Harris v. United States
| Decision Date | 09 December 1966 |
| Docket Number | No. 10541.,10541. |
| Citation | 370 F.2d 887 |
| Parties | Robert E. HARRIS and Dorothy H. Harris, Appellants, v. UNITED STATES of America, Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
William G. Wilson, Logan, W.Va., and W. E. Parsons, Huntington, W. Va., for appellants.
Albert J. Beveridge, III, Atty., Dept. of Justice (Mitchell Rogovin, Asst. Atty. Gen., Lee A. Jackson and Melva M. Graney, Attys., Dept. of Justice, and Milton J. Ferguson, U. S. Atty., on the brief), for appellee.
Before SOBELOFF, BRYAN and CRAVEN, Circuit Judges.
Recovery of income taxes paid for 1954, 1955 and 1956 was unsuccessfully sued for in the District Court by Robert E. Harris and his wife, and they appeal. The decisive point is whether moneys received by him from a family-owned corporation in these years were repayments on a loan or were dividends. On the undisputed facts we think the assessment as income — dividends — was not warranted, and we reverse.
By his will B. C. Harris, a resident of West Virginia who died on February 11, 1948, devised an estate appraised at $925,684.57 for the ultimate benefit of his wife, Lula M. Harris; his son Robert E. Harris (taxpayer); and his nephew Carl F. Shelton. Named as executors were his wife and a lawyer. Distribution of the estate was prescribed principally by the following testamentary provisions:
The net income of the estate for the first three years was this:
1948 $149,031.47
1949 55,121.01
1950 3,562.10
___________
Total: $207,714.58
This income as received was credited on the books of the executors to the beneficiaries in separate accounts. From time to time cash payments thereof were made to them and charged to their accounts. The income so credited, however, largely remained in the accounts of the beneficiaries.
The moneys so remaining, together with other sums advanced by the beneficiaries, were with their consent used by the executors to defray Federal estate and State inheritance taxes. This application of the estate income was dictated by the desire to save the liquidation for that purpose of the decedent's real estate, which then appeared to be on a rising market. A sale, the executors thought, would sacrifice its fair value.
The credits of the estate income to the taxpayer during 1948, 1949 and 1950 came to $83,085.83. Along with that posted to the other beneficiaries, this credit was reported each year by the executors to the Internal Revenue as a payment made to the taxpayer. Each beneficiary returned and paid taxes on these credits as income in the respective years.
Meanwhile, the executors organized Harris, Incorporated, as the holding company ordered by the will, opening for business on July 1, 1949. At that time the principal assets assignable to Harris, Inc. were transferred to it. The remainder due Harris, Inc. was received by the corporation on July 1, 1950, the aggregate assets amounting to $331,584.84. This over-all figure was entered on the corporate books as capital stock (250 shares at $100 par value) of $25,000 and "Paid-in or Capital Surplus $306,584.84." On July 1, 1950 the following entry was made:
"Surplus — Paid-In .......................... $244,512.01
Mrs. Lula M. Harris ................... $146,334.85
R. E. Harris ........................... 54,640.99
Carl F. Shelton ........................ 43,536.17
This entry made to repay advancements on Federal
Estate and West Virginia Inheritance Taxes on the
Estate of B. C. Harris
Notes Payable .................................. $244,512.01"
The figures opposite the beneficiaries' names represent amounts owing to them from the estate, as reckoned by the executors before they closed the administration on October 2, 1950. Included was the total of the remaining balances due the beneficiaries out of the net estate income credited to the beneficiaries. The excess of $36,797.43 of the aggregate of the notes — $244,512.01 — over the total — $207,714.58 — of the estate net income for 1948, 1949 and 1950 is made up of other advancements made by the beneficiaries to the estate. For these balances the corporation's 6% demand notes were given the beneficiaries.
Taxpayer's note was for $54,640.09. Payments were made to him in 1954, 1955 and 1956. They were designated as interest and curtails. The interest was returned by him for taxation as income. The remainder was treated by the taxpayer as repayment of loans made to the estate. This treatment was disallowed by the Commissioner of Internal Revenue. He determined there was no loan of the estate-income-moneys and that the whole of such payments to the taxpayer was dividends. On this determination he assessed deficiencies which were paid by the taxpayer and are the subject of his suit.
The position of the Government is that the net income, although posted to the account of the beneficiaries, remained as part of the estate, was appropriately used by the executors and was turned over to the corporation as a portion of the estate assets. The assertion is that the taxpayer never had such control over the funds as would enable him to make a loan of the sums put to his account. This stance is taken because of the will's directions that the executors pay costs of administration, debts and taxes before distributing the estate. The argument is that if the income was needed to pay taxes, as taxpayer and the other beneficiaries say was the purpose of their loans to the estate, then there could have been no valid pre-disbursement of these moneys to them. Hence, before the taxes were paid, the moneys credited to the beneficiaries were not beyond the control of the executors.
To fortify this view the Government refers to sections 162(b) and (c), Internal Revenue Code of 19391, with its judicial interpretations, stating what distributions of income during administration are deductible in computing taxes on estate income. The statute reads:
To continue reading
Request your trial
-
Bohan v. United States
...entitled to them, or received them." Id. See also Bond's Estate v. United States, 326 F.2d 999, 164 Ct.Cl. 180, 187; Harris v. United States (C.A.4) 370 F.2d 887; and Hay v. United States (N.D.Tex.) 263 F.Supp. 813 and cases therein cited. In the last case, the Court held that in order to b......
-
In re Estate of Johnson
...65 F.2d 371, 373 (2d Cir. 1933), cert. denied sub nom. Stearns v. Burnet, 290 U.S. 670 (1933) (emphasis added); 7 Harris v. United States, 370 F.2d 887, 892 (4th Cir. 1966); see Igoe v. Commissioner, 19 T.C. 913, 923-924 (1953). Petitioner and Willard's estate have the same executors and ac......
-
Dunlap v. WARMACK-FITTS STEEL COMPANY
... ... Clair Lime Company, a Partnership, Appellees ... Nos. 18437, 18438 ... United States Court of Appeals Eighth Circuit ... January 11, 1967 ... Opinion Amended and Rehearing ... ...
-
Berry v. Comm'r of Internal Revenue (In re Estate of Horne), Docket No. 28700-85
...for the charitable deduction in this case is a question of state law. Riggs v. Del Drago, 317 U.S. 95 (1942); Harris v. United States, 370 F.2d 887, 893 (4th Cir. 1966); Estate of Short v. Commissioner, 68 T.C. 184, 190 (1977). In this regard, petitioner argues that its position is supporte......