author: Black :

text:
    Louisville Property Company, H. C. Williams, Assignee, Middlesboro, Kentucky, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 96414.
    Promulgated June 3, 1942.
    , Geo. E. n. Goodner, Esq., for the petitioner. . . , .•

      T.F.Gallahan, Esq., and F. M. Cavanaugh, Esq., for the respondent.
   OPINION.

Black :

We shall consider the questions in the order stated.

The respondent determined and contends that, under section 52 of the Kevenue Acts of 1934 and 1936, Williams, as successor assignee of the Louisville Property Co., was operating the entire property or business of that corporation and should have made returns for the said corporation for the taxable years 1935 and 1936 in the same manner and form as corporations are required to make returns. The material provisions of section 52 of both acts are identical and are set forth in the margin. In support of his determination and contention the respondent cites articles 22 (a)-21, 52-1, and 52-2 of Kegulations 86 and 94 (the material provisions of which are identical in both Regulations), and the cases of Will T. Caswell, 36 B. T. A. 816: Boggs-Burnam & Co., 26 B. T. A. 988; affirmed per curiam, 71 Fed. (2d) 999; and Northwest Utilities Securities Corporation, 27 B. T. A. 524;. affd., 67 Fed. (2d) 619; certiorari denied, 291 U. S. 684.

Petitioner contends that Williams, as successor assignee of the Louisville Property Co., was not operating the property or business of that corporation; that he was merely a trustee appointed by the court to liquidate the property of the corporation for the sole benefit of, first, the creditors, and then the stockholders of the Louisville Property Co., and that, under sections 161 and 142 of the Revenue Acts of 1934 and 1936, Williams correctly filed returns as a fiduciary* The material provisions of these sections of both acts are identical and are in the margin. In support of this contention petitioner cites In re Owl Drug Co., 21 Fed. Supp. 907, as being similar in many respects to petitioner’s position, and Fidelity National Bank & Trust Co 37 B. T. A. 473, and Merchants National Building Corporation, 45 B. T. A. 417, as two cases “on all fours with the instant case in all material respects.”

We have carefully considered the contentions of both parties and are of the opinion that the respondent’s determination *as to this question is correct. We think the facts here are substantially different from the facts in Merchants National Building Corporation, supra, and that, instead of that case supporting the petitioner’s view, it is authority for the respondent’s determination for the reason that the Board took particular pains to point out that if the May 31, 1934, transfer there had been a step toward dissolution the decision would have been the other way. We think the Merchants National Building Corporation case is clearly distinguishable on its facts from the instant case.

Likewise we think Fidelity National Bank & Trust Co., supra, is distinguishable. The trustees in that case were merely liquidating trustees of a part only of the assets of the Fidelity National Bank & Trust Co. of Kansas City, which corporation under its own charter was consolidated with another bank into a consolidated bank. They were not trustees in dissolution. We do not regard the case as of any assistance to the petitioner here.

In In re Owl Drug Co., supra, the court held that the trustee in bankruptcy there, having in a prior year sold the entire business theretofore conducted by the bankrupt, was no longer “operating the property or business” of the bankrupt corporation, and was not, therefore, required to file a return as a corporation under section 52 of the Revenue Act of 1934. That is not the situation here.

In the instant proceedings we think the evidence clearly shows that Williams was “operating the property or business” of the Louisville Property Co. within the meaning of the applicable statute and regulations, and we have so found as an ultimate fact. He was deriving income from sales of coal and timber, collecting rents, and entering into royalty contracts, and he disposed of approximately 32,000 acres of land in Bell County, Kentucky, by sale to the United States Government, all of which is authorized by the corporation’s charter. Furthermore, in the deed of assignment executed on November 6,1919, it was recited among other things that the Louisville Property Co. was indebted to the Louisville & Nashville Kailroad Co. in an amount of “considerably more than a million dollars” and that in consideration of the premises the assignor thereby assigned all of its property “to the assignee, its successors and assigns, absolutely and in fee simple, in trust for the payment of the debts of the Assignor and the expenses of administration and the distribution of the remainder, if any, of the proceeds of the sale of the assignor’s property to its stockholders.” There still remained a substantial amount of contested corporate debts at the time Williams was appointed successor assignee. That condition still exists, and up to the ■date of this hearing there had been no distributions to the stockholders. Under such circumstances, Williams must be considered as acting for the corporation and not the stockholders. Boggs-Burnam & Co., supra, p. 994; Will T. Casswell, supra, p. 822. Cf. Hellebush v. Commissioner, 65 Fed. (2d) 902, and cases there cited. We hold, ■therefore, that Williams, as successor assignee in trust for the benefit •of the creditors and stockholders of the Louisville Property Co. in dissolution, should have made returns for that corporation under ; section 52 of the Revenue Acts of 1934 and 1936.

The second question involves petitioner’s right to percentage depletion for the taxable years 1935 and 1936 on coal mined from the "properties held by Williams as successor assignee. Petitioner con•cedes that it is not entitled to depletion based on cost, for no cost has been proved. Petitioner contends, however, it is entitled to a ■deduction for each year of percentage depletion under section 114 (b) (4) of the Revenue Acts of 1934 and 1936, respectively. The material provisions of this section, printed in the margin, are identical in both acts, with the exception that the last sentence printed therein is new in the 1936 Act. The “first return” of this taxpayer referred ■to in the statute is the return for the taxable year 1934, which should have been filed by the United States Trust Co. as assignee. The record is silent as to whether any return was filed for the year 1934, ¡and, if so, whether any election “to have the depletion allowance for such property for the taxable year for which the return is made ■computed with or without regard to percentage depletion” was or was not made. Without proof of what was done relative to the taxable year 1934, the Board is not permitted to allow any deduction for percentage depletion for the taxable years 1935 and 1936. J. E. Riley Investment Co. v. Commissioner, 311 U. S. 55. Cf. last sentence of section 114 (b) (4) of the Bevenne Act of 1936, supra, and Tonopah Mining Co. of Nevada v. Commissioner, 127 Fed. (2d) 239.

The third question is whether the taxes paid in the name of H. C. Williams, assignee, Louisville Property Co., for the years 1935 and 1936 should be credited against the taxes determined by the respondent in this proceeding. Petitioner contends that if it is held that it should be taxed as a corporation and not as a trust, “then it is certainly entitled to have the taxes paid deducted from the tax liability for the two years before any deficiency .can be determined.’* In support of this contention petitioner cites section 271 of the Bevenue Acts of 1934 and 1936. This section is identical in both acts.

It is, of course, fundamental that taxes overpaid by one taxpayer may not be credited against taxes due from a different taxpayer. Alexander Vayssie, 8 B. T. A. 587; Charles V. Parker, 17 B. T. A. 608; Robert C. Roebling, 28 B. T. A. 644, 656; Estate of Lucile Gruy, 42 B. T. A. 1279; Philadelphia Rapid Transit Co. v. United States, 10 Fed. Supp. 591; certiorari denied, 300 U. S. 664; Paul and Mertens, vol. 5, par. 51.33.

The respondent argues that “petitioner overlooks the simple fact that H. C. Williams individually is not the same taxpayer as the Louisville Property Company, H. C. Williams, Assignee” and cites. Estate of Lucile Gruy, supra, as authority for denying the credit.

We do not agree with the respondent that, when Williams filed the-income tax returns on Form 1040 mentioned in our findings in the name of H. C. Williams, assignee, Louisville Property Co., he was. acting for himself individually. Those were clearly not his individual returns, but were the returns he thought he was required to file-as successor assignee of the Louisville Property Co. In those returns: he did not report any of his individual income but only the income-he derived from operating the property or business of the Louisville Property Co. Clearly the Commissioner in his deficiency notice-recognized that he was dealing with the same taxpayer and simply •determined that Williams as successor assignee should have filed returns as a corporation and not as a trust, and we have sustained that determination. We do not think the deficiencies in question ¿have been determined against any different “taxpayer” from the ■one who filed the returns mentioned in our findings and paid the taxes shown to be due thereon. The party that filed those returns •and paid the taxes was simply mistaken as to the proper form to •use. We hold that the respondent erred in not giving petitioner ■credit for the taxes paid for the years 1935 and 1936 in the respective .•amounts of $23.14 and $614.11, to the extent that such payments have not been refunded or otherwise credited. Cf. John W. Preston, 21 B. T. A. 840, 849.

In view of our holding on the first question it becomes unnecessary to consider the fourth question.

Decision will be entered imjer Bule 50.

       SEC. 52. CORPORATION RETURNS.
      * * * In cases where receivers, trustees in bankruptcy, or assignees are operating the property or business of corporations, such receivers, trustees, or assignees shall make returns for such corporations in the same manner and form as corporations are required to make returns. Any tax due on the basis of such returns made by receivers, trustees, or assignees shall be collected in the same manner as if collected from the corporations of whose business or property they have custody and control.

       Art. 22 (a)-21. Gross income of corporation in liquidation. — When a corporation is dissolved, its affairs are usually wound up by a receiver or trustees in dissolution. Tile corporate existence is continued for the purpose of liquidating the assets and paying the debts, and such receiver or trustees stand in the stead of the corporation for such purposes. * * * Any sales of property by them are to be treated as if made by the corporation for the purpose of ascertaining the gain or loss. No gain or loss is realized by a corporation from the mere distribution of its assets in kind in partial or complete liquidation, however they may have appreciated or depreciated in value since their acquisition. * * *
      Art. 52-1. Corporation returns. — Every corporation not expressly exempt from tax must mako a return of income, regardless of the amount of its net income. In the case of ordinary corporations, the return shall be on Form 1120. * * * A corporation having an existeneo during any portion of a taxable year is required to make a return. * * *
      Art. 52-2. Returns Try receivers. — Receivers, trustees in dissolution, trustees in bankruptcy, and assignees, operating the property or business of corporations, must make returns of income for such corporations. If a receiver has full custody of and control over the business or property of a corporation, he shall be deemed to be operating such business or property within the moaning of section 52, whether he is engaged in carrying on the business for which the corporation was organized or only in marshaling, selling, and disposing of its assets for purposes of liquidation. Notwithstanding that the powers and functions of a corporation are suspended and that the property and business are for the time being in the custody of the receiver, trustee, or assignee, subject to the order of the court, such receiver, trustee, or assignee stands in the place of the corporate officers and is required to perform all the duties and assume all the liabilities which would devolve upon the officers of the corporation were they in control. * * * A receiver in charge of only part of the property of a corporation, however, as, for example, a receiver in mortgage foreclosure proceedings involving merely a small portion of its property, need not make a return of income.

       SEC. 161. IMPOSITION OF TAX.
      (a) Application of Tax. — The taxes imposed by this title upon individuals shall apply to the income of estates or of any kind of property held in trust, including—
      (1) Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests, and income accumulated or held for future distribution under the terms of the will or trust;
      * * * * * * *
      (b) Computation and Payment. — The tax shall be computed upon the net income of the estate or trust, and shall be paid by the fiduciary * * *. For return made by beneficiary, see section 142.

        SEG. 142. FIDUCIARY RETURNS.
      (a) Requirement of Return. — Every fiduciary * * * shall make under oath a return for any of the following individuals, estates, or trusts for which he acts, stating specifically the items of gross income thereof and the deductions and credits allowed under this title * * *.

       SEC. 114. BASIS FOR DEPRECIATION AND DEPLETION.
      * * * * * * t

      (b) Basis for Depletion.
      * ⅜ * * * ⅜ *
      (4) Percentage depletion for. coal and metal mines and sulphur. — The allowance ■for depletion under section 23 (m) shall be, in the case of coal mines, 5 per centum * * * ■of the gross income from the property during the taxable year, excluding from such gross income an amount equal to any rents or royalties paid or incurred by the taxpayer in respect of the property. Such allowance shall not exceed 50 per centum of the net income of the taxpayer (computed without allowance for depletion) from the property. A taxpayer making his first return under this title in respect of a property shall state whether he ■ elects to have the depletion allowance for such property for the taxable year for which the -return is made computed with or without regard to percentage depletion, and the depletion allowance in respect of such property for such year shall be computed according to the election thus made. If the taxpayer fails to make such statement In the return, the ■depletion allowance for such property for such year shall be computed without reference to percentage depletion. The method, determined as above, of computing the depletion ■ allowance shall be applied in the case of tho property for all taxable years in which it is ■in the hands of such taxpayer, or of any other person if the basis of the property (for ■determining gain) in his hands is, under section 113, determined by reference to the basis in the hands of such taxpayer, either directly or through one or more substituted bases, •as defined in that section. The above right of election shall be subject to the qualification that this paragraph shall, for the purpose of determining whether the method of computing ■the de,pletion allowance follows the property, be considered a continuation of section 114 (b) (4) of the Revenue Act of 1934, and as giving no new election in eases where ;sueh section would, if applied, give no new election.

       SEC. 271. DEFINITION OF DEFICIENCY
      As used In this title in respect of a tax imposed by this title “deficiency” means—
      (a) The amount by -which the tax imposed by this title exceeds the amount shown as. the tax by the taxpayer upon his return ; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a-deficiency, and decreased by the amounts previously abated, credited, refunded, or otherwise-repaid in respect of such tax; or
      (b) If no amount is shown as the tax by the taxpayer upon his return, or if no return is made by the taxpayer, then the a mount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but such amounts previously assessed, or collected without assessment, shall first be decreased by the amounts previously-abated, credited, refunded, or otherwise repaid in respect of such tax.


source: Caselaw Access Project

author: Sternhagen:

license: Public Domain

text:
    Robert A. Burns, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 108271.
    Promulgated June 3, 1942.

      Robert J. Holmes, Esq., for the petitioner.

      T. G. Histon, Esq., for the respondent.
   OPINION.

Sternhagen:

The Commissioner determined a deficiency of $259.36 in individual income tax for 1939. He disallowed the personal exemption on the ground that petitioner’s wife, on her separate return, ■claimed the exemption. Respondent now claims a penalty for failure to file a return under oath.

Petitioner is a resident of Winchester, Massachusetts, where he lives with his second wife. He was divorced from his first wife, to whom and their three sons he contributed support. His wife filed a separate return for 1939 in which, with his knowledge and consent, she took a personal exemption of $2,500 as a married person living with her husband. He filed, in the District of Massachusetts, a .separate return, not under oath, in which he took a personal exemption of $2,500 as head of a family.

Section 25 (b) (1), Internal Revenue Code, gives the personal ■exemption of $2,500 to “the head of a family or a married person living with husband or wife.” It expressly provides, “A husband •and wife living together shall receive but one personal exemption.” Since petitioner and his wife were living together, they were, in •explicit terms, limited to but one personal exemption, which “may he taken by either or divided between them.” Since they agreed that the exemption should be taken by the wife, and it was so taken, there was none left for the petitioner to take. The Commissioners determination disallowing the exemption is sustained.

The respondent, by affirmative allegation in his answer, alleges that the petitioner hied no return under oath, and proved that the return although signed was not sworn to. This requires the addition of the 25 percent penalty, Plunkett v. Commissioner, 118 Fed. (2d) 644.

Decision for the deficiency and penalty will he entered for the respondent.


author: Turner:

text:
    Bennie Rudner, Petitioner, v. Commissioner of Internal Revenue, Respondent. R. F. Jacobson, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 102112, 102125.
    Promulgated June 4, 1942.

      John E. O. Feller, C. P. A., for the petitioners.

      W. W. Kerr, Esq., for the respondent.
   OPINION.

Turner:

The statute provides in section 23 (k) of the Eevenue Act of 1936 that in computing net income there shall be allowed as deductions “Debts ascertained to be worthless and charged off within the taxable year (or, in the discretion of the Commissioner, a reasonable addition to a reserve for bad debts).” Eegulations promulgated thereunder provide that a taxpayer may change from one method of accounting for bad debts to the other only upon permission granted by the Commissioner of Internal Eevenue. Art. 23 (k)-l, Eegulations 94.

The E & J Furniture Co. had regularly followed the specific charge-off method in computing bad debt deductions, but on October 27, 1937, obtained the consent of the Commissioner to change to the reserve method. The change was not made, however, until December 31, 1937, by which date debts determined to be bad and charged off during 1937 totaled $40,610.68. On December 31, 1937, a reserve for bad debts in the amount of $96,234.96 was set up on the partnership books and the debts previously determined to be bad and charged off, in the amount of $40,610.68, were charged thereto, leaving a balance in the reserve of $55,624.28, the said balance being equal to 20 percent of the accounts receivable outstanding on the books at December 31, 1937. With respect to the sufficiency of the reserve so carried forward to 1938, the facts show that, after the debts determined in 1938 to be bad had been charged to the reserve and the bad debt recoveries during 1938 had been credited thereto, the net charge-to the reserve during 1938 was $50,742.78, indicating that the estimate made by the partnership at December 31, 1937, in respect of its bad; debt requirements was reasonably accurate.

The petitioners claim that, by reason of the change from the specific charge-off method to the reserve method, the partnership properly set up as a reserve at December 31, 1937, the sum of $96,234.96,. and that in computing its net income for 1937 it is entitled, under the statute and the regulations, to the deduction of the full amount,, even though the facts show that the said amount was designed to and in fact was sufficient to cover its bad debt needs not only for 1937, but for 1938 as well. Rhode Island Hospital Trust Co. v. Commissioner, 29 Fed. (2d) 339, and First National Bank of Omaha v. Commissioner, 49 Fed. (2d) 70, are cited in support of this contention.

Counsel for the respondent takes the position that the Commissioner, in the exercise of the discretion vested in him by statute, determined that “a reasonable addition” to the partnership reserve for bad debts for 1937 was $40,433.64, that amount being equal to 10‘ percent of the gross sales of the partnership for 1937 and substantially the same as the actual bad debt requirements for that yearj that such determination is in fact reasonable and should not therefore be disturbed.

Prior to 1921 a deduction for bad debts could be taken only by the specific charge-off method, ánd for the first time the Bevenue Act of 1921 permitted a determination of the deduction by the reserve method. Under article 151 of the regulations promulgated under the said act taxpayers were permitted, for 1921, to elect either of the-two methods, but it was provided that thereafter no change might, be made without permission granted by the Commissioner. The-method of effecting the change was prescribed by article 155, wherein it was provided that a taxpayer electing to change to the reserve-method should determine and set, up the amount of the reserve “that should reasonably have been set up as at December 31, 1920-(which shall not be deducted in computing net income), and in respect of 1921 and subsequent years may add a reasonable addition to such reserve and deduct the amount in computing taxable net income.” It was further provided that debts outstanding at December 31, 1920, which became worthless and uncollectible during-1921 should be charged against the reserve set up but that such debts-should likewise be deductible for 1921. The result was to allow as a bad debt deduction in the year of the change the debts arising prior-to January 1 which became worthless and uncollectible during the-year plus the amount credited in or at the end of the year to the-reserve to cover experienced and anticipated bad debt losses in the-accounts arising after January 1.

One of the first cases, if not the first case, involving the change-from the specific charge-off method to the reserve method of accounting for bad debts was Transatlantic Clock & Watch Co., 3 B. T. A. 1064. There the taxpayer in the year of the change charged off bad. debts in the amount of $4,302.14 and at the close of the year set up a reserve in the amount of $5,000 to cover anticipated bad debt losses-in respect of the accounts then outstanding and claimed as a bad debt, deduction for the year the sum of the two items, or $9,302.14. The-respondent determined that the petitioner had not complied with the-regulations so as to indicate an election to account for bad debts-.by the reserve method and allowed the deduction claimed only to-'the extent of the debts specifically charged off. The Board waived, this argument aside and took the position that the real question was whether the taxpayer should be permitted, in the year of such change,, to deduct both the bad debts charged off and the amount added to- or placed in a bad debt reserve, and declared that a taxpayer could not have both but was limited to one or the other. It was concluded that the taxpayer had elected to account for bad debts by the reserve-method and that $1,569.03 was a reasonable amount to set up in the-reserve and was deductible. By a tabulation set forth in the opinion,, however, the Board indicated that the reserve set up should be sufficient not only to meet anticipated bad debt losses in the accounts receivable outstanding as of the date when the reserve was set up but should also be sufficient to absorb debts .which had been ascertained to be worthless and specifically charged off during the year prior to the setting up of the reserve. The net result of this ruling was the allowance in full of debts specifically charged off during the year of the change plus a reserve in a lesser amount than that claimed and set up by the taxpayer at the close of the year. But, said the Board, this total must be regarded solely and only as “a reasonable addition” to the' reserve for the year of the change and no part is to-be regarded as debts determined to be bad and charged off the books.. Since its promulgation the Board has consistently cited Transatlantic-Clock & Watch Co. for the proposition that a taxpayer may not have-a bad debt deduction by both the specific charge-off method and the-reserve method, but for a considerable time refused in varying degrees; without noting the difference or any particular reason therefor,, to include in the reserve allowed an amount sufficient to absorb the bad debts charged off during the year, as was pointedly done in Transatlantic Clock & Watch Co. See Rhode Island Hospital Trust Co., 8 B. T. A. 555; reversed, 29 Fed. (2d) 339; Thomas Henry, Inc., 13 B. T. A. 1234; and First National Bank of Omaha, 17 B. T. A. 1358; reversed, 49 Fed. (2d) 70. The courts, in reversing Rhode Island Hospital Trust Co. and First National Bank of Omaha, returned the Board to what had been done in Transatlantic Clock & Watch Co., holding that where a change is made from the specific charge-off method to the reserve method of accounting for bad debts the bad debts determined to be worthless and charged off during the year must be included in determining the deduction allowable for that year by the reserve method. So far as we have been able to determine, the Board has not since departed from the rule laid down to those cases and has allowed, in setting up a reserve, an amount sufficient to absorb the debts determined to be bad and charged off during the year. Wade & Dunton Carriage Co., 21 B. T. A. 439; and Abraham Sultan, 22 B. T. A. 889. See also Harry Kahn, 17 B. T. A. 499, decided shortly before First National Bank of Omaha, supra. Cf. National Mill Supply Co., 23 B. T. A. 1363.

In the instant case, the partnership, in making the change from the specific charge-off method to the reserve method, in setting up the reserve at December 31,1937, and in charging thereto debts previously determined to be bad during the taxable year, apparently sought to comply with the pronouncements and conclusions in the ..cages cited above, in that it set up as “a reasonable addition” to the reserve an amount sufficient to absorb the debts determined to be bad and charged off during the year and to leave as the reserve for anticipated losses in the accounts remaining on the books an amount equal to 20 percent thereof. Actual experience of the partnership in 1938 indicates that the reserve so left on the books at the close of 1937 was not far wrong. Business in the area in which the partnership conducted its business had slumped during the latter part of 1937 and, of the accounts totaling $40,610.68 determined to be bad and charged off during the year, $21,683.55 was charged off between October 27 and the end of 'the year. On such facts the partnership concluded that a reserve of $55,624.28 was needed. Had the partnership been on the reserve basis already and had there been no question of change from the specific charge-off method, we seriously doubt that the respondent in his determination would have considered $55,624.28 as an unreasonable reserve in respect of the accounts receivable outstanding on December 31, 1937. There can be no question that $96,234.96, the amount of the deduction claimed, covers the bad debt requirements of the partnership for a two-year period and that deduction of the full amount in 1937 results in the distortion of net income for that year. It is the logical result, however, of the change from the specific charge-off method to the reserve method of accounting for bad debts and is in keeping with the decisions cited above. Furthermore, under the statute and the regulation, it was within the discretion of the respondent to grant or withhold permission to make the change. Permission to make the change was granted with no conditions attached. The respondent should not now complain of the logical and natural consequences of an act which was wholly within his discretion. His contention herein is accordingly rejected.

Decisions will be entered under Buie 50.


author: Arundell:

text:
    William J. R. Ginn, Petitioner, v. Commissioner of Internal Revenue, Respondent. Paul F. and Helen McB. Schucker, Petitioners, v. Commissioner of Internal Revenue, Respondent
    Docket Nos. 105265, 105297.
    Promulgated June 4, 1942.

      Charles W. Crawford, Esq., for the petitioners.

      William, G. Buymann, Esq., for the respondent.
   OPINION.

Arundell:

Petitioners contend that that portion of the amounts they received upon surrender of the annuities, which represents contributions made by persons other than Speyer & Co., is not taxable income since such contributions were gifts or bequests. Respondent argues that the contributions of the partners, including the 1938 contribution by Speyer were not gifts, but compensation for past or future services of the employee participants in the fund. He urges that, in any event, the fund was a pension trust within the meaning of section 165 of the Revenue Act of 1938, and that that section required that the excess of the amounts received over the amounts contributed by petitioners be taxed to petitioners in the year of distribution. . ..

The parties seem agreed that the fund was a pension trust within the meaning of section 165. They differ, however, in their interpretation of the effect of that section here. The literal words of the statute require that an employee participant in a pension trust fund he taxed on the amounts distributed or máde available to the employee in the taxable year to the extent that the distribution exceeds the amounts previously contributed by the employee. Respondent maintains that the statute must be construed literally and that such ■an interpretation requires that petitioners be taxed on all amounts received by them from the fund in excess of their contributions.

The predecessor of section 165 was section 219 (f) of the Revenue Act of 1921, which applied only to trusts created by an employer as a part of a stock bonus or profit-sharing plan and provided that the amount actually distributed or made available to any distributee should be taxed to him in the year distributed or made available to the extent it exceeds the amount paid in by him. Congress, in the Revenue Act of 1926, amended section 219 (f) to include a trust created by an employer as a part of a pension plan for employees. In the Revenue Act of 1928 the substance of section 219 (f) of the- previous act were set forth in section 165, except that its provisions were changed to carry nut Congress’ intent not to tax appreciation in value of stock purchased by the trustee of a stock bonus or profit-sharing trust and distributed to the employee. Thus, the section provided that “the amount contributed to such fund by the employer and all earnings of such fund shall be taxed to the distributee in the year in which distributed .or made available to him.” In 1932, Congress, observing that the quoted provisions of section 165 of the Revenue Act of 1928 caused a participating employee to be taxed on contributions of the employer and all earnings of the fund even though invested in stock which had greatly depreciated in value, again changed the provisions of section 165. Section 165 of the Revenue Act of 1932 thus provides, as did section 219 (f) of the Revenue Act of 1926, for the taxation to the dis-tributee, in the year in which distributed or made available to him, •of a stock bonus, profit-sharing, or pension trust of all amounts in excess of the distributee’s contributions. So far as is material here, section 165 of the 1938 Act, which is applicable here, is substantially like section 219 (f) of the Revenue Act of 1926 and section 165 of the Revenue Act of 1932.

Petitioners argue, however, that the tax should not be imposed according to the plain language of section 165, which would require that the difference between what petitioners received and what they contributed to the fund should be taxed to them. They contend that their aliquot amounts of the contributions by Speyer and other partners, individually, the bequests from the two estates, and the amounts undrawn by deceased employees were gifts to the fund and that this gift characteristic follows through to the receipt of pensions by individual members of the fund. But this does not follow even if it be assumed that the contributions in question were in the nature of gifts to the fund. The contributions were, in any event, made with the clear understanding that they would be distributed under the terms of the constitution of the pension trust.

The benefits of the pension fund were not available without consideration being furnished on the part of the employee. In order to benefit he had to comply with the conditions prescribed by the fund’s “Constitution and Government.” These conditions were that the employee not only make contributions to the fund based upon salary, but also that he perform services for the firm of Speyer & Co. for no less than a specified number of years. The participating employees, by complying with the conditions of the fund, earned the right to pensions. Thus, whatever the status of the amounts contributed to the fund, the amounts received by the participants were in the nature of compensation to the extent that they exceeded employees’ contributions. See Cora B. Beatty, Executrix, 7 B. T. A. 726.

There can be no distinction made between the original contribution of $25,000 by Speyer, the contributions of the other partners, individually, the amounts left in the fund by deceased employees, and the amounts left to the fund by bequest. Upon receipt by the fund those amounts formed part of the principal of the fund which, together with accretions, was to be used to pay the pensions of qualifying employees. To the extent that those amounts plus the fund’s accretions exceeded the contributions of the employees, petitioners received income in the taxable year when they surrendered the annuities purchased for them. The result urged by petitioners would engender untold administrative difficulty. While it is not difficult in the present case to trace the contributions to their pro rata receipt by the pensioners, it would be practically impossible to do this in the case of a large pension trust, the existence of which might continue after the year in which a tax is asserted against one of its pensioners. It seems clear that in the normal case of a pension trust the participants should be taxed on all amounts received by them in excess of. their own contributions.

A different treatment must be accorded the contribution by Speyer in 1938. Respondent, by affirmative allegation in his answer, seeks to tax to petitioner Ginn the $1,259.26 received by him from Speyer. Consequently, the burden is on respondent to show that Ginn is taxable on this additional amount. We are of the opinion that he has not sustained the burden. Speyer made the gift directly to Ginn of the amount necessary to make up the difference between the amount of the fund available for the purchase of Ginn’s annuity and the premium required for such purchase. Speyer, in his letter accompanying the check for $1,259.26, informed Ginn that the amount was a gift to him “to enable the purchase of the full annuity * * Here the amount was paid to Ginn, who turned it in to the fund. Thus, it was really part of Ginn’s own contribution to the fund, which is specifically tax-free under the provisions of section 165. This was a true gift and was both donated and received as a gift. It was not so qualified with conditions and requirements of the fund as to cause it to be treated as compensation. Accordingly, we deny respondent’s request to increase the deficiency of petitioner Ginn.

Petitioners contend, in the alternative, that they should be allowed earned income credits on the amounts received on surrender of the annuities which might be held to be in the nature of compensation. Respondent has advanced no argument against this proposition. Moreover, his rulings indicate his complete accord. See I. T. 2370, C. B. VI-2, p. 28; Mim. 3283, C. B. IV-1, p. 14. We note that respondent, in his notices of deficiency, allowed petitioners earned income credits based on the entire amounts by which he increased their net incomes. We need not concern ourselves, therefore, with this treatment. The question we have to determine is whether or not the earned income credit is allowable on the contributions made by the partnership as such and the earnings of the fund, which sums were originally returned by petitioners without claiming the earned income credit thereon. Respondent’s own rulings would seem to require that the earned income credit be applied as to these sums, except that the earnings and accretions attributable to petitioners’ own contributions should be treated as ordinary income. I. T. 2370, supra. The deficiency should be computed in this manner.

Decision, will be entered under Rule 60.

       SEC. 165. EMPLOYEES’ TRUSTS.
      (a) Exemption prom Tax. — A trust forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of some or all of his employees—
      (1) if contributions are made to the trust by such employer, or employees, or both, for tlie purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, * * *
      * * * * * * *
      shall not be taxable under section 161, but the amount actually distributed or made available to any distributee shall be taxable to him in the year in which so distributed or made available to the extent that it exceeds the amounts paid in by him. Such distributees shall for the purpose of the normal tax be allowed as credits against net income such part of the amount so distributed or made available as represents the items of interest specified in section 25 (a).


author: Black:

text:
    Estate of Kate H. Alexander, Deceased, Security Trust Company, A Corporation, James H. Alexander and Alexander J. Alexander, Executors, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 103991.
    Promulgated June 9, 1942.

      Olaude M. Eouehins, Esq., and Ralph R. Neuhoff, Esq., for the petitioners.

      Thomas F. Callahan, Esq., and Franh M. Cavanaugh, Esq., for the respondent.
   OPINION.

Black:

The petition contains only one assignment of error, and it is as follows:

The respondent erred in including in petitioner’s income for the year 1934 •on account of the cancellation of a ninety-nine year lease on property located in the City of Louisville, State of Kentucky, the sum of $150,000.00, which represents the respondent’s alleged value, at the time of said cancellation, of improvements made on said property by the lessee.

The petitioners, who are the executors of the estate of Kate H. Alexander, in their brief advance several points in support of their contention that the estate should not be taxed with the $150,000 which the Commissioner has determined.

The most of these points and a considerable part of the brief are devoted to an effort to establish the proposition that the fair market value of the building was not income to the estate in any year. We shall not undertake to enumerate these arguments in detail, but simply say that we are not impressed by them. In our judgment, under the Supreme Court’s decision in Helvering v. Bruun, 309 U. S. 461, the fair market value of the building was clearly income to the decedent, to use the language of the court, “in the year of repossession.” See also Helvering v. Wood, 309 U. S. 637; Helvering v. Center Investment Co., 309 U. S. 639.

So in the light of the foregoing authorities, we think the important inquiry in the instant case is, what was the year of repossession? If that year was 1934, as respondent has determined, then we think the estate is taxable on the $150,000 in question, because there is really no dispute about the value of the building. The overwhelming testimony is to the effect that it had a value of at least $150,000 apart from the land.

Petitioners dispute that 1934 was the year of repossession. One of their several points as to why the estate should not be taxed with the $150,000 in the year 1934 is that the lessee surrendered possession and enjoyment by assignment in 1933, and no gain was realized in 1934.

Petitioners on this point alleged facts in their petition as follows:

(k) On June 20, 1932, said The Theatre-Realty Corporation assigned the said ninety-nine (99) year leasehold to the Mercantile Realty Company, a corporation, which paid no part of the rental of $44,000.00 per year during the period June 20,1932 to May 17, 1934.
(k) (1) On May 20,1933, the Mercantile Realty Company assigned, in writing, to the owner of the real estate, possession and enjoyment of the land and building.
1) Due to default of the Mercantile Realty Company, the lease was formally cancelled on May 17, 1934.

The evidence at the hearing established the correctness of the foregoing facts alleged in the petition. What is the legal effect of these facts % We think it is that the decedent came into the untrammeled possession and control of the building in 1933, although, the Tease was not formally canceled and annulled until 1934. It must be remembered that legal title to the building from the very moment of its erection vested in the owner of the land. It was only the possession of the land and building which was withheld from the landlord as long as the tenant exercised his privileges under the lease and managed and controlled the property. When the tenant no longer exercised management and control of the property and surrendered possession to the fee owner of the land and building, that surrender of possession and control became the occasion for the tax. Helvering v. Bruun, supra.

The lease in question became burdensome to the original lessee, the Theatre Realty Corporation, and on June 20, 1932, it assigned the lease to the Mercantile Realty Co., an irresponsible and insolvent corporation, for an alleged consideration of $250. Decedent refused to recognize the validity of this assignment and in 1932 entered suit in the Jefferson Circuit Court, Chancery Branch, Second Division, against the Theatre Realty Corporation, et al., seeking a declaration of rights under the lease and asking that this assignment be adjudged invalid and therefore fraudulent and void. On October 7, 1933, the court sustained the validity of the assignment of the lease from the Theatre Realty Corporation to the Mercantile Realty Co., and its decision was affirmed by the Court of Appeals of Kentucky, March 23,1934.

Prior to the decision of the lower court on October 7, 1933, upholding the validity of the assignment of the lease to the Mercantile Realty Co. that corporation had surrendered all possession and control of the building to the agent of Kate H. Alexander.

On May 20, 1933, the Kentucky Title & Trust Co., as agent of Kate H. Alexander, took over from Mercantile Realty Co. by assignment all subleases on the property and took possession, and enjoyment of the property and since then has managed the property, paid taxes and all operating expenses, secured tenants, and collected all rentals and income and accounted therefor periodically to Kate H. Alexander or her legal representatives, as owners of the property. We think these facts fix the time of decedent’s coming into untrammeled possession and enjoyment of the building as 1933, and not 1934, as the respondent has determined.

After May 20, 1933, who was disputing decedent’s untrammeled right of possession and control of the premises?' Certainly not the Theatre Realty Corporation, the original lessee. In 1932 it had assigned all of its interests to the Mercantile Realty Co. and thereafter disclaimed any ownership or control whatever over the leased property. Certainly not the Mercantile Realty Co., for on May 20, 1933, it assigned every sublease that it had taken on the property to the agent of decedent, turned the property over to the agent of decedent, and thereafter made no attempt to exercise any dominion and control over the building.

It is true that it was not until March 23, 1934, that the Court of Appeals of Kentucky affirmed the decision of the lower court, which upheld the validity of the assignment of the lease to the Mercantile Realty Co., and it was not until May 17, 1934, thereafter that the Mercantile Realty Co. formally delivered up and canceled the lease to decedent by a written instrument. This formal, written cancellation and surrender of the lease was, however, in our judgment no more than a recognition and affirmance of what had already been done in 1933, and can not be made the incidence of the tax.

Under these circumstances we think that the fair market value of the building was income to decedent in 1933 and not in 1934, as the Commissioner has determined. Cf. North American Oil Consolidated v. Burnet, 286 U. S. 417. See also Standard Lumber Co., 28 B. T. A. 352, in which we said:

Therefore we do not regard as controlling the fact, so strongly relied on by petitioner, that its deed was not delivered until 1926, for the consummation of a sale is not dependent upon delivery of a deed where, as here, the consideration was received and the benefits and burdens of ownership were transferred previously Nibley-Mimnaugh Lumber Co., 26 B. T. A. 978; Davidson & Case Lumber Co. v. Motter, 14 Fed. (2d) 137. * * *

In the recent cáse of Gowern v. Commissioner, 119 Fed. (2d) 83, the question was whether the value of a building erected on the premises by the lessee was income to the lessor in the year when he regained control over the property. The court held that it was, affirming a memorandum opinion of the Board to the same effect. Among other things, the court said:

* * * While the petitioners make much of the argument that the trustees •would not give up the old lease until a new one was agreed to, none the less the agreement of Gowern and his co-owners was necessary to bring the new lease into being. The owners had control of the property for that purpose and it is that control which makes the gain to the owners taxable under Section 22 (a), not a medieval conception of an instant in time in which the •owner of land may re-enter and take possession. The owner has control and, dominion of improvements when he procures a lease for them and presently rents them. * * * [Italics ours.]

In the instant case, after May 20, 1933, Kate H. Alexander, through her agent, collected all rents from the subtenants of the building, had the right to negotiate all new leases for vacant space therein, paid all taxes, and otherwise exercised complete control and dominion over the building and premises. Therefore, it seems clear to us that on May 20, 1933, the benefits and burdens of the building passed to her and then was the incidence of the tax, and not in 1934, when the Mercantile Realty Co. executed a formal written relinquishment of the lease and premises.

We sustain petitioners on this point, and it is determinative in their favor of the only issue involved, because we do not have the year 1933 before us.

Decision will be entered under Rule 50.


text:
    Lencard Corporation, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 106493.
    Promulgated June 9, 1942.

      Richard H. Appert, Esq., for the petitioner.

      Conway Kitchen, Esq., for the respondent.
   OPINION.

Arundell:

If the real nature of the foregoing transaction was the sale of assets of petitioner in consideration of the receipt of its own shares of preferred stock, a gain was realized and respondent must prevail. Art. 22 (a)-16, Regulations 86; Commissioner v. Boca Ceiga Development Co., 66 Fed. (2d) 1004; Allyne-Zerk Co. v. Commissioner, 83 Fed. (2d) 525, affirming 29 B. T. A. 1194. If, on the other hand, the transaction was essentially the liquidation of petitioner’s outstanding preferred stock, petitioner realized no gain. Art. 22 (a)-21, Regulations 86; Meurer Steel Barrel Co., 11 B. T. A. 584; affirmed per curiam, 35 Fed. (2d) 1019; Dill Manufacturing Co., 39 B. T. A. 1023.

We have no difficulty in concluding from the stipulated facts that the true transaction between petitioner and its stockholders was a liquidation of the preferred shares and not a sale of securities. The preferred shares were immediately retired and canceled and corporate steps were taken to reduce the capitalization to reflect the retirement of those shares and, to that end, proper papers were filed with the Secretary of State of Delaware to so amend the certificate of incorporation.

Article 22 (a)-21 of Regulations 86, cited above, provides that:

* * * No gain or loss is realized by a corporation from .the mere distribution of its assets in kind in partial or complete liquidation, however they may have appreciated or depreciated in value since their acquisition. * * *

This regulation has appeared in all regulations since Regulations 74 (1928 Act). It has been carried forth in regulation applicable to-the Revenue Acts of 1928, 1932, 1934, 1936, and 1938. As stated by the Supreme Court in Helvering v. Reynolds Tobacco Co., 306 U. S. 110, 115, “Congress must be taken to have approved the administrative construction and thereby to have given it the force of law.”

It is suggested by counsel for respondent that the quoted regulation (article 22 (a)-21 of Regulations 86) applies only to dissolved corporations or those in process of dissolution, and that a gain or loss may be realized in the case of a partial liquidation when the liquidation is not in connection with the winding up of the affairs •of the corporation. The difficulty with that argument is that it runs counter to another regulation of the Commissioner which defines distributions in liquidation, article 115-5 of Regulations 86, and also to various decisions of the courts and the Board, which specifically hold that article 115-5, supra, when it refers to amounts distributed “in partial liquidation”, nowhere limits such distributions to payments made in the course of winding up the corporation. Commissioner v. Quackenbos, 78 Fed. (2d) 156; Britt v. Commissioner, 114 Fed. (2d) 10, affirming 40 B. T. A. 790.

The transaction before us clearly comes within the definition of a “partial liquidation” as set forth in article 115-5.

One other point has been suggested. The retired shares were of a preferred issue which, by its terms, was redeemable at $100 per share. This fact, however, does not create an indebtedness owing by the corporation to the preferred shareholders, Haffenreffer Brewing Co. v. Commissioner, 116 Fed. (2d) 465, nor does the retirement of these shares constitute the discharge of an indebtedness with assets the cost of which was less than the amount of the indebtedness discharged. It is clear from the record that at no time did petitioner have any obligation, in connection with the retirement of its preferred stock, to deliver to the preferred shareholders anything except the property which it did deliver. The transaction was not an undertaking to redeem the preferred stock pursuant to the retirement provisions of the certificate of incorporation and the subsequent discharge of such an undertaking by transferring the petitioner’s assets. As stated by the Supreme Court in General Utilities & Operating Co. v. Helvering, 296 U. S. 200, “This was no sale; assets were not used to discharge indebtedness.”

Dorsey Co. v. Commissioner, 76 Fed. (2d) 339, and Hammond Iron Co. v. Commissioner, 122 Fed. (2d) 4, relied on by counsel for the respondent, are not in point. In those cases the court held that the transactions involved essentially the sale of assets of the corporation rather than a partial liquidation of outstanding shares. It may be observed in each of those cases that the shares of stock turned in for preferred were not canceled and retired but were held as treasury stock, nor did the transactions have any of the characteristics of a true liquidation, either partial or complete.

The conclusion already reached makes unnecessary a consideration of an alternative issue covering the taxability of petitioner as a personal holding company.

Decision will he entered under Rule 60,.

       Art. 115-5. Distributions in liquidation. — Amounts distributed in complete liquidation of a corporation are to be treated as in full payment in exchange for the stoclc, and amounts distributed in partial liquidation are to be treated as in part of full payment in exchange for the stock so canceled or redeemed. The phrase “amounts distributed in partial liquidation” means a distribution by a corporation in complete cancellation or redemption -of a part of its stock, or one of a series of distributions in complete cancellation or redemption of all or a portion of its stock. A complete cancellation or redemption of a part of the corporate stock may be accomplished, for example, by the complete retirement of all the shares of a particular preference or series, or by taking up all the old shares of a particular preference or series and issuing new shares to replace a portion thereof, or by the complete retirement of any part of the stock, whether or not pro rata among the shareholders, fltalics added.]


author: Smith:

text:
    Estate of Frederick Bodell, Joseph J. Bodell, Executor, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 106353.
    Promulgated June 9, 1942.

      Andrew P. Quinn, Esq., and Richard F. Canning, Esq., for the petitioner.

      Davis Eashin, Esq., for the respondent.
   OPINION.

Smith:

The first question for our determination is what portion of the proceeds of the above described insurance policies on decedent’s life in excess of $40,000 is includible in his gross estate for estate tax purposes. Section 302 of the Revenue Act of 1926, as amended by section 404 of the 1934 Act, reads in part as follows:

Sec. 302. Tlie 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, except real property situated outside the United States—
(a) To the extent of the interest therein of the decedent at the time of his death;
****** *
(g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance 'under policies taken out by the decedent upon his own life.
(h) Except as otherwise specifically provided therein subdivisions (b), (c), (d), (e), (f) and (g) of this section shall apply to the transfers, trusts, estates, interests, rights, powers, and relinquishment of powers, as severally enumerated and described therein, whether made, created, arising, existing, exercised, or relinquished before or after the enactment of this Act.

Of the eight policies listed above, three were endowment policies which were payable to decedent at maturity. If the decedent should die before maturity the named beneficiary was to receive the proceeds. All of the other policies were ordinary life policies, with the proceeds payable to decedent’s wife if living at the time of his death, otherwise, to his estate. Decedent specifically reserved the right to change the beneficiary in only one of the policies. All of the policies were taken out by the decedent and the premiums were all paid by him. Two of them were taken out before February 14, 1919, the effective date of the Revenue Act of 1918, which was the first revenue act to contain express provisions including the proceeds of insurance policies in the gross estate for estate tax purposes.

Decedent’s only interest in some of the policies, and his common interest in all of them, was the right of his estate to receive the proceeds of the policies in the event that the named beneficiary, his wife, should not be living at the time of his death. Respondent’s contention is that because of this retained interest all of the proceeds of all the policies are includable in the gross estate under the theory of Klein v. United States, 283 U. S. 231, and Helvering v. Hallock, 309 U. S. 106.

Petitioner concedes in his brief that as to the six policies taken out by the decedent after the effective date of the Revenue Act of 1918 “the retention by the insured of a possibility of reverter constitutes an incident of ownership giving rise to the imposition of the tax”, under the principle enunciated by the Supreme Court in the Hallock case. Petitioner contends, however, that the proceeds- of policies taken out before the enactment of the Revenue Act of 1918 are not includable in the gross estate, relying upon Lewellyn v. Frick, 268 U. S. 238; Helvering v. St. Louis Union Trust Co., 296 U. S. 39, and Bingham v. United States, 296 U. S. 211.

In the recently decided case of Estate of John E. Cain, Sr., 43 B. T. A. 1133, we held, chiefly upon authority of Helvering v. Hallock, supra, that the proceeds of a life insurance policy in which the only interest retained by the insured was the right of his estate to receive the proceeds if the named beneficiary should predecease the insured were includable in his gross estate under section 302 (g) of the Revenue Act of 1926, as amended. The policy there under consideration was taken out by the insured in 1929. The proceeds were to be paid to the insured’s wife for life, with remainders over to his children and grandchildren if any survived,- otherwise to his estate. The insured reserved no right to change the beneficiary or to assign or pledge the policy. The amount to be included in the insured’s gross estate was limited in our decision to that portion of the proceeds which was allocable to the premium paid by the insured. A full discussion of the cases cited above and other related cases is found in our opinion in that case and need not be repeated here.

In an earlier decision, Estate of William G. Thompson, 41 B. T. A. 901, the Board held that where an endowment policy was taken out by the insured prior to the enactment of the 1918 Revenue Act and was made payable to the insured at maturity if living, otherwise to his wife if living, otherwise to his estate, the proceeds of the policy were not taxable in the insured’s gross estate under section 302 (g) of the 1926 Act. In so far as the case may be construed to hold that the right of the insured’s estate to receive the proceeds of the policy, in case the named beneficiary predeceased the insured, was not an interest in the policy which warranted the inclusion of the proceeds in the gross estate of the insured, it will not hereafter be followed.

In Commissioner v. Washer (C. C. A. 6th Cir.), 127 Fed. (2d) 446, the court held, upon authority of the HaTloch case, that all of the proceeds of certain insurance policies in which the insured held no interest at the time of his death except the right of himself or his estate to the proceeds in case his wife predeceased him were includable in the insured’s gross estate under section 302 (g). Some of the policies there involved were taken out before the enactment of the Revenue Act of 1918, but this fact was not considered material. Also, the court rejected the contention made by the taxpayer in that case, which is also the contention of the petitioner in the instant case, that the amount to be included in the gross estate was only the value of the interest retained by the insured rather than the total proceeds of the policies. In its opinion the court said:

We do not see that there is any distinction to be made between the policies written prior to the effective date of the 1926 Revenue Act, and those written thereafter, on the ground that vested interests were created in the beneficiary by the earlier policies which constitutionally could not be affected by a subsequent statute. If, as said in the Klein case, “the death of the grantor was the indispensable and intended event which brought the larger estate into being for the grantee and effected its transmission from the dead to the living, thus satisfying the terms of the taxing act and justifying the tax imposed,” a principle approved in the Hallock case as a fastening upon the vital factor underlying a proper interpretation of the estate tax, then the identifiable event which determines both the incidence of the tax and its measure, is not the ■date of the insurance contract but the death of the insured, and there is no distinction to be made between the avails of policies written before and those issued after the effective date of the statute. They are all to be included in the estate to be taxed. Broderick v. Keefe, supra [112 Fed. (2d) 293].
This conclusion must also result in our rejecting a contention that the amount to be included in the gross estate is to be measured not by the' avails of the Insurance policies but by the value of the interests therein that had been reserved. If Helvering v. Hallock furnishes, as it purports to do, a practical formula for determining the measure of the gross estate at the time of death, it is not by us to be refined or evaded by limiting inclusion in gross estate to the value of a possibility of reverter which real though it be, in respect to postponing complete passing of property until the event of death, is yet an intangible element in respect to value, and so incapable of measurement. * * *

In Broderick v. Keefe, 112 Fed. (2d) 293, the proceeds of certain policies were held taxable in the gross estate where the policies were taken out before the enactment of the Revenue Act of 1918 but the beneficiary was not irrevocably named until after that date.

We agree with the observation of the court in the Washer case that under the theory of the Klein and the Hallock cases no distinction is warranted between policies taken out before the enactment of the taxing act and those taken out after its enactment.

The respondent is sustained in his determination that all of the proceeds, in excess of $40,000, of all of the policies in question are includable in decedent’s gross estate under section 302 (g) above.

The remaining issue involves the determination of the fair market value of 2,375 shares of the James Hanley Co. common stock which were owned by the decedent at the time of his death. The decedent’s executor reported the shares in the estate tax return at a valuation of $25 a share. The respondent has determined a value of $29,625 a share. The respondent’s valuation is based on over-the-counter average sale prices of the shares at or about the basic date.

The evidence of record is that there was a very limited market for the shares — they were not listed on any stock exchange — and that the transactions rar< ly involved more than 100 shares; that the only market for the shares was through brokers; and that the price offered by the brokers averaged from $1 to $2 less than the retail price at which they would expect to sell it.

Giving weight to all the evidence of record we have determined that $28 a share is as much as decedent’s estate would have been able to realize from the sale of the 2,375 shares over a reasonable period following decedent’s death and was the fair market value of those shares on that date. The shares in question should be included in decedent’s estate at the value determined.

Reviewed by the Board.

Decision will he entered under Bule 50.

Murdock and Leech dissent.


author: Kern:

text:
    L. J. Miller, Petitioner, v. Commissioner of Internal Revenue, Respondent. Estate of L. G. Monroe, Deceased, M. J. O’Keefe, Administrator, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 103541, 103593.
    Promulgated June 10, 1942.

      Clyde 0. Sherwood, Esq., and John V. Lewis, Esq., for the petitioners.

      Harry R. Morrow, Esq., for the respondent.
   OPINION.

Kern:

The first issue for our consideration is whether respondent rightly disallowed loss deductions in the amounts of $2,447.50 on the individual 1936 income tax returns of L. J. Miller and of L. G. Monroe, now deceased. Petitioners now concede that 40 percent of those amounts is not a proper deduction in any event, inasmuch as there is no showing when the bonds were acquired and from the record it appears that they could not have been held more than five years prior to the transfer to Monroe <⅞ Miller, Ltd. Petitioners’ theory underlying the deductions appears to be that petitioners realized a total loss upon the sale of 44½ bonds in 1936 and are entitled to a deduction of 60 percent thereof.

Miller, one of the petitioners herein, testified that he and Monroe considered the Peninsula Properties stock worthless at the time they turned over the bonds to Monroe & Miller, Ltd., but wanted the stock because of the control it evidenced. However, Miller and Monroe as individuals airead;/ controlled Monroe & Miller, Ltd., and that corporation controlled Penproco. We therefore regard this testimony as to motive incredible. We consider petitioners’ theory, therefore, to be that they transferred to Monroe & Miller, Ltd., certain valuable bonds in return for stock known by them to be worthless. Even on petitioners’ theory it appears that petitioners could not have realized a deductible loss, inasmuch as, in transferring the bonds to Monroe & Miller, Ltd., in exchange for the Peninsula Properties stock, petitioners could not be considered as entering into a transaction with a profit intent or motive. Petitioners both knew, according to this testimony, that they were giving up something of value and were going to receive something devoid of value. Such a transaction, if we accept the hypothesis that the stock was worthless, must be considered as an additional contribution by petitioners to the capital of Monroe & Miller, Ltd., and not a sale or exchange upon which a deductible loss is recognizable.

If, on the other hand, the stock could be said to have had value at the time of the transaction, petitioners have failed to show that the value was less than the value of the 44½ bonds turned over to Monroe & Miller. Ltd., and, assuming that the stock was not worthless in 1936, we would be forced to uphold the Commissioner’s determination for lack of proof on petitioners’ behalf.

The testimony presented in this proceeding is not satisfactory with regard to the question of insolvency of the Peninsula Properties Co. and the consequent worth or worthlessness of its stock. Miller testified that at the close of the fiscal year 1936 the corporation’s assets were worth $976,994.78, in contrast to liabilities of $1,313,444.78; and that at the close of the fiscal year 1937 the assets had dropped to $884,668.48 and the liabilities to $1,179,965.52. But this calculation was admittedly based upon the 1927 cost of the assets held. While Miller testified that, in his opinion, the original cost prices actually exceeded the 1936 and 1937 fair market values of the assets, this testimony is refuted by evidence in the record showing huge profits in 1937 realized by Aptos on sales of properties transferred by Peninsula Properties to Aptos. No evidence was ever presented to show what comprised the assets of Peninsula Properties Co. at the close of the two fiscal years. There is testimony of a sale of all the Bio Del Mar property by Peninsula Properties Co. to Aptos in 1935, but it appears that this was no more than a book transaction. Aptos did not pay anything to Peninsula Properties Co. at the time of the alleged sale and Aptos received no land titles at that time, since they were all held in escrow. The only exhibit dealing with the alleged sale was a letter to the escrow agent informing it that such a sale had taken place. It would seem more practical to say that no sales actually took place until Aptos paid for the lands alleged to be the subject of the sales. This Aptos did only when Aptos had engineered a sale to the public of the properties involved. Therefore, if the assets of the Peninsula Properties Co. at the close of the fiscal years 1936 and 1937 be considered to include all lands not paid for by Aptos, there would be good reason to conclude that Peninsula Properties was solvent, since the fair market value of these lands, as shown by actual sales, was on the average at least 90 percent greater than the 1927 cost, and therefore its stock would have value.

On this issue we decide in favor of respondent.

The second issue deals with the same bond transaction, but has to do with the issue raised in respondent’s amended answer to the effect that the transfer of the 44½ bonds in 1936 and the 11½ bonds in 1937 resulted in taxable income to petitioners in 1937 in the full face value of the bonds plus all accrued interest. Respondent’s contention appears to be that Aptos received a benefit in this amount and that, since petitioners own all Aptos’ stock, they may not avail themselves of a roundabout reflection of income to escape taxation thereon. We fail to see how Aptos received any income, however. It is true that cancellation of the bonds by the Peninsula Properties Co. released certain properties from the trust lien; but Aptos still had to pay the Peninsula Properties Co. the agreed price for the property. If the lien had not already been lifted from the property purchased by Aptos, it would be lifted as the result of Aptos’ payment of the purchase price, which Avas generally done by Aptos turning bonds in to Peninsula Properties Co. However, if the property was already freed from the lien, Aptos Avas still obligated to pay the price for it called for by its contract with Penproco, even if by a medium other than Penproco’s bonds. We fail to see how the petitioners diverted income to any of the corporations in which they had an interest.

The final issue for our consideration relates to certain deductions for traveling expenditures. Both Miller and Monroe listed on their 1936 income tax returns the following deductions: automobile expense, $2,400; entertainment expense. $1,800; traveling expense, $3,120. Respondent allowed only $1,200 of this last item, and disallowed the balance of $1,920 in each case, due to lack of evidence to support the deduction thereof. In his 1937 return Miller again deducted $3,120 for traveling expenses. Respondent again disallowed $1,920 of this amount. In his 1937 return Monroe deducted $2,100 for traveling expenses. Respondent disallowed $900 of this amount.

At the hearing no evidence whatsoever was offered to substantiate these deductions on behalf of Monroe and we, accordingly, sustain respondent’s determination as applied to Monroe.

Miller admitted that he had insufficient records and memoranda to substantiate the deductions claimed by him. He testified that he was generally away from home on business about three days a week and had to stay at hotels in San Francisco or Los Angeles. Often, when in San Francisco, hoAvever, he stayed at the home of his mother as a guest. Miller claimed that, being in the real estate business, he was obliged to spend money for the entertainment of customers and that such expenditures are included within the $3,120 deducted by him as traveling expenses. He further testified that, although he had no records to prove the deductions, he knew of his own knowledge that he had actually deducted less than he had spent. This assertion, in terms of generalities, without any corroboration other than a few isolated checks, amounts to little more than a reassertion of the allegation of error in Miller’s petition. The amount claimed by Miller amounts to an average weekly expenditure of $60. Respondent has allowed expenses which would average approximately $23 a week. Considering all the evidence on this issue in the light of general experience, and making allowance for amounts representing fair and reasonable expenses in the circumstances of Miller’s business, Rugel v. Commissioner, 127 Fed. (2d) 393; and bearing in mind that the necessity for approximation may properly bear heavily against the taxpayer whose inexactitude is of his own making, Cohan v. Commissioner, 39 Fed. (2d) 540, we conclude that petitioners have not sustained their burden of proving error in respondent’s determination and therefore we decide the issues concerning traveling expenses for 1936 and 1937 in favor of respondent.

Decision will he entered under Rule 50.


author: Van Fossan:

text:
    Estate of Annina Fabbricotti Fara Forni, Deceased, United States Trust Company of New York, Executor, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 106798.
    Promulgated June 10, 1942.

      Edward 8. Bentley, Esq., for the petitioner.

      Harold D. Thomas, Esq., for the respondent.
   OPINION.

Van Fossan:

The respondent determined a deficiency of $8,459.70 in the estate tax of the estate of Annina Fabbricotti Fara Forni. The petitioner claims an overpayment of $9,434.71.

The petition raised several issues, all of which have been settled except the question whether or not a fund of $41,020.48, held by the United States Trust Co., constituted “moneys deposited” within the meaning of that phrase as found in section 303 (e) of the Revenue Act of 1926, as amended by section 403 (d) of the Revenue Act of 1934.

The facts were stipulated and as so stipulated we adopt them as our findings of fact. In so far as they are material to the issue they are substantially as follows:

Annina Fabbricotti Fara Forni, the decedent, died on June 29, 1938. On November 22, 1938, the petitioner, United States Trust Co., of New York, hereinafter referred to as the trust company, was duly appointed as executor of the last will and testament of the decedent and duly qualified as such executor. On August 31, 1939, the executor filed with the collector of internal revenue for the second district of New York a Federal estate tax return, wherein the executor elected that the value of the gross estate should be determined as of the date of distribution, May 22, 1939, in accordance with subdivision (j) of section 811 of the Internal Revenue Code.

On the return under schedule C, “Mortgages, Notes and Cash”, the executor, among other items, reported the following as part of the decedent’s gross estate:

On or about November 29,1939, the executor sent to the collector of internal revenue for the second district of New York a letter reading as follows:

Novembek 28, 1839.
Collector op Internal Revenue,
Second District of Neto York,
Custom House, Hew York, N. Y.
In re: Annina Fabbricotti Fara Forni Estate
Sir : Referring to tbe estate tax return on Form 706 filed by this Company as executor of the estate of Annina Fabbricotti Fara Forni, who died June 29,1938, a resident of Lugano, Switzerland, and an Italian citizen, which return was filed in your office on August 31,1939, we would say that upon further examination we find that Item 18 in Schedule C reading as follows:
Subsequent Valuation Date Value under Option Value at Daté of Death
Cash in Custodian Account at United States Trust Company of New York_5/22/39 $41, 020. 48 $41, 020.48
Shou'd read as follows:
“Cash on deposit with United States
Trust Company of New York in
checking account-$0.00 0. 00”
The decedent was not engaged in business within the United States at the time of her death and was a non-resident, and hence the moneys so deposited are specifically excluded from gross estate under subdivision e of section 303 of the Revenue Act of 1934.
This change will result in reducing Item 1 of Schedule R to $501,470.72 and correspondingly Item 12 to $473,895.99, with a corresponding reducing in tax.
We would also request that the appropriate adjustment in tax be had upon the audit of the return.
Yours very truly,
United States Teust Company of New Yoek,
By
As Executor of the Estate of Annina FaEbricotti Fara Forni.

At the time of her death the decedent was a citizen of the Kingdom of Italy and resided at Lugano, Switzerland, and was a non-citizen (sic) not a resident of the United States, and was not engaged in business in the United States of America.

The trust company was duly incorporated by the Legislature of the State of New York on April 12,1853. At all times material hereto, the Banking Law of the State of New York provided that:

Every trust company incorporated by a special law shall possess the powers of trust companies incorporated under this chapter and shall be subject to such provisions of this chapter as are not inconsistent with the special laws relating to such specially chartered company.

During all the years material hereto, the trust company conducted a general banking and trust business in the city of New York. It did not have any savings department or savings accounts. The greater part of the trust company’s business consisted of acting as agent, custodian, executor, administrator, guardian, trustee, and committee and in other fiduciary capacities. The draft accounts which it maintained for customers who were not in one way or another related to its business as agent, custodian, executor, etc., above referred to, were few in number, but the balances carried in such accounts were large in amount.

On or about May 15, 1902, the decedent, then known as Annina F. Kingsley, delivered to the trust company certain securities and mortgages owned by her and the sum of $10,000 in cash or check, under an agreement no copy of which can be found at the present time.

Thereupon the trust company opened on its books two accounts in the name of the decedent, one referred to as a “Property Account” and the other bearing no title, but which after November 1924 was termed “Agency Account.” These accounts were thereafter continuously maintained by the trust company and were in existence at the time of her death. The latter account will be referred to as “Agency Account.”

In the property account in the name of the decedent the trust company included and listed the securities in the possession of the trust company which the decedent from time to time owned, but the property account did not include any cash. The property account referred to above was contained in a ledger known as a “Property Ledger”, which contained accounts for all personal property for which the trust company acted as agent, custodian, executor, administrator, guardian, trustee, or committee, or in other fiduciary capacities, under written instruments or otherwise. No cash was ever entered in the property ledger. Where acting as agent, custodian, or fiduciary, any cash transactions, including receipts and disbursements of either income or corpus, were entered in a separate account for each trust, estate, etc., or person, which included only cash. With respect to decedent and any trust, estate, or property for whom the trust company acted, the company kept no separate account in its banking department as distinguished from the accounts hereinabove described.

The trust company credited to the decedent the sum of $10,000 in the agency account and thereafter credited to the decedent in the agency account all sums of money from time to time received by the trust company from the decedent or for her account, whether by way of principal or income, including, among other things, cash, proceeds of the sale of investments, and other property, interest, dividends, and other sums of money.

During all the years material hereto the trust company collected the income on the securities and investments included in the property account. The percentage commission which the trust company charged for collecting income for the decedent’s account was substam tially the same as was charged for collecting the income for any other account where the corpus or principal was in an amount substantially similar to the amount of securities held for the decedent or where the amount of income was comparable.

About the year 1924 the trust company became trustee of a trust created under the will of decedent’s former husband, H. S. Kingsley, under the terms of which the decedent was entitled to the income for life on certain trust corpus. Accounts for such trust were kept by the trust company and the income from the trust for the benefit of decedent was regularly credited to her agency account.

It was the general practice of the trust company to advise the decedent concerning suitable investments and, upon instructions from her, to make investments. The purchase price of securities was charged to the agency account. There were also charged to that account expenses in connection with the foreclosure of mortgages, income taxes, purchases of foreign exchange, collection commissions, and other items. Collections of income and proceeds of sales of securities were credited to the agency account.

The decedent filed signature cards with the trust company on February 24, 1906, and again on November 30, 1931. It is not known whether the words “Agency Account” written by the trust company on the signature card of February 24, 1906, were placed thereon before or after the filing thereof with the trust company.

From time to time after the opening of the account the decedent drew drafts or checks upon the trust company to the number of at least 569, which were duly paid by the trust company on presentation and charged against the agency account.

The items credited to the agency account consisted principally of interest, dividends, the sale of stock rights, amounts received from the executors of the H. S. Kingsley estate, amounts deposited, the sale of securities, and other similar entries. The items debited to the account consisted largely of drafts, commissions on income account, purchases of stocks and bonds, income tax payments, amounts cabled abroad, and minor charges relating to real estate.

At all times material to this issue the trust company maintained in its own name an account with the Bank of the Manhattan Co., in which account the trust company deposited all sums of money which it received from all sources, including, among other things, agency accounts, draft accounts, trust accounts, income from loans, investments, and other property owned by the trust company, income from investments and other property held by it as executor, administrator, guardian, trustee, or other fiduciary capacity, income from investments and other property held by the trust company as custodian or agent, proceeds of loans made by the trust company in the regular course of business, proceeds from the sale of investments and other property owned by the trust company, or held by it as executor, administrator, guardian, trustee, or other fiduciary capacity, or held by the trust company as custodian or agent, and commissions for services rendered by the trust company; and from which account the trust company from time to time withdrew and paid all sums of money required in connection with its business, including among other things, salaries of officers and employees, operating expenses, corporation taxes, real estate and other taxes, dividends to stockholders of the trust company, interest, loans made in the regular course of its business, purchase price of investments and other property purchased by the trust company, or acquired by it as executor, administrator, guardian, trustee, or other fiduciary, or held by the trust company as custodian or agent, and moneys remitted to or for the account of customers, beneficiaries, distributees, and others.

The trust company was not a member of the New York Clearing House Association, and all checks or drafts which it received from all sources were cleared by the Bank of the Manhattan Co. through the said account.

All sums of money received by the trust company and credited to the accounts maintained with it, including the decedent’s agency account, were deposited by the trust company in the account maintained by it in the name of the trust company with the Bank of the Manhattan Co., and all sums of money charged against the accounts maintained with the trust company, including the decedent’s agency account, were paid by the trust company’s check drawn on .its account with the Bank of the Manhattan Co., except items covered by the trust company’s debit slips or other office or bookkeeping memoranda. Between May 15, 1902, and June 16, 1933, the trust company credited to the agency account of the decedent interest on daily balances at rates varying from one-fourth percent to 3 percent.

On December 10, 1907, the decedent wrote to the trust company a' letter reading, as follows:

43 Fifth Avenue.
Henky E. Ahekn, Esq.
Seoretary
Dear Sir: I find my account ending with a balance on November 15th ($7,793.37) seven thousand seven hundred and ninety three dollars and thirty seven cents, quite correct and please accept my thanks. I am once more in this country and shall be at 43 Fifth Ave. for some months. Will you please let me know what interest the U. S. is paying on deposits and how ■ much commissions I am being charged, and oblige
Yours sincerely,
Annina F. Kingsley
Tuesday, December Tenth/07

and on December 11, 1907, the trust company replied as follows:

December 11th, 1907.
Mrs. Annina F. Kingsley,
43 Fifth Avenue, New York.
Deak Madam: Replying to your favor of 10th instant, we beg to say that we are paying 2% interest on your deposit with us, and charging 2% commission on the income collected.
Yours very truly,
Henky E. Ahekn
Secretary.

In each of the published statements of the trust company from 1902 to June 30, 1938, the item designated as “Deposits” included the balance standing to the credit of the decedent in the agency account in various sums ranging from $2,203.03 to $41,020.48. The item of “Deposits” included the amount of cash shown as a credit balance in all the accounts maintained with the trust company, whether the trust company was acting as a fiduciary or otherwise.

In each of the published statements the item designated as “Interest on Deposits” included accrued interest on all of the accounts on which the trust company was paying interest. In none of the published statements was there included the securities of the decedent held and listed in the property account, nor was there included in the statements any property (other than cash) for which the petitioner was acting as fiduciary or in any other capacity. The cash represented by the credits or balance in any of the trust company’s accounts where the trust company was acting as fiduciary or otherwise was never kept separate from other funds or earmarked in any way.

Since January 1, 1934, all cash accounts maintained with the trust company have been insured by the Federal Deposit Insurance Corporation to the extent provided by statute, and since that date the trust company has paid to the Federal Deposit Insurance Corporation insurance premiums at the rates fixed by statute. In determining the sums of money upon which such insurance premiums were computed and paid to the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act, there were included the balances to the credit of the decedent in the agency account, and the balances in all cash accounts maintained with the trust company, whether it was acting in a fiduciary capacity or otherwise.

In 1932, 1933, and 1934 the trust company charged certain sums of money representing Federal taxes upon checks or drafts drawn against the accounts on its books, including the account of the decedent, and paid the amount of such taxes to the collector of internal revenue for the second district of New York.

It was further stipulated that the use in the stipulation of the word “agency” or of any name or language as descriptive of petitioner’s account or status, whether or not in juxtaposition with different names, language, or description, is not to be taken as any admission on the part of respondent that decedent’s account is not a trust account or other fiduciary account or that the trust company was not acting in ,a fiduciary or trust capacity with respect to the decedent’s cash which it held.

The statute specifically excludes from the gross estate of a nonresident, not a citizen of the United States and not engaged in business in the United States at the time of his death, all moneys deposited by him with any person carrying on a banking business. It has been stipulated that at the time of her death decedent was a nonresident, was not a citizen of the United States, and was not engaged in business in the United States. It is also agreed that the trust company conducted both a general banking and a trust business. The sole issue before us, therefore, is whether the fund of $41,020.48, held by the trust company, represented “moneys deposited” in a banking institution.

'In the absence of any specific agreement governing the dealings between the decedent and the trust company at their inception in 1902, we have only the stipulation of facts and the exhibits from which we may discover the real status of the agency account at the date of the decedent’s death. If that account reflects “moneys deposited”, the balance therein is not taxable.

The agency account, extending from May 21, 1902, to July 1, 1988, is entered on 86 large ledger sheets, each containing approximately 50 credit items and perhaps from 10 to 20 debit items. Balances were usually struck in May and November of each year. In that account the credits consist chiefly of interest, dividends, cash deposits, and distributions from the Kingsley estate. Occasional credit entries represent the sale of investments and infrequent minor receipts. The debits are principally drafts or checks, 569 or more in number, proceeds from sales of securities, commissions, and expenses incidental to specific transactions.

From a careful consideration of the evidence before us, we are of tire opinion that the agency account was predominatingly a checking account characterized by the use which patrons of a bank customarily make of such bank accounts. Though there are some facts which tend in the opposite direction, the evidence clearly preponderates to the conclusion stated.

The word “deposit” as found in the statute refers to the generally accepted use of that term in banking parlance.

Tiie term “deposit” has a well accepted meaning in the hanking business and has been defined as the act of placing or lodging money in the custody of a bank or banker for safety or convenience to be withdrawn at the will of the depositor or under rules and regulations agreed on. [9 Corpus Juris Secundum, sec. 267, p. 544.]

See Black’s Law Dictionary, p. 559.

A general deposit * * * is the payment of money into the bank to be repaid on demand, in whole or in part, as called for in any current money and has been defined as a deposit generally to the credit of a depositor to be drawn upon by him in the usual course of banking business. [9 Corpus Juris Secundum, sec. 27S.]
A special deposit is a delivery of property, securities or even money to the bank for the purpose of having the same safely kept and the identical thing deposited returned to the depositor, or one for some specific purpose.
* * * * * * ■ *
A special deposit becomes such by specific directions or agreement or through circumstances sufficient to create a trust. [9 Corpus Juris Secundum, sec. 27⅜]

See also Gimbel Brothers., Inc. v. White, 256 App. Div. 439, 441; 10 N. Y. Supp. 2d. 666, and Marine Bank of Chicago v. Fulton County Bank, 2 Wall. 252, 256.

There is no indication in the record that any deposits or credits were hedged in by any special or limiting restrictions which caused them to be termed “special deposits.”

We do not deem it necessary to inquire into the original or immediate source of the credits or into the basis of the debits. The face of the account shows that the amounts noted were received and paid and that the corresponding entries were made in the usual course of business. The balance in the account was constantly maintained subject to the decedent’s withdrawal, at her will. If it can be said that the trust company served in a fiduciary capacity with reference to some items, it must also be said that after it had discharged that function it placed the monetary results thereof in the decedent’s bank account and made it subject to her demand. It ceased to have fiduciary control over such deposits and, on the contrary, affirmatively transferred the right to and disposition of the deposits to the decedent.

The trust company’s treatment of the decedent’s agency account, its inclusion of the balances as “deposits” in its reports and statements, and its payment of interest on balances are wholly consistent with this view. Also consistent are its acts in insuring the account and in paying a Federal tax on the checks or drafts which it honored against the account. The facts in the case at bar bring the sum to the decedent’s credit on the trust company’s books at the date of her death clearly within the definition and concept of the statutory phrase “moneys deposited” and hence the amount in controversy is excluded from the taxable estate under the provisions of section 303 (e), as amended.

The facts in this case make unnecessary a study to determine whether there was legal or legislative justification for respondent’s action in interpreting the statute narrowly as appears in G. C. M. 22419, C. B. 1940-2, p. 288. Assuming the correctness of respondent’s interpretation, the facts here present entitle petitioner to the exclusion asked.

Decision will be entered under Rule 50.

       Sec. 303. [Revenue Act of 1926 as amended.] For the purpose of the tax the value of the net estate shall be determined—
      *******
      (b) In the case of a nonresident not a citizen of the United States, by deducting from the value of that part of his gross estate which at the time of his death is situated in the United States—
      *******
      (e) The amount receivable as insurance upon the life of a nonresident not a citizen of the United States, and any moneys deposited with any person carrying on the banking business, by or for a nonresident not a citizen of the United States who was not engaged in business in the United States at the time of his death, shall not, for the purpose of this title, be deemed property within the United States.