Gurnee v. Commissioner , 13 B.T.A. 262 ( 1928 )

WALTER S. GURNEE AND C. J. O'CONOR, EXECUTORS, ESTATE OF BELL B. GURNEE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Gurnee v. Commissioner

Docket No. 10429.

United States Board of Tax Appeals

13 B.T.A. 262; 1928 BTA LEXIS 3285;

August 17, 1928, Promulgated

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The fact that estate tax paid in the taxable year exceeds the income of the estate does not render a beneficiary's distributive share nontaxable.

Edward H. Green, Esq., for the petitioners.

Maxwell E. McDowell, Esq., for the respondent.

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ARUNDELL

The respondent determined an overassessment of income tax for 1919 in the amount of $306.26 and deficiency for 1920 in the amount of $1,817.14. The overassessment arises out of the partial rejection of a claim in abatement. The petition filed sought a redetermination of taxes for both years, but at the hearing counsel for petitioners abandoned the 1919 proceeding. The question for 1920 is whether respondent erred in taxing as income the amount received by Bell B. Gurnee as a beneficiary of the estate of Walter S. Gurnee, the executors of that estate having paid a Federal estate tax in that year in excess of its income.

FINDINGS OF FACT.

Petitioners are the duly qualified executors of the estate of Bell B. Gurnee, who died in 1925, a resident of the State of New York.

In 1920 decedent received from the executors of the estate of Walter S. Gurnee, as a beneficiary under his will, the sum of $34,613.78, which was returned as income. Of this sum $17,306.89 was included in Schedule H as dividends and subjected only to surtax, and the balance, $17,306.89, was included as other income from fiduciaries in Schedule C and subject to both normal tax and surtax.

In the same year, 1920, the executors of the estate of Walter S. Gurnee paid a Federal estate tax in the amount of $375,793.61. The entire income of the estate for that year was less than the Federal estate tax paid and the estate had no net income in that year.

OPINION.

ARUNDELL: It is the contention of the petitioners that the amount which Mrs. Gurnee received in 1920 as a beneficiary under the will should not be included in income. The argument is that the law taxes only the beneficiary's distributive share in the net income of an estate, and, as the estate here had no net income there was no distributive share upon which the law could operate. It is not contended that the estate had no gross income; the lack of net income was due to the payment of the Federal estate tax.

This question at first glance would seem to be governed by the decision in , and the decisions of the Board which are collated in . The petitioners argue that the Baltzell decision is not opposed to their contention here but on the contrary supports it. Their theory is that the court recognized a distinction between income from capital transactions and income in which a beneficiary could share, and that inasmuch as there was sufficient income of the latter class, the beneficiary was taxable on the amount received. True, the losses involved in the Baltzell case were capital losses, but we do not understand the decision to rest on that fact. Our understanding of the basis of the decision is that the distributive share of a beneficiary which is to be returned as income must be determined in accordance with the terms of the trust regardless of the amount of gains or losses of the trust entity. This result naturally follows from the well established fact that the estate or trust and the beneficiary are separate taxable entities. . What income the estate may have, or what deductions it may take are of no interest to a beneficiary where the latter's distributive share is fixed by the terms of the instrument creating the estate or trust.

The principle involved in this case is the same as that in the case of , although the question is put in a different form. In that case the beneficiary claimed a deduction for estate taxes which he paid to prevent the sale of real estate comprising a part of the corpus of the estate. The deduction claimed was disallowed on the ground that the taxes under , were allowable as a deduction only to the estate and not to the beneficiary. The fact that the question is framed differently in the two cases does not change the result. See also .

Judgment will be entered for the respondent.