Tooley v. Commissioner of Internal Revenue

• Decision Date: 10 June 1941
• Docket Number: No. 9743.,9743.
• Parties: TOOLEY v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

121 F.2d 350 (1941)

TOOLEY v. COMMISSIONER OF INTERNAL REVENUE.

No. 9743.

Circuit Court of Appeals, Ninth Circuit.

June 10, 1941.

COPYRIGHT MATERIAL OMITTED

Byron Coleman, of San Francisco, Cal., for petitioner.

Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Warner W. Gardner, and O. W. Hammonds, Sp. Assts. to Atty. Gen., for respondent.

Before DENMAN, MATHEWS, and HEALY, Circuit Judges.

DENMAN, Circuit Judge.

Homer H. Tooley, as executor of the will of Carrie M. Botts, who had been the widow of J. M. Botts, seeks review of a decision of the United States Board of Tax Appeals holding that her estate is the transferee, under section 311 of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Code, § 311, of certain assets of the estate of J. M. Botts, and liable as such transferee for the federal tax of Mr. Botts' income for the calendar year 1933. No question is raised concerning the amount of the tax, the sole question being whether Mrs. Botts and her estate are transferees within the provisions of section 311.

The Commissioner's letter to Tooley, as such executor, determined that the estate of J. M. Botts transferred to Carrie M. Botts certain property of that estate; that J. M. Botts' estate owed a federal tax of $16,507 and interest on his income for the calendar year 1933; that it was without assets to pay the tax; that Carrie M. Botts had since died and that the Commissioner, invoking section 311, proposed to assess against her estate, as such transferee of the assets from the estate of J. M. Botts, a liability in the amount of the latter's income tax. Tooley filed his petition with the Board of Tax Appeals protesting the determination of this transfer from the estate of Botts.

The "assets" referred to as received by Carrie M. Botts from the J. M. Botts estate consisted of 1,358.5 shares of the American Marine Paint Company, a corporation, of a value in excess of the amount of the tax. A part of the shares of the corporation had been owned by each of the spouses. They contemplated creating a joint tenancy in them and they were issued to James M. and Carrie M. Botts as joint tenants with the right of survivorship. Nevertheless the California superior court purported to distribute the 1,358.5 shares to Carrie M. Botts in its decree of distribution of Mr. Botts' estate. The Board decided that she acquired them as transferee of the J. M. Botts estate because the decree of distribution finally determined the title so to have passed. Tooley's petition here for review followed.

Tooley contends that the transferee was barred by the limitation of the statute creating the transferee liability. Section 311(b) of that Act provides:

"(b) Period of limitation. The period of limitation for assessment of any such liability of a transferee or fiduciary shall be as follows:

"(1) In the case of the liability of an initial transferee of the property of the taxpayer, — within one year after the expiration of the period of limitation for assessment against the taxpayer; * * *."

The burden of proof is on Tooley to show that the assessment against Mrs. Botts' estate was made after the expiration of the statutory period. The "period of limitation" referred to in section 311¹ includes the time in which there is pending a proceeding before the Board of Tax Appeals to determine the original liability for the income tax, here the liability of Mr. Botts. If this period of time for such proceeding in that case be eliminated from the computation of time within which the transferee's tax may be assessed, the assessment on Mrs. Botts' estate is barred. Otherwise it was within the statutory period.

Tooley contends that this period must be eliminated from that computation because the proceeding before the Board, conducted by one Dollar, executor of Mr. Botts' will, was initiated by him after he had ceased under the California law to be the executor. The record shows that Dollar, as such executor, had notified the Commissioner of his executive capacity. Indeed, he had signed as such executor and given to the Commissioner an extension of time within which the assessment for Mr. Botts' income tax could be made.

Section 312 of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Code, § 312, provides:

"§ 312. Notice of fiduciary relationship

"(a) Fiduciary of taxpayer. Upon notice to the Commissioner that any person is acting in a fiduciary capacity such fiduciary shall assume the powers, rights, duties, and privileges of the taxpayer in respect of a tax imposed by this title chapter (except as otherwise specifically provided and except that the tax shall be collected from the estate of the taxpayer), until notice is given that the fiduciary capacity has terminated.

"(b) Fiduciary of transferee. Upon notice to the Commissioner that any person is acting in a fiduciary capacity for a person subject to the liability specified in section 311, the fiduciary shall assume, on behalf of such person, the powers, rights, duties, and privileges of such person under such section (except that the liability shall be collected from the estate of such person) until notice is given that the fiduciary capacity has terminated."

The regulation of the Commissioner, Article 1241, 1932 Regulations, provides "The `notice to the Commissioner' provided for in section 312 shall be a "written notice signed by the fiduciary and filed with the Commissioner."

This case comes to us upon the petition and answer in Tooley's proceeding contesting the transferee liability and the findings and decision of the Board of Tax Appeals. We do not have the evidence before us. The findings of the Board do not disclose that there was given any notice "signed by" Dollar addressed to "the Commissioner" "that the Dollar's fiduciary capacity has terminated." Dollar's fiduciary capacity and power to conduct the proceeding before the Board therefore continued during that proceeding. The fact that he recited in his petition before the Board that he was no longer executor of Mr. Botts' will was not the notice to the Commissioner required by the statute and the regulation. Sanborn v. Helvering, 8 Cir., 108 F.2d 311, 313.

The Board properly found that the Commissioner's letter to Tooley determining a transferee liability was sent within the limited time, and hence it could consider the merits of the transferee controversy.

Several contentions are argued by the Commissioner as sustaining the contention that Mrs. Botts was the transferee of the assets of Botts. One (A) is based upon the assumption that such a joint tenancy had been created. In that event, the Commissioner claims, Botts at his death transferred his interest in the joint tenancy to his surviving co-tenant and hence Mrs. Botts is a transferee within the provisions of section 311. Another of the Commissioner's contentions is (B) that whether or not she held such a joint tenancy, at Mr. Botts' death the title must be deemed to have been tranferred to her by the decree of distribution of his estate. Another (C) that assuming in California the decree of distribution transfers only such title as was in the decedent, nevertheless the Board has not found the creation of a joint tenancy in Mr. and Mrs. Botts.

A. In California the survivor of a joint tenancy holds the full estate by virtue of the original grant of the joint tenancy and not as a transferee from the deceased co-tenant.

The evidence shows the shares were issued by the corporation to Mr. and Mrs. Botts as joint tenants with right of survivorship in July 1933. It is not suggested that this issue of stock in July, 1933, was with an intent to evade the tax, or that J. M. Botts was not then possessed of other assets to meet any future tax, or even that any income had been received by him in 1933 prior to the issue of the stock. The Commissioner's claim is that, in such a joint tenancy with the right of survivorship, on the death of a joint tenant he then transfers to his co-tenant his interest in the estate formerly held by both. As the Commissioner contends with reference to other questions hereafter considered, this question is to be determined by the California law. In that state the surviving co-tenant's estate does not vest by transfer from his co-tenant at the latter's death. It vests when the joint tenancy is created.

The question has arisen in California in several classes of cases. Probably the most significant with reference to the Commissioner's contention is In re Estate of Gurnsey, 177 Cal. 211, 170 P. 402, 404. There was involved a tax upon property transferred "intended to take effect in possession or enjoyment * * * after the death." The supreme court, holding that a transfer creating a joint tenancy was not a transfer subject to the tax, states: "* * * In Hannon v. Southern Pac. R. Co., 12 Cal.App. 350 355, 107 P. 335, the subject was treated at greater length. It was there shown that at common law the title to the joint property did not pass to and `vest in the survivor' upon the death of his cotenant, but that `each tenant was seised of the whole estate from the first, and no change occurred in his title on the death of his cotenant'; that `it simply "remained" to him,' and came to him `wholly from the original grant,' so that after the death of one, the other, in pleading his title, could allege a conveyance by the original grantor to himself, without mention of the cotenant, citing Coke on Littleton, § 286, and 1 Washburn on Real Property, page 646, and concluding with the following: `It is therefore a mistake to say of joint tenants that the title vests in the survivor upon the death of the cotenant, or that it descends to him from his cotenant; for it had already vested in him by, and at the time of, the original grant.' This is the legal effect of a joint tenancy at common law and under our Code, and it would, of course, prevail without regard to the actual intent of the donor who created it. The inheritance tax law, prior to 1915, imposed...