Harrison v. Deutsch

• Decision Date: 28 February 1938
• Docket Number: Gen. No. 39601.
• Citation: Harrison v. Deutsch, 294 Ill.App. 8, 13 N.E.2d 511 (Ill. App. 1938)
• Parties: HARRISON. COLLECTOR OF INTERNAL REVENUE, v. DEUTSCH.
• Court: Appellate Court of Illinois

294 Ill.App. 8

13 N.E.2d 511

HARRISON. COLLECTOR OF INTERNAL REVENUE,

v.DEUTSCH.

Gen. No. 39601.

Appellate Court of Illinois, First District, First Division.

Feb. 28, 1938.

Appeal from Circuit Court, Cook County; Daniel P. Trude, Judge.

Proceeding in the matter of the estate of Joseph Deutsch, deceased, wherein Carter H. Harrison, as Collector of Internal Revenue for the First United States Collection District, Chicago, Ill., filed a claim for additional income taxes for the years 1929, 1931, and 1932. Anna C. Deutsch, individually and as executrix under the last will and testament of Joseph Deutsch, deceased, opposed the claim. The probate court allowed the claim as of class 2a. An appeal was taken to the circuit court, where there was a trial de novo. From a judgment of the circuit court allowing the claim as of the sixth class, Carter H. Harrison, as Collector of Internal Revenue, appeals.

Reversed and remanded, with directions.

MATCHETT, J., dissenting. James W. Morris, Sewall Key, and Clarence E. Dawson, all of Washington, D. C. (Michael Igoe, David L. Bazelon, and Raymond P. Drymalski, all of Chicago, of counsel), for appellant.

Ralph E. Brown, of Chicago, for appellee.

O'CONNOR, Presiding Justice.

Carter H. Harrison, as collector of internal revenue, filed a claim in the probate court of Cook county May 7, 1935, for $32,796.33 against the estate of Joseph Deutsch, deceased, for additional income taxes for the years 1929, 1931, and 1932. No objection to the amount of the claim was made, and it was allowed and ordered to be paid as a claim designated by the court as class “2a.” The estate appealed to the circuit court of Cook county, where there was a trial de novo, the facts being stipulated. The claim was allowed as of the sixth class, to be paid only out of subsequently inventoried assets, if any, and the collector prosecutes this appeal, contending that the claim should have been allowed as class 2a.

The material facts as stipulated are that Joseph Deutsch of Chicago died testate January 23, 1933; his will was admitted to probate in the probate court of Cook county, Ill., and letters testamentary were issued to Anna C. Deutsch on March 8, 1933. April 11th following the executrix notified the collector of internal revenue in Chicago of the death of Deutsch. Afterward the executrix filed an inventory and a supplementary inventory of the assets of the estate, which were approved by the probate court. She also published notice for the adjustment of all claims, as provided by statute. Ill.State Bar Stat.1937, c. 3, § 61. Many substantial claims were filed against the estate during the year following the issuance of the letters testamentary, which were allowed before May 7, 1935, as of classes 1, 3, 5, and 6. The claims were classified pursuant to the provisions of section 70,¹ c. 3, Ill. State Bar Stat.1937. One of these claims for $16,278.82 was allowed as of class 6, in favor of Anna C. Deutsch individually. It was further stipulated that the executrix had not sufficient funds on hand with which to pay all the claims, but has sufficient to pay in full all claims of the first and second class, and a substantial amount will be available to apply on claims falling below the second class.

Joseph Deutsch filed with the collector of internal revenue income tax returns for the years 1929 and 1931, and paid the amount of tax computed. His executrix filed a similar return for 1932. The collector of internal revenue, pursuant to the provisions of the United States statutes, notified the executrix of claimed additional liabilities for 1929, 1931, and 1932. The executrix protested, and afterward assessments of additional federal income tax were made for each of the three years, principal and interest amounting to $32,796.33, and the collector filed his claim in the probate court of Cook county against the estate, as stated.

By section 70,¹ chap. 3, Ill.State Bar Stat.1937, all demands against the estate of the deceased are divided into six classes: (1) Funeral expenses and costs of administration; (2) widow's award; (3) expenses attending last illness, etc.; (4) debts due the common school fund or township; (5) moneys received by the deceased in trust; and (6) all other debts and demands which shall be exhibited to the court within one year from the granting of letters by the probate court. The section further provides that all claims of whatever class and demand not exhibited to the probate court within one year from the granting of letters shall be forever barred as to all property of the estate which has been inventoried or accounted for by the executrix or administrator; and any claims filed after the year are to be paid only out of subsequent inventoried assets.

The position of the collector is that, his claim being for unpaid income tax, the one-year limitation fixed for filing claims by section 70¹ of chapter 3 of our statutes is not applicable and does not prejudice his right to have the claim allowed, to be paid after the claims of the first and second classes; while the executrix' position is that, since the claim was not filed until more than a year after the letters testamentary were issued, the judgment of the circuit court allowing the claim as of the sixth class, to be paid only out of subsequently inventoried assets, was proper.

Section 3466, Revised Statutes of the United States, U.S.C., tit. 31, § 191, 31 U.S.C.A. § 191, provides: “Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied.” And by section 3467, Rev.St.U.S., 31 U.S.C.A. § 192, it is provided that “every executor, administrator, or assignee, or other person, who pays, in whole or in part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid.” Taxes due the United States are debts within the meaning of section 3466. Price v. U. S., 269 U.S. 492, 46 S.Ct. 180, 70 L.Ed. 373. In that case the court said (269 U.S. 492, at page 499, 46 S.Ct. 180, 181, 70 L.Ed. 373):

“The word ‘debts,’ as used in R.S. § 3466 includes taxes.

“The claim of the United States does not rest upon any sovereign prerogative; but the priority statutes were enacted to advance the same public policy which governs in the cases of royal prerogative; that is, to secure adequate public revenue to sustain the public burdens.”

In the early case of United States v. Backus, 6 McLean 443, 24 Fed.Cas. 932, 933, No. 14491, suit was brought by the United States against the executors to recover balance due from the estate of the deceased. It was contended that the claim should have been filed against the estate in the probate court within the period provided by the statutes of Michigan, and, since this was not done, the claim was barred. The court rejected this contention and said: “The exclusive jurisdiction given to the probate court, in the settlement of decedents' estates, cannot affect the claims of the government, however it may bear on private claims. The mode of proceeding in the probate court, and the time given for the settlement of accounts, cannot regulate the claims of the government, nor affect the remedies given to it under its own laws.”

United States v. Hoar, 2 Mason 311, 26 Fed.Cas. 329, No. 15373, was an action by the United States for money had and received against the administrator of an estate, and it was held that neither the generalstatute of limitations nor the statute of limitations of Massachusetts as to executors or administrators binds the United States in a suit brought in the United States Circuit Court.

No suggestion nor contention is made in the instant case that the claim was not filed in the probate court within the time fixed by any federal statute.

In United States v. Nashville, C. & St. L. Ry. Co., 118 U.S. 120, 6 S.Ct. 1006, 30 L.Ed. 81, an action was brought by the government on negotiable bonds made by defendant railroad company to the state of Tennessee. The bonds were owned and held by the United States. The statute of limitations of the state was interposed as a defense, but it was held that the statute did not run against the right of action of the United States. The court there said (118 U.S. 120, at page 125, 6 S.Ct. 1006, 1008, 30 L.Ed. 81): “It is settled beyond doubt or controversy, upon the foundation of the great principle of public policy, applicable to all governments alike, which forbids that the public interests should be prejudiced by the negligence of the officers or agents to whose care they are confined, that the United States, asserting rights vested in them as a sovereign government, are not bound by any statute of limitations unless congress has clearly manifested its intention that they should be so bound.”

Chesapeake & Delaware Canal Co. v. United States, 250 U.S. 123, 39 S.Ct. 407, 63 L.Ed. 889, was an action brought by the United States against the Canal Company to recover the amount of three dividends which had been declared on shares of its capital stock owned by the government. The plea of the statute of limitations was rejected by the trial court, Circuit Court of Appeals, and the Supreme Court, and it was held that said statute of limitations and the doctrine of laches were not applicable to the government.

In Phillips v. Commissioner, 283 U.S. 589, 51 S.Ct. 608, 75 L.Ed. 1289, a corporation had distributed all of its assets among its stockholders and then dissolved. Afterward the Commissioner of Internal Revenue made a deficiency assessment against it for income and profit taxes. The...