#### GEORGE NICHOLS AND MARY B. NICHOLS, AS EXECUTORS OF THE ESTATE OF JOHN W. T. NICHOLS, DECEASED, v. THE UNITED STATES1

[No. F-81.

Decided November 7, 1927]

*On the Proofs*

*Income and estate taxes; deceased partner’s earnings paid to Ms estate.*— Wbere the interest of a copartner, who kept his accounts on a cash receipts and disbursements basis, ceased upon his death, his share of commissions, earned by the firm prior to his death but collected thereafter and paid to the executors of his estate, who kept their accounts on the same basis, is a part of his estate and not income thereof subject to the income tax.

*The Reporter's*statement of the case:

*Mr. David A. Embury*for the plaintiffs. *Mr. Henry A. Stickney*and Curtis, *Mdllet-Prevost, Colt*da *Mosle*were on the briefs.

*Mr.*• *Alexander H.*McCormick, with whom was *Mr. Assistant Attorney Generad Herman J. Gallowaty,*for the defendant.

*Mr. Arthv/r W.*Machen, *jr.,*for Safe Deposit & Trust Co., executor, *amicus curiae.*Armstrong, *Alachen <& Alien*were on the brief.

The court made special findings of fact, as follows:

I. John W. T. Nichols died April 25,1920, a citizen of the United States and a resident of the city, county, and State of New York, leaving a will wherein and whereby plaintiffs were named as executors. Pursuant to probate proceedings subsequently had, plaintiffs were duly appointed and qualified and now are the executors of the estate of said decedent.

II. Decedent, prior to and at the time of his death, was a member of a copartnership trading under the firm name and style of Minot Hooper & Co., at No. 11 Thomas Street, New York, which firm operated as selling agents on commission. The articles of copartnership of said firm in effect *242at the time of decedent’s death contained the following provision :

“ In case of the death of any partner, his interest in the partnership shall cease with the last day of the month in which he dies, and his interest in the partnership shall be liquidated and paid over to his estate as fast thereafter as [the proper conduct of the business will allow.”

III. Said partnership, prior to April 25, 1920, and during the lifetime of decedent and while decedent was a member thereof, had, for the account of their principals, sold certain goods, wares, and merchandise on commission.

IY. During the period from April 25, 1920, the date of decedent’s death, to December 31, 1920, the close of the calendar year, said partnership received as commissions earned prior to decedent’s death on sales made prior to his death certain sums of which his distributive share under the partnership agreement amounted to $78,322.36, which said sum of $78,322.36 said partnership paid over to plaintiffs as executors of the said estate.

Y. In computing the Federal estate tax imposed upon the transfer of the net estate of the decedent, John W. T. Nichols, under the provisions of the revenue act of 1918, the Commissioner of Internal Kevenue included in the value of the gross estate the sum of $78,322.36, which sum the said commissioner found and determined to be the value at the date of death of the said decedent’s right under the provision of the partnership contract set forth in Finding II, and such Federal estate tax so computed was duly assessed and paid.

VI. The books of account of decedent and the books of account of plaintiffs as executors of the estate of decedent were kept on cash receipts and disbursements basis.

VII. On or about March 15, 1921, plaintiffs made a return 'of income of the estate of decedent for the period April 25, 1920, to December 31, 1920, and pursuant to rulings of the Treasury Department then in force included in Schedule C of said return as part of the gross income of the estate for said period said sum of $78,322.36. The net income shown by said return after deducting from the total amount *243of gross income, including said $78,322.36, all allowable deductions, was $55,824.39, and the amount of tax thereon was $11,166.69, which tax was assessed and paid to the collector of internal revenue, second district, New York, and in due course of business paid by him into the Treasury of the United States, and the United States has retained and still retains in its Treasury the said sum of $11,166.69, no part of which has been repaid to plaintiffs. If said sum of $78,322.86, representing commissions earned by decedent prior to his death, had not been included in gross income oí the estate there would have been no net income subject to tax and no tax due or payable.

VIII. Thereafter and on or about July 17, 1925, and within the time prescribed by law, plaintiffs duly filed with the collector of internal revenue, New York City, a claim for refund of income taxes in said sum of $11,166.69, and Exhibit B of the petition herein is a true copy of said claim. Said claim was rejected by the Commissioner of Internal Revenue subsequent to the filing of the petition herein and on or about March 18, 1926.

IX. Plaintiffs have complied with all acts of Congress pertaining to the filing of claims for refund and for the recovery of internal-revenue taxes alleged to have been erroneously and illegally assessed or collected or to be excessive or in any manner to have been wrongfully collected. A claim for refund has been duly filed with the Commissioner of Internal Revenue as hereinbefore set forth; more than six months had elapsed since the filing of such claim for refund and prior to the filing of the petition herein, and at the time of the filing of such petition no decision had been made thereon by said commissioner; but since the filing of a petition herein and on or about March 18, 1926, the commissioner rejected said claim. At the time of filing the petition herein five years had not elapsed from the date when said taxes were paid and collected as hereinabove set forth.

The court decided that plaintiffs were entitled to recover the sum of $11,166.69, with interest at the rate of 6 per cent per annum on $2,791.68, part thereof, from March 14, 1921; on $2,791.68, part thereof, from June 14, 1921; on $2,791.68, *244part thereof, from September 14, 1921; and on $2,791.68, part thereof, from December 15, 1921, all to the date of judgment, amounting, principal and interest, to $15,370.06.

1

 Certiorari denied.

Campbell, *OMef*Justice,

delivered the opinion of the court:

This case is before the court upon a report of the facts made and duly filed by a commissioner of the court, to whom it was referred for such report. The facts as reported are accepted by the parties, and are adopted-by the court as special findings of fact.

The executors of the last .will and testament of John W. T. Nichols, deceased, sue to recover certain taxes alleged to have been erroneously or illegally assessed and collected, which the Commissioner of Internal Revenue upon due application refused to refund. At the time of his death the testator was a member of a copartnership operating in New York City as selling agents on commission. The articles of copartnership, among other things, provide that—

> “ In case of the death of any partner, his interest in the partnership shall cease with the last day of the month in which he dies and his interest in the partnership shall be liquidated and paid over to his estate as fast thereafter as the proper conduct of the business will allow.”

The date of decedent’s death is April 25, 1920. While he was a member of the copartnership the firm had performed some services; namely, they had for the account of their principals and on a commission basis secured contracts for the sale of certain goods, wares, and merchandise; and between the dates of April 25 and December 31, 1920, they received on these contracts certain commissions, of which decedent’s distributive share amounted to $78,322.36. Payment of this amount was made to plaintiffs as executors of decedent’s estate. In ascertaining the value of the gross estate for estate-tax purposes the Commissioner of Internal Revenue determined the value of the decedent’s interest in the partnership assets to be $78,322.36, and this amount was’ included in the value of gross estate upon which the estate| tax was assessed by the commissioner and paid by the execu-4 *245tors. In making tbe income-tax return of the estate for the! period between April 25, 1920, and December 31, 1920, the executors included therein the amount received from the! partnership, and did so pursuant to rulings and regulations of the Treasury Department. It thus appears that the one item has been treated as part of the value of the gross estate;' for estate-tax purposes and as part of the gross income of , the estate for income-tax purposes, and the question for decision is whether it can be made to serve in both these capacities. We think the answer must be in the negative. For"j taxation purposes the individual’s income during his life- j time and the income of his estate after his death are distinct; things, the individual and his estate being separate entities, j The taxing statute makes plain this distinction, because section 210 of the revenue act of 1918, 40 Stat. 1062, imposes a normal tax upon the “ net income of every individual,” and section 219 imposes the same rate of tax upon the income of estates, “ including income received by estates of deceased persons ” during the period of administration. Section 401 imposes a tax upon *“*the transfer of the net estate of every decedent ” dying after the passage of the act. This net estate is to be determined (sec. 402) by taking the value of the gross estate of the decedent, including therein “ the j value at the time of his death of all property, real or per-J' sonal, tangible or intangible, wherever situated,” and making' certain authorized deductions. The tax thus imposed upon the transfer of the estate is upon the interest which ceases by reason of the death and is not upon the interest to which legatees and devisees succeed. Y. *M. C. A.*v. *Davis,*264 U. S. 47, 50; *Edwards*v. *Slocum,*264 U. S. 61. An interest thus ceases and the estate interest begins at the time of the death. When, therefore, an item is properly determined to constitute a part of the gross estate of a decedent for estate-' tax purposes it can not by any sort of reasoning be made to, constitute a part of the income of the same estate. It is a • part of the corpus. The income of an estate which the statute taxes is, generally speaking, the income which accrues after the estate begins, and it begins with the decedent’s death. It is, of course, to be recognized that income re*246by him, may have to be returned by his executors or administrators and be taxed as income received by the decedent in his lifetime. As an illustration, let it be supposed that the decedent had realized upon or collected the sum mentioned before his death. It would have been income to him, and taxable as such. See *Eisner*v. *Macomber,*252 U. S. 189, 207; *United States*v. *Phellis,*257 U. S. 156. But if death had then ensued would it be contended that this sum, actually received by the owner before his death, would be income of his estate? The amount, or value of it, less the tax due thereon by him, would be as much a part of the corpus as any other property of which he might die seized or possessed would be. In the instant case the decedent did not receive the amount in question. He did not keep his books on an accrual basis. According to the facts his books of account, as also the books of plaintiffs as executors, “ were kept on a cash receipts and disbursement basis.” In these circumstances the right to receive from the partnership the distributive share to which the decedent was entitled passed at the time of his death to the executors as an asset of the estate, land when the amount was ascertained and paid it became ¡part of the estate, not as income but as corpus. It is not to be presumed that Congress intended to subject the corpus of the estate to double taxation (see *Supplee-Biddle Hardware Co. case,*265 U. S. 189, 195), though income accruing as such to the estate during administration is taxable as income. The contention of the Government that “ there can be no capital in the estate unless that which constitutes the capital item has first been treated as income, either of the decedent or of the estate,” can not be readily accepted, but when this premise is followed by the admission that the plaintiffs “ correctly argue that there was no income to the decedent ” and that, therefore, the distributive share of commissions received from the partnership must be income of the estate, it is manifest that the assumed premise is itself at fault. Í Plainly the amount was part of the assets or corpus of the estate. As already stated, it was so treated for estate-tax ; ¡ purposes.

*247Judgment should be rendered for the tax mentioned, with interest .from the dates of payments of the several installments to the date of judgment. And it is so ordered.

Moss, *Judge;*Graham, *Judge;*and Booth, Judge, concur.

Hat, Judge, absent.