Court Opinion

ID: 4619569
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:40:53.982653+00
Date Added: 2024-06-11T07:55:39.959311
License: Public Domain

George M. Breidert and Lorraine L. Breidert, Petitioners v. Commissioner of Internal Revenue, RespondentBreidert v. CommissionerDocket No. 256-67United States Tax Court50 T.C. 844; 1968 U.S. Tax Ct. LEXIS 70; September 11, 1968, Filed *70 Decision will be entered for the petitioners.  T, executor of his father's will, filed a formal waiver of his right to receive statutory commissions some 14 months after qualifying as executor. On the facts it is determined that he never intended to receive, nor did he in fact ever receive, any such commissions.  Further, the estate did not have sufficient liquid assets to pay any such commissions.  Held, petitioner may not be charged with having constructively received executor's commissions for income tax purposes, notwithstanding the fact that an estate tax return was filed claiming a deduction for "estimated" executor's fees, and notwithstanding a court order which erroneously contained a provision authorizing the payment of executor's fees.  William Katz, for the petitioners.Martin R. Simon, for the respondent.  Raum, Judge.  RAUM*844  The Commissioner determined a deficiency in petitioners' income tax for the year 1963 in the amount of $ 5,466.37, all of which is in dispute in these proceedings.  The sole issue is whether petitioner George M. Breidert constructively received executor's fees of $ 9,100.20 in 1963.FINDINGS OF FACTSome of the facts have been stipulated, and, as stipulated, are incorporated herein by this reference along with accompanying exhibits.George M. Breidert and Lorraine L. Breidert resided in Corona del Mar, Calif., during 1963, and filed a joint Federal income tax return for that year on the cash basis of accounting with the district director of internal revenue, Los Angeles, Calif.  At the time of filing of the petition herein, George M. Breidert resided in Newport Beach, Calif.; Lorraine L. Breidert still resided in Corona del Mar, Calif.; George M. Beidert will hereinafter sometimes be referred to as petitioner.Petitioner's father, George C. Breidert, died testate on or about November*72  20, 1961, in Los Angeles, Calif.  His will provided for the specific bequest of some minor items of personal property to his wife, Margaret P. Breidert, and directed that the rest, residue, and remainder of his estate be conveyed to Margaret P. Breidert and petitioner as trustees of a testamentary trust.  The entire net income of this trust was payable to Margaret P. Breidert for her life, and upon her death the remainder was to be split into two equal shares; one-half to be distributed to petitioner, the other one-half to be held in trust for Evelyn Breidert Rude, the testator's daughter, for her life, and distributed upon her death to her lawful issue, subject to a trust in the case of issue under 25 years of age.  Evelyn Breidert Rude had one child, Nancy Joan McLaughlin.Margaret P. Breidert was designated executrix under the will, and petitioner was named alternate executor "should she be unable or unwilling *845  to serve." She was in fact unable to serve because of illness, and never qualified or served as executrix.  She died on July 1, 1962.Petitioner was duly appointed by the Superior Court of the State of California for the County of Los Angeles, and qualified as executor*73  of the estate of his father, George C. Breidert, on January 11, 1962.  He performed services for the estate in this capacity throughout 1962 and until the final distribution of the assets of the estate in 1963.  There was no provision in the testator's will for compensation to the executor.On or about January 30, 1963, a Federal estate tax return, Form 706, was filed by petitioner as executor of the Estate of George C. Breidert.  The return, prepared by a firm of tax accountants and by petitioner's attorney, William Katz, disclosed a total gross estate of $ 268,125.35, less allowable deductions of $ 18,814.45 and the $ 60,000 exemption, leaving a taxable estate of $ 189,310.90.  Among the items claimed as allowable deductions on the return was one for "estimated" executors' commissions of $ 9,000.  When petitioner's attention was directed to the fact that the estate was claiming a deduction for executor's fees, he expressed his desire not to receive such fees.  However, his attorney assured him that an amended return could be filed in the event that executor's fees were waived, and convinced him to wait until the filing of his final account as executor, when State law required that*74  he either demand or waive such fees.  No such amended return was thereafter presented to petitioner by his attorney and none was filed.  Petitioner never intended to receive any executor's fees.On or about March 22, 1963, petitioner, as executor, filed his "First and Final Account and Report, Petition for Distribution, and for Attorney's and Accountants' Fees" in the Superior Court of the State of California for the County of Los Angeles.  Such account disclosed assets in the Estate of George C. Breidert remaining for distribution after the payment of all claims and expenses of administration except attorney's and accountant's fees (including the one-half community share of his wife, Margaret P. Breidert, who was deceased at the time of the filing of this account), of the following types and in the following amounts:Cash on hand and in banks$ 1,875.78Home at 4804 Vineta Ave., La Canada, Calif45,000.00Industrial property located at 13690 Vaughn St., San Fernando221,800.00Furniture and furnishings located in the home at 4804 Vineta Ave1,187.001960 Chevrolet automobile1,100.00Stock in Ilg Electric Ventilating Co.:235 shares -- common4,230.001 share -- preferred100.00Stock in the G. C. Breidert Co., San Fernando, 1,118.5 shares --common190,145.00465,437.78*75 *846   The G. C. Breidert Co. mentioned above was a closely held California corporation in which the decedent, George C. Breidert, had served as chief executive officer.Petitioner requested the Court to allow the accounting firm of Kahan, Seltzer, and Eckstein the sum of $ 5,000 for tax accounting services to the estate, and to allow William Katz, who served as petitioner's attorney in the administration of the estate, his statutory fees of $ 9,100.20 plus extraordinary fees of $ 5,000.  Petitioner did not, however, request any fees for his services as executor, and in fact expressly stated in his petition to the Superior Court that: "the Executor herein hereby waives his extraordinary fees and all of his statutory commissions herein."The Estate of George C. Breidert possessed insufficient cash on hand to pay even the accountant's or attorney's fees at this time, and the devisees of the estate did not wish the other assets sold to satisfy these claims.  Petitioner therefore informed the court:That the Cash on Hand in the amount of $ 1,875.78 will be expended for the payment on account of the fees of the accountants or attorney for the Executor; that the amount of such Cash *76  on Hand is insufficient to pay all of the fees payable by and to be allowed in this Estate.  It is the desire of the devisees and legatees of said Estate to keep and retain all of the remaining assets of this Estate intact, and said legatees and devisees will provide the Executor with the necessary funds with which to pay in full the fees of the accountants and the attorney for the Executor herein, allowed in this Estate, and said legatees and devisees will adjust between themselves all matters pertaining to the advancement of said funds.On or about April 17, 1963, an "Order Settling Final Account and Decree of Distribution Under Will," prepared by petitioner's attorney, William Katz, was signed and entered by the Superior Court of the State of California for the County of Los Angeles.  Besides decreeing the final distribution of the estate, the order allowed accountant's and attorney's fees in the amounts requested in the petition.  Due to the negligence of petitioner's attorney in drawing up the order, provision was made in the order for the allowance of statutory executor's fees in the amount of $ 9,100.20 to petitioner.  The order provided, in part:That the executor, George M. *77  Breidert, has waived his claim for extraordinary commissions and he is hereby allowed the sum of $ 9,100.20 as and for his statutory commissions as such executor; * * * that the amount of cash on hand in said estate is insufficient to pay the commissions of the executor or the fees of the certified public accountants or the fees of the attorney for the executor hereinabove allowed; that the devisees and legatees of said estate have expressed their desire to keep and retain all of the assets of said estate intact and to personally pay the commissions of the executor and the fees of the certified public accountants and the attorney for the executor outside of this estate, and pursuant to such request, the legatees and devisees of this estate are hereby ordered and directed to personally pay to George M. Breidert, as executor, the sum of $ 9,100.20 *847  as and for his statutory commissions as executor, the sum of $ 5,000.00 to Kahan, Seltzer and Eckstein hereinabove allowed as fees for services rendered by said certified public accountants, and the sum of $ 14,100.20 to William Katz, hereinabove allowed as and for ordinary and extraordinary services rendered by said William Katz*78  as attorney for the executor.Petitioner's attorney had intended that the order conform to the petition earlier filed with the Superior Court, which had provided that petitioner waived all executor's fees, statutory and extraordinary.  The allowance of statutory commissions to petitioner was the result of inadvertence on his part or on the part of his secretary, or both, in that the order was prepared by copying or following another form in another case.  However, no attempt was ever made to amend this order.  Petitioner did not know of and did not approve the provision for executor's fees in the order, and intended to waive all executor's fees in connection with his father's estate.No formal books or records were maintained by petitioner as executor of the Estate of George C. Breidert, and no record or notation of any kind was ever made by the estate to indicate that petitioner was entitled to any amount as executor's fees, nor was any amount ever set aside for him or credited to his account for this purpose.  Petitioner did not at any time request payment of executor's fees from the estate or from any of the devisees or legatees of the estate, and did not actually receive any*79  amount as executor's fees during the year 1963 or at any other time.  An affidavit to this effect, dated May 24, 1966, was sworn to by petitioner and submitted to the Internal Revenue Service.Petitioner did not actually or constructively receive any executor's fees in 1963.OPINIONPetitioner was appointed executor under the will of George C. Breidert, his father, on January 11, 1962, and served in that capacity until the approval of his final account and the decree of final distribution by the Superior Court of California for the County of Los Angeles on or about April 17, 1963.  No provision was made in the will for executor's fees or commissions, but under California law, petitioner was entitled to compensation for his services as executor according to a statutory schedule.  Cal. Prob. Code sec. 901 (West Supp. 1967).  Although the attorney for the Commissioner noted in his opening statement that the Government was putting petitioner to his proof that he never actually received executor's commissions during 1963, there no longer seems to be any dispute that petitioner did not in fact receive any amount as executor's fees in 1963 or any other year, and in any event we think*80  that this has been established by petitioner's evidence and have so indicated in our findings of fact. The primary contention of the Commissioner now is that petitioner "constructively" *848  received executor's fees in 1963 in the sum of $ 9,100.20, the amount to which he was entitled as statutory commissions, either because he failed effectively to waive his right to such commissions or because his waiver was made after his right to the commissions had matured to the point at which he could not avoid realization of the income by refusing to accept it.  We hold that petitioner made an effective waiver of his statutory commissions and that he is not chargeable with the constructive receipt of income in respect of those commissions in 1963.Although petitioner had an "absolute" right to statutory commissions for his services as executor, such right did not "accrue" under State law until an order for payment was made by the Probate Court, see In re Johnston's Estate, 47 Cal. 2d 265">47 Cal. 2d 265, 272, 303 P. 2d 1, 6, and petitioner was entitled to make a binding waiver of his right to commissions at any time before the court ordered payment.  See*81 In re Estate of Davis, 65 Cal. 309">65 Cal. 309, 310, 4 Pac. 22. Petitioner did so in his "First and Final Account and Report, Petition for Distribution, and for Attorney's and Accountants' Fees," filed with the Probate Court on or about March 22, 1963, in which he stated that "the Executor herein hereby waives his extraordinary fees and all of his statutory commissions." Consistent with this declaration, he made no request in the petition for an allowance of executor's fees, nor was any supplemental request ever made.  Subsequently, petitioner's attorney inadvertently provided for the allowance and payment of statutory executor's fees to petitioner in the "Order Settling Final Account and Decree of Distribution" prepared by him for the court, and the court's failure to correct this error resulted in a decree ordering the legatees and devisees of the estate to pay statutory commissions of $ 9,100.20 to petitioner.  But petitioner never attempted to enforce this provision in the court's order, and, according to his testimony, was not even aware of its existence until a short time before the trial herein.  Moreover, in light of petitioner's earlier waiver*82  and the fact that the inclusion of the provision for executor's fees in the final order was the result of clerical error, we doubt whether any such attempt would have been successful.  In these circumstances, it would be open to any devisee of the estate to obtain a nunc pro tunc order correcting the original decree by eliminating the provision for allowance and payment of executor's fees in conformance with petitioner's intent as expressed in his petition to the Probate Court.  See In re Doane's Estate, 62 Cal. 2d 68">62 Cal. 2d 68, 396 P.2d 581">396 P. 2d 581, 41 Cal. Reptr. 165. Certainly, petitioner's affidavit to the Internal Revenue Service and his testimony and that of his attorney in these proceedings would make it impossible for petitioner to oppose this order, and we are satisfied that, despite the inadvertent allowance of executor's fees to petitioner in the final decree of the Probate Court, such fees were effectively waived by him so that he could not then and cannot now receive them.*849  Not only did petitioner waive his right to executor's fees, he did not even have sufficient cash on hand in the estate after paying the claims*83  of creditors and the expenses of administration to pay himself such fees had he desired them.  In fact, the cash on hand was insufficient to cover the fees of the attorney and the accountants who rendered substantial services to the estate.  There was never any point at which executor's fees in the amount of $ 9,100.20, or any other sum, were credited to petitioner's account, set apart for him, or otherwise made available to him either by the estate or by the legatees and devisees of the estate.  See sec. 1.451-2, Income Tax Regs. Thus, there is no factual basis here for application of the doctrine of constructive receipt. See Mott v. Commissioner, 85 F. 2d 315, 317-318 (C.A. 6), affirming on this issue 30 B.T.A. 1040">30 B.T.A. 1040, 1044-1045; Estate of W. H. Kiser, 12 T.C. 178">12 T.C. 178, 180; S. A. Wood, 22 B.T.A. 535">22 B.T.A. 535, 537, Cf.  Weil v. Commissioner, 173 F. 2d 805 (C.A. 2).Although the Government's principal contention is based upon "constructive receipt," a doctrine that we have found inapplicable on the facts of this case, it also suggests that*84  petitioner must be charged with the exectuor's fees because he "earned" them.  It does not go so far as to argue that an executor may never waive his fees so as to prevent them from being included in his gross income, but it relies upon certain revenue rulings (Rev. Rul. 66-167, 1 C.B. 20">1966-1 C.B. 20; cf. Rev. Rul. 64-225, 2 C.B. 15">1964-2 C.B. 15; Rev. Rul. 56-472, 2 C.B. 21">1956-2 C.B. 21) to support its position that petitioner must in any event be accountable for the executor's fees.  The precise theory of these rulings is not clear. Rev. Rul. 66-167, supra, appears to indicate that an executor may waive his right to compensation without incurring income tax liability, and the test is whether the waiver "will at least primarily constitute evidence of an intent to render a gratuitous service" (p. 21).  Accordingly, if a waiver is made "within a reasonable time" after commencing to serve, it is regarded as "consistent with an intention to render gratuitous service" (headnote), but "if the timing, purpose, and effect of the waiver make it*85  serve any other important objective, it may then be proper to conclude that the fiduciary has thereby enjoyed a realization of income by means of controlling the disposition thereof" (p. 21).  We need not consider whether this represents sound theory, because from our appraisal of the evidence we think petitioner never had any intention to receive compensation for his services, and that the factual foundation for applying the ruling against him is absent.To be sure, the record before us contains material that is confusing and contradictory in respect of petitioner's intentions.  Much of the confusion is attributable to the bungling manner in which petitioner's counsel handled the matter.  But we are satisfied from the evidence as *850  a whole, with particular reliance upon our impression of petitioner himself on the witness stand, notwithstanding contradictions in his testimony, that petitioner never in fact intended to receive any executor's fees, and that the subsequent written waiver merely formalized that intention.We hold that petitioner could render gratuitous services without subjecting himself to income tax liability therefor and that the factual basis does not exist*86  on this unusual record to charge him with having realized income on the theory of the revenue rulings, whatever that may be.Decision will be entered for the petitioners.