Court Opinion

ID: 4621201
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:44:11.30148+00
Date Added: 2024-06-11T07:55:57.964141
License: Public Domain

E. S. HELLER, SIDNEY M. EHRMAN, AND I. W. HELLMAN, III, EXECUTORS, ESTATE OF ISAIAS W. HELLMAN, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Heller v. CommissionerDocket No. 4575.United States Board of Tax Appeals10 B.T.A. 53; 1928 BTA LEXIS 4204; January 20, 1928, Promulgated *4204  1.  The amount of the normal tax paid by the obligor on tax-free-covenant bonds is not a part of the petitioner's gross income.  2.  The decedent made his income-tax returns on the basis of cash received and disbursed; at his death certain rents and interest had been earned which had not been received by him in his life-time.  Held, that such rents and interest were properly a part of the gross estate subject to Federal estate tax, and when collected by the executors did not constitute income to the estate.  Lloyd W. Dinkelspiel, Esq., for the petitioners.  Thomas M. Mather, Esq., for the respondent.  MARQUETTE *54  By this proceeding the petitioners seek the redetermination of deficiencies in income taxes asserted by the respondent against the estate of Isaias W. Hellman, deceased, in the amounts of $28,879.41 for the year 1917, $23,341.79 for the year 1918, and $33,313.02 for the period April 10 to December 31, 1920.  The petitioners have also appealed as to an overassessment of $10,808.95 determined by the respondent for the period January 1 to April 9, 1920, and set forth in the deficiency notice, but at the hearing they conceded that*4205  the Board has no jurisdiction as to the overassessment, and abandoned the appeal in so far as it relates to the period for which the over-assessment was determined.  FINDINGS OF FACT.  The petitioners are the duly appointed, qualified and acting executors of the last will and testament of Isaias W. Hellman, who died on April 9, 1920, a resident of the State of California.  By his will the decedent made certain money bequests to designated persons and left all the rest and residue of his property to his three children.  Among the assets of his estate were included, (1) Liberty bonds of the United States; (2) tax-free-covenant bonds; (3) bonds without a tax-free-covenant clause; (4) foreign bonds; (5) promissory notes of private persons; and (6) lands under lease providing for periodical money rent.  Isaias W. Hellman died between the interest payment dates of the bonds and notes and between the rent payment dates of the leases.  His books of account were kept and his income-tax returns made on the cash receipts and disbursements basis, and only such items as were received by him, or were due and payable at the time of his death, were reported as income to the decedent.  The amount*4206  of accrued interest and rent on the notes, bonds, and leases mentioned was omitted from the return of income filed for the decedent for the period January 1, 1920, to April 9, 1920, the date of his death, but the value at the date of death of the right to receive such accrued interest and rent when due was included by the petitioners as a part of the decedent's gross estate, upon which a Federal estate tax was imposed.  On or before March 31, 1918, Isaias W. Hellman filed with the collector of internal revenue at San Francisco, Calif., an original return of income for the calendar year 1917, and on January 23, 1919, he filed an amended return for said year.  On or before March 15, 1919, Isaias W. Hellman filed with the collector of internal revenue at San Francisco an original return *55  of income for the calendar year 1918, and on or before December 15, 1919, he filed an amended return for said year.  On February 15, 1921, the petitioners, as executors of the will of Isaias W. Hellman, deceased, signed a waiver extending for a period of one year the time within which an additional assessment might be made with respect to the decedent's income-tax liability for the year*4207  1917.  On April 4, 1925, the respondent addressed to the petitioners, as executors of the estate of Isaias W. Hellman, deceased, a letter notifying them that there were deficiencies in income tax for the years 1917 and 1918 in the amounts of $28,879.41 and $23,341.79, respectively.  The deficiency letter also asserted additional tax for the period April 10, to December 31, 1920, in the amount of $33,313.02.  The petitioners filed an income-tax return for the estate of Isaias W. Hellman for the period April 10, to December 31, 1920.  The respondent, upon audit of the return, included in the gross income of the estate the amount of $438.10, representing income tax paid by obligors pursuant to tax-free covenants in certain bonds owned by the decedent, and credited said amount of tax against the total tax determined to be due from the estate for the period April 10, to December 31, 1920.  The respondent also included in the gross income of the estate for the period April 10, to December 31, 1920, the amount of $24,941.14, representing accruals of interest and rent to April 9, 1920, as follows: Rents$5,292.37Interest, tax-free-covenant bonds7,637.81Interest, other corporate bonds6,326.35Interest, foreign bonds232.20Interest, notes and contracts637.55"Taxable Interest" on Liberty bonds4,814.86Total24,941.14*4208  The interest and rent set forth had not been received by the decedent at the time of his death, nor were they due and payable.  As heretofore stated, they were included in the decedent's gross estate subject to the Federal estate tax, and the estate tax as determined was paid by the petitioners.  OPINION.  MARQUETTE: The filing of amended returns by Isaias W. Hellman for the years 1917 and 1918, did not operate to extend the period within which taxes for those years might be assessed.  ; . The period for such assessment began to run on the dates the returns were filed, March 31, 1918, and March 15, 1919, respectively (sec. 250(d), Revenue Act of 1918; sec. 250(d), Revenue Act of 1921; sec. 277(a)(2), Revenue Act of 1924), and expired five years from those dates unless extended by waiver or the mailing by the respondent of a deficiency notice. We find that the petitioners filed a waiver as to the year 1917, extending the period for assessment by one year.  However, assuming but not deciding that the petitioners, *4209  in executing the waiver, acted within their legal rights, the period for assessment of the 1917 tax, as extended by the waiver, expired on March 31, 1924.  No waiver having been filed for 1918, the period for assessment as to that year expired on March 15, 1924.  The statute of limitations had, therefore, run as to both years at the time the deficiency letter herein was mailed to the petitioners.  The assessment and collection of additional taxes for the years 1917 and 1918 are, therefore, barred and there is no deficiency as to those years, and the respondent so concedes in his brief.  As to the issues raised relative to the tax liability of the estate for the period April 10, to December 31, 1920, we are of the opinion that the respondent erred in including in the gross income of the estate the amount of taxes paid by obligors in tax-free-covenant bonds owned by the decedent.  The amount of tax so paid by the obligors is a proper credit against the total amount of tax due from the estate, but is not income to the estate.  ; *4210 . We are also of the opinion that the respondent erred in including in the income of the estate the amount of interest and rents that had accrued at the date of Isaias W. Hellman's death.  Such interest and rents had not been received by Hellman and had not accrued in the sense that they had become due and payable.  They had accrued, however, in the sense that they had been earned and they constituted a property right which was a part of the decedent's estate and the value thereof was, we think, properly included in the gross estate subject to the Federal estate tax.  But this accrued interest and rents, when collected by the executors, did not constitute income to the estate.  ; ; . Judgment will be entered on 15 days' notice, under Rule 50.