text:
    Julius Blum, Trustee, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 39242, 40939, 45741, 51507.
    Promulgated January 11, 1932.

      A. Gadder Machay, Esq., for the petitioner.

      B. M. Goon, Esq., for the respondent.
   OPINION.

Lansdon :

The respondent has held that the petitioner is a trustee of an “ association ” within the provisions of section 2 (2) of the Eevenue Act of 1921, and taxable as a corporation on its income in the years considered. The petitioner contends that his status, at all times material, was that of a simple trustee empowered only to receive and disburse income.

In the leading case of Hecht v. Malley, 265 U. S. 144, which has been cited by both parties to this controversy, the Supreme Court of the United States held that the word “ association ” as used in the act signifies “a body of persons united without a charter, but upon the methods and forms used by incorporated bodies, for the prosecution of some common enterprises.”

Article 1312 of Eegulations 74 defines associations within the class taxable as corporations as organizations, by whatever name known, which act or do business in an organized capacity. Organization, then, and the doing of business in substantial conformity with the methods and forms used by incorporated bodies, would seem to be the requirements recognized by the courts and the Treasury regulations. “ Organization,” and the “ doing of business ” must unite before the entity may be taxed as a corporation. Philadelphia & Reading Relief Assn., 4 B. T. A. 713; Albert M. Briggs, 7 B. T. A. 409; and Realty Associates, 17 B. T. A. 1173. Such a lack of organization was pointed out by this Board in its opinion in Realty Associates, supra. There seventeen individuals subscribed to a fund which they paid over to a real estate operator to invest in exploiting Long Island real estate. For identification purposes their project was called the Brighton Syndicate,” and each contributor to the fund was to share ratably in the profits from any investment made by the operator, who was made “ Syndicate Manager.” No control, however, was retained ove,r the manager in any form by the contributors and no form of organization was provided for in the seventeen separate contracts. We held there, although the manager was carrying on business as a corporation might have carried it on, that no orgo/ruization was formed, and, therefore, there could be no association within the statute. In Crocker v. Malley, 249 U. S. 223, there was gome resemblance of organization, but no carrying on of any business as contemplated in law. There a corporation, prior to dissolution, conveyed the fee to certain paper mills, under lease, and its interest in such leases to trustees for the benefit of its stockholders. The trust instrument directed the trustees to' collect all rentals from the leased property and all proceeds from the sale of any of it, in case of a sale; and, at their discretion, but not later than 20 years after the death of persons then living, to distribute ratably the funds of the trust to the stockholders. The participating stockholders were issued transferable trustees’ receipt certificates representing their respective interests in the trust and were given a voice in filling any vacancy in the trustees and in any change in the terms of the trust agreement. In view of this quasi-corporate structure, the Government argued that the trustee and the certificate holders, when considered collectively, constituted an association within the statute. The Supreme Court, however, took a contrary view, and held that the trustees must be considered alone; and that, when so considered, their functions, so long as limited to the single duty of collecting and disbursing rents, could not be construed as carrying on business within the rule. Later, however, a change in the affairs of these associates came about which reversed their taxable status and changed the simple trust into an association taxable as a corporation.

This change was brought about as a result of a repurchase, by the Crocker interests, of a number of paper mills they had sold to the leasing corporation, and the cancellation of the leases they had made to it of others, which the trustees were holding under the trust agreement. To meet this situation the trustees and their beneficiaries amended the trust agreement so as to authorize the trustees to “ acquire instead its entire property and to carry on the business theretofore conducted by it, or any substantially similar business.” The title to all the trust property “ and the right to conduct all business ” were vested “ exclusively in the trustees,” who were authorized to select from among them a president and other officers with prescribed duties. The certificate holders were authorized to remove and elect the trustees in meetings, the same as stockholders of a corporation would elect directors. In these changed conditions these associates came before the court a second time, as one of a consolidated group whose cases were considered together in Hecht v. Malley, supra. In this second consideration of the Crocker associates, the Supreme Court of the United States, in its opinion, pointed out the structural changes in their organization, as above mentioned, and said: “By this modification ‘ the form of [the] organization ’ was specifically ‘ changed to that of an association ’ under its present name.” Also, taking notice of the change from a passive trust to that of active business, the court said: “ Since the modification of the trust agreement the trustees have carried on the manufacturing business in substantially the same manner as it was formerly conducted by the corporation.” Accordingly, it held that the Crocker associates were taxable as a corporation within the law.

We do not understand it to be the respondent’s contention that a single individual, as in this case, considered alone in his limited capacity as trustee, would be taxable as a corporation upon the bare rents collected and disbursed by him; but, he argues that the several beneficiaries and the trustee were engaged in the oil business, and, considered collectively, that the trust agreement tied them together in an association which gave corporate form and effect to their operation within the law. The same contention was raised in Crocker v. Malley, supra, respecting which the court said:

* * * We perceive no ground for grouping the two — beneficiaries and trustees — together, in order to turn them into an association, by uniting their contrasted functions and powers, although they are in no proper sense associated. It seems to be an unnatural perversion of a well-known institution of the law.

The circumstances herein bring this appeal clearly within the purview of the decision in Lansdowne Realty Trust v. Commissioner, 50 Fed. (2d) 834. There, the trustees held only such assets as were the property of the beneficiaries before the trust was declared and the income from such property was already provided for under the terms of a certain five-year lease theretofore executed, during which period, including the taxable year, they did nothing more than collect and distribute the rentals. Here, the corpus of the trust was property owned by the beneficiaries before the declaration of trust was executed and the disposition of the income therefrom was already provided for during the term of the drilling contract. The only function of the trustee was to receive and distribute the income in the manner provided by. the trust instrument, and even this duty was delegated to a bank, which received and distributed income from ' the sale of oil as it accrued.

In our opinion there was no corporate attribute in the organization structure here involved, or in the business, that brought it within the provision of the section of the tax laws, and that it is not an association taxable as a corporation. Realty Associates, supra; Zonne v. Minneapolis Syndicate, 220 U. S. 189; Allen v. Commissioner, 49 Fed. (2d) 716.

In view of our conclusions, as stated, upon the basic issue, it becomes unnecessary to consider the remaining assignments of error.

Decision will be entered for the ■petitioner.


source: Caselaw Access Project

author: Lansdon :

license: Public Domain

text:
    E. B. Higley & Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 51003.
    Promulgated January 11, 1932.

      E. S. Gage, C. P. A., for the petitioner.

      A. H. Fast, Esq., for the respondent.
   OPINION.

Lansdon :

The respondent has asserted a deficiency in income tax for the fiscal year ended January 31,1928, in the amount of $2,653.68. All of the issues raised by the pleadings have been abandoned except one, namely, whether the respondent correctly included as income to the petitioner the amount of $15,411.89, the total of petitioner’s debts which were forgiven during the taxable year.

The petitioner is an Iowa corporation with its principal place of business at Mason City. During the taxable year it was in the hands of receivers. As a part of the plan for strengthening its financial condition, certain creditors accepted preferred stock of a par value equal to their claims; others accepted such stock for part of their claims and received the balance in cash, while others forgave a small portion of the debt and received cash for the balance. The total of the debts forgiven was $15,411.89. Upon audit of the petitioner’s income-tax return for the fiscal year ended January 31, 1928, the respondent added to gross income the total amount of debts forgiven.

It has heretofore been held that forgiveness of an indebtedness does not result in taxable income. Meyer Jewelry Co., 3 B. T. A. 1319; Simmons Gin Co., 16 B. T. A. 793; affd., 43 Fed. (2d) 327; John F. Campbell Co., 15 B. T. A. 458; affd., 50 Fed. (2d) 487. Cf. Bowers v. Kerbaugh-Empire Co., 271 U. S. 170. In this proceeding and in the decisions cited above, the forgiven debtor was insolvent. The debt was forgiven so that the business might be rehabilitated and continued as a going concern. The parties contemplated no profit from the transactions, which merely relieved the taxpayer from a portion of its liabilities. In United States v. Kirby Lumber Co., 284 U. S. 1, the Supreme Court held that the taxpayer realized a profit by purchasing its bonds on the market for less than the price at which they must ultimately be redeemed. In our opinion that decision is not controlling in the instant proceeding. No part of the forgiven debts should be included in the petitioner’s gross income.

Reviewed by the Board.

Decision will be entered under Rule 50.

Marquette and Sternhagen dissent.


author: Lansdon:

text:
    Forrester Box Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 30389.
    Promulgated January 11, 1932.

      Henry J. Plagens, Esq., for the petitioner.

      Frank B. Schlosser, Esq., for the respondent.
   OPINION.

Lansdon:

The respondent has asserted deficiencies in income tax for 1923, 1924 and 1925 in the respective amounts of $1,411.20, $1,675.77 and $1,755.23. The deficiencies arise from the respondent’s action in disallowing a deduction of $102,449.47 alleged to represent a loss from the disposition, in 1923, of certain notes receivable and in refusing to carry forward an alleged net loss to the two succeeding taxable years. The evidence offered consists of a stipulation of facts, with exhibits attached thereto, and certain testimony taken in D. Bruce Forrester et al., 12 B. T. A. 104.

The petitioner is a Missouri corporation organized on December 5, 1922, with an authorized capital stock of the par value of $60,000. On December 8,1922, it entered into an agreement with the Forrester-Nace Box Company, which provides in part as follows:

Whereas a plan of reorganization was set out in the minutes of a special meeting of the stockholders and directors of Forrester-Nace Box Company on December 4th, 1922, and
Whereas a part of said plan was to convey to Forrester Box Company the following described real estate: (Description follows) and open accounts of indebtedness owed by William S. Forrester, Bruce E. Nace and D. Bruce For-rester, and also other accounts and personal property, and
Whereas Forrester' Box Company has been incorporated pursuant to such plan of reorganization, and
Whereas Forrester-Nace Box Company did, on the 7th day of December, 1922, convey to Forrester Box Company the above described real estate and the building on said land and the equipment and fixed machinery therein contained, and
Whereas Forrester Box Company is to receive, and Forrester-Nace Box Company does by this instrument convey to Forrester Box Company, other personal property, and
Whereas Forrester Box Company assumes certain obligations of Forrester-Nace Box Company to the end that such reorganization may be effected;
Now, therefore, it is agreed and understood that Forrester-Nace Box Company, by this instrument, does convey to Forrester Box Company all of its personal property, including book accounts and indebtedness of whatsoever kind or character, together with that certain fixtures, machinery and equipment listed and described in a certain inventory consisting, in addition to the index, of ninety-eight sheets numbered 0001 to 0098, both inclusive, and initialed by Bruce E. Nace (B. E. N.) and Paul E. Duzeski (P. E. D.), except the machinery and equipment and all other property listed and described under groups 3, 4 and 5 of said inventory and except the wirebounds license between 4-one Box Machine Makers (then known as Wirebounds Corporation), Wirebounds Patents Company and Forrester-Nace Box Company, dated April 1, 1916, and certain agreement between Box Patents Corporation and one share of stock in said latter corporation and except the property and assets of the Forrester-Nace Box Company, consisting of the following items as of February 28, 1922;
Cash on hand_ $100. 00
U. S. Liberty Bonds___ 100.00
Accounts Receivable_ 27, 320.72
Inventory- 65, 840. 70
Advance payments on mdse___ 6,764.17
Prepaid fire insurance- 3, 055.45
Cash value of life ins. net_ 2, 577.59
Total- 105, 858.63
And Forrester Box Company, in consideration of said conveyance and for the purpose of reorganization, assumes and agrees to pay all of the obligations of Forrester-Nace Box Company as disclosed by the books of Forrester-Nace Box Company at the close of business February 28, 1922, except certain accounts payable amounting to Nine Hundred Twenty-nine & 27/100 ($929.27) Dollars and for reservation for federal and state income taxes amounting to Nine Thousand Nine Hundred Sixteen & 44/100 ($9,916.44) Dollars, all as of February 28th, 1922, as referred to in Exhibit C attached to a certain agreement bearing date of December 8th, 1922, executed by and between Bruce E. Nace, William S. Forrester, D. Bruce Forrester, Forrester Box Company and General Box Corporation.
*******

Pursuant to the above agreement the petitioner transferred its entire authorized capital stock to the stockholders of the Forrester-Nace Box Company. On December 8, 1922, the petitioner leased its plant and equipment to the Forrester-Nace Box Company for a period of ten years, on an annual rental basis, and, simultaneously, the stockholders of the Forrester-Nace Box Company exchanged their stock in that corporation for stock of the General Box Corporation.

The Forrester-Nace Box Company is a Missouri corporation organized on January 7, 1901. Its outstanding capital stock of a par value of $100,000 was owned by Bruce E. Nace, W. S. Forrester and D. Bruce Forrester, who were president, vice president and general manager, respectively. Prior to the transfer of certain of its assets to petitioner, the Forrester-Nace Box Company had purchased stock in a Kansas corporation, the Empire Development Company, and had advanced certain amounts to it for working capital, taking promissory notes therefor. Because of charter restrictions and on the advice of counsel, the investment in the Empire Development Company was carried on the boobs of the corporation under the caption “ B. E. Nace and D. Bruce Forrester-Empire Development Company.” The promissory notes were payable to the individuals.

Included in the assets transferred to the petitioner on December 8, 1922, was the “ B. E. Nace and D. Bruce Forrester-Empire Development Company ” account, which had a debit balance of $81,233.16. On February 5, 1923, the board of directors of petitioner adopted a resolution accepting the promissory notes executed by the Empire Development Company to B. E. Nace and D. Bruce Forrester, of a face value of $115,785.14, in full settlement of the above account receivable from the officers and certain other personal accounts receivable from officers. The proper book entries were made, pursuant to the resolution, and the notes were endorsed, without recourse, to the petitioner. On November 26,1923, petitioner disposed of such notes, and of capital stock of the Empire Development Company having a par value of $140,993, to one Evans, who agreed to assume certain obligations of the Empire Development Company, on which Nace and Forrester were guarantors, in the amount of $46,664.33, and to pay $13,335.67 in cash to the petitioner.

We have heretofore held, in D. Bruce Forrester, supra, that the investment in the Empire Development Company, which was carried as an officers’ account receivable of the Forrester-Nace Box Company, was, at all times, the investment of that corporation and that the officers were merely a conduit through which the corporation made and carried the investment. The promissory notes were, then, the corporation’s property and when the petitioner acquired the officers’ accounts receivable in exchange for stock it in fact acquired the promissory notes held by the officers. The transactions of February 5, 1923, by which the notes were substituted for the account were merely book entries giving effect to the existing facts.

If the Forrester-Nace Box Company had sustained the loss here claimed, there could be no doubt of its allowance. We have, however, a transaction between the Forrester-Nace Box Company and the petitioner, which may change the basis for computing the loss upon disposition of the notes by petitioner. If petitioner acquired the notes pursuant to a plan of reorganization under section 202 of the Revenue Act of 1921, the basis would be the same as it was in the hands of the Forrester-Nace Box Company and petitioner would be entitled to the loss. If notes were acquired by purchase, then the basis for computing any loss sustained is cost to the petitioner.

We are of the opinion that the transactions by which petitioner took over a part of the assets and liabilities of the Forrester-Nace Box Company do not constitute a reorganization within the meaning of section 202 of the Bevenue Act of 1921. See also article 1566 (b) of Begulations 62. There was no merger or consolidation of the petitioner and the Forrester-Nace Box Company, nor were their properties united. A portion of the properties of the Forrester-Nace Box Company was transferred to the petitioner in consideration of the transfer of petitioner’s stock to the stockholders of the former and the assumption by petitioner of certain liabilities of the former. The Forrester-Nace Box Company is still in existence and, as a subsidiary of the General Box Corporation, is the operating lessee of petitioner’s plant and equipment. We think the petitioner purchased the assets acquired from the Forrester-Nace Box Company, making payment therefor with its capital stock.

Section 202 (a) of the 1921 Act provides that the basis for ascertaining gain or loss upon the sale or other disposition of property shall be the cost of such property. There being no evidence in the record to show the value of the stock paid for the notes, we can not determine the amount of the loss, if any, sustained by petitioner.

Decision will be entered for the respondent.


author: Marquette :

text:
    Oreon E. Scott, Louis R. McDermott, and Gertrude A. McDermott, Executors and Trustees Under the Will of Philip A. McDermott, Deceased, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 42479.
    Promulgated January 12, 1931.

      Arthur E. Simpson, Esq., for the petitioners.

      John E. Pigg, Esq., for the respondent.
   OPINION.

Marquette :

At the time of his death, Philip A. McDermott owned real estate located in Missouri of the value of $242,460. Against this real property there was a bona fide mortgage encumbrance amounting to $107,060.84. Under the Missouri statutes the real property was not subject to the expenses of administration of the estate; hence, it formed no part of McDermott’s gross estate for Federal estate-tax purposes. Crooks v. Harrelson, 282 U. S. 55. The value of such realty, therefore, should be excluded in computing the estate tax.

Petitioners contend that the amount of the mortgage encumbrance, $107,060.84, should be deducted from the gross estate of the decedent under section 303 (a) (1) of the Revenue Act of 1924. They also insist that under the same statutory provisions there should be deducted from the gross estate: (1) the full amount of commissions which the State court allowed them as executors, including $10,862.17 allowed by reason of the sale of the Missouri real estate; and (2) the full amount of State and city taxes, aggregating $6,085.20, paid by them in 1925 on account of the Missouri real estate.

We can not agree with the petitioners respecting these contentions. The pertinent provisions of the Revenue Act of 1924, which is here effective, are as follows:

Sec. 801. (a) * * * a tax equal to the sum of the following percentages I of the value of the net estate (determined as provided in section 303) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this Act, * * *
Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated—
(a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as a part of his estate;
(b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent’s death as dower, curtesy, or by virtue of a statute creating an estate in lieu of dower or curtesy.
* * * * » * - *
Seo. 303. For the purpose of the tax the value of the net estate shall be determined—
(a) In the case of a resident, by deducting from the value of the gross estate—
(1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness in respect to, property * * * to the extent that such claims, mortgages, or indebtedness were incurred or contracted bona fide and for a fair consideration in money or money’s worth.

In the section last quoted the word “ property ” is not qualified in express terms. In our opinion, however, it refers to and includes only such property of a decedent as may be subject to Federal estate taxes. Clearly, the purpose of sections 802 and 303 of the Revenue Act was to provide a method for determining the net amount of a decedent’s estate which may be subject to the tax imposed by section 301 of the act. To accomplish such purpose, section 302 prescribes what shall be included in the gross estate. That having been determined, section 303 sets forth what may be deducted from such gross estate in order to fix the amount of the net taxable. estate of the decedent.

' A similar question of interpretation arose in In re Chapman, 166 U. S. 661, where the court dealt with a statute concerning one who was summoned “ as a witness by either House to give testimony or produce papers, upon any matter under inquiry before either House.” The court said, at page 66T:

It is true that the reference is to “ any ” matter under inquiry, and so on, * * * but nothing is better settled than that statutes should receive a sensible construction, such as will effectuate the legislative intention and, if possible, so as to avoid an unjust or absurd conclusion; and we think that the word “ any ” as used in these sections, refers to matters within the jurisdiction of the two Houses of Congress, before them for consideration and proper for their action.

Sections 302 and 303 of the Revenue Act of 1924 deal only with such property of a decedent as may, under the conditions prescribed, become subject to the Federal estate tax. They have no concern with any property not subject to such tax. Obviously, therefore, the words in those sections were used with reference to such taxable property, and to none other; and the deductions allowed in section 303 can only refer and apply to a gross estate as determined under tbe provisions of section 302. A different interpretation, such as the petitioners are urging upon us, in our opinion would not be a sensible one, nor effective of the legislative intent. We hold, therefore, that the encumbrance against the real estate, which could not in any event be subject to Federal estate tax, was not a deductible mortgage upon property within the meaning of section 303. Cf. Lewis v. Commissioner, 47 Fed. (2d) 32.

Nor can the amount of the mortgage be deducted as a claim against the • estate. The obligation to pay off the mortgage indebtedness was not created or assumed by the decedent, did not rest upon him, and could not have been made the foundation of a personal judgment against him during his lifetime or of a claim against his estate.

Respecting commissions allowed to petitioners by the State court on account of the sale of decedent’s real estate in Missouri, it is self evident that, since the real estate was not subject to administration expenses any charge or expense incurred in selling such property can not be classified as an expense of administration under the controlling revenue act. Nor were the commissions in question claims against the decedent’s estate within the meaning of the revenue act. In Hill v. Grissom, 299 Fed. 641, the court was passing upon a like question and defined the term “ claims against the estate ” as being “ such demands or claims of a pecuniary nature, which could have been enforced against the decedent during his life.” To the same effect are Cyrus H. McCormick et al., Executors, 13 B. T. A. 423; affd., 283 U. S. 784; and Isabella N. Skinker et al., Executrices, 13 B. T. A. 846. As the obligation to pay the commissions in question did not accrue during the decedent’s lifetime, nor as a part of the administration of his estate, we hold that the amount of such commissions, $10,862.17, is not deductible from the gross estate for the purpose of Federal estate taxes.

As to the deduction of the amount of State and city taxes against decedent’s real estate paid by petitioners, their argument is that all taxes are a lien upon the property of the owner from and after June first of the year in which levied; that the taxes in question constituted a lien on decedent’s property at the time of his death and were, therefore, a claim against his estate.

We are not impressed by the argument. Section 9746 of the Missouri Statutes, cited by petitioners as creating a lien for taxes on June first, makes no mention of a lien at all. It does provide that whoever owns property on June first shall be liable for taxes thereon for the ensuing year. The record is silent as to the date when McDermott acquired the land in question. If it was subsequent to June 1, 1925, then under the statute relied upon by petitioners the tax liability rested not upon McDermott, but upon a predecessor in title. And it is well established that taxes do not become liens even upon the property upon which they are assessed unless made so by statute. Jefferson City v. Whipple, 71 Mo. 519; Heine v. Levee Commissioners, 19 Wall. 655. The two decisions relied upon by the petitioners are both based upon the fact that the State taxes had become a lien against the estates of the respective decedents prior to the time of death. In the present proceeding no such fact is established.

The Missouri Revised Statutes of 1919, section 12803, declare that:

Bach tract of land or lot shall be taxable with its own taxes, no matter who is the owner, nor in whose name it is assessed.

Other provisions are that when, on January first, land becomes delinquent for nonpayment of taxes, the collector shall bring suit for the amount and shall sell the land to satisfy the judgment for taxes. Sections 12928, 12944 and 12946. It is thus apparent that real estate taxes and the enforced collection thereof are, in Missouri, matters in rem rather than in personan, and such taxes fall within the same category as mortgages against the real estate, so far as concerns their deductibility under section 303 of the revenue act. Hence, in computing the net estate of the decedent the amount of the real estate taxes paid by the petitioners may not be deducted.

The next question is whether there should be included in decedent’s gross estate the net value of the interest which the widow would have received as dower had she elected to take under the State statutes. Those statutes, so far as here pertinent, provided as follows:

Sec. 315. Dower in real estate — Every widow shall be endowed of the third part of all the lands whereof her husband * * * was seized of an estate of inheritance, at any time during her marriage, to which she shall not have relinquished her right of dower, in the manner prescribed by law, to hold and enjoy during her natural life.
Seo. 316. Widow has bight to transfer her unassigned dower interest— Any widow shall have the right to transfer and assign her unassigned dower interest in the real estate of which her husband died seized, * * *
* * * * # * #
Seo. 328. Land massing by will held in iieu oe dower — If any testator shall, by will, pass any real estate to his wife, such devise shall be in lieu of dower out of the real estate of her husband whereof he died seized, or in which he had an interest at the time of his death, unless the testator, by his will, otherwise declared.
Seo. 329. Renunciation oe will — In such case the wife shall not be endowed in any of the real estate whereof her husband died seized or in which he had an interest at the time of his death, unless she shall, by writing duly executed and acknowledged as in the ease of - deeds for land, and filed in the office of the court in which the will is probated and recorded within twelve months after the proof of the will, not accept the provisions made for her by said will. * * *

The net value of the interest in question was $33,270.75. Petitioners contend that, because the widow did not renounce the will as provided in the statute quoted above, but elected to take under it, she therefore had no dower interest or statutory interest in lieu thereof in decedent’s estate. Respondent urges the view that the widow’s dower interest, which was inchoate but not defeasible by the husband during his life, became consummate at the instant the husband died and that when, thereafter, she elected to take under the will instead of under the statute, she purchased the benefits under the will.

In our opinion the respondent’s contention is correct. By section 302 (b) of the Revenue Act of 1924 the value of a decedent’s gross estate shall include the dower interest of the surviving spouse, and that right is not limited, as in section 302 (a), to only so much of decedent’s estate as is subject to payment of charges, administration expenses, and to distribution. Under section 315 of the Missouri Statutes the widow had an indefeasible dower right in the land of which her husband died seized. At once upon the death of the husband that dower right became consummate, vesting in her a definite right of property. She was not obligated to retain that right, but might transfer it even before the dower to which she was entitled was assigned to her. In the present proceeding such a transfer, or what was equivalent thereto, took place when the widow accepted the provisions of her husband’s will and failed to file a written renunciation thereof within the statutory period of twelve months. Several of the Circuit Courts of Appeal have held, in cases similar, that acceptance of an annunity in lieu of dower amounted to a purchase of such annuity by the relinquishment of dower. Warner v. Walsh (2d Cir.), 15 Fed. (2d) 367; United States v. Bolster (1st Cir.), 26 Fed. (2d) 760; Allen v. Brandeis (8th Cir.), 29 Fed. (2d) 363. In the latter case the court said that, as the dower interest “ was her individual property on her husband’s decease, and as she elected to take the annuity provided in his will, it is quite too clear for argument she was a purchaser for value of the annuities.”

We conclude, therefore, that the widow of Philip A. McDermott became vested with a dower interest in the real estate owned by him at his death; and that the value of that interest, amounting to $33,270.75, should be included in the gross estate of the decedent for Federal estate-tax purposes.

In respect of the last question presented, it appears that decedent left insurance policies upon his life receivable by beneficiaries other than his estate, of the aggregate value of $86,942.79; that four of the policies, amounting in value to $19,228.91, were omitted by respondent in determining the total gross estate of the decedent. Respondent now contends that such omission was error on his part and asks that it be rectified.

Section 302 (g) of the Revenue Act of 1924 provides that there shall be included in the gross estate the amount of insurance upon decedent’s life in excess of $40,000 which may be receivable by beneficiaries .other than the estate; and paragraph (h) of that section makes paragraph (g) applicable to all cases arising either before or after that act was enacted. The date of enactment was June 2, 1924.

Each of the policies in question contained a provision reserving to the decedent the right, at any time, to change the beneficiaries: thereof. That right was limited, however, by the Missouri Statutes,, which provided that if a wife were named as beneficiary the husband could not change the beneficiary and name a creditor in place .of the wife unless the wife gave her written consent.

Petitioner’s argument is based upon the assumption that in the four policies in question decedent named his wife as beneficiary. There is nothing in the record before us to warrant such assumption. Nowhere in the evidence submitted is there any intimation as to who were the beneficiaries .of those policies, except that they were other than decedent’s estate. So far as the record discloses, decedent had •full power to cancel the policies, or change the beneficiaries to whomsoever he chose. He thus had complete dominion and control over the policies at all times, and the .fact that he may not have exercised his right to change beneficiaries can not in any way affect the situation. Upon the face of the record his right to change beneficiaries was not minified up to the very moment of his death. The case of Lewellyn v. Frick, et al., 268 U. S. 238, which is relied upon by the petitioners, is not in point, for the basic principle of that decision is that a named beneficiary, under a policy which does not reserve to the insured a right to change beneficiaries, has a vested right which can not be taken away without consent. In the present proceeding the right to change beneficiaries was reserved to the insured, subject only to a statutory limitation which, so far as the record discloses, has no application here. Clearly, the value of the policies in question should be included in decedent’s gross estate, for those policies formed a part of his life insurance in excess of $40,000. This principle has been asserted in many decisions. Cf. Chase National Bank v. United States, 278 U. S. 327; Reinecke v. Northern Trust Co., 278 U. S. 339; Elizabeth W. Driver, Executrix, 20 B. T. A. 910; Louis M. Weiller et al., Executors, 18 B. T. A. 1121; Edwin S. Rauh, Executor, 19 B. T. A. 993; William A. Cushman et al., Executors, 19 B. T. A. 1012; Helena Liebes, Executrix, 20 B. T. A. 731; and H. T. Cook et al., Executors, 23 B. T. A. 335.

Reviewed by the Board.

Decision will be entered under Rule 50.

Seawell dissents.


text:
    Alworth-Washburn Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 45651.
    Promulgated January 12, 1932.

      Frank W. Wilson, G.P.A., and A. G. Waslibwrn, Esq., for the petitioner.

      A. H. Fast, Esq., for the respondent.
   OPINION.

Lansdon :

The respondent has asserted a deficiency in income tax for the year 1927 in the amount of $19,005.60. The petitioner is a Minnesota corporation with principal office at Duluth. It was organized in 1907, for the purpose of acquiring and selling for profit timber lands in the State of Oregon. In 1926 it sold to the Brooks-Scanlon Lumber Company, a corporation, some 12,440’ acres, “ more or less ” of timber lands, for the contract price of $590,900, payable $100,000 in cash at the time of sale and the balance in five equal annual installments of $98,180, payable successively on May 1 of each year thereafter following. These installments were evidenced by five groups of promissory notes drawing 6 per cent interest, and executed in the name of the purchasing corporation in favor of the petitioner. Later, the gross price was adjusted by the parties to $588,838, and the 1926 payments to $121,118.02. This reduced the May 1, 1927, payment to $75,000, but left the remaining four installments as hereinabove stated. In its income-tax return for 1926 the petitioner elected to report the taxable profit realized from the sale of these lands upon the installment basis, and reported $121,-118.02 as cash received upon such purchase price in that year. This return was accepted by the Commissioner of Internal Revenue and tax liability settled in conformity therewith.

On May 1, 1927, the petitioner collected $75,000 on the notes then due. On December 6, following, it discounted the remainder of the installment notes by blank indorsement to the First National Bank of Minneapolis and received $403,882.97 in cash therefor. This amount, less a small portion retained for expenses and tax liabilities, was immediately distributed to petitioner’s stockholders and credited in its books as “ advances to stockholders.” In its income-tax return for 1927 the petitioner reported the single installment of $75,000 as the only cash received from the sale of its lands in that year and deferred reporting the price received for the remainder of the installment notes to their respective maturity years. As the notes became due they were paid by the Brooks-Scanlon Lumber Company, maker.

The respondent has held that the installment sale of the petitioner’s lands became a closed transaction on December 6, 1927, when it discounted the notes received in payment to the Minneapolis bank, and that in virtue thereof its entire gain was then realized and taxable. The petitioner concedes the respondent’s computation of gain, but contends that for income-tax purposes it should be spread over the years in which the installment notes became due; that in virtue of its indorsement of the notes, it incurred a continuing liability to the bank which ratably deferred its realization of gain until that liability was finally extinguished by their payment. The petitioner contends that such a situation makes its relationship with the bank that of a borrower and the proceeds received a loan which was discharged ratably in the subsequent years of their payment, and that it is entitled to continue reporting its income from sale of its timber land on the installment sale basis.

The issue and material facts here are on all fours with those considered by us in Grace T. Mytinger, 4 B. T. A. 896, and Packard Cleveland Motor Co., 14 B. T. A. 118, in each of which we held contrary to the contentions of the petitioner. In our opinion such decisions are controlling here. Cf. Lucius H. Elmer, 22 B. T. A. 224. The facts in the instant proceeding, however, are even more strongly against the theory advanced by the petitioner than in the cases cited, since its own evidence discloses that the parties concerned treated the discounting of the notes as a sale and not a loan. In this connection we need only to refer to¡ the minutes of the directors’ meeting where the transaction was discussed and the “ sale ” ratified, and to the fact that the proceeds received from the bank were immediately distributed to the stockholders. The testimony of an official of the discounting bank negatives any theory or understanding that the amount paid for these notes was treated as a loan to petitioner. He admitted, under cross-examination, that at no time was there an existing debt or obligation which the petitioner could “ pay off ” and get these notes back; that (quoting his exact words) “ We were under no obligation to return the notes to them and accept money before maturity * * *. They are our notes if we discounted them.” The petitioner’s attempts to show through bookkeeping entries a contrary intent does not change the true character of the transaction considered. Bookeeping entries can not prevail over facts. Doyle v. Mitchell Bros. Co., 247 U. S. 179; Chicago, Rock Island & Pacific Railway Co., 13 B. T. A. 988; Kansas City Southern Railway Co., 16 B. T. A. 665; Terminal Railroad Association of St. Louis, 17 B. T. A. 1135. Decision will be entered for the respondent.


text:
    Black Diamond Oil Trust No. 513, G. S. Willhoite, Trustee, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 38523.
    Promulgated January 12, 1932.

      Louis E. Spiegler, Esq., Moe A. Lesser, Esq., and Harvey 8. Stevenson, G. P. A., for the petitioner.

      Byron M. Goon, Esq., for the respondent.
   OPINION.

Lansdon:

The only question here is whether this petitioner, by reason of the nature of its organization and the purpose of its operations, is taxable as a trust or as an association. The facts are well established. Hollingsworth, Dickens, McCoy and Wilhoite associated themselves for the purpose of acquiring, developing and operating an oil-producing property. As sublessees they acquired the right to occupy and explore a certain tract of land for oil and gas and assumed all the obligations of the lessees. Lacking the means to complete an oil well on the land, they trusteed their interest therein and brought some 225 additional persons into the enterprise as unit holders and parties to the trust. The agreement designated one of the lessees as trustee, defined the powers of such trustee, and provided that “ in all his actions relating to questions and matters pertaining to the drilling for and production and disposal of oil and other hydrocarbon substances from said land shall be governed by the decision of a majority of the sub-lessees,” and that a majority of the sublessees, by a writing filed with the depositary, might remove a trustee and name his successor. Ownership of units of beneficial interest was evidenced by signed copies of the agreement and by prescribed entries in books of the depositary and transfer of such units by assignment was authorized and in many instances effected during the operation of the petitioner.

Clearly, this petitioner was formed by individuals entering into an association with each other.' That association was organized by the execution of an agreement. Like the charter of a corporation, that agreement defined the rights of all the parties in interest and specifically provided for the operation of the enterprise for a definite term of years. It is not too much to say that such agreement designated the sublessees as directors of the enterprise in which all the unit holders were parties in interest. One of the sublessees was manager, with his powers strictly defined, and subject to removal by a majority of his fellow directors, the sublessees. Papers evidencing the percentages of ownership were issued to the unit holders. In our opinion, these facts established sufficient similarity to the association to bring it within the provisions of section 2 (2) of the Revenue Act of 1921.

Very many similar controversies have been decided by this Board, the inferior Federal courts, and the Supreme Court of the United States. The leading case is Hecht v. Malley, 265 U. S. 144. The court said:

We conclude, therefore, that when the nature of the three trusts here involved is considered, as the petitioners are not merely trustees for collecting funds and paying them over, but are associated together in much the same manner as the directors in a corporation for the purpose of carrying on business enterprises, the trusts are to be deemed associations within the meaning of the Act of 1918; this being true independently of the large measure of control exercised by the beneficiaries in the Seeht and Haymarket cases, which much exceeds that exercised by the beneficiaries under the Wachusett Trust. * * * ”

Following Hecht v. Malley, supra, this Board and the courts have since almost uniformly held that the true tests to be applied in all their trust controversies is whether the association was formed for the purposes of conserving or liquidating property already owned by the beneficiaries or for -conducting a business and earning profits for distribution among the parties in interest. Applying this test to the circumstances of this petitioner, we think it must be taxed as an association. There was a voluntary association, the creation of a business entity to operate for many years, and the production and sale of oil for the sole purpose of realizing profits for the associates. Hecht v. Malley, supra, Burk-Waggoner Oil Assn. v. Hopkins, 269 U. S. 110; Durfee Mineral Co., 7 B. T. A. 231; Russell Tyson et al., Trustees, 20 B. T. A. 597.

Pursuant to section 704 (b) of the Revenue Act of 1928, trustees for organizations taxable as trusts prior to 1926 might elect whether to be taxed as associations or trusts. Such an election was filed by the trustee of this petitioner, but since it was not taxable as a trust in 1923 or 1925, it has no bearing on the issues of this proceeding.

The petitioner filed no return for the year 1923 and, so far as this record discloses, has never filed a return for that year. Even if the explanation of failure to file is reasonable, it is of no avail here, since, under section 3176 of the Revised Statutes, the penalty can be lifted only upon proper explanation and later filing of a return. John B. Nordholt, 4 B. T. A. 509; John T. Sline, 9 B. T. A. 1222.

Decision will he entered for the respondent.


author: Murdock:

text:
    Globe Construction Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 43438, 51694, 53310.
    Promulgated January 12, 1932.

      Thomas A. Williams, G. P. A., for the petitioner.

      James L. Bachstrom, Esq., for the respondent.
   OPINION.

Murdock:

The petitioner claims that its interest in the Casey-Kelly contract cost it $50,000 and, therefore, it is entitled to deduct one-seventeenth of this amount in each year under that provision of the revenue acts which permits the deduction of “ a reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence.” This allowance for the years in controversy must be based upon either the cost of the property to Kelly, or the cost of the property to the petitioner. The respondent contends that the property was acquired after December 31, 1920, by the corporation by the issuance of its stock or securities in connection with a transaction described in paragraph 4 of subdivision (b) of section 203 of the Revenue Act of 1926, and therefore the basis for depletion or depreciation would bo the cost to the transferor, Kelly, which cost was nothing. Section 204 (a) (8) and section 204 (c). Section 203 (b) (4) provides for a situation where property is transferred to a corporation by one or more persons solely in exchange for stock of the corporation, and immediately after the exchange such person or persons are in control of the corporation. Control means the ownership of at least 80 per centum of the stock. We think that the provisions of the sections above mentioned apply to the facts m this case, and the basis to the petitioner for depletion or depreciation is nothing.

The petitioner’s original allegations in these proceedings were that 5,000 shares of its capital stock, which had’a par value and an actual value of $50,000, were issued to Kelly in consideration for his rights under the contract with Casey. Kelly swore to these allegations. According to the corporate minutes of the petitioner, stock of the par value of $50,000 was issued to Kelly in consideration for his interest in his contract with Casey. At the hearing, after it was called to the attention of the petitioner’s counsel that his allegations did not set forth a cause of action on this point, he amended his pleadings to allege that Kelly received only 3,140 shares for himself for his interest in the contract, and the other shares issued were to go as prearranged to other individuals in consideration of certain services which these individuals had performed for the corporation. There is no suggestion in the corporate minutes that these shares were to go to these individuals under the circumstances mentioned in the amended petition. On December 19, 1921, Kelly assigned his interest in the contract to the corporation and received 5,000 shares of stock. None of these shares were distributed to any others until March 31, 1922. We are now asked to find that during this time Kelly did not own the stock, since he had previously entered into oral agreements requiring him to transfer to various individuals certain of the 5,000 shares which he received. Ansley had done a little legal work. But the proof offered to show what the other individuals had done for the corporation is not convincing. Most of them had done nothing, so far as we can see, which would be consideration for Kelly’s promise or justify the issuance to them of any valuable stock. The mere promise to make a gift transfers no title in property. So far as we can see, Kelly was the owner of the shares until he actually gave them away on March 31, 1922. The petitioner would be no better off, however, if these individuals acquired an interest in the contract prior to the time that Kelly turned it in to the corporation, for in that case section 203 (b) (4) would still apply, since there was an exchange by two or more persons each of whom received stock substantially in proportion to his interest in the property prior to the exchange.

If our reasoning above is wrong and these sections do not apply, then the amount of the deduction to which the petitioner is entitled depends upon the fair market value of the property acquired. This is so because when the petitioner acquired the property in question it had no other property, so far as we know, and the fair market value of the stock which it paid for this property was no greater than the value of the property. Thus, it was incumbent upon the petitioner to prove the value of the property which it acquired from Kelly on December 19, 1921. Cf. Hershey Marmfacturing Co., 14 B. T. A. 867; affd., 48 Fed. (2d) 298. The petitioner realized this and offered a great deal of evidence which was intended to support the alleged value of $50,000. Opinions were given by a number of witnesses. But no qualified witness gave an estimate which appears to be reliable or justified by the facts. Each failed to consider one or more of the essential facts or uncertainties which a prospective purchaser would undoubtedly have taken into consideration. They disregarded the fact that Casey was to be paid a royalty of 15 cents. None made any allowance for the fact that there was on December 19, 1921, only an application for a patent. The value of the contract to the owner .on that date depended a great deal upon the prospects and probabilities of the ultimate issuance of letters patent. No witness was shown to be qualified to estimate these probabilities and to gauge their effect upon value. Casey and Kelly were witnesses for the petitioner on the question of the value of Kelly’s rights. Kelly acquired these rights from Casey on December 1, 1921, at no cost. Yet both say that they were worth over $50,000 eighteen days later. Shortly thereafter Kelly gave away over 37 per cent of the stock which he acquired in .exchange for these rights. There is no reason to believe that the rights fluctuated in value during this period.

The petitioner intended to operate only in New Orleans. The council of that city had adopted specifications for the construction of its streets which did not permit the use of “ Cascemco.” The petitioner experienced great difficulty in having “ Cascemco ” included in the specifications. Not until February 29, 1924, did the council finally permit the paving of one street with this material. It appears from the evidence that any reasonable person would have anticipated some such difficulties as the petitioner later actually experienced.

The sales of stock do not show that the assets had any value on December 19, 1921, when we consider the time of the sales and the circumstances under which they were made. Cf. Fruen Investment Co., 2 B. T. A. 542; Stollwerck Chocolate Co., 4 B. T. A. 467. Frequent contradictions weaken the effect of the petitioner’s evidence. The future for “ Cascemco ” was extremely doubtful on December 19, 1921, and the evidence does not indicate that the rights acquired by the petitioner had any fair market value on that date. Thus, whether the basis for the deduction is cost to Kelly or cost to the petitioner, the result is the same. The Commissioner must be sustained on this point.

The petitioner contends that it expended $26,431.25 in a successful campaign to have “ Cascemco ” included in the paving specifications of the city of New Orleans, and, therefore, it should be permitted to deduct a portion of this amount in each of the years before us. The petitioner conducted the campaign and no doubt expended some money in that connection, but the first question is, How much did it expend which should be capitalized? The respondent made no objection to the offer in evidence of a very badly kept book of accounts. It was admitted with the understanding that any material entries would be called to our attention and properly explained. The petitioner failed to do as directed and we might well disregard the evidence contained in this book. But, since the respondent seems to be satisfied with what the book shows, we have found from it that the petitioner expended $3,197.20 in promoting “ Cascemco.” A portion of this amount may be deducted in each year as contended by the petitioner. In its brief the petitioner contends that Kelly’s salary, as president and general manager, amounting to $19,300, other salaries, and organization expenses should be capitalized and exhausted over the life of the patent. The petitioner did some business during the years 1922 or 1923. How much we do not know. The corporate minutes refer to Kelly’s salary, but we do not know of any other salaries or organization expenses. The record does not justify capitalizing all or any particular part of Kelly’s salary during these years.

The remaining issue relates to the right of the petitioner to deduct $8,850 in each of the years 1925 and 1926. The petitioner has failed to tell us under what section of the revenue act it claims this right. Each amount is supposed to represent one-half of the cost of financing certain construction work performed in those years. In 1924, 1,570 shares of the petitioner’s stock were issued to Dalgarn in consideration of the latter’s promise to finance the corporation in such contracts as it might secure. This contract was not offered in evidence but, according to Dalgarn and the corporate minutes, it covered an indefinite period, the probable extent of which we are totally unable to estimate. The benefits were not restricted to the two years. The payment was not made in these years. It was never made as cost of any contract. The method of bookkeeping and income reporting has not been shown. Under such circumstances the petitioner is not entitled to the deductions claimed.

Judgment will ~be entered under rule 50.


author: Goodeioh : Teammell,

text:
    Lord Forres (Archibald Williamson), Petitioner, v. Commissioner of Internal Revenue, Respondent. Sir Robert Balfour, Petitioner, v. Commissioner of Internal Revenue, Respondent. Alexander B. Williamson, Petitioner, v. Commissioner of Internal Revenue, Respondent. John Lawson, Petitioner, v. Commissioner of Internal Revenue, Respondent. Thomas J. Whitson, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 40229-40233, 43972, 43973.
    Promulgated January 13, 1932.

      Henry D. Gostigan, Esq., J. M. Mannon, Jr., Esq., A. Grcmford Greene, Esq., and James D. Adams, Esq., for the petitioners.

      John D. Foley, Esq., for the respondent.
   OPINION.

Goodeioh :

The deductibility, by the several partners, of the liability for British income taxes of the partnership of Balfour, Guthrie & Company, is not different from the question' previously considered and determined in W. J. Burns et al., 12 B. T. A. 1209. Following that decision, we hold that the distributable share of the partnership income for the year 1923 of each of the petitioners herein (except John Lawson) should be reduced by his pro rata share of the British income taxes accrued against the partnership for that year and paid by it on December 5, 1927, as set out in our findings of fact.

We are not impressed with the argument made on behalf of petitioner Lawson that respondent’s action in redetermining the net loss for the year 1922, claimed as a deduction from petitioner’s income for the year 1923, results in the indirect assessment of a deficiency against him for the year 1922, now barred by the statute of limitations. The statute has not run as to 1923, and it is for that year that respondent seeks to impose a tax. In computing petitioner’s taxable income for the year 1923, it is respondent’s duty to consider and determine all items and elements thereof, including the net loss carried forward from the preceding year. He is not limited by the 1922 return in determining the correct amount of that loss as it may affect the deficiency for 1923. However, respondent has reduced the net loss claimed for 1922 by $7,101.60 which, he estimates, was the amount of dividends received by Lawson from the Olympic Company. This amount is in excess of the dividends received by Lawson and should be corrected in accordance with our findings of fact.

The principal issue in the case presents greater difficulties. Respondent seeks to levy a tax upon dividends received by nonresident aliens from a foreign corporation. He acts under authority of sections 213 and 217 (a) (2) (B), of the Revenue Acts of 1921 and 1924, the pertinent parts of which provide that there shall be included in the gross income of a nonresident alien individual the amount of dividends received from a foreign corporation, 50 per centum of whose gross income for three years prior to the date of declaration of such dividends was derived from sources within the United States. There is no ambiguity in the statute, and the record discloses, indeed, it is admitted, that these provisions clearly are applicable to these cases and that respondent has acted strictly in accordance therewith. But petitioners contend that these statutory provisions are unconstitutional and for that reason the taxes here charged are invalid. The Board will consider a question of constitutionality. Independent Life Insurance Co. of America, 17 B. T. A. 757; Estate of Robert Todd Lincoln, 24 B. T. A. 334.

Petitioners invoke the Fifth Amendment, which provides in part that no person shall be deprived of property without due process of law. They urge that the source of the dividends here sought to be taxed was in Great Britain, not in the United States, because the corporation paying these dividends was incorporated, controlled, and located in England, the stock certificates had their situs in England, the funds from which these dividends were paid were kept in England, the payments were there made and that, therefore, since petitioners were nonresident aliens in relation to the United States, the tax here sought to be imposed is arbitrary and unreasonable and amounts to a taking and confiscation of property without due process of law.

Beyond doubt, these petitioners, although nonresident aliens, may obtain the protection of the due process clause of the Fifth Amendment. See Lem Moon Sing v. United States, 158 U. S. 538; Downes v. Bidwell, 182 U. S. 244, and other cases therein cited.

The power of Congress to lay and collect taxes on incomes, from whatever source derived, is plenary under the Sixteenth Amendment to the Constitution. This power is not limited by the Fifth Amendment (see McCray v. United States, 195 U. S. 27; Billings v. United States, 232 U. S. 261; Flint v. Stone Tracy Co., 220 U. S. 107; Brushaber v. Union Pacific Railroad Co., 240 U. S. 1), unless so improperly enforced as to be deemed an unreasonable and arbitrary exercise of the taxing power amounting to a confiscation rather than a tax. Nichols v. Coolidge, 274 U. S. 531; Blodgett v. Holden, 275 U. S. 142; 276 U. S. 594; Untermyer v. Anderson, 276 U. S. 440.

Our attention is called to a number of cases arising under the Fourteenth Amendment to the effect that a tax by a State upon property or income wholly outside the State constitutes a denial of due process and is invalid. These cases are not controlling here, for we are not here concerned with the taxing power of a State, and the constitutional limitations imposed upon a State, in the exercise of that power, have no application to the Federal Government. United States v. Bennett, 232 U. S. 299.

Nor is the taxing power of the Federal Government in its sovereign capacity confined within the geographical limits of the United States. It may tax the income of a citizen even though the citizen receiving the income and the property from which it arises are both outside the territorial limits of the United States. United States v. Bennett, supra; Cook v. Tait, 265 U. S. 47. And it may tax the income from property within the United States owned by a nonresident alien. DeGanay v. Lederer, 250 U. S. 376.

But petitioners here contend that the income — that is, the dividends themselves, — the property from which it is derived, and the recipients thereof are all beyond the taxing power of the United States. That these elements are all beyond the territorial limits of the United States, seems clear. The tax here is sought to be levied not on the corporation, but on the stockholders. They are separate and distinct entities and their incomes are separate and distinct. Eisner v. Macomber, 252 U. S. 189. The earnings derived by the corporation from its properties within the United States were taken to England and commingled or invested with its general funds, which are the property of the corporation, not of the stockholders. From these funds or properties, all without the United States, the dividends were paid. Petitioners argue, therefore, that the source of the dividends was outside the United States, citing DeGanay v. Lederer, supra; Eisner v. Macomber, supra; Standard Marine Insurance Co., 4 B. T. A. 853; Estate of L. E. McKinnon, 6 B. T. A. 412; Ethel M. Codrington, 6 B. T. A. 415. Neither the question of donficile of the recipient nor situs of the property, or income arising therefrom, is here involved, for these petitioners are residents of England, the stocks are kept there, and the dividends there paid and received.

Do these extreme conditions remove this income beyond the taxing power of the United States as a sovereign ? We think not. As we have stated, there is no ambiguity respecting the statute under which the tax here is levied. The intent and purpose of the Congress are clear and exact — it moved to lay a tax upon distributions by corporations to nonresident aliens of monies earned by such corporations in this country. It is clear that Congress regarded the source of such earnings as being within the United States, regardless of the manner in which they might be removed,' invested or distributed by the corporations subsequent to the first acquisition thereof within this country. 'íhat view is not unreasonable. The commonly accepted definition of the term “ source ” is “ that from which anything comes forth, regarded as its cause or origin, the first cause.” Webster’s New International Dictionary. In the case at bar it appears that the corporation’s earnings coming from its properties within the United States were more than sufficient to provide for the dividends here in question. The corporation’s earnings within this country were the first cause or origin — the “ source ” — of the subsequent dividends. It was the distribution of such earnings that Congress intended to tax for they were acquired within this country by the corporation under the protection which our laws afforded to its properties and operations. That such protection of the corporation inured to the benefit of its stockholders can not be denied. True, the corporation itself has in a measure paid for that protection by way of taxes upon its properties and earnings within this country. That much is demanded of every domestic corporation, unless specifically exempted. But the Government may go further, and does so by laying a second tax upon corporate distributions to individual recipients. In charging this tax against these nonresident aliens it is demanding no more than it demands of its own citizens, who have been benefited in their ownership of corporate stocks by the protection given to the properties and operations of the corporations themselves. In our opinion, therefore, the provisions of sections 213 and 217 of the Kevenue Acts of 1921 and 1924 do not violate our Constitution. We see in these provisions no deprivation of property without due process of law, no unreasonable and arbitrary exercise of the taxing power such as is prohibited by the Fifth Amendment.

Petitioners question the expediency of this means of taxation from the view of international comity and suggest jurisdictional difficulties in the way of enforcement of the statutory provisions here involved. These difficulties are not determinative of the question of constitutionality and they do not concern us. The policy of this, or any. other form of taxation is for Congress to determine; the responsibility rests upon it, not on this Board nor the courts. Cf. concurring opinion, Bradley, J., in United States v. Erie Ry. Co., 106 U. S. 327.

Petitioners’ contention is denied, and the dividends received from the Olympic Company during the periods before us will be included in their respective individual taxable incomes as by statute provided.

Perhaps we should concede the possibility of an opposite view with respect to dividends paid by the corporation from earnings received from properties situate without the United States whose operations have received no protection and benefit from this country. But that is a matter of proof. The record discloses that the corporation’s earnings from sources within the United States were more than sufficient to provide for the dividends it paid. It is quite possible for the corporation, or for the courts to accurately divide the earnings of the company and its investments of those earnings, the funds from which these dividends were paid, and, consequently, the dividends themselves, as between sources which the United States has protected and benefited and those which it has not. No such separation having been made, we must assume that the payments received by petitioners were made from sources properly taxable by the United States and refuse to hold the whole tax invalid because of the possibility of the failure of a part thereof.

Reviewed by the Board.

Judgment will ~be entered under Bule 60.

ÁRUNdell concurs in the result.

Seawell dissents.

Teammell,

dissenting: I believe that the statute is unconstitutional as being beyond the power of Congress under the Fifth Amendment.

       Sec. 213. (e) In the ease of a nonresident alien individual, gross income means only the gross income from sources within the United States determined under the provisions of section 217.
      See. 217. (a) That in the case of a nonresident alien individual * * * the following items of gross income shall be treated as income from sources within the United States:
      *******
      (2) Tile amount received as dividends * * * (B) from a foreign corporation unless less tlian 50 per centum of tlie gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence) was derived from sources within the United States as determined under the provisions of this section.


author: McMahon:

text:
    F. J. Carman, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 44321, 44939, 50178.
    Promulgated January 13, 1932.

      Earl W. Shinn, Esq., and J. L. O'Connor, Esq., for the petitioner.

      Maxwell E. McDowell5 Esq., and Frank B. Schlosser, Esq., for the respondent.
   OPINION.

McMahon:

The petitioner having abandoned his assignment of error in Docket No. 44321 regarding the refusal of the respondent to allow as deductions certain expenses incurred in the drilling of oil wells and other development, there remains for determination only the question of whether the items of income set forth in our findings of fact are taxable in their entirety to the petitioner, or whether he is taxable upon only one-half of each of such items. The respondent held that the property from which the income was produced was community property and that the income therefrom is also community property and taxable to the husband in its entirety, relying upon United States v. Robbins, 269 U. S. 315. The petitioner denies that the property was community property and contends that petitioner’s wife, Elna Carman, had a present existing and vested ownership in such property and that petitioner is taxable upon only one-half of the income in question.

The Civil Code of California which was in effect in the years in question provides in part as follows:

§161. May be joint tenants, etc. A husband and wife may bold property as joint tenants, tenants in common, or as community property.
§162. Separate property of the wife. All property of the wife, owned by her before marriage, and that acquired afterwards by gift, bequest, devise, or descent, with the rents, issues, and profits thereof, is her separate' property. The wife may, without the consent of her husband, convey her separate property.
§163. Separate property of the husband. All property owned by the husband before marriage, and that acquired afterwards by gift, bequest, devise, or descent, with the rents, issues, and profits thereof, is his separate property.
§164. Community property. All other property acquired after marriage by either husband or wife, or both, including real property situated in this state, and personal property wherever situated, heretofore or hereafter acquired while domiciled elsewhere, which would not have been the separate property of either if acquired while domiciled in this state, is community property; but whenever any property is conveyed to a married woman by an instrument in writing, the presumption is that the title is thereby vested in her as her separate property.
Conveyance of real property to and by married women. And in case the conveyance is to such married woman and to her husband, or to her and any other person, the presumption is that the married woman takes the part conveyed to her, as tenant in common, unless a different intention is expressed in the instrument, and the presumption in this section mentioned is conclusive in favor of a purchaser or encumbrancer in good faith and for a valuable consideration.
*******

On April 28, 1927, section 161, supra, was amended by the enactment of section 161 (a), which provides as follows:

Interests in community property. The respective interests of the husband and wife in community property during continuance of the marriage relation are present, existing and equal interests under the management and control of the husband as is provided in sections 172 and 172a of the Civil Code. This section shall be construed as defining the respective interests and rights of husband and wife in community property. [New section added April 28,1927; Stats. 1927, p. 484.]

In United States v. Malcolm, 282 U. S. 792, the Supreme Court held that under section 161 (a), supra, the wife has such an interest in the community income that she should separately report and pay tax on one-half of such income, citing Poe v. Seaborn, 282 U. S. 101; Goodell v. Koch, 282 U. S. 118; and Hopkins v. Bacon, 282 U. S. 122.

Section 161(a), supra, does not affect property acquired prior to its enactment. Paul F. Hill et al., Executors, 24 B. T. A. 1144. In the instant proceeding the income was derived prior to the passage of section 161(a), supra, and if it was community income it is taxable in its entirety to petitioner, since petitioner’s wife did not have a vested interest therein. United States v. Robbins et al., supra. But if the petitioner’s wife did have a vested property right in such income, it is clear, under the decision in United States v. Malcolm, supra, and cases cited therein, that she should report and pay tax on that portion which she owned and that the petitioner should not be required to report and pay tax on such portion.

The income involved in the instant proceeding was derived from various sources and we will discuss the various items of income separately. .

Prior to the taxable years in question the petitioner owned as separate property a one-half interest in the Carman Property, located in California. He also owned a one-half interest in a contract between himself and Fairbank, on the one hand, and Standard Oil Company, on the other, under which he was to receive one-fourth of the total profits derived from the oil development of this property. On December 20, 1921, petitioner conveyed to his wife by deed a one-half interest in his half interest in the Carman Property and on the same date transferred to his wife a one-half interest in his interest in the agreement with the Standard. Oil Company. During the years 1924, 1925 and 1926, taxable income was derived by petitioner or by petitioner and his wife from the sales of oil from the Carman Property in the respective amounts of $16,918.64, $30,274.64 and $43,853.18.

As will be noted, section 164 of the Civil Code of California provides that whenever any. property is conveyed to a married woman by an instrument in writing the presumption is that the title is vested in her as her separate property. In California a husband may convey real or personal property to his wife, and whether the property be his separate property or community property, the presumption is that it thereby becomes, and is thereafter to be treated as, her separate property. Carter v. McQuade, 86 Cal. 274 ; 23 Pac. 348, and cases cited therein. See also Flournoy v. Flournoy, 86 Cal. 286; 24 Pac. 1012. There is a presumption, therefore, under the statutes of California, that petitioner’s wife, Elna Carman, was during the years in question vested with title to one-fourth of the property rights in the Carman Property itself and was also vested with title to an interest equal to that of her husband in the contract with the Standard Oil Company as her separate property. There is nothing in the record to rebut this presumption. On the contrary the presumption is fortified by the agreement entered into by petitioner and his wife at the time of their marriage and described in our findings of fact. We conclude that the interests in question became the separate property of petitioner’s wife. The income therefrom was also separate property of petitioner’s wife. Section 162 of the Civil Code of California, supra.

Furthermore, it will be observed that this section provides that all property of the wife acquired by her after her marriage by gift is her separate property. Were wc to consider this a gift from petitioner to his wife, we would have to conclude that the interest of the wife became her separate property.

We hold that one-half of the income in question from the Carman Property was income belonging to the wife and taxable to her, and that the respondent erred in taxing any more than one-half of the amounts in question to petitioner.

We next turn to a discussion of the income derived by petitioner or by petitioner and his wife by way of dividends upon corporate stock. The evidence discloses that such dividends amounted to $18,075 in 1925 and $30,300 in 1926. In order to determine how this stock was owned it is necessary to enter into a brief resume of the facts, showing the sources of the funds with which such stocks were purchased.

At the time of their marriage petitioner and wife agreed that they would each pool their separate liquid assets, the exact amount of which is not shown, and that they would invest such funds and share equally in the ownership of the property purchased and the income derived therefrom. The separate propert}*- of the husband and wife before marriage continues to be the separate property of each after marriage and the rents, profits and issues thereof are also the separate property of each. Sections 162 and 163 of the Civil Code of California. These funds were placed in a joint bank account immediately following the marriage. With these funds the petitioner obtained oil and gas leases in Ontario, Canada, and transferred them to the Ontario Petroleum Company, which was organized to hold them, and received capital stock in exchange therefor. In 1917 and 1918 petitioner, in accordance with the agreement with his wife, transferred enough stock in this corporation to her to equalize their holdings therein. This action of the petitioner was sufficient to render this stock the separate property of petitioner’s wife, as shown above in the discussion with regard to the income from the Carman Property.

Petitioner and his wife opened a joint bank account in a bank in Ontario, Canada, and there were deposited therein in 1920 the amount of $28,692.93, dividends received by Mrs. Carman from her Ontario Petroleum Company stock, and the amount of $8,197.98, dividends received by petitioner from such stock.

In 1920 petitioner and his wife opened a joint bank account with the Harriman National Bank in New York City and there were transferred thereto whatever funds petitioner and his wife had in the joint bank account in Canada.

In 1919 the petitioner had received as his separate property $50,000 bonus from the Standard Oil Company and had received in 1920 as his separate property the amount of $128,000 as profits upon the operations of the Carman Property. In the year 1921 he received an amount in excess of the amount received in 1920 from this source. These funds were deposited in the joint bank account in the Harri-man National Bank. Out of these funds, petitioner purchased $70,000 worth of Liberty bonds which he transferred to his wife to carry out their agreement to own equally all profits from various investments. These bonds became her separate property. In or after 1921, the Harriman National Bank purchased various securities and charged the amount against the joint bank account. Most of these securities were taken in the joint names of petitioner and his wife. As has been pointed out above, after 1921 the income from the Carman Property was the separate property of petitioner and his wife in equal amounts. All this income was deposited in the Harriman National Bank in the joint bank account. The Liberty bonds belonging to Elna Carman were transferred to the bank and the interest thereon was collected by the bank and credited to the joint bank account.

In 1922 petitioner and his wife opened a joint account with Har-riman & Company, stock brokers in New York, and the stock which had been purchased by the Harriman National Bank and the Liberty bonds belonging to Elna Carman were transferred to the brokerage company. The Liberty bonds were sold by the brokers in 1922 and the proceeds were credited to the joint account with the brokerage company. The petitioner and his wife always consulted about the purchase of stocks and a considerable number of lots of stock have been purchased through Harriman & Company, brokers. Some of this stock was issued in the name of F. J. and Elna Carman and some of it was carried in the name of Harriman' & Company, to be used as collateral security.

It is our opinion that the evidence shows that the joint bank account with the Harriman National Bank and the stock trading account with Harriman and Company, brokers, were created and the securities were purchased with separate funds of the petitioner and his wife. Each contributed to these accounts in substantial amounts from their separate property, and there is no evidence to show that any community property was contributed thereto or that any stock was purchased with community property. Apparently all of the funds in the joint bank account, and those used to purchase stocks consisted of separate property or issues and profits thereof which, in turn, became separate property. As was pointed out in Paul F. Hill et al., supra, property received in exchange for or purchased by separate property is also separate property.

In re Pepper’s Estate, 158 Cal. 619; 112 Pao. 62, the Supreme Court of California stated in part:

* * * There are to be found, in many of the decisions of this court, expressions to the effect that the separate character of property acquired by either of the spouse after marriage is to be established only by “ clear and convincing evidence,” “ clear and decisive proof,” or the like. [Citing Meyer v. Kinzer, 12 Cal. 247, and other California cases.] But, as is said in Freese v. Hib. S. & L. Soc., 139 Cal. 392, 73 Pac. 172, “ it was never intended by this court to lay down a rule requiring demonstration in such matters; that is, such a degree of proof as, excluding possibility of error, produces absolute certainty, Code Civ. Proc. § 1826. Such proof is never required. Generally, moral certainty only is required, or that degree of proof which produces conviction in an unprejudiced mind, and evidence which ordinarily produces such conviction is satisfactory.” Code Civ. Proc. §§1826, 1835. And, in speaking of a similar question in Couts v. Winston, 153 Cal. 686, 96 Pac. 357, we said that “ whether or not the evidence offered * * * is clear and convincing Is a question for the trial court. * * * In such cases, as in others, the determination of that court in favor of either party upon conflicting or contradictory evidence is not open to review in this court.”

Apparently neither petitioner nor his wife was regularly employed except in the business of investing in securities, and so far as the record discloses neither earned income which became community property. However, even if an inconsiderable amount of community funds did become confused with the separate funds used in the purchase of securities, such community funds took on the character of the separate funds, the larger estate. John H. Flach, 13 B. T. A. 383. See also Francis Krull, 10 B. T. A. 1096.

Considering the whole record, it is our opinion that the stocks were owned by petitioner and his wife together equally as separate property and not as community property, and that the income therefrom belonged to each in equal proportions as their separate property. It follows that only one-half of such income is taxable to petitioner. The respondent erred in taxing more than one-half of such income to the petitioner. Francis Krull, supra, and Hewlings Mumper, 13 B. T. A. 977.

For the same reasons enumerated above, we hold that only one-half of the profit of $31,681.54 derived from the sale of the Louisiana oil stock in the year 1925, that only one-half of the amount of $26,151.48 profits derived from the sale of Lago Petroleum Company stock in 1925, and that only one-half of the amounts of $6.52 and $156.12, representing interest received on joint bank deposits in the years 1925 and 1926, respectively, constitute income taxable to the petitioner.

Reviewed by the Board.

Judgment will he entered vmder Bule SO.


author: MtjRdock:

text:
    Lake Charles Naval Stores, Petitioner, v. Commissioner of Revenue, Respondent.
    Docket Nos. 34630, 36940.
    Promulgated January 14, 1932.

      John J. Finnorn, Esq., for the petitioner.

      James L. Baokstrom, Esq., and J. Mills Newton, Esq., for the respondent.
   OPINION.

MtjRdock:

The Commissioner was obviously in error in including $60,000 in the petitioner’s income for 1926 as interest due on notes. The petitioner has proven certain facts in connection with notes of the total face value of $200,000 given by Vizard. It contends that Gillican also gave similar notes and received stock of the face value of $200,000 in connection with the same transaction, but it offered no proof to show that this was true. It argues that there was never any intention that the notes or the interest should be paid, the transaction was a “ simulation,” and the statute of limitations barred the collection of the notes. If, by simulation, the petitioner implies a lack of bona -fides or fraud, it is attempting to impeach its own acts and those of its stockholders. We see no lack of bona fides or fraud in the transaction. The notes were valid debts due the petitioner until the notes and the stock were canceled. There is nothing to indicate that the makers of the notes would have pleaded the statute of limitations, and the record is not too clear as to whether or not the notes might have been renewed. For all we can see, the petitioner should have accrued in each year the interest on these notes at the rate of 5 per cent. But, even assuming Gillican also gave notes, there was no reason to accrue the interest for three years in one. For the year 1926 the interest would not have amounted to more than $20,000 and the Commissioner was in error in including any greater amount in the petitioner’s income for that year. The proper treatment of this interest for 1924 and 1925 has not been placed in issue, and not knowing the facts, we make no decision concerning it.

The only thing we need to determine in connection with the depreciation issue is whether or not the deduction allowed by the Commissioner in each of the years 1924, 1925 and 1926 was a reasonable one in the light of all the circumstances. The petitioner apparently began business in 1918. For that year the Commissioner allowed the exact amount claimed by the petitioner as a deduction for depreciation. We know that this deduction was computed at the rate of 20 per cent. We do not know why the deduction allowed is not precisely 20 per cent of the total cost of the assets as of December 31, 1918, as stipulated by the parties, but no point is made of this slight discrepancy or of others like it for later years. During the next four years the Commissioner continued to compute and allow depreciation at the rate of 20 per cent. For 1919 he allowed an amount slightly but not greatly in excess of the amount claimed by the petitioner. In 1920 he allowed the amount claimed by the petitioner on these particular assets. But in 1921, when the petitioner’s operations resulted in a very large loss, the petitioner claimed a deduction for depreciation amounting to less than $8,000, whereas the Commissioner, still applying his 20 per cent rule, allowed a deduction in excess of $217,000. The amount which he allowed for 1922 was again the exact amount claimed by the petitioner. The petitioner had losses in four of these five years, but in 1919 it had a substantial net income. In 1923 the Commissioner, in order to be consistent in applying the method theretofore used, reduced the total cost of the petitioner’s assets as of the end of that year by the cost of assets as of the end of the year 1918. This was proper if the rate was appropriate. The cost of the assets as of December 31, 1918, had been entirely returned to the petitioner through depreciation prior to the year 1923. Any further deduction after 1922, based upon the cost of those assets, would have been improper under the system being used. The Commissioner made a similar adjustment before computing depreciation in each of the years 1924, 1925 and 1926. The petitioner, however, went on claiming deductions upon some basis unknown to us. If its books reflected either the amount of depreciation which it had claimed in prior years or the amount of depreciation which it had been allowed in prior years, the total depreciated cost of its assets as of December 31 in each of the years 1924,1925 and 1926 would certainly not have been sufficient to justify the amount of depreciation claimed for each of those years.

It seems quite clear from the record that the deductions allowed by the Commissioner for depreciation for 1918, 1919 and 1920 were correct. They not only correspond approximately with the deductions claimed, but the record does not indicate that anything was known during those years which would have led to the belief that the allowances were not reasonable in amount. The petitioner now contends very strenuously, however, that the petitioner knew in 1921 that its operations would last beyond the 5-year period which was originally estimated. It offered proof to show that by that time some of its designations had been reduced for one reason or another; it was seeking extensions on some of its leases; and it had already obtained additional timber or had been promised additional timber. Its principal contracts were with subsidiaries of the Long-Bel Lumber Company. These leases were not extended beyond the 5-year period until 1923, but the petitioner claims that it knew in 1921 it would get such extensions. The petitioner’s so-called “ operating vice president,” who spent most of his time outside the office, was called as a witness and was asked whether he was able in 1920 to estimate how long the operations would last. He said he thought at that time the company had work for about four more years ahead of it, and in 1921 he thought that the company still had about four more years to ojDerate, due to the fact that it had by that time obtained some additional timber. In 1924, due to the acquisition of some additional timber, he added one year to his prior estimate, and in 1925 he added two or three more years. We do not question the honest intention of this witness in giving his testimony. But opposed to this evidence is the fact that those higher in authority in the company must have thought differently, for in 1920 and also as late as 1922, the petitioner was still claiming depreciation on the old basis of 20 per cent, or approximately that. Also in 1923 it claimed even a larger amount of depreciation than in 1922. In other words, except for the year 1921, when it cut its claim for depreciation to practically nothing for the insufficient reason that it had in that year an enormous loss, we do not find the reduction in its claims for depreciation which we would expect if at that time its officers thought that the life of its assets was going to be longer than they had originally estimated. Furthermore, some of the camps were actually closed after about five years of operation and the useful life of the assets in a particular camp depended a great deal upon the life of the camps. The petitioner never has asked that the assets at the different camps be considered separately for depreciation purposes. On the contrary, it finds no fault with the fact that the Commissioner has applied a composite rate. It merely claims that the rate was too high in the past.

Depreciation for any year should be computed upon the basis of facts known during that year and not upon facts subsequently discovered. Hamilton Coal Mining Co., 17 B. T. A. 1339; Kehota Mining Co. v. Lewellyn, 28 Fed. (2d) 995; affd., 30 Fed. (2d) 817; certiorari denied, 279 U. S. 884; Bonwit-Teller Co. v. Commissioner, 53 Fed. (2d) 38. The reasonableness of a deduction for any particular year usually depends to some extent upon what has been done in former years. Here the uniform method applied in former years should not be abandoned in later years, but should be followed in those years unless there is a cogent reason for a change. Cf. Alpin J. Cameron et al., 8 B. T. A. 120; Lincoln Cotton Mills, 15 B. T. A. 680. The record does not justify disturbing the determination of the Commissioner in this respect.

But even if we were convinced that the record shows for any of the years 1924, 1925, or 1926 that the deduction allowed was not reasonable in amount, nevertheless no adequate basis has been afforded for the computation of deductions' which would be any more reasonable. Cf. F. G. Bishoff, 6 B. T. A. 570; affd., 27 Fed. (2d) 91. The computation of a proper deduction for depreciation must be based upon as accurate information as is available. It must be an intelligent estimate, not a mere guess. Some contracts were placed in evidence and also some figures showing a breakdown of the total cost figures for certain years as stipulated into cost of assets used at each camp. But we have no knowledge of other material factors. With the odds and ends of information which are before us we would be unable to make an intelligent estimate for any of the three years of a reasonable allowance for the exhaustion, wear and tear of the property used in the petitioner’s business, including a reasonable allowance for obsolescence.

Judgment will be entered under Bule BO.


author: Van Fossan:

text:
    The Bank of California, National Association, Executor for the Estate of Alexander Heyman, Deceased, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 38962.
    Promulgated January 14, 1932.

      H. F. Shaw, Esq., for the petitioner.

      F. B. Shearer, Esq., for the respondent.
   OPINION.

Van Fossan:

The facts in this case bring it squarely within the principles underlying the cases of Charles J. Coulter, Jr., 6 B. T. A. 426; William G. Frank, 6 B. T. A. 1071; Walter B. McCarthy, Executor, 9 B. T. A. 525; E. S. Heller et al., 10 B. T. A. 53; William K. Vanderbilt et al., Executors, 11 B. T. A. 291; Frank H. Clark, Executor, 12 B. T. A. 425; and other cases to the same effect.

The deposit certificates for 101,009-1/11 shares of Midway Oil Company stock with interest thereon accrued to date of decedent’s death and interest accrued to such date on other securities having been appraised as assets of the estate of decedent at their fair market value at the date of his death, included in the taxable estate for estate-tax purposes and the tax paid thereon, no income accrued to the estate on the occasion of the payments here involved.

Decision will he entered wnder Rule 60.