Court Opinion

ID: 4497851
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:15:38.666532+00
Date Added: 2024-06-11T08:00:20.467679
License: Public Domain

TuenbR,
dissenting: In my opinion, the fees and commissions owing to McGlue for services rendered as coexecutor of the Saul and the Shea estates were accrued at his death and under section 42 of the Revenue Act of 1934 are to be included in net income for the taxable period ended with his death. See reports of the Committee on Ways and Means1 and the Committee on Finance2 covering the bill *1195which became the Eevenue Act of 1934. Decedent G. Percy McGlue kept his books of account on the cash receipts and disbursements basis and unless the second sentence of section 42 is applicable, the compensation due McGlue for services rendered to the Saul and Shea estates will escape income tax altogether. In a concurrent estate tax proceeding, we have held that the rights of McGlue to such compensation at the time of his death constituted property belonging to him and passing as a part of his estate. Being a part of the decedent’s estate, it follows that such compensation will not constitute taxable income to the estate when received. Jackson B. Kemper, Administrator, 14 B. T. A. 931, and Antoinette B. Held, Executrix, 3 B. T. A. 408. It is the view of the majority that McGlue’s compensation as executor of the Saul and Shea estates was not accrued at his death and that the second sentence of section 42 above does not cover that compensation.
In the majority opinion it is said that “At the time of decedent's death the services gi/ving rise to the right to compensation had been performed but there were other events to take place before the decedent’s right to such compensation should become fixed and determined.” (Emphasis supplied.) The other events referred to are described as the “filing of the final executors’ account and the allowance of the executors’ fees by the Probate OourtP It is thereafter concluded that there was no accrual of compensation at McGlue’s death because at the date of his death he had no “fixed and determined right to receive any amount as executors’ fees or commissions.” (Emphasis supplied.) In Spring City Foundry Co. v. Commissioner, 292 U. S. 182, the Supreme Court, discussing the reporting of income by the accrual method, said, “It is the right to receive * * * that determines the inclusion in gross income”, and, further, that “When the right to receive an amount becomes fixed, the right accrues.” It seems to me thus apparent that the conclusion of the majority that there was no accrual of compensation at McGlue’s death can not be reconciled with the views of the Supreme Court for two reasons, the first being that the right to compensation had become fixed at McGlue’s death, and the second that the events yet “to take place” had to do with the determination of the amount of compensation and not the right to receive compensation.
The conclusion that the right to receive fees or commissions for the services rendered by McGlue had not become fixed at his death and were not therefore accrued is, in my opinion, foreclosed by our holding in the concurrent estate tax proceeding and the pronouncements contained in the majority opinion in the instant case. While holding here that McGlue had no right to receive any amount as com*1196pensation for services rendered to the two estates until the Probate Court had acted, we have held in the estate tax proceeding that property rights in and to such compensation, having values of $70,806.14 in the case of the Saul estate and $9,926.75 in the case of the Shea estate, did exist in McGlue at the date of his death. Equally contradictory to the conclusion that there was no right at McGlue’s death to receive any amount as compensation is the statement in the majority opinion that “At the time of decedent’s death the services giving rise to the right to compensation had been performed.” In C. J. Wrightsman, 40 B. T. A. 502; affd., 111 Fed. (2d) 277 (C. C. A., 5th Cir., Apr. 10, 1940), we held that an officer of a corporation acquired the right to receive compensation as the services were rendered, even though the resolution of the directors authorizing payment of the compensation and fixing the amount thereof was not adopted until the end of the year.
McGlue qualified and was appointed coexecutor of the Saul estate on April 1,1931, and of the Shea estate on October 3, 1934, and performed the services required of him up to the date of his death. Under the. contract entered into with Saul during his lifetime, McGlue was entitled to a fee of 1% percent of the appraised value of the Saul estate for serving as coexecutor therefor and, his services as such coexecutor having been concluded at or by his death, not only had his right to compensation become fixed but it may well be argued that it had become fixed for the amount prescribed by the contract. The majority dismisses the contract with the observation that “It is quite obvious that the agreement contemplated that Mc-Glue would serve as coexecutor until the estate should be completely administered”, and concludes that under the District of Columbia Code his right to receive compensation did not become fixed until the Probate Court had acted. As I read the code, however, it is of no assistance in reaching the conclusion of the majority. The right to receive compensation for services rendered as an executor of an estate, like the right to receive compensation generally, rests upon or springs from the actual rendition of services, C. J. Wrightsman, supra, and not on or from any act of the Probate Court. In section 265, chapter 11, Title 29, of the code, .it is provided that commissions “shall” be allowed to executors in an amount “not under one percentum nor exceeding ten percentum of the amount of inventory or inventories, excluding what is lost or perished.” If the existence of the right to receive compensation is dependent upon the affirmative action of the Probate Court, that court undoubtedly could determine that an executor, even though he had performed all of the services required of him under the law — and we must assume that McGlue did just that up to the date of his death — was entitled to no compensation at all. *1197It is apparent, however, from section 265 mentioned above that the existence of the right of an executor to recewe compensation for services actually rendered and the liability therefor does' not rest in the discretion of the Probate Court. When the services have been rendered the right to compensation is fixed, and the only function of the court is to determine within the limitations prescribed by statute the amount of compensation due and owing for such services.
Certainly the Board does not wish to be understood as holding that actual determination or knowledge of the amount to be received or paid is a prerequisite to its accrual. If so, it is, in my opinion, overruling many of its own decisions and disregarding the pronouncements of the courts. J. B. Jemison, 18 B. T. A. 399; Bonnie Bros., Inc., 15 B. T. A. 1231; W. J. Burns, 12 B. T. A. 1209; Fraser Brick Co., 10 B. T. A. 1252; Beacon Coal Co., 9 B. T. A. 280; Max Kurtz, 8 B. T. A. 679; Raleigh Smokeless Fuel Co., 6 B. T. A. 381; Josiah Wedgwood & Sons, Ltd., 3 B. T. A. 355; Producers Fuel Co., 1 B. T. A. 202. While there was a known liability in each of the above cases at the end of the taxable year, the amount either had not been or could not be determined or known until later. In certain of the cases involving damages for breach of contract and one case involving insurance losses, negotiations as to the amounts were still in progress and were not concluded until a later year. In each case the liability was accrued in an estimated amount which upon final settlement in the later year was found to be incorrect. It was held in all of the cases, however, that the accruals occurred in the years the liabilities became fixed and not in the years the amounts were determined. The only adjustments were corrections of amounts. The Supreme Court, in Lucas v. American Code Co., 280 U. S. 445, distinguished those cases from a case where the liability has been contested and “the amount of damages, if any, was wholly unpredictable”, due in that particular case to the fact that liability was substantially dependent upon the course of future events. To illustrate, the claimant was under a duty to mitigate damages. We have no such situation here. Beference to the record in the instant case shows not only that the estates are not contesting their liability to McGlue, but are admitting and claiming liability for certain specified amounts. In Elsie S. Eckstein, 41 B. T. A. 746, taxes on real estate had been accrued in an estimated amount based on the value ascribed to the property in computing the tax for the preceding year. There could be no actual determination of the amount of the taxes until determination of the value of the property for ad valorem tax purposes, and that determination by the “Board of Appeals of Cook County” did not occur until two years later. The propriety of the accrual in the year for which the tax was due was not even questioned. In American Snuff Co., 32 B. T. A. 991; affd., 93 Fed. *1198(2d) 201; certiorari denied, 303 U. S. 662, the question was whether or not certain bonuses to officials and employees accrued in 1928, when they were determined and paid, instead of the years 1912 to 1927, inclusive, when they were earned. It was held that the accruals occurred in the years when the bonuses were earned, even though neither the liabilities nor the amounts thereof were known in those years. The liabilities did in fact exist and could have been known through exercise of proper diligence.
In the majority opinion great significance is attached to the facts that neither estate had been completely administered at McGlue’s death, no final accounting had been filed, no executor’s fees or commissions had been claimed and none had been allowed by the Probate Court. The claiming and allowing of executor’s fees obviously have to do with the formalities of determining the amount of compensation and the payment or collection thereof. The right to compensation being the basis of an allowable claim, the right must necessarily precede the claim and allowance. The right arose from the rendition of services and, as the majority opinion itself states, the services giving rise to the right to compensation had been performed at Mc-Glue’s death. Furthermore, in a case such as we have here, where an executor dies before concluding the administration of an estate, the completion of administration of the said estate and the filing of the final accounting not only are not essential or prerequisite to the fixing of the right to compensation, but are not even prerequisite to its collection. Under section 270, supra, quoted in the majority opinion from the District of Columbia Code, McGlue’s administrator or executor could have required the Probate Court to make an immediate determination of the amounts of compensation owing to McGlue by the Saul and Shea estates and had the further right to retain the amounts so determined out of any assets of the said estates which McGlue might have had on hand at the date of his death. The amount of compensation, though not known or determined at Mc-Glue’s death, was then determinable. There were no further events to take place which would add to or take from the right to such compensation, the only things yet to be done being the determination of the amounts within the limitations prescribed by the statute and the actual payment thereof when determined.
The distinction between the instant case and Lillian O. Fehrman, Executrix, supra, relied upon by the majority, is therefore indicated. In the Fehrman, case the right of the decedent to receive amy amowit as a bonus for the taxable period ending with his death was subject to the hazards of business operations between the date of his death and the close of the calendar year. In the instant case no such operating hazards existed, and, further, McGlue’s administrator or executor could have required immediate determination of *1199the amount of compensation and the payment thereof. Similarly, Jackson v. Smietanka, supra, is not in point. In that case the question involved was the year of accrual of additional compensation for services rendered as receiver, and in fixing the regular compensation at the beginning of the receivership the court had made the conclusion of the receivership a prerequisite to any right to additional compensation.
There is a limited group of cases in which it has been held that the existence of the right to receive certain items of income did not result in the accrual of those items for income tax purposes. Marguerite Hyde Suffolk and Berks, 40 B. T. A. 1121; American Fork & Hoe Co., 33 B. T. A. 1139; Oregon Terminals Co., 29 B. T. A. 1332; Emanuel Solomon Ullmann, 30 B. T. A. 164; Atlantic Coast Line Railroad Co., 31 B. T. A. 730, 749; Great Northern Railway Co., 8 B. T. A. 225, 269. In all of those cases the taxpayers were on the accrual basis and it was held that even though the income was earned in the taxable year the taxpayers were justified in failing to accrue the said items where collection thereof was highly improbable or there was little or no likelihood of collection in the future. There is no showing or claim of any such situation here.
For the reasons set forth, the conclusion that the fees and commissions owing to McGlue for services rendered as coexecutor of the two estates were accrued at his death and taxable under section 42, supra, for the period ending with his death, seems to me inescapable.
I therefore note my dissent.
Hill agrees with this dissent.

 Sections 42 and 43. Income accrued and accrued deductions of decedents: Tile courts have held that income accrued by a decedent on the cash basis prior to his death is not income to the estate, and under the present law, unless such income is taxable to the decedent, it escapes income tax altogether. By the same reasoning, expenses accrued prior to death cannot be deducted by the estate. Section 42 has been drawn to require the inclusion in the income of a decedent of all amounts accrued up to the date of his death regardless of the fact that he may have kept his books on a cash basis. Section 43 has also been changed so that expenses accrued prior to the death of the decedent may be deducted.

 Sections 42 and 43. Period for which deductions and credits taken. The courts have held that income accrued prior to the death of a decedent on the cash basis is not income to his estate, and under the present law, unless such income is taxable to the decedent, it escapes income tax altogether. By the same reasoning, expenses accrued prior to death cannot be deducted by the estate. Sections 42 and 43 of the House bill were so drawn as to require the inclusion in the income-tax return for the decedent of all items of income and deductions accrued up to the date of death regardless of the fact that the decedent may have kept his books on a cash basis. The change made in section 43 is necessary to effectuate the policy adopted in the House bill in section 42. By reason of the proposed change such items as accrued dividends and interest on partially tax-exempt securities are permitted as a credit in computing the normal tax.