Lucas v. Earl
In this case, the question is whether Earl should be taxed for the whole of the salary and attorney’s fees earned by him in the years 1920 and 1921, or should be taxed for only half of them in view of a contract with his wife. The commissioner of Internal Revenue and the Board of tax appeals imposed a tax upon the whole, but their decision was reversed by the circuit court of appeals. A writ of certiorari was granted by the court.
The contract Earl and his wife agreed to, stated “that any property either of us now has or may hereafter acquire in any way, either by earnings, or any rights by contract or otherwise, during the existence of our marriage, or which we or either of us may receive by gift, bequest devise, or inheritance, and all the proceeds, issues, and profits of any and all such property shall be treated and considered and hereby is declared to be received, held, taken, and owned by us as joint tenants, and not otherwise with the right of survivorship.” In other words, what is earned/owned by one of them is equally earned/owned by both of them. The validity of this contract was not questioned under the law in the State of California in which the parties lived.
The Revenue Act of 1918 and provisions of the Revenue Act of 1921 impose a tax upon the net income of every individual of whatever kind and whatever form paid. An argument is presented that the statute seeks to tax only income beneficially received and that technically the salary and fees became the joint property of Earl and his wife once they were received. However, Earl was the only party to the contract by which salary and fees were earned and it is hard to say if the performance of those contracts could be taken by anyone other than Earl.
Ultimately, this case was decided by the import and reasonable construction of the taxing act. There is no doubt that the statute could tax salaries to those who earned them and provide that the tax could not be escaped by anticipatory arrangements to prevent the salary when paid from vesting in the man who earned it.
Judgement was reversed, The Chief Justice took no part in this case.