is the basis of the bill, has been decided by the courts, even though the control is vested in the husband so that he has a very powerful control over the property, even to the point of being able to dispose of it? Mr. LANHAM. He has not the disposition of all. There is some property in which the wife must join; for example, the homestead and other property.

Mr. SHALLENBERGER. Have there been cases going to the Supreme Court where the ownership of the property is such that the wife has a right to have it taxed separately?

Mr. LANHAM. I am not familiar with recent decisions, in view of the fact that I have not practiced law since I came to Congress. I would prefer to refer you to Mr. Fulbright. It seems to me that the courts would so decide, because it is not a fiction; it is a fact. One half of the property belongs to the husband and one half of the property belongs to the wife, and the husband and the wife cannot be divested of that half by divorce or in any other way.

Mr. SHALLENBERGER. The reason I asked that was that we have learned that the laws of the various States are different. Somebody from your State suggested that you have this right under your constitution. Therefore, it is a little different from the State of California, where it is not definitely in the constitution.

Mr. LANHAM. It is a fundamental right with us.

Mr. HILL. Is it not a fundamental right, recognized by the Federal Government, that a State has the exclusive power to fix the status of property rights between husband and wife, whether that be done by constitutional provision or by statute of the State legislature?

Mr. LANHAM. That is my understanding, and it would be no more fair under our law in Texas and under our practice in Texas, with the wife's half of the property safeguarded in so many ways, to make the husband pay the taxes due upon her property than it would be to make him pay the taxes due upon the property of some stranger, because it is not his property. His control is a matter of administration which, if not properly performed can be corrected in the courts. He cannot in any way divest her of that property; it is protected during the marriage state, in divorce, and after death. It seems to me to be purely fundamental, and that must be the deciding principle with reference to the taxing policy of the United States, not whether Texas pays more taxes than Arizona or New York, or some other State, but does each citizen, in accordance with the laws of the State in which he lives with reference to property holdings, pay what he should pay.

That is all I wish to say, but I hope you will bear in mind in your consideration of this measure that fundamental principle involved.

Mr. SHALLENBERGER. I will say that the gentleman has given us a very constructive analysis, and has presented the matter in a manner which we understand. We appreciate your statement very

much. Is Mr. Buck here?

Mr. Buck. I would prefer to give my statement at a later session. Mr. SHALLENBERGER. We will adjourn until Friday morning at 10 o'clock.

Thereupon, at 12:20 p.m., an adjournment was taken until Friday, May 11, 1934, at 10 a.m.)

COMMUNITY PROPERTY INCOME

MONDAY, MAY 21, 1934

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE OF THE COMMITTEE ON WAYS AND MEANS. The subcommittee met at 10 a.m., Hon. Ashton C. Shallenberger (chairman) presiding.

Mr. SHALLENBERGER. The subcommittee will please come to order. Mr. HILL. I would like to offer for the record a memorandum brief by George Donworth and Charles T. Donworth, Seattle, Wash. Mr. SHALLENBERGER. Without objection, it will be placed in the record.

(The memorandum is as follows:)

MEMORANDUM BRIEF IN BEHALF OF COMMUNITY TAXPAYERS OF THE STATE OF WASHINGTON IN OPPOSITION TO H.R. 8396 BY GEORGE DON WORTH AND CHARLES T. DONWORTH, SEATTLE, WASH.

The bill (H.R. 8396) now under consideration by the Subcommittee on Ways and Means of the House of Representatives, reads as follows:

[H.R. 8396]

A BILL Relating to the taxation of community property income

"Be it enacted by the Senate and House of Representatives of the United States of America, That for the purpose of determining the income-tax liability of any individual during any taxable year beginning after December 31, 1933, property of a marital community shall be considered as the property of, and income of a marital community shall be considered as the income of, the spouse who has the management and control thereof under the law of the jurisdiction in which the marital community exists, and such spouse shall alone be entitled to the deductions and credits allowed under the internal revenue laws which are properly allocable to such property or income."

PURPOSE OF THIS BRIEF

This brief is reduced to a relatively small compass by reason of the fact that a full presentation of the position of the community taxpayers of the State of Washington was made before the subcommittee on May 4, 1934, by the writer of this brief, George Donworth, of Seattle, Wash. This oral statement has been printed as no. 4 of the committee print hearings. The scope, therefore, of this brief will be to supplement in a brief compass the oral statement, and to set forth with more definiteness the authorities referred to in the oral statement.

THE WASHINGTON STATUTES DEFINING AND REGULATING COMMUNITY PROPERTY With the exception of property owned by the spouses before marriage and that acquired afterward by gift, bequest, devise, or inheritance, and the rents, issues, and profits thereof, all property acquired after marriage in any manner whatsoever by either husband or wife or both is community property (Rem. Comp. Stat., sec. 6890, 6891, and 6892).

By section 6892, the husband has the management and control of community personal property and the like power of disposition as he has of his separate personal property, except he shall not devise by will more than one half thereof. As we show below, notwithstanding the generality of this language, the husband's powers are very much restricted by the judicial decisions construing this section.

By section 6893, the husband has the management and control of the community real property, but is forbidden to sell, convey, or encumber it unless the wife join with him in executing and acknowledging the instrument of conveyance or encumbrance.

As to real estate, conveyances, and agreements for conveyances made by the husband alone are void, even as against the husband. Holyoke v. Jackson (3 Wash. Ter. 235), Hill v. Young (7 Wash. 33), Mable v. Whittaker (10 Wash, 656), Warburton v. White (176 U.S. 484), Adams v. Black (6 Wash. 528), Kaufman v. Perkins (114 Wash. 40).

A lease is an encumbrance under section 6893, and a lease or agreement for a lease, executed by the husband alone, is void even though the wife had knowledge of it. Spreitzer v. Miller (98 Wash. 601), Kaufman v. Perkins (114 Wash. 40), Hoover v. Chambers (3 Wash. Ter. 26).

In a suit by vendee to reform for mutual mistake a written contract for the conveyance of land, made by both a husband and wife, reformation is refused unless it be shown that the wife as well as the husband personally participated in the mistake. Itkin v. Jeffery (126 Wash. 47).

Referring to section 6892, giving the husband the management and control of community personal property, the language of this section is construed by judicial decisions to amount to no more than the giving of a power of attorney to the husband to act in behalf of his principals, the husband and wife, thus giving effect to the language of the statute which makes community property the common property of both spouses.

In Schramm v. Steele (97 Wash. 309), the Washington Court said that the husband's powers with relation to community personal property are no broader than those employed in general powers of attorney; that the husband is a mere statutory agent for the community; and that there is an absolute equality of ownership and rights in all community property, both real and personal, there being no distinction whatever so far as concerns the equal property interest between husband and wife.

To the same effect in the following cases: Marston v. Rue (92 Wash. 129); Olive Co. v. Meek (103 Wash. 467); Snyder v. Stringer (116 Wash. 131). In Marston v. Rue (92 Wash. 129), the Court declares the husband to be only the head of the firm and that the personal property is as much the wife's as the husband's; and that her property right in it is as great as his.

In Stewart v. Bank of Endicott (82 Wash. 106), the court said that the purpose of giving the management and control of the community personal property to the husband is to facilitate the business of the community. In any suit brought by a third party against the husband, the wife has the right to assert the noncommunity character of the debt or obligation, and if she does so, this question must be litigated at the same time that all other conroverted questions in the case are litigated. McDonough v. Craig (10 Wash. 239); Allen v. Chambers (18 Wash. 341).

The wife may borrow money or otherwise incur obligations for the benefit of the community and thereby bind the community as effectually as the husband may do. Fielding v. Ketler (86 Wash. 194).

On the other hand, the husband equally with the wife is prohibited by Washington statutes from discharging out of community property an obligation which is not a community obligation, and the wife suing alone may enjoin collection of the husband's separate debt out of community property. Spinning v. Allen (10 Wash. 570), Snyder v. Stringer (116 Wash. 131), Fidelity & Deposit Co. v. Clark (144 Wash. 520).

As to the nature of the wife's interest in the community property, real and personal, the Washington decisions make it plain that the wife's interest is a legal interest just the same as the husband's interest is a legal interest. The Washington decisions deny that the husband holds the legal title, with a resultant equity, in the wife. The title of both spouses is a legal title, equal in both. Mabie v. Whittaker (10 Wash. 656).

On divorce the community is dissolved, and from that time on (unless the decree of the court for reasons growing out of the divorce grounds transfers property from one spouse to the other) the two spouses become tenants in

common.

In Ambrose v. Moore (46 Wash. 463), the court said:

66

'From the necessities of the case, their joint or community property must become common property. After the divorce there is no community, and in the nature of things, there can be no community property. The divorce does not vest or divest title; the title does not remain in abeyance and it must vest in the former owners of the property as tenants in common."

In Schneider v. Biberger (76 Wash. 504), it is said:

66

'Such property as was community property prior to the decree and not disposed of thereby, would become common property in which husband and wife would retain all the interest vested in them prior to the decree."

The community property is not liable for the husband's torts, though committed after marriage, unless under the doctrine of respondent superior, they are committed in carrying on the business of the community. For instance, a husband who holds the office of sheriff, and in that capacity committed a tort, cannot subject the community property to liability therefor. Fidelity & Deposit Co. v. Clark (144 Wash. 5-), Brotton v. Langert (1 Wash. 73), Bice v. Brown (98 Wash. 416), Kies v. Wilkinson (114 Wash. 89), Coles v. McNamara (131 Wash. 691), Schramm v. Steele (97 Wash. 309), Wilson v. Stone (90 Wash 365), Day v. Henry (81 Wash. 61).

In case the husband during marriage incurs indebtedness by becoming an accommodation endorser or guarantor of indebtedness in which the community has no interest, his liability cannot be enforced against the community property. Peterson v. Zimmerman (142 Wash. 385).

In Parker v. Parker (121 Wash 24), the court said:

"The law which gives the husband the management and control of the community personal property does not give him the right to make substantial gifts thereof against the consent of his wife. As was said in Schramm v. Steele (97 Wash. 309, 166 Pac. 634): the statute intends no more than to make him a stautory agent of the community.'

* * *

"Not having the consent of his wife-the record, in fact, disclosing that she would not consent thereto-the rule established in Marston v. Rue (92 Wash. 129, 159 Pac. 111), is applicable and the gift must be held to have been void." See also: Stewart v. Bank of Endicott (82 Wash. 106).

66

The community property is not liable for the separate obligations of either husband or wife, but only for obligations which can be strictly classified as community debts". Debts contracted by the husband (or by the wife) before marriage cannot be enforced against community property. The same is true of an obligation contracted by the husband after marriage unless the same constitute a community debt by reason of having been contracted in behalf of the community business under the husband's limited authority of management and control. Community personal property falls within this rule equally with community real estate, and cannot be used or resorted to for the purpose of paying the husband's separate debt. Olive Co. v. Meek (103 Wash. 467); Peterson v. Zimmerman (142 Wash. 385); Spokane State Bank v. Tilton, (132 Wash. 641); Snyder v. Stringer, (116 Wash. 131); Huyvaerts v. Roedtz (105 Wash. 657).

In order that community property in Washington may be taken for a debt contracted by either husband or wife, the debt must be shown to be a debt contracted in behalf of the community, and both husband and wife are individually entitled to their day in court on the determination of this question. A judgment against the husband alone does not settle the point. The wife "has at least as much right to contest the facts" as the husband has. Littell Mfg. Co. v. Miller (3 Wash. 480).

The latest decision of the Supreme Court of Washington on this subject is found in Bortle v. Osborne, 155 Wash. 585. In that case, the court expressly declares that the community is not a distinct entity or juristic person, and that all community property is owned by both spouses equally. The court laid down the following propositions:

"(1) We have not receded from the rule, which we now reiterate, that the liability for the husband's tort which is committed in the management or prosecution of the community business can be enforced against the community property."

"(2) By the community-property law of this State (Rem. Comp. Stat., sec. 6890-6906), the legislature did not create an entity or a juristic person separate and apart from the spouses composing the marital community. The legislature did nothing more than classify as community property-designate the

character of certain property as community and other property as separate— the property acquired after marriage by the spouses. We have, for convenience of expression, employed the terms 'entity' and 'legal entity' in referring to a partnership and to a marital community. However, we have never held that a partnership or a marital community is a legal person separate and apart from the members composing the partnership or community, or that either the partnership or the marital community has the status of a corporation. "A marital community is in no sense a corporation; neither is it a partnership, though the community of property between the spouses is, in a restricted sense, a partnership between the husband and wife. The legislature, in defining community property (sec. 6890–6906, Rem. Comp. Stat), did not change the relationship of husband and wife to the status of a corporation or declare that the property acquired during marriage was owned by a legal personality distinct from the spouses composing the community. In the community property each of the spouses has an undivided one-half interest."

That the husband's separate indebtedness, whether in contract or tort, cannot be enforced against the community property, either real or personal, is made plain in the following cases: Snyder v. Stringer (116 Wash. 131), Peter son v. Zimmerman (142 Wash. 385), Spokane State Bank v. Tilton (132 Wash. 641), Olive Co. v. Meek (103 Wash. 467), Huyvaerts v. Roedtz (105 Wash. 657), THE WASHINGTON LAWS CONCERNING DESCENT OF COMMUNITY PROPERTY AND THE DISPOSITION THEREOF BY WILL

Section 1342 of Remington's Washington Statutes provides that upon the death of either husband or wife one half of the community property goes to the survivor and the other half is subject to the testamentary disposition of the deceased husband or wife.

"In case no testamentary disposition shall have been made by the deceased husband or wife of his or her half of the community property, it shall descend equally to the legitimate issue of his, her, or their bodies."

This statute has regulated the descent and testamentary disposition of community property in Washington for more than 50 years. The language of this section is also recognized by the courts as showing the actual ownership by the husband and by the wife of their one-half interest in all the community property, real and personal. Ahern v. Ahern (31 Wash. 334), Snyder v. Stringer (116 Wash. 131), Scott v. Stanley (149 Wash. 29), Hill v. Young (7 Wash. 33), Mabie v. Whittaker (10 Wash. 656), Stewart v. Bank of Endicott (82 Wash. 106), Parker v. Parker (121 Wash 24), Buchser v. Buchser (231 U.S. 157).

In Scott v. Stanley (149 Wash. 29), it is held that, on the death of the wife intestate, her one half of the community property vests immediately in her heirs without probate.

Consequently, the husband can do nothing to prevent the wife's willing away her one half of the community property to strangers or, in the absence of a will, to prevent descent, on her death, of her half of the community property to her children by the same or by a former marriage.

Suppose that, during the marriage, the husband as agent of the community builds up a substantial business, of great value as a going concern because of its earning power. Upon the wife's death, her legatees or devisees, though strangers, or, in the absence of a will, her children, can immediately insist on a liquidation or sale of the business and all other community assets in order to reduce to cash the wife's one half of the community business and community property which passes to her legatees, devisees, or children.

Suppose, on the other hand, under the circumstances last described, the husband dies and the wife survives. The business and assets must be liquidated just the same as in the other case. The wife will continue to own one half of all the property, and the husband's children or his legatees or devisees will take the one half interest which belonged to the husband. There is equality of interest and equality of treatment in both cases. These statutory provisions are utterly inconsistent with the claim that the wife's interest in community property is not actual, real, and vested.

An estate or inheritance tax is paid to the United States on the death of either husband or wife, this estate tax being based upon the value of the half interest of the decedent spouse. The propriety of this practice is recognized by the general counsel of Internal Revenue and by the Department generally. See general counsel's memorandum no. 7773 (August 1930).