McGee v. Commissioner ( 1928 )

NELLIE B. MCGEE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

McGee v. Commissioner

Docket Nos. 13292, 29938.

United States Board of Tax Appeals

13 B.T.A. 1181; 1928 BTA LEXIS 3095;

October 23, 1928, Promulgated

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A residuary legatee under a will acquired personal property, within the meaning of section 202(a)(3) of the Revenue Act of 1921, when distributed by the executor and is taxed for purposes of gain pursuant to section 202(a)(3) of the Revenue Act of 1921, using as a basis the fair market value of the property at date of distribution.

Claude I. Parker, Esq., and Ralph W. Smith, Esq., for the petitioner.

Clark T. Brown, Esq., for the respondent.

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MILLIKEN

These proceedings result from the determination by the respondent of deficiencies in income tax for the years 1921 and 1923, in the respective amounts of $4,249.07 and $847.30. The proceedings for both years were consolidated for hearing and decision. The deficiencies arose by reason of the respondent's action in treating the date of death of the testator as the basic date for the computation of profit on the sale of stock inherited by petitioner, instead of the date of distribution as contended for by petitioner.

FINDINGS OF FACT.

Petitioner is an individual residing at Los Angeles, Calif. Ira W. Shirley, a resident of the County of Los Angeles, State of California, died testate on the 12th day of April, 1919. Thereafter, his last will and testament was duly admitted to probate in the Superior Court of the State of California in and for the County of Los

Angeles. In the inventory, as a part of the assets of said estate, there were the following items of personal property, which property was owned by decedent at the time of his death:

500 shares of the capital stock of the Union Oil Co. of California,

250 shares of the capital stock of the Associated Oil Co.,

20,000 shares of the capital stock of the United Oil Co.

Petition for final distribution of the estate of the decedent having been filed, said estate and items of personal property above referred to were duly distributed in accordance with the terms of the will by decree of distribution to the petitioner, on December 1, 1920.

The shares of stock above referred to were of the fair market value as hereinafter indicated on the dates following, and were sold for the following net prices during the years stated:

Number of shares	Description	Date of death	Value per share at death	Value at distribution	Sale price	Year of sale
500	Union Oil of California	Apr. 12, 1919	$124.75	$175.00	$77,002.99	1921
250	Associated Oil	do	79,693	102.50	32,707.00	1923
20,000	United Oil	do	.29	.60	37,134.80	1923

Ira W. Shirley, in his last will and testament, nominated and appointed the Los Angeles Trust & Savings Bank, a corporation, of Los Angeles, Calif., as executor of the last will and testament, directed the executor to pay all his just debts, made specific bequests to individual and charitable institutions, left property in trust for the benefit of his brother and his brother's children, and by clause 4 of the will, provided:

All the rest, residue and remainder of my estate, of every name and nature and wheresoever situate, I give, devise and bequeath unto my beloved wife, Nellie B. Shirley, of Los Angeles, California.

Nellie B. Shirley referred to in the provision of the will above set forth, is one and the same person as Nellie B. McGee, the petitioner herein.

OPINION.

MILLIKEN: Our findings of fact are the result of a stipulation with respect thereto, entered into between counsel for the respective parties. The question of law we are asked to decide relates to a proper interpretation of section 202(a)(3) of the Revenue Act of 1921, or to state the matter in a different way, the question is when was the stock sold by this petitioner acquired within the meaning of the section aforesaid? Respondent urges that she acquired it at the date of the death of the decedent, while counsel for petitioner contends that the acquisition took place at the date of actual distribution to her by the executor of the estate of the decedent.

We have had occasion heretofore to consider the same question here at issue. See , and . Cf. also (writ of certiorari denied by the Supreme Court, ), and . We would be content to rest our decision in conformity with our prior decisions, as well as those referred to above, were it not that respondent had called our attention to the fact that in California the general rule is modified by statute so that title to personal as well as real property vests in the heir or the beneficiaries under the will, subject to the lien of the executor and administrator for the payments of debts and to his right of possession. In , we discussed the general common law rule that title to the personal property of a decedent, either testate or intestate, vests in the personal representative of the decedent.

The departure from the general rule in California does not disturb the broad basis upon which we have decided the question here in issue. It can not be doubted that a residuary legatee under the will acquires an interest in the residuary estate on the date of death of the testator and that such interest may be the subject of sale. It is likewise true that such interest is subject to be defeated by the payment of debts of the testator, expenses of administration, and for the purposes of carrying out the provisions of the will generally. Even under the California statute the contingencies incident to the administration of an estate are just as real as where the general rule prevails.

"Acquisition," as that word is used in section 202(a)(3), means when the legatee receives his legacy in possession vested with the absolute dominion and control over it as distinguished from a contingent interest he may have had at the date of death of the testator. We can not think that Congress intended, by acquisition, to fix the date of death of the testator as such, for the purposes of gain or loss, when the interest received by the legatee or the beneficiary is wrapped in speculation and uncertainty. Especially does this become manifest when the statute makes the executor a taxable entity during the process of the administration of the estate. We can not hold that this petitioner acquired, at the date of death of her husband, the identical stocks and bonds, which, upon final administration of the estate, she received, and ignore the debts and specific bequests to be paid by the executor during the course of the administration with its contingent effect upon the distribution, which she would and did receive.

The broad principles enunciated in , are applicable to this proceeding and the respondent was in error in refusing to take as a basis for gain or loss the fair market value of the stocks and bonds on the date of distribution to the petitioner.

Counsel for respondent has called our attention to section 113(a)(5) of the Revenue Act of 1928. Inasmuch as the provisions of that section are prospective, rather than retroactive, it has no application to the case at bar.

Reviewed by the Board.

Judgment will be entered under Rule 50.