Sommers v. Commissioner

SYLVESTER A. SOMMERS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

CHARLES F. SOMMERS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

FRANK F. SOMMERS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Sommers v. Commissioner

Docket Nos. 28723, 28725, 28726.

United States Board of Tax Appeals

18 B.T.A. 768; 1930 BTA LEXIS 2596;

January 13, 1930, Promulgated

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">*2596 The common law rule of estates by the entirety still being in effect in Michigan, a deed to persons who were in fact husband and wife held to create an estate by the entirety and the income from such estate held properly taxable to the husband.

Harry J. Gerrity, Esq., for the petitioners.

Philip M. Clark, Esq., and C. C. Holmes, Esq., for the respondent.

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MURDOCK

">*769 The Commissioner determined deficiencies as shown below:

	1922	1923
Sylvester A. Sommers	$1,025.00	$1,403.00
Charles F. Sommers	2,183.66	1,166.38
Frank F. Sommers	971.74	1,035.57

Each of the petitioners alleges that the Commissioner erred in adding to the amount of his income as reported certain rent which was reported by his wife on a separate return as her income. The cases were consolidated.

FINDINGS OF FACT.

The three petitioners are brothers residing in Saginaw, Mich. During the year 1920 they were officers and the principal stockholders of the Sommers Brothers Match Co., a Michigan corporation engaged in the manufacture of matches, match boxes, and match machinery. Three shares of the stock of this company were issued in">*2597 the name of Anne E. Sommers. There were other stockholders. At all times material hereto each petitioner was married. Frances F. Sommers was the wife of Sylvester A. Sommers, Anne E. Sommers was the wife of Charles F. Sommers, and Mabel R. Sommers was the wife of Frank F. Sommers.

By appropriate action the Sommers Brothers Match Co. accepted the following offer, dated October 9, 1920, and signed by the six persons above mentioned:

To the Board of Directors and Stockholders of Sommers Brothers Match Company:

Gentlemen: -

In line with the various conversations we have had with you, the under-signed, Charles F. Sommers, Frances F. Sommers, Frank F. Sommers, Anne E. Sommers, S. A. Sommers and Mable R. Sommers, do hereby make you an offer of Three hundred thousand Dollars ($300,000.00) for all of the Real Estate, machinery, tools apparatus, fixtures, all trade names and brands owned by the Sommers Bros. Match Company or in which it has any interest, situate in the City of Saginaw, County of Saginaw, and State of Michigan.

The purchase price of the foregoing property to be charged to each of us in six (6) equal portions and paid by each of us, one sixth of following amounts, ">*2598 viz: -

On or before November 10th, 1920	$60,000.00
On or before November 10th, 1921	65,000.00
On or before November 10th, 1922	72,000.00
On or before November 10th, 1923	80,000.00
On or before November 10th, 1924	23,000.00

This proposition to be accepted and the property to be legally transferred and conveyed to us on or before October 30, 1920, free and clear from encumbrances.

">*770 Pursuant to the above offer and acceptance the company executed a deed conveying the property mentioned in the offer. This deed was in part as follows:

THIS INDENTURE, made this 19th day of October in the year of our Lord one thousand nine hundred and twenty - between SOMMERS BROS. MATCH COMPANY, of the City of Saginaw, county of Saginaw, state of Michigan, a corporation organized and existing under and by virtue of the laws of the state of Michigan, party of the first part, and Chas. F. Sommers, Frank F. Sommers, Sylvester A. Sommers, Mable R. Sommers, Ann E. Sommers and Frances F. Sommers, parties of the second part,

WITNESSETH, that the said party of the first part, for and in consideration of the sum of One Hundred Thousand ($100,000) dollars, to it to be">*2599 paid by the said parties of the second part, does by these presents, grant, bargain, sell remise, release, alien and confirm unto the said parties of the second part, and their heirs and assigns, FOREVER, all those certain pieces or parcels of land, together with the buildings and structures thereon, situate and being in the city of Saginaw county of Saginaw and state of Michigan, known and described as follows, to wit:

* * *

A debit of $50,000 was then entered in the account of each of the six persons on the books of Sommers Brothers Match Co.

Prior to October 19, 1920, Frank F. Sommers had been negotiating for a lease of the property to the Diamond Match Co. and on October 25, 1920, the property was leased to this company. The names of the lessors and their signatures appeared in the lease in the same order as they appeared in the deed of October 19, 1920. This lease was for a term of seven years beginning on November 1, 1920, and provided that rent should be paid to Sylvester A. Sommers as follows: $60,000 in 1920; $65,000 in 1921; $72,000 in 1922; $80,000 in 1923; $82,500 in 1924; $85,000 in 1925; and $87,500 in 1926.

The lessee was given an option to purchase the property">*2600 for $330,000, to be exercised on or before August 1, 1924. The option was exercised and in accordance therewith the property was conveyed by a deed dated October 20, 1924, to an individual who took title on behalf of the Diamond Match Co.

Sylvester A. Sommers, in accordance with the terms of the lease, received the various payments of rent. As each annual payment was received by him he deposited the proceeds in a bank to the account of Sommers Brothers Match Co. One-sixth of each payment was then credited on the books of the company to the account of each of the six individuals. In the year 1922, $12,000 was so credited to each and in the year 1923, $13,333.33 was so credited. Each of the six persons above mentioned filed a separate income-tax return for each of the years 1922 and 1923 and reported therein the amount credited in that year to his or her account. For each year the Commissioner added to the income reported by each of ">*771 the petitioners the amount reported by that petitioner's wife as rental received under the lease.

The order of the names of the proposed purchasers of the property as they appear in the offer of October 9, 1920, was deliberately so">*2601 arranged by Frank F. Sommers. He likewise arranged with his attorney that in the deed of October 19, 1920, the names of the purchasers would be in such order that the name of a wife would not immediately follow the name of her husband, and that there would be no indication in the deed that any of the parties thereto were husband and wife. His purpose in thus arranging the names and having the deed contain no mention of the fact that three of the grantees were respectively the wives of the other three grantees was to carry out the suggestion of the husbands that the purchase and lease should be made as six individuals and to carry out his own intention that each person should separately own a one-sixth interest in the property.

OPINION.

MURDOCK: The petitioners, the husbands, contend that one-half of the income derived from certain property which was conveyed to themselves and their wives is properly returnable for income tax purposes by the latter. Their contention is based principally upon the theory that it was their intention to create an estate in common by the deed of October 19, 1920, each petitioner and each wife to become thereby a cotenant of one-sixth of such property.

">*2602 The effect of the deed of October 19, 1920, under the law of Michigan, must be determined. The pertinent statutes, contained in volume 3, Compiled Laws of Michigan, 1915, are as follows:

11561. Sec. 43. Estates, in respect to the number and connection of their owners, are divided into estates in severalty, in joint tenancy, and in common; the nature and properties of which, respectively, shall continue to be such as are now established by law, except so far as the same may be modified by the provisions of this chapter.

11562. Sec. 44. All grants and devises of lands, made to two or more persons, except as provided in the following section, shall be construed to create estates in common, and not in joint tenancy, unless expressly declared to be in joint tenancy.

11563. Sec. 45. The preceding section shall not apply to mortgages, nor to devises or grants made in trust, or made to executors, or to husband and wife.

An examination of the decisions of the Michigan courts leads to the conclusion that despite the language of section 43, above, the common law rule of estates by the entirety still continued to exist in that State. ">*2603 Fisher v. Provin,25 Mich. 347">25 Mich. 347; Insurance Co. v. Resh,40 Mich. 241">40 Mich. 241; Manwaring v. Powell,40 Mich. 371">40 Mich. 371; Vinton v. Beamer,55 Mich. 559">55 Mich. 559; 22 N.W. 40">22 N.W. 40; Speier v. Opfer,73 Mich. 35">73 Mich. 35; 40 N.W. 909">40 N.W. 909; ">*772 Appeal of Lewis,85 Mich. 340">85 Mich. 340; 48 N.W. 580">48 N.W. 580; Hoyt v. Winstanley,221 Mich. 515">221 Mich. 515; 191 N.W. 213">191 N.W. 213. Cf. Sophia Weil, Administratrix,15 B.T.A. 965">15 B.T.A. 965. For deeds to more than two grantees, see Fullagar v. Stockdale,138 Mich. 363">138 Mich. 363; 101 N.W. 576">101 N.W. 576; Price v. Pestka,66 N.Y.S. 297">66 N.Y.S. 297; Dennis v. Dennis (Ark.), 238 S.W. 15">238 S.W. 15.

Dowling v. Salliotte,83 Mich. 131">83 Mich. 131; 47 N.W. 225">47 N.W. 225, is to the contrary but in 85 Mich. 340">Appeal of Lewis, supra, the court had this to say of it:

With one exception, the decisions of this court are uniform that the statute (How. St. § 5561) has retained such grants [estates by the entirety] to husband and wife as they exist at the common law.

">*2604 * * * Until the decision of Dowling v. Salliotte (Mich.), 47 N.W. 225">47 N.W. Rep. 225 decided at the last October term of this court, no doubt could reasonably have been entertained as to the character of this estate under our prior decisions. * * * In Dowling v. Salliotte the result reached by the court was correct, and in accord with the decisions above cited. The wife survived the husband, and she was held to have taken by the right of survivorship. The deed did not recite that the two grantees named were husband and wife. The court held that this fact could be shown by parol evidence. It became unnecessary, in the determination of that case, to decide whether the estate conveyed was one of joint tenancy or entirety. The result would have been the same in either case. It must be freely admitted that the language of that decision, in so far as it defines the nature of this tenancy, is in direct conflict with other decisions above cited. After very careful examination of the whole subject, our conclusion is that the former decisions were correct, and that the case of Dowling v. Salliotte must, in so far as it is in conflict therewith, be overruled. ">*2605 * * *

In Auditor General v. Fisher,84 Mich. 128">84 Mich. 128; 47 N.W. 574">47 N.W. 574, the court held in part as follows:

* * * It is claimed by the State that, inasmuch as the land contract did not show upon its face that Jessie was the wife of George W. Thayer, Jr., and that the fact that she was his wife must be shown outside of the deed and by evidence beyond it, their estate in the land was held as tenants in common. This is not the law. If the estate of both was created at the same time in one instrument, and they were at the time in fact husband and wife, their interest in the land was an entirety, and nothing that one could do would bind the other as to such interest. * * * The fact that they were husband and wife could be shown by oral testimony. Dowling v. Salliotte, ante, 225.

Thus, in Michigan estates by the entirety persist and it is not necessary to the creation of such an estate that grantees be described in the conveyance as husband and wife. The same rules obtain in other jurisdictions despite legislation substantially the same as the Michigan statutes above quoted. The following is from ">*2606 Thornburg v. Wiggins (Ind.), 34 N.E. 999">34 N.E. 999:

* * * A conveyance which would make two persons joint tenants will make a husband and wife tenants of the entirety. It is not even necessary that they be described as such, or their marital relation referred to. * * *

See also Armondi v. Dunham,220 N.Y.S. 487">220 N.Y.S. 487; Wilson v. Frost (Mo.), 85 S.W. 375">85 S.W. 375. We therefore conclude that under the law of ">*773 Michigan, as well as under the common law generally, the deed in question, standing alone, would have the effect of creating estates by the entirety.

The next question for our determination pertains to the effect of the evidence introduced by the petitioners, which they claim shows that it was their intention to take as tenants in common. This evidence is far from clear and we are unable to determine from it just what the intention of the six persons was, nor are we able to determine that they shared any single intent. But in any event an intention not expressed in the deed can not change the character of the estate conveyed. It has been held that at common law a husband and wife could not take as tenants in common. ">*2607 Stuckey v. Keefe's Executors,26 Pa. State 397. Cf. 85 S.W. 375">Wilson v. Frost, supra;34 N.E. 999">Thornburg v. Wiggins, supra;Marburg v. Cole,49 Md. 402">49 Md. 402; and Fladung v. Rose,58 Md. 13">58 Md. 13; but see Hunt v. Blackburn,128 U.S. 464">128 U.S. 464. However this may be, it is well settled that at common law or under statutes such as those of Michigan above quoted, if other than an estate by the entirety is to be created in a husband and wife by a particular deed, there must be an expression of such an intention in the conveyance itself. There was no such expression in the deed in question.

In 221 Mich. 515">Hoty v. Winstanley, supra, a Michigan case, the court states:

In this state, where the common-law rule is unchanged by statute, a conveyance to husband and wife conveys an estate in entirety, but may create one in joint tenancy or in common, if explicitly so stated in the deed. * * *

In 34 N.E. 999">Thornburg v. Wiggins, supra, the opinion, after quoting the Indiana statute involved, is as follows:

* * * Under a statute of the state of Michigan, similar in all its essential qualities to">*2608 our own, the court held that, "where lands are conveyed in fee to husband and wife, they do not take as tenants in common," (Fisher v. Provin,25 Mich. 347">25 Mich. 347;) they take by entireties. Whatever would defeat the title of one, would defeat the title of the other. Manwaring v. Powell,40 Mich. 371">40 Mich. 371. They hold neither as tenants in common nor as ordinary joint tenants. The survivor takes the whole. During the lives of both, neither has an absolute inheritable interest; neither can be said to own an undivided half. Insurance Co. v. Resh,40 Mich. 241">40 Mich. 241; Allen v. Allen,47 Mich. 74">47 Mich. 74, 10 N.W.Rep. 113.

* * *

The whole trend of authorities, however, is in the direction of preserving such tenancies [tenancies by the entirety], where the grantees sustain the relation of husband and wife, unless from the language employed in the deed it is manifest that a different purpose was intended. Where a contrary intention is clearly expressed in the deed, a different rule obtains.

See also ">*2609 Buttlar v. Rosenblath,42 N.J.Eq. 651; 9 A. 695; 58 Md. 13">Fladung v. Rose, supra; Washburn on Real Property, vol. 1, p. 44; vol. 2, par. 1737, of Thompson on Real Property.

">*774 Counsel for the petitioner cites Murray v. Kator,221 Mich. 101">221 Mich. 101, as contrary to this doctrine. In that case property was conveyed to "Catherine Smitherman and Margaret Smitherman, heirs jointly." It was apparent that the word "jointly" was inserted after the paragraph had been written. The court held that the word "jointly" was sufficient to show that the intention of the parties was to create a joint tenancy. It is obvious at once that the facts here are vitally different. If we were concerned with an instrument which on its face was ambiguous or would admit of more than one construction, a different problem would be presented.

Estates by the entirety were created and the income from such estates in Michigan is taxable to the husbands. In Way v. Root,174 Mich. 418">174 Mich. 418; ">*2610 140 N.W. 577">140 N.W. 577, the court held:

The rights of husband and wife in such an estate are purely common-law rights, to be tested and interpreted by the rules of that law as they existed before the wife was emancipated as to her individual property interests. By the common law the husband controlled his wife's estate, and had the usufruct, not only of real estate standing in both their names, but of that sole seized by his wife, whether in fee simple, fee tail, or for life. It remains the law that, while coverture continues, the husband has the control, use, rents, and profits of an estate by entirety. In this state, contrary to the general doctrine, as stated by some authorities (21 Cyc. 1201), it is held that growing crops on the land cannot be seized on execution by his personal creditors, but otherwise the general rule as to entireties remains as stated. Morrill v. Morrill,138 Mich. 112">138 Mich. 112, 101 N.W. 209">101 N.W. 209, 110 Am. St. Rep. 306, 4 Ann.Cas. 1100. Under this law defendant had the possession, use, and control of the property. He was entitled to the income from it. While outside creditors might not reach it, he was empowered to take, deal with, and dispose">*2611 of what it produced. He had a right to rent the property to others and collect the rent. * * *

Cf. Pray v. Stebbins,141 Mass. 219">141 Mass. 219; 4 N.E. 824">4 N.E. 824; and Bertles v. Nunan,92 N.Y. 152">92 N.Y. 152; 44 Am. Rep. 361.

The petitioners contend that they have waived their rights to one-half of the income and are thus relieved from tax on such portion. With this we can not agree. The evidence does not show they agreed to waive their rights. But if they did agree, the Supreme Court of Michigan has held that an agreement between a husband and wife to give the wife one-half the profits of such an estate is invalid. Morrill v. Morrill,138 Mich. 112">138 Mich. 112; 101 N.W. 209">101 N.W. 209. There the wife claimed she had contributed the money for the purchase of the property under an oral agreement that she should have an equal share in the profits arising from the premises. The court held that neither by virtue of the estate nor under the invalid agreement did she have any such right. In this connection the court said:

The common law certainly gave her no such right; for, according to its principles, the exclusive right to">*2612 dispose of the crops and use the proceeds as he saw fit belonged to the husband. [Here cases are cited.] It follows, ">*775 therefore, that if the wife has that right now she obtained it as the result of some statute of this state. The only statute which it can be claimed has any bearing on this subject is our married woman's act. Section 8690, Comp. Laws 1897. I think it must be conceded that the decisions of this court have determined that this statute has no application to estates by entirety. * * *

Even if these reasons were not available, we would still hold the income taxable to the husbands. We have heretofore held that a person's tax liability can not be lessened by a transfer of income already earned, or expected to be earned. The very act of transfer is an exercise of enjoyment of the fruits of ownership of property, and measures the transferor's ability to contribute to the cost of government. See Ella Daly King, Executrix,10 B.T.A. 698">10 B.T.A. 698, and cases there cited.

Although the point is not raised by counsel for the petitioners, it is possible that some of the property conveyed by the deed of October 19, 1920, was personalty. Since, however, ">*2613 the petitioners failed to make any segregation of the value of such property from the value of the real estate conveyed and failed to make any segregation in the rent, it is not necessary to discuss whether a different rule might apply as to personalty.

Reviewed by the Board.

Judgment will be entered for the respondent.