*172 Decision will be entered under Rule 50.
1. Held, that the decision redetermining income tax deficiency in a former proceeding between the same parties for prior taxable years is not res judicata of the present proceeding, since the causes of action of the two proceedings are different and the decision in the former did not determine the issues of the present proceeding.
2. Held, (a) that rents, issues, and profits from lands in Texas, whether the separate property of petitioner or community property, fall into the community; (b) that the ownership of rents, issues, and profits from lands in New Mexico is of the same character as the ownership of the lands; and (c) that income from cattle in the State of Texas is community income.
*1041 This proceeding involves a deficiency in petitioner's income tax of $ 5,458 for the calendar year 1937. Petitioner in his petition claimed an overpayment in the amount of $ 291.46.
Petitioner and his wife each in separate income tax returns reported one-half*173 of all of their income and deductions, except that petitioner reported all of the compensation received by him for personal services. The income came in part from lands in Texas and New Mexico*1042 and cattle in Texas, and in part from sources outside of those states. Respondent charged all of the income from all sources to petitioner and disallowed certain of the deductions claimed.
Petitioner assigned numerous errors covering all of the determinations of respondent resulting in the enlargement of his tax liability. At the hearing petitioner "limited his case to income from property in New Mexico and Texas, plus the income from the partnership between Johnson and his wife, the agreement for which she executed subsequent to the former trials." (The income of the alleged partnership was income from sale of cattle raised in Texas.) Assignments of error in respect of all other income and as to all deductions involved were abandoned by petitioner at the hearing.
The only questions remaining for determination are: Were the income from lands in Texas and New Mexico and the income from cattle in Texas community or joint income of petitioner and his wife, or the separate income of*174 petitioner?
Respondent pleaded res judicata and asked for judgment on the ground that the adjudication of the subject matter of a prior proceeding between the same parties was res judicata of the subject matter of the instant proceeding. He also objected to the introduction of any evidence for the same reason. Rulings were reserved on the question of res judicata and on the objection to the receipt of evidence. Evidence was admitted subject to the rulings reserved.
FINDINGS OF FACT.
Petitioner is an individual, residing in Kansas City, Missouri. During the whole of the taxable year petitioner was married to and living with Anna M. Johnson. Petitioner and his wife filed separate income tax returns with the collector of internal revenue for the sixth district of Missouri at Kansas City, in which each reported one-half of all of the income received in the taxable year, except that petitioner reported in his return all of the income representing compensation for his personal services.
Petitioner and Anna M. Johnson were married February 1, 1886, and have been husband and wife continuously since that time. At the time of this marriage petitioner lived in Texas and owned*175 an interest in a general mercantile business at Pecos, Texas. The value of that business at the time of marriage was about $ 2,000 to $ 3,000. Petitioner continued to carry on this business, resulting in a constant turnover of inventory. Mrs. Johnson did not own any property when she was married. Neither she nor petitioner has ever received any property by gift, devise, or inheritance, or from any source other than their earnings and investments.
In August 1899 petitioner, taking his family with him, left Texas and went to Kansas City, Missouri, believing that he would have a *1043 better opportunity for doing business since Kansas City was a cattle center and petitioner's business at that time was almost entirely cattle. He had no fixed or definite intention of returning to Texas and would have done so only if he had found it unsatisfactory in Kansas City. After being in Kansas City for something over a year, petitioner and his family moved to California to see if they would like it there and, if they did, to make it their permanent home. After about a year in California they became dissatisfied and returned to Kansas City, where they have since resided.
Between 1887 *176 and August 1899 petitioner and his brother bought several large remnants of cattle as well as ranch lands. The ranch was operated and known as the Johnson Bros. ranch, and by August 1899 they had more than 20,000 head of cattle on this ranch. Petitioner owned a 73/140 interest in the enterprise. No new cattle were ever acquired or placed on this ranch after August 1899.
When petitioner left Texas he had acquired property worth about $ 500,000, consisting of (1) stock in the mercantile corporation which took over petitioner's mercantile business, (2) a 73/140 interest in the Johnson Bros. ranch, (3) stock in the Security Bank of Pecos, Texas, and (4) bills receivable representing money loaned on cattle. All of the property belonging to petitioner and his wife when they left Texas in 1899 was concededly community property.
In 1900 petitioner and his brother began to ship two-year old steers from their ranch in Texas to a ranch in Wyoming. By 1902 they had shipped over 5,000 head. These steers were held from two to three years and then shipped to market and sold for about $ 47.50 a head. Petitioner received $ 134,885.75 as his share of the proceeds from the sale of these steers.
*177 While petitioner and his wife were in California he bought a one-half interest in some land situated near Bovina, Texas, for about $ 130,000. Petitioner paid about $ 13,000 in cash and for the balance of the purchase price gave nine notes (one of which was payable each year) secured by a deed of trust upon the land. Later petitioner acquired additional interests in the land, so that he had a total interest of 72 percent. In the fall of 1902 petitioner and his associates stocked the Bovina ranch with 9,000 head of yearling steers. All of the money and property petitioner and/or the community owned at the time he bought the interest in the Bovina ranch and at the time it was stocked were so owned in August 1899 when petitioner and his wife removed from Texas. Thereafter, more cattle were put on this ranch and out of earnings of the ranch the first two or three notes given for the purchase price thereof were paid. During 1906 and 1907 the interest in the Bovina ranch was disposed of and net proceeds of about $ 400,000 were received therefor.
*1044 On February 1, 1908, petitioner for the first time opened a set of books. At that time he and his wife owned in community an interest*178 in the Johnson Bros. ranch which they had acquired in 1887, and that interest was entered upon his books at $ 208,570. Sometime prior to 1913 this interest was liquidated for about $ 230,000. Thus, a total of about $ 760,000 was received for the interests in the Johnson Bros. ranch and the Bovina ranch.
With the property and proceeds of property acquired by petitioner and his wife during their residence in Texas as a working nucleus, petitioner acquired other properties in the subsequent years of their residence in Missouri through sales, reinvestments, and business operations in both the community property States of Texas and New Mexico and the noncommunity property States of Missouri and Kansas. Such acquisitions comprised lands, tangible personal property, notes, mortgages, and securities, as well as cash in banks. Such acquisitions also included salaries and compensation for personal services of petitioner in large amounts, or the investments thereof, during his residence in Missouri, beginning with the year 1916.
The Circuit Court of Appeals on review of a similar tax proceeding for prior taxable years instituted by this petitioner, hereinafter adverted to, found from the*179 record in that proceeding that:
The taxpayer's books list assets of a book value of $ 2,123,053.53 at the end of 1927, $ 1,700,810.89 at the end of 1928, and $ 1,908,310.17 at the end of 1929. All of these assets were acquired after he moved to Missouri. The assets owned by him and his wife when they left Texas had been liquidated prior to 1927 and the proceeds invested and reinvested.
Petitioner's books at December 31, 1937, listed assets of a net value of $ 1,024,570.46.
The proceeds and income from the community property which petitioner and his wife owned at the time they ceased to be residents of Texas were so intermingled with the property and the income therefrom subsequently acquired and owned by petitioner and his wife, or either of them, from and after a time antedating the year 1908, that petitioner was unable to trace the amount or the percentage of community funds represented in the subsequent acquisitions of property, except certain Texas land herein designated as the Slash ranch.
Petitioner's wife has never kept a set of books and at no time was a division of property made between petitioner and his wife. She had a separate bank account in which allowances for pin*180 money were deposited. She never gave petitioner authority in writing or otherwise to convert her money or property to his own use. After petitioner and his wife left Texas petitioner continued to handle all of the property just as he had previously. All funds, with the exception of the pin money, were deposited in one bank account in petitioner's name and all cash from whatever source went therein, including *1045 moneys received from the liquidation of the bills receivable which they had when they left Texas, the Johnson Bros. ranch, the Bovina ranch, and the interest in 5,446 steers shipped from the Johnson Bros. ranch to Wyoming. Out of this account, comprising inseparably commingled funds derived from both the community property of the spouses and the separate property of petitioner, the respective amounts or percentages of which were indeterminable, petitioner acquired Texas and New Mexico lands which he held during 1937 as follows:
| Name of ranch | County | State | Date acquired |
| 1/2 interest in Clayton & Johnson ranch | Borden | Texas | 1913. |
| 1/2 interest in 49 ranch | Borden | Texas | 1914. |
| VH or Cowen ranch | Reeves | Texas | Between 1917 |
| and 1920. | |||
| Kyle ranch | Loving | Texas | |
| Ochiltree ranch | Ochiltree | Texas | 1920 |
| Rio Grande Valley farm | Texas | ||
| Caldwell ranch | Chaves | New Mexico |
*181 From the same commingled funds petitioner purchased the cattle to stock such of the above named ranches as were operated as cattle ranches.
The Slash ranch, located in Loving County, Texas, and owned during 1937, was acquired prior to 1924 in settlement of a note which petitioner had been given as part of the consideration for his interest in the Johnson Bros. ranch, hereinabove referred to.
On January 1, 1937, a "partnership agreement" was entered into between petitioner, Anna M. Johnson, and Arthur M. Clayton. That agreement contains in part the following:
Witnesseth: That the parties hereto hereby made and enter into this partnership agreement on the following terms and conditions, to-wit:
* * * *
3. This agreement confirms an oral partnership agreement between the parties hereto under which the parties hereto have conducted the partnership business, and the capital of the partnership shall consist of the personal property and assets heretofore and now used in conducting the partnership business, said business and assets being owned by the partners in the following proportions:
| W. D. Johnson | 25% |
| Anna M. Johnson | 25% |
| Arthur M. Clayton | 50% |
* * * *
5. Each of the partners*182 shall devote such time as may be required in order that the business and operations of the partnership may be carried on in an efficient and businesslike manner. It is contemplated that W. D. Johnson, one of the partners, shall attend to keeping the books and records of the partnership and shall attend to all financial matters of the partnership, and that Arthur M. Clayton, another of the partners, shall live on the real estate operated by the partnership and shall be in active charge of the operations of the partnership.
* * * *
*1046 During the calendar year 1937 the Johnson and Clayton ranch and the 49 ranch were operated as one ranch by the so-called partnership. This was merely an operating partnership covering only the breeding, raising, buying, selling, and dealing in cattle and other livestock.
In their separate income tax returns for the taxable year petitioner and his wife each reported the following income from lands in Texas and New Mexico and cattle in Texas: (1) One-fourth of the Johnson and Clayton partnership income (consisting of the proceeds of the sales of cattle); (2) one-fourth of the rents from the Johnson and Clayton ranch and the 49 ranch; (3) one-half*183 of the rents from VH or Cowen, Kyle, Ochiltree, Caldwell, and Slash ranches; (4) one-fourth of the oil royalties and oil bonuses derived from the Johnson and Clayton and 49 ranches; (5) one-half of the royalties and oil bonuses from the Slash ranch; (6) one-half of the income derived from the sale of cattle raised on the VH or Cowen and the Slash ranches; and (7) one-half of the income derived from the sale of fruit raised on the Rio Grande Valley farm.
Petitioner is the same individual who petitioned the United States Board of Tax Appeals for a redetermination of his income tax for the calendar years 1927 and 1928 in Docket No. 61111, and for the calendar year 1929 in Docket No. 69358, heard in a consolidated proceeding. The opinion in that proceeding (sometimes referred to herein as the former proceeding) was entered in an unpublished opinion on November 19, 1935. An appeal by petitioner to the Circuit Court of Appeals for the Eighth Circuit resulted in an affirmance in part and a mandate to the Board to grant a further hearing. The opinion of that court was reported in Johnson v. Commissioner, 88 Fed. (2d) 952. After a further hearing under*184 the mandate the Board decided the proceeding in another unpublished opinion entered April 18, 1938. That decision was also appealed by petitioner to the same court, which affirmed the Board's decision in Johnson v. Commissioner, 105 Fed. (2d) 454. Certiorari was denied.
For the calendar years 1927, 1928, and 1929 petitioner and his wife filed separate income tax returns in which each reported one-half of all of the income from all of the property owned by them, or either of them, and from all the business operations of petitioner in the respective taxable years, both in community property states and in noncommunity property states, and also the income representing salaries and compensation for personal services of petitioner in those years. A deficiency in petitioner's income tax for each of the years named was determined by Commissioner on the basis of his holding that all instead of only one-half of the income reported by petitioner and his wife was taxable to petitioner. It was for a redetermination of these deficiencies that the proceedings were instituted before the Board involving those taxable years. The income involved in those proceedings*185 *1047 included the income from lands in Texas and New Mexico and from breeding, raising, and selling cattle in Texas and, in addition thereto, income from lands and tangible personal property outside of community property states; also, income from investments in loans and securities, and from personal services of petitioner. All of the income-producing properties involved in the former proceeding were acquired from the commingled funds hereinabove described. The income involved in the instant proceeding was from the same lands in Texas and New Mexico and from the same character of cattle business in Texas as that involved in the former proceeding from lands and cattle in those states.
Petitioner contended in that proceeding, and contends here, that the income-producing property represented a commingling of community and other property of himself and wife and that, therefore, the income in question was the community or joint property of himself and wife in equal proportions.
In the former proceeding petitioner failed to trace or establish the proportionate amount or percentage of the community property represented in the entire properties then owned.
The Board in its first opinion*186 stated that one of the issues was:
Whether one-half of the income received by the petitioner in the years 1927, 1928, and 1929 belonged to his wife as income from community property or from property owned jointly by the petitioner and his wife, * * *
The opinion stated:
* * * The only reasonable inference to be drawn from the evidence is that much more than one-half of the earnings in controversy, in all probability belonged to the petitioner. The record does not show whether or not the wife had any separate property or income. It is possible that none of the income in dispute in this case belonged to her. No arbitrary approximation can be made. The determination of the Commissioner is presumed to be correct and must be affirmed in the absence of countervailing evidence. It can not be reversed by drawing the conclusions which the petitioner favors.
The petitioner maintained the same position before the Circuit Court in his petition for review of the Board's decision.
In its opinion the Circuit Court stated:
It is conceded by the Commissioner, as it must be, that the taxpayer's wife, under the laws of Texas, had a half interest in the property which the taxpayer acquired during*187 marriage while a resident there. * * * The taxpayer and his wife had the same equality of interest in any property deeded to him alone as in any property which may have been conveyed to them jointly, except that in the former instance her title to an undivided one-half interest was equitable only * * * and the taxpayer, in whom the legal title was vested, held his wife's undivided one-half interest in trust for her. * * *
It is also conceded by the Commissioner that the taxpayer's wife did not lose her rights in the community property when she and the petitioner removed from Texas to Missouri, where the community property law is not in force. * * *
* * * *
*1048 The Board found, in effect, that while it was impossible to determine from the evidence how much of the taxpayer's income was attributable to the proceeds and increment of the original community property, more than one-half of the income attributed by the taxpayer to community property was, in fact, taxable to him. * * *
The taxpayer did not attempt to trace the proceeds of the assets owned by him and his wife when they left Texas. He claims, in effect, that one-half of all of his assets must, in equity, belong to *188 his wife because they were acquired with the proceeds or increment of community property which they owned when they came to Missouri in 1899. We think that the evidence justifies the inference that the taxpayer made profitable use of his individual credit and the $ 91,504.12 received by him as salaries from 1916 to 1928, and that his individual efforts, credit and funds resulted in the acquisition of substantial assets which could not properly be regarded as trust or community property. We are therefore of the opinion that such evidence sustains the Board's finding that more than one-half of the amount of the entire income reported by the taxpayer as derived from community property was taxable to him, and that he did not sustain the burden of proving that one-half of it was taxable to his wife. It is apparent from the evidence, however, that the taxpayer and his wife owned a substantial amount of community property when they removed from Texas to Missouri in 1899. What the value of that property was cannot be determined from the evidence. One-half of it, whatever its value, the taxpayer held in trust for the use and benefit of his wife. Depas v. Mayo, 11 Mo. 314">11 Mo. 314;*189 Edwards v. Edwards, (Okla.) 233 P. 477">233 P. 477. Therefore, one-half of the income derived from assets acquired with the proceeds or increment of the original community property was not taxable to the taxpayer, but to his wife. It cannot be said, however, that the Commissioner's determination that the income received by the taxpayer was taxable to him was arbitrary, since the taxpayer did not show what specific property or what definite portion of the entire property possessed by him in 1927, 1928 and 1929 was attributable to the original community property, and therefore failed to furnish a basis for ascertaining how much of the income received by him was trust income taxable to his wife. But it is apparent that the issue actually presented to and actually determined by the Commissioner and the Board was whether one-half of the income received by the taxpayer in the years in question was taxable to his wife, and was not whether some definite portion less than one-half of the income received by him was taxable to her. Under the peculiar circumstances of this case, we think that after the Board (which had both the right and the duty to redetermine the deficiencies*190 assessed, if erroneous) had found that more than one-half of the entire income received by the taxpayer during those years was taxable to him, it should have afforded him an opportunity to produce evidence to show whether it would be possible to ascertain what portion of the assets possessed by him and what portion of the income received by him during the years in question were trust assets and trust income not taxable to him, and, if so, to establish the correct amount of the tax for which he was liable.
* * * *
The decision of the Board of Tax Appeals in so far as it constitutes a determination that more than one-half of the income received by the taxpayer during the years 1927, 1928 and 1929 and reported by him as derived from community property, was taxable to him, is affirmed. The case is remanded to the Board of Tax Appeals with directions to give to the taxpayer an opportunity to produce evidence to establish what portion of the income received by him during those years was taxable to him and what portion was taxable to his wife. In case *1049 evidence is produced which will enable the Board to segregate the income taxable to the taxpayer from that taxable to his wife, *191 the Board is directed to redetermine the deficiencies assessed.
Pursuant to the mandate of the Circuit Court, the Board granted the petitioner a supplemental hearing on October 28, 1937. The Board in its second unpublished opinion rendered thereafter said:
The supplemental evidence gives in greater detail many of the business transactions of the petitioner during the entire period from 1899 to 1929 but it does not trace nor attempt to trace what portion of the income realized during the entire period belonged to the wife as distinct from that belonging to the petitioner.
* * * *
From a consideration of all of the evidence in the record at the present time we are utterly unable to establish what portion of the income, if any, received by the petitioner during the years 1927, 1928 and 1929 was taxable to petitioner's wife.
Accordingly, the Board determined that all of the income involved was taxable to petitioner.
The Circuit Court affirmed the Board's second decision and in its opinion said in part:
We agree with the Board of Tax Appeals that the taxpayer did not at the supplemental hearing accorded him succeed in showing that any definite portion of the property possessed by him *192 in 1927, 1928 and 1929 was attributable to the original community property. After the supplemental hearing, as before, it was clear that some of the income for the years in question was attributable to the property which after 1899 the taxpayer held in trust for his wife and that some (more than half) of it was attributable to the separate property of the taxpayer himself. If there had been no other capital factors affecting income in the years in question a sufficient basis for allocation of income might have been established. But there were other capital factors as well as still other factors of a different character. That was pointed out in this court's opinion, supra. It was said there -- "the evidence justifies the inference that the taxpayer made profitable use of his individual credit and the $ 91,504.12 received by him as salaries from 1916 to 1928, and that his individual efforts, credit and funds resulted in the acquisition of substantial assets which could not properly be regarded as trust or community property." Nothing was presented at the supplemental hearing which makes it possible to say what definite part of the income in question was not brought into being*193 by the taxpayer's investment of his personal funds, as a result of his use of his personal credit, and through his individual efforts.
OPINION.
Issue 1. -- The first issue for our decision is whether the doctrine of res judicata concludes the petitioner from litigating the question here involved because of an adjudication in a prior proceeding. The respondent has affirmatively pleaded res judicata and at the hearing moved for judgment on that ground. We reserved our ruling upon his motion at that time. Respondent also objected to the introduction of any evidence upon the ground that petitioner was "precluded from proceeding by the doctrine of res judicata." We also reserved our ruling on that objection.
*1050 The issue in the instant case is what part of the income for the taxable year here involved is allocable to the petitioner's wife.
Where the causes of action are different a prior judgment is not a bar unless it determined some fact essential to the maintenance of the second action. The estoppel does not extend to matters which might have been but were not litigated. It extends only to those matters or issues which were expressly or by necessary implication*194 adjudicated in the first action. See 2 Freeman on Judgments, 1429. Each tax year gives rise to a new cause of action. Only when the question or right in issue is precisely the same can the prior judgment be res judicata. Tait v. Western Maryland Railway Co., 289 U.S. 620">289 U.S. 620. In applying the doctrine to such subsequent suit on a different cause of action "inquiry must always be as to the point or question actually litigated and determined in the original action." Cromwell v. County of Sac, 94 U.S. 351">94 U.S. 351. "Any right, fact or matter in issue and directly adjudicated upon, or necessarily involved in, the determination of an action * * * in which a judgment or decree is rendered upon the merits is conclusively settled * * * and can not again be litigated between the parties." 34 C. J. 743. With these rules before us we look to the prior proceedings to determine what were the issues and matters directly or by necessary implication determined therein.
The prior proceeding involved the taxability of the income of petitioner and his wife from all sources, both within and without community property states. The issue as first*195 presented to the Board in that proceeding was that one-half of all the income was taxable to petitioner's wife. The Board found that more than one-half of such income belonged to petitioner and held him taxable on the whole of the income. The Circuit Court determined that some part or percentage of the income belonged to petitioner's wife, but upon the evidence presented it was held impossible to determine what that part was. The Circuit Court reversed the Board's decision and remanded the case for further hearing by the Board to ascertain and determine what such part or percentage was and to enter its decision accordingly. The evidence presented at the further hearing was held insufficient to show what part or percentage of the income belonged to petitioner and to his wife, respectively, and because of such failure of proof the Board determined that the whole of the income was taxable to petitioner. The Circuit Court affirmed that decision.
Petitioner concedes that the former decision would foreclose him from contending here that he is not taxable on the whole of the income which he received from sources outside the community property states. Such income is not here involved. *196 The income here involved is that derived from property within the States of Texas and New Mexico. Petitioner contends that all of such income is community income of himself and wife and that he is taxable on only one-half thereof. For *1051 this position petitioner relies on the community property laws of Texas and New Mexico.
The former proceeding involved income from property, business operations, and salaries outside the community property States of Texas and New Mexico, as well as income from lands and tangible personal property within those states. The instant proceeding involves only income from the latter source. The Texas and New Mexico lands involved in this proceeding are the same lands in those states which were involved in the former proceeding and the ownership thereof has remained unchanged. The Board and the Circuit Court did not in the former proceeding determine that no part of the income there involved belonged to petitioner's wife. On the other hand, the Circuit Court recognized that some part, less than one-half, of such income belonged to the wife but held that the evidence did not enable it or the Board to determine what that part was. The character*197 of ownership of the income-producing property or of the income involved in the present proceeding was not determined or adjudicated in the former proceeding. The Circuit Court merely held in that proceeding that petitioner had failed to prove what proportion or percentage, if any, of the purchase price of the lands and income-producing personal property there involved was allocable to the community or joint funds of petitioner and his wife and for that reason held that all of the income therefrom was taxable to petitioner. In the former proceeding the question was not presented to it and the court did not consider or decide whether income from lands and tangible personal property situate in Texas or New Mexico, even if separately owned by petitioner, was community property. Therefore, since this is a different cause of action, the prior judgment is not conclusive. See Restatements of Judgments, Tentative Draft No. 1, p. 8. Moreover, nothing was actually decided in the prior proceeding except that petitioner was unable to support the burden of proving just what part of his income was taxable to his wife. The burden of proof in the former proceeding as determined by the Circuit*198 Court on the issues there presented was to trace community property funds into the property and investments which produced the income in the taxable years and to establish thereby the part or percentage of such income which should be allocated to that part of the income-producing property owned jointly or in community. In that proceeding the petitioner was unable to so trace the community funds but contended that there was an inseparable commingling of community property with separately owned property and that the legal effect thereof was to make the whole of the commingled property and the income therefrom either the community or joint property of himself and wife. The court disapproved that contention and, for failure of the proof to establish the part or percentage of the income *1052 allocable to jointly owned or community property, held the entire income taxable to petitioner. Thus, even though it were assumed that petitioner's income in the present taxable year arose from substantially the same property as he held in the taxable years of the former proceeding, the portion of that property and of the income therefrom which belonged to him or to his wife has not been adjudicated. *199 The Commissioner's determination was sustained merely because petitioner failed to sustain his burden of proof. The issue raised in the instant case was never decided. Thomas Cusack Co., 17 B. T. A. 1105. Cf. Cromwell v. County of Sac, supra.
Therefore, we overrule respondent's motion and objections on all points in so far as the issue of res judicata is concerned. We hold that res judicata does not apply to the facts here.
Issue 2. -- The second issue is what part, if any, of the income here involved was owned by and taxable to petitioner's wife. That issue involves a consideration of the following questions:
(1) Does the evidence establish that all or any of the lands in Texas and New Mexico were acquired with the community or joint funds or assets of petitioner and his wife by reason whereof they held such lands in community or joint ownership and that accordingly each owned one-half of the rents, oil royalties, and proceeds from the sale of fruit produced therefrom in the taxable year?
(2) Regardless of whether the evidence shows that all or any of the lands in Texas were so acquired, were petitioner*200 and his wife each entitled to one-half the rents, issues, and profits, exclusive of oil royalties, from such lands?
(3) Was the income derived from the sale of the Texas cattle the community property of petitioner and his wife?
(4) Did the partnership agreement of January 1, 1937, between petitioner, Mrs. Johnson, and Clayton constitute her a one-fourth interest partner in the Clayton and Johnson partnership and consequently the owner of one-fourth of the earnings and profits thereof?
The petitioner contends that Mrs. Johnson owned a one-half interest in all lands in Texas and New Mexico, both being community property states. His argument as to these lands is premised upon the statutes of Texas and New Mexico. Article 4619 of Vernon's Civil Statutes of the State of Texas provides as follows:
Community Property. All property acquired by either the husband or wife during marriage, except that which is the separate property of either, shall be deemed the common property of the husband and wife; and all the effects which the husband and wife possess at the time the marriage may be dissolved shall be regarded as common effects or gains, unless the contrary be satisfactorily proved. *201 During coverture the common property of the husband and wife may be disposed of by the husband only; * * *
Section 68-3-4 of the New Mexico Statutes Annotated is substantially similar to the Texas statute above.
*1053 Petitioner constructs his argument in the following manner: All of the property which petitioner and his wife had when they relinquished their Texas domicile (the question of whether this was in 1899 when they left Texas or in 1902 when they established a permanent domicile in Missouri we find unnecessary to determine and expressly refrain from doing so) was community property; and the character of the fund was not changed by the establishment of domicile outside of Texas, since all funds, even though some were the separate funds of petitioner, were commingled with the community property after the establishment of the Missouri domicile. This, petitioner contends, changed the character of the whole fund to community property. Thus, he contends lands purchased with this fund in community property states of Texas and New Mexico become community property.
The principal contention of the respondent is that the prior case established the "law of the case." The doctrine*202 of the "law of the case" applies only to the same proceeding.
Petitioner admits that he can not trace the property which he and his wife owned when they left Texas into the property held during the taxable year. He attempts to avoid the necessity of such tracing by relying upon what he contends are the laws of Texas and New Mexico.
Under Texas law when separate and community funds are so commingled that they can not be traced, the whole fund is held to be community property. Taylor v. Suloch Oil Co. (Tex. Civ. App.), 141 S. W. (2d) 657; Ervin v. Ervin (Tex. Civ. App.), 128 S.W. 1139">128 S. W. 1139. Petitioner also contends that under Texas law any lands purchased in Texas during marriage are presumed to be community property. This presumption is recognized and applied by the Texas courts. Foster v. Hackworth (Tex. Civ. App.), 164 S. W. (2d) 796; Finley v. Pafford (Tex. Civ. App.), 104 S. W. (2d) 163. "Where the separate property of one of the spouses furnishes only a part of the consideration for property acquired in an exchange in the name of such spouse, *203 the property thus acquired belongs to the separate estate of that spouse in the proportion that his or her separate property entered into the consideration therefor." 64 A. L. R. 249, approved in Gillespie v. Gillespie (Tex. Civ. App.), 110 S. W. (2d) 89. The fact of whether property is separate or community is fixed at the time of acquisition. Kuykendall v. Gill (Tex. Civ. App.), 131 S. W. (2d) 249. A statement in the deed that the conveyance is to one of the spouses rebuts the presumption of community. McCutchen v. Purinton, 84 Tex. 603">84 Tex. 603; 19 S.W. 710">19 S. W. 710.
The presumption of community ownership is a matter of evidentiary procedure rather than a substantive property right, except where the property is derived solely from the toil, talent, or other productive faculty of the spouses and from the earnings of community property itself. See Hammonds v. Commissioner, 106 Fed. (2d) 420, in which *1054 it is held that property within a community property state "derived solely from the toil, talent*204 or other productive faculty of the spouses and from the earnings of community property itself" is community property even though the marital domicile of the spouses is in a noncommunity property state under the laws of which their earnings are separate property. However, the Hammonds case recognized that "the general rule in the community property states that marital rights in lands, regardless of the residence of the husband and wife, are regulated by the law of the situs is subject to the qualification that where property is acquired in a community property state, through purchase by funds which are the separate property of one of the spouses, or in exchange for separate property of one of the spouses, the character of the funds or of the property given in exchange is transmitted to the property acquired." Numerous Texas cases are cited as supporting the above quoted statement from the Hammonds case. In that case, also the court stated that: "Separate property remains separate property through all its mutations and changes so long as it can be clearly and indisputably traced and identified."
Hence, we say that the presumption of community ownership within the applicable*205 terms of article 4619 of Vernon's Civil Statutes of Texas, and sections 68-3-4 of the New Mexico Statutes Annotated, is evidentiary rather than substantive, except where the property involved is derived solely from the toil, talent, or other productive faculty of the spouses, or from the earnings of community property itself. It is our opinion that the statutory presumption of community ownership is not sufficient alone to support the burden cast upon petitioner to overcome the presumption of correctness of respondent's determination of deficiency herein.
Petitioner's contention that the laws of Texas and New Mexico are effective to constitute the commingled funds with which it is claimed the income-producing assets were acquired the community property of petitioner and his wife is not persuasive. The character of the fund in question was determined by the law of Missouri and not by the laws of Texas and New Mexico. Even though part of the fund may have had its inception in community property of petitioner and his wife in Texas, we fail to perceive how the law of Texas can reach beyond its territorial jurisdiction to the fund after its many untraceable commingling mutations over*206 a number of years in the noncommunity property State of Missouri, the domicile of the spouses, and because of such commingling stamp the whole funds with the character of community ownership. It is obvious that the elemental constituents of the fund had long since lost their identity prior to its use in acquiring the Texas and New Mexico lands. Whatever the character of the ownership of the fund as between petitioner and his wife, it was not a community ownership. Therefore, it must have *1055 been owned either by one of them alone or by both of them jointly, as separate property, for there is no community ownership under the law of Missouri. The fund with which the lands were purchased not being community property, the lands purchased did not become the community property of petitioner and his wife. Nor does the fact that commingled funds, representing separately owned as opposed to community owned interests of spouses domiciled in a noncommunity property state, are invested in lands in a community property state, give to such funds or the property purchased the character of community ownership.
In the prior proceeding it was held necessary for petitioner to trace the funds*207 with which the income-producing properties were purchased back to their original source in order to determine whether and what percentage, if any, such funds originated in community property as a basis for determining what part or percentage, if any, of the income-producing assets purchased with such funds belonged to petitioner's wife. Petitioner was unable to do that in the prior proceeding and concedes a like inability here except as to the Slash ranch.
At the time the petitioner and his family left Texas a 73/140 interest in the Johnson Bros. ranch was owned by the community. This interest was sold and a note was received as partial payment. The note received in partial payment was exchanged directly for the Slash ranch. Therefore, since petitioner has directly traced a community asset into the Slash ranch as the sole consideration therefor, the income therefrom is taxable to petitioner and his wife in aliquot parts. This is the only asset involved in this proceeding into which petitioner has traced community assets.
Under Texas law oil royalties are stamped with the same character of ownership as that of the land producing the oil. Dolores Crabb, 47 B. T. A. 916.*208 Since we have held that only the Slash ranch is shown by the evidence to be community property and that there is no proof of the extent of the interest, if any, of the wife in the other lands involved, we hold that all oil royalties, except those derived from the Slash ranch, must be reported in petitioner's gross income. Estate of E. T. Noble, 1 T.C. 310">1 T. C. 310.
However, as to the rents, issues, and profits received from the lands located in Texas, our holding must be that petitioner is entitled to report such income on the community basis. Even if the lands should be held to be the separate property of petitioner, all income therefrom during coverture falls into the community under the law of Texas. Logan v. Logan (Tex. Civ. App.), 112 S. W. (2d) 515; Willcut v. Willcut (Tex. Civ. App.), 278 S.W. 236">278 S. W. 236. The law of situs of land controls as to the determination of whether or not the income from such land is separate or community income. Commissioner v. Skaggs, 122 Fed. (2d) 721. *1056 Cf. Hammonds v. Commissioner, 106 Fed. (2d) 420.*209
Petitioner concedes that rents, issues, and profits from separate lands in New Mexico do not fall into the community. All income from lands in New Mexico must be reported in the separate return of petitioner.
The next question is whether or not petitioner is entitled to report the income derived from the sale of cattle upon the community basis. The increase of cattle falls into the community under Texas law. Even if the original cattle placed on the Texas ranches in question were the separate property of petitioner, the law of Texas would apply to make the increase thereof community property. Watkins Co. v. Gibbs (Tex. Civ. App.), 66 S. W. (2d) 355.
The record does not disclose the original source or character of ownership of the funds with which cattle were acquired to stock the various Texas ranches in question. The operation of the cattle business on the several ranches, including the partnership of Johnson and Clayton, consisted of the purchasing, breeding, raising, and selling of cattle. The inventory basis of accounting was employed in such operation. There was no segregation in the inventories of the cattle purchased and the cattle *210 raised. The proceeds of the sales of the cattle purchased and the cattle raised were commingled and such funds were used in the further operation of purchasing, breeding, raising, and selling cattle. Since the increase of the cattle was community property, the commingling of the proceeds of sales thereof and of any profits accruing thereon from inventories with like proceeds and profits from such cattle, if any, as were not community property, constituted, under Texas law, the whole of the commingled funds community income, one-half of which was taxable each to petitioner and his wife.
The final question to be answered is, What effect, for income tax purposes, does the alleged partnership agreement of January 1, 1937, have? "Arrangements within families for the division of income, while not necessarily subject to condemnation because of the close relationship of the parties, are always subject to careful scrutiny and clear and convincing evidence is required to establish their bona fides." Harry C. Fisher, 29 B. T. A. 1041, 1048; affd., 74 Fed. (2d) 1014. There is nothing in the record to show that the purpose of petitioner*211 and his wife in executing the partnership agreement was to effect a division between them of taxable income. However, it is not shown that petitioner's wife made any contribution, either in capital or services, to the partnership. There is a recital in the purported partnership agreement to the effect that it confirms an oral partnership agreement among the same parties under which the partnership business had theretofore been conducted and that petitioner's wife owned 25 percent of such business and assets. This claim of ownership is *1057 obviously based on petitioner's contention that the Johnson interest in the partnership was acquired with commingled funds of petitioner and his wife. Such funds are in the same category as those hereinabove discussed in connection with the acquisition of the Texas and New Mexico lands. Accordingly, we hold that there is no showing of a contribution of capital to the partnership by petitioner's wife. We hold, therefore, that the agreement in question was ineffective to constitute her a member of the partnership.
A resume of our conclusions is: (1) That this proceeding is not barred by the doctrine of res judicata; (2) that the rents, *212 profits, and issues from the lands in Texas are community income and taxable to petitioner and his wife as such; (3) the rents, profits, and issues from the lands in New Mexico are not community income and are taxable to petitioner; (4) that the oil royalties from the Slash ranch in Texas are the community income of petitioner and his wife and taxable as such; that oil royalties from all the other lands here involved are taxable to petitioner as his separate income; (5) that the proceeds from the sales of the Texas cattle, including the Johnson interest in the cattle of the Clayton and Johnson partnership, are community income to petitioner and his wife and taxable as such; and (6) that the partnership agreement was ineffectual to constitute petitioner's wife a member of the Clayton and Johnson partnership.
Decision will be entered under Rule 50.