Bradley v. Commissioner

ESTATE OF M. A. BRADLEY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Bradley v. Commissioner

Docket No. 30638.

United States Board of Tax Appeals

19 B.T.A. 49; 1930 BTA LEXIS 2479;

February 26, 1930, Promulgated

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">*2479 Franklin C. Parks, Esq., for the petitioner.

John D. Kiley, Esq., for the respondent.

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VAN FOSSAN

">*49 This proceeding is brought to redetermine the deficiencies in income tax of decedent, M. A. Bradley, for the period from January 1 to June 30, 1926, inclusive, in the amount of $11,111.05.

The sole issue presented is whether or not the respondent erred in disallowing as a deduction the sum of $47,383.51 representing the county taxes of M. A. Bradley due the County of Cuyahoga, Ohio, and paid by his check prior to his death. The petitioner also includes an item of $93.55 alleged to have been paid as a war tax but this item was not proved at the hearing.

FINDINGS OF FACT.

M. A. Bradley and his son, Alva, were associated together in the real estate business in Cleveland, Ohio. Prior to about June 1, 1926, the relatives of M. A. Bradley, who was suffering from heart trouble, were told that he could not live much longer. On June 20, 1926, his taxes owing to Cuyahoga County, Ohio, for the latter half of the year 1925, became due and payable. Shortly before June 20th the county treasurer of Cuyahoga County was requested to prepare promptly the">*2480 tax statements or bills charged to M. A. Bradley, because of the imminence of his death. On June 23, 1926, the county treasurer, through Alex Bernstein, his chief deputy, delivered such bills to F. W. Watson, bookkeeper for M. A. Bradley. On June 25, 1926, Alva Bradley, duly authorized to sign his father's checks, executed a check of M. A. Bradley payable to Walter E. Cook, treasurer, or order, drawn on the Union Trust Company, for $47,383.51, to cover the amount of the said tax bills. On that day Watson presented the check and tax bills to Bernstein, who accepted the check in payment of the bills. Bernstein knew of the approaching death of M. A. Bradley and of the desire of his son to have the taxes paid before that event should occur. M. A. Bradley died on June 26, 1926.

In 1926 there were about 350,000 taxpayers in Cuyahoga County. Many of them owed small amounts and paid them either by cash or check through the mails and in person at the office of the county treasurer shortly after June 20, the semiannual due date. The banks of Cleveland, authorized as depositaries of county funds, can accept ">*50 only certain maximum deposits in order not to overdeposit. It is">*2481 the custom of the county treasurer promptly to dispose of tax payments made in cash and checks by the small taxpayers and to defer the deposits of large taxes until a convenient time. It is also the custom for the individuals and concerns classed as "large taxpayers," of whom M. A. Bradley was one, to bring to the county treasurer's office "packages" containing a number of tax bills with checks to cover them. These packages are placed in the office vault and after the congestion of office work is relieved, such bills are marked paid and the checks cleared in due course. The check and tax bills of M. A. Bradley were handled in this manner.

On August 2, 1926, the tax bills in question were stamped paid and on September 21, 1926, the check dated June 26, 1926, was deposited by the county treasurer and paid by the Union Trust Co. On June 25, 1926, the balance to the credit of the personal account of M. A. Bradley in the said Union Trust Co. was $12,584.71. However, four other accounts of the said Bradley, who conducted his business affairs personally and not through corporations, contained balances aggregating over $52,300 on that date. In addition he maintained several other">*2482 accounts in other banking institutions. The vice president of the Union Trust Co. stated that the said check of June 25, 1926, "absolutely" would have been paid if and when presented even though there was a balance of only approximately $12,000 in the account, and that it was the established custom of the bank so to treat Bradley's checks. In July and September, 1926, additional deposits were made sufficient to cover the check.

On the tax statements or bills of Cuyahoga County appears this notation:

Checks received for Taxes and not paid on presentation, the Taxes will be restored to duplicate without further notice, and penalty added.

The books of account of M. A. Bradley were kept on the cash receipts and disbursements basis and the income-tax return for the period from January 1 to June 30, 1926, inclusive, was so made by the executors of his estate.

OPINION.

VAN FOSSAN: On June 25, 1926, a check for $47,383.51 in payment of taxes due from M. A. Bradley to the County of Cuyahoga, Ohio, was delivered to and accepted by the county treasurer. Following the office practice the check and tax bills were laid to one side for later attention. On August 2, 1926, the tax">*2483 bills were stamped "paid" but the check was not deposited and paid by the bank until September 21, 1926. M. A. Bradley died on June 26, 1926. The question presented for decision is whether decedent was entitled to ">*51 a deduction for taxes paid under section 214(a) of the Revenue Act of 1926, which provides:

In computing net income there shall be allowed as deductions:

* * *

(3) Taxes paid or accrued within the taxable year except * * *. (Exceptions not material.)

Under the circumstances and facts of this particular case, we are of the opinion that the delivery of the check of M. A. Bradley, made by F. W. Watson in his behalf, to Alex Bernstein, chief deputy of the county treasurer of Cuyahoga County, Ohio, as a liquidation of the tax charges and liabilities of the said Bradley to the County of Cuyahoga and the acceptance of the same constituted a proper payment of such obligations. The underlying purpose of securing a statement of taxes due from Bradley as soon as possible after they became due and payable, was to effect such payment before Bradley's death. The county treasurer, through his deputy, knew specifically of the condition of Bradley's health and was">*2484 impressed with and understood the necessity of the immediate payment of his taxes. Consequently, he furnished the tax statement and accepted Bradley's check from Watson, his bookkeeper, to assist in accomplishing that very purpose. See .

Under normal conditions the tax bills would have been stamped paid in the office of the county treasurer on June 25, 1926, and returned to the taxpayer the same day. That the county treasurer did not wait for clearance of the check through the bank before affixing the stamp is evidenced by the fact that the tax bills were marked paid on August 2, 1926, whereas the check was not paid by the bank until September 21, 1926. Only the stress of business and the accepted practice of the county treasurer's office due thereto prevented the endorsement of payment on the tax bills on June 25, 1926. Had this occurred, we may fairly assume the present question would never have arisen.

Looking into the practical side of the matter, if the usual rule requiring deposit of checks on the next secular day had been complied with, the check might have been paid by the bank before decedent's death. To hold that">*2485 the delay of the county treasurer in depositing the check suspended the fixation of petitioner's rights until such deposit, would introduce such uncertainty into the determination of income as to make accuracy in accounting impossible. It would distort the reasonable intention of the law.

At the least, the payment on June 25, 1926, was a conditional one. The evidence is that the check would have been paid on presentation regardless of the status of the particular account on which ">*52 it was drawn. The check was duly paid. Under well established law the payment of the check on September 21, 1926, related back to the date of its delivery and the debt is deemed to be discharged from that date. 21 R.C.L. 70; ; .

In , we held that the payment by the bank of the check representing a gift was necessary in order to complete the gift. That decision was based primarily on the lack of consideration for the gift. The status of a gift, however, is quite different from that of the payment of the legal obligation">*2486 involved in this case. Hence, our decision in the Dodge case is not in conflict with the views above expressed.

Inasmuch as no definite evidence was submitted relating to the item of $93.55 alleged to have been paid as a war tax, the ruling of the respondent in this respect is approved.

Decision will be entered under Rule 50.