33 T.C. 379">*380 The respondent determined deficiencies in petitioner's income tax for 1952 1959 U.S. Tax Ct. LEXIS 25">*27 and 1953 in the respective amounts of $ 11,926.49 and $ 45,975.41. The deficiencies arose solely from the respondent's action in disallowing certain claimed deductions for depreciation expense and in increasing the gains realized upon certain properties sold, explained in the statutory notice as follows:

It has been determined that you owned an undivided one-half interest as tenant in common in each of the several rental properties acquired by you and Joseph Massaglia, Sr. (Deceased) during your marriage. Therefore, it is held that the actual cost bases of your interests were not modified in any manner upon the death of your spouse. It has also been determined that the estimated useful lives of the several properties, as established and consistently recognized in your Federal income tax returns for 1951 and prior years, were substantially correct and should continue to be recognized in 1952 and 1953.

Upon the basis of those determinations, allowable depreciation has been recomputed upon the same bases and at substantially the same rates as heretofore established; also the gains from sales of property interests in 1952 and 1953 have been recomputed to reflect the proper adjusted cost 1959 U.S. Tax Ct. LEXIS 25">*28 bases.

Three issues are presented: First, whether the properties in question were the community property of petitioner and her deceased husband with the result that she acquired stepped-up bases therefor upon her husband's death; second, whether respondent, by reason of previous actions and events, is estopped from denying that the properties were community property of petitioner and her deceased husband; and finally, whether respondent erred in his determination of the remaining useful lives of improvements upon the properties, and if he did, a determination of the remaining useful lives must be made.

FINDINGS OF FACT.

Stipulations of facts were filed and are incorporated herein by this reference.

Petitioner Laura Massaglia is an individual residing at Santa Monica, California. She filed her income tax returns for the calendar years 1952 and 1953 with the district director of internal revenue, Albuquerque, New Mexico, and she used an accrual method of accounting in reporting her income for those years.

Petitioner married Joe Massaglia, Sr., sometimes known (and hereinafter referred to) as Joseph, about the year 1900 and was his wife from then until his death on December 8, 1951, and has 1959 U.S. Tax Ct. LEXIS 25">*29 remained his widow since that date.

Petitioner and Joseph moved from Trinidad, Colorado, to Albuquerque, New Mexico, in 1916. They had practically no capital 33 T.C. 379">*381 at that time. Colorado was not then a jurisdiction in which community property laws applied, but New Mexico was. Upon their arrival in New Mexico in 1916, they agreed orally that because all profits from business ventures would be the product of their joint labor and credit, they would share the profits equally and they would hold any property purchased with the profits as tenants in common. The business of petitioner and Joseph was commenced, flourished, and between 1919 and 1939, they acquired certain improved real properties. In 1941, they acquired unimproved real property. In 1946 and 1947, they acquired a leasehold interest in certain real property.

On October 12, 1943, petitioner and Joseph executed a written agreement which, inter alia, provided that they shared the profits of their business equally and that all of their properties were owned by them as tenants in common, as per their verbal agreement of 1916 to that effect, and that each party had the full right of testamentary disposition over his or her undivided 1959 U.S. Tax Ct. LEXIS 25">*30 one-half of said properties. This agreement was filed and recorded in the office of the County Clerk of Bernalillo County, New Mexico, on October 13, 1943.

On November 11, 1943, Joseph executed what became his last will and testament in which he directed, in part, as follows:

SECOND: * * * that all of my property, real, personal and mixed, wheresoever situate, including choses in action, powers and expectancies, was acquired during my marriage with profits from a business operated jointly by my wife, Laura Massaglia, and me. At the inception of our business we entered into an agreement that we would share equally in the profits thereof, and that we should be owners as tenants in common of all properties acquired by us with the profits of the business. This agreement was later reduced to writing and recorded in the office of the County Clerk of Bernalillo County, New Mexico. The undivided one-half interest of my wife in our property is sufficient to take care of her for life; accordingly, I make no provision for her in this Will.

The estate of Joseph was distributed in accordance with the directions in his will on August 4, 1953, under court order.

Subsequent to the execution of the 1959 U.S. Tax Ct. LEXIS 25">*31 two above-noted instruments, petitioner and Joseph made gifts to their son and daughter, in December 1943 and 1944, of certain of their Albuquerque real properties. Both petitioner and Joseph filed gift tax returns respecting these gifts in which each claimed that one-half of said gifts came from his or her separate property. Upon examination of these gift tax returns, respondent determined that these were gifts from community property, not separate property, and, accordingly, additional gift taxes were determined. Joseph appealed the determination to this Court, but, before a hearing on the case could be held the controversy was settled by a stipulation of deficiencies agreed upon by the parties. The Court's decision was entered in this case on 33 T.C. 379">*382 June 21, 1948, and pursuant thereto, respondent assessed additional gift taxes against Joseph for the years 1943 and 1944.

Joseph died testate on December 8, 1951. On that date petitioner and Joseph owned improved real property in the city of Albuquerque having a cost of $ 345,424.84.

On March 15, 1952, petitioner filed a 1951 joint income tax return in the names of herself and her then deceased husband with the collector of internal revenue, 1959 U.S. Tax Ct. LEXIS 25">*32 district of New Mexico.

In May 1952, the property of petitioner and the estate of her deceased husband known as 319-321 North First Street, Albuquerque, was sold for $ 40,000, the net proceeds of which were $ 38,357.04.

On August 4, 1953, petitioner and her son formed a partnership known as J-M Properties. On the same day petitioner sold her remaining interest in the properties which she and her deceased husband had acquired to J-M Properties for $ 288,906.56.

In March 1956, an appraisal of the properties as of December 8, 1951, including estimates of the remaining useful lives of the improvements thereon, was made for the estate of Joseph. In 1956, proposed deficiencies in income taxes for the estate of Joseph were settled by stipulation of deficiencies between the fiduciary of the estate and respondent.

The description of each property in which petitioner held a one-half interest, the type of improvement thereon erected, the date of acquisition by petitioner of each interest, the allocation of the original cost of each one-half interest between land and depreciable improvement, the adjusted basis of petitioner's one-half interest in each depreciable improvement as of January 1, 1952, 1959 U.S. Tax Ct. LEXIS 25">*33 and the remaining useful life of each depreciable improvement as of December 8, 1951, are as follows:

In her individual income tax returns for both 1952 and 1953, petitioner claimed December 1951 as the date of acquisition of her 33 T.C. 379">*383 interests in the properties hereinabove listed, a total basis in the properties of $ 333,978.50, and remaining useful lives differing from both those used in returns for previous years and those hereinabove set forth.

In her 1952 income tax return petitioner (1) claimed a depreciation deduction of $ 17,584.25 for the improvements on her undivided one-half interest in the subject properties, and (2) reported no capital gain on the sale of 319-321 North First Street, Albuquerque.

In her 1953 income tax return petitioner (1) claimed a deduction for depreciation of the improvements on her undivided one-half interest in the subject properties of $ 9,801.47, and (2) reported no capital gain resulting from the sale of her properties to J-M Properties.

Respondent determined deficiencies in petitioner's 1952 income tax in the amount of $ 11,926.49, and in her 1953 income tax in the amount of $ 45,975.41.

OPINION.

The first question here presented is whether, as petitioner contends, the petitioner's interest in certain 1959 U.S. Tax Ct. LEXIS 25">*35 real property was, prior to the death of her husband, a community interest so that petitioner is entitled to employ the value of the property at the time of her husband's death as her cost basis therefor; or whether, as respondent has determined, petitioner acquired one-half interest as tenant in common in the properties prior to the death of her husband with the result that her basis therefor is one-half the adjusted cost of the properties. Thus, petitioner claims and respondent denies applicability of section 113(a)(5), ^{11959 U.S. Tax Ct. LEXIS 25">*36} 1939 Code. ²

The existence of interests in real property is a matter of State law; the occasion and extent of their taxation by the Federal Government, a matter of Federal law. Burnet v. Harmel, 287 U.S. 103">287 U.S. 103, 287 U.S. 103">110; Morgan v. Commissioner, 309 U.S. 78">309 U.S. 78, 309 U.S. 78">80. Under the law of New Mexico, the situs of the land and the domicile of the marital community at the time of acquisition of the properties, the status of 33 T.C. 379">*384 all real property is governed by statute and real property acquired by either husband or wife subsequent to marriage is community property, except that which is acquired by either husband or wife by gift, bequest, devise, or descent. Hollingsworth v. Hicks, 258 P.2d 724. Husband and wife may, by statute, transmute the character, and consequently the nature and extent, 1959 U.S. Tax Ct. LEXIS 25">*37 of their property. Chavez v. Chavez, 244 P.2d 781 (1952). Since by oral agreement, subsequently confirmed and ratified in written, recordable form, petitioner and her husband had agreed that inasmuch as their income would be the product of their joint labors and that each should receive one-half thereof as his or her separate property, under the law of New Mexico, as announced in the Chavez case, supra, petitioner held an undivided one-half interest in the properties as tenant in common with her husband. Accordingly, petitioner is not entitled to the application of section 113(a)(5) and respondent is sustained as to that issue.

Petitioner, however, contends that prior to the execution of the agreement confirming and ratifying the oral agreement she and her husband made prior to the acquisition of any property in New Mexico, the Supreme Court of that State had announced a statutory construction which prohibited such transmutation of community property, McDonald v. Lambert, 85 P.2d 78 (1938); that it repeated this construction subsequent to the execution of the written agreement and prior to her husband's death, Newton v. Wilson, 211 P.2d 776 (1949); and that it was not until 5 months 1959 U.S. Tax Ct. LEXIS 25">*38 after the death of petitioner's husband that the court overruled these two cases in the Chavez case and construed the New Mexico statutes as permitting such transmutations. Petitioner contends, therefore, that this Court must look to the law of New Mexico as construed by that State's highest court prior to the death of her husband, and that we may not accord retrospective operation to the decision in the Chavez case.

The highest court of each State may determine whether its decisions which overrule prior decisions involving construction of State statutes shall operate prospectively and retrospectively, or prospectively only. It is not within the province of Federal courts to review the wisdom or folly of these determinations, nor do they offend article I, section 10 of the United States Constitution for they constitute judicial rather than legislative action. Gt. Northern Ry. v. Sunburst Co., 287 U.S. 358">287 U.S. 358. It was formerly the rule for Federal courts that:

The construction, by the highest court of the state * * * is binding upon the national courts. [Citations.]

Where such decisions are in conflict, the national courts will follow the latest settled adjudications of the highest court 1959 U.S. Tax Ct. LEXIS 25">*39 of the state rather than the earlier 33 T.C. 379">*385 ones, [citations] excepting in cases where contracts have been theretofore entered into or rights or titles acquired on the faith of the earlier decisions. [Citations.]

Jackson v. Harris, 43 F.2d 513, 516-517 (C.A. 10), "But that freedom of choice between earlier and later decisions of state courts no longer obtains since Erie R. Co. v. Tompkins, 304 U.S. 64">304 U.S. 64 * * *." Sunray Oil Co. v. Commissioner, 147 F.2d 962 (C.A. 10), certiorari denied 325 U.S. 861">325 U.S. 861. If, therefore, the Supreme Court of New Mexico intended that the Chavez case should have retrospective as well as prospective operation, we are bound to apply that latest decision to the facts of this case. For clarity and brevity, citations to the case law of New Mexico, and our comments thereon, are set forth marginally in our discussion of the law of New Mexico.

The announced policy of the highest court of New Mexico is that decisions which have become rules of property by reason of widespread reliance thereon, shall not be overruled except for the most compelling reasons. ^{31959 U.S. Tax Ct. LEXIS 25">*41} A major premise upon which this policy rests is that overruling decisions operate retrospectively as well as prospectively 1959 U.S. Tax Ct. LEXIS 25">*40 and, by such retrospective operation may work hardship and create confusion as to rights in, and title to, property. ⁴ Both prior and subsequent to its decision in the Chavez case, the New Mexico court has applied the overruling of prior decisions affecting real property to facts occurring before the overruling decision.⁵ Indeed, the decision in the Chavez case itself operated upon facts occurring subsequent to the decisions in the cases overruled and prior, obviously, to the overruling decision. ^{61959 U.S. Tax Ct. LEXIS 25">*42} Later opinions of the New Mexico Court in which reference is made to the Chavez case 33 T.C. 379">*386 indicate that it is to be accorded retrospective effect. ⁷ A reference contained in an opinion delivered in a civil suit prior to the first of the overruled cases, and a holding in a criminal case that overruling opinions shall have prospective operation only do not lead us to the conclusion that the decision in the Chavez case was not to operate retrospectively. ^{81959 U.S. Tax Ct. LEXIS 25">*43} We hold, therefore, that under the laws of New Mexico petitioner held the properties as tenant in common, and not as community property, at the death of her husband.

Petitioner next contends that although under the laws of New Mexico she held the properties as tenant in common with her deceased husband, respondent is estopped to deny that they were community property. To support this contention, petitioner urges two sets of facts as invoking estoppel. First, respondent determined deficiencies in the gift taxes of petitioner's husband for 1943 and 1944 on the ground that petitioner and her husband held their property as community property; upon appeal to this Court, decision was entered upon stipulated deficiencies without a hearing on the merits. A decision by this Court, entered upon a stipulation of deficiencies, without a hearing on the merits, is not a decision on the merits such as will support a plea 1959 U.S. Tax Ct. LEXIS 25">*44 of collateral estoppel, or estoppel in pais. United States v. International Bldg. Co., 345 U.S. 502">345 U.S. 502; Trapp v. United States, 177 F.2d 1, certiorari denied 339 U.S. 319">339 U.S. 319. That the respondent has in prior years asserted liability for taxes on an erroneous basis does not preclude him from determining deficiencies in subsequent years on a proper basis. Estate of Carl J. Guenzel, 28 T.C. 59">28 T.C. 59, affd. 258 F.2d 248 (C.A. 8); Mary R. Milleg, 19 T.C. 395">19 T.C. 395; Swiss Oil Corporation, 32 B.T.A. 777">32 B.T.A. 777, reversed on other grounds sub nom. Commisisoner v. Ashland Oil & R. Co., 99 F.2d 588 (C.A. 6). The respondent is not estopped from collecting a tax in one year based upon proper interpretation of State law because he collected 33 T.C. 379">*387 an improper tax in a previous year based upon an erroneous interpretation of State law. Anna I. Hilpert, 4 T.C. 473">4 T.C. 473, reversed on other grounds 151 F.2d 929 (C.A. 5). The second fact which petitioner contends establishes estoppel is that respondent assessed and collected additional estate taxes against and from the estate of petitioner's husband on the grounds that the property of the decedent was community property. Except as we were concerned with collateral estoppel, what 1959 U.S. Tax Ct. LEXIS 25">*45 we have said as to petitioner's first ground for estoppel is applicable to this second ground.

In the course of time the term "estoppel" has come to include many legal theories. Res judicata, collateral estoppel, estopped in pais, quasi-estoppel, estoppel by writing, ratification, acquiescence, affirmance, election, waiver, and duty of consistency have been urged on courts as different names for the bar which estoppel invokes. "The effect of such an estoppel is that a fact is conclusively ascertained so that it can no longer be controverted between the parties." Tide Water Oil Co., 29 B.T.A. 1208">29 B.T.A. 1208, 29 B.T.A. 1208">1218. "The label counts for little. Enough for present purposes that the disability has its roots in * * * the principle that no one shall be permitted to found any claim upon his own inequity or take advantage of his own wrong." Stearns Co. v. United States, 291 U.S. 54">291 U.S. 54, 291 U.S. 54">61, 291 U.S. 54">62. To paraphrase our holding in 29 B.T.A. 1208">Tide Water Oil Co., supra at 1224-1225, as here applicable:

The object of the rule providing for estoppel is to repress fraud and render men truthful in their dealings with each other. Under that rule the author of the misfortune may not himself escape the consequences and cast the 1959 U.S. Tax Ct. LEXIS 25">*46 burden upon another. Thus the equitable rule of estoppel presupposes an error or fault of some kind by the party estopped, and implies an act in itself invalid. Merchants' Bank v. State Bank, 77 U.S. 604">77 U.S. 604, 77 U.S. 604">645; Brant v. Virginia Coal & Iron Co., 93 U.S. 327">93 U.S. 327, 93 U.S. 327">335; Henshaw v. Bissell, 85 U.S. 255">85 U.S. 255. Whatever doctrine analogous to estoppel the [petitioner] would invoke, it must be founded upon some act or omission of the [respondent] for which in equity it should be held to account. The equities must be strong enough to overshadow the law. There is here no suggestion of fraud, untruthfulness, concealment, misrepresentation, omission, negligence, violation of duty, or unfair conduct on the part of the [respondent]. [He] was no more the author of the misfortune than was the [petitioner]. The latter was in as good a position as the former to [know the nature of her property interests under the law of New Mexico]. Thus, in this case there is no occasion for applying either the doctrine of estoppel or any doctrine analogous thereto.

Petitioner, therefore, held the properties as tenant in common with her deceased husband, has failed to prove facts which estop respondent from denying that 1959 U.S. Tax Ct. LEXIS 25">*47 the properties were community property, and is not entitled to employ one-half of the value of the properties at the time of her husband's death as her cost basis therefor for the purpose of computing either gain or depreciation. We hold that the Commissioner is not estopped.

33 T.C. 379">*388 For the purpose of fixing depreciation allowance, as well as long-term capital gain, petitioner has introduced the testimony of an expert witness as to the remaining useful lives of the properties. The witness is a vice president of a nationwide firm of appraisal engineers, has had almost 20 years' experience in appraisals, has performed independent appraisals for various agencies of the Federal Government, and has recently completed a study of the relationship of market value and remaining useful life for the Internal Revenue Service. He testified that in March 1956 he made an estimate of the remaining useful lives of the properties as of December 8, 1951. The testimony of the witness revealed that in making his estimate of the remaining useful life of each building he had considered the date of construction as determined from older inhabitants, municipal tax records, and local real estate men; the nature 1959 U.S. Tax Ct. LEXIS 25">*48 of construction of each building as determined by personal inspection; past maintenance and improvements; the present physical condition; the physical location, character, and future of each building and its environs; present use; future maintenance requirements; and business prospects. The witness further testified that he considered all of these factors to arrive at his estimates of the remaining useful economic, rather than physical lives of the buildings. We are satisfied that the witness qualifiedly and credibly testified as to the remaining useful lives of the buildings as determined in a manner, and with due regard to factors, reasonably calculated to produce valid estimates. Respondent offered no testimony as to the remaining useful lives of the buildings, but rested upon the presumption of the correctness of his determination, as supported by the fact that petitioner and her husband had established the useful lives of the buildings when they were acquired. The evidence discloses that all of the buildings were acquired between 1919 and 1939, or from 33 and 34 to 13 and 14 years prior to the end of the taxable periods in question. Section 39.23(l)-5(a) of Regulations 118 1959 U.S. Tax Ct. LEXIS 25">*49 provides, "The reasonableness of any claim for depreciation shall be determined upon the conditions known to exist at the end of the period for which the return is made." The estimates made as of December 8, 1951, more nearly reflect the conditions on December 31, 1952 and 1953, than those made 14 to 34, and 13 to 33 years earlier. We find, therefore, that the remaining useful lives of petitioner's buildings at the close of each year in dispute are those estimated as of December 8, 1951, as shown in our Findings of Fact, and adjusted to reflect the passage of time. We hold that petitioner, to the extent that she had not previously recovered the capital sum allowable, is entitled to use the remaining useful lives as thus determined.

33 T.C. 379">*389 Petitioner has also contended for a revised apportionment of the value of land and buildings. The contention seems based upon the acquisition by petitioner of her interests in the properties upon the death of her husband. We have already held that petitioner did not so acquire her interests, and consideration of the contention is unnecessary. If petitioner contends for a revised apportionment between land and buildings of her interests as she and her 1959 U.S. Tax Ct. LEXIS 25">*50 husband orginally acquired them as tenants in common, she has failed to produce any evidence to support such a revision.

Decision will be entered under Rule 50.