author: Smith :

text:
    Harry T. Rollins, Petitioner, v. Commissioner of Internal Revenue, Respondent. Glendora M. Rollins, Petitioner, v. Commissioner of Internal Revenue, Respondent. Margaret C. Rollins, Petitioner, v. Commissioner of Internal Revenue, Respondent. Ellen F. Rollins, Petitioner, v. Commissioner of Internal Revenue, Respondent. Ralph E. Rollins, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 63954-63958.
    Promulgated April 14, 1936.

      J. Cr. Gamble, Esq.y and J. F. Rosenfield, Esq., for the petitioners.

      J. R. Johnston, Esq., for the respondent.
   OPINION.

Smith :

The respondent contends that the profits on the above described sales .of shares of stock of the Rollins Hosiery Mills are taxable to the petitioners individually, and not to the trusts which received the proceeds of the sales.

As pertaining to all of the trusts the respondent makes the broad contention that the trustee, the City Bank Farmers Trust Co., to which all of the shares sold were transferred by the petitioners after the contract of July 19, 1929, was entered into, acted merely as agent for the petitioners in consummating the sale and that the grantors were not relieved of income tax liability on the profits resulting from the transaction.

We do not think that this contention can be sustained. All of the shares of stock sold were conveyed to the trustee before the sale was consummated. There is no question but that the transfers were lawfully made and that the trustee acquired legal title to the shares. In Preston R. Bassett, 83 B. T. A. 182, where the respondent made substantially the same contentions as he makes in the instant proceedings and where the facts were similar, we said:

Respondent’s other contentions may be briefly disposed of. He contends that in tbe circumstances of tbe sale contemplated at tbe time tbe trust was created petitioner made a gift of tbe proceeds of tbe stock after sale and not of tbe stock itself. This contention rests on the assumption that tbe trust was a mere device to avoid taxation and as such is to be disregarded, for otherwise it is clearly demonstrable that tbe gift of tbe stock covered by an executory contract of sale is something essentially different from tbe gift of tbe proceeds received on tbe sale after its consummation, Williston on Sales, § 1, 2. Tbe sale might well have never gone through. In fact, such a possibility was contemplated by tbe parties and expressly provided for in tbe contract, for if certain representations of tbe sellers were not made good by tbe three months’ audit provided, the buyer might withdraw. He might, indeed, withdraw in any ease, but if caprice were his only motive, he forfeited the $12,000 which he had put in escrow on signing tbe contract. Evidently, then what petitioner’s wife received on April 12, 1929, was a gift of stock with an interest in the contract of sale, which was agreed upon on the day the trust was created and signed on the next day after.

See also Edwin L. Bowen, 33 B. T. A. 208.

The reservation by the grantors to themselves or their nominees of the right to direct the trustee to sell the stock and to invest the proceeds of the sale in accordance -with their wishes did not affect the validity of the trusts. It amounted to no more than a reservation by the grantors of the right to change the form of the trust corpus. Such a right is not adverse to the interests of the trusts or the beneficiaries.

It is evident that one of the motives of the petitioners, and perhaps the principal one, in creating the trusts was to avoid liability for the income tax that would have fallen on them if they had held the shares of stock until the sale was completed in accordance with the existing agreement. In point of time, the trusts were all created in the short interval between the execution of the agreement of sale, July 19, 1929, and its final consummation, August 10, 1929. All of the trust agreements were carefully worded so as to relieve the petitioners of any individual liability for income tax on the profits from the sale of the stock. All of the group of 26 trusts, as distinguished from the two Proctor trusts, contained the significant provision that:

* * * I shall not have the power at any time during any taxable year within the meaning of the revenue laws of the United States to revest in myself title to any part of the corpus of the trust, except upon written notice delivered to the trustee during the preceding taxable year, or except with the written consent of the beneficiary, other than myself, currently entitled to the distributable income of the trust or of such share thereof as may be affected thereby; * * *

It is well settled, however, that the presence of a motive to avoid tax liability is not of material significance. United States v. Isham, 17 Wall. 496; Bullen v. State of Wisconsin, 240 U. S. 625; Gregory v. Helvering, 293 U. S. 465; Chisholm v. Commissioner, 79 Fed. (2d) 14.

Since the trusts here were all validly created and since the shares of stock in question were transferred to the trustee to form the corpora of the trusts, the profits on the subsequent sale of the shares constituted income of the trusts taxable either to the trust entities or the beneficiaries, under sections 161 and 162 of the Revenue Act of 1928, or to the grantors of the trusts, under the provisions of sections 166 and 167.

The last mentioned sections provide:

SEO. 166. REVOCABLE TRUSTS.
Where the grantor of a trust has, at any time during the taxable year, either alone or in conjunction with any person not a beneficiary of the trust, the power to revest in himself title to any part of the corpus of the trust, then the income of such part of the trust for such taxable year shall be included in computing the net income of the grantor.
SEC. 167. INCOME FOR BENEFIT OF GRANTOR.
Where any part of the income of a trust may, in the discretion of the grantor of the trust, either alone or in conjunction with any person not a beneficiary of the trust, be distributed to the grantor or be held or accumulated for future distribution to him, * * * such part of the income of the trust shall be included in computing the net income of the grantor.

With respect to the so-called Proctor trusts the respondent makes the contention in his brief, and cites a number of cases which appear to support his contention, that under the two original trust agreements executed by Harry T. Rollins and Ralph E. Rollins, respectively, the wives of the grantors were given a naked power of appointment not coupled with an interest, that such powers were revocable by the husbands, the grantors, and that the husbands were the legal grantors of the benefits conferred in the trusts created by the wives in the exercise of their appointive powers. Assuming the correctness of these contentions, it does not follow that any of the income of the trusts is taxable to the grantors under sections 166 or 167 because of any power in them to revest in themselves title to any part of the corpus of the trusts (section 166) or because any part of such income might in their discretion have been distributed, or accumulated for future distribution, to them (section 167). The revocation of the powers of appointment contained in the original trust agreements would not have revested in the grantors title to any part of the corpus of the trusts, but would have left the trust estates to be administered as the grantors had directed in the original trust agreements. Under the provisions of those agreements the grantors had no power to revest in themselves title to any part of the corpus of the trusts. They reserved the right “to alter, change, or modify any of the administrative provisions of this trust, * * * provided that the beneficial interests established hereunder shall not be-affected thereby.” Obviously, the revesting in themselves of any part of the corpus of the trusts by the grantors would have affected adversely the beneficial interests of the beneficiaries who otherwise were to receive it. It was specifically provided in the trust agreements that the grantors themselves had no power to revoke the trusts. Such powers were conferred on the grantors’ wives exclusively.

The respondent further submits that the provision made in the original trust agreements for the payment of the income per stirpes to the grantors’ surviving descendants indicates an intention on the part of the grantors not to dispose of or relinquish control of the income of the trusts during their lives. The most that could be inferred from this provision is that the grantors intended for their wives, in the exercise of their appointive powers, to make necessary provisions for the disposition of the current income of the trusts. This the wives did within a short time, naming themselves as beneficiaries to receive the income of the trusts for life. The original grantors made no reservations either expressed or implied by which they in their own discretion might have revested in themselves title to any of the corpus of the trusts or caused any of the income to be distributed or held for future distribution to them.

It is to be observed, too, that the sale of the shares of stock from which the income in dispute arose did not take place until after the wives had exercised their powers of appointment and caused the shares to be transferred to the new trustee, the City Bank Farmers Trust Co., to be held in the trusts created by them. Under those trust agreements there was no power reserved either to the wives or their husbands, whichever are considered the legal grantors of the trust, to revest in themselves title to any part of the corpus of the trusts or to have any of the profits from the sale of the shares distributed to any of them during the taxable year. The income of the trusts was all distributable to the wives during their lives, but there was a provision in each trust instrument that the profits from the sale of any part of the corpus were to be added to principal and were therefore not distributable. It is true that what constitutes income of a trust for Federal tax purposes must be determined under the provisions of the Federal taxing statutes and the governing rules of law, Greenough v. Commissioner, 14 Fed. (2d) 25, but our question here is not what was income to the trusts, but what part of the income of the trusts might be distributed to the petitioners as grantors of the trusts. We are of the opinion that the profits on the sale of the shares of stock held in these trusts, numbered 12,634 and 12,635, are not taxable to any of the petitioners individually.

In each of the other 26 trusts, the income, in the discretion of the trustee, was to be either distributed to the grantor and another beneficiary or accumulated and added to the principal. There was a provision in each trust instrument (see paragraph 8 in trust numbered 12,636 above) that the grantor should have the power at any time after January 1, 1930, to amend or revoke the trust agreement:

* * * in whole or in part, and to change any beneficial interest hereunder; provided, however, that I shall not have the power at any time during any taxable year within the meaning of the revenue laws of the United States to revest in myself title to any part of the corpus of the trust, except upon written notice delivered to the trustee during the preceding taxable year, or except with the written consent of the beneficiary, other than myself, currently entitled to the distributable income of the trust or of such share thereof as may be affected thereby; * * *

In other words, under this provision of the trust instruments the grantors could amend or revoke the trusts and receive all or any part of the principal and income as their own at any time after January 1, 1930, after having given notice of the revocation to the trustee in the preceding year. For instance, such notice might have been given on December 31, 1929, and the trusts revoked on January 2, 1930, the grantors then receiving all of the profits from the sale of the shares of stock in question, which by specific provision in the trust agreements was to be added to the principal.

We think that this amounted to a discretionary power in the grantors to have this income of the trusts held and accumulated for future distribution to them within the meaning of section 161. Upon this point compare Sawtell v. Commissioner, 82 Fed. (2d) 221, and Preston B. Bassett, supra. In the latter case the grantor irrevocably conveyed shares of stock to himself as trustee, the income to be paid to his wife for life and the principal on her death to go to himself and his heirs. We held that the grantor had no discretionary power with respect to, and was not taxable on, the profits derived from the sale of the shares after the declaration of trust. In the Scmtell case the facts were similar, the trust agreement providing that the income was to be accumulated and distributed to the grantor, if living, on January 1 of the next succeeding taxable year. The court held, reversing the Board in Margaret S. Sawtell, 32 B. T. A. 687, and citing with approval Preston B. Bassett, supra, that there was no discretionary power in the grantor to have the income of the trust accumulated for future distribution, since the income was to be accumulated at all events. As to the trusts here, the grantors’ discretionary power lay in their continuing right to revoke the trusts and thus have the undistributed income and principal distributed to them. There was no such right in the grantors in the Bassett and Sawtell cases.

It is true that the grantors here could not have amended or revoked the trusts during the taxable year 1929, but section 167, unlike section 166, of the Revenue Act of 1928 does not make this a prerequisite. The language of section 167 is substantially the same as that of section 219 (h) of the Revenue Act of 1924. As stated by the Supreme Court in Burnet v. Wells, 289 U. S. 670:

The purpose of the law is disclosed by its legislative history, and indeed is clear upon the surface. When the bill which became the Revenue Act of 1924 was introduced in the House of Representatives, the report of the Committee on Ways and Means made an explanatory statement. Referring to section 219 (h) it said: “Trusts have been used to evade taxes by means of provisions allowing the distribution of the income to the grantor or its use for his benefit. The purpose of this subdivision of the bill is to stop this evasion.” * * *
By the creation of trusts, incomes had been so divided and subdivided as to withdraw from the government the benefit of the graduated taxes and: surtaxes applicable to income when concentrated in a single ownership. Like methods of evasion, or, to speak more accurately, of avoidance * * * had been used to diminish the transfer or succession taxes payable at death. One can read in the revisions of the Revenue Acts the record of the government’s endeavor to keep pace with the fertility of invention whereby taxpayers had contrived to keep the larger benefits of ownership and be relieved of the attendant burdens.
* * * The solidarity of the family is to make it possible for the taxpayer to surrender title to another and to keep dominion for himself, or, if not technical dominion, at least the substance of enjoyment. ⅝ * * In these and other cases there has been a progressive endeavor by the Congress and the courts to bring about a correspondence between the legal concept of ownership and the economic realities of enjoyment of fruition. Of a piece with that endeavor is the statute now assailed.

In Farmers' Loan & Trust Co. v. Bowers (C. C. A., 2d Cir.) 68 Fed. (2d) 916, the court stated: “Statutory provisions intended to prevent the evasion of the general purposes of the statute ought to be fairly and reasonably construed so as to carry out their purposes.”

In Kaplan v. Commissioner (C. C. A., 1st Cir.), 66 Fed. (2d) 401, it was stated:

* * * We think the statute means that if under any circumstances or contingencies any part of the accumulated income might inure to the benefit of the grantor such portion of the income is taxable to him.

In Margaret S. Sawtell v. Commissioner, supra, the same court said:

* * * Taken in its ordinary meaning section 167 applies only to trusts in which the grantor has discretion to have the income accumulated for his benefit; it does not include trusts for the direct accumulation of income for the grantor. * * *
We do not see how on any reasonable reading of the language of section 167 it can be held to cover trusts like the present one. No doubt the situation before us is a casus omissus, — the amendment of this section in the Act of 1932 and the committee’s reports on the change make that clear, — but we do not think that in a tax statute the court has power to extend it by construction to include such cases unless they come within the language used on reasonable interpretation of it. * * *

The facts in these proceedings are materially different from those which obtained in the Sawtell case and we are of the opinion that the rule announced in that case is not applicable here. Here, unquestionably, the grantors of the trusts had a large discretion as to the amount of the income which should be paid out and the persons to whom it should be paid. The profits from the sales of the securities received by the trustee, although declared by the trust instruments to form a part of the capital of the trusts, could, nevertheless, be reached by the grantors in subsequent years. Through their rights to amend or revoke the trusts “in whole or in part, and to change any beneficial interest” the profits from the sales of shares of stock could be brought into the ownership and possession of the grantors. They constituted “income of the trust” within the meaning of section 167 of the Revenue Act of 1928. See Greenough v. Commissioner, supra.

In our opinion the profits from the sale of the shares of stock held in the 26 trusts numbered 12,636 to 12,661, inclusive, are taxable to the respective grantors of those trusts.

Reviewed by the Board.

Judgment will ~be entered wider Rule 50.

Murdock, Matthews, Leech, and Turner dissent.


source: Caselaw Access Project

author: Tyson:

license: Public Domain

text:
    Elbe Oil Land Development Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 54773, 60157.
    Promulgated April 14, 1936.

      Fred R. Angevine, Esq., W. Z. E. ■O^Bryam,, Esq., and G. Wm-. 'Wittmom, G. P. A., for the petitioner.

      Elden McFarland, Esq., for the respondent.
   OPINION.

Tyson:

These consolidated proceedings seek redetermination of income tax deficiencies in the amounts of $16,626.09 for the year 1928 and $12,149.50 for the year 1929, asserted by respondent as the result of several adjustments made by him in the income reported by petitioner for those years. All issues, except one, have been waived or stipulated and effect thereto will be given upon the recomputation under Rulo 50. The stipulation of facts and exhibits attached thereto are included herein by reference.

The sole remaining issue, as to both years, involves the question of whether petitioner is entitled to a deduction of $110,000 for depletion at the rate of 27½ percent of a $400,000 payment received in each of those years under the terms of a written contract relative to certain oil and gas properties, executed on October 3, 1927. '

Petitioner, a California corporation, was organized on February 4, 1924. It acquired certain properties consisting of oil and gas prospecting permits, drilling agreements, leases, and equipment. Development work carried on by it resulted in the discovery of oil on its properties and on October 3, 1927, oil was being produced in commercial quantities.

As of October 3, 1927, under the terms of the written contract executed on that date, the petitioner sold, transferred, and conveyed all of its right, title, and interest in and to certain described prospecting permits, drilling agreements, leases, and equipment, unto the Honolulu Consolidated Oil Co., a California corporation, the latter to “have the sole ownership of and the right to sell or otherwise dispose of, all oil and/or gas and derivative products produced in, on or upon said properties”, it being “the intention of the parties to this agreement that the full and complete ownership, control and operation o,f said properties shall vest, upon execution hereof, in Honolulu * * * and Elbe shall have no interest in or to any of said properties whatsoever.” The consideration to be paid to petitioner, as set forth in paragraph 7 of said contract, was $350,000 cash upon the execution of the contract and thereafter, if the Honolulu Consolidated Oil Co. did not elect to abandon the purchase of the properties and execute reconveyances as provided by paragraph 9 of the contract, the sum of $400,000 on the 14th day of March of each of the years 1928, 1929, and 1930 and $450,000 on March 14, 1931, together with interest as specified. Of such $2,000,000 to be received by petitioner in cash and notes, the amount of $1,963,672.95 was consideration for the oil and gas rights in the leases and the remainder was consideration for equipment and other property conveyed. The stated consideration for such sale was fixed at the definite amount of $2,000,000, to be paid without reference to, and without being in any manner based upon, the production of oil from the properties conveyed.

The petitioner has received each of the payments, in the amounts and on the dates specified in the contract, totaling $2,000,000. The ■ cost of all of the assets transferred under the contract was less than the amount of $350,000 received in 1927 and for that year petitioner reported a taxable gain, from the transaction, by applying the entire basis against the $350,000. In its returns for 1928 and 1929 petitioner claimed the deduction herein sought for depletion on .the ground that the payment of $400,000 received in each of those years constituted a bonus on a sublease.

The contract, in paragraph 8 thereof, provided that, “from and after the time” when the Honolulu Consolidated Oil Co. should have been fully reimbursed from its sales of oil and gas produced from the properties, for all expenditures made in the acquisition, development, and operation thereof, it should pay to petitioner 33⅛ percent of its net profits, as defined in the contract, resulting thereafter from the continued production, if any, from the properties.

During the years here in controversy, and up to the date of hearing herein in September 1933, no payments became due or were made to petitioner by the Honolulu Consolidated Oil Co. upon the latter’s wholly contingent obligation for future payments under its contract of purchase. Such contingent obligation of the Honolulu Consolidated Oil Co. is separate and apart from its obligation for the payments totaling $2,000,000 and does not impart to such payments the character of being income realized from the retention by petitioner of an economic interest in the oil and gas produced during the period covered by such payments. We do not have before us the question of the character of such future payments if and when made or whether or not they might be subject to depletion under the then applicable revenue acts.

Therefore, the only issue now before us involves the question of whether, under the provisions of section 114 (b) (3) of the Revenue Act of 1928, petitioner is entitled to a deduction of 27½ percent of $400,000 for each of the years 1928 and 1929, as an “allowance for depletion * * * of the gross income from the property during the taxable year.”

Petitioner contends that this proceeding is controlled by the decision in Palmer v. Bender, 287 U. S. 551. In that case the taxpayer was the member of two partnerships which in 1921 executed writings by which it “does sell, assign, set over, transfer and deliver * * * unto the Ohio Oil Co.” certain leased premises in consideration of a present payment of a cash bonus, future payments to be made “out of one-half of the first oil produced and saved” to the extent of a specified sum and an additional excess royalty of one-eighth of all oil produced and saved. The District Court and the Circuit Court held that the transaction constituted a sale of a capital asset, that no interest was retained in the oil and gas, and that the taxpayer was not entitled to depletion. The taxpayer in the Palmer case, supra, contended that the instrument was a lease and invoked the rule in Murphy Oil Co. v. Burnet, 278 U. S. 299, that a lessor is entitled to a depletion allowance on both bonus (advance royalties) and royalties. The Supreme Court held that it was immaterial whether the instrument constituted a sale, an assignment or a lease; that the question involved merely the application of section 214 (a) (10) of the Revenue Act of 1921, which provided for a deduction of a reasonable allowance for depletion “in the case of * * * oil and gas wells, * * * according to the peculiar conditions in each case”; that the language of the section did not restrict such allowance “to any particular class or to any special form of legal interest in the oil well”, but is broad enough to include “every case in which the taxpayer has acquired, by investment, any interest in the oil in place, and secures, by any form of legal relationship, income derived from the extraction of the oil, to which he must look for a return of his capital”, whether the taxpayer be vendor, lessor, lessee, or their transferee, so long as by the terms of the transaction involved the taxpayer retains “a right to share in the oil produced”, that is, “an economic interest in the oil, in place, which is depleted by production.” The Supreme Court decided that “when the two lessees (partnerships) transferred their operating rights to the two oil companies, whether they became technical sublessors or not, they retained, by their stipulations for royalties, an economic interest in the oil, in place, identical with that of a lessor”, and because of this retention of an economic interest through the medium of royalties was, to the extent of such interest, entitled to a reasonable allowance for depletion. The ground upon which the opinion in the Palmer case, supra, was based, was the retention of an economic interest by the taxpayer of the oil in place. The holding in that case then is not controlling in the instant case because the taxpayer herein retained no economic interest in the oil in place, so far as the payments here in controversy are concerned.

The contract of October 3, 1927, constituted an absolute sale of not only its interest in the leases, permits, and drilling agreements transferred, which might be termed operating agreements, but also all of the oil and gas in place, for the contract specifically provided that the Honolulu Consolidated Oil Co. acquired “the sole ownership of and the right to sell or otherwise dispose of, all oil and/or gas and derivative products produced in, on or upon said properties” and further that the petitioner “shall have no interest in or to any of said properties whatsoever.” The consideration in the definite amount of $2,000,000 was not in any way dependent upon the production of oil from the properties. It is therefore obvious that the petitioner did not retain any economic interest or investment in the oil and gas, in place, so far as the payments here in controversy are concerned, subject to depletion on extraction, but looked only to the independent personal liability of the purchaser for the receipt of the agreed purchase price of $2,000,000 pursuant to the terms of the contract of sale.

We conclude that the cash payments of $400,000 received by petitioner in each of the years 1928 and 1929 constituted proceeds from the sale of a capital asset and were not gross income from the property within the meaning of that phrase as used in section 114 (b) (8), supra, and therefore petitioner is not entitled to a depletion allowance of 27½ percent thereof under the provisions of that section. William Fleming, 31 B. T. A. 623; affd., 82 Fed. (2d) 324; and F. F. Simms, 28 B. T. A. 988, 1028, 1029. Cf. Comar Oil Co., 24 B. T. A. 688; affd., 64 Fed. (2d) 965; certiorari denied, 290 U. S. 652.

Decision will be entered wider Rule 50.

       SEC. 114 (b). BASIS FOR DEPLETION.
      ***** * *
      (3) Percentage depletion for oil and gas wells. — In the case of oil and gas wells the allowance for depletion shall he 27⅜ per centum of the gross income from the property during the taxable year. Such allowance shall not exceed 50 per centum of the net income of the taxpayer (computed without allowance for depletion) from the property, except that in no case shall the depletion allowance, he less than it would be if computed without reference to this paragraph.


author: McMahon:

text:
    Estate of Julius C. Lang, Deceased, and Richard E. Lang, Executor, and Grace E. Lang, Executrix, of the Estate of Julius C. Lang, Deceased, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 68316.
    Promulgated April 15, 1936.

      H. B. Jones, Esq., for the petitioners.

      Elden McFarland, Esq., for the respondent.
   OPINION.

McMahon:

This is a proceeding for the redetermination of a deficiency in Federal estate tax in the amount of $75,136.91.

It was stipulated that, for the purpose of this proceeding only, the true valuation of the bond of the Dittenhofer Realty Co., a part of decedent’s gross estate, is $44,444; and that a deficiency in income tax in the amount of $661.85 for the period January 1 to December 23, 1929, is allowable in its entirety as a separate debt of the decedent, in addition to the amount of $20,646.55 which was paid on the separate return filed for the decedent for the above period and allowed by the respondent in full; and effect will be given to such stipulation in the recomputation under Rule 50.

In the interest of brevity we set forth the errors on the part of respondent alleged in the amended petition and not disposed of by stipulation or waived by the petitioners at the hearing, make our findings of fact, and render our opinion as to each separately.

I.

It is alleged that the respondent erred in including in the gross estate of decedent insurance in the sum of $232,514.27, or in excess of one-half thereof, or $116,257.14, subject to deduction of an exemption of $40,000.

Findings of Fact. — Julius G. Lang died testate on December 23, 1929, and at the time of his death was a resident of Seattle, King County, Washington. His last will and testament, appointing Grace E. Lang, his widow, and Richard E. Lang, his son, as executors, was duly admitted to probate in the Supreme Court of the State of Washington, for Kang County. Grace E. Lang and Richard E. Lang were duly appointed, and ever since have been and now are the duly qualified and acting, executors of the estate of Julius C. Lang, deceased.

The decedent came to Seattle, Washington, in the year 1902. He and Grace E. Lang, his Surviving spouse, were intermarried at St. Paul, Minnesota, on or about November 15, 1905, and thereupon made their home in Seattle, Washington, and at all times thereafter and until the death of the decedent were husband and wife and citizens and residents of the State of Washington, residing in Seattle.

The petitioners filed a Federal estate tax return for the estate of the decedent on November 29, 1930, with the collector of internal revenue, District of Washington.

At the time of decedent’s death he had 17 life insurance policies in force and effect on his own life, petitioners’ Exhibits 1 and 2, which are hereby made a part of these findings of fact by reference. The decedent’s wife is named as beneficiary in all the policies, except three, wherein decedent’s children, Richard E. Lang, Howard M. Lang, and Dorothy Lang, respectively, are named as beneficiary. The right to change the beneficiary is reserved to the insured in each policy. The petitioners reported these policies in the Federal estate tax return at a total value of $215,166.40 but included only one-half thereof, or $107,583.20, less the exemption of $40,000, as a part of decedent’s estate subject to tax. The respondent in his recomputation of the Federal estate tax determined that the policies had a value of $234,562.29 and included the whole of such amount, less the exemption of $40,000, in the gross estate of the decedent.

The premiums on all the above policies, excepting four thereof, were paid after the marriage of decedent out of community funds. The premiums on the four policies, in all of which decedent’s wife is named as beneficiary, were paid in part prior to marriage and in part after marriage out of community funds. The percentage of such premiums paid prior to and after marriage and the value of such policies as fixed by the respondent are set forth in the margin and hereby made a part of these findings of fact.

Opinion. — The respondent, under section 302 (g) of the Kevenue Act of 1926, included in the gross estate of decedent the value of $234,562.29 as determined by him, less the exemption of $40,000, of 17 life insurance policies taken out by decedent on his own life, in 14 of which the wife was named as beneficiary and in 3 of which their 3 children, respectively, were named as beneficiary. The value of s'uch policies, as determined by respondent, is not in dispute. The petitioner, however, contends that, under articles 25 and 28 of Regulations 70 (1929 Edition), and the community property laws of the State of Washington, a proportionate part of the proceeds or value of such policies, corresponding to the portion of premiums paid with community funds, constitutes community property, and one-half thereof should be eliminated from the gross estate of decedent because it is the property of the wife and not of the decedent.

A similar question, involving the community property law of ljouisiana, was decided adversely to the contention of the petitioners here in Jacob K. Newman et al., Executors, 29 B. T. A. 53; affirmed in Newman v. Commissioner, 70 Fed. (2d) 449; certiorari denied, 296 U. S. 600, wherein it was held that proceeds of life insurance policies, in which the wife was named as beneficiary, in excess of the $40,000 exemption, are includable in the gross estate of the deceased husband, notwithstanding that all the policies except one were taken out prior to the enactment of the 1918 Revenue Act and that the premiums on the policies had been paid out of community funds.

The petitioners contend that the decision in the Newman case, supra, is based upon decisions of the courts of Louisiana and Texas, and, therefore, is not applicable as the decisions of such states have not been followed in Washington, and cites numerous authorities. The community property law of Washington, applicable to this issue, is similar to the community property law of Louisiana, applicable to a similar issue in the Newman case (Warburton v. White, 176 U. S. 484; Poe v. Seaborn, 282 U. S. 101; and Bender v. Pfaff, 282 U. S. 127), and does not justify a different conclusion. Nor do the California decisions cited by the petitioners justify a different conclusion. Notwithstanding anything to the contrary in the Oar-roTl case, supra, which was not reviewed by the courts, we adhere to our decision in the Newman case, supra, as affirmed by the Circuit Court of Appeals of the Fifth Circuit, certiorari having been denied by the Supreme Court.

The action of respondent in including the full value of all the policies in the gross estate of decedent must be approved.

II.

The next question for consideration is whether the respondent erred in disallowing a deduction of $48,225, claimed to have been identified as moneys received by the decedent, Julius C. Lang, from his brother’s estate within five years prior to decedent’s death.

Findings of Fact. — Henry Lang, of Portland, decedent’s brother, died January 1, 1929. During 1929 the decedent received property from the estate of his brother, including various amounts in cash aggregating $96,450. Of this amount the decedent turned over to the National Grocery Co. at various times amounts aggregating $64,000, receiving in return promissory notes of that company payable on demand. All of such notes were paid and the proceeds thereof were used for the purchase of securities.

The decedent and his widow had an agreement to the effect that whatever he received was to be regarded as community property. The petitioners, in conformity with such agreement, deducted on their Federal estate tax return only one-half of an amount of $330,-626.05, which included listed securities and “Monies” in the amount of $96,450 claimed to be property received from the estate of decedent’s brother and previously taxed within five years of the death of decedent, one-half of the latter amount being $48,225. The respondent determined that the value of securities listed by the executors as property previously taxed was $242,830.64 and allowed one-half thereof, or $121,415.32, as a deduction, but disallowed $48,225, being one-half of the cash also deducted bj the executors.

Opinion. — The respondent disallowed the deduction of one-half of the item of $96,450, or $48,225 on the ground that such property, or any property received in exchange therefor, had not been identified as a part of decedent’s estate as required under section 303 (a) (2), 1926 Act. The values of the securities as adjusted by the respondent are not in question here. Such property received by decedent became community property by agreement and the executors claim a deduction of only one-half of the value thereof. The only question now presented is whether the $48,225 is deductible from the gross estate of the decedent, Julius C. Lang.

No part of the estate of this decedent has been “identified as having been acquired in exchange for” the $96,450 received from his brother’s estate. In schedule O of the petitioner’s return for Federal estate tax, certain demand notes of the National Grocery Co. are listed, but none of these has been identified as given to decedent in exchange for any part of the funds received from his brother’s estate. The notes received for the $64,000 of the $96,450 which was deposited with such company were paid by the company and securities were purchased with the proceeds. The securities so purchased have not been identified.

Since the evidence fails to identify any property included in the estate of the decedent as having been received in exchange for the moneys in the aggregate amount of $96,450, or any part thereof, received by decedent from his brother’s estate within five years prior to his death, the action of the respondent in disallowing a deduction for one-half thereof must be approved.

Willard G. Rolfe, Executor, 16 B. T. A. 519; Frances Brawner, Executrix, 15 B. T. A. 1122; and Arthur W. Bingham, Executor, 15 B. T. A. 1001; relied upon by petitioner, are distinguishable upon the facts, since the amounts in question in those cases were satisfactorily identified.

III.

Error on the part of the respondent in reducing the deduction for funeral expenses from $1,941.45 to $3,970.13 was assigned.

Findings of Fact. — In the Federal estate tax return, the petitioners deducted the amount of $7,941.45 in full, representing funeral expenses, the work of the sexton on the grave, services for conducting the funeral services, furnishing of music and funeral acknowledgment cards, and the crypt in Hills of Eternity Cemetery. The respondent allowed only one-half of such amount, or $3,970.03, as a deduction in his determination of the estate subject to tax.

Opinion. — The character of these expenses or their classification as funeral expenses within the meaning of section 303 (a) (1), 1926 Act is not in dispute. The respondent contends only that such expenses constituted a primary liability against the whole community and that only one-half should be deducted in determining the net estate subject to tax.

A similar question, involving a Texas estate, was decided adversely to the contention of the respondent here in Mrs. Niels (Mellie) Esperson, Executrix, 11 B. T. A. 1283; affirmed in Esperson v. Commissioner, 49 Fed. (2d) 259; certiorari denied, 284 U. S. 658, wherein it was held that the funeral expense of a deceased husband, in its entirety, is deductible from the gross estate of such decedent, which gross estate consisted of one-half of the community property. Upon the authority of that case, we hold that the entire funeral expenses in the amount of $7,941.45 is deductible from the gross estate of decedent in determining the net estate subject to taxation.

IY.

It is alleged that the respondent erred in reducing the allowance for general debts of the decedent from $739,984.88 to $365,262.29.

Findings of Fact. — In the Federal estate tax return, the executors listed debts of the decedent consisting of items numbered 1 to 63, inclusive, in the total amount of $739,984.88. The respondent allowed in full item No. 18 in the amount of $20,646.55, representing Federal income tax; he disallowed items 3, 7, and 10, representing three notes dated January 3, 1928, each in the amount of $10,000 payable to Richard E. Lang, Howard M. Lang, and Dorothy Lang, respectively, and interest in the amount of $106.86; and he allowed a community half of the remainder of the items, making a total of $365,262.29.

Items 1 and 2 in such schedule, in the amounts of $25,000 and $30,000,- together with interest thereon in the amount of $210.83, represent notes given by the decedent to the First Seattle Dexter Horton National Bank, both dated October 28, 1929, to purchase additional securities as community property.

As to item 3, prior to January 1, 1928, Richard E. Lang, the son of decedent, was advised that his father had made him a “gift” of $10,000. In January 1928, while absent .from Seattle, Bichard E. Lang was advised by letter that a note in big favor' in the amount of $10,000 executed by decedent had been placed in a safe-deposit box to which he had access. The first time he saw the note was in December 1928, having been away from Seattle in the .meantime with the exception of two days. The notes, listed as items 7 and 10, each in the amount of $10,000, payable to Howard M. Lang and Dorothy Lang, respectively, were never actually delivered to either of them,' although they had been informed that each had been made a “gift” of $10,000. It -had' been the practice of the decedent to make gifts to his children in substantial amounts.

The following are amounts borrowed by decedent from his children, together with accrued- interest:

Items 11½ and 12, in the amounts of $99,909.69 and $509.82, represent money and interest due Logan & Bryan oh the purchase of securities by decedent on margin account. Item 13, in the amount of $263,621.34, represents moneys advanced by Lang & Co. to decedent for the purchase of securities.

Item 16, in the amount of $500, represents a subscription made by decedent to the Seattle Talmud Torah Building Fund for the erection of a building in Seattle.

Items 17 and 18, in the amounts of $1,041.89 and $20,646.55, represent amomits paid for additional income tax for 1921 and income tax for 1929, respectively, accrued on decedent’s separate personal returns, the decedent and his wife having filed separate returns.

Items 19 to 63, inclusive, in the aggregate amount of $2,063.45 represent household, family, and doctor bills.

Opinion. — Item 17 in the amount of $1,041.89 representing additional income taxes accrued on decedent’s separate income tax return for 1927 is deductible in full. This is similar to the item of $20,646.75 which respondent determined was deductible.

The respondent disallowed items numbered 3, 7, and 10, each in the amount of $10,000, representing promissory notes of decedent payable to his three children, respectively, and also accrued interest thereon in the amount of $106.86, on the ground that such items do not constitute obligations on the decedent’s part based on a valuable consideration in money or money’s worth under section 303 (a) (1), supra. The three notes to his children, together with the interest thereon, to be deductible under section 303 (a) (1), supra, must come clearly within the provisions of the statute and therefore must constitute claims against the estate incurred or contracted “for an adequate and full consideration in money or money’s worth.” It is immaterial therefore that such claims were allowed by the Superior Court in Probate of the State of Washington as claims against the decedent and whether or not under the .laws of the State of Washington (secs. 3415 and 3416, Eem. Comp. Stat.) the natural duty of a father to equalize gifts to his children, together with the legal implication arising from the execution and delivery of such notes, constitutes sufficient consideration so as to create a binding obligation to pay recoverable at law. The notes in question herein were not given for a consideration in “money or money’s worth” within the meaning of the applicable provisions of the Federal Revenue Act.

The language of section 303 (a) (1), supra, is unambiguous and leaves no room for doubt as to its meaning. The principle, as stated in Gould v. Gould, 245 U. S. 151, and United States v. Merriam, 263 U. S. 179, cited by petitioners, that in case of doubt taxing statutes should be construed most strongly against the Government and in favor of the taxpayer, is therefore not applicable here.

Atkins v. Commissioner, 30 Fed. (2d) 761, and Robinson v. Philips, 41 Fed. (2d) 71, cited by petitioners, in which similar claims were held to be deductible as claims against the decedent, are distinguishable as such deductions were governed by section 403 (a) (1), Revenue Act of 1921, which did not contain the phrase “for an adequate and full consideration in money or money’s worth.”

Item's numbered 3, 7, and 10, aggregating $30,106.86, are therefore not deductible as claims against the estate within the meaning of section 303 (a) (1), supra. The action of respondent in this respect is approved.

As to the items numbered 1 to 16, inclusive, excepting items 3, 7, and 10, heretofore disposed' of, the question to be determined is whether they are deductible in whole as the separate debts of decedent or pro rata as community debts.

The petitioners concede that these debts are community obligations, but they contend that all of those which arose out of contract created by the decedent, as manager of the marital community, are at the same time the separate obligations of the decedent, and as such are deductible in their entirety.

Section 1342 of Remingtons Compiled Statutes of Washington provides in part as follows:

Upon the death of either husband or wife, one-half of the community property shall go to the survivor, subject to the community debts, and the other half shall be subject to the testamentary disposition of the deceased husband or wife, subject also to the community debts. * * * [Emphasis supplied.]

In First National Bank of Ritzville v. Cunningham, 130 Pac. (Wash.) 1148, there was involved the establishment, as a claim against the estate of a deceased wife, of a judgment obtained in an action against the husband alone upon a community indebtedness evidenced by two promissory notes signed by the husband only. The Supreme Court of Washington therein stated:

* * * All that was sought in that first action was to obtain a judgment against the husband, which judgment is, not only presumptively, but admittedly, a claim against the community estate. As such it is properly enforceable against the community estate, and the judgment so holding is affirmed.

Since items 1 to 16, exclusive of items 3, 7, and 10, are concededly community debts incurred prior to the dissolution of the community and since under the laws of Washington the share of the decedent and the share of the surviving spouse are each subject to one-half' thereof, the action of respondent in allowing only one-half thereof as a deduction from the gross estate of decedent is approved.

We have not overlooked the order of the Supreme Court of Washington under date of November 24, 1930, allowing and establishing these debts “as the indebtedness of the decedent owing at the time of his death”, approving the payment thereof, and finding that the executors were entitled to allowance therefor in the settlement of their accounts. On brief, petitioners claim that the effect of such allowance and order is to decrease the decedent’s estate by the amount of such claims and to relieve the widow’s share of one-half thereof. However, there is no evidence in the record to support such claim. Even if these claims are the separate debts of the decedent, they are also community debts.

Redelsheimer v. Zepin, 177 Pac. (Wash.) 736, cited by petitioners, does not support the contention of the petitioners that community debts created by the husband are separate liabilities of the husband and as such deductible only from his share of the community estate as the court’s decision that these debts were deductible in whole from the decedent’s share of the. community estate was based upon the provisions in his will to that effect. The will of the decedent in that case evidenced an intention to free the share of the wife in the community estate from its share of the community debts.

As to items 19 to 63, inclusive, consisting of personal and household expenses in the aggregate amount of $2,063.45, the petitioners, on brief, waive their contention that they should be deducted in full from decedent’s gross estate.. The respondent’s action in treating these items as community debts and in deducting one-half thereof in computing the net estate subject to taxation, is approved.

Y.

The last question to be considered is whether attorney fees in the amount of $2,500 and expenses of $388.35 incurred in the settlement and adjustment of Federal and state estate taxes due from the estate of decedent should be allowed as deductions.

Findings of Fact. — In addition to the amount of $7,500, representing attorney fees shown in the Federal estate tax return, and allowed by the respondent in the amount of $3,500 on a community basis, the petitioners, as executors, have become indebted in the amounts of $2,500 and $388.35, respectively, for attorney fees and expenses in connection with the settlement and adjustment of the tax liability of the Federal and state estate taxes.

Of inion. — The respondent on brief concedes that one-half of these additional attorney fees and expenses is allowable as a deduction in determining the net estate subject to estate tax. The allowance as a deduction of only half of the attorney fees of $7,500 is not challenged by the petitioners because under the system prevailing in Washington the entire community estate is subject to administration upon the death of a member of the community, it being conceded that, as these charges related to community administration, they should be treated as community debts. The petitioners contend that the additional fees and expenses totaling $2,888.35 should be allowed in full upon the ground that they arose wholly in connection with determining the estate tax liability of the decedent. These fees and expenses were, as heretofore pointed out, incurred by the executors in the course of the administration and settlement of the whole of the community estate. Hence they are charges against the community estate. There is no basis in the record for sustaining petitioner’s contention. They are similar to the fees of $7,500. We therefore hold that one-half only of such fees and charges are deductible.

Decision will be entered wider Rule 50.

       See table:

        Shields v. Barton, 60 Fed. (2d) 351; Stewart v. Bank of Endicott, 82 Wash. 106; Marston v. Rue, 92 Wash. 129; Parker v. Parker, 121 Wash. 24; Schramm v. Steele, 97 Wash. 309; Re Brown’s Estate, 124 Wash. 273; and Estate of Louisa Morris Carroll, 29 B. T. A. 11.

        Blethen v. Pacific Mutual Life Insurance Co., 243 Pac. (Cal.) 431; Modern Woodmen of America v. Gray, 299 Pac. (Cal.) 754; New York Life Insurance Co. v. Bank of Italy, 214 Pac. (Cal.) 61.

       See also Lang v. Commissioner, 289 U. S. 109; Levy’s Estate v. Commissioner, 65 Fed. (2d) 482.

       See also Stanton v. Everett Trust & Savings Bank, 259 Pac. (Wash.) 10; Redelsheimer v. Zepin, 177 Pac. (Wash.) 736; Butterworth v. Bredemeyer, 133 Pac. (Wash.) 1061; Corporate Loan & Security Co. v. Flindell, 213 Pac. (Wash.) 450; sec. 1541, Rem. Comp. Stat. (Wash.); Succession of Pizzate, 75 So. (La.) 498; and Succession of Solis, 119 So. (La.) 768.

         Estate of Laura Wilson Kirkwood, 23 B. T. A. 955, 968, and cases cited.

       It is stated in Henry Adams Ashford et al., Executors, 30 B. T. A. 1306:
      “The allowance of deductions is a matter of legislative grace; New Colonial Ice Co. v. Belvering, 292 U. S. 435; Belvering v. Independent Life Ins. Co., 292 U. S. 371, and a claim for deductions must come clearly within the conditions prescribed.”

        James Turner et al., Executors, 31 B. T. A. 446; Henry Adams Ashforth et al., Executors, supra; Central Union Trust Co. of New York et al., Executors, 24 B. T. A. 296. Cf. United States v. Mitchell et al., Executors, 74 Fed. (2d) 571.


author: Murdock :

text:
    W. L. Taylor, Petitioner, v. Commissioner of Internal Revenue, Respondent. F. L. Bateman, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 68067, 69689.
    Promulgated April 17, 1936.

      J. B. Sherrod, Esq., for the petitioners.

      T. M. Mather, Esq., for the respondent.
   OPINION.

Murdock :

The Commissioner determined the following deficiencies for the year 1929:

The Commissioner, in determining these deficiencies, added to the income of each petitioner, as reported on his return, additional income representing Liberty bonds received by each petitioner in 1925 from the Transcontinental Freight Co. to guarantee payment of any income tax that might have been due from that company prior to the time that the petitioners sold their stock in that company to the Baldwin Universal Co. The Commissioner explained that he included this amount in the petitioners’ income for 1929 beca'use it was finally determined in that year that no liability for tax existed against the company. The Commissioner also made other adjustments which are not in dispute. The sole issue in these proceedings is whether the amounts in question were properly included in computing the income tax liabilities of the petitioners for 1929. The facts have been stipulated.

The petitioners and their wives owned all of the stock of the Transcontinental Freight Co. which was outstanding in May 1925. They sold all of this stock to the Baldwin Universal Co. in May 1925. The question of the profit realized by the sellers in 1925 on that sale has been settled in other proceedings by decisions pursuant to stipulations filed with the Board.

The two petitioners now before the Board entered into an agreement dated May 9, 1925, as parties of the second part, with the Transcontinental Freight Co., as party of the first part. The petitioners entered into that agreement “as one of the considerations of the sale of the stock.” The agreement provided that, in consideration of United States Government bonds of the par value of $145,000 received by the petitioners from the Transcontinental Freight Co-., the two petitioners agreed “to assume and pay all additional United States income and excess profits taxes ultimately found to be due from the first party to the United States of America for the years 1917 to 1924, inclusive”, except for the unpaid installments of 1924 taxes shown on the original returns of the company. The petitioners further agreed to save the first party harmless and defend it without expense to itself against all claims and demands for the aforesaid taxes, and also to pay all attorneys’ fees and other expenses incurred thereafter in connection with the adjustment of such additional taxes. The first party relinquished all right to receive back any part of the United States Government bonds in case the tax liability of the company might be settled for less than $145,000. The petitioners received Liberty bonds of the par value of $145,000 from the Transcontinental Freight Co. in 1925. The Transcontinental Freight Co. at that time had filed proceedings before the Board contesting the Commissioner’s determination of deficiencies against it for the years 1917 to 1920. The total taxes involved amounted to $133,917.08. Those proceedings were finally settled in February 1929, by a stipulation in which the Commissioner agreed that there was no tax liability because the corporation was entitled to classification as a personal service corporation.

The petitioners filed their income tax returns on the cash receipts and disbursements basis. They did not report any part of the $145,-000 in their incomes for 1925. A revenue agent included it, the petitioners protested against its inclusion, the protest was allowed by the Commissioner, and, in the final settlement of their tax liabilities for 1925, no part of the $145,000 was included in their incomes. The gist of the protest which was agreed to by the Commissioner was that there could be no determination of income on the receipt of the Liberty bonds until it was settled whether the corporation was liable for any tax and what amount the petitioners might have to expend to defend the corporation. The Commissioner, in determining the deficiencies for 1929, included $72,500 in the income of each petitioner and allowed as a deduction to each an item of $7,463.24, claimed as attorneys’ fees in connection with the settlement of the tax liability of the Transcontinental Freight Co.

Each petitioner now contends that the $72,500 was income to him in 1925, despite the fact that he failed to include it in his income for 1925 and despite the fact that he successfully resisted its inclusion in his 1925 income on the ground that it was not income until 1929, when the tax liability of the Transcontinental Freight Co. was finally settled. Each further contends, as an alternative, that even if the amount was not income for 1925 because of the uncertainty of the litigation and the expenses incident thereto, then, for the same reason, it was not income for 1929, because a proceeding involving the petitioner’s personal liability for taxes for 1925 is still pending before the Board. However, income taxes on personal income for 1925 and expenses incident thereto are not, under any theory of this case, proper deductions from the $72,500 nor from either petitioner’s income for 1929. Therefore, the personal tax cases pending will not affect the present cases and the alternative contention deserves no further consideration. The Commissioner argues that his determination for 1929 must be approved by reason of an estoppel, but he fails to point out in the evidence the essential elements of an estoppel. We are of the opinion, however, that he need not invoke estoppel, nor any principle akin thereto, in order to sustain his determinations.

The record clearly indicates that the transaction whereby the stockholders of Transcontinental sold their stock in that corporation to Baldwin was separate and distinct for tax purposes from the transaction between Transcontinental and the petitioners in regard to the taxes and Liberty bonds. The question of the receipt of the $145,000 of Liberty bonds was in no way involved in the computation of the gain of the former Transcontinental stockholders from the sale of their stock. Thus the receipt of the $145,000 of Liberty bonds and the agreement on the part of the petitioners to litigate and settle the tax controversy was a separate and new transaction for income tax purposes which was entered into by the petitioners for profit in 1925: Although the petitioners received the Liberty bonds in 1925, they did not realize a gain of $145,000 in 1925 from the transaction because the transaction was only then beginning, and it was apparent at that time that they would have to make some expenditures which might even exhaust the entire amount which they had received. Until the tax liability was settled and their expenses determined, no one could say whether they had had a gain or a loss. The transaction was incomplete for tax purposes until 1929, when the tax liability which they had agreed to settle was finally settled and their expenses of litigation paid. Then for the first time their gain on the transaction could be computed by deducting their expenditures from their receipts. This the Commissioner did by including $72,500 in income for 1929 and deducting therefrom the expenses of litigation. The difference was the profit which the petitioners realized, and the Commissioner did not err in including this profit in income for 1929.

The transactions in the cases cited by the parties were not like the transaction in this case. For example, the petitioners have cited a number of cases where paving contractors received the contract price upon completion of the contracts and were required to report their profits on the contract at that time although they were still obligated to make any repairs to the paving which might become necessary during a fixed period thereafter, with or without reserve for the purpose. Cf. Mead Construction Co., 3 B. T. A. 438, and cases there cited. The Board and the courts in those cases held that where the contractor received the contract price, he could not eliminate any part of it in computing his gain on the contract. See, however, Commissioner v. Cleveland Trinidad Paving Co., 62 Fed. (2d) 85. The difference is that in the present case the $145,000 was not received as a part of the contract price upon a completed contract. It was entirely separate from the amount received for the stock, was received from a different party, was not involved in the computation of the profit from the sale of the stock, and formed compensation which the petitioners were to receive for a wholly new undertaking for a different party which involved the expenditure by them of an amount then uncertain. In other words, the fact, here present, that the petitioners’ undertaking for which they received the $145,000 was separable for tax purposes from the transaction in which they sold their stock, serves to distinguish this case from the paving cases. It is likewise true that the present case is distinguishable from other cases cited by the respondent where a certain amount was placed in escrow or held in a fund for the discharge of tax liabilities. Cf. Stoner v. Commissioner, 79 Fed. (2d) 75, reversing 29 B. T. A. 953; Preston R. Bassett, 33 B. T. A. 182. It is likewise distinguishable from cases where taxpayers on an accrual basis are regularly engaged in some business where they receive payments in advance and later have to make expenditures, or make expenditures and later receive payment. Cf. Burnet v. Sanford & Brooks Co., 282 U. S. 359.

Decision will be entered for the respondent.