Elbert v. Comm'r of Internal Revenue
| Decision Date | 18 October 1943 |
| Docket Number | Docket No. 11499. |
| Parties | ROBERT G. ELBERT AND MARIAN BOURNE ELBERT (HUSBAND AND WIFE), PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
On the facts, held that this Court has no jurisdiction to allow as recoupment against the deficiency in income tax determined against petitioners for the taxable year the amount of an erroneous payment by them of gift tax in a prior year which was not due and for which a claim for refund was barred by the statute of limitations. Held, further, that if this Court had such jurisdiction the claimed recoupment is not allowable because of the provisions of sections 608 and 609(b) of the Revenue Act of 1928. James H. Purdy, Jr., Esq., for the petitioners.
Walt Mandry, Esq., for the respondent.
The respondent has determined a deficiency of $40,072.15 in the income of petitioners for the taxable year ending October 31, 1938. The pleadings raise the following issues: (1) whether the respondent erred in failing to allow as a deduction in computing taxable net income, office expenses of $23,634.09 representing ordinary and necessary expenses incurred and paid by the petitioners and (2) whether the respondent erred in failing to allow a gift tax paid by one of the petitioners in 1936 in the amount of $18,600 as a credit by way of recoupment, against the deficiency determined herein by reason of the disallowance of interest in the amount of $35,760 in computing taxable net income for the taxable year.
The parties have settled the first issue and it is stipulated that the correct income tax liability is $30,638.46 without giving effect to petitioners' claim for a credit of $18,600 against such liability. Effect to this stipulation will be given under Rule 50.
The second issue is the only one left to be decided.
The proceeding has been submitted upon the pleadings and a stipulation of facts. The stipulated facts not set forth herein are included by reference.
The petitioners are husband and wife and filed a joint return for the period here involved with the collector for the third district of New York.
On December 31, 1935, petitioner Marian Bourne Elbert executed a trust instrument in favor of her daughter, with her husband and herself as trustees and, on that date, delivered to the trustees her check in the amount of $300,000 as the principal of the trust.
On January 3, 1936, the trustees gave to Marian Bourne Elbert their check for $298,000 and received therefor her unsecured note for $298,000, with interest at 6 percent.
On March 16, 1936, Marian Bourne Elbert filed a gift tax return based on the gift of $300,000 and at that time paid the collector of internal revenue a gift tax of $18,600. She did not file a claim for refund of that gift tax and the time for the filing of such claim expired March 16, 1939. The notice of deficiency herein was mailed to petitioners on January 13, 1942, and the petition herein was filed on April 11, 1942.
On October 8, 1936, Marian Bourne Elbert paid the trustees $13,410 as interest on her note of $298,000 from January 3, 1936, to October 3, 1936, and took as a deduction in her separate income tax return for the year ending on the latter date the amount of that interest. The respondent in a notice of deficiency dated August 4, 1939, disallowed the claimed deduction and determined a deficiency of $13,431.80. On November 12, 1941, the United States Board of Tax Appeals (now The Tax Court of the United States) promulgated a decision in Marian Bourne Elbert, 45 B.T.A. 685, based on the notice of deficiency of August 4, 1939, approved the determination of the respondent in disallowing the claimed deduction, and held that the purported gift of $300,000 was not a real gift for tax purposes.
On October 29, 1938, Marian Bourne Elbert paid $35,760 to the trustees as interest on the note of $298,000 from October 3, 1936, to October 3, 1938, and took as a deduction in the petitioners' joint income tax return for the year ending October 31, 1938, the amount of the interest so paid. This deduction was disallowed by respondent in his notice of deficiency for the taxable year involved. The only other adjustments made by respondent in his notice of deficiency were the disallowance of deductions of office expenses in the amount of $23,634.09 and of taxes in the amount of $226.65. All these disallowances resulted in the determination of the deficiency of $40,072.15. Because of the decision in the proceeding above referred to, the petitioners have raised no question as to the disallowance of the $35,760 of interest.
The sole question presented is whether petitioners should be allowed, by way of equitable recoupment, a credit of the $18,600 paid by Marian Bourne Elbert as a gift tax on March 16, 1936, against the deficiency determined herein by the respondent. The statute of limitations had run against the filing of a claim for refund of that amount at the times of the filing of the petition herein and of the mailing of the deficiency notice upon which the petition was based.
The petitioners contend: (1) that this Court has jurisdiction of the claimed recoupment; (2) that the matters involved in the deficiency assessment and the matters involved in the gift tax mistakenly paid arise out of the same transaction; and (3) that, the statute of limitations having run against the filing of a refund of the gift tax paid in 1936, they are entitled to the claimed recoupment. The position taken by the respondent is diametrically opposed to these contentions.
In many cases, among the later ones being Helmuth Heyl, 34 B.T.A. 223, and Red Wing Potteries, Inc., 43 B.T.A. 841, 845, we have held, broadly, (without differentiating a claimed recoupment arising out of the same transaction, as the deficiency against which it is claimed from one that did not) that we have no jurisdiction to allow recoupment, against a determined deficiency, for taxes overpaid or erroneously paid in years prior to the year for which the deficiency is determined, and following those holdings we also hold, as to the first contention of petitioners, that we have no jurisdiction to allow the $18,600 as recoupment against the deficiency involved herein. Cf. Scaife Co., 47 B.T.A. 964.
The petitioners in support of their first contention that this Court has such jurisdiction cites Dixie Margarine Co. v. Commissioner, 115 Fed.(2d) 445, and Gooch Milling & Elevator Co. v. Commissioner, 133 Fed.(2d) 131; certiorari to the United States Supreme Court granted June 1943.
We do not think that the Dixie Margarine Co. case supports petitioners' first contention. In that...
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Elbert v. Johnson
...claimed interest payment. The Tax Court held that it lacked jurisdiction to allow the mistakenly paid gift tax as a credit. Elbert et al. v. Commissioner, 2 T.C. 892. Thereafter on March 17, 1944 the plaintiffs paid the deficiency determined in respect to their 1938 income tax and in due ti......
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