McIlhenny v. Commissioner ( 1928 )

FRANCES P. McILHENNY, FRANCIS S. McILHENNY, AND THE PENNSYLVANIA COMPANY FOR INSURANCE ON LIVES AND GRANTING ANNUITIES, EXECUTORS, ESTATE OF JOHN D. McILHENNY, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

McIlhenny v. Commissioner

Docket No. 12395.

United States Board of Tax Appeals

13 B.T.A. 288; 1928 BTA LEXIS 3278;

August 30, 1928, Promulgated

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">*3278 The Commissioner's decision on a question of law which results in the allowance of a claimed loss does not estop him from reversing such opinion and asserting a deficiency based upon the disallowance of the deduction claimed.

R. E. Lamberton, Esq., for the petitioners.

Harold Allen, Esq., and W. R. Lansford, Esq., for the respondent.

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ARUNDELL

">*288 The respondent has determined deficiencies of $2,043.82 and $5,358.14 in income taxes for the years 1920 and 1921, respectively. At the hearing petitioners abandoned the errors alleged in their petition and upon leave granted amended the petition so as to raise a single issue for 1920. The issue presented and upon which the case was tried is whether the respondent after having issued an assessment letter on or about February 27, 1924, in which a pro rata share of losses sustained by the estate of John McIlhenny was allowed as a deduction, to John D. McIlhenny, a beneficiary thereunder, was thereby estopped from determining a deficiency on January 8, 1926, in which said deduction was disallowed.

FINDINGS OF FACT.

The petitioners are the duly appointed executors of the Estate of John D. ">*3279 McIlhenny, who died November 23, 1925, a resident of Philadelphia, Pa. John McIlhenny, father of the decedent, died testate February 23, 1916. Clause four of his will reads as follows:

All the rest, residue and remainder of my estate, real, personal and mixed, whatsoever and wheresoever, I give, devise and bequeath to my beloved wife, Bernice B. McIlhenny, for and during all the term of her natural life, without her being required to give any bond for the protection of the remaindermen. Upon the death of my said wife or upon my death if I survive her, I direct that my said entire residuary estate shall be divided share and share alike, absolutely and in fee simple, amongst all my children, the living, and the issue of deceased children, such issue together taking only such share as their parent would have received if living.

Bernice B. McIlhenny predeceased John McIlhenny, having died January 8, 1915.

For the year 1920 the executors of the estate of John McIlhenny returned net income of $23,129.86. Among the deductions claimed was a loss of $23,747.10 sustained on the sale of the following stocks:

200 shares United Gas Improvement Co	$4,364.00
400 shares Washington Gas Light Co	14,401.60
100 shares Consolidated Gas Co	4.981.50

">*3280 ">*289 During February and March, 1923, a revenue agent made an examination of the records of the estate of John McIlhenny and of the decedent in connection with their returns filed in the years 1918 to 1920, inclusive. In his report the revenue agent listed the losses incurred by the estate in the sale of the above shares of stock, but disallowed these losses as a deduction in determining the income received from the estate by the several residuary legatees, including the decedent, on the ground that "loss on sale of securities is against the corpus of Estate." The revenue agent in said report made other changes not now in issue and recomputed the distributive shares of income of the five legatees, increasing the distributive shares of income of the decedent on account of disallowance of loss on the sale of such securities by one-fifth of the amount of the loss. A copy of the report of the revenue agent was furnished each taxpayer.

On or about May 22, 1923, the decedent filed with the respondent a protest against the disallowance of the deductions and the increases in income shown by the revenue agent's report, including the increase in income caused by the disallowance">*3281 of the losses on sale of securities of the estate of John McIlhenny. On February 27, 1924, the respondent after giving consideration to the revenue agent's report and decedent's protest expressly allowed the sum of $23,747.10 for losses on sale of securities of the estate of John McIlhenny as a deduction in determining the distributive shares of the five residuary legatees. In his letter to decedent the respondent stated:

The deduction of $23,747.10 claimed in Block C of the return for 1920 for the John McIlhenny Trust, representing losses sustained through the sale of securities has been allowed in full.

The respondent then disallowed some of decedent's contentions on other points, and computed and assessed against decedent an additional tax of $5,506.78, which additional tax was duly paid by decedent.

Under date of November 18, 1925, the respondent wrote of the decedent advising that an examination of his return for the year 1920 showed additional income of $4,749.42, on account of which there would be an additional tax of $2,043.82. The explanation of this increase given by the Commissioner in said letter was as follows:

Loss of $23,747.10 on the sale of securities">*3282 of the John McIlhenny Trust has been disallowed. Losses sustained by an estate or trust on the sale of its property are not deductible by the beneficiary. Such losses will be reflected in the final liquidation of the corpus of the estate. Your pro rata share of the loss disallowance amounts to $4,749.42. This amount has been added to your net income.

">*290 This action of the respondent was protested by the petitioner in a brief filed by the former under date of December 11, 1925, in which the petitioner stated that:

This matter, therefore, having been fully considered by the Treasury Department, and having once been passed upon by the Department, it is respectfully submitted, should be considered as res adjudicata.

The deficiency letter forming the basis of this proceeding was issued on January 8, 1926.

OPINION.

ARUNDELL: The petitioners do not question in this proceeding the correctness of respondent's determination as embodied in his notice of deficiency dated January 8, 1926. They do contend, however, that respondent, having once determined decedent's tax liability, may not reopen and reconsider the case and that in the absence of fraud the determination">*3283 once made must stand. Nor do they limit their contention to a case where the reopening was by a different person from the one making the prior determination.

The argument made rests upon the decision in . As we understand that case it involved only the question of the power of a Commissioner to revise findings of fact of a predecessor in office. In our case Commissioner Blair was in office when the letter of February 27, 1924, was written, which allowed the decedent the loss deduction claimed, and likewise when the deficiency was determined and the petitioners notified thereof by letter of January 8, 1926. The Kales decision is therefore not in point with the question here presented. But putting aside this distinction between the cases, the Kales decision does recognize that a mistake of law made by a Commissioner "will often, or usually justify a revision of his conclusion." The question upon which the Commissioner in the case before us reversed his opinion was a question of law and not a question of fact.

The question presented in this case has been decided adversely to the contentions of the petitioners in">*3284 ; ; and .

Judgment will be entered for the respondent.