Court Opinion

ID: 4634518
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:16:11.306176+00
Date Added: 2024-06-11T07:59:21.040859
License: Public Domain

MARSHAL STEARNS, ANCILLARY ADMINISTRATOR OF THE ESTATE OF CARL RICHARD HIERONYMUS, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Stearns v. CommissionerDocket No. 48930.United States Board of Tax Appeals24 B.T.A. 269; 1931 BTA LEXIS 1664; October 6, 1931, Promulgated 1931 BTA LEXIS 1664">*1664  Where a fiduciary properly paid or credited to the beneficiaries during the year all income from the estate and any income which he received was to be distributed currently to the beneficiaries, the estate is not liable for any tax as a taxpayer.  L. L. Hamby, Esq., for the petitioner.  Eugene Harpole, Esq., and Edwin M. Niess, Esq., for the respondent.  MURDOCK 24 B.T.A. 269">*269  The Commissioner determined a deficiency of $22,514.50 in the petitioner's income-tax liability for the calendar year 1928.  The petitioner assigned the following errors: 24 B.T.A. 269">*270  Respondent erred in determining, finding and computing the aforesaid deficiency as though the estate of the aforesaid decedent were the estate of a resident or citizen of the United States, whereas the said estate was that of a nonresident alien.  Respondent erred in determining and finding that there was any net income or capital gain of petitioner for the calendar year 1928 subject to taxation under the provisions of the Revenue Act of 1926 as amended by the Revenue Act of 1928 by virtue of the receipt by him of any moneys or property or by virtue of the sale of any property.  Respondent erred1931 BTA LEXIS 1664">*1665  in determining, finding and computing the aforesaid deficiency in whole or in part upon the basis of any profit of your petitioner during the calendar year 1928 from the sale of capital assets and upon the basis of any capital net gain of your petitioner, during the said year, upon the sale of any property.  Respondent erred in disallowing as a deduction in computing the aforesaid deficiency the sum of $45,744.07 constituting fees charged to and paid by petitioner for services performed in respect of the acquisition of certain moneys and property, hereinafter mentioned, from the Alien Property Custodian; and for expenses in respect of the qualifying of your petitioner as ancillary administrator and for expenses of administering the estate in his hands as such ancillary administrator.  FINDINGS OF FACT.  The petitioner, a citizen of the United States, residing in New Canaan, Conn., is and has been since his appointment on November 10, 1925, the duly appointed and qualified ancillary administrator of the estate of Carl Richard Hieronymus, who died testate a resident and citizen of the German Empire on December 23, 1918.  The will of the decedent, duly admitted to probate in Germany, 1931 BTA LEXIS 1664">*1666  made bequests amounting to $6,000 to certain individuals and organizations in the United States and gave all of the rest of the estate to the three sisters of the decedent or their issue.  On or about January 31, 1918, the Alien Property Custodian of the United States seized certain securities, consisting of stock and bonds, belonging to Carl Richard Hieronymus.  The petitioner was appointed ancillary administrator c.t.a. at the instance of the beneficiaries under the will for the purpose of recovering the securities for the estate and of administering the estate if any recovery were made.  In the latter part of 1928 the petitioner finally succeeded in recovering a large part of the principal of the seized property and certain income.  He received from the Alien Property Custodian about $140,000 in cash and securities having a value of about $440,000 at that time.  In 1928, shortly after the petitioner received these securities, he sold most of them for $428,473.21 in cash.  On December 13, 1928, he filed his account in the surrogate's court which had appointed him.  This was a complete accounting for the period from his appointment to November 22, 1928, and covered all of the transactions1931 BTA LEXIS 1664">*1667  here in question.  Legacies in the total amount of $48,999.97 24 B.T.A. 269">*271  had been paid and assets valued at $492,011.84, consisting of $473,943.34 in cash, 100 shares of Studebaker Corporation preferred stock valued at $12,475, 43 shares of Consumers Company preferred stock valued at $4,493.50, and $2,000 par value of bonds valued at $1,100, were on hand for distribution.  In this account he showed the name of each beneficiary, the extent of the interest in the estate of each and the approximate or exact amount of the available funds to which each was entitled.  On May 24, 1929, this account was approved, distribution was ordered of all save $50,000 reserved for State and Federal taxes, and the administrator discharged as to all funds distributed.  The court directed that the Studebaker stock and $37,525 in cash be retained for the payment of any additional taxes which might be due.  The petitioner filed an income-tax return for 1928 on Form 1040, showing a loss and no tax due.  A schedule was attached to this return showing the sales of securities for $428,495.71, but the small net profit from these sales was computed by deducting the value of the securities on the dates received1931 BTA LEXIS 1664">*1668  from the Alien Property Custodian from the sales price.  In determining the deficiencies, the Commissioner computed a profit of $191,645.55 from these sales, based on the value of the securities at the date of decedent's death.  He also refused to allow a deduction of $45,744.07 representing a fee of $45,000 and expenses paid by the petitioner to his attorneys in 1928 for all services and expenditures up to and including the distribution above mentioned.  From the gain of $191,645.55 he subtracted a corrected net loss of $11,388.31 to arrive at corrected net income.  OPINION.  MURDOCK: The petitioner is a fiduciary.  The beneficiaries had him appointed for the purpose of recovering property from the Alien Property Custodian and of distributing the net proceeds to them.  There was no trust or other instrument directing him to retain or withhold any part of what he received beyond that necessary to defray expenses and charges on the estate.  In computing and reporting the net income of the estate for income-tax purposes, the petitioner was entitled to deduct the amount of the income for the taxable year which was to be distributed currently by the fiduciary to the beneficiaries and/or1931 BTA LEXIS 1664">*1669  the amount of the income for the taxable year which he properly paid or credited during the year to any beneficiary.  Section 162(b) and (c) of the Revenue Act of 1928.  Here the petitioner properly paid or credited during the year, to those entitled, all of the funds which reached his hands except 100 shares of Studebaker stock and $37,525 in cash.  There was sufficient 24 B.T.A. 269">*272  corpus in the estate to pay all disbursements save the distributions to which the beneficiaries were entitled and practically all such disbursements were properly payable out of the corpus of the estate.  The Studebaker stock was corpus and not income.  Unless we hold that some part of the $37,525 cash in excess of the net loss was income, there is obviously no tax due from the estate for 1928 for, except for any income in the $37,525, the petitioner properly paid or credited during the year to the beneficiaries, all income for the year and any income which he received was to be distributed currently to the beneficiaries.  If some allocation of the $37,525 between corpus and income should be made, the part representing undistributed income would be offset by the net loss of $11,388.31 and by some considerable1931 BTA LEXIS 1664">*1670  part of the $45,744.07 paid to the attorneys.  Under all of the circumstances we are satisfied, without deciding various other questions raised, that there is no tax due from the estate.  The petitioner may or may not be liable as a withholding agent, but this question is not before us.  Judgment will be entered for the petitioner.