Dorn v. Comm'r of Internal Revenue (In re Estate of Dorn)

Citation54 T.C. 1651
Decision Date26 August 1970
Docket NumberDocket No. 921-69.
PartiesESTATE OF WALTER E. DORN, DECEASED, FRANK DORN, WALTER E. DORN, JR., BEATRICE E. MATHEWS, AND BERNICE M. LANGSTON, CO-EXECUTORS, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
CourtUnited States Tax Court

OPINION TEXT STARTS HERE

Julian N. Stern, for the petitioner.

Sidney U. Hiken and Joyce E. Britt, for the respondent.

Held, in computing the loss realized upon the sale of property, petitioner is entitled to offset the sales proceeds by the expenses of sale, notwithstanding his prior deduction of same as administration expenses on his estate tax return. Sec. 642(g), I.R.C. 1954, is applicable to statutory deductions rather than offsets. Estate of Viola E. Bray, 46 T.C. 577(1966), affd. 396 F.2d 452 (C.A. 6, 1968), followed.

OPINION

FAY, Judge:

Respondent determined a deficiency in the income tax of petitioner for the taxable year beginning November 12, 1964, and ending October 31, 1965, in the sum of $1,343.77. The sole issue for decision is whether in computing gain (or loss) realized from the sale of property, petitioner, who previously deducted the selling expenses incurred in such sale as administration expenses on its estate tax return, is precluded by section 642(g)1 from offsetting the proceeds of sale by the amount of such selling expenses.

The facts have been fully stipulated by the parties. The stipulation of facts, together with exhibits attached thereto, is incorporated herein by this reference.

Decedent, Walter E. Dorn, died testate in San Francisco, Calif., on November 12, 1964. The executors of decedent's estate are Frank Dorn, Walter E. Dorn, Jr., Beatrice E. Mathews, and Bernice M. Langston.

In order to obtain funds with which to finance the administration of the estate and/or pay estate taxes, the Estate of Walter E. Dorn, petitioner herein, sold during 1965 two parcels of real estate belonging to the estate. In selling such real estate petitioner incurred selling expenses totaling $8,213.46, of which $8,051.11 represented brokers' commissions. On its Federal estate tax return, petitioner deducted as administration expenses the sum of $8,051.11. A closing letter with respect to the decedent's estate was issued by the district director of internal revenue, San Francisco, Calif., on May 25, 1967.

Petitioner filed a U.S. fiduciary income tax return for the taxable year November 12, 1964, to October 31, 1965, on January 25, 1966, and an amended return on June 8, 1967, with the district director of internal revenue' San Francisco, Calif. On these returns petitioner reported the gain from the sale of the aforementioned real estate as follows:

Original return:

+--------------------------------------------------------+
                ¦Sale of 10th Ave. Property:        ¦         ¦          ¦
                +-----------------------------------+---------+----------¦
                ¦Sales price—sold 3/1/65            ¦         ¦$45,600.00¦
                +-----------------------------------+---------+----------¦
                ¦Expenses of sale                   ¦         ¦2,782.60  ¦
                +-----------------------------------+---------+----------¦
                ¦Net proceeds                       ¦         ¦42,817.40 ¦
                +-----------------------------------+---------+----------¦
                ¦Basis—acquired 11/12/65 1          ¦         ¦44,000.00 ¦
                +-----------------------------------+---------+----------¦
                ¦Loss on disposition                ¦         ¦(1,182.60)¦
                +-----------------------------------+---------+----------¦
                ¦Capital loss limitation            ¦         ¦(1,000.00)¦
                +-----------------------------------+---------+----------¦
                ¦Carryover to FYE 10/31/66          ¦         ¦(182.60)  ¦
                +-----------------------------------+---------+----------¦
                ¦Sale of Hotel (sec. 1231 asset):   ¦         ¦          ¦
                +-----------------------------------+---------+----------¦
                ¦Sales price—sold 9/4/65            ¦         ¦$96,422.12¦
                +-----------------------------------+---------+----------¦
                ¦Plus: Assumption of liability      ¦         ¦4,266.18  ¦
                +-----------------------------------+---------+----------¦
                ¦                                   ¦         ¦100,688.30¦
                +-----------------------------------+---------+----------¦
                ¦Less: Expense of sale              ¦         ¦5,430.86  ¦
                +-----------------------------------+---------+----------¦
                ¦Net proceeds                       ¦         ¦95,257.44 ¦
                +-----------------------------------+---------+----------¦
                ¦Basis—acquired 11/12/65 1          ¦         ¦97,500.00 ¦
                +-----------------------------------+---------+----------¦
                ¦Loss on disposition                ¦         ¦(2,242.56)¦
                +-----------------------------------+---------+----------¦
                ¦                                   ¦         ¦          ¦
                +-----------------------------------+---------+----------¦
                ¦Amended return:                    ¦         ¦          ¦
                +-----------------------------------+---------+----------¦
                ¦                                   ¦         ¦          ¦
                +-----------------------------------+---------+----------¦
                ¦Sale of 10th Ave. Property:        ¦         ¦          ¦
                +-----------------------------------+---------+----------¦
                ¦Sales price—sold 3/1/65            ¦         ¦$45,600.00¦
                +-----------------------------------+---------+----------¦
                ¦Expenses of sale                   ¦         ¦2,782.60  ¦
                +-----------------------------------+---------+----------¦
                ¦Net proceeds                       ¦         ¦42,817.40 ¦
                +-----------------------------------+---------+----------¦
                ¦Basis—per original return          ¦44,000.00¦          ¦
                +-----------------------------------+---------+----------¦
                ¦plus adjustment                    ¦850.00   ¦          ¦
                +-----------------------------------+---------+----------¦
                ¦                                   ¦         ¦44,850.00 ¦
                +-----------------------------------+---------+----------¦
                ¦Loss on disposition                ¦         ¦(2,032.60)¦
                +-----------------------------------+---------+----------¦
                ¦Capital loss limitation            ¦         ¦(1,000.00)¦
                +-----------------------------------+---------+----------¦
                ¦Capital loss carryover FYE 10/31/66¦         ¦(1,032.60)¦
                +-----------------------------------+---------+----------¦
                ¦Sale of Hotel (sec. 1231 asset):   ¦         ¦          ¦
                +-----------------------------------+---------+----------¦
                ¦                                   ¦         ¦          ¦
                +-----------------------------------+---------+----------¦
                ¦Sales price—sold 9/4/65 1          ¦         ¦$96,422.12¦
                +-----------------------------------+---------+----------¦
                ¦Less: Expense of sale              ¦         ¦5,430.86  ¦
                +-----------------------------------+---------+----------¦
                ¦Net proceeds                       ¦         ¦90,901.26 ¦
                +-----------------------------------+---------+----------¦
                ¦Basis—per original return          ¦97,500.00¦          ¦
                +-----------------------------------+---------+----------¦
                ¦Less: Adjustment                   ¦1,077.88 ¦          ¦
                +-----------------------------------+---------+----------¦
                ¦                                   ¦         ¦96,422.12 ¦
                +-----------------------------------+---------+----------¦
                ¦Loss on disposition                ¦         ¦(5,430.86)¦
                +-----------------------------------+---------+----------¦
                ¦                                   ¦         ¦          ¦
                +--------------------------------------------------------+
                 

1 It is agreed that 11/12/65 is a typographical error which is hereby corrected to read 11/12/64.

1 Total sales price on original return included the amount of an assumed liability of $4,266.18; and adjustment to the taxable estate eliminates this.

In his notice of deficiency respondent disallowed the claimed selling expenses with respect to the sale of the 10th Avenue property and the hotel to the extent of $2,730 and $5,321.11, respectively, on the ground that such disallowed amounts totaling $8,051.11 had been deducted on petitioner's estate tax return, citing section 642(g). Petitioner did not sign a waiver described in section 642(g) with respect to its Federal estate tax return.

Section 642(g)2 provides in general for the disallowance of double deductions in the case of an estate which incurs expenses deductible both for estate and income tax purposes. Under this section amounts allowable as a deduction in computing the taxable estate are disallowed ‘as a deduction in computing the taxable income of the estate’ unless there is filed a statement waiving the right to have such amounts allowed as a deduction from the gross estate. Petitioner, relying heavily upon this Court's decision in Estate of Viola E. Bray, 46 T.C. 577(1966), affd. 396 F.2d 452 (C.A. 6, 1968), takes the position that section 642(g) is, by its terms, applicable to statutory deductions alone and oes not prohibit the use of selling expenses as an offset against the sales proceeds.

In Estate of Viola E. Bray, supra, this Court held that selling expenses incurred by an estate upon the sale of its securities may be subtracted as an offset from the proceeds of sale, notwithstanding the deduction of the same expenses in computing the estate tax liability of the estate. Accord, Commerce Trust Co., Executor v. United States, an unreported case (W.D. Mo. 1969, 24 A.F.T.R.2d 69-5918, 69-2 U.S.T.C. 12,635); Kreher v. United States, an unreported case (M.D. Fla. 1970, 25 A.F.T.R.2d 70-938, 70-1 U.S.T.C. 9,331); and Mercantile Safe-Deposit & Trust Co. v. United States, an unreported case (D. Md. 1970, 25 A.F.T.R.2d 70-1310, 70-1 U.S.T.C. 12,68 5)...

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