author: Littleton:

text:
    Flaxlinum Insulating Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 5120.
    Promulgated November 30, 1926.
    1. Use and occupancy insurance involved in this proceeding was compensation for the loss of a property right, and was not dependent upon or measured by the loss of profits in the operation of the business in connection with which such property was used.
    2. The owner of the property destroyed by fire proceeded in good faith to replace the same, and the amount of the use and occupancy insurance' in excess of the ordinary fire insurance received thereon used for such replacement was not a gain to be included in gross income.
    3. The accrual method of accounting employed by petitioner in keeping its books clearly reflected the income for 1918, and the amount of use and occupancy insurance received during the year in excess of the portion thereof properly applicable to the cost of replacing the property in kind was a gain derived from the conversion of property and constituted gross income in that year and may not be allocated proportionately to gross income for 1919 and 1920.

      George W. Morgan, Esq., and Guy Chase, Esq., for the petitioner.

      A. H. Fast, Esq., for tbe respondent.'
    This proceeding involves a deficiency in income and profits tax for the calendar year 1918 in the amount of $42,114.64. The question presented concerns the proper treatment of $80,000.10 of use and occupancy insurance received by the petitioner in 1918 in consequence of a fire which occurred on July 11, 1918, destroying one of its warehouses and the contents thereof. This amount was in addition to amounts received as ordinary fire insurance and represented a compromise between the insurers and the insured of the amounts recoverable under the nine use and occupancy policies. The Commissioner included the entire amount of $80,000.10 in petitioner’s gross income for 1918.
    FINDINGS OF FACT.
    The petitioner, formerly known as the Northern Insulating Co., is a Minnesota corporation engaged in the manufacture from flax straw of an insulating material known as “ Flaxlinum ” and byproducts known as “ Flax Tow ” and “ Flax Shives,” with principal office at St. Paul. It kept its books and rendered its returns upon the accrual basis.
    The relative percentages of total production at the time of the fire were as follows:
    Flaxlinum_0. S94
    Commercial tow_ . 272
    Seed and bran (sbives),_ .334
    Manufacturing operations were carried on continuously throughout the year. Petitioner purchased the flax straw from balers at a large number of points in the northwest. Persons engaged in baling established themselves in communities where flax was grown and purchased straw from farmers, baled it on the farm, and, in the majority of cases, contracted with farmers to haul the baled straw to points of shipment. In some instances petitioner made purchases direct from farmers who hauled the straw unbaled to petitioner’s stacking station where the petitioner contracted to have it baled at some later date. There existed no open market in which such straw could be purchased and it was petitioner’s custom to arrange with balers for its supply. An exception was made, however, with respect to the 1919 crop, which became available in September, 1919, and the early part of 1920 because of the petitioner’s shortage of flax straw, as hereinafter mentioned.
    The seasons in which flax straw can be obtained are usually from September to April following each crop. The largest portion of straw purchased was received during the months from November to February after each harvest in September. The straw could not be used by the petitioner in its manufacturing operations while in a green, wet, or natural state as harvested. It was necessary properly to dry and cure it, otherwise the products would heat, mold, and become lousy. The curing process was in the nature of a sweating and retting, which, after experiments over many years and at great expense, the petitioner found could best be accomplished by storage in warehouses under certain atmospheric conditions. The process required about six months under normal weather conditions. When properly sweated and retted, the straw became very dry, resulting in the gluten being destroyed by the germs of decomposition. Thereupon the fibre was readily separable from the woody portion of the straw. Thus cured the straw would not heat, mold, or become lousy, the food upon which the louse subsisted having been destroyed. In brief, the straw could not be successfully or profitably manufactured before it had been properly cured, nor were the products of uncured or improperly cured straw commercially successful. The petitioner by experience, therefore, found it necessary or advisable to acquire and keep on hand and in process of curing from 8,000 to 10,000 tons of dried and cured straw — that is to say, it would have available at the time of harvesting the new crop about 8,000 or 10,000 tons of cured straw with which to carry on operations until the new crop could be cured and properly dried.
    Petitioner had certain large warehouses which were essential in properly treating the straw for manufacturing purposes.
    The quantities of flax straw consumed by petitioner have been as follows:
    In crop year commencing— Tons.
    Sept. 1, 1915_16, 078
    Sept. 1, 1916-21, .660
    Sept. 1, 1917_12, 556
    Sept. 1, 1918_10, 588
    Sept. 1, 1919_14, 001
    On July 11, 1918, one of the petitioner’s warehouses, together with the entire contents thereof, including 6,601 tons of flax straw, was destroyed by fire, thus leaving petitioner with only approximately 2,223 tons of its basic raw material with which to carry on manufacturing operations until the 1918 crop should become available and be properly seasoned, cured and dried. Soon after the fire and before the petitioner’s remaining supply of cured straw was exhausted, it obtained, during 1918, 1,908 tons of additional cured straw from stacking and baling stations and other users. This enabled the petitioner to continue full and uninterrupted operation of its plants throughout the balance of the calendar year 1918.
    The quantity of flax straw consumed from July 11, 1918, to the end of that year was 4,196 tons. Of the 1918 crop the petitioner, notwithstanding it increased its price $1.50 per ton over prices which it had theretofore paid, was able to obtain only sufficient tonnage to meet its requirements for the ensuing year, leaving no amount to restore its reserve for future operations during the latter part of 1919 and the year 1920. From January 1 to the latter part of April, 1919, the petitioner, being without properly cured straw, adopted extraordinary emergency measures of curing and drying the straw for manufacturing purposes in order to avoid a shutdown of its plant. Its drying kilns normally used only for the drying of the flaxlinum were, to 50 per cent of their capacity, devoted to drying and preparing straw. Its kiln cars designed for the drying of flaxlinum were remodeled and used for drying straw. The straw was hauled from points of storage by wagons, placed upon the remodeled cars, moved into the kilns, rehandled in the kilns to accelerate the drying, and, when this process had been completed, the straw was removed and hauled by wagons to the tow mill. The additional expense of altering the kiln cars and drying the straw was charged as operating expense necessarily incurred in providing a sufficient supply of straw to continue manufacturing operations, without which it would have been necessary to close down the plant until the new crop had become cured by the usual storage method. The process was slow because the straw could only be handled and dried while in bales.
    Although “ Flaxlinum ” was the petitioner’s principal product, tow, used for upholstering furniture, was also an important product, and, during the period of drying the straw, the output of the tow mill was reduced 50 per cent, with no reduced payroll during this drying period, inasmuch as the same number of men were required to operate the tow mill whether run at full or partial capacity. The emergency method of curing the 1918 crop of straw continued until the latter part of April, 1919, at which time a portion of the 1918 crop in the warehouses of the petitioner which had not been destroyed by fire had become sufficiently cured to admit of its being worked into flax tow, and from the latter part of April, 1919, until the following January, 1920, the petitioner was able to carry on operations in the normal way.
    The 1919 crop of straw was heavy and from it petitioner succeeded in curing a sufficient quantity to supply its needs for the ensuing year and also to restore a reserve substantially equal to that which had been destroyed by fire on July 11,1918. But, in order to acquire this quantity, petitioner not only increased its price approximately $5 a ton, as hereinafter more specifically shown, but it also purchased and operated in the flax growing territory nine baling machines, costing $850 each. No part of this cost was included in the cost of straw hereinafter stated. Again, commencing early in January, 1920, the petitioner, having used its supply of properly seasoned straw, found it necessary again to resort to the extraordinary or emergency method of curing the 1919 crop of straw. It continued this emergency method until the latter part of April, 1920, when the 1918 crop had become sufficiently seasoned and cured through the usual warehouse method for manufacturing purposes.'

      The straw acquired by petitioner from the 1919 crop was substantially sufficient to restore the reserve supply that had been destroyed by fire, but none of this was seasoned or ready for use until the latter part of April, 1920.
    The petitioner proceeded in good faith immediately after the fire to replace its reserve of cured straw, but for the various reasons herein mentioned it was unable completely to do so until the 1919 crop became available on September 1, 1919. After May 1, 1920, it was no longer necessary for petitioner to resort to the emergency method of curing the straw, since its reserve supply had been restored. The actual cost-to petitioner of straw purchased, including transportation, unloading expense, and purchasing agents’ expenses, but not including any overhead expenses, such as general office expense for salaries of officers or employees not exclusively engaged upon the purchase of straw, together with the quantities purchased and the average cost per ton was, for the several crop years, as follows:

    In years prior to September 1,1917, the average cost of straw had not exceeded $12.16 per ton.
    The petitioner acquired its supply of straw from farmers or balers located near or in smaller towns to which it was delivered by farmers. The territory surrounding the towns in which the balers were located from which straw could be secured was dependent upon the price which the balers were able to pay the farmers, which price included, among other items, the cost of hauling. The supply of straw in the territory from which petitioner secured its supply was at all times limited. During the crop year commencing September 1, 1918, as well as for many preceding crop years and ever since, petitioner was the largest purchaser of straw in this territory, its purchases normally being considerably in excess of the aggregate quantity of all straw purchased by all others in that territory. The increased prices paid by petitioner for its entire purchases from the crops of 1918 and 1919 over prices paid for prior crops were due to the strenuous efforts on its part to restore its necessary reserve, and, but for the increased prices paid and the baling machines purchased and operated, petitioner would not have been able to carry on its operations or to restore its reserve as it did.

      In addition to the use and occupancy insurance, petitioner received ordinary fire insurance for the 6,601 tons of straw destroyed, at the rate of $13 per ton, which was on the basis of cost at that time, in the amount of $85,813.50. Petitioner also received ordinary fire insurance of $20,000 for the building, upon the basis of reproduction cost less depreciation at the date of the fire, as agreed upon.
    The warehouse was designated by petitioner as Warehouse No. 4. It was of so-called balloon construction, consisting of galvanized iron sidings, tar and gravel roof, and a fire-wall through the center. Its capacity was 2,156,485 cubic feet, accommodating in excess of 8,000 tons of baled straw. The petitioner’s remaining warehouse had a capacity of approximately 5,000 tons of baled straw.
    Immediately after the fire the petitioner proceeded in good faith to replace the building. Because of war restrictions, petitioner was unable immediately to obtain a building permit and materials. The necessary permit was obtained, however, about the 1st of December, 1918, whereupon materials wore acquired and the actual work of reconstruction of the building commenced. The warehouse was reconstructed upon the ground on which the destroyed warehouse had been located, not identically as the old one but in four units, with two fire-walls instead of two units and one fire-wall as before. The actual work of reconstructing the first two units was commenced early in January, 1919, and the work of reconstructing the last two units and the reconstruction of the old fire-wall and the construction of the additional fire-wall Avas commenced early in November, 1919. Functionally, the new warehouse replaced the old one. The two new units first constructed, known as Nos. 2 and 7, and one of the last units were of the same construction as the old warehouse. The fourth unit differed from the others only in that its sides were covered with plaster over flaxlinum keyboard, but its cost was the same as the other units of identically the same size built at the same time.
    The actual cost of the four new emits, the reconstructed fire-wall, the additional fire-wall, and the capacity of the new units was as follows:

      The capacity of the new warehouse was greater than the capacity of the old warehouse, but the restored property, to the extent of 83 per cent thereof, effected a replacement substantially in kind and served the same purpose as the warehouse which had been destroyed.
    Reproduction cost of the destroyed warehouse at the prices prevailing in January, 1919, when actual reconstruction of the new warehouse was commenced, was as follows:
    Reproduction cost_$37, 549.13
    Depreciation to that date- 3, 003.93
    Depreciated value_ 34, 545.20
    The second two units of the new warehouse were constructed in the months of October, 1919, to January, 1920. The reproduction cost of the original warehouse in the latter months was as follows:
    Reproduction cost_$45,446.37
    Depreciation _3,635.71
    Depreciated value_ 41,810. 66
    At the time of the fire the petitioner held, among others, certain policies of insurance, known as “use and occupancy insurance,” issued by nine different insurance companies, the aggregate face amount of which use and occupancy policies was $135,000. These use and occupancy policies were the Minnesota Standard’ Fire Insurance form of policy, to which was affixed and made a part thereof a rider, the material part of which was as follows:
    The conditions of this contract of insurance are that if the buildings or any part thereof, their equipment or any part thereof, or the contents or any part thereof, shall be so destroyed or disabled by fire occurring during the term of this policy as to entirely prevent the assured from operating or carrying on business, then the liability of this company shall for each day of such enforced idleness be at the rate of one three-hundredth (l/300th) part of the sum insured for each working day during the period of such idleness, and proportionately for partial prevention for each day thereof.
    Loss, if any, to be computed from the day of occurrence of any fire to the time when said buildings, equipment or contents thereof could, with ordinary diligence, be rebuilt, repaired, or replaced, and not limited to the day of expiration named in the policy, but in no case shall the company be liable for any sum in excess of the amount insured by this policy. Ascertainment of loss hereunder shall not await the actual rebuilding, repairing and replacing of the property or restoration of the business.
    This policy does not cover loss due to stoppage of dynamos, motors or other apparatus for generating, utilizing, regulating or distributing electric current caused by defect or break in insulation or in machinery, or by electric current, whether artificial or natural.
    Permission to make alterations, improvements and repairs to any building herein described, and the insurance, if any hereunder, on such building is hereby extended and made to cover on such alterations, improvements, and repairs, but the construction of additions or additional stories to, or a general remodeling of, any building herein described, shall require notice to this Company and shall not be permitted or coyered by this policy, unless specifically included by endorsement attached hereto.
    One of the nine use and occupancy policies contained these provisions:
    The conditions of this contract of insurance are that if the buildings or any part thereof, their equipment or any part thereof, or the. contents or any part thereof, shall be so destroyed or disabled by fire occurring during the term of this policy as to entirely prevent the assured from operating or carrying on business, then the liability of this Company shall for each day of such enforced idleness be not to exceed one three-hundredth (l-300th) part of the sum insured for each working day during the period of such idleness, and proportionately for partial prevention for each day thereof.
    The word “ day ” or “ working day ” as used in this contract shall be held to cover a period of twenty-four (24) hours.
    Loss, if any, to be computed from the day of the occurrence of the fire to the time when said buildings, equipment or contents thereof, could, with ordinary diligence, be rebuilt, repaired, or replaced, and not limited to the day of expiration named in the policy, but in no case shall the Company be liable for any sum in excess of the amount insured by this policy. Ascertainment of loss hereunder shall not await the actual rebuilding, repairing and replacing of the property or restoration of the business.
    As soon as practicable after any loss, the insured shall resume complete or partial operation of the property herein named, or shall make use of other property, if obtainable, if by so doing the amount of loss hereunder will be reduced; and in the event of the insured continuing business (in whole or in part) at some other location, or using other property during the time occupied in repairing or reconstructing the building named herein, the net profits earned at the new location shall be deducted from the amount that under the terms of this policy would be recoverable by the insured.
    It is a condition of this insurance that the assured shall not be entitled to compensation on account of delay which may be occasioned by any ordinance or law regulating construction or repair of buildings, or by the suspension, lapse or cancellation of any license, or for any other consequential damage.
    In case the assured and this Company are unable to agree as to any question affecting the amount of loss under this policy, the same shall be determined by appraisers in the manner provided by the policy to which this form is attached, the provisions of which policy shall govern in all matters pertaining to this insurance, except as herein otherwise provided.
    This policy does not cover loss due to stoppage of dynamos, motors or other apparatus for generating, utilizing, regulating or distributing electric current caused by defect or break in insulation or in machinery, or by electric current, whether artificial or natural.
    Other insurance permitted.
    Permission granted to operate at night later than nine (9) o’clock p. m.
    Permission granted to make alterations, improvements and repairs, and to construct attached and communicating additions and sheds (which do not change a division wall or fire wall) to any building herein described, and the insurance, if any hereunder on such building is hereby made to cover such alterations, improvements, repairs, attached and communicating additions and sheds, including building materials and supplies therefor, while contained therein or on the premises immediately adjacent thereto; but any change in a division wall or fire wall, the removing or replacing of a floor structure or wall, or the construction of additional stories to any building herein described, shall not be permitted or covered by this policy, unless specifically included by endorsement attached hereto.
    Permission granted to use electricity for light, heat and power in the premises described in this policy.
    Permission granted for such use of the premises as is usual in the business of assured and when not in violation of any law, statute or municipal restriction, to keep and use all articles and materials usual to said business,, in such quantities as the exigencies of the business require.
    Lightning Clause: Except as provided in the Electrical Exemption Clause above, this policy shall cover any direct loss or damage caused by Lightning (meaning thereby the commonly accepted use of the term lightning, and in no case to include loss or damage by cyclone, tornado or windstorm), not exceeding the sum insured, nor the interest of the insured in the property, and subject in all other respects to the terms and conditions of this Policy. Provided, however, if there shall be any other insurance on said property this Company shall be liable only pro rata with such other insurance for any direct loss by lightning, whether such other insurance be against direct loss by lightning or not.
    Section 3318, Minn. Gen. Stats. 1913, prescribes the Standard Fire Insurance policy for use in that State. This section also provides, inter alia, that the fire insurance policy may contain “ printed forms for insurance against loss of rents and rental values, leaseholds of buildings, use and occupancy,” and losses caused by change of temperature.
    The insurance adjusters spent considerable time investigating the flax industry and the operations of the petitioner’s plant in order to be able properly to determine the amount to which the petitioner was entitled for use and occupancy of the property destroyed. They found the number of tons of straw the petitioner had on hand and that the daily consumption of the plant was 40 tons of straw. From this and other facts obtained by them they determined the period of time the plant would continue operations and the extent to which operations would suffer as a result of the destruction of the building and its contents. Thereafter, the insurance companies and the petitioner agreed upon a total of $80,000.10 under all of the use and occupancy policies. The insurance companies were aware of the fact that petitioner, by resorting to the methods hereinbefore mentioned, would probably continue total or partial operations for some time to come, but they were satisfied from their investigation that, although the effect of the loss might be postponed, it would ultimately be sustained through increased prices for cured or green straw, additional expense of curing, or as a result of inability to obtain a proper supply.
    One three-hundredth of the $135,000, the aggregate amount of the policies, the per diem rate provided in each of the policies, equals $450. The insurance adjusters set forth, in their proofs of loss, the loss or damage as agreed upon with the petitioner in the following amounts:
    151 days total inoperation at $450 per day_$67, 950.00
    26 days partial inoperation (0.606)_ 7,090.20
    S3 days partial inoperation (0.334)_ 4,959.90
    80,000.10
    The ordinary fire insurance for the building and straw was agreed upon soon after the fire and adjustment of the amount of the use and occupancy insurance was concluded on August 31, 1918. The total insurance was received by the petitioner in September, 1918.
    The use and occupancy policies were written by the following companies in the amounts stated, and each company paid the amount shown in the following schedule.

   OPINION.

Littleton:

The Commissioner included the total of the use and occupancy insurance, amounting to $80,000.10, in the petitioner’s gross income for 1918, and contends that his action in this regard should be approved for the reason that the use and occupancy policies insured profits prevented by the fire. On the other hand, the petitioner contends that the use and occupancy insurance was per diem compensation, that is, a fixed sum for each day of enforced idleness and proportionately for partial idleness, and that the settlements between the insurers and the insured were on that basis; that neither the policies nor the settlement were upon the basis of profits prevented ; that no part of the $80,000.10 was taxable income for 1918 as there was no enforced idleness, either total or partial, during that year, and that the difference between the amount expended to restore the building and the reserve supply of cured straw should not be treated as income for the calendar year 1918 but should be allocated to the calendar years 1919 and 1920.

Section 3318, Minn. Gen. Stats., 1913, prescribes a standard form of insurance policy and expressly authorizes use and occupancy insurance to be inserted in such standard form of policy, but forbids the inclusion of any clause not so authorized. The use and occupancy insurance in question was written in that manner, the provisions having been made a part of each policy as a rider. The statute does not specifically authorize insurance against profits prevented. The use of the standard form of policy is compulsory. With such changes as are specifically authorized by statute, it is the only form of insurance contract which may lawfully be used in the State. Heim v. American Alliance Ins. Co., 147 Minn. 283; 180 N. W. 225; Brecher Furniture Co. v. Firemen's Ins. Co., 154 Minn. 446; 191 N. W. 912.

The Board is of the opinion from the evidence that this proceeding, as far as it relates to the nature of the use and occupancy policy, is the same as that in the Appeal of Piedmont-Mt. Airy Guano Co., 8 B. T.A. 1009, and that such of the amount of the use and occupancy insurance money as is equal to the amount actually expended by the petitioner to replace the warehouse destroyed by fire without added capacity or other elements of additional value and the amount expended to replace the contents thereof, in excess of the ordinary fire insurance collected thereon, should be deducted from the amount received as use and occ'upancy insurance. See Appeal of Cotton Concentration Co., 4 B. T. A. 121.

Section 234 (a) (14) of the Revenue Act of 1921 provides as follows:

If property is compulsorily or involuntarily converted into cash or its equivalent as a result of (A) its destruction in whole or in part, * * *; and if the taxpayer proceeds forthwith in good faith, under regulations prescribed by the Commissioner with the approval of the Secretary, to expend the proceeds of such conversion in the acquisition of other property of a character similar or related in service or use to the property so converted, * * * or in the establishment of a replacement fund, then there shall be allowed as a deduction such portion of the gain derived as the portion of the proceeds so expended bears to the entire proceeds. The provisions of this paragraph prescribing the conditions under which a deduction may be taken in respect of the proceeds or gains derived from the compulsory or involuntary conversion of property into cash or its equivalent, shall apply so far as may be practicable to the exemption or exclusion of such proceeds or gains from gross» income under prior income, war-profits and excess-profits tax Acts.

Article 49 of Regulations 45, relative to the situation covered by the above section, is in part as follows:

In the case of property which has been lost or destroyed in whole or in part through fire, * * * the amount received by the owner as compensation for the property may show an excess over the value of the property on March 1, 1913, or over its cost, if it was acquired on or after that date (after making proper provision in either case for depreciation to the date of the loss, damage, or transfer). The transaction is not regarded as completed at this stage, however, if the taxpayer proceeds immediately in good faith to replace the property, or if he makes application to establish a replacement fund as provided in the following article. In such a case the gain, if any, is measured by the excess of tbe amount received over tbe amount actually and reasonably expended to replace or restore tbe property substantially in kind, exclusive of any expenditures for additions or betterments. Tbe new or restored property effects a replacement in kind only to tbe extent that it serves tbe same purpose as tbe property which it replaces without added capacity or other element of additional value. * * *

Applying the provisions of section 234 (a) (14) and the Regulations as construed in the Appeal of Cotton Concentration Co., supra, we find that the petitioner expended $13,133.78 for the four units of the new warehouse, the replacement of the old fire-wall, and the construction of the additional fire-wall as follows:

For tbe four warehouse units, Nos. 2, S, 6 and 7-$51, 059. 36
For the reconstruction of the old fire-wall (No. 4)_ 9,376.45
For the construction of the additional fire-wall (No. 6)_ 11,797.97
Total_ 73,133. 78

From the above sum there should be eliminated the cost of the added capacity of the new warehouse and the cost of the additional fire-wall. The capacity of the old warehouse was 83 per cent of the capacity of the new, and that percentage of the cost of the new units is $43,126.26. Eliminating the additional fire-wall costing $11,797.97, and including the old fire wall replaced at a cost of $9,376.45, we have a total of $52,502.71 of the warehouse replacement cost compensable out of the total insurance received. There was ordinary fire insurance on the destroyed warehouse in the amount of $20,000, leaving $32,502.71 of the warehouse replacement cost compensable out of the use and occupancy insurance.

What has been said relative to the replacement of the destroyed warehouse applies also to the replacement of its contents, and such amount of the use and occupancy as is equal to the additional cost of replacing the petitioner’s reserve of cured straw, that is, the excess of the ordinary fire insurance collected thereon, should be deducted from the use and occupancy insurance.

There were destroyed 6,601 tons of straw for which the petitioner received on its ordinary fire insurance policies sums aggregating $85,813.50, which was at the rate of $18 per ton. Immediately after the fire the petitioner began efforts to restore its reserve of straw but was unable to do so until the crop year commencing September 1, 1919. It was unable to recoup any of the reserve out of the 1918 crop. The average cost to the petitioner of the straw purchased from the 1919 crop was $17,223 per ton. The increased cost was the difference between $13 and $17,223 or $4,223 per ton, which, on 6,601 tons, equals $27,876.02. That amount of the use and occupancy insurance money should not therefore be regarded as taxable gain, but should be allocated to the cost of restoring the straw.

The petitioner further contends that the remainder of the use and occupancy insurance, amounting to $19,621.37, should be deferred or allocated proportionately to the calendar years 1919 and 1920, in which it is claimed occurred the interruption of operations which the insurance was intended to compensate. This contention might have weight if the $80,000.10 represented reimbursements for profits pi'evented, as was the situation in the Appeal of International Boiler Works Co., 3 B. T. A. 283, but we have already held that under these policies the thing insured was not the possibility of profits or losses, nor profits which might be earned during 1918 or any future time, but the amount paid represented compensation to the petitioner for the right to use and enjoy the property for any purpose to which the company might be able to devote it; the sum of the ordinary fix’e insurance and the use and occupancy insurance represented nothing more than compensation for loss of the useful value of the building and its contents to the petitioner in its business. In these circumstances, we do not find merit in the petitioner’s claim that a portion of the amount received in final settlement in 1918 over the amount required to replace the physical property should be spread over subsequent years. Section 213 (a) of the Revenue Act of 1918 provides that the term “ gross income ” includes, among other items, “ gains or profits and income derived from any source whatever,” and that “ the amount of all such items shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under subdivision (b) of section 212, any such amounts are to be properly accounted for as of a different period.” Section 212 (b) provides that the net income shall be computed upon the basis of the taxpayer’s annual accounting period in accordance with the method of accounting regularly employed in keeping the books of the taxpayer, but if the method employed does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the Commissioner does clearly reflect the income. The petitioner regularly employed the accrual method of accounting in keeping its books and, in the opinion of the Board, such method cleai’ly reflected the income. We are not warranted, therefore, under the statutes in adopting the method of computing income for 1918 which will exclude therefrom the amount of insurance received and allocate same to subsequent years. The statute contemplates that items of income and deductions shall be treated consistently. Had the property destroyed in 1918 not been insured, a loss would have been sustained which could not under the Revenue Act of 1918 have been accounted for as of a different taxable year, and, since it can not be said that the method of accounting employed did not clearly reflect the income, we must hold that the excess of the insurance over the amount required to restore the property was income in 1918. This was no less income in 1918 because received in the form of insurance than it would have been had it resulted from a voluntary sale of property for an amount in excess of the cost or March 1, 1918, value thereof.

Judgment will be entered on 15 days' notice, under Bule 50.

Phillips concurs in the result only.


source: Caselaw Access Project

author: Morris:

license: Public Domain

text:
    Appeal of Levine Brothers Co., Inc.
    Docket No. 6832.
    Promulgated November 30, 1926.
    1. Tbe Board will not consider questions of administrative policy and procedure. Appeal of Cleveland, Home Brevmig Co., 1 B. T. A. 87.
    2. Accelerated depreciation of machinery allowed.
    3. Reduction of surplus in the computation of invested capital upon payment of additional taxes for preceding year sustained.
    4. The reduction of current earnings by a tentative tax to determine the amount of such earnings available for the retirement of capital stock disallowed. Appeal of L. 8. Ayers & Co., 1 B. T. A. 1135.
    5. Evidence of loss of useful value held sufficient to sustain claimed deduction.

      Benjamvin Mahler, Esq., for the petitioner.

      M. N. Fisher, Esq., for the Commissioner.
    This is an appeal from the determination of a deficiency of $1,972.08 in income and profits tax for 1918. The deficiency arises from the Commissioner’s refusal to allow more than a 10 per cent rate of depreciation on machinery, and from adjustments in invested capital which petitioner contends were erroneous. The petitioner presents in addition the question of loss of useful value as to certain machines.
    FINDINGS OF FACT.
    The petitioner is a New York corporation, located at 32 South 9th Street, Brooklyn, and is engaged in the manufacture and sale of candy.
    Levine Brothers Co., Inc., was incorporated in July, 1908, succeeding a partnership operating under the trade name of .Levine Bros. The entire capital stock of the corporation, amounting to $25,000, was issued for the assets of the partnership. Up to and including June 30, 1912, the corporate accounts were kept on a fiscal year basis. In 1912 the petitioner changed to a calendar year basis, the books being closed on June 30 and also on December 31. Thereafter the books were kept on a calendar year basis.
    In June, 1913, the corporation increased the capital stock outstanding from $25,000 to $200,000 by the declaration of a dividend of $39,000, by subscription of additional stock amounting to $16,000, and by setting up a value for good will of $120,000.
    Prior to March 1, 1918, the petitioner manufactured and sold its own products. On that date, the Elbee Chocolate Co. was organized to take over the manufacturing part of the petitioner’s business. Practically all of the assets of the petitioner were transferred to the Elbee Company for stock, the petitioner thereafter handling only the selling and distribution. On or about April 1, 1918, the Sterling Chocolate Co. was organized to manufacture solid chocolate for the Elbee Company. Prior to the organization of the latter company, the petitioner bought solid chocolate on the open market. The stock of all three companies was owned by the same stockholders and in the same proportion.
    At the incorporation of the Elbee Company, the petitioner turned over the machinery to the former. The petitioner’s machinery account on December 31, 1911, was $61,806.45; on March 1, 1918, it was $63,300.35; and on December 31, 1918, the machinery account of the Elbee Company was $75,567.33. The machinery purchased for the Sterling Company to manufacture solid chocolate was almost all new. The machinery account of the Sterling Company at December 31, 1918, was $33,582.47.
    Included in the new machines purchased for the Sterling Company was a Woodburn Cocoa Mill costing $1,200, a Bausman Disc Reducer and Refiner costing $3,960, and a cocoa press costing $5,500. These machines were purchased to make powdered cocoa. A chocolate wrapper costing $2,800, which was used to wrap chocolate almond bars, was also purchased.
    After the signing of the Armistice, the price of cocoa dropped from about 30 cents to 3 cents per pound. The petitioner could not produce powdered cocoa at such prices in competition with larger concerns, so it discontinued the manufacture thereof and the use of the above machines in the latter part of 1918. The manufacture of the chocolate almond bar also had to be dropped in 1918 because of competition and the machine for wrapping it was no longer used. These four machines were offered for sale in 1918 and have been repeatedly offered since, but without success. The machines, as of December 31, 1918, were worth but 10 per cent of their cost.
    During 1918 the Elbee Company worked a double shift until some time in November. The regular shift worked 48 hours per week. The extra shift worked until 10:30 p. m., the total overtime amounting to 30 hours per week. The daily operation of the machinery continued without interruption upon the transfer of assets from the petitioner to the Elbee Company. Beginning in April the Sterling Company operated the same hours and shifts as the Elbee Company.
    Labor conditions during 1918 necessitated the employment of unskilled and inexperienced help. The machinery did not receive the proper care for the most efficient operation. The employees were shifting constantly and conditions were unsettled. Cases of sabotage resulted in gears, spokes and other parts of .the machinery being broken.
    The machinery was made to handle powdered sugar but, due to war conditions, brown sugar was substituted and substitutes for other ingredients had to be used. The additional strain resulted in excessive depreciation of the machinery. The rate of depreciation of the machinery for 1918 was 15 per cent.
    During 1911 or prior thereto the petitioner, in order to secure a distributor for its products, made certain advances to A. Strauch & Co., amounting to about $10,000. These advances were secured by shares of stock of Strauch <& Company, which were later exchanged for notes. The date of this exchange is unknown, but it occurred prior to January 1, 1918. On that date $5,100 was still due and unpaid on the notes. By March 1, 1918, the notes had been satisfied. The Commissioner adjusted invested capital on the theory that the petitioner held stock of Strauch & Company which was an inadmissible asset.
    For 1911, 1912 and 1913, Levine Brothers, Inc., returned income as follows:
    1911-•_$3, 507. 59
    1912- 13,594.81
    1913- 24,973.70
    The Commissioner reduced the income for 1911 and 1912 by $447.60 and $467.60, respectively.
    In 1921 the petitioner paid an additional tax of $1,235.33 for the year 1917, as a result of which the Commissioner reduced surplus in computing invested capital for the year 1918.
    On March 1, 1918, the petitioner retired $150,000 of its capital stock. The Commissioner determined that there were earnings of $9,432.33 available for the retirement of such stock, after having first deducted an estimated tax of $10,833, and reduced the surplus accordingly.
   OPINION.

Morris:

The first assignment is that the “ Commissioner erred in not stating in his communication of July 16, 1925, the details of the deficiency but incorporating them by reference to prior communications not part of the deficiency letter.” This question is one of administrative policy and procedure within the Internal Revenue Bureau. We have said in connection therewith, in Appeal of Cleveland Home Brewing Co., 1 B. T. A. 87, 91:

It is no part of the duty of this Board, nor has it the right, to decide in any manner questions of policy in the administration of the office of the Commissioner.

See also Appeal of Clois L. Greene, 2 B. T. A. 148; Appeal of Southern California Loan Association, 4 B. T. A. 223.

The petitioner withdrew the second assignment of error that the Commissioner erred in disallowing the deduction of legal expense in the sum of $130.36.

The next question presented is the proper rate of depreciation to be applied to the petitioner’s machinery, the Commissioner having allowed a rate of 10 per cent. The testimony shows that the machinery was used overtime during the greater part of the year, that much additional strain was placed on the machinery due to substitutes which had to be used, and that labor conditions were such that inexperienced workers and unskilled labor had to be used in order to operate the machines'. In view of these facts, we are of the opinion that 15 per cent, as claimed by petitioner, is a reasonable rate for depreciation.

The next allegation of error relates to the reduction of invested capital for the year 1918 by reason of additional taxes paid for 1917. Since the filing of this appeal the Revenue Act of 1926 has been passed by Congress. Section 1207 of that Act approves the regulations of the Commissioner applicable to reducing invested capital on account of the payment of additional taxes for a preceding year. See Appeal of Russel Wheel & Foundry Co., 3 B. T. A. 1168; Appeal of Hutchins Lumber & Storage Co., 4 B. T. A. 705; Appeal of Manville Jenckes Co., 4 B. T. A. 765.

The fifth error assigned is the reduction of invested capital on account of inadmissible assets. The Commissioner’s action was apparently based on an understanding that during the taxable year the petitioner owned stock of.Strauch & Company. The evidence shows, however, that advances were made to Strauch & Company and that shares of stock of that company were held as security for the loan, but prior to January 1, 1918, these shares were exchanged for notes, and on that date the petitioner held notes amounting to $5,100. The Commissioner was therefore in error in reducing invested capital on account of inadmissible assets.

The next question, namely, the correctness of the Commissioner’s action in reducing current earnings by a tentative tax to determine the amount of such earnings available for the retirement of capital stock, has already been decided adversely to the Commissioner. Appeal of L. S. Ayers & Co., 1 B. T. A. 1135; Appeal of Hutchins Lumber & Storage Co., supra. Upon the authority of these decisions we must hold that the Commissioner’s action in this respect is in error.

The seventh assignment of error is the reduction of net income for the prewar years 1911 and 1912. The Commissioner admitted the reduction of income for the two years but denied reducing them without cause. Petitioner offered no evidence whatsoever other than the net income returned and the reduction sustained. In the absence of proof of error the reduction must be sustained.

The final assignment of error, which was presented by an amendment to the original petition, relates to the allowance of a loss of useful value on four machines which were purchased in 1918 and discarded prior to the close of that year. These machines, purchased and installed by the petitioner to manufacture cocoa and wrap chocolate almond bars, were, with the exception of the wrapping machine, in use at a time when the trade was clamoring for powdered cocoa. The Sterling Company was able to manufacture powdered cocoa because the process was the same as in the manufacture of solid chocolate up to a certain step. In 1918 the demand was exceptionally good and the price was high, being about 30 cents per pound. The same general conditions existed as to the almond bars which petitioner attempted to place on the market. But after the Armistice the demand practically ceased, stocks available for distribution were large, and the price fell to about 3 cents per pound.- Only the larger manufacturers were able to produce powdered cocoa at such prices. Many concerns placed their machinery on the market for sale. Petitioner has repeatedly offered its "machines for sale but has not been able to secure an offer at any price. As to the wrapping machine, the manufacturer failed to ship it to petitioner in. time for more than a week or so of use before the drop in prices made the manufacture of almond bars prohibitive. The petitioner has been ready and willing at all times since 1918 to sell the machines for one-tenth of their original cost, but has been unable to sell them. The machines have been idle and of no use since 1918. On these facts, we are convinced that the petitioner is entitled to deduct the difference between the cost of these machines and the salvage value thereof, which is 10 per cent of such cost, in its 1918 return. Appeal of Automatic Transportation Co., 3 B. T. A. 505.

Judgment will be entered on 15 days' notice, wider Bule 50.


author: Trammell:

text:
    Appeal of Edward P. Mertz.
    Docket No. 5695.
    Promulgated November 30, 1926.
    1. The amount of tbe deductible loss on tbe sale of a business determined from tbe evidence.
    2. Tbe value of real estate as of March 1, 1913, determined.

      George E. H. Goodner, Esq., for the petitioner.

      F. 0. Graves, Esq., and W. Frank Gibbs, Esq., for the Commissioner.
    This appeal involves a deficiency in income tax for 1920 in the amount of $15,591.58, and for 1921 in the amount of $481.60.
    There are two questions involved: (1) The amount of the loss, if any, sustained by the petitioner in 1920 on the sale of his business; and (2) the amount of the profit realized in 1921 on the sale of real estate.
    FINDINGS op pact.
    In 1904 the petitioner, with other persons, organized a corporation known as the Orrine Company, having its principal place of business in the District of Columbia, for the purpose of manufacturing and selling a proprietary medicine designed for the cure of alcoholism. Prior to 1917 petitioner acquired all of the stock of the corporation except qualifying shares. The principal asset of the company was the formula for the manufacture of Orrine. There was a ready sale for the product and the net profits, for more than five years prior to 1917, were from $20,000 to $25,000 per annum.
    The Orrine Company had tangible assets, including land, furniture and fixtures, cash and accounts receivable, which at no time exceeded $15,000 in value.
    The petitioner, on December 31, 1917, surrendered all the stock for cancellation and received all the assets of the company. From that date he carried on the business in his individual capacity. The petitioner after paying expenses took out the profits of the business each month as they were earned. The business, including all assets then on hand, was sold by the petitioner in 1920 for $3,000 to Nixon, his son-in-law, who was then the manager of the business and who had been such for a number of years. The intangible assets, including the formula, had a value in 1917, when the petitioner received them in liquidation, of $30,000.
    The petitioner in 1905 acquired real estate with the improvements thereon at 1144 and 1146 Fifteenth Street, N. W., Washington, D. C. On March 1, 1913, the value of the property was greater than the cost. The value of this property, consisting of both the building and the lot upon which it was situated, on March 1, 1913, was $25,000. The value of the land was $12,500 and the value of the improvements thereon was $12,500.
    The petitioner sold the property, including the improvements, in 1921 for $34,820 net. The improvements located on the said real estate suffered exhaustion, wear and tear at the rate of 2 per cent per annum.
   OPINION.

Trammell:

The petitioner having received the assets in liquidation of the corporation in December, 1917, the value thereof at that time represents cost to him on the subsequent sale which occurred in 1920. The principal value of the business was in the trade name and the formula.

There was some testimony as to an offer of $100,000 for the business in 1915, but this testimony was indefinite and uncertain, the name of the person who made the offer not being known by the witness, or the terms of the offer or the capacity of such person to pay. We have considered this testimony but, in our opinion, it is not sufficient to establish the value claimed.

With respect to the record of earnings, the testimony was also uncertain and indefinite. The books having been lost or destroyed, the witness testified from memory. The petitioner may or may not have been entitled to a salary out of the earnings.

Another factor to be considered in determining the value of the intangible assets is the outlook for the future and the prospects that the business will continue to be as profitable as in the past. In our opinion, looking at the matter from the standpoint of a purchaser in 1917 of a business such as this, impending prohibition legislation would have been a factor for consideration by a prospective purchaser.

In view of the foregoing, we are not inclined to place a value on the intangible assets by the capitalization of earnings method. In our opinion, the value of the intangible assets received in 1917, including the formula, was $30,000. The loss sustained on the transaction is the difference between $30,000 and the amount of $3,000 received for both tangible and intangible assets.

With respect to the real estate sold by the taxpayer, we have the testimony of a witness who was familiar with real estate values in 1913, who had made appraisals of property on many occasions as a member of the Appraisal Committee of the Washington Real Estate Board, and who was familiar with such appraisals prior to the time he was a member of that board. From the testimony introduced, we are of the opinion that the real estate sold was worth $25,000 on March 1, 1913. Its cost prior to March 1, 1913, was less than that amount. It sold for $34,820 after deducting the real estate commissions. For the purpose of this case it makes no difference whether the real estate commissions be deducted as expense or whether they be deducted from the selling price of the property. The gain subject to tax is the difference between $25,000 and $34,820, the amount for which the property was sold, after taking into consideration the depreciation on the buildings.

Judgment will be entered after 10 days' notice, wnder Rule 50.


author:
Korner, Chairman:
     Green: Love,

text:
    Appeal of Susie M. Root, Executrix, Estate of Henry L. Root.
    Docket No. 2825.
    Promulgated November 30, 1926.
    1. The common law doctrine of estates by the entirety obtains in the State of Missouri.
    2. The fact that the husband pays the full consideration out of his own funds for land conveyed to him and his wife as tenants by the entirety does not have the effect of constituting such grantees other than tenants by the entirety.
    3. A rule of property established by the statutes or decisions of a State is binding on the Federal courts in construing the transfer or devolution of property under such rule.
    4. Under the laws of Missouri there is no transfer, by reason of the death of one spouse, of any interest or estate of that spouse in an estate by the entirety, to the surviving spouse.
    5. Under the provisions of the Revenue Act of 1921, an estate tax is imposed on the transfer of the net estate of the decedent, and since, under the laws of Missouri, there was not a transfer of an estate to the surviving spouse on the death of the decedent, in land theretofore held by him and his wife as tenants by the entirety, the inclusion of the value of such an estate as a part of the gross estate of the decedent was without authority in law.

      John L. Gaylord, Esq., for the petitioner.

      J. F. Greaney, Esq., for the Commissioner.
    This appeal involves a deficiency asserted by the Commissioner under the estate-tax provisions of the Revenue Act of 1921. The issue presented is whether the value of real property owned by a decedent and his wife at the time of the death of the former, as tenants by the entirety, is properly to be included as a part of the gross estate of the decedent for estate-tax purposes. All of the facts were stipulated.
    FINDINGS OF FACT.
    Henry L. Root died on the 26th day of February, 1928, in Kansas City, Jackson County, Mo., and left surviving, as his sole heir, his wife, Susie M. Root, who was duly appointed and qualified as executrix of his estate in the Probate Court of Jackson County, Missouri.
    On the 29th day of November, 1921, one James Ketner and Ethel N. Ketner, his wife, by warranty deed, conveyed to H. L. Root and Susie May Root, husband and wife, the following described real estate, to wit:
    All of Lot 12 and all of the Bast 25 feet of Lot 11, Block 15, of Country Club Ridge, an addition in Kansas City, Jackson County, Missouri.
    At the time of the death of Henry L. Root, the said Henry L. Root and Susie M. Root, husband and wife, were the owners of the real estate above described. The warranty deed above referred to was duly recorded on the 6th day of December, 1921, in the office of the Recorder of Deeds in and for the said Jackson County, Missouri, at Kansas City in that State. The actual value of the real property in question on the date of the death of Henry L. Root was $8,000.
    Susie M. Root, executrix of the estate of Henry L. Root, deceased, in conformity and in compliance with the provisions of the Revenue Act of 1921, and the Federal Estate Tax Regulations, prepared and caused to be filed in the office of the collector at Kansas City, Mo., in the Sixth Missouri District, a return for this estate on Treasury Department Form 706, for the determination of the estate tax thereon, the return having been filed on the 23rd day of February, 1924, and a tax in the amount of $1,922.76 was paid by said executrix on that day.
    The return filed by the executrix set out, as Item One in Sechedule “ D ” thereof, the property above described and the value thereof, and that return stated that said property was an estate by the entirety in the name of the said Henry L. Root and Susie M. Root, husband and wife.
    On the 26th day of March, 1924, the above-mentioned return was examined by an agent of the Bureau of Internal Revenue, one Stewart B. Sturgis. The inclusion in the tax return of the value of the above described property as a part of the gross estate of Henry L. Root, deceased, was objected to and protested by the executrix to Sturgis, and was by him eliminated from the return and from his audit thereof, which audit was dated the 28th day of March, 1924. A copy thereof was furnished to the executrix.
    The elimination of the property in question, and its value, from the gross estate of the deceased, and other additional net adjustments allowed to the taxpayer, decreased the amount of the taxable estate $121,137.79 (as shown by the return) to $114,358.71 (as shown by the audit and report of Sturgis), resulting in a corresponding reduction in the amount of the tax liability of $135.59, which included the tax on the value of the property in question, and being the difference between $1,922.76, the amount of tax paid by the executrix, and $1,787.17, the amount of tax liability of the estate as shown by the audit of Sturgis.
    The Commissioner approved the report of Sturgis, with the exception of his action in eliminating the property in question from the gross estate. The Commissioner included the value of the property in question in the gross taxable estate, and as a result of its inclusion therein he found and assessed a deficiency in tax of $24.41. The petitioner was advised of the determination of the Commissioner and of the assessment of the said deficiency, by letter from the Commissioner under date of January 30, 1925.
    The exhibits attached to and made a part of petitioner’s petition are true copies of the letters testamentary granted said executrix, the statutory deficiency notice of the Commissioner dated January 30, 1925, and the warranty deed, dated November 29, 1921, from James Ketner and Ethel N. Ketner, husband and wife, to H. L. Root and Susie May Root, husband and wife.
    From the documents referred to in the stipulation we find that the petitioner was appointed executrix of the estate of the decedent on March 5, 1923, by the Clerk of the Probate Court of Jackson County, Missouri, and duly qualified to act as such executrix.
    The material portions of the Commissioner’s statutory notice of deficiency, dated January 30, 1925, to the petitioner are as follows:
    Tour claim is based upon the contention that the homestead of this decedent was held by himself and wife as tenants by the entirety and as such should not be included in the gross estate for tax.
    The record discloses that the widow of this decedent did not contribute any part of the purchase price and that her interest in this property is such as is specified in Section 402 (d) of the Revenue Act of 1921 * * *.
    The evidence submitted by you is not sufficient to support your claim for refund, and it is therefore rejected in its entirety and the amount of tax remains as set out in Bureau Letter of July 17, 1924. This deficiency tax of $24.41 will bear interest at the rate of ten per centum per annum from one month after notice and demand by the Collector, until paid, in accordance with the provisions of Section 407 of the Revenue Act of 1921.
    The material portions of the deed of conveyance dated November 29, 1921, are as follows:
    THIS INDENTURE, Made on the 29th day of November, A. D. One Thousand Nine Hundred and Twenty-One, by and between James Ketner and Ethel N. Ketner, husband and wife, of the County of Jackson, State of Missouri, parties of the first part, and H. L. Root and Susie May Root, husband and wife, of the County of Jackson, State of Missouri, parties of the second part;
    WITNESSETH: THAT THE SAID PARTIES OF THE FIRST PART, in consideration of the sum of One ($1.00) Dollar and other valuable considerations to them paid by said parties of the second part (the receipt of which is hereby acknowledged) do by these presents, Grant, Bargain and Sell, Convey and Confirm nnto the said parties of the second part, their heirs and assigns, the following described lots, tracts or parcels of land. * * *
    [Here follows the description of the land set out above in these findings.]
   OPINION.

Korner, Chairman:

The- petitioner, Susie M. Hoot, brings this proceeding as executrix of her deceased husband to test the right of the Commissioner to assert a tax on the estate of the decedent, in the computation of which he has included as a part of the gross estate the value of a certain parcel of real property which was owned by the decedent and his wife up to the time of the death of the former. From the agreed statement of facts upon which the case was submitted it appears that by warranty deed, executed November 29, 1921, there was conveyed to H. L. Root and Susie May Root, husband and wife, a lot of land in Kansas City. H. L. Root died on February 26, 1923, and left surviving, as his sole heir, his wife, Susie May Root, who was duly appointed and qualified as executrix of his estate. The value of the property is not in dispute.

It is unnecessary to detail here the chronology of events leading up to the bringing of this proceeding. They are fully set out in the findings of fact. Suffice it to say that the Commissioner proposes to collect an estate tax from the estate of the decedent predicated upon the inclusion, as a part of the gross estate, of the value of the land just referred to. The petitioner, contends that the land was conveyed to her and her deceased husband as tenants by the entirety and was so held by them until the death of the decedent, and that, as such, it is no part of decedent’s estate and is, therefore, not properly to be included in the value of that estate under the provisions of the Revenue Act of 1921 relating to estate taxes. The Commissioner contends that the value of the land in question should be so included, whether or not the grantees of the property were tenants by the entirety, for the reason that the value of property so held is specifically made a part of the gross estate by that statute. In answer to this contention of the Commissioner, the petitioner insists that, if such be the effect of the provisions of the Revenue Act, such provisions are in contravention of Article XIV, section 1, of the Constitution of the United States, in that it constitutes an unlawful taking of the property of Susie M. Root without due process of law.

We are convinced from the authorities called to our attention that the common law doctrine of estates by the entirety obtains in the State of Missouri. Frost v. Frost, 200 Mo. 474; 98 S. W. 527; Kegan v. Haslett, 128 Mo. App. 286; 107 S. W. 17. The portion of the Missouri statute, section 4600, R. S. 1899; Ann. Stat. 1906, p. 2499, which was construed in Kegan v. Haslett, supra, has been carried forward into the revision of 1919, being section 2213, R. S. 1919. It is equally clear from the authorities that this doctrine obtains notwithstanding the “ Married Woman’s Act.” Frost v. Frost, supra; Stifel's Union Brewing Co. v. Saxy, 273 Mo. 159; 201 S. W. 67; Ashbaugh v. Ashbaugh, 273 Mo. 353; 201 S. W. 72. We are likewise convinced that under the laws of Missouri the deed to H. L. Root and Susie May Root, husband and wife, created in the grantees therein an estate by the entirety. Hume v. Hopkins, 140 Mo. 65; 41 S. W. 784; Wilson v. Frost, 186 Mo. 311; 85 S. W. 375; Holmes v. Kansas City, 209 Mo. 513; 108 S. W. 9; Burke v. Murphy, 275 Mo. 397; 205 S. W. 32; Traw v. Heydt (1919), 216 S. W. 1009; Elliott v. Roll (1920), 226 S. W. 590. These decisions and others which have been brought to us leave no doubt in our minds that from the earliest days down to the time of the death of Henry L. Root the doctrine of estates by the entirety and the legal consequences flowing therefrom obtained and constituted a rule of real property in that State.

We now inquire as to the effect of a rule of property, established by the laws and decisions in a State, on a Federal court, in determining an issue arising out of the same state of facts. The petitioner contends that the laws and decisions of the State of Missouri defining and determining an estate by the entirety and the legal consequences flowing therefrom, constitute a rule of property in that State which is binding upon the Federal courts in the determination of the same question. Her contention is borne out by the highest authority.

In Jackson v. Chew, 12 Wheat. 153, 161-169, the court said:

After such a settled course of decisions, and two of them in the highest court of law in the state, upon the very clause in the will now under consideration, deciding that Joseph Eden did not take an estate-tail, a contrary decision by this court would present a conflict between the state courts and those of the United States, productive of incalculable mischief. If, after such an uninterrupted scries of decisions for twenty years, this question is not at rest in New York, it is difficult to say, when any question can be so considered. And it will be seen, by reference to the decisions of this court, that to establish a contrary doctrine here, would be repugnant to the principles which have always governed this court in like eases. * * *
* * * This court adopts the state decisions, because they settle the law applicable to the case; and the reasons assigned for this course, apply as well to rules of construction growing out of the common law, as the statute law of the state, when applied to the title of lands. And such a course is indispensable, in order to preserve uniformity; otherwise, the peculiar constitution of the judicial tribunals of the states and of the United States, would be productive of the greatest mischief and confusion.
* * * And whether those rules of land titles grow out of the statutes of a state, or principles of the common law adopted and applied to such titles, can make no difference. There is the same necessity and fitness in preserving uniformity of decisions in the one case as in the other. * » *
* * * After such a series of adjudications for such a length of time, in the state courts, upon the very point now before us, and relating to a rule of landed property in that state, we do not feel ourselves at liberty to treat it as an open question.

The same court in Suydam v. Williamson, 24 How. 427, 433-434, approved this doctrine and quoted from Jackson's case, supra, as follows:

The inquiry is very much narrowed by applying the rule which has uniformly governed this court, that where any principle of law establishing a rule of real property has been settled in the State courts, the same rule will be applied by this court that would be applied by the State tribunals.

Mr. Justice Story, in United States v. Crosby, 7 Cr. 115, 116, said:

The question presented for consideration, is, whether the lew loei contractus or the lew loot rei sites is to govern, in the disposal of real estates. The court entertain no doubt on the subject; and are clearly of opinion, that the title to land can be acquired and lost only in the manner prescribed by the law of the place where such land is situate.

To like effect the Supreme Court, in Clarke v. Clarke, 178 U. S. 186, 191, quoting from DeVaughn v. Hutchinson, 165 U. S. 566, 570, said:

It is a principle firmly established that to the law of the State in which the land is situated we must look for the rules which govern its descent, alienation and transfer, and for the effect and construction of wills and other conveyances.

To the same effect see the recent decision in United States v. Title Insurance & Trust Co., 265 U. S. 472, 486. Many decisions of the Supreme Court affirming this principle are to be found.

Decisions of Federal courts inferior to the Supreme Court are to the same effect. The District Court for the Northern District of California, in deciding Blum v. Wardell, 270 Fed. 309, at p. 313, said:

The plaintiffs further contend that this court is not bound by the construction placed upon the laws of California by the highest court of the state. With this contention I am unable to agree. The federal tax is imposed on the transfer of the net estate, and, whether there is a transfer upon the death of the husband depends upon the statutes and rule of decision in the state where the parties reside and the property is situate. (Italics ours.)

The Circuit Court of Appeals, Ninth Circuit, affirming the decision of the District Court (276 Fed. 226) went further and held that if the law of the State determined that, for purposes of the State inheritance tax there was no transfer, that determination is binding on the Government for purposes of Federal estate tax. In that case the Supreme Court denied the Government’s petition for a writ of certio-rari. To the same effect see First National Bank v. Obion County, 3 Fed. (2d) 623, 626-627; Bellamy v. Pitts, 4 Fed. (2d) 523, 525 (C. C. A., Fifth Circuit). In view of these decisions, we conclude that our consideration of the issue in the instant case must be in the light of the law and decisions of the State of Missouri in respect of estates by the entirety.

We turn, then, to the decisions of the courts of Missouri, which may be regarded as stating not merely a rule of law but also a rule of property in that State, to determine what those rules are with respect to estates by the entirety. In Gibson v. Zimmerman, 12 Mo. 385, it is stated that husband and wife are the only persons who can be tenants by the entirety; that this tenancy must be created or take effect during coverture, and owes its qualities to the unity of the persons of husband and wife. The court states that it is well settled, that if an estate be given to a man and his wife, they take, neither as joint tenants, nor as tenants in common, for, being considered as one person in law, they can not take by moieties, but both are seized of the entirety, the consequence of which is that neither of them can dispose of any part without the assent of the other, but the whole goes to the survivor.

In Garner v. Jones, 52 Mo. 68, the court held that in the case of an estate by the entireties there was no survivorship as in joint tenancies, but a continuance of the estate in the survivor as it originally stood. The only change by death was in the person, not in the estate. Before death both spouses constituted one person holding the entire estate, and after the death of either, the survivor remained as the only holder of the entire estate. This case was quoted with approval in Stifel's Union Brewing Co. v. Saxy, 273 Mo. 159; 201 S. W. 67, 68.

In Frost v. Frost, supra, the Supreme Court of Missouri said:

Washburn, speaking of estates in entirety, says: “But, if the estate is conveyed to them originally as husband and wife, they are neither tenants in common nor properly joint tenants, though having the right of survivorship, but are what are called ‘tenants by entirety.’ While such estates have, like a joint tenancy, the quality of survivorship, they differ from that in this essential respect, that neither can convey his or her interest so as to affect the right of survivorship in the other. They are not seized, in the eye of the law, of moieties, but of entireties.” 1 Washburn, R. P. (6th Ed.) p. 562. The common-law doctrine of estates in entirety is the law of this state. Hall v. Stephens, 65 Mo. 670, 27 Am. Rep. 302; Bank v. Fry, 168 Mo. 492, 68 S. W. 348. The test-writer last above quoted, on the same subject, adds that on the death of either the survivor does not acquire a new title, but holds only the same title which he or she took in the beginning, freed of the contingency.

The decisions of the courts of Missouri are replete with utterances in line with those just given, but the law of that State is exhaustively treated and seems to be well summarized in the recent cases of Stifel's Union Brewing Co. v. Saxy, supra (decided in 1918), and in Ashbaugh v. Ashbaugh, supra (decided in 1918). In the former case the court said:

Warvelle on Real Property, §111, says:
“ It differs from the estate of joint tenancy in that joint tenants take by moieties and at the same time are each seized of an undivided part of the whole. In the estate by entirety neither tenant is seized of a part, or moiety, hut both of them have the entire estate, and as this involves in itself a physical impossibility in the ease of ordinary individuals it necessarily follows that effect can only be given to the grant by regarding both tenants as constituting but one person. But this, in fact, is just what the law does, and as this unity of person is never recognized save in the case of husband and wife, the estate by entirety is confined exclusively to persons within the marriage relation.”
* * * * * * *
“Both would therefore be seized of the entire estate; neither could dispose of any part of same without the assent of the other, and upon the death of either the whole estate would remain in the survivor. In this latter respect while the right of survivorship gives to the estate an apparent resemblance to joint tenancy, it yet differs materially from joint tenancy, for the survivor succeeds to the whole not by the right of survivorship simply, as is the case with joint tenants, but by virtue of the grant which vested the entire estate in each grantee, or, in contemplation of law, in one person with a dual body and consciousness.”
Stewart says (section 306) :
“ On the death of either, the other has the whole estate, continuing alone his or her former holding, and not taking by survivorship in the sense that a surviving joint tenant does.” (Italics ours.)

The court then, after quoting with approval from Garner v. Jones, supra, continues:

In Thornton v. Thornton, 3 Rand. (Va.) 179, it was said:
“ But husband and wife have the whole from the moment of the conveyance to them; and the death of either cannot give the survivor more.”

In Ashbaugh v. Ashbaugh, supra, the court said:

An estate by the entireties is created by a conveyance to the husband and wife by a deed in the usual form. It is one estate vested in two individuals who are by a fiction of law treated as one person, each being vested with entire estate. Neither can dispose of it or any part of it without the concurrence of the other, and in case of the death of either the other retains the estate. It differs from a joint tenancy where the survivor succeeds to the whole estate by right of the survivorship; in an estate by entireties the whole estate continues in the survivor. The estate remains the same as it was in the first place, except that there is only one tenant of the whole estate whereas before the death there were two. (Italics ours.)

That the rule obtaining in the State of Missouri is the general and accepted rule of the common law is evidenced by the opinion of Mr. Chief Justice Fuller, in Hunt v. Blackburn, 128 U. S. 464, 469, wherein he said:

Undoubtedly, at common law, husband and wife did not take under a conveyance of land to them jointly, as tenants in common or as joint tenants, but each became seized of the entirety, per tout, et non per my; the consequence of which was that neither could dispose of any part without the assent of the other, but the whole remained to the survivor under the original grant.

The fact that the husband pays with his own funds for the land taken by him and his wife as tenants by the entirety, does not make any difference. They become thereby owners by the entirety. Elliott v. Roll, supra; Bender v. Bender, 281 Mo. 473; 220 S. W. 929.

The Commissioner’s position is simply stated. It is, in effect, that the statute requires that to the extent of his interest therein held as tenants by the entirety by the decedent and any other person, the value of such interest shall be included in the value of the gross estate, and that in view of this requirement the value of the property in question here must be so included. Let us examine this matter closely.

The provisions of law under which this controversy arises are sections 401 and 402 of the Revenue Act of 1921, which, so far as material here, are as follows:

Sec. 401. That, in lieu of the tax imposed by Title IV of the Revenue Act of 1918, a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 403) is hereby imposed upon the transfer of the net estate of every decedent dying after the passage of this Act. * * *
Sec. 402. That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated.
* * * * * * *
(d) To the extent of the interest therein held jointly or as tenants in the entirety by the decedent or any other person. * * *

It will be noted that the imposition of the tax is upon the transfer ” of the net estate of the decedent. This is conformable to the language of the Supreme Court in Knowlton v. Moore, 178 U. S. 41, 56, wherein, after an exhaustive review of the subject of death duties, Mr. Justice White said:

* * * Although different modes of assessing such duties prevail, and although they have different accidental names, such as probate duties, stamp duties, taxes on the transaction, or the act of passing of an estate or a succession, legacy taxes, estate taxes, or privilege taxes, nevertheless tax laws of this nature in all countries rest in their assent upon the principle that death is the generating source from which the particular taxing power takes its being and that it is the power to transmit, or the transmission from the dead to the living, on which such taxes are more immediately rested.

If, as the statute provides and the Supreme Court holds, the tax is imposed on a “ transfer ” from the dead to the living, there remains for determination the sole question of what was transferred by the decedent, H. L. Root, to his wife. The rule of the common law as to estates by the entirety is clear, and the application of the rule in the State of Missouri is no less so, that there is no transfer of interest or estate to the survivor on the death of either spouse. This is necessarily so because each took the whole estate by the original grant by reason of the unity of person existing under the marriage relation. The death of one spouse added nothing to the interest or estate of the survivor. The conclusion is, therefore, irresistible that there was not a transfer of any estate from H. L. Root to Susie M. Root. The effect of the Commissioner’s proposed action would be to tax the executrix on an alleged transfer to her of property which, as we have seen from the rule of property established in Missouri, has not and can not be transferred to the executrix by, or because of, the death of the decedent, and which property, as we have seen, belonged to Susie May Root in her own right, both before and after the death of her husband. In other words, the effect of the Commissioner’s proposed action would be to make the estate of the decedent pay an estate tax for the transfer of property to Susie M. Root which was always hers and which was not transferred to her by her husband at any time.

It is argued that what this statute taxes is not necessarily the interest or estate to which Susie M. Root succeeded on the death of her husband, or the interest or estate transferred to her thereby, but that it is the interest of the decedent which ceased by reason of his death. This point has been raised in other similar cases. The Circuit Court of Appeals, speaking to this point in Lynch v. Congdon, 1 Fed. (2d) 133, 135, said:

* * * It is the theory of the plaintiff in error that the tax is not upon the transfer of property included in the gross estate, but upon the cessation of decedent’s interest in these deposits; that it is not a question of transfer from a joint depositor to the surviving joint depositor; that there is in fact no such transfer, each depositor being an owner of the entire interest in the entire property during their joint lives, and therefore there is no passing of property from decedent to the survivor, but merely a cessation of decedent’s interest in the property; that such property is the same as any other property, and that Chester A. Congdon had the entire interest in the same, and that it ceased by reason of his death. However interesting and debatable as a matter of first impression this theory may be, we think consideration of it foreclosed by the decision of the Supreme Court of the United States in Shwab v. Doyle, 258 U. S. 529, 42 Sup. Ct. 391, 66 L. Ed. 747, 26 A. L. R. 1454 and companion cases.

We do not find that it has been held that an estate tax was or could be a tax on an interest which was annihilated at death. The decedent could not transmit, transfer or devise to someone else at his death such interest as he had in the real estate here in question. At his death his interest was reduced to nothing; it was as if it had never existed. It was annihilated — wiped out. In our opinion, cases like Y. M. C. A. v. Davis, 264 U. S. 47, and Edwards v. Slocum, 264 U. S. 61, are inapplicable, for there it was held that, where there has been a transfer to the executor, the residuary legatee may have to pay a tax more logically assessed against primary legatees.

In a recent decision of the Court of Claims in Blount v. United States, 59 Ct. Cl. 328, the court considered the same point and, at p. 346, said:

In a late case it is said that what this law taxes is not the interest to which legatees or devisees succeeded on death, but the interest of the decedent which ceased by reason of his death. See Y. M. C. A. v. Davis, 264 U. S. 47. But this does not mean that the tax is upon an estate which ceases by reason of the death. It would hardly be contended that this statute imposes a tax on an estate for life held by one at the time of his death on the theory that the tax is upon an interest which ceases by reason of the death. It was said by Mr. Justice White, in Knowlton v. Moore, 178 U. S. 41, 57: “ Confusion of thought may arise unless it be always remembered that, fundamentally considered, it is the power to transmit or the transmission or receipt of property by death which is the subject levied upon by all death duties.” The tax here is upon the transfer of an estate which passes from the decedent, and is not upon an estate which ceases with his death.

In the Blount case the court was speaking of an estate by the entirety. In that case the facts were in all material respects on all fours with those in the instant case. The only essential difference between the two cases is the fact that in the Blount case the grant of the estate by the entireties took place before the enactment of the statute under which the tax was sought to be imposed, while in the instant case the grant was made after the enactment of the Revenue Act of 1921 under which this controversy arises. In the Blount case the decision was not, however, made to turn on that point. After discussing the application of the doctrine of estates by the entirety in the District of Columbia, where that case arose, in connection with the Revenue Act of 1916, the terms of which are essentially identical with those of the Revenue Act of 1921 in so far as they relate to the subject matter here, the court concluded:

It follows that the tax should not be assessed against the estate of tenants by the entirety because the wife did not take as upon a transfer from the husband at his death, but took under the original grant, his estate ceasing.

In the Blount case an appeal was taken to the Supreme Court of the United States, but when the case came on for argument the appeal was dismissed on the motion of the Solicitor General. In our opinion the conclusion of the Court of Claims above quoted was the correct conclusion. We are unable to distinguish it in principle from the instant case. In our opinion the fact that the conveyance of the land in question here was made to H. L. Root and his wife subsequent to the enactment of the Revenue Act of 1921 does not alter the case.

The argument is made that it is within the power of Congress to tax the value of such an estate as is here under consideration. It is argued that while in United States v. Field, 255 U. S. 257, the court held that the existence of a power of appointment does not of itself vest any interest in the donee in the appointed estate, which may be .included as a part of the deceased donee’s gross estate, that nevertheless, the decision of the court was made to turn on the point that, in the statute under consideration in that case, there was not an express purpose to tax property passing under a general power of appointment exercised by a decedent had such a purpose existed. It was further argued that the court there left the question open as to what the rule would be in a case wherein the grant was executed subject to the passage of an act specifically including such property in the gross estate. From this it is argued that, in the instant case, Congress had specifically provided for the inclusion as a part of the gross estate of the interest held by decedent as tenants by the entirety with his wife or any other person, and that it was within the power of Congress so to provide.

To our minds, this argument is beside the point. We choose rather to look to what Congress has provided, than to what it might have provided. We are impressed with the fact that each case before us carries within itself its full burden of difficulties, and we prefer to bear these than to fly to others which may be highly interesting and, under a different statute, worthy of the gravest consideration. We opine that we have fulfilled our duty in a case when we confine our views to the given situation and render a decision on that alone.

Section 401 of the Revenue Act of 1921 contains the only provision where an estate tax is imposed. That section is the imposing clause of the Federal estate tax. There is no such tax imposed by any other section. Section 402 provides the method of determining the value of the gross estate out of which the net estate (determined as provided in section 403) is evolved. When the value of the net estate is determined, the basis of the tax is found. But before the net estate can be used as a basis for such a tax it must have been transferred by the decedent at his death. The section which imposes the tax, the only section which does so, provides that “ a tax * * * is hereby imposed upon the transfer of the net estate of every decedent * * Rote that the tax is not upon the net estate. If it were, we would have a different question to decide, but, as we have said, we are now considering only what is provided by the statute. Since Congress has imposed the tax on the transfer of a certain estate, the whole argument and the conclusions therefrom must rest on the premise that there was a transfer. The first step to be taken, then, is to determine if there was a transfer of something. If there was, then the next step is to determine what was transferred and the value thereof. On the other hand, if it be determined that nothing was transferred, then the conclusion is both logical and irresistible that there is nothing on which to impose a tax. If the estate in question was not transferred, it becomes unnecessary and even absurd to attempt to find the value of a nonexistent element. Sections 402 and 403 enumerate the elements entering into the value of the estate and provide the method for measuring that value. If a given estate is transferred, it becomes necessary to determine its value, and at that point it may be important and interesting to consider whether Congress had acted within the scope of its power and authority in providing for its inclusion among the elements going to make up that value. But, as we have said, if it be first determined that at his death the decedent did not transfer a given estate, the question as to whether Congress might have taxed its value if it had been transferred becomes a moot question and unnecessary of decision. We have shown heretofore that the estate by the entirety held by decedent and his wife, prior to the former’s death, was not transferred by his death to anyone. Since it was not so transferred, no tax is imposed by the statute in respect of it, and it becomes unnecessary to discuss its value or the power of Congress to predicate a tax on the inclusion of its value in the decedent’s estate.

The statute imposes on this Board the duty of redetermining de novo the correct deficiency involved in any proceeding properly brought before it. If, in our opinion, the deficiency proposed to be collected by the Commissioner is not a correct and -proper deficiency, we conceive it to be our duty to so determine. It is our opinion that the deficiency proposed here is not a correct or proper deficiency and we so hold.

Judgment will be entered for the petitioner after 15 days’ notice, under Rule 50.

Moeeis, Sternhagen, and Milliken concur in the result only.

Green:

I am able to concur in the result only. To me, it appears that the constitutionality of the Act is involved and should have been decided.

Love,

dissenting: I do not agree with the argument used in the opinion in this case, nor do I agree with the conclusions of law announced therein.

The Revenue Acts of 1918, 1921, 1924, and 1926, prescribe that for estate-tax purposes, the gross estate of a 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. I have found no theory advanced nor any opinion of a court holding that at the time of his death the decedent owned no property right in real estate held by him as tenant in the entirety. Having conceded that premise, it follows that the statute prescribes that the value of such property must be included in his gross estate. With slight variation in verbiage the acts above referred to specifically include in the gross estate any interest held by the decedent as tenant in the entirety.

Section 403 of the 1918 and 1921 Acts and section 303 of the 1924 and 1926 Acts prescribe that the net estate shall be determined by deducting from the value of the gross estate funeral expenses, administration expenses and certain claims against the estate. Hence, it is perfectly apparent that Congress intended that the value so obtained should be included in the net estate.

Sections 401 and 301 of the respective acts above referred to prescribe that:

A tax equal to tlie sum of the following percentages of the value of the net estate (determined as provided in section 303 [403]) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this act.

It is therefore perfectly apparent that Congress intended to include such property in the net estate and burdened itself with special effort to so express that intent, and intended to levy a tax on it. To hold that the value of such property must be excluded from the gross estate or the net estate, or that it is not subject to estate tax is, to all intents and purposes, a holding that those acts are unconstitutional. I do not believe that they are unconstitutional. The Supreme Court has not so held. I fully understand the position taken, that is, let the value of that property go into gross estate; let it form a part of the net estate. But they contend that it is not transferred and that section 301 levies a tax only on the transfer.

It occurs to me that such a view restricts the import and use of the word “ transfer ” entirely too much. A transfer, may be accomplished by operation of law. Did the surviving wife have anything after the death of her husband, which she did not have prior to his death? It is the recognized law of tenancy by entirety that neither spouse may alienate the property without being joined by the other. This lack of power to alienate any part of the property evidences beyond question the lack of a fee simple title in either spouse. The right and power to alienate is a sme qua non of a fee simple title. After the death of the husband, the wife may alienate the property, that is, by the death of the husband the fee simple title to the property passed to her.

It is the rule in most, if not all of the States that recognize tenancy by the entirety, that during coverture the husband and the wife each is entitled to one-half the rents and profits coming from such real estate. After the death of one spouse, the survivor is entitled to the whole profits. In the event of dissolution of the marriage relation otherwise than by death, each is entitled to the property in proportion to contribution to purchase price. Elliott v. Roll, 226 S. W. 590. Briefly stated, the law governing tenancy by the entirety as applied by the courts of the several States where that tenancy is recognized is that, with respect to every incident of property ownership, save and except the right to alienate, the husband and the wife each, is treated as a separate entity. When they desire to alienate the property, the myth that was created by law, the myth of the idea of the oneness of husband and wife, must act by and through the joint action of both.

By the dissolution of the marriage relation the myth dies, and the title theretofore held by that myth passes, in the event of death, to the survivor, in the event of divorce, to each, in proportion to contribution to purchase price of the property. Does nothing pass at death of one spouse, by operation of law, to the survivor? Is nothing transferred? During coverture, where the husband and wife make separate income-tax returns, who returns the rents and profits from the real estate so held as tenants by the entirety? Will each be required to return the whole? Will either return the whole and the other return no part of same? If so, the one who suffers a loss will avail himself of that right in order to offset such profit against his loss. Will not each return one-half of such income? An affirmative answer to the last question is an irrefutable declaration that each in his own right as a separate entity owns and holds a half interest in that property, with all the incidents of property ownership except the right to alienate the same.

The legal myth holds the legal title to the fee.’ On the death of one spouse, the fee simple title passes, is transferred by operation of law from the myth to the survivor, and with the passing of that fee simple title there passes all the property rights theretofore held by the decedent, which property rights the statute demands shall be included in the gross estate and net estate of the decedent, and shall be subject to the estate tax.

I realize the fact that the few decisions, directly in point, that have been handed down by our courts are, seemingly, against my theory and contentions, but the Supreme Court has not yet passed upon this question and, until that court finally determines the controversy, I feel that I am justified in recording my views.

I desire also to state that I have purposely refrained from burdening this opinion with a citation of authorities. Every individual proposition of law announced herein is amply supported by court decisions. It is only the final conclusion of law that is not supported by such decisions.

I believe the determination of the Commissioner should be approved.