Court Opinion

ID: 6861456
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:49:06.683224+00
Date Added: 2024-06-11T16:05:15.135247
License: Public Domain

AUGUSTUS N. HAND, Circuit Judge
(concurring in part).
During the calendar year 1923, succeeding the death of plaintiff’s father on February 18, 1923, he received $59,595.62 from the executors of the father’s will on account of income'accrued under a trust of the residuary estate bequeathed for his benefit. In the same year the executors paid $60,000 on account of the New York transfer tax upon the entire estate. They made an income tax return for the portion of 1923 after the testator’s death on form 1040, in which they charged the estate with $73,374.67 gross income and claimed as deductions:
Interest paid.................... $ 7,291.39
New York transfer tax........... 60,000.00
Loss of principal................ 17,729.11
$85,020.50
This left no balance of income.
The plaintiff did not include the item of $59,595.62 in his individual income tax return and was assessed a deficiency because of its noninelusion and compelled to pay a tax thereon which he sought to recover in this action. The court below allowed recovery on the ground that the item had been once included in a return properly made by the estate and that it therefore could not be used again as a taxable part of the plaintiff’s income. I agree that the court was in error because the record does not disclose what, if any, part of. the income distributable to plaintiff was subjected to the payment of the $60,000 transfer tax or what part of that tax was attributable to plaintiff’s legacy under the will rather than to the testator’s estate as a whole. This alone made the conclusion reached by the court without any adequate basis.
Under section 219 (e) of the Revenue Act of 1921 (42 Stat. 246), where fiduciaries have paid the income tax, they may deduct the income properly paid or credited to the beneficiary. But the fiduciaries did not deduct the $59,595.62 of income paid to the beneficiary in their return. If and to the extent that they had properly done so, the income would be taxable to the beneficiary. If, as here, they had not done so, it would be tax free provided it had been shown to be properly part of plaintiff’s income and subject to proper tax deductions on his behalf.
The provision of section 219 (d) which requires the income tax to be paid by the beneficiary only seems to relate to cases where the fiduciary has not made the payment under section 219 (c) upon income accruing during the period of administration.
Upon a new trial the court should determine to what extent the transfer taxes paid were payable upon plaintiff’s legacy, and to that extent, and to that extent only, his income would be free.