Bagnall v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 76521.

• Citation: 35 BTA 1
• Decision Date: 03 November 1936
• Docket Number: Docket No. 76521.
• Parties: BLANCH A. BAGNALL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

35 B.T.A. 1 (1936)

BLANCH A. BAGNALL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 76521.

Board of Tax Appeals.

Promulgated November 3, 1936.

Harry W. Elliott, Esq., for the petitioner.

Francis L. Van Haaften, Esq., for the respondent.

OPINION.

STERNHAGEN:

The Commissioner determined a deficiency of $1,957.90 in petitioner's income tax for 1930. The petitioner assails the increase of her reported individual income from a trust, which increase was the result of the disallowance of a deduction taken by the trust of the amount of inheritance and estate taxes paid by the trust. The facts are stipulated, and only a question of law is involved.

Petitioner's husband, before his death in 1929, made a trust in contemplation of death, the corpus of which was included in the estate upon which Federal estate tax and California inheritance tax were imposed. The trustee of the trust was a different person from the administrator of the estate, and each filed a separate income tax return for 1930. Between them, they apportioned the estate and inheritance taxes upon the ratio of their portions of the property included in the taxable estate, and each paid his share. The petitioner was the sole beneficiary of the trust, and all its income was distributable to her. The trustee on the fiduciary return took a deduction of the amount ($26,547.31) paid by it as its share of estate and inheritance taxes, and thus it reduced its net income. On its return, it showed all of such net income to be distributed to petitioner as beneficiary, and it is stipulated that on her individual return she included this net amount in her taxable income. On the separate fiduciary return of the administrator of the estate, the deduction for taxes was limited to the amount actually paid by him, that is, the proportionate share aforesaid. Even with this limited deduction, its net income was reduced to nil, and hence it is plain to be seen that if it had deducted the entire tax imposed upon the estate it would have reduced its income tax no further. This adventitious circumstance perhaps accounts for the method of the three returns and the present controversy, for if the decedent had not made his trust, the entire income would have come to the administrator, returnable in his gross income, and the deduction of the entire estate and inheritance tax would have operated upon the amount of his income tax.

Section 23 (c) of the Revenue Act of 1928 provides for the deduction of taxes, and includes the following:

* * * For the purpose of this subsection, estate, inheritance, legacy, and succession taxes accrue on the due date thereof, except as otherwise provided by the law of the jurisdiction imposing such taxes, and shall be allowed as a deduction only to the estate.

Words could not be plainer to confine the use of the deduction to the decedent's estate. In cases where the beneficiary of the decedent's estate sought the deduction, its disallowance has been sustained under this statute. Gillette v. Commissioner, 76 Fed. (2d) 6; Martz v. Commissioner, 82 Fed. (2d) 110. This the petitioner admits,...