Case Name: J. Percival Smith and Claude Hamilton, Executors, Estate of James P. Smith, Petitioners, v. Commissioner of Internal Revenue, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1927-04-19
Citations: 6 B.T.A. 911
Docket Number: Docket No. 7750
Parties: J. Percival Smith and Claude Hamilton, Executors, Estate of James P. Smith, Petitioners, v. Commissioner of Internal Revenue, Respondent.
Judges: 
Reporter: Reports of the United States Board of Tax Appeals
Volume: 6
Pages: 911–913

Head Matter:
J. Percival Smith and Claude Hamilton, Executors, Estate of James P. Smith, Petitioners, v. Commissioner of Internal Revenue, Respondent.
Docket No. 7750.
Promulgated April 19, 1927.
Charles J. McDermott, Esq., for the petitioners.
John F. Greaney, Esq., for the respondent.

Opinion:
OPINION.
Milliken :
Section 401 of the Bevenue Act of 1918, imposes a tax " upon the transfer of the net estate of every decedent," dying after the passage of the Act. Section 402 sets forth what is included in the gross estate. Section 403 provides the method of ascertaining the net estate by allowing certain deductions from the gross estate. Subdivision (1) of paragraph (a) of that section, grants the following deduction: " Such amounts for administration expenses as are allowed by the laws of the jurisdiction under which the estate is being administered
Under the decisions of the courts of New York, double commissions are allowable to the same persons acting as executors and trustees under the same will, only when they have terminated their duties as executors and have entered upon their duties as trustees. Olcott v. Baldwin, 190 N. Y. 99; 82 N. E. 748, and cases cited. Thus the courts of New York recognize that the executors of a will and the trustees of a testamentary trust created by the same will, represent distinct and separate entities.
While the New York Courts have held that, in ascertaining the value of transfers under the state inheritance tax law, the commissions of trustees, in situations similar to this case, should be allowed as deductions in the nature of administration expenses, see In re Vanneck's Estate, 175 App. Div. 363; 161 N.Y.S. 893; In re Nichols' Estate, 120 Misc. 228; 198 N.Y.S. 896; In re Moller's Estate, 110 Misc. 184; 179 N.Y.S. 768; In re Garcia's Estate, 101 Misc. 387; 167 N.Y.S. 168; In re Shields' Estate, 68 Misc. 264; 124 N.Y.S. 1003, a reading of the cases discloses that the deduction was made in each case, not from the gross estate of the decedent but from the trust fund. In this case, no part of the trustees' commissions was paid by the executors out of the gross estate of the testator, but the whole amount was paid by the trustees to themselves, out of the trust estate.
No case has been cited and none has been found which holds that in New York commissions of trustees are a part of the administration expenses of a decedent's estate. What has been decided is that such commissions are deductible under the New York inheritance tax statute, which prescribes a method of computing the tax quite different from that provided by the Kevenue Act of 1918. The tax imposed by section 401 of that Act attaches to the estate before distribution, and with certain exceptions which it is not necessary to enumerate, is a tax upon the estate as a whole. Section 403 should be read in connection with section 401 and section 402. The deductions allowed by section 403 are those which pertain to the estate, the transfer of which is taxed by section 401 and which is described in section 402. That estate is the estate of the decedent and the " administration expenses " mentioned in section 403 are those expenses which are incurred in transmitting that estate to the beneficiaries, one of which, in this case, is the trust. The deductions allowed by section 403 are those which, under the state law, affect the estate as a whole and as a distinct entity. Cf. New York Trust Co. v. Eisner, 256 U. S. 345, and Keith v. Johnson, 271 U. S. 1.
We find no error in the action of the respondent in refu&ing to permit the petitioners to take as a deduction the commissions of the trustees, which were not paid by them as executors nor out of the corpus of the estate.
Judgment mil be entered on 10 dayI notice, under Bule 50.