Phillips v. Commissioner , 36 B.T.A. 1102 ( 1937 )

ESTATE OF PAMPHILA H. PHILLIPS, DECEASED, THOMAS W. PHILLIPS, JR., BENJAMIN D. PHILLIPS, AND GRACE PHILLIPS JOHNSON, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Phillips v. Commissioner

Docket No. 87519.

United States Board of Tax Appeals

36 B.T.A. 1102; 1937 BTA LEXIS 625;

December 8, 1937, Promulgated

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1. Where a taxpayer estate has paid in settlement of the estate and inheritance taxes due the State of Pennsylvania an amount which is in excess of the credit allowed under the provisions of section 301(b), Revenue Act of 1926, as amended, the credit to which the estate is entitled may not be reduced by an amount which the Commissioner contends the taxpayer estate is entitled to receive as a refund from the state but which in fact the taxpayer has never received and there is no showing that it will ever receive.

2. Article 9(b) of Regulations 80 (1937 edition) provides how the taxpayer estate shall report to the Commissioner any refunds received from the state, of any inheritance or estate taxes previously paid to the state and provides that the liability of the estate to the Federal Government for estate taxes shall be increased accordingly. This article of the Commissioner's regulations will be applicable, if and when petitioners receive a refund from the State of Pennsylvania of any estate or inheritance taxes heretofore paid to it. In the absence of such a refund the regulation is not applicable.

W. W. Booth, Esq., for the petitioners.

H. F. Noneman, Esq., for the respondent.

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BLACK

On June 12, 1937, the parties to this proceeding filed with the Board a stipulation that the following is a true statement of the estate tax liability of this estate:

Total estate tax liability	$99,271.28
Credit for state estate, legacy, succession	$27,253.06
or inheritance taxes
Net estate tax liability	$72,018.22
Tax assessed March, 1934, P 100, L 2, paid March 2, 1934	$35,852.76
Deficiency	$36,165.46

Following the filing of such stipulation, the Board, on June 16, 1937, entered its decision that there was a deficiency in estate tax in the amount of $36,165.46. On September 13, 1937, respondent filed a motion asking that the Board vacate its decision entered June 16, 1937. As grounds therefor respondent alleged that, in the computation of the deficiency as agreed upon in the stipulation filed with the Board, the parties through a mistake of fact deducted a credit for state estate, legacy, succession, or inheritance taxes in the amount of $27,253.06, whereas the proper amount to be allowed as a credit for such taxes, under the circumstances which exist, is $26,693.06.

Petitioners have filed an answer to respondent's motion in which they allege in substance that they have paid to the Commonwealth of Pennsylvania in cash the sum of $27,509.77 in payment of inheritance and estate taxes; that they are entitled to the full credit of $27,253.06 against Federal estate taxes allowable by the Revenue Act of 1926; and that no mistake of fact was made by the parties in the computation of the deficiency shown on the stipulation filed herein on June 12, 1937, as alleged in respondent's aforesaid motion.

Respondent's motion and petitioners' answer thereto came on for hearing October 27, 1937, at which time the parties introduced a stipulation of facts to which they had agreed, which stipulation we adopt as part of our findings of fact.

FINDINGS OF FACT.

The total estate tax liability of the estate of Pamphila H. Phillips, deceased, as determined by a stipulation filed in this proceeding and pursuant to which the Board made its order of June 16, 1937, is $99,271.28.

Eighty per centum of the estate tax imposed by the Revenue Act of 1926 against the said estate is $27,253.06.

On or about May 5, 1933, petitioners paid to the Commonwealth of Pennsylvania, pursuant to the inheritance tax laws of that state, the sum of $10,640, being the gross tax in the amount of $11,200 less discount of 5 percent, or $560. On November 1, 1935, petitioners paid to the Commonwealth of Pennsylvania on account of normal inheritance tax the sum of $256.71 plus interest of $51.34. On or before May 5, 1937, the Commonwealth of Pennsylvania assessed against petitioners an additional estate tax, pursuant to the Act of May 7, 1927, P.L. 859, as amended, of $16,613.06, which was paid to said Commonwealth by petitioners on May 7, 1937. The total gross payment of inheritance and estate taxes to the Commonwealth of Pennsylvania was $28,069.77 and the total net payment in cash was $27,509.77.

On March 2, 1934, petitioners paid to the collector of internal revenue at Pittsburgh, Pennsylvania, on account of Federal estate taxes, the sum of $35,852.76, and on July 8, 1937, petitioners paid to said collector the further sum of $36,165. Petitioners have paid to said collector on account of Federal estate taxes the total sum of $72,018.22.

No refund of any of the amounts of estate and inheritance taxes paid by petitioners to the Commonwealth of Pennsylvania as recited in the foregoing stipulation has been made to petitioners and no claim for refund thereof is pending.

OPINION.

BLACK: Respondent concedes that petitioners are entitled to a credit on their Federal estate tax for amounts paid to the Commonwealth of Pennsylvania of an amount not in excess of $27,253.06. It has been stipulated that petitioners have actually paid to the Commonwealth of Pennsylvania, in cash, the sum of $27,509.77, exclusive of interest. It can readily be seen that this is $156.11 more than the credit to which respondent concedes that petitioners are entitled if they have paid that much within the statutory definition of "actually paid." But it is respondent's contention that under the decision of the Supreme Court of Pennsylvania in ; , petitioners are entitled to a refund of part of the tax which they have paid to the Commonwealth of Pennsylvania, and that when they do get such refund the amount allowable as a credit in the computation of Federal estate tax will be $26,693.06, which, together with the discount of $560, equals $27,253.06, the maximum amount of credit allowable.

We shall not in this opinion enter into any extensive discussion of It may well be that, under the law as construed in that case by the Supreme Court of Pennsylvania, petitioners have overpaid the estate tax and inheritance taxes due the Commonwealth of Pennsylvania and are entitled to a refund of part of what they have paid, but we have not the power to decide that question. The effect of what the Supreme Court of Pennsylvania decided in that case is stated in the syllabus of its opinion, as follows:

1. The discount permitted by section 38 of the Act of June 20, 1919, P.L. 521, for prompt payment of the normal inheritance tax may be claimed as a credit by the executors of an estate of a decedent by the Act of May 7, 1927, P.L. 859.

2. The "total" taxes actually paid "which by the Act of May 7, 1927, P.L. 859, is to be deducted from the credit of eighty per cent allowed by the federal law is the amount of the tax which was discharged by payment, and not the sum of money which the Commonwealth accepts in satisfaction of the normal tax."

The decision of the Supreme Court of Pennsylvania on this particular point of discounts allowed in payments in determining the estate and inheritance taxes due the Commonwealth of Pennsylvania seems to be contrary to what the Board has held in determining what credit an estate is entitled to have for amounts of estate and inheritance taxes paid to the state, in determining the amount of estate taxes to be paid the Federal Government.

Under the Board's decision in ; affd., , tax-paying estates are not entitled to have credited to them as taxes "actually paid" the amount of discount allowed by the state for the prompt payment of state estate and inheritance taxes. The applicable revenue act involved is section 301(b) of the Revenue Act of 1926, which reads as follows:

(b) The tax imposed by this section shall be credited with the amount of any estate, inheritance, legacy, or succession taxes actually paid in any State or Territory or the District of Columbia, in respect of any property included in the gross estate. The credit allowed by this subdivision shall not exceed 80 per centum of the tax imposed by this section and shall include only such taxes as were actually paid and credit therefor claimed within three years after the filing of the return required by section 304.

It appears from the facts which have been stipulated that, in the payment of $11,200 inheritance taxes due under the laws of the State of Pennsylvania, petitioners were allowed a discount of 5 percent, which amounted to $560. Undoubtedly under our decision in , this amount of $560 should not be counted in determining the credit to which petitioners are entitled under section 301(b), supra. Petitioners do not contend otherwise. But, leaving this $560 discount entirely out of consideration, the facts show that petitioners still have paid to the State of Pennsylvania the net cash amount, exclusive of interest, of $27,509.77 as state estate and inheritance taxes, which is more than they are asking as a credit in the computation of the amount due the Federal Government.

Are we to reduce this amount by some theoretical refund to which respondent claims petitioners are entitled from the Commonwealth of Pennsylvania under the doctrine announced by the Supreme Court of that state in In re Markle's Estate? We think not. Petitioners' contention in short is that they have paid the amount in controversy to the State of Pennsylvania and they do not want to pay it again to the Federal Government. They say that they have received no refund from the State of Pennsylvania in the amount that respondent says they are entitled to receive and that they have not even filed a claim for a refund. Petitioners contend that, if and when they do receive a refund of any of the amount which they have paid to the State of Pennsylvania, they would be required to report that fact to the Commissioner of Internal Revenue and pay any additional estate tax which might be due the Federal Government by reason thereof. We think petitioners are correct in this contention.

The concluding paragraph of article 9(b) of Regulations 80 (1937 edition), dealing with credit for estate, inheritance, legacy, or succession taxes, reads as follows:

If, subsequent to the allowance of a credit by the Commissioner, a refund is made of any such estate, inheritance, legacy, or succession taxes, the executor, or if the refund is made after the executor's discharge, then any person or persons to whom the refund is made, is required to advise the Commissioner of the date of the refund and the amount thereof, furnish the Commissioner with a description of the property or interest in respect to which the refund was made and pay the Federal estate tax, if any, due as a result of such refund, together with interest.

As we have already pointed out, petitioners have received no refund of any part of the estate and inheritance taxes which they have paid the Commonwealth of Pennsylvania on account of the estate of decedent, Pamphila H. Phillips, and no claim for a refund is pending. If and when any such refund is received, it will be their duty to report it to the Commissioner as provided in the regulation quoted above and pay any additional Federal estate tax which may become due by reason thereof. We would not be justified in denying to petitioners the credit which they are entitled to receive under section 301(b) of the Revenue Act of 1926, as amended, merely because the Commissioner alleges they are entitled to receive a refund of some part of the estate and inheritance taxes which they have paid to the Commonwealth of Pennsylvania but which refund, so far as we know, they may never in fact receive.

Upon the facts stipulated and the applicable law and regulations, we find in favor of the petitioners on the only issue involved. An order will be entered denying respondent's motion to vacate our decision of June 16, 1937.