*157 Decision will be entered for the respondent.
Respondent determined liability against petitioner, as transferee, for the income tax liability of her husband, Lawrence Santos, for the years 1943 to 1946, inclusive. Held:
1. Petitioner is liable as transferee to the extent of $ 68,287.90 representing the value of part of the assets received by her from Lawrence Santos, transferor.
2. Petitioner has failed to show any basis for the application of the doctrine of estoppel.
*572 This proceeding involves the transferee liability of petitioner for the income tax liability of Lawrence Santos, transferor, for the*158 taxable years 1943 to 1946, inclusive, to the extent of $ 68,287.90, representing the value of part of the assets received by her from the transferor.
The issues are (1) whether petitioner is liable to the extent of $ 68,287.90 for income taxes for the years 1943 to 1946, inclusive, as transferee of assets of Lawrence Santos, her husband, and (2) whether the respondent is estopped from proceeding against the petitioner as transferee.
FINDINGS OF FACT.
The stipulated facts are found accordingly.
Petitioner is a resident of the city of Honolulu, Territory of Hawaii. In 1928 petitioner was married to Lawrence Santos, of Honolulu.
On October 15, 1952, the Commissioner of Internal Revenue mailed petitioner, as transferee of assets of Lawrence Santos, a notice of deficiency in the amount of $ 68,287.90.
At the time the petitioner was married to Lawrence Santos they were both employed. Petitioner was receiving a salary of $ 125 a month, which was increased later to $ 165 a month. Lawrence Santos was receiving a salary of $ 175 a month, which was increased to $ 200 a month. At the time Lawrence started Persans, Limited, he had no assets other than the salaries of himself and wife.
Lawrence*159 worked full time for Persans, Limited, and received a salary. Petitioner worked at Persans, Limited, on Saturdays and other days after she had completed her regular job. She was not paid a salary for working at Persans, Limited, and was never paid anything by her husband for whatever contributions to the capital of the business, if any, she may have made from her compensation received from her regular employment. Lawrence gradually acquired, through purchase or inheritance, all of the stock of Persans, Limited.
In 1937 Persans, Limited, a Hawaii corporation, was organized to engage in the retail shoe business in Honolulu. Persans, Limited, was capitalized at $ 20,000 and stock of the par value of $ 5,000 was issued to and in the name of Lawrence Santos, and dividends paid thereon were paid to him individually; the balance of the outstanding and issued shares of stock of the par value of $ 15,000 was issued to other stockholders. The $ 5,000 contributed in payment for the $ 5,000 par value of stock issued to Lawrence Santos was obtained by loan from the uncle of Lawrence Santos on a promissory note signed by Lawrence Santos and petitioner, and secured by a mortgage on a house *160 located on Oahu Avenue, Manoa Valley, Honolulu, owned by *573 Lawrence Santos and petitioner as joint tenants. The mortgage was signed by both Lawrence Santos and petitioner.
The $ 5,000 which Lawrence borrowed from his uncle for an investment in Persans, Limited, was repaid out of his joint checking account.
In May 1942 Lawrence Santos purchased Manufacturers' Shoe Store in Honolulu for $ 50,000. He personally had no funds to make this purchase and it was financed as follows: Persans, Limited, borrowed $ 50,000 from the Bishop National Bank, pledging its assets as security. Persans, Limited, then loaned $ 50,000 to Lawrence Santos who paid it to the seller of Manufacturers' Shoe Store. In December 1942 Lawrence Santos liquidated Persans, Limited, and the proceeds of the liquidation ($ 43,750.35) were paid to Lawrence Santos, doing business as Manufacturers' Shoe Store as an individual proprietorship until July 1, 1944.
On July 1, 1944, Lawrence Santos created an irrevocable trust by transfer to Hawaiian Trust Company, Limited, of the sum of $ 70,000, the beneficiaries of the trust being the two children of Lawrence Santos and petitioner. A limited partnership was organized*161 in accordance with the laws of the Territory of Hawaii by and between Lawrence Santos, as general partner, and Hawaiian Trust Company, Limited, Trustee, under deed of trust dated July 1, 1944, as limited partner, for the purpose of acquiring at the close of business on June 30, 1944, all the assets of, and to carry on the business heretofore carried on and conducted by, Lawrence Santos under the name of Manufacturers' Shoe Store, in accordance with a limited partnership agreement between Lawrence Santos and Hawaiian Trust Company, Limited, dated as of July 1, 1944. Lawrence Santos transferred to such limited partnership all of his right, title, and interest in the assets of the business formerly carried on by him under the name of Manufacturers' Shoe Store, having a net book value of $ 105,000, in exchange for a 60 per cent interest in such limited partnership, and Hawaiian Trust Company, Limited, as trustee, at the same time contributed the sum of $ 70,000 and acquired ownership of a 40 per cent interest in such partnership. At the time of the creation of the limited partnership no share therein was given to petitioner in recognition of any interest she might have or claim in the*162 business formerly carried on as Manufacturers' Shoe Store or in the business of Persans, Limited.
Effective June 1, 1945, the Territory of Hawaii adopted a community property law providing in part that all property, including earnings of the husband and earnings of the wife, and rents, issues, income, and other profits of the separate property of the husband, and rents, issues, income, and other profits of the separate property of the wife, acquired by the husband or by the wife after marriage *574 or after effective date of the law, whichever is the later, shall be the community property of the husband and wife. Ch. 301A, sr. D-201, Session Laws of Hawaii 1945. This community property law was repealed effective June 30, 1949. Ch. 301A, sr. D-296, Session Laws of Hawaii 1949.
On March 1, 1947, Manufacturers' Shoe Company, Limited, was incorporated to take over the assets and liabilities of the limited partnership. The corporation was capitalized at $ 350,000, Lawrence Santos receiving capital stock of the par value of $ 210,000, and Hawaiian Trust Company, Limited, as trustee, receiving capital stock of the par value of $ 140,000.
In the early part of 1948 Lawrence Santos*163 requested Cameron and Johnstone, auditors for the corporation and for the limited partnership, to determine what portion of the capital stock of $ 210,000 issued to him at incorporation of Manufacturers' Shoe Company, Limited, represented earnings since June 1, 1945, i. e., that portion which represented community property. Cameron and Johnstone made an examination, and on April 5, 1948, advised Lawrence Santos that $ 105,000 out of the $ 210,000 was community property and that his wife would be entitled to receive stock of the par value of $ 52,500 in recognition of her community property interest in the earnings of the business from June 1, 1945, to February 28, 1947. On or about April 5, 1948, Lawrence Santos then transferred to petitioner, as of March 1, 1947, capital stock of Manufacturers' Shoe Company of the par value of $ 52,500 out of his share of the capital stock of the company, leaving him stock of the par value of $ 157,500.
From August 1951 to June 1952 petitioner lived on the West Coast. She returned to Honolulu in June 1952 and stayed until August 1952 when she finally moved to California. In October 1952 petitioner filed an action in a California court for separate*164 maintenance. Personal service, however, was never obtained on Lawrence Santos in such action. In December 1953 petitioner returned to Honolulu, where she is now living.
Petitioner's share of the community income of herself and Lawrence Santos for the period from June 1, 1945 (commencement of community property), to February 28, 1947 (the date of the organization of the corporation), was as follows:
| June 1-Dec. 31, 1945 | $ 15,621.92 |
| Jan. 1-Dec. 31, 1946 | 54,400.31 |
| Jan. 1-Feb. 28, 1947 | 41,564.78 |
| Total | $ 111,587.01 |
Petitioner's share of the community income of herself and husband for the period from March 1, 1947, to July 1, 1949 (the end of community property), was as follows: *575
| Mar. 1-Dec. 31, 1947 | $ 11,610.60 |
| Jan. 1-Dec. 31, 1948 | 21,063.38 |
| Jan. 1-June 30, 1949 | 10,715.52 |
| Total | $ 43,389.50 |
Petitioner's Federal income tax liability on her community income as aforesaid for the taxable years 1945, 1946, 1947, 1948, and 1949 was $ 5,240.96, $ 28,257.97, $ 27,384.49, $ 6,165.16, and $ 3,241.33, respectively.
Petitioner's aggregate community income during the community property period, after Federal income tax liability, was $ 84,686.60.
Lawrence*165 Santos purchased from Bishop National Bank cashier's checks payable to Lawrence Santos and/or Irmgard Santos, on the dates and in the amounts as follows:
| Date | Amount |
| Apr. 15, 1948 | $ 14,000.00 |
| Apr. 16, 1948 | 12,328.80 |
| Nov. 16, 1948 | 15,000.00 |
| May 13, 1949 | 10,718.77 |
| May 16, 1949 | $ 13,547.14 |
| Aug. 8, 1950 | 10,448.84 |
| Sept. 18, 1950 | 6,229.12 |
| Total | $ 82,272.67 |
Lawrence gave the cashier's checks to petitioner who retained them. In November 1950 Lawrence went to California, and on November 22, 1950, he received the checks from petitioner; Lawrence alone endorsed them and purchased through Schwabacher & Company, San Francisco, $ 80,000 principal amount of United States Treasury 2 1/2 per cent bearer bonds for the total price of $ 81,674.32. On November 27, 1950, Lawrence took delivery of the bonds and gave his receipt therefor. Lawrence delivered the United States Treasury bonds to petitioner who retained them until sold. One $ 10,000 bond was sold on April 1, 1952, and the proceeds were used to pay the joint Territorial taxes of petitioner and her husband.
On March 27, 1952, petitioner sold the bonds in the principal amount of $ 70,000 through Berl & Company, *166 San Francisco, for the total amount of $ 68,287.90, and received checks in that amount payable to her order. Petitioner endorsed the checks in favor of Smith, Wild, Beebe and Cades, of Honolulu. The latter firm deposited the checks in a trust account and then made a check payable to the collector of internal revenue in the amount of $ 68,287.90 in payment of the individual taxes asserted against petitioner for the taxable years 1943 to 1947, inclusive, in the jeopardy assessments which had been levied against her. On April 4, 1952, a certificate of discharge of tax liens against petitioner for the years 1943 to 1947, inclusive, was issued by the collector of internal revenue and duly recorded.
In the subsequent and final determination of petitioner's individual income tax liabilities for the years 1943 to 1947, inclusive, which were at issue before the Tax Court of the United States in Docket No. 42682, it was determined that petitioner had overpaid her income tax *576 liabilities for the years 1945 and 1946 in the amounts of $ 24,768.51 and $ 38,237.18, respectively.
The Manufacturers' Shoe Company, Limited, from the time of its incorporation on March 1, 1947, through the*167 taxable year 1952, declared and paid dividends in each of the fiscal years ended February 28, 1949, and February 28, 1951, in the amount of $ 8,750. Petitioner's pro rata share of the 1949 dividend from her aforesaid stockholdings in the corporation is included in the amount of her community income hereinabove set forth.
The total value of the assets of Lawrence Santos as of December 31 of each of the following years was in the amount for each of such years as follows:
| December 31 | Amount |
| 1947 | $ 214,640.60 |
| 1948 | 205,813.93 |
| 1949 | 215,372.66 |
| 1950 | $ 236,843.73 |
| 1951 | 237,302.02 |
| 1952 | 213,452.24 |
On December 26, 1951, the first assessment was made against Lawrence Santos with respect to Federal income tax deficiencies for the years 1943, 1944, 1945, and 1946. An additional assessment was made on February 27, 1952. The unpaid liability of Lawrence Santos for Federal income taxes and penalties, incurred but not assessed, at December 31, 1948, December 31, 1949, and December 31, 1950, was $ 415,427.73, plus interest. The tax liability at December 31, 1951, and December 31, 1952, was the same, namely, $ 415,427.73, plus interest. In addition to the aforesaid Federal tax liabilities*168 Lawrence Santos, as of December 31 of each of the years 1948, 1949, 1950, 1951, and 1952, was indebted to the Manufacturers' Shoe Store in the amounts of $ 91,651.69, $ 105,856.50, $ 120,404.73, $ 127,308.70, and $ 127,511.70, respectively.
For 1952 petitioner and her husband filed separate income tax returns. Lawrence Santos claimed a loss on his return in the amount of $ 4,244.94 incurred on the sale in that year of the $ 80,000 United States Treasury bonds here in question. Petitioner reported no such transaction or loss on her individual returns although her attorney, who prepared her return, had knowledge that the bonds had been sold. On April 5, 1954, petitioner filed a joint return for the year 1952.
On April 4, 1950, the house at Halelea Place, Manoa Valley, Honolulu, owned by petitioner and Lawrence Santos as joint tenants, was sold for $ 21,000. After deduction of $ 1,085.10 expenses, net proceeds were $ 19,914.90. The Halelea Place house was purchased by the petitioner and her husband on September 23, 1941, for $ 14,250, utilizing proceeds from the sale of the house on Oahu Avenue which had been owned by them as joint tenants and which had been sold on March 12, 1941. *169 The Oahu Avenue house was purchased on July 26, *577 1937, utilizing proceeds from the sale of a house on Liliha Street, Honolulu, owned by the petitioner and her husband as joint tenants.
The Santos family consisted of petitioner, her husband, and their two minor children. They maintained a home with over $ 50,000 worth of furniture in it, and they operated three late-model automobiles. The family was maintained in a manner and style commensurate with the community income.
During the period December 31, 1947, to December 31, 1952, Lawrence Santos was insolvent.
During the period April 15, 1948, to March 27, 1952, Lawrence Santos gratuitously transferred to petitioner property having a value of at least $ 68,287.90, and petitioner is liable as transferee to that extent.
Petitioner has failed to show facts sufficient to constitute an estoppel.
OPINION.
The primary question presented is whether petitioner is liable as a transferee within the meaning of section 311 of the Internal Revenue Code of 1939.
The respondent has the burden of establishing the receipt of property by the transferee, lack of consideration for the transfer, and the insolvency of the transferor at the time*170 of or immediately after the transfer. There is no issue as to the transferor's liability for income tax deficiencies.
The pertinent facts with respect to the property transferred have been stipulated and are set forth in our findings, and it would serve no purpose to reiterate them. The record clearly establishes that the transferor at all times material herein was insolvent.
Under the undisputed facts there can be no doubt that the transferee received property from the transferor while he was insolvent. The value of the property received without adequate consideration is contested. There is also a question as to when the transfer or transfers, as the case may be, became effective. The time element bears only upon the value of the property transferred and has little significance here, as will be developed later.
The petitioner and her husband, the transferor, were residents of Honolulu and were subject to the provisions of the Community Property Act of the Territory of Hawaii, which became effective June 30, 1945. Ch. 301A, sr. D-201, Session Laws of Hawaii 1945. This law was repealed effective June 30, 1949. Ch. 301A, sr. D-296, Session Laws of Hawaii 1949.
The record shows*171 that petitioner's share of the community income for the period June 1, 1945, to June 30, 1949, was $ 154,976.51, which would likewise represent transferor's share, making a total community income of $ 309,953.02. Petitioner's income tax liability on her community *578 income was in the amount of $ 70,289.91. Transferor's income tax liability was not less than that amount, making an aggregate tax liability of $ 140,579.82. The total community income of $ 309,953.02, less the aggregate tax liability of $ 140,579.82, leaves the net community income during the community period of $ 169,373.20. In 1947 petitioner and her husband caused $ 105,000 of their community earnings to be changed into the separate property of each, thus reducing the net community income of $ 169,373.20 to $ 64,373.20, which was the amount left to take care of the community expenses, including Territorial taxes.
Under the provisions of the Hawaiian community property law, the community property is liable for the debts and liabilities incurred for the protection or benefit of the community property. Ch. 301A, Session Laws of Hawaii 1945, sec. 13 (c), (d), and (h). 1 There is a rebuttable presumption that*172 community debts are paid out of community funds even though a separate provision requires the husband to support the wife. Van Camp v. Van Camp, 53 Cal. App. 17">53 Cal. App. 17, 199 Pac. 885; In re Cudworth's Estate, 133 Cal. 462">133 Cal. 462, 65 Pac. 1041.
*173 The evidence shows that the Santos family consisted of petitioner, her husband, and two minor children, and that they lived in a style and manner commensurate with their income. The Santoses lived in a home with over $ 50,000 worth of furniture and operated three late-model automobiles. Their tax returns, which are in evidence, show that during the community period approximately $ 9,000 was paid for Territorial income taxes.
We think the reasonable conclusion to be drawn from the evidence is that the community income was entirely exhausted by the payment of living expenses and other community debts. Thus, the respondent has made a prima facie case that the transfers in question were made from the separate property of the transferor, and the duty of *579 going forward with the evidence was upon petitioner. George M. Newcomb, 23 T. C. 954, 961. Petitioner made no attempt to show the amount of family living expenses during the critical period nor is there any showing that the transferor paid them from his separate property. Reliance is placed upon the fact that the community property law does not relieve the husband of the obligation to support*174 his wife and family. Section 13 (h) of chapter 301A of the Revised Laws of Hawaii 1945, however, provides that the community property may be resorted to for such purpose. See footnote 1, supra.
Petitioner argues that one-half the community income became vested in her immediately and that there could be no transfer by her husband of her share. Rowen v. Commissioner, 215 F.2d 641">215 F. 2d 641.
This argument overlooks the fact that the community here during the periods in question was still in existence. Until the community is dissolved by divorce or death, the interest of the parties to the community is the profits remaining after the debts of the community are paid. 1 de Funiak, Principles of Community Property sec. 159, pp. 445 et seq.
Petitioner contends that her share of the community income is $ 32,186.60. This amount is computed by subtracting the sum of $ 52,500, which was transmuted into her separate property by agreement, from the amount of $ 84,686.60, which it is stipulated is her share of the community income after her Federal income tax liability. The amount of $ 32,186.60 does not take into consideration the liability of petitioner's*175 share of community income for family living expenses and other community debts to which her husband had a right to resort.
In addition to the amount of $ 32,186.60 petitioner contends she is entitled to a credit of $ 10,000 representing the face amount of a bond retransferred to her husband, and to a further credit of $ 9,957.45 representing the proceeds of her one-half interest in the house sold on April 4, 1950, which was held jointly by her and her husband.
The above amounts aggregate only $ 52,144.05, and assuming, for the purpose of argument, the correctness of petitioner's premise, she appears to concede her liability as transferee for a considerable amount, although somewhat less than the respondent has determined.
The respondent concedes that petitioner is entitled to a credit of $ 9,957.45, one-half of the net proceeds of the sale of the jointly held property, which he has taken into consideration.
The evidence establishes that the proceeds of the sale of a bond of the face amount of $ 10,000 were applied to the payment of the Territorial income taxes of petitioner and her husband, for which she was jointly and severally liable. Therefore, petitioner is not entitled to a*176 credit for the amount of $ 10,000 as a repayment to her husband. The balance of $ 32,186.60 we have already held was presumptively *580 exhausted by family living expenses and other community debts properly chargeable thereto.
There remains for discussion the value of the property transferred to petitioner. The record shows that during the years 1948, 1949, and 1950 the transferor purchased cashier's checks in the total amount of $ 82,272.67 payable to Lawrence Santos and/or Irmgard Santos. Both petitioner and her husband testified that the checks were given to petitioner at the time of purchase, and she retained them in her possession until the fall of 1950 when she gave them to her husband for the purpose of purchasing Government bonds. Lawrence purchased United States Treasury bonds payable to bearer in the face amount of $ 80,000 at a cost of $ 81,674.32, and immediately after purchase gave the bonds to petitioner. Whether the transfer was effected at the time the cashier's checks were purchased or at the time the bonds were given to petitioner bears only on the value of the property transferred. After giving petitioner credit for her share of the jointly owned property*177 in the amount of $ 9,957.45, the value of the property transferred would be in excess of the amount of $ 68,287.90, as determined by the respondent. On March 27, 1952, the Treasury bonds in the face amount of $ 70,000 were sold for $ 68,287.90.
Therefore, on this record, we hold that petitioner received a gratuitous transfer of property of the transferor, while insolvent, of the value of $ 68,287.90 and is liable as transferee to that extent.
The final issue is whether petitioner has shown facts sufficient to create an estoppel. As to this issue petitioner has the burden.
Petitioner claims that at the time her tax liabilities and those of her husband were under discussion with the revenue agents it was agreed that if she applied the proceeds of the bonds in question to discharge her individual tax liabilities no transferee liability would be asserted against her. The evidence clearly shows that transferee liability was never discussed, but that the agreement related solely to her individual income tax liabilities. No closing agreement pursuant to section 3760 of the Internal Revenue Code of 1939 was ever executed. If petitioner believed that in discharging her individual tax *178 liabilities she was insulating herself against possible liability as a transferee, she was laboring under a mistake of fact. Petitioner, therefore, has failed to show any basis for the application of the doctrine of estoppel. Blackhawk-Perry Corp. v. Commissioner, 182 F. 2d 319, certiorari denied 340 U.S. 875">340 U.S. 875; Knapp-Monarch Co. v. Commissioner, 139 F.2d 863">139 F. 2d 863.
Decision will be entered for the respondent.
*581 Murdock, J., dissenting: There are findings that Lawrence gave cashier's checks to the petitioner (mostly during community property years), Lawrence later used them to buy bonds, the bonds in the principal amount of $ 70,000 were sold by the petitioner on March 27, 1952, for the total amount of $ 68,287.90, the petitioner received checks in that amount, endorsed them, and they were used to pay her individual Federal income taxes for the years 1943 through 1947. The ultimate finding is made that Lawrence gratuitously transferred to the petitioner during the period April 15, 1948, to March 27, 1952, property having a value of at least $ 68,287.90, and the petitioner*179 is liable as a transferee to that extent.
I would assume from the above that the holding of transferee liability was upon the theory that separate property of Lawrence was transferred to the petitioner and used to pay her income taxes.
The giving of the cashier's checks by Lawrence to the petitioner during the period when the community property laws were in effect would appear to be merely the receipt by the petitioner of a part of her share of community property rather than transfers of the separate property of Lawrence. Most of the checks were given during that period. I would not think that any transferee liability would result if the petitioner merely received a part of her share of the community funds during the period when the community property laws were in effect and eventually used those funds to pay her own taxes on her share of the community income.
The transfer of separate property of Lawrence to the petitioner at a time when he was insolvent would, under many circumstances, impress the money in the hands of the petitioner with a trust for the benefit of creditors of Lawrence, including the taxing authorities. However, here the transferred funds were paid to the collector*180 of internal revenue to discharge taxes owed him by the petitioner. It does not appear that she had any other available funds at that time from which she could have paid her taxes. Also it appears that a large part, if not all, of her taxes was due upon her share of community income from the activities of her husband, which income never actually came into her hands. Thus, the Commissioner received the full benefit of the transfer and suffered no detriment by reason of the transfer since but for the transfer he would not have received payment of the petitioner's taxes. It does not appear that any equity in favor of the Internal Revenue Service would arise under such circumstances.
There is a further complication. The Commissioner determined overpayments of the petitioner's taxes for 1945 and 1946 in the total amount of $ 63,005.69, which was less than the $ 68,287.90 received for the payment of the petitioner's taxes. But there is no finding that *582 the petitioner actually received the overpayments or of what was done with them or who benefited from them. The Commissioner has the burden of proof to show transferee liability, and it does not seem to me that he has succeeded. *181 Certainly he has not succeeded as to the entire $ 68,287.90 unless the burden of going forward shifted at some point not clear to me.
Footnotes
1. Session Laws of Hawaii 1945:
Chapter 301A. COMMUNITY PROPERTY.
Sec. 13. Property subject to obligations.
* * * *
(c) The community property shall be liable for debts contracted by the husband or by the wife or by both, and for liabilities of the husband or the wife or both arising out of tort or otherwise, in any transaction entered into or action taken by the husband or the wife or both relating to the management or control or disposition of or other dealing with or for the protection or benefit of the community property. With respect to the liability of community property for such debts and liabilities, no distinction shall be made between community property subject to the management and control of the wife and community property subject to the management and control of the husband.
(d) As between the community property and the separate property of the wife or of the husband the community property shall be liable for the debts and liabilities referred to in paragraph (c) of this section.
* * * *
(h) Nothing in this section shall be deemed to affect or modify the obligation of the husband to support his wife and family and to discharge all debts contracted by the wife for necessaries for herself and family during marriage; provided, however, that if and whenever there is community property available for such purpose the husband shall be entitled to resort to such community property rather than to his separate property.↩