The opinion
MARSHALL VAN WINKLE, EXECUTOR, ESTATE OF ANNA EISELE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Van Winkle v. Commissioner
Docket No. 36900.
United States Board of Tax Appeals
21 B.T.A. 1343 ; 1931 BTA LEXIS 2205 ;
January 23, 1931 , Promulgated
*2205 Where a sole beneficiary is entitled to the income of an estate and in the taxable year the executor of the estate pays both a Federal estate tax and a New Jersey inheritance tax and files a fiduciary return showing the gross income of the estate and deducts therefrom the Federal estate tax and New Jersey inheritance tax paid, and the beneficiary files a return reporting as her distributable income the net income of the estate after the deduction of the above referred to taxes, held, that the payment of the Federal estate tax and the New Jersey inheritance tax is claimed as a deduction by the beneficiary. Frances E. B. Lentz, 21 B.T.A. 1336 , followed.
J. B. Grice, C.P.A., for the petitioner.
Arthur Carnduff, Esq., for the respondent.
SMITH
*1343 This proceeding is for the redetermination of an alleged deficiency in income tax of Anna Eisele for the calendar year 1923. The amount of the deficiency set forth in the deficiency notice mailed to Anna Eisele on January 30, 1928, was $1,073.58. Subsequent to the filing of the petition and answer, the respondent filed an amended answer, without objection, alleging that the deficiency *2206 in tax amounts to $1,505.33, which sum is the amount in controversy in *1344 this proceeding. The alleged deficiency results from the action of the respondent in adding to the amount of the income returned by Anna Eisele as having been received by her from the estate of John Eisele, her deceased husband, certain Federal estate and New Jersey State inheritance taxes paid by the estate of the late John Eisele.
The death of the original petitioner, Anna Eisele, subsequent to the filing of the petition having been suggested to the Board, Marshall Van Winkle, executor of the estate of Anna Eisele, on motion was substituted as party petitioner in this proceeding. The facts were stipulated.
FINDINGS OF FACT.
Anna Eisele, the original petitioner in this proceeding, died in December, 1929. She was the widow of the late John Eisele, who died testate in 1922. His will provided in part:
Second: - I nominate, constitute and appoint my wife Anna Eisele and Marshall Van Winkle, Counsellor-at-Law, of Jersey City, the executors and trustees of and under this my last Will and Testament.
Third: - I give, devise and bequeath all property real and personal of every kind, of which *2207 I may die seized or possessed to said Anna Eisele and Marshall Van Winkle, my said trustees and direct that the same be held by my said trustees in trust, to receive and collect the same and to invest and re-invest the same and in addition to the legal investments allowed trustees by law, to invest in bonds secured by first mortgages on improved real estate of valuation as approved by my trustees; and to continue any of my investments, all, as in their judgment may seem best; and I direct them to pay the income from my said estate, thus received and invested, at such periodical times as may be convenient, to my said wife Anna Eisele as long as she may live. This provision is in lieu of dower.
* * * After the death of my said wife, I direct my remaining executor and trustee said Marshall Van Winkle, or whoever may be acting as trustee under this Will, to divide my said property then remaining, whether principal, or accrued income, then unpaid to my said wife, equally among my children, namely Caroline A. Wells, Lillian Schuster, Clara F. Traeger, Pansy B. Buetzer and John Eisele.
Anna Eisele's entire and only income in the year 1923 was derived from the proceeds of such estate.
*2208 The gross income of the estate of John Eisele for the calendar year 1923 was $24,465.67 and there was paid on behalf of his estate during that year: Federal estate tax $11,181.47
New Jersey State inheritance tax 3,958.91
Other taxes 549.48
Legal and professional services 2,700.00
Marshall Van Winkle, as executor of the estate of John Eisele, filed a fiduciary return of income for that estate for the year 1923 with the *1345 collector for the fifth district of New Jersey on March 15, 1924. In the return he reported total income amounting to $24,465.67, deductions amounting to $18,389.86, and net income of $6,075.81, naming Anna Eisele as beneficiary with 100 per cent beneficial interest and stating distribution to her of $6,075.81. The deductions taken on the return consisted of: Federal estate tax $11,181.47
New Jersey State inheritance tax 3,958.91
Other taxes 549.48
Legal and professional services 2,700.00
Total 18,389.86
For the calendar year 1923, Anna Eisele filed an income tax return on March 13, 1924, in which she reported total and net income amounting to $6,075.81 derived from the estate of John Eisele, stated *2209 that the tax on the income from the estate had been paid by the fiduciary, and claimed no tax due from her.
The respondent determined that the estate of John Eisele was not liable to income tax for the calendar year 1923 for the reason that the total income of his estate was taxable to Anna Eisele, the beneficiary, and that the distributable income of the estate included the amount used by the estate in the payment of the Federal estate tax and the New Jersey State inheritance tax, both of which were paid in 1923.
OPINION.
SMITH: Section 703 of the Revenue Act of 1928 provides in part as follows:
(a) In determining the net income of an heir, devisee, legatee, distributee, or beneficiary * * * or of an estate for any taxable year, under the Revenue Act of 1926 or any prior revenue Act, the amount of estate, inheritance, legacy, or succession taxes paid or accrued within such taxable year shall be allowed as a deduction as follows:
(1) If the deduction has been claimed by the estate, but not by the beneficiary, it shall be allowed to the estate;
(2) If the deduction has been claimed by the beneficiary, but not by the estate, it shall be allowed to the beneficiary;
* *2210 * *
(b) As used in this section, the term "claimed" means claimed -
(2) In a claim in abatement filed in respect of an assessment made
(2) In a claim in abatement filed in respect of an assessmentm ade on or before June 2, 1924.
The contention of the respondent in this proceeding is that the Federal estate tax paid by the estate is an allowable deduction from the gross income of the estate for income tax purposes; that having *1346 been so paid and claimed as a deduction by the estate it can not be claimed by the beneficiary as a deduction from income; that inasmuch as the widow, Anna Eisele, was entitled under the terms of her deceased husband's will to receive the entire income from the estate during her life, that income was without deduction for Federal estate tax and for the New Jersey inheritance tax.
The argument of the respondent is made without taking into account the provisions of section 703 of the Revenue Act of 1928. That section contemplates that the deduction of the Federal estate tax and of State inheritance taxes shall be allowed either to the estate or to the beneficiary. If it was claimed as a deduction in the income tax return for the estate *2211 it is to be allowed to the estate in the determination of its tax liability; if claimed in the tax return for the beneficiary it is to be allowed as a deduction to the beneficiary. See . The question for our determination is for whose benefit the deduction was claimed in the circumstances of the present proceeding.
The respondent's contention that the Federal estate tax and the New Jersey inheritance tax were claimed as a deduction by the estate of John Eisele is not sustained. No income tax return on Form 1040 was filed by the estate. On the fiduciary return which was filed the deduction of the taxes in question was in effect claimed for the benefit of the beneficiary. As we stated in , resort may be had to the fiduciary return for the purpose of determining whether the deduction of the Federal estate tax and the State inheritance tax paid is being claimed by the estate or by the beneficiary. Reading the fiduciary return filed by the estate of John Eisele with the income tax return of Anna Eisele, it is apparent that the Federal estate tax and the New Jersey inheritance *2212 tax were applied entirely against the beneficiary's portion of the income of the estate in arriving at the amount of Anna Eisele's distributable income - $6,075.81, and it follows from the Lentz case that the deduction was claimed by her. The fact that it was reported on the fiduciary return instead of on the individual return of Anna Eisele is of no consequence. The taxable income of Anna Eisele for the calendar year 1923 was $6,075.81, the amount shown on her individual return.
Reviewed by the Board.
Judgment will be entered under Rule 50.