Court Opinion

ID: 4634918
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:17:02.472905+00
Date Added: 2024-06-11T07:58:18.250982
License: Public Domain

E. D. PERRY, AS EXECUTOR OF THE ESTATE OF FRANK O. GREEN, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Perry v. CommissionerDocket No. 88343.United States Board of Tax Appeals37 B.T.A. 734; 1938 BTA LEXIS 995; April 19, 1938, promulgated *995  The amount of a note given by an executor to the widow of a decedent representing an allowance for support during the administration of the estate, does not constitute an amount "actually expended" within the meaning of section 303(a)(1) of the Revenue Act of 1926 and is not therefore a legal deduction from the gross estate.  E. D. Perry, Esq., and C. B. Knobbe, C.P.A., for the petitioner.  James C. Maddox, Esq., for the respondent.  SMITH *734  This is a proceeding for the redetermination of a deficiency in estate tax in the amount of $1,620.73.  The petition alleges that the respondent erred in the determination of the deficiency in disallowing the deduction from the gross estate of 10,000 out of $12,000 claimed for the support of the widow during the administration of the estate.  FINDINGS OF FACT.  The petitioner is the executor of the estate of Frank O. Green, who died a resident of Des Moines, Iowa, on June 23, 1934.  On September 11 the decedent's widow, Daisy A. Green, petitioned the probate court for the sum of $12,000 for her care, maintenance, and support for the first year of her widowhood.  By an order of the court entered*996  the same day it was decreed: * * * that Daisy A. Green * * * is allowed the sum of Twelve Thousand Dollars out of the Estate of Frank O. Green, deceased, for her care, maintenance and support during her first year of widowhood, to be paid by the executor of said estate in equal monthly installments, beginning June 23, 1934, or at such times and in such amounts as may be most convenient to the executor.  The decedent left a net estate as determined by the respondent in the amount of $322,672.81.  The estate consisted principally of real estate which was heavily mortgaged.  The estate had small liquid *735  assets, large tax demands, and debts owing.  The liquid assets were used in the payment of such pressing obligations.  No amount was available immediately to pay to the widow any part of the allowance made for her support by the court.  Up to September 11, 1935, no part of the allowance to the widow had been paid.  On that date the executor made and delivered to the widow a promissory note of the estate of Frank O. Green, deceased, which is in words and figures as follows: $12,000.00 September 11, 1935 On or before two years after date, for value received, I promise*997  to pay to the Order of DAISY ANKENY GREEN TWELVE THOUSAND AND NO/100 DOLLARS With interest at the rate of 4 per cent per annum, payable semi-annually from date and Collection and Attorney's Fees, if suit be instituted on this note.  This note shall draw interest at Eight per cent per annum after due, payable semi-annually, and all overdue interest shall draw interest at eight per cent per annum, payable semi-annually, until paid.  The whole sum shall become due and payable at the option of the holder if interest be not paid within 30 days after due.  Makers, payees, endorsers, sureties and guarantors waive demand of payment, notice of nonpayment, protest and notice of protest of this note.  Any Justice of the Peace shall have jurisdiction of this note up to three hundred dollars.  Widow's allowance as per order of 9/11/34 ESTATE OF FRANK O. GREEN, Dec'd.By E. D. PERRY, Executor.The note was recorded as a liability on the books of account of the estate of Frank O. Green, deceased.  Payments on the note have been made as follows: Date of paymentCheck No.AmountJune 6, 1936207$1,000Oct. 14, 19362471,000Dec. 2, 19362631,000Mar. 5, 1937293250June 30, 1937327400July 26, 1937336 $400Aug. 31, 1937358400Sept. 30, 1937380400Total4,850*998  In the determination of the deficiency the respondent allowed as a deduction from the gross estate $2,000 for the widow's allowance, being the amount actually paid to the date of the notice of deficiency, December 6, 1936, but disallowed the deduction of the balance, $10,000.  In the deficiency notice the reason for the disallowance of $10,000 of the $12,000 claimed for support of dependents is given as follows: A deduction is allowed for widow's allowance in the sum actually paid to date as shown by the present record of this case.  Under the provisions of Section 303(a)(1) of the Revenue Act of 1926, there must be an actual disbursement to the dependent before the deduction may be allowed.  *736  OPINION.  SMITH: The applicable provision of the taxing statute to the question presented by this proceeding is section 303 of the Revenue Act of 1926, which, in so far as material, reads as follows: SEC. 303.  For the purpose of the tax the value of the net estate shall be determined - (a) In the case of a resident, by deducting from the value of the gross estate - (1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages*999  upon, or any indebtedness in respect to, property (except, in the case of a resident decedent, where such property is not situated in the United States), to the extent that such claims, mortgages, or indebtedness were incurred or contracted bona fide and for an adequate and full consideration in money or money's worth, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, and such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or without the United States.  under which the estate is being administered, but not including any income taxes upon income received after the death of the decedent, or any estate, succession, legacy, or inheritance taxes.  On brief the respondent contends that the evidence of record in this proceeding does not show that the $12,000 claimed as a deduction for the support of the widow was "reasonably required" for the support of the widow during the settlement of the estate; *1000  that there is no evidence that the estate is still in process of settlement as contended by the petitioner; and that the full amount of $12,000 was not "actually expended" within the meaning of the statute.  We are of the opinion that the contentions of the respondent do not derive support from the fact that the evidence of record does not show that the full amount of $12,000 was reasonably required for the widow's support or that the evidence does not show that the estate is still in process of settlement.  The disallowance of $10,000 of the claimed deduction was not based upon any such grounds.  We therefore confine our consideration only to the third contention made by the respondent, namely, that the full amount of the $12,000 claimed as a deduction for the widow's support has not actually been expended by the estate.  The petitioner contends that under the law and decisions of the State of Iowa an amount allowed for the support of decedent's dependents during the administration of the estate is considered to be an administration expense.  The argument made is that the $12,000 allowed by the court is a deduction from the gross estate either as an administration expense or as*1001  a claim against the estate, both of which are allowed as deductions from the gross estate under section 303(a)(1) of the Revenue Act of 1926.  *737  The petitioner's contention that the Iowa law and the decisions of the courts of Iowa are controlling in determining whether the allowance of $12,000 is a legal deduction from the gross estate is without legal support.  Congress has authority to tax the transfer of the net estate.  Congress, likewise, has authority to determine the manner in which the amount of the net estate shall be determined.  The taxing statute carries its own criteria for the determination of the net estate.  Where Congress has specifically determined what amounts shall be allowed as deductions from the gross estate in the determination of the net estate the laws of the state in which the estate is being administered have no binding force.  See , and cases therein cited. From an inspection of section 303(a)(1) of the Revenue Act of 1926 it is seen that Congress has permitted the deduction from gross estate of numerous classifications of expenses.  It has provided an entirely separate classification for*1002  the deduction of allowances for the support of dependents during the period of administration.  The language of the statute is "such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent." The respondent has disallowed the deduction of $10,000 of the amount claimed for the widow's allowance upon the ground that the money has not been actually expended by the estate.  When relating to financial transactions the word "expended" ordinarily has the meaning of paid out or disbursed.  See ; . We have no doubt that this is the meaning in which Congress used the term.  Furthermore, the word "expended" in the statute is qualified by the word "actually." The meaning of Congress in this provision is not ambiguous.  If the amount claimed as the widow's allowance has not actually been paid out, we think it follows, as night the day, that the amount has not been actually expended But the petitioner contends that the amount was actually expended by reason of the fact that the executor gave a note to the widow evidencing the obligation*1003  of the estate to make the payment.  This contention of the petitioner must be denied.  The giving of a promissory note is not the equivalent of the payment of a debt.  See ; ; . The execution by the petitioner and the delivery of the note to the widow changed the form of the obligation to pay the widow's allowance, but it did not pay it.  The assets of the estate in the executor's hands were not reduced thereby.  Where an allowance to the widow is not "actually expended", that is "paid out", it is not a legal deduction from the gross estate.  See . *738  The stipulated facts in this case show that the amount of the widow's allowance actually expended by the estate during the period of settlement was not exactly $2,000.  Total payments on the note to September 30, 1937, inclusive, amounted to $4,850.  These payments included interest and, in some cases, a part of the principal.  The portion that represents interest is not a legal deduction from gross income as the widow's*1004  allowance actually expended by the estate.  The portion that represents principal is a legal deduction.  The adjustment will be made in the Rule 50 computation.  Judgment will be entered under Rule 50.