McCarthy v. Commissioner

*526 The taxes in controversy are income taxes for the calendar year 1924, and are in the approximate amount of $3,647.60. The only error which the petitioner now alleges was committed by the Commissioner is that he included in income an amount of $25,000. The facts have been stipulated.

FINDINGS OF FACT.

The petitioner, Walter R. McCarthy, whose principal office is at 706 Board of Trade, Duluth, Minn., is the duly qualified and acting executor of the estate of John Francis McCarthy, deceased.

John Francis McCarthy, the decedent herein, died on April 28, 1923, and at that date, and for a long time prior thereto, was domiciled at and a resident of Duluth, Minn. His last will and testament was filed for probate with the Probate Court of*2570 St. Louis County, Minn., June 11, 1923, and thereafter the will was duly probated and Walter R. McCarthy was duly appointed by the court as the executor of the decedent's estate.

For many years prior to his demise, the decedent was the president of the Capitol Elevator Co., a Minnesota corporation, with its principal office in Duluth.

At a regularly called meeting of the stockholders of the Capitol Elevator Co. held in the City of Duluth, on June 15, 1922, a resolution was passed instructing the board of directors of the company to pay to the decedent $100,000 as additional salary for past services as soon as it could be done conveniently.

The decedent received $75,000 of the aforesaid additional salary prior to his death, and, at the time of his demise, $25,000 thereof was owing him and remained unpaid.

The petitioner filed with the collector of internal revenue at St. Paul, Minn., his return for Federal estate tax, and included therein the $25,000 additional salary remaining unpaid as a debt due to and an asset of the estate and set forth the debt in schedule D-2 of the return as having a value of $25,000.

The respondent duly audited the return for estate tax made*2571 by petitioner and included in the estate of the decedent subject to tax the item of $25,000 and assessed estate tax thereon, which estate tax was paid by the petitioner on October 10, 1924.

The aforesaid $25,000 was paid to the petitioner, as executor of the decedent's estate, during the year 1924. In his income-tax return as executor of the estate of the decedent for the taxable year ending December 31, 1924, the petitioner did not include the $25,000 or any part thereof, as income of the estate.

After the return of the $25,000 as a portion of the assets of the aforesaid estate and the payment of estate tax thereon, the respondent *527 included the amount of $25,000 as part of the taxable income of the estate for the year 1924, the year in which it was paid, and sought and now seeks to collect income taxes thereon.

The income of the decedent during his lifetime and that of his estate after his death was reported in all Federal income-tax returns upon a cash receipts and disbursements basis.

After April 28, 1923, and during the remainder of the year 1923, and all of the year 1924, the estate of John Francis McCarthy rendered no service whatever to the Capitol Elevator*2572 Co., and was entitled to no payment from that company other than the amount of $25,000 and the further amount of $1,500 as salary for the month in which the decedent died.

The inclusion as income of the amount of $1,500, salary due decedent at the time of his death, is excluded as an issue on the presentation of this proceeding for decision by the Board.

OPINION.

MURDOCK: In the decision of this case we are not disturbed by the fact that an estate tax and an income tax may impinge upon each other in their ultimate incidence. . Our problem is the same as it would be had the estate tax been omitted from the statutes. The question is, does or does not the statute require an estate to include in its gross income for income-tax purposes the amount which it finally received in cash, which amount just equals the value at the decedent's death of an asset belonging to the corpus of the estate, which, if received by the decedent during his lifetime, would have been income to him?

Facts have been stipulated which are at least prima facie evidence that the value at the death of the decedent of the asset*2573 represented by the right to receive $25,000 was $25,000, thus overcoming any presumption to the contrary in favor of the Commissioner. ; . When later the estate received $25,000 in cash the capital asset which already formed a part of the corpus of the taxpayer's estate was merely converted into cash and the estate did not as a result of the receipt of that cash have any taxable income. ;; and .

Reviewed by the Board.

Judgment will be entered for the petitioner on notice of 15 days, under Rule 50.