Court Opinion

ID: 9757432
Source: CourtListenerOpinion
Date Created: 2023-08-28 22:40:22.675256+00
Date Added: 2024-06-11T07:28:39.342117
License: Public Domain

ROBERTS, Justice
(concurring).
Although I agree that the Commonwealth inheritance tax is to be imposed on the net estate after the payment of federal and state income taxes, I am of the opinion that the amount of federal and state income taxes paid in this case does not properly bear on the question of valuation but instead is deductible as a liability of the decedent.1
*69Prior to 1942 such accrued but uncollected income was reported on the decedent’s final federal income tax return. This tax payment was not ordinarily due until the end of the taxpayer’s accounting year, but federal law provided that the death of the taxpayer accelerated the due date of the tax payment to the date of death. A problem arose when income accrued by a cash basis taxpayer before his death was not paid to him (or more accurately, his estate) until after his death. Because death terminated the taxpayer’s final tax period, such income created an anomalous situation in which the accounting period for the tax liability had ended, yet income attributable to the decedent still was collected. See Helvering v. Enright’s Estate, 312 U.S. 636, 61 S.Ct. 777, 85 L.Ed. 1093 (1941); Pfaff v. Commissioner, 312 U.S. 646, 61 S.Ct. 783, 85 L.Ed. 1099 (1941).
Until 1942 such accrued income apparently was to be reported on the decedent’s final federal income tax return. (However, the procedure for collecting the tax on income received after the date of the final income tax return was never clearly established). The income tax attributable to that income was deductible as a debt of the decedent in computing the Pennsylvania inheritance tax.2
In 1942 the Internal Revenue Code was amended to ameliorate the account problems caused by the post-death receipt of such income.3 Income of this nature was characterized as “income in respect of a decedent.” This in*70come no longer created an income tax obligation considered a debt of the decedent. Liability for the tax due on this income was now considered a debt of the estate.
The Commonwealth Department of Revenue, realizing that the Transfer Inheritance Tax Act4 had not been revised to accommodate this change in the Internal Revenue Code, then asserted that since the tax due on the income in respect of the decedent was never technically a debt of the decedent it could not be deducted. Thus, a change in the Internal Revenue Code to rectify an anomalous accounting procedure in the method of collecting the federal income tax has been construed by the Department of Revenue as providing a windfall to the Commonwealth. I cannot agree.
I believe that under either section 621 of the Inheritance Tax Act (“Taxes imposed against the decedent”) or section 631 (“liabilities of the decedent”) 5 the tax is properly deductible, regardless of whether the Internal Revenue Service deems the tax on such income technically a debt of the decedent or a debt of the estate. It should not make a difference whether the partner was paid a share the day before he died or whether his widow received his share the day after his death. Nor should it make a difference whether he used the cash or accrual method of accounting. There can be no doubt that the decedent was responsible for generating the income. There should be no doubt, therefore, that the liability for the tax on that income was also generated by the decedent. Such a liability, in my opinion, is exactly the sort of obligation which the statute contemplates as being deductible.
*71Changes in the Internal Revenue Code to govern when this liability becomes due, and from whom it is ultimately collectible, do not alter the conclusion that this was originally an obligation of the decedent John Evans Rose. As such it was deductible.
For this reason I do not believe that there is any question of valuation or double taxation involved. The amount representing payment of federal and state income taxes is not to be taxed simply because it should be deducted before the estate and inheritance tax is imposed.

. The amount of such taxes paid should be deductible under either of the following sections of the Inheritance and Estate Tax Act of 1961, Act of June 15, 1961, P.L. 373, 72 P.S. §§ 2485-101 et seq. (1964):
§ 621 “Taxes imposed against the decedent or against any property constituting a part of decedent’s gross taxable estate, and which are owing prior to decedent’s death, shall be deductible. However, taxes for which decedent is not personally liable shall not be deductible in an amount exceeding the value of the property against which such taxes are liened.” (emphasis added).
§ 631 “All liabilities of the decedent shall be deductible, subject to the limitations hereinafter set forth.”

. See Payne’s Estate, 48 D & C 578 (Erie 1943).

. “[Section 126 of the Internal Revenue Code of 1939 was] added by the Revenue Act of 1942 and [was] designed to overcome the preexisting requirement that there be included in the income of a decedent for the taxable period in which his death occurred all the income accrued up to the date of his death [T]he 1942 amendments made the income accrued solely by reason of the decedent’s death taxable to the actual recipient at the time the income was received.”
House Committee Report, Internal Revenue Code of 1954, 3 U.S. Code Cong. & Admin.News 4358 (83d Cong., 2d Sess. 1954).
Section 126 of the Internal Revenue Code of 1939 was similarly reenacted as section 691 of the Internal Revenue Code of 1954.

. Act of June 20, 1919, P.L. 521, as amended, 72 P.S. §§ 2485-101 et seq. (1964), partially repealed and limited to estates of decedents dying before January 1, 1962, by the Inheritance and Estate Tax Act of 1961, Act of June 15, 1961, P.L. 373, 72 P.S. §§ 2485-101 et seq. (1964).

. Act of June 15, 1961, P.L. 373, art. VI, §§ 621, 631, 72 P.S. §§ 2485-621, 631, supra, n. 1.