Hostetter v. United States, 7233.

• Decision Date: 09 August 1940
• Docket Number: No. 7233.,7233.
• Citation: 113 F.2d 64
• Parties: HOSTETTER v. UNITED STATES.
• Court: U.S. Court of Appeals — Third Circuit

113 F.2d 64 (1940)

HOSTETTER v. UNITED STATES.

No. 7233.

Circuit Court of Appeals, Third Circuit.

June 27, 1940.

Rehearing Denied August 9, 1940.

H. F. Stambaugh, of Pittsburgh, Pa., for appellant.

F. E. Youngman, Sp. Asst. to Atty. Gen., George Mashank, Acting U. S. Atty., and Elliott W. Finkel, Asst. U. S. Atty., both of Pittsburgh, Pa., Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., for appellee.

Before BIGGS, MARIS, and CLARK, Circuit Judges.

MARIS, Circuit Judge.

This is an appeal from a judgment of the District Court for the Western District of Pennsylvania entered against the petitioner in a suit under the Tucker Act, 24 Stat. 505, for the recovery of additional income tax paid by her for the year 1926. D.C., 28 F.Supp. 227.

The petitioner is a life tenant under the will of her husband, D. Herbert Hostetter. The decedent left property in California which was subject to tax under the California Inheritance Tax Act, St.Cal.1921, p. 1500. This tax was paid on February 10, 1926, by check drawn by the Fidelity Title and Trust Company, an executor and trustee of the estate against funds of the estate. The petitioner filed her individual income tax return for 1926 on March 14, 1927, on the cash receipts and disbursements basis and paid the tax shown thereon to be due. On March 12, 1930, she filed a claim for refund. The basis of her claim was that she had omitted to take as a deduction in computing her 1926 net income her proportion of the California inheritance tax. Neither the petitioner nor the estate had claimed this deduction in their tax returns. The petitioner's right to the deduction, if any, is found in section 703 of the Revenue Act of 1928, 26 U.S.C.A.Int.Rev. Acts, page 467, which provides:

"Sec. § 703. Deduction of Estate and Inheritance Taxes — Retroactive

"(a) In determining the net income of an heir, devisee, legatee, distributee, or beneficiary (hereinafter in this section referred to as `beneficiary') or of an estate for any taxable year, under the Revenue Act of 1926 or any prior revenue Act, the amount of estate, inheritance, legacy, or succession taxes paid or accrued within such taxable year shall be allowed as a deduction as follows:

"(1) If the deduction has been claimed by the estate, but not by the beneficiary, it shall be allowed to the estate;

"(2) If the deduction has been claimed by the beneficiary, but not by the estate, it shall be allowed to the beneficiary;

"(3) If the deduction has been claimed by the estate and also by the beneficiary, it shall be allowed to the estate (and not to the beneficiary) if the tax was actually paid by the legal representative of the estate to the taxing authorities of the jurisdiction imposing the tax; and it shall be allowed to the beneficiary (and not to the estate) if the tax was actually paid by the beneficiary to such taxing authorities;

"(4) If the deduction has not been claimed by the estate nor by the beneficiary, it shall be allowed as a deduction only to the person (either the estate or the beneficiary) by whom the tax was paid to such taxing authorities, and only if a claim for refund or credit is filed within the period of limitation properly applicable thereto;

"(5) Notwithstanding the provisions of paragraphs (1), (2), (3), and (4) of this subsection, if the claim of the deduction by the estate is barred by the statute of limitations, but such claim by the beneficiary is not so barred, the deduction shall be allowed to the beneficiary, and if such claim by the beneficiary is barred by the statute of limitations, but such claim by the estate is not so barred, the deduction shall be allowed to the estate."

Clauses (1), (2) and (3) are clearly inapplicable since neither the petitioner nor the estate claimed the deduction in their returns. The right, if any, must therefore be found in clauses (4) or (5). Clause (4) grants the right to the deduction "only to the person (either the estate or the beneficiary) by whom the tax was paid". Section 703(a) allows the deduction only for taxes "paid or accrued within such taxable year". Without more the fact that the entire tax assessed upon the value of the property in California was paid by one check, drawn by the Fidelity Title and Trust Company, an executor and trustee under the will, upon funds belonging to the corpus of the estate would justify the District Court's conclusion that the estate and not the beneficiaries paid the tax. The petitioner's contention is that the beneficiaries are liable for the California tax; that she and the other beneficiaries borrowed from the estate the funds necessary to pay the tax; that it was with the funds so borrowed that the tax was paid; that the executor and trustee paid the tax...