 of the property as authorized by § 158 of the Civil Code of California.
The proper conclusion with reference to the deficiency tax in the case at bar revolves around the question of whether or not the husband and wife made the agreement that the property then owned or subsequently acquired by them should be owned by them as tenants in common as distinguished from community property ownership, each owning a one-half interest therein as his or her separate property. If such an agreement were made it would necessitate a different conclusion from that arrived at by the Board. * * * If the Board of Tax Appeals believes that such an agreement was made, the presumption in favor of the ruling of the Commissioner, and the more general presumption that property acquired by the spouses and not shown to have been acquired by gift, devise, or bequest or descent (Cal. Civ. Code §§ 162, 163, 164; Pedler v. Commissioner, supra ), is community property are overcome.
Upon our amended findings of fact and in view of the opinion of the Circuit Court of Appeals, we are of the opinion that the petitioner is liable to income tax upon only one half of the income from the properties owned*824 by the petitioner and his wife during the tax years in question.
Reviewed by the Board.
Judgment will be entered under Rule 50.