Court Opinion

ID: 4622928
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:51:50.200677+00
Date Added: 2024-06-11T07:56:15.962519
License: Public Domain

LENA P. WHEELER (FORMERLY CURTISS), PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Wheeler v. CommissionerDocket No. 84992.United States Board of Tax Appeals40 B.T.A. 92; 1939 BTA LEXIS 896; June 15, 1939, Promulgated *896  A debt of a decedent due to his widow, who elected to take dower, is deductible in 1933 when ascertained to be worthless and charged off.  W. S. Hammers, Esq., for the petitioner.  Arthur H. Fast, Esq., for the respondent.  MURDOCK *93  The Commissioner determined a deficiency of $36,003.45 in the petitioner's income tax for the calendar year 1933.  The only adjustment in controversy is the addition of $509,718.31 to the petitioner's income as a loss disallowed.  The petitioner claims the deduction, either as a bad debt due from the estate of her husband or as a capital loss by reason of her guarantee to National Investment Holdings, Inc., to secure advances made by the latter to the estate of Glenn H. Curtiss, deceased.  The explanation given by the Commissioner denying the deduction is as follows: The item of $509,718.31 claimed as a bad debt or capital loss was due to the fact you were guarantor for money borrowed to pay off certain debts of the Estate of Glenn H. Curtiss, your late husband, for which you were not reimbursed owing to your having made an election to take your dower rights under the laws of the State of Florida in lieu of the*897  amounts provided under the Will.  This deduction has been disallowed for the reason that the facts and evidence on file fail to show that in paying the debts of the estate you were discharging a personal liability.  Summary of the Stipulated Facts.The petitioner was formerly the wife of Glenn H. Curtiss.  The latter died on July 23, 1930.  He was survived by the petitioner and one son.  The estate of the decedent had a value of over $2,800,000.  The decedent by his will practically divided his estate between his widow and his son.  The petitioner had advanced money to the decedent during his life.  Her claim against the estate in the amount of $944,647.27 was allowed.  The decedent had been a defendant in certain litigation instituted by Herring-Curtiss Co. and the latter company filed a claim against the decedent's estate in an amount in excess of $26,000,000.  The petitioner elected to claim her dower under the laws of Florida in lieu of accepting the provisions of the will and she was allotted one-third of the real estate for life and one-half of the personal estate absolutely.  The value of the share of the personal property which she received was $1,334,879.92.  The*898  transfer of the dower interest to her was confirmed by a decree of the court on August 14, 1931.  The petitioner, acting as executrix of the estate, made a compromise settlement of the claim of the Herring-Curtiss Co. in the latter part of 1931 by paying $565,000 in full satisfaction of all claims of the corporation.  The decedent owned about 81 shares of stock of National Investment Holdings, Inc., which had a value at the time of his death of $1,448,867.08.  The petitioner owned the remaining shares of stock of National Investment Holdings, Inc. - about 85.  She made a request of that corporation in February 1931 to advance to her as *94  executrix of the estate such cash as she might deem necessary for the payment of claims against the estate, court costs, administration fees, and attorney's fees.  She turned over to the corporation as security for the advances the 81 and a fraction shares of stock which had been owned by her husband, and she agreed to be personally responsible for any excesses of the advances over the value of the stock pledged as security.  She was to pay the difference in cash or surrender part of her own stock to make up the difference.  The company*899  accepted her offer in the latter part of July 1931, and made advances during the administration of the estate which amounted to over $900,000.  The dower allotted to the petitioner included 17 and a fraction shares of the National Investment Holdings, Inc., stock belonging to her husband.  The only asset remaining in the estate at the time of the final liquidation thereof was 63.9104 shares of stock of National Investment Holdings, Inc., of the value of $1,134,766.50.  That stock was being held by the company as collateral for the net amount due it from the estate, $872,231.53.  The amount due the petitioner at that time upon her claim against the estate amounted to $772,253.28.  The liabilities of the estate thus exceeded the assets by $509,718.31.  The petitioner wrote a letter to National Investment Holdings, Inc., dated June 15, 1933, in which she notified the company that she desired a sufficient amount of the stock held by it as collateral to satisfy the balance due her from the estate, but explained that she would then owe the company $509,718.31 because of her personal guarantee to return all payments in full.  She, therefore, requested that, instead of issuing any of the*900  collateral stock to her in payment of her claim, the company retain 20.416924 shares of the stock of the value of $362,513.22 and 28.70753 shares of the value of $509,718.31 against the advances, and issue the remaining 14.78607 shares of the value of $262,534.97 to her.  The corporation carried out her request.  The petitioner in her final report and accounting to the court as executrix in 1933 reported that 28.70753 shares of the value of $509,718.31 had been received by her in payment of her claim against the estate and that it had been transferred by her to National Investment Holdings, Inc., in payment of advances made by it to the estate.  The report was approved and the petitioner discharged as executrix in 1933.  The amount of $509,718.31 was written off the petitioner's books as a bad debt and deducted on her return for 1933.  The Commissioner disallowed the deduction.  Additional Findings Made From the Testimony.The petitioner thought that the Herring-Curtiss Co. would be more willing to accept a compromise of its claim if she elected to *95  take dower and to reject the will, and she further thought that she could preserve a part of the estate for herself*901  only by that election.  The compromise agreement between her and the Curtiss Co. was reached on December 31, 1931.  The method of having National Investment Holdings, Inc., make advances to the estate of Glenn H. Curtiss, deceased, was adopted as the only practical and economical way of settling the estate.  The assets of National Investment Holdings, Inc., consisted principally of stocks and bonds and the value of those liquid assets changed little from 1931 through 1933.  The amount in controversy was charged off the books of the petitioner in 1933 by an entry charging "net worth" with $509,718.31 and an entry crediting accounts receivable from the estate of Glenn H. Curtiss with a like amount, "To close above to net worth as bad debt.  This is the amount of claim which was uncollectible from the assets of the estate after paying other debts.  See explanation and other records attached to 1933 income tax return of LPW." Those persons who were to receive specific bequests under the will of the deceased received from the petitioner out of her own funds amounts equal to the income which they would have received from the bequests under the will.  The petitioner purchased the*902  real estate in the estate for herself at its appraised value.  Her counsel told her that any purchaser of that real estate would want to know that all debts of the estate had been paid or satisfied, and he advised her to include in the files of the estate and in her final account a complete release of her claim against the estate.  She filed such a release, but, as a matter of fact, did not get from the estate or from any other source the $509,718.31 in controversy.  OPINION.  MURDOCK: Glenn H. Curtiss owed the petitioner over $900,000 at the date of his death.  The debt had accumulated over a period of years and was entirely genuine.  Although the petitioner no doubt knew in 1931 that her debt would not be paid in full, nevertheless the amount of the loss was not determinable until the estate was closed in 1933.  A proper charge-off was made in 1933.  Since the extent of worthlessness could not have been determined prior to 1933, that is the year in which the deduction, if any, is allowable.  The petitioner took dower in accordance with her legal right.  She next settled the largest claim against the estate for a cash payment of $565,000.  The remaining assets of the estate*903  were insufficient to pay the remaining debts and expenses.  The petitioner paid those items, other than the debt due her, in full.  She used the remaining *96  assets to pay a part of the debt due herself.  That left $509,718.31 due per unpaid.  The amount was legally due her but in fact was never paid, even though, to close the estate and to relieve the real estate from any cloud, she filed a release of her claim.  The argument of the Commissioner that the debt was paid is not supported by the facts.  The cancellation of the stock of National Investment Holdings, Inc., did not serve to ameliorate her loss in the slightest.  The fact that the debt was allowed in full for estate tax purposs is unimportant.  ; ; ; affirmed by dismissal on stipulation of counsel, March 3, 1938; ; ; affd., *904 ; ; ; affd., ; ; ; ; . The Commissioner argues that the petitioner could have shared pro rata with the other creditors and to the extent that she failed to do so her loss was voluntary.  This point might be troublesome were it not that the petitioner needs only $120,285.47 of her loss to wipe out the deficiency.  The remainder of her loss is far more than sufficient to absorb any voluntary loss on the theory suggested.  The respondent raises the question of whether a dowager may sustain a deductible loss from a bad debt where, by her own act in claiming dower, she prevents her claim as a crditor from being recovered in full.  He does not argue that her claim is not equal to that of any other creditor.  He gives as an example a case where the like any other creditor. *905  He gives as an example a case where the wife loaned $100,000 to her husband; he promptly died with no other asset; and the wife elected to take dower of $50,000.  He argues that the wife would not be entitled to deduct $50,000 as a bad debt.  He cites no authorities in support of his argument.  The facts in the present case are unlike those in the example.  If the large claim of the Herring-Curtiss Co. had been allowed in a sufficient amount, this estate would have been insolvent even though dower had not been taken.  The settlement of that claim for the smaller amount was probably influenced by the election of the widow and by her willingness to pay in full all debts save that due herself.  We are unwilling to say at this time on this record that the petitioner sustained no loss on her debt merely because she exercised her dower right.  Theoretically her loans to him may have increased his estate and the value of her dowry.  The same would have been true had *97  the estate been solvent.  In the latter case the share of the heirs or those taking under the will would be reduced, yet the law permits her to take both dower and debt.  It seems no more startling that she should*906  deduct for a bad debt when the debt is not paid.  A portion of the debt sufficient to wipe out the deficiency is deductible for 1933.  The alternative contention of the petitioner requires no consideration here.  Decision will be entered for the petitioner.