Court Opinion

ID: 4614646
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:30:40.151278+00
Date Added: 2024-06-11T07:54:49.594542
License: Public Domain

Estate of Arthur Garfield Hays, Deceased, William Abramson and Lawrence Fertig, Executors, Petitioners, v. Commissioner of Internal Revenue, RespondentHays v. CommissionerDocket Nos. 55657, 57766United States Tax Court27 T.C. 358; 1956 U.S. Tax Ct. LEXIS 39; November 26, 1956, Filed 1956 U.S. Tax Ct. LEXIS 39">*39 Decisions will be entered for the respondent.  During each of the taxable years in controversy decedent paid certain sums on account of estimated tax. He also paid amounts in respect of deficiencies in income tax of prior taxable years.  The total payments in each year exceed 80 per cent of the total income tax due, but the amounts paid as estimated tax alone are less than 80 per cent of the income tax liability for each year.  Held: (1) The duty to pay deficiencies due from prior tax years and that of making current payments on estimated tax are distinct.  Payments on account of such deficiencies cannot be treated as part of the amount paid as estimated tax. Thus, petitioner failed in each year in issue to pay as estimated tax at least 80 per cent of the total tax liability due for each such year.  (2) Reasonable cause is irrelevant for purposes of section 294 (d) (2), I. R. C. 1939.  H. R. Smith, 20 T.C. 663, followed.  Samuel P. Cohen, Esq., for the petitioners.Sumner Lipsky, Esq., for the respondent.  Raum, Judge.  RAUM27 T.C. 358">*358  OPINION.Respondent has determined deficiencies in the income tax of petitioners' decedent as follows:YearAmount1950$ 694.001951735.561952566.79The sole issue is whether respondent erred in refusing to include payments on account of deficiencies in income taxes of prior years in determining whether payments on account of estimated tax in each of the taxable years in question equaled at least 80 per cent of the total tax liability for each such year.  All of the facts have been stipulated.Arthur Garfield Hays was an individual residing at 24 East 10th Street, New York City.  His individual income tax returns for the calendar years 1950, 1951, and 1952 were filed with the then collector of internal revenue for the second district of New York at New York City.  He died on December 14, 1954.  William Abramson and Lawrence Fertig are the duly appointed executors1956 U.S. Tax Ct. LEXIS 39">*41  of his will.At all times material decedent was a partner in a law firm.  In each of the years 1948 to 1952, inclusive, his net income and income tax payable, as determined by respondent, were as follows: 27 T.C. 358">*359 IncomeYearNet incometax payable1948$ 59,065.73$ 28,271.63194954,152.3725,134.17195043,556.1819,066.72195144,993.1322,259.26195253,052.7529,046.51As of January 1, 1950, decedent was indebted to the United States for income taxes for prior years as follows:CalendarYearAmount1946$ 2,094.6919472,025.5419482,507.41194914,527.70Decedent's income tax liability for 1950, 1951, and 1952 as finally determined, and 80 per cent thereof, are as follows:80 per centYearLiabilityof liability1950$ 19,066.72$ 15,253.38195122,259.2617,807.41195229,046.5123,237.21Decedent made the following payments on account of various income tax liabilities as follows:Date of paymentAmountPurpose of paymentJan. 16, 1950$ 2,500.001949 estimated taxMar. 10, 19502,500.001949 income taxMar. 10, 19502,500.001950 estimated taxJune 14, 19502,500.001950 estimated taxJuly 6, 19502,500.001949 income taxJuly 11, 19502,094.691946 income tax deficiency34.17Interest thereonSept. 15, 19502,500.001950 estimated taxOct. 20, 19501,000.001949 income taxNov. 22, 19504,500.001949 income taxFeb. 1, 1951500.00On account 1949Feb. 20, 1951804.411947 add. and interestFeb. 20, 19513,106.471949 add.Feb. 20, 19512,783.231948 add. and interestFeb. 28, 1951455.30Int. 1949Mar. 15, 19512,343.661950 taxesMar. 15, 19512,500.001951 taxes (estimate)May 28, 19511,000.001950 taxesJune 14, 19512,500.001951 taxes (estimate)June 15, 19511,000.001950 taxesSept. 14, 19512,500.001951 taxes (estimate)Jan. 10, 19522,500.001951 estimateFeb. 1, 19525,236.97Balance 1950 tax and interestMar. 11, 19522,500.00Account 1952 estimateMar. 17, 19522,185.331951 returnApr. 15, 19521,133.001949 assessment and interestApr. 17, 19521,000.00Account 1951May 15, 1952$ 58.90Balance int. 1950 taxes #3209915May 51CMay 16, 19522,000.001951 taxesJune 9, 19525,700.001952 taxes (estimate)July 15, 19523,000.001951 taxesAug. 13, 19523,000.00Balance 1951Sept. 11, 19521,000.001952 taxes (estimate)Dec. 15, 19522,500.001952 taxes (estimate)Jan. 15, 19532,500.00On account 1952 estimate1956 U.S. Tax Ct. LEXIS 39">*42 27 T.C. 358">*360   As a result of the foregoing, decedent made payments on account of estimated tax and on account of arrears in taxes of prior years during each of the years in controversy and up to the 15th of January of each succeeding year in a total amount greater than 80 per cent of the total income tax liability for each respective year at issue herein.  However, in no case did the total amount of payments on account of estimated tax alone for a current year equal as much as 80 per cent of such liability.Petitioners contend that in determining for the purposes of section 294 (d) (2) of the Internal Revenue Code of 19391 whether 80 per cent of total tax liability for a given year was paid on account of estimated tax, we should include payments made not for that purpose, but to satisfy liabilities resulting from arrears in income taxes due in respect of prior years.  This we cannot do.1956 U.S. Tax Ct. LEXIS 39">*43  The duty to pay income taxes still due for any prior year is a complete obligation in itself, entirely separate and distinct from the duty to make payments on account of estimated tax liability for the current year. A payment in satisfaction of one liability cannot be deemed at the same time to satisfy the other.  When decedent paid amounts on deficiencies due in respect of prior years, he received everything to which he was thereby entitled when such amounts were so credited as to reduce his liability in respect of those deficiencies.  Petitioners, however, would have such payment serve not only that purpose, but also constitute a payment of amounts currently due in respect of estimated tax. No authority is cited to support this novel doctrine, and we know of none.27 T.C. 358">*361  Were the payments in question in satisfaction of gift tax or excise tax liability, or some non-tax-created liability to the United States, we doubt that petitioners would urge the result they seek here.  We do not deem it a distinction that those payments happen instead to be applicable to an income tax liability for a different year.It is unclear whether and to what extent petitioners are suggesting reasonable1956 U.S. Tax Ct. LEXIS 39">*44  cause as a defense.  In any event, reasonable cause is irrelevant here.  H. R. Smith, 20 T.C. 663.Nor can the cause of petitioners be aided by section 6654 of the Internal Revenue Code of 1954.  Even assuming that that provision would require a different result in later taxable years under the same set of facts and circumstances (and we express no opinion on that point), the instant proceeding is not governed thereby.  Section 6654 is not retroactive in its effect, and it is clearly amendatory, not declaratory of prior law.Respondent's determination must be sustained.Decisions will be entered for the respondent.  Footnotes1. SEC. 294. ADDITIONS TO THE TAX IN CASE OF NONPAYMENT.(d) Estimated Tax. -- * * * *(2) Substantial underestimate of estimated tax. -- If 80 per centum of the tax * * * exceeds the estimated tax * * * there shall be added to the tax an amount equal to such excess, or equal to 6 per centum of the amount by which such tax so determined exceeds the estimated tax so increased, whichever is the lesser.  This paragraph shall not apply to the taxable year * * * in which the taxpayer makes a timely payment of estimated tax within or before each quarter * * * of such year * * * in an amount at least as great as though computed * * * on the basis of the taxpayer's status with respect to the personal exemption and credit for dependents on the date of the filing of the declaration for such taxable year * * * but otherwise on the basis of the facts shown on his return for the preceding taxable year. * * *↩