Martinelli v. Commissioner

*332 The respondent has determined a deficiency in income tax of $826.59 for the calendar year 1928. The petitioner relies solely upon a peremptory plea that such deficiency is barred by the two-year limitation period provided for in section 275 of the Revenue Act of 1928.

FINDINGS OF FACT.

The petitioner, during the year 1928, was a resident of San Francisco, California, married and living with his wife, Irene H. Martinelli, in that city.

During 1928 the petitioner was engaged in the restaurant business, (Il'Trovatore) received a salary for the year of $4,800. At the end of the year he received an additional $1,500*965 which he believed was a dividend, he having understood and it being his belief that he was a partner holding a one-fourth interest in said business. This additional $1,500 he therefore reported as a dividend and not as additional salary. The Il'Trovatore Restaurant, in its return, showed this item of $1,500 as salary paid to the petitioner. The petitioner did not *333 ascertain that the additional $1,500 had been reported by the II'Trovatore Restaurant as additional salary until the following year and after he had severed his connection with said firm. The error, whether on the part of the petitioner herein, or on the part of the II'Trovatore Restaurant, was made in good faith.

The petitioner also reported profits from the sale of the certain stock in the sum of $8,131.83. This return was based upon the petitioner's computation of the cost of said stock to him. The examining officer increased the amount by $5,839.82 without furnishing the petitioner herein a detailed report as to the basis of the cost computation used by him in effecting said increase.

He likewise received a one-half share of Transamerica stock as a stock dividend and reported the same as such. The*966 proposed assessment for deficiency proposes to list this one-half share as a cash item in the amount of $96.75 based upon the then valuation of the stock at $193.50 per share.

Petitioner and his wife filed separate income tax returns for the calendar year 1928, each reporting one half of the community income, such returns having been filed with the collector of internal revenue on March 14, 1929. The deficiency notice from which this appeal was taken was mailed to the petitioner on December 15, 1931.

In addition to the foregoing facts, the parties have stipulated the following:

That in the audit of petitioner's income tax return for 1928 by the Commissioner changes were proposed, as outlined in the notice of deficiency, a copy of which is attached to the petition and reference to which is hereby made resulting in the deficiency of eight hundred twenty-six and 59/100 dollars ($826.59); that the proposed adjustments were of alleged errors made in good faith and the proposed assessment was made on authority of Section 275 of the Revenue Act of 1928 and of Public Resolution No. 88, 71st Congress H.J. 340 which it was assumed permits the making of adjustments for errors made in*967 good faith in matters not relating to community property, as well as for the purpose of making adjustments based upon community property income and issues.

OPINION.

MORRIS: The applicable provisions of the Revenue Act of 1928 are as follows:

SEC. 275. PERIOD OF LIMITATION UPON ASSESSMENT AND COLLECTION.

(a) General rule. - The amount of income taxes imposed by this title shall be assessed within two years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period.

* * *

Section *334 2, H.J. Res. 340, passed by the Seventy-First Congress, vol. 72, Congressional Record No. 142, p. 19023, approved June 16, 1930, provides as follows:

SEC. 2. The 2-year period of limitation provided in section 275 of the revenue act of 1928 upon the assessment of income taxes imposed by Title I of that act for the taxable year 1928, and the 2-year period of limitation provided in section 322 of the revenue act of 1928 in respect of refunds and credits of income taxes imposed by that act for the taxable year 1928 shall be extended for a period of one year in the case of any married*968 individual where such individual or his or her spouse filed a separate income-tax return for such taxable year and included therein income which under the laws of the State upon receipt became community property.

Our determination rests upon the applicability of the foregoing resolution. If it is applicable the respondent's determination must be approved.

The petitioner contends that the errors upon which the disputed deficiency is based were those of accounting only and do not raise the community property issue and that the aforesaid joint resolution was not intended to operate where the community property issue is not questioned.

We are referred to the discussion before the House upon the proposed resolution (Congressional Record, vol. 72, No. 136, pp. 10392-10393), particularly, to certain language of the Acting Secretary of the Treasury in a communication to the Chairman of the Committee on Ways and Means of the House (Congressional Record, vol. 72, No. 142, p. 10924), which, he contends, evidences an intention on the part of the Congress to extend the period of limitations "only in those cases in which the community property income issue is involved for the taxable years*969 1927 and 1928", therefore, since that issue has not been raised in this proceeding, the resolution is inapplicable. He lays particular stress upon the following language in that communication:

* * * The proposed legislation does not extend the periods of limitation in respect of assessments, refunds, and credits generally, but only in those cases in which the community property income issue is involved for the taxable years 1927 and 1928 * * *.

Though satisfied that the resolution of the Congress is entirely clear and unambiguous, needing no extrinsic aids in its construction, we have carefully considered the brief legislative discussions, the Committee Report and the communication of the Acting Secretary of the Treasury, and we find nothing therein casting the slightest doubt upon its intendment.

The resolution provides for the extension of the period of limitation for one year "in the case of any married individual where such individual or his or her spouse filed a separate income-tax return for *335 such taxable year and included therein income which under the laws of the State upon receipt became community property." The petitioner was married during the taxable*970 year and he and his wife filed separate individual returns for that year upon the community property basis. Thus, without more, the petitioner is brought within the scope of the resolution. .

But, even assuming the petitioner's premise to be correct, we would still be unable to agree with the conclusion he reaches. Merely because the petitioner does not choose to contest the division of his income upon the community property basis does not, in our opinion, except him from the clearly intended purpose of that resolution. The test is not whether that issue is before this Board, but whether or not returns have been filed upon the basis of community property, which, in itself, injects, potentially at least, the community property issue. Until the statute has tolled or until the parties have concluded their disputes by statutory agreement, the community property issue is always present, though latent, wherever husband and wife have chosen to adopt that basis for the computation of their respective taxable incomes.

Judgment will be entered for the respondent.