Seaborn lived in Washington,
which was a "community property" State.
In a community property
State any income or property earned by one spouse is considered to be
equally owned by both spouses.
Seaborn worked and his wife
didn't. Seaborn filed separate tax returns for both himself and his wife,
each reporting one-half of the income he earned. The IRS disagreed
assessed a deficiency.
Seaborn argued that because
half of every dollar that the husband earns is the property of the wife
under community property laws, then half of the income should be
attributable to the wife (who just happened to be in a much lower tax
bracket...).
The IRS argued that it
couldn't possibly be Congress' intent to include such a large example of
horizontal inequity between those living in common-law States vs.
community property States.
The Trial Court found for
Seaborn. The IRS appealed.
The US Supreme Court affirmed.
The US Supreme Court looked
to Washington law and found that there was plenty of evidence to show
that Seaborn's wife had a vested one-half interest in Seaborn's income.
"Under the law of
Washington, the entire property and income of the community can no more
be said to be that of the husband than it could rightly be termed that
of the wife."
The Court noted that
Seaborn never had complete title to the income. The moment it was
acquired, it was owned by the community.
The Court distinguished
Seaborn's case from Lucas v. Earl
(281 U.S. 111 (1930)). In Earl, the husband and wife signed a voluntary
contract given each other rights to their property. Earl established the Assignment of Interest
Doctrine, which basically says that a taxpayer cannot evade
taxes by giving (assigning) his income to someone else in a lower tax
bracket.
The Court felt Seaborn was
different because he didn't sign a contract, he was just following the
property laws of his State and didn't have a choice over whether or not
to give half his income to his wife.
After this case, Congress
changed the tax code to allow married couples to file jointly, thereby
removing the tax consequence differences between those who lived in
community property States and those who lived in common-law States.
