Stewart v. Commissioner , 18 B.T.A. 1010 ( 1930 )

MELLIE ESPERSON STEWART, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Stewart v. Commissioner

Docket No. 27894.

United States Board of Tax Appeals

18 B.T.A. 1010; 1930 BTA LEXIS 2548;

February 3, 1930, Promulgated

---

A decedent made his income-tax returns on the cash receipts and disbursements basis. At this death certain interest had been earned but not received by him during life. Held, such interest was properly a part of the gross estate subject to Federal estate tax and when collected by the executrix did not become income to the estate.

B. F. Louis, Esq., and M. G. Smythe, Esq., for the petitioner.

O. J. Tall, Esq., and R. B. Cannon, Esq., for the respondent.

---

MARQUETTE

This proceeding is for the redetermination of a deficiency in income taxes asserted by the respondent for the year 1923 in the amount of $9,413.64. It is alleged that the respondent erred in (1) including as taxable income interest earned on promissory notes prior to the death of the deceased owner of the notes, but not paid until after his death, and (2) including as taxable income $27,796.83 which was a portion of a refund of income and excess-profits taxes due to a corporation of which petitioner's decedent had been a stockholder but which refund was not paid until after the decedent's death.

FINDINGS OF FACT.

Niels Esperson, former husband of the petitioner, died on October 21, 1922, leaving a will which was duly probated on January 2, 1923. Under the will the petitioner was made sole devisee of the entire estate of Esperson, and the sole and independent executrix thereof. Petitioner qualified as such executrix on January 2, 1923.

At the time of his death Esperson owned certain promissory notes payable to him by the Invincible Oil Corporation. The principal and interest were due and payable in 1923 and were paid to the petitioner in that year. The interest on said notes, computed to October 21, 1922, the date of Esperson's death, amounted to $101, 413.10. This amount of interest was not reported by the petitioner as income for 1923 and no part of such amount has been included in the taxable net income of Esperson, or of this petitioner, for any other taxable period. The respondent has increased the petitioner's taxable income for 1923 by the amount of this interest, $101,413.10.

In June of 1919 the stock of the Invincible Oil Co. was sold and later a claim for refund was allowed of income and excess-profits taxes paid by that company prior to the sale of its stock. These events transpired before the death of Esperson and his interest in the Invincible Oil Co. entitled him to a portion of the refunded income taxes. Payment of the refund was not made until 1923, after Esperson's death. His widow, the present petitioner, then received $27,796.83 from such refund, all of which was added to her taxable net income for 1923 by the respondent. At the hearing it was admitted by both parties that, of the total refund so received by the petitioner, $21,623.19 has been properly added to her taxable net income for the year 1923.

During his lifetime Esperson made his income-tax returns upon the cash receipts and disbursements basis.

OPINION.

MARQUETTE: This proceeding presents the following question, namely: Is interest earned but not due and payable prior to decedent's death, properly included as taxable income for the year subsequent to his death, when it is paid?

This question has been before this Board and decided in the negative several times. See ; ; ; , and .

We abide by these decisions. The respondent erred in determining that the interest earned up to the date of Esperson's death and amounting to $101,413.10 constituted taxable income when paid in a later year. The amount of such interest was properly a part of Esperson's gross estate and subject to the Federal Estate tax, but it did not constitute income to the petitioner when collected by her.

As to the second error alleged by the petitioner, it is admitted by the parties that but $21,623.19 of the amount of $27,796.83 should be added to income for 1923. The balance of the latter amount will, therefore, be excluded.

Judgment will be entered under Rule 50.