Alston v. United States

• Decision Date: 09 January 1964
• Citation: 228 F. Supp. 216
• Parties: Philip H. ALSTON, Jr., and the Citizens and Southern National Bank, Executors of the Estate of Charles Loridans, Plaintiffs, v. The UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of Georgia

228 F. Supp. 216

Philip H. ALSTON, Jr., and the Citizens and Southern National Bank, Executors of the Estate of Charles Loridans, Plaintiffs, v. The UNITED STATES of America, Defendant.

United States District Court N. D. Georgia, Atlanta Division.

January 9, 1964.

Alston, Miller & Gaines, Atlanta, Ga., for plaintiff.

Slaton Clemmons, Asst. U. S. Atty., Atlanta, Ga., and Edward A. Copley, Tax Division, Dept. of Justice, Washington, D. C., for defendant.

HOOPER, Chief Judge.

In this case motion for summary judgment has been made by both plaintiffs and the defendant and the facts are not in dispute.

The sole question at issue is whether or not, as contended by the plaintiffs, the administration expenses incurred by the Estate of Charles Loridans should be, for purposes of ascertaining the estate tax, charged against certain bequests, or whether (as contended by the Government) they should be charged against the residue of the estate devised to charity, and consequently constituting a deduction in connection with computation of such estate taxes. Apparently it raises questions of first impression in this state

The estate tax return reported a gross estate of $5,923,446.89. There were deductions (exclusive of specific exemption of $4,445,053.79 leaving a taxable estate of $1,418,393.10. Tax reported thereon was $493,925.10 which, after claiming credit for state death taxes of $63,017.16, resulted in a net estate tax reported of $430,907.94

The District Director determined a gross deficiency of $50,225.63 which was reduced by $7,491.39 on account of additional state death taxes, reducing the tax deficiency to $42,734.24 for which assessment was made together with interest, and was paid by the executors who have now sued for a refund.

The will of Charles Loridans after providing for payment of certain debts and expenses and certain specific bequests, bequeathed the residue to Charles Loridans Foundation, Inc., a charitable institution. Administration expenses totaled $66,827.33, all of which was paid in the fiscal year ending May 31, 1957, the payments being reflected on the books and records of the Citizens and Southern National Bank, one of the executors, as charges against the estate's principal account. On February 26, 1960 a reversing entry was made in such records transferring the same to the estate's income account. Affidavits have been submitted to the court by plaintiffs reciting that these expenses were actually paid out of post-mortem income of the estate rather than paid out of corpus. The Government contends there is a question of fact concerning the source of such payment, also contending as a matter of law, that regardless of that issue the Government is entitled to summary judgment for the reason as alleged, that regardless of the actual source of the funds used to make payments "the payment of an estate's administration expenses serves to reduce the amount of the residuum as a matter of law."¹

The Government contends that the executors are bound by the election made by them at the time they paid administration expenses, carrying said payment on their books as made from the principal or corpus of the estate, citing Luehrmann's Estate v. Commissioner of Internal Revenue, 8 Cir., 287 F.2d 10, which case is also cited by plaintiffs. That case, however, in the opinion of this Court does not support the contentions of either party, but the thrust of the ruling there made concerns the election which executors may make as between deduction for estate tax purposes pursuant to § 812(d) on the one hand, or for income tax purposes as permitted by § 162(e).

In the instant case the plaintiff executors first paid the administration expenses, charging it on its books as though paid from "principal", meaning of course, from corpus of the estate. Later it is contended that the entry on the books was in error and that such payment was intended to have been made out of subsequent income from the corpus of the estate accruing after death of testator. Even if made from the income of the estate that payment would not have changed the net taxable value of the estate, which under the law, is fixed as of the date of death. Income subsequently received, which is properly included in the income tax returns by the executors, does not and cannot change the value of the estate as of the date of death.

"If the estate income is used to pay, claims against the estate so as to increase the residue, such increase in the residue is acquired by

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