*3897 INCOME. - Petitioner and his wife, domiciled in the State of California, entered into an agreement that the wife's salary should be her separate property. Held, that the wife may report her individual income in a separate return and that the Commissioner erred in including the wife's salary in petitioner's net income.
*1374 This proceeding results from respondent's determination of a deficiency in the amount of $560.17 in petitioner's income and surtaxes for the calendar year 1921. The amount of the deficiency in controversy is $451.08, which arises from the respondent's inclusion in petitioner's net income of the salary and bonus earned by his wife. At the close of the hearing on this proceeding, petitioner was granted leave to amend the petitioner to conform to the proof.
FINDINGS OF FACT.
Petitioner is a resident of Los Angeles, Calif. Prior to 1914 petitioner and his wife lived in St. Louis, Mo., at which time the wife entered upon her business career. At that time petitioner and his wife agreed that*3898 whatever money she earned or whatever property she acquired with her earnings should be her separate property with which she might do as she pleased and that petitioner should have no interest in nor control over her separate property.
In 1914 petitioner was employed at El Paso, Tex., and during the same year his wife was employed as manager of a department store in Los Angeles. Their agreement affecting their respective incomes was continued in effect. In the latter part of 1915 petitioner was employed as manager of the same department store in Los Angeles which was run by a corporation, and petitioner's wife was employed as assistant manager.
*1375 From 1915 up to the present time, including the taxable year 1921 here in question, petitioner and his wife have been domiciled and living together in Los Angeles. The wife, Anna Hershey Harris, has been continuously employed by the owners of the department store as assistant manager and buyer, her employment being entirely independent of the employment of petitioner under contract as manager of the same store. In 1920 petitioner entered into a new contract of employment as manager of the department store, but that contract*3899 made no mention as to the employment of his wife and there was no change made in respect to her employment except that she may have received an increase in salary.
During the year 1921, as well as during the years prior and subsequent thereto, petitioner and his wife have carried out their agreement that all of the wife's salary should be her separate property. Both petitioner and his wife had knowledge of the effect of the community property laws of California. Petitioner and his wife had a joint bank account in which petitioner deposited all of his salary checks. The wife deposited such amounts of her money as she chose and withdrew her accumulations for investment. She owned stocks and bonds as her separate property. Petitioner paid all the living expenses, and both petitioner and his wife had access to the funds on deposit in the joint account. Petitioner never used, appropriated nor exercised any control over his wife's separate income or property.
For the calendar year 1921 the petitioner and his wife each filed separate income-tax returns and each paid the tax as computed thereon. The respondent has included in petitioner's net income for 1921 the amount of $2,350, *3900 reported by Anna Hershey Harris in her separate return as her individual salary for the year 1921.
OPINION.
TRUSSELL: The facts and evidence in this proceeding establish that petitioner and his wife agreed that the wife's salary should be her separate property and that that agreement was carried out during the calendar year 1921. The Board has heretofore held in cases involving similar facts and circumstances arising in the State of California that the wife is entitled to report in a separate return her individual income. See .
Anna Hershey Harris may report in a separate return her salary and bonus as her individual income and, that course having been followed by her, the respondent erred in including her salary and bonus in petitioner's net income for the year 1921.
Judgment will be entered upon 20 days' notice, pursuant to Rule 50.