Opinion ID: 6860040
Heading Depth: 1
Heading Rank: 3

Heading: Losses of 1923.

Text: In 1923, the estate paid the federal estate tax on this estate. This resulted in.a net loss to the estate for that year. This loss, the executor seeks to carry f orwaxd into 19-24 (in the amount of $75,100.60l) and 1925 ($521,820.57) under the provisions of section-206 of the act of 1924 (43 Stat. 2.60: [26 USCA § 937 and note]). The Board sustained rejection of these deductions on two-grounds: First, no evidence of loss sustained in 1903'; and, second, even if the amount of loss had been established, it could not be-carried forward-into a subsequent year. The executor contends: First, that a stipulation befox’e the Board withdrew the question of amount of loss and left that to he determined under “Rule 56” and, therefore, only the law question of the px-opx-iety of carrying foxward a loss was before the Boax-d; and, second, that the statute authorized carryingfoxrward of such loss. We need determine only the second contention. The executor properly concedes that the statute providing for carrying forward losses applies only to losses resulting from operation of a business by the taxpayer. Dalton v. Bowers, 287 U. S. 404, 53 S. Ct. 205, 77 L. Ed. 389; Ames v. Commissioner, 49 F.(2d) 853, 854 (C. C. A. 8); Refling v. Burnet, 47 F.(2d) 859, 860 (C. C. A. 8). His contention is that the estate was carrying on a business and that the estate tax is an expense and loss of such business because it is a lien upon all the property of the estate and it is only by paying such tax that the estate and its business can be preserved. It may be conceded that this estate was carrying on a business within the meaning of the statute and that the preservation of the estate and of its business required payment of the tax but that does not meet the statutory requirement that the loss must arise from and out of the operation of the business (see cases last above cited). An estate tax arises from passage of property from a decedent and is upon the privilege of such transfer. Chase Nat. Bank v. United States, 278 U. S. 327, 334, 49 S. Ct. 126, 73 L. Ed. 405, 63 A. L. R. 388; Young Men’s Christian Ass’n v. Davis, 264 U. S. 47, 50, 44 S. Ct. 291, 68 L. Ed. 558; Schuette v. Bowers, 40 F.(2d) 208, 210 (C. C. A. 2); Frew v. Bowers, 12 F.(2d) 625, 626 (C. C. A. 2). It has no legal connection with the operation of a business and cannot arise from or out of such operation. The contention must be denied. See Ames v. Commissioner, 49 F.(2d) 853, 854, 855 (C. C. A. 8) and Refling v. Burnet, 47 F.(2d) 859, 860, 861 (C. C. A. 8). Petition of the Commissioner. The complaint of the Commissioner here is that the Board erred in rejecting his reduction of the salaries, expenses and accountant’s fees claimed as deductions by the taxpayer for the year 1924. In the notice of deficiency the reasons stated by the Commissioner for the disallowance were that a portion of the salaries and expenses was for services on distributed property and a portion of the accountant’s fees was for service in connection with the administration of the estate as distinguished from the business of the estate. The Commissioner now takes the position that he contended before the Board that the reductions in salary and expense items should stand because a portion of the services covered thereby were for administration matters as distinguished from the business of the estate. The Board ruled against the salary and expense reductions because there was no distribution of the estate before 1925. As reflected in the deficiencies ordered by the Board, this seems to have been treated as a ruling on accountant’s fees also. As to salaries and expenses, there is no warrant in the record for the contention that the Commissioner urged before tbe Board the matter of administration service as a ground for the reductions, therefore, we pass that by as not being before us. Obviously, the ground of distributed estate is not sound since there was no distribution of any part of the estate until the following year of 1925. As to accountant’s fees the record is different. The deficiency notice bases the reduction of $1,400.21 (from $2,000.21) “as being administrative work in connection with income tax of decedent and Federal Estate Tax.” The Board made no specific finding or - statement in its opinion regarding’ this item. The entire evidence before the Board on this matter was by the accountant, as follows: “The accountant’s fees for the years 1924 and 1925; noted in the returns, were for services rendered almost altogether in connection with the current affairs of the estate as accountant and income tax advisor and the amounts are set forth in the sixty day letter accompanying the petition. I was engaged during this period, to a considerable extent, in looking over the tax matters of Mr. Hartley, prior to his death, and the final settlement of those old • cases came before the Board of Tax Appeals. I think, largely about 1928, and my services in that connection were paid principally at the conclusion of the contest on those eases.” This evidence is rather confusing, but it does clearly state that considerable time was devoted by the accountant to matters concerned with the income tax of the decedent. Obviously, such services are not deductible from the income of the estate because they relate entirely to matters occurring before there was any such estate and are administration charges against the estate. Since this evidence shows there should be a reduction in this respect and sinee it fails to show that the reduction made by the Commissioner is erroneous, we think the Board erred in denying this reduction. Conclusion. The order of the Board is modified to the extent of reducing the allowable deduction for accountant’s fees for 1924 by $1,40(X2Í and as so modified is affirmed. The cause is remanded to the Board for proceedings in accord with tMs modification.