Meurer v. Comm'r of Internal Revenue

• Decision Date: 17 June 1952
• Docket Number: Docket No. 26714.
• Citation: 18 T.C. 530
• Parties: MAE F. MEURER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

18 T.C. 530

MAE F. MEURER, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 26714.

Tax Court of the United States.

Promulgated June 17, 1952.

1. Petitioner purchased real property which was used as a family residence and later converted to rental property. Held, that since petitioner has failed to prove the market value of the property on the date on conversion she has failed to show error in the determination of the Commissioner as to basis.

2. On the basis of the facts presented, held, petitioner has not proved as claimed that she suffered a loss in the taxable year as the result of a transaction entered into for profit.

3. The distribution to the petitioner in the taxable year by the estate of her deceased mother of income which had accrued prior to the death of her mother in 1937 does not constitute taxable income to the petitioner. Emanuel A. Stern, Esq., for the petitioner.

Robert B. Jacoby, Esq., for the respondent.

The respondent determined a deficiency in income tax against the petitioner for the calendar year 1944 in the amount of $5,522.03. Of the adjustments made by the respondent in determining this deficiency petitioner alleges that he erred (1) in reducing the basis of a certain parcel of real property which petitioner sold in the taxable year which adjustment resulted in a gain rather than a loss as reported, and (2) in disallowing in full an amount which petitioner claimed was a loss incurred in the taxable year resulting from a transaction entered into for profit.

In what was presented in the form of a third assignment of error, the petitioner claimed an overpayment of tax in that she erroneously included on her return as income an item of $600 received from the estate of her deceased mother.

FINDINGS OF FACT.

Part of the facts were stipulated and they are so found.

Petitioner resides in New York City. She filed her income tax return for the year 1944 with the collector of internal revenue for the third district of New York.

On October 11, 1926, petitioner purchased certain real property in Natick, Massachusetts, which consisted of land, a dwelling, and a chicken house. The purchase price was $22,000 and the funds were provided by petitioner's father. A garage was built on the property in the year 1927 at a cost of $3,500. This property was purchased for the specific purpose of providing a suburban residence for petitioner's brother because the petitioner's family wanted him to live outside the city for reasons of his health. Petitioner never occupied the property as her residence but from the date of its purchase in 1926 until his death in December 1929 petitioner's brother occupied it as his residence, rent free. Thereafter the property stood vacant for a short period and was then rented. On January 20, 1944, petitioner sold this property for $10,710. Brokerage and legal expenses incident to this sale amounted to $530.

On September 14, 1937, petitioner's mother died. She left a will in which she named the petitioner's as executrix. The will was duly admitted to probate and the petitioner duly qualified as executrix and has been acting as such ever since.

Included in decedent's property was a parcel of real property situated at Belle Terre, Port Jefferson, Long Island, New York, which property had been the family summer residence. Decedent devised the Belle Terre property to the executrix to be sold and the proceeds to be paid in equal shares to her three daughters, petitioner and her two sisters, in accordance with paragraph SIXTH of the will, which paragraph reads as follows:

SIXTH: I give, devise and bequeath to my Executrix or Executor all my real property situate at Belle Terre, Port Jefferson, Long Island, N.Y., including the residence and other buildings thereon and the appurtenances thereto, and I direct said Executrix or Executor to sell the same as soon as practicable after my death, but without the sacrifice ordinarily incident to a forced sale. The determination of my said Executrix or Executor as to the price, terms and conditions of such sale shall be conclusive and binding upon all parties interested in the proceeds thereof. I give and bequeath the net proceeds of such sale in equal shares to my daughters MAE, GRACE and ANNA, or the survivors or survivor of them. I further direct that until the sale of said property my daughter MAE shall be permitted to occupy the same, if she shall desire to do so, free from any rent. Until said property shall be sold, I direct my Executrix or Executor to maintain the same in the same manner that I shall have maintained it prior to the date of my death, and that said Executrix or Executor shall pay all taxes, assessments, water charges, insurance and similar charges incident to such maintenance out of the principal of my residuary estate.

I give and bequeath all of the furniture, furnishings, rugs, books, paintings, pictures, bric-a-brac and other household effects which may be located in my said homestead at Belle Terre and which I may not have given to my daughter MAE prior to the time of my death, in equal shares, to my daughters MAE, GRACE and ANNA, or to the survivors or survivor of them.

After several specific legacies the will provided that the residue of the estate was to be held in trust during the lives of the three daughters for their benefit in accordance with paragraph TWELFTH of the will, which reads in part as follows:

TWELFTH: All the rest, residue and remainder of my estate, real and personal, of whatsoever kind and nature and wheresoever situate, of which I may die seized or possessed, including any and all lapsed legacies and any and all property over which I may now or hereafter have power of appointment, I give, devise and bequeath as follows:

(a) Four-tenths thereof to my Trustees hereinafter named, in trust, nevertheless, for the following uses and purposes, that is to say:

To receive, hold, invest and reinvest the same and to collect and receive the rents, issues, income and profits thereof, and after paying the proper expenses in connection with the administration of this trust, to pay over the net income to my daughter MAE in as near as may be equal quarterly instalments in each year during her life. Upon her death, I direct that the principal of said trust fund shall be transferred and paid over to such person or persons and in such shares as my said daughter MAE by her Last Will and Testament shall appoint, * * * .

(b) Three-tenths thereof to my Trustees hereinafter named, in trust, nevertheless, for the following uses and purposes, that is to say:

To receive, hold, invest and reinvest the same, and to collect and receive the rents, issues, income and profits thereof, and after paying the proper expenses in connection with the administration of this trust, to pay over the net income to my daughter GRACE in as near as may be equal quarterly installments in each year during her life. Upon her death, I direct that the principal of said trust fund shall be transferred and paid over to such person or persons and in such shares as my said daughter GRACE by her Last Will and Testament shall appoint, * * * .

(c) Three-tenths thereof to my Trustees hereinafter named, in trust, nevertheless, for the following uses and purposes, that is to say:

To receive, hold, invest and reinvest the same, and to collect and receive the rents, issues, income and profits thereof, and after paying the proper expenses in connection with the administration of this trust, to pay over the net income to my daughter ANNA in as near as may be equal quarterly instalments in each year during her life. Upon her death, I direct that the principal of said fund shall be transferred and paid over to such person or persons and in such shares as my said daughter ANNA by her Last Will and Testament shall appoint, * * * .

On or about November 1, 1938, petitioner, individually, and her two sisters executed and served on the petitioner, as executrix of the estate of her mother, a notice in which it was provided that inasmuch as the legatees were desirous of renouncing the bequest made to them under paragraph SIXTH of the will without affecting, disturbing or lessening to any extent the sole and exclusive power and right of the executrix to sell the property, they renounced their legacy shares in and to the property mentioned in paragraph SIXTH of the will. Service of this notice was accepted by the petitioner, as executrix, on December 5, 1938. On or about February 25, 1939, petitioner and her two sisters executed an agreement with the petitioner, as executrix, of her deceased mother's estate, wherein the petitioner, as an individual, and her two sisters are referred to as ‘proposers.‘ This agreement provided in part as follows:

II. Said proposers hereby irrevocably offer and propose to said fiduciary to purchase from said Estate all net proceeds of the sale of the Belle Terre property (being all those certain lands with the buildings and improvements thereon bounded and described as detailed in a certain ‘Schedule of Real Estate owned by the decedent in the State of New York‘ filed by said fiduciary in Estate Tax Proceedings for the determination of the tax to be paid upon the assets of said estate of Margaret C. Meurer, deceased), its furniture and furnishings, or at the option of the fiduciary, all the right, title and interest of said estate in and to said property, furniture and furnishings; the price under this proposal shall be Forty-eight thousand dollars ($48,000), plus such additional sum as represents the entire costs of use, occupancy and maintenance of said Belle Terre property, its furniture and furnishings from and after the day of the date hereof to the date of title closing hereunder.

III. (a) The proposals set forth in paragraphs hereof numbered I and II shall be respectively open and binding upon the proposers for three years from the date hereof and continue thereafter so open and binding until...