First Nat. Bank v. Commissioner of Internal Revenue

• Decision Date: 11 June 1940
• Docket Number: No. 7185.,7185.
• Citation: 112 F.2d 260
• Parties: FIRST NAT. BANK OF CHICAGO et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Seventh Circuit

112 F.2d 260 (1940)

FIRST NAT. BANK OF CHICAGO et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 7185.

Circuit Court of Appeals, Seventh Circuit.

May 13, 1940.

Rehearing Denied June 11, 1940.

Herbert Pope, Benjamin M. Price, and Francis H. Uriell, all of Chicago, Ill., for petitioners.

Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Warren F. Wattles, J. P. Wenchel, and John M. Morawski, Sp. Assts. to Atty. Gen., for respondent.

Before MAJOR and KERNER, Circuit Judges, and LINDLEY, District Judge.

LINDLEY, District Judge.

Petitioners seek reversal of a decision of the Board of Tax Appeals confirming an assessment against them as transferees of George C. Rew for additional tax in the amount of $75,478.47, assessed upon Rew's income for the period from January 1, 1924, to June 10, 1924.

On March 10, 1924, Rew conveyed to petitioners as trustees all of his assets, reserving to himself for life the income and power to revoke. He died testate, without property, on June 10, 1924. His executors, on or about October 8, 1924, filed an income tax return on his behalf for the taxable period, January 1, 1924, to June 10, 1924. On September 11, 1928, the Collector gave them final notice of determination of deficiency in the testator's income tax for the period mentioned. The executors, in November, 1928, petitioned the Board to redetermine the liability, and upon review on June 5, 1936, the Board entered an order deciding that there was a deficiency as asserted by the commissioner, and an assessment was made against the executors therefor, which has never been paid. Upon review the decision of the Board was affirmed by this court. Stanton v. Commissioner, 7 Cir., 98 F.2d 739. Petition for certiorari was denied December 5, 1938, 305 U.S. 650, 59 S.Ct. 243, 83 L.Ed. 421.

We now approach the issue in the present case, in which the Board has held petitioners liable as transferees for the assessment previously made against Rew's estate. Notice of deficiency was mailed June 23, 1937, to the trustees as transferees, informing them of determination of the deficiency for the period as aforesaid and its assessment against the trust as transferee of the deceased taxpayer. Upon review, the Board sustained the deficiency and that decision the trustees seek to reverse.

It is first insisted by petitioners that the Statute of Limitations bars assessment against the transferees, on the ground that the proceeding against the estate of Rew was of no avail as a suspension of the running of the Statute of Limitations against an assessment upon the trust. It becomes essential, therefore, to examine the statutes.

Under Section 277 of the Revenue Act of 1926, assessment against a taxpayer must be made within four years after the return is filed. Under Section 280(c) if the taxpayer is deceased, the period of limitation for assessment is the same as if he had not died, and by paragraph (b) of the same section, the period of limitation prescribed for assessment of liability of a transferee is extended one year from the expiration of the period of limitation for assessment against the taxpayer. Under Section 281(a) the executors, upon qualification, so far as liability of Rew for income tax was concerned, assumed the power, rights, duties and privileges of the taxpayer. By Section 277 paragraph (b), the running of the Statute of Limitations is suspended for the period during which the commissioner is prohibited from making the assessment and pending any proceeding for final determination in court or before the Board and for sixty days after final decision therein. 26 U.S.C.A.Int.Rev.Acts, pp. 207, 213, 214.

It is the position of the government that the proceeding initiated by the executors, throughout its pendency, suspended the running of the statute so far as the liability of the transferees was concerned. Petitioners insist that the proceedings were of no such avail but that on the contrary, the commissioner was bound to determine any deficiency as against them within the statutory period of five years from the date of the return of the executors, as provided in Section 280(b) and (c), and that, having failed to do so within that period, he is now barred. If the government's premise is correct, the deficiency notice to the transferee was within the suspended period.

In Sanborn v. Helvering, 8 Cir., 108 F.2d 311, the court was confronted by a situation similar to the one presented here, the only difference being that in the Sanborn case the assets were transferred by the executors of the will after the death of decedent, in pursuance of a testamentary provision, whereas in the present case, the assets were transferred by the decedent prior to his death. The court there sustained the contention of the government that the pendency of proceedings between the executors and the commissioner suspended the Statute of Limitations against assessment of deficiency against the transferees. In Commissioner v. Gerard, 9 Cir., 78 F.2d 485, the court held that the suspension of the running of the statute as to a demand against the taxpayer operated to suspend, for the same period, the Statute of Limitations as to assessments against the transferee. To the same effect are American Equitable Assur. Co. of New York v. Helvering, 2 Cir., 68 F.2d 46; California Iron Yards Corp. v. Commissioner, 9 Cir., 82 F.2d 776; certiorari denied, 299 U.S. 553, 57 S.Ct. 15, 81 L.Ed. 407; Continental Oil Co. v. United States, Ct.Cl., 14 F.Supp. 533, certiorari denied, 301 U.S. 694, 57 S.Ct. 921, 81 L.Ed. 1349. We agree with the reasoning of these cases and in the conclusion that suspension of the statute as against the transferor works a suspension of the statute as to the transferees, and, as held in the Sanborn case, that the suspension of the statute as to liability asserted against the executors works likewise a suspension of the statute as to the transferees. We see no distinction in legal effect between a transfer made by a decedent before his death and one made after his death in pursuance of his testamentary provision. The executor is the fiduciary of the decedent. Under the pertinent federal act, he assumes the obligations of and succeeds to the privileges of his decedent. If the transferor remains alive and contests an assessment, the statute is suspended as to actions against the transferee during the pendency of such proceedings. When the decedent dies and an executor assumes his obligation and succeeds to his privileges, it is the same as if the decedent himself were acting. The transferee's relationship to the decedent and that to the latter's executor are exactly the same. The recognized suspension as to the transferee, in case the transferor remains alive, is not affected by the death of the decedent and the appointment of a legal agent to act for him. We agree with the Board that the Statute of Limitations was no bar to the assessment.

The parties disagree also as to the effect of the decision of this court in the executors' case, the petitioners insisting that they as transferees are not in privity with the estate of the decedent and, therefore, not bound by...