*107 Decision will be entered for the respondent.
The taxpayer, subsequent to marriage, entered into an agreement with his wife whereby he agreed that in selling all real property, or rights or interests in lands owned by him, he would pay his wife one-third of the net profits thereof in lieu of dower. In 1942 he sold certain timber rights and in 1943 he, together with others, leased certain property for the purpose of mining and operating for oil and gas. In these transactions his wife joined to release and relinquish her dower rights and she was paid one-third of the sale price of the timber rights and one-third of the amount allocated to her husband's interest in the oil and gas lease. Held, the entire amount received from the sale of the timber rights and from the sale of the interest in the oil and gas lease in the respective years 1942 and 1943 inured to the husband and was properly used to measure his taxable gain.
*143 Respondent determined a deficiency in petitioner George M. LeCroy's income and victory tax for the year 1943 in the amount of $ *108 3,066.92. The taxable year 1942 is also involved due to the forgiveness feature of the Current Tax Payment Act of 1943.
The deficiency is due to several adjustments to the petitioners' net income for the years 1942 and 1943. Petitioners by an appropriate assignment of error contest only one of the adjustments made by the respondent for each of the years 1942 and 1943. In a statement attached to the deficiency notice the respondent explained the adjustment for the year 1942 as follows:
During the taxable year ended December 31, 1942 you sold certain timber to S. J. Bass upon which net profits of $ 8,597.63 were realized, of which $ 2,905.33 was paid to your wife allegedly for release or relinquishment of her inchoate dower rights in said property. The taxable gain on this sale, $ 4,298.81, was reported by you and your wife in the respective amounts of $ 2,846.15 and $ 1,452.66. *144 It has been determined that this timber was your separate property and that the entire taxable gain realized from the sale thereof is your separate income. Accordingly, the amount $ 1,452.66 reported by your wife from sale of timber is included in your income.
In a statement attached to the deficiency*109 notice of 1943 the respondent explained the adjustment for the year 1943 as follows:
During the taxable year ended December 31, 1943 you sold an oil an [sic] gas lease to W. D. Ray Drilling, Inc., from which a lease bonus in the net amount of $ 17,053.72 was realized after allowance of expenses and depletion. One-third of the profit on the lease bonus was paid to your wife allegedly for release or relinquishment of her inchoate dower rights in said lease, in respect of which she reported taxable income of $ 5,325.91. It has been determined that the lands and the mineral rights covered by the lease were youre [sic] seprate [sic] property and that the entire net profit of $ 17,053.72 realized from the lease bonus is your separate income. Accordingly, the amount $ 5,325.91 reported by your wife out of the lease bonus is included in your income.
The sole issue is whether the amounts of $ 1,452.66 and $ 5,325.91 reported by Lizzie LeCroy as a taxable gain on her income tax returns for the respective years 1942 and 1943 for the release or relinquishment of her inchoate dower rights in certain property owned by her husband are includible in his income for these years.
FINDINGS*110 OF FACT.
Petitioners, George M. LeCroy and Lizzie LeCroy, are husband and wife having been married in 1908 and were living together as husband and wife during the years involved in this petition. They filed their separate income tax returns for the years involved with the collector of internal revenue for the district of Arkansas. George M. LeCroy will hereinafter be referred to as the petitioner.
On December 12, 1941, petitioner and his wife entered into an agreement entitled: "Pecuniary Settlement in Lieu of Dower". This agreement provided in part as follows:
NOW, THEREFORE, WITNESSETH: That for and in consideration of the love and affection which the undersigned Geo. M. LeCroy doth have for his beloved wife Lizzie LeCroy and the further consideration of $ 5.00 to him cash in hand paid by the said Lizzie LeCroy, the said Geo. M. LeCroy does by these presents covenant, make and provide that hereafter in the sale of all real property or rights or interests in any lands, tenements, or hereditaments which the said Geo. M. LeCroy may be seized of an estate of inheritance during coverture, that he will provide and do hereby covenant and agree to and with the said Lizzie LeCroy, his*111 wife, that he will pay to her, or cause the purchaser to pay to her, One-third (1/3) of the net profits received from any such sale in the future, same to be paid if, as, and when received; that same, when paid to the said Lizzie LeCroy shall become her sole and separate property to be enjoyed by her the same as a femme sole.
Said settlement and provision is here now made, as provided by Sec. 4409 of Pope's Digest, as a pecuniary provision in lieu of dower, which is now mutually agreed to by and between the said Geo. M. LeCroy and Lizzie LeCroy, husband and wife.
*145 Said instrument was duly recorded in the recorder's office of the County of Union, State of Arkansas, in Record Book No. 452, p. 554.
On November 14, 1942, petitioner executed a timber deed to S. J. Bass conveying timber on certain property for a stated consideration of $ 7,000. This deed was made subject to his "wife's dower or jointure lieu of dower." On November 16, 1942, petitioner's wife executed a timber deed to said S. J. Bass whereby she conveyed to him for the consideration of $ 3,000 the same timber property mentioned in the above deed from petitioner to said S. J. Bass. Petitioner and his wife kept *112 separate records and the amounts each received from the sale of said timber property were treated as their separate property and income. Separate income tax returns were filed by them for the year 1942. In petitioner's return for the year 1942 the amount of $ 2,846.15 was reported as net gain from the sale of timber. In the income tax return of petitioner's wife for the year 1942 she reported a gain from the sale of said timber in the amount of $ 1,452.66. In his deficiency notice the respondent increased the taxable gain on the sale of timber rights by petitioner in the amount of $ 1,452.66 with the explanation that said timber was his separate property and the entire taxable gain realized from the sale was includible in his separate income.
By a lease dated January 13, 1943, R. S. Warnock, Jr., Nina Warnock, his wife, Ora Kemmerer, and George M. LeCroy and Lizzie LeCroy granted, conveyed and leased to the W. G. Ray Drilling Co., certain described property for a period of five years for a consideration of $ 45,000 for the purpose of mining and operating for oil and gas. In this instrument Lizzie LeCroy released and relinquished unto the lessee all her dower rights in said property.
*113 The Drilling Company deposited with the attorney who acted as escrow agent the total amount of $ 45,000 paid for the lease. The escrow agent, after the title was approved, divided the consideration paid for the lease in accordance with the interest owned by the various parties and in accordance with instructions given him. The petitioner's share of the consideration paid for the lease was distributed by the escrow agent in the form of two checks, one payable to petitioner in the amount of $ 14,692.17 and the other payable to his wife in the amount of $ 7,346.08.
These respective amounts received by petitioner and his wife for said lease were kept in their separate accounts. In the return of petitioner's wife for the year 1943 she reported as income from the sale of this lease the amount of $ 5,325.91. The petitioner in his return for the year 1943 reported as income from the sale of said lease the amount of $ 11,727.81.
Respondent in his deficiency notice for the year 1943 determined that the amount of $ 5,325.91 reported as income of petitioner's wife should be included in petitioner's income for the year 1943.
*146 OPINION.
Petitioner contends that the respective amounts*114 of $ 1,452.66 and $ 5,325.91 reported by his wife as taxable gain in the years 1942 and 1943 are not includible in his income for these years. He maintains that he entered into an agreement with his wife whereby she made an absolute transfer of her dower rights in his property in consideration of his agreement to pay her, or cause the purchaser to pay to her, one third of the net profits of sales of all real property, or rights or interests in any lands owned by him; that in 1942, when she executed the deed to the timber property, she acted as a grantor and in 1943, when she executed the oil and gas lease, she acted as a lessor, and the amounts that she received in these years for the conveyance of these properties is taxable to her.
Respondent contends that the land in question was owned by petitioner, that the sales of the rights in the land were made by him, and that all of the consideration for the conveyance of the property rights was includible in his income for the taxable years.
The answer to the question raised by the contentions of the parties depends upon the nature of the wife's right of dower under Arkansas law. Local law is controlling as to rights or interests in *115 property and the character and nature of such rights or interests. , and . Under Arkansas law the wife's right of dower during the lifetime of the husband is not an estate in land but is a contingent expectancy constituting a mere chose in action, incapable of transfer by grant or conveyance, but susceptible only of extinguishment during its inchoate state, ; ; ; ; .
In , the petitioner herein brought an action in the Supreme Court of Arkansas against the Commissioner of Revenue for the State of Arkansas and the sheriff of Union County to cancel a distraint warrant issued by the Commissioner for the collection *116 of additional state income taxes for the years 1939 and 1940 and to enjoin them from collecting any additional taxes. LeCroy alleged that in the year 1911 he entered into a contract with his wife, Lizzie LeCroy, wherein he agreed that he "* * * would, in selling all real property wherein the wife had an inchoate right of dower, and when she joined, released and relinquished same, she would receive one-third of the net proceeds derived from any and all sales in lieu of and in full compensation for her inchoate dower rights so released. * * *" LeCroy made certain real estate sales in 1939 and 1940 wherein his wife released her dower rights and was paid one-third of the net proceeds of said sales. He contended that he had the right *147 to contract generally with his wife in regard to her inchoate right of dower in his real estate and that any income accruing to her under such contract was not taxable income to him and, second, that in the absence of any such contract where he sells property subject to her dower interest and she later, by a separate instrument, releases her rights to such purchaser and receives pay therefor direct from the purchaser, the money paid to her is not*117 taxable to him. In ruling upon these contentions the court said:
We cannot agree with appellant on either contention. A wife is not endowed of her husband's real estate. Only the widow is so endowed. Section 4396 of Pope's Digest provides that: "A widow shall be endowed of a third part of all the lands whereof her husband was seized of an estate of inheritance (a) at any time during the marriage, unless the same shall have been relinquished in legal form". Until her husband's death the wife's right of dower is inchoate, that is, it is contingent upon his death during her lifetime. While it is a valuable contingent right, it is not such an interest in her husband's property as may be conveyed by her. It may only be "relinquished" by her to her husband's grantee in the manner and form provided by statute. * * *
The court concluded that even though the taxpayer had the right to contract with his wife to pay her a portion of the sale price of the real property sold by him, to induce her to relinquish her right of dower to his vendee, nevertheless such payments under the contract were nothing more than gifts, and are taxable to him.
The facts in this case are very similar to those*118 involved in . There the taxpayer, a resident of New York, sold certain real property located in New York City. The taxpayer's wife refused to join in the contract of sale until he agreed to give her half the proceeds and she received directly from the purchaser $ 15,000 of the $ 30,000 in cash payments. The taxpayer sought to exclude $ 15,000 from the sale price in computing his gain, claiming that this was not received by him but was paid to his wife as the purchase price of her dower. We pointed out that while the taxpayer's wife was "endowed of the third part" thereof as dower under New York law, this was inchoate and was not sold by her but was released. We stated in part as follows:
* * * Whether the $ 15,000 was given by petitioner to his wife directly, as inducement for joining in the conveyance, or assigned to her out of the forthcoming price, it is nevertheless to be regarded as part of the sale price which inured to him for the property which he alone owned. * * *
We think that the cited cases require that our decision be in favor of the respondent, and, in conformity with the law set forth therein, we hold*119 that the entire consideration paid for the conveyance of the timber property in 1942, and for the petitioner's interest in the property leased in 1943, inured to petitioner and was properly included in computing his taxable income for these years.
Decision will be entered for the respondent.