Cleveland v. Higgins

• Decision Date: 10 April 1945
• Docket Number: No. 156.,156.
• Citation: 148 F.2d 722
• Parties: CLEVELAND et al. v. HIGGINS, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Second Circuit

148 F.2d 722 (1945)

CLEVELAND et al. v. HIGGINS, Collector of Internal Revenue.

No. 156.

Circuit Court of Appeals, Second Circuit.

April 10, 1945.

Earl A. Darr, of New York City (Francis A. Devin, of New York City, of counsel), for plaintiffs-appellees.

James B. M. McNally, U. S. Atty., of New York City (John B. Creegan and Joseph C. Kenney, Asst. U. S. Atty., both of New York City, of counsel), for defendant-appellant.

Before CHASE, HUTCHESON, and FRANK, Circuit Judges.

CHASE, Circuit Judge.

The plaintiffs are executors of the will of Alfred W. Erickson, a resident of the City of New York who died November 2, 1936. They duly filed an estate tax return and then elected, pursuant to the option provided by § 302(j) of the Revenue Act of 1926, as added by amendment by § 202 (a) of the Revenue Act of 1935, 26 U.S. C.A. Int.Rev.Acts, page 231, to have the value of the gross estate determined by a valuation as of one year after the date of decedent's death. Upon audit of the return, the Commissioner determined a deficiency by adding to the gross estate as reported the amount of the estate's income during the year following the decedent's death. The estate tax as thus determined was paid in 1939, the last payment being made on September 29th. The executors contended through their attorneys that this income was not lawfully includable in the gross estate and filed a claim on October 24, 1939, for the refund of the taxes assessed and paid because it had been included. On November 24, 1939, an amended claim for the same refund was filed and on January 29, 1940, the Commissioner rejected both the original and the amended claim in full.

The executors then brought suit against this defendant, who is the Collector of Internal Revenue for the Third District of New York, to recover the refund claimed. After the suit had been brought, the Supreme Court decided Maass v. Higgins, 312 U.S. 443, 61 S.Ct. 631, 85 L.Ed. 940, 132 A.L.R. 1035, on March 3, 1941. That decision left no defense to the suit, and in accordance with a stipulation of the parties it was dismissed with prejudice after the plaintiffs had been paid the amount of their claimed overpayment of the estate taxes with interest.

The attorneys who filed the refund claim for the executors also brought the above mentioned suit for them and carried it to the conclusion stated. They charged, and were paid for their services after the completion of that work $18,346.18. The executors paid them on August 21, 1942, and on September 14, 1942, filed another claim for the refund of $7,668.69 with interest. This claim was based on a diminution of the gross estate in computing the net estate for tax purposes by deducting the amount of the payment to the attorneys as administration expenses deductible pursuant to § 303(a) (1) (B), as amended, 26 U.S.C.A. Int.Rev.Acts, page 232, and T. R. 80, Art. 34.

The refund claim was rejected, however, on November 16, 1942, on the ground that the dismissal of the first suit with prejudice after the payment to the plaintiffs of the entire refund claimed was res adjudicata as to all overpayments of estate taxes and barred the allowance of the additional claim for refund.

The plaintiffs brought this suit on November 23, 1942, to recover the claimed refund. A motion by the defendant to dismiss the complaint on the ground that it failed to state a cause of action was denied by the district judge then sitting in the motion part. The case was tried by another judge without a jury, the facts being stipulated, and the trial judge, following what he deemed to be the law of the case as established by the decision on the motion to dismiss the complaint, held that this suit was not barred by the dismissal with prejudice of the first action and entered judgment for the plaintiffs for the amount claimed. The defendant then appealed.

The appellant's position on this appeal may be stated as follows: The estate tax was upon the net value of the taxable estate of the decedent and consequently was one tax. The amount of the overpayment of it was conclusively established in the first suit not only as to what was included in the first claim for refund but as to what might have been so included. The whole amount later paid the attorneys could have been included by estimation in the first claim and the outcome of the first suit is, therefore, res adjudicata as to the entire claim in the present action. But, if recovery is not barred for that reason as to the entire amount here in controversy so much of it is barred as is attributable to the amount earned by the attorneys up to the time the first refund claim was filed, and as that has not been shown the judgment must be reversed because the appellees did not prove how the correct amount of any overpayment could be determined.

The estate tax was assessed and paid as a single tax, and...