
    IRMGARD SANTOS v. THE UNITED STATES
    [No. 433-58.
    Decided May 4, 1960.
    Plaintiff’s motion for rehearing overruled July 15, 1960] 
    
    
      
      Mr. Robert Ash for the plaintiff. Messrs. Ash, Bauers-feld <& Burton were on the brief.
    
      Mr. Eugene Emerson, with whom was Mr. Assistant Attorney General Charles K. Rice, for the defendant. Messrs. James P. Garland and Philip R. Miller were on the brief.
    
      
      Plaintiff’s petition for writ of certiorari denied by the Supreme Court, 364 U.S. 913.
    
   JoNes, Chief Judge,

delivered the opinion of the court:

Plaintiff seeks to recover overpayments of income taxes for the years 1945 and 1946.

The plaintiff and Lawrence Santos were married in 1928 and were living together as husband and wife in Honolulu in 1945 and 1946. The record shows clearly that they had considerable income during those years from community property. However, according to the findings of the Tax Court they lived lavishly, had an $80,000 home and three late-model cars, and between 1948 and 1950 the husband accumulated $81,000 in cashier’s checks.

The husband transferred to the plaintiff in 1950 the proceeds of the cashier’s checks sufficient to purchase $80,000 in U.S. Treasury 2y2 percent bearer bonds. She sold these bonds; used $10,000 to pay the joint territorial taxes of herself and her husband, and used the balance, some $68,287.90, to pay individual income tax liability that had been asserted against her for the years 1943 to 1947, inclusive. At the time of the transfer of these funds from the husband to the plaintiff the husband was insolvent.

Later it was determined that there was an overpayment of plaintiff’s individual taxes. However, in lieu of refunding the overpayment, the Collector of Internal Revenue applied these overpayment sums to the liquidation of income taxes owed by her husband for the same years, the collector haying made a jeopardy assessment against her for that purpose.

There has been considerable litigation in respect to the various phases of the sums involved in this suit. As indicated, the Commissioner of Internal Bevenue in 1952 had made a jeopardy assessment against the plaintiff on the asserted ground that as transferee of the assets of her husband, Lawrence Santos, on account of income taxes owed by Lawrence Santos for 1943 to 1946, inclusive, she was, to the extent of the assets transferred to her by her husband, liable for the payment of the unpaid taxes of her husband.

On appeal by plaintiff to the Tax Court, the action of the Commissioner of Internal Bevenue was approved. (26 T.C. 571.) The Court of Appeals on June 28,1957, reversed the Tax Court decision on the ground that the Collector of Internal Bevenue had not discharged the burden of proving that the funds used by the plaintiff were not community property. Apparently the plaintiff in that case had contended that the property received was her share of the community income. The Court of Appeals held that the Commisisoner of Internal Bevenue had not discharged the burden of showing that the large sums that had been transferred to the plaintiff while the husband was insolvent were from the husband’s separate property. The issue of whether, if the funds transferred were community funds, such funds would also be liable was not treated as an issue in that decision.

In the meantime in another proceeding in the Tax Court, Irmgard Santos v. Commissioner, No. 42682, the Tax Court had, on August 10, 1954, entered an order pursuant to a stipulation of the parties that there were overpayments of plaintiff’s individual income taxes for the years 1945 and 1946 in the principal sums of $24,768.51 and $38,237.18, respectively.

The District Director of Internal Bevenue reversed on his books the credits he had previously made on account of plaintiff’s alleged transferee liability, and applied the credits against the income tax liability of Lawrence Santos for 1945.

The Tax Court by order of December 6, 1957, denied plaintiff’s motion of September 6, 1957, which is set out in finding 11, and by order, which is set out in finding 13, refused to set aside the action of the District Director of Internal Revenue who had determined that the overpayments had been absorbed in the credits and that there was no overpayment in the proceeding at that time.

The plaintiff appealed to the United States Court of Appeals for the Ninth Circuit, which court on August 8,1958, dismissed the petition on the ground that it had no power to order the Commissioner to make the refund. (260 F. 2d 583.)

The situation is somewhat confused, but it seems that the basis of these several decisions, as shown by the ultimate outcome, was the question of whether the securities which were transferred by the husband to plaintiff while he was insolvent were from his separate property rather than from the community property.

The issue before this court is whether the record justifies a holding that the checks transferred by Lawrence Santos to his wife were community property; and if they were community property whether such proceeds were liable under the Hawaiian statutes as they existed at that time for the income taxes of the plaintiff and her husband.

In view of the entire record we can find no reasonable basis for holding that the Collector of Internal Revenue was in error in treating the funds transferred to the plaintiff by her husband at the time he was insolvent as community property. The original cashier’s checks were payable to both the plaintiff and her husband. The husband used these checks to buy bonds. These bonds were delivered to plaintiff who sold them and used the proceeds to pay her taxes. The bonds were easily traceable.

In the original Tax Court suit the plaintiff had contended that they were community funds and thus escaped the charge that they were a gratuity from the husband’s separate property.

The Commissioner, in making the application of the funds to the jeopardy assessment, treated them as community funds. In fact, the plaintiff substantially admitted in the brief and oral argument that they were community funda

The cases cited and relied upon by the plaintiff were not cases arising in States or areas in which community property laws were applicable.

The single issue thus remains before this court as to whether community property under the Hawaiian Code as it existed in 1945 and 1946 was liable for the income taxes for those years.

Under the broad provisions of the Hawaiian community property law in effect in 1945 and 1946, we have no doubt that the income taxes of the husband were “debts or liabilities” for which the community property was chargeable.

In the light of the record and of the findings of the trial commissioner, which findings we have adopted and approved, we are unable to find that the District Director of Internal Revenue was in error in applying the funds in question as a credit on the tax obligation at issue. We find nothing in the opinions and proceedings before the Tax Court and the Court of Appeals for the Ninth Circuit which is contrary to this view. Those actions and proceedings did not in any way change the character of the funds which were in the hands of the defendant or the defendant’s right to use those funds in any legal manner. The amount of tax liability and the holding of the Ninth Circuit that the plaintiff was not liable as a transferee remain undisturbed. Under the statute neither the Tax Court nor a Court of Appeals on appeal from such court has jurisdiction to order a refund, nor do they have authority in a proceeding through the Tax Court to determine whether a credit made by the Director or Commissioner is legal; such a question can only be determined in a suit for refund in a district court or in this court. This situation was recognized by the Ninth Circuit in its decision in the second of these cases when it said: “This Court has no power to order the Commissioner to make a refund to the wife [plaintiff]. If there be any such power, it must lie in another proceeding. * * * But we do not pass upon this point.”

The plaintiff’s petition is dismissed.

It is so ordered.

Laramore, Judge; Madden, Judge; and Whitaker, Judge, concur.

FINDINGS OF FACT

The court, having considered the evidence, the report of Trial Commissioner Wilson Cowen, and the briefs and arguments of counsel, makes findings of fact as follows:

1. Plaintiff is an individual whose address is 8639 Diamond Head Eoad, Honolulu, Hawaii.

2. Plaintiff and Lawrence Santos, to whom she was married in 1928, were living together as husband and wife in Honolulu in 1945 and 1946. During those years they had income from commtinity property.

3. The Commissioner of Internal Eevenue made a jeopardy assessment against Irmgard Santos on October 15, 1952, on the ground that she was a transferee of the assets of her husband, Lawrence Santos, on account of income taxes owed by Lawrence Santos for the years 1943 to 1946, inclusive. The said jeopardy assessment was in the amount of $68,287.90. Interest on account of the said jeopardy assessment in the amount of $26,605.15 was also assessed.

4. The plaintiff appealed to the Tax Court of the United States, which affirmed the action of the Commissioner of Internal Eevenue in holding that plaintiff was liable as transferee of the assets of her husband. (26 T.C. 571)

In the findings of fact made by the Tax Court of the United States in Docket No. 46357 (Exhibit “A”), the following facts were recited:

Plaintiff’s share of the community income of herself and Lawrence Santos was $15,621.92 in 1945 and $54,400.31 in 1946. Her aggregate community income from June 1,1945, to June 30, 1949, the period when the Hawaii Community Property Law was in force, amounted to $84,686.60 after Federal income taxes. During the period April 15, 1948, to September 18, 1950, Lawrence Santos purchased and gave to the plaintiff several cashier’s checks in the total amount of $82,272.67, payable to “Lawrence Santos and/or Irmgard Santos.” On November 22,1950, Lawrence Santos received the checks from plaintiff, he alone endorsed them, and with the proceeds purchased at a total price of $81,674.32 T7.S. Treasury 2y2 percent bearer bonds in the principal amount of $80,000. He delivered the bonds to plaintiff, who sold one $10,000 bond on April 1, 1952, and used the proceeds to pay the joint territorial taxes of herself and her husband. On March 27, 1952, she sold such bonds in the principal amount of $70,000 for the sum of $68,287.90, which was paid to the Collector of Internal Eevenue “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.”

5. From the decision of the Tax Court, plaintiff appealed to the U.S. Court of Appeals for the Ninth Circuit which, on June 28,1957, reversed the Tax Court. (246 F. 2d 204.)

6. In another proceeding in the Tax Court, Irmgard Santos v. Commissioner, Docket No. 42682, the Tax Court entered an order on August 10, 1954, pursuant to a stipulation of the parties, that there were overpayments of plaintiff’s individual income taxes for the years 1945 and 1946 in the principal amounts of $24,768.51 and $38,237.18 respectively.

7. On December 30,1954, the District Director of Internal Eevenue at Honolulu credited the overpayments referred to in the preceding finding against the jeopardy assessment made against plaintiff as stated in finding 3. These credits were in the amounts of $27,256.32 for 1945 and $49,835.15 for 1946. A cash payment of $27 made on September 26, 1956, was likewise credited against the jeopardy assessment. The total amount thus credited was $77,118.47.

8. On August 7, 1957, after the decision of the Court of Appeals for the Ninth Circuit reversing the Tax Court in the transferee case, the District Director of Internal Revenue at Honolulu reversed on his books the credits he had previously made on account of plaintiff’s alleged transferee liability. The said credits, totaling $77,118.47, were then applied by the District Director as a credit against the income tax liability of Lawrence Santos for 1945.

9. On August 1, 1957, the Tax Court ordered that, pursuant to the mandate of the Court of Appeals, the proceeding be placed on its motions calendar for October 30, 1957, and that the parties file any recomputation, stipulation or motion with respect thereto on or before October 23, 1957.

10. On August 28, 1957, the Tax Court ece parte, without giving plaintiff an opportunity to be heard, granted a motion filed by the Commissioner and entered a decision that Irmgard Santos was not liable as a transferee of the assets of Lawrence Santos for 1943 to 1946, inclusive. The order read as follows:

Pursuant to the mandate of the United States Court of Appeals for the Ninth Circuit filed with this Court August 13, 1957, and the order of this Court dated August 21, 1957? the respondent filed a motion for the entry of a decision that there is no liability on the part of petitioner as transferee of assets of Lawrence Santos for income taxes for the taxable years 1943 to 1946, inclusive, which motion has been granted. It is therefore,
OedeRed AND Decided : That petitioner is not liable as transferee of assets of Lawrence Santos for income taxes for the taxable years 1943 to 1946, inclusive.

11. On September 6, 1957, plaintiff moved to vacate the decision of August 28,1957, on the ground that there was an overpayment of transferee liability in the amount of $77,118.47 as a result of the credits referred to in finding 7. Plaintiff’s motion read in pertinent part as follows:

The said decision of August 28, 1957, should be vacated and a new decision entered showing an overpayment of tax liability because of the following facts:
On or before October 15,1952, the respondent made a jeopardy assessment of alleged transferee liability in the case at bar in the principal amount of $68,287.90. (See notice of deficiency.) Interest on account of the said jeopardy assessment in the amount of $26,605.15 was likewise assessed.
In Tax Court Docket No. 42,682, Irmgard Santos v. Commissioner, this Court ordered, as a result of a stipulation of the parties, that there was an overpayment of Irmgard Santos’ income tax for the taxable years 1945 and 1946 in the principal amounts of $24,768.51 and $38,237.18, respectively. As a result of these overpay-ments, the District Director in Honolulu satisfied the alleged transferee liability by crediting the said over-
Sayments of income tax as follows: A credit of 27,236.32 resulting from the income tax overpayment for 1945 and a credit of $49,835.15, plus an additional $27.00 credit, resulting from the income tax overpayment for 1946. This means that the respondent has collected from the petitioner an amount totalling $77,118.47 on account of the alleged transferee liability.
Unless this Court enters a decision showing not only a lack of alleged transferee liability but an overpayment on account thereof in the principal amount of $77,118.47, the decision of August 28, 1957, will remain in effect and the respondent will not have the statutory authority to refund the overpayments of alleged transferee liability. See: Sec. 6512, Internal Revenue Code.

12. On October 21, 1957, the parties filed a stipulation in the Tax Court (Docket No. 46327), reciting the facts which are set forth above in findings 3,6,7 and 8.

13. The Tax Court again placed the case on the motions calendar of October 30,1957, and hearing was held that day. On December 6,1957, the Tax Court denied Irmgard Santos’ motion of September 6, 1957, and reaffirmed its decision of August 28, 1957. The Tax Court’s order of December 6, 1957, read as follows:

Pursuant to the mandate of the United States Court of Appeals for the Ninth District reversing a decision entered the 18th day of June 1956, this Court by order dated August 22, 1957, vacated its decision, placed the case on the motions calendar for October 30, 1957, and ordered the parties to file computations, or otherwise move in respect to the case on or before October 23, 1957.
On August 28, 1957, the Commissioner filed a motion setting forth that the liability found due from petitioner in this proceeding was assessed under the jeopardy provisions of the Internal Revenue Code of 1939 and that no part of it has been paid; and, requesting the Court to enter a decision that there is no liability on the part of petitioner as transferee of Lawrence Santos for income taxes for the years 1943 to 1946, inclusive.
That motion was granted,, and on August 29, 1957, the Court entered its decision providing, in part, as follows:
“OkdeRed and deoided: That petitioner is not liable as transferee of assets of Lawrence Santos for income taxes for the taxable years 1943 to 1946, inclusive.”
On September 6,1957, petitioner moved to vacate the decision entered on August 29, 1957, and for the entry of a decision of no transferee liability and an overpayment in the principal amount of $77,118.47. The motion was placed upon the calendar for hearing on October 30,1957.
On October 21, 1957, the parties filed a stipulation which, in substance, discloses that on October 15, 1952, the. Commissioner made a jeopardy assessment against petitioner as transferee of assets of Lawrence Santos; that as a result of a stipulation decision was entered on August 10, 1954, in Tax Court Docket No. 42682, that there were overpayments of petitioner’s income taxes for the years 1945 and 1946; that on December 30, 1954, the District Director at Honolulu, Hawaii, applied the overpayments in income taxes against such transferee liability by two credits aggregating $77,091.47; that on September 26, 1956, he made an additional credit of $27; and, that on August 7, 1957, the District Director reversed such credits and applied them against the income tax liability of Lawrence Santos for 1945. The manipulations of the Commissioner of the overpayments determined in a prior case now show, that there is no overpayment in this proceeding at this time. Therefore, the premises considered, it is
Ordered: That petitioner’s'motion dated September 6, 1957, praying that the decision of this Court entered herein on August 29, .1957, be vacated and for other relief, be and the same in all respects is hereby denied.

14. The plaintiff appealed to the United States Court of Appeals for the Ninth Circuit from the decision of the Tax Court referred to in the preceding finding. The Court of Appeals for the Ninth Circuit on August 8, 1958, dismissed the petition on the ground that it had no power to order the Commissioner to make the refund. (260 F. 2d 583.)

15. The decision of the Tax Court in Docket No. 42682, determining overpayments of plaintiff’s income tax for the years 1945 and 1946, as referred to in finding 6 above, and the decision of the Tax Court in the transferee proceeding (26 T.C. 571) as reversed by the U.S. Court of Appeals for the Ninth Circuit (246 F. 2d 204), have both become “final” as provided in Section 7481 of the Internal Kevenue Code of 1954.

CONCLUSION OF LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiff is not entitled to recover and the petition is dismissed. 
      
       “During the period December 31, 1947, to December 31, 1952, Lawrence Santos was insolvent.” Irmgard Santos v. Commissioner, 26 T.C. 571, 577.
      “There is no question concerning either petitioner’s receipt of this money or concerning the insolvency of the husband at the time of its receipt.” Santos v. Commissioner, 246 F. 2d 204, 205.
     
      
       Chapter S01A, section 13(c) of the Revised Laws of Hawaii (1945) is as follows:
      “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.”
     