Miller v. CIR

• Decision Date: 25 June 1964
• Docket Number: No. 17456.,17456.
• Citation: 333 F.2d 400
• Parties: A. T. MILLER and Estate of Eleanor A. Miller, Deceased, First Trust Company of Saint Paul, Special and General Administrator, and A. T. Miller and Estate of Eleanor A. Miller, Deceased, First Trust Company of Saint Paul, Administrator, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

333 F.2d 400 (1964)

A. T. MILLER and Estate of Eleanor A. Miller, Deceased, First Trust Company of Saint Paul, Special and General Administrator, and A. T. Miller and Estate of Eleanor A. Miller, Deceased, First Trust Company of Saint Paul, Administrator, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 17456.

United States Court of Appeals Eighth Circuit.

June 25, 1964.

James R. Oppenheimer, of Oppenheimer, Hodgson, Brown, Wolff & Leach, St. Paul, Minn., George C. King, of Thomas, King, Daubney, Swenson & Collatz, St. Paul, Minn., for petitioner.

Edward L. Rogers, Attorney, Tax Division, Dept. of Justice, Washington, D. C., Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, and Melva M. Graney, Attorneys, Tax Division, Washington, D. C., for respondent.

Before VAN OOSTERHOUT, RIDGE and MEHAFFY, Circuit Judges.

RIDGE, Circuit Judge.

Review is here sought of the decision of the Tax Court (39 T.C. 940), sustaining a determination by the Commissioner of Internal Revenue as to deficiencies in petitioners' federal income tax due for the calendar years 1956, 1957 and 1958.

As to the calendar years 1956 and 1957, the Commissioner's determination was premised in a finding that the administration of the Estate of Addison Miller, deceased, was unduly prolonged beyond the end of 1955, and as a consequence of Section 1.641(b)-3, Income Tax Regulations 1954, the income received by said estate for 1956 and 1957 should be included in petitioner A. T. Miller's personal income for those years. As to the calendar year 1958, the Tax Court sustained the Commissioner's determination that petitioners were not entitled to a deduction for the loss of good will as a result of cessation of business operation by A. T. Miller in that year. No review is here sought as to a third ruling made by the Tax Court, relating to the deductibility of certain club dues as ordinary and necessary business expenses.

As the opinion of the Tax Court, supra, reveals, — the facts in the case at bar were, for the most part, stipulated by the parties. Since petitioners do not dispute the basic facts there stated, and our examination of the record as a whole leads to the conclusion that a fair statement of all pertinent facts is contained in that opinion; we here state only such background facts as will pinpoint the issues submitted to us for review.

On September 7, 1944, there was in existence a partnership known as Addison Miller Company, consisting of Addison Miller, George Faltico, and A. T. Miller, whose ownership was 55%, 20%, and 25%, respectively. Addison Miller and A. T. Miller were brothers. On the above date, Addison Miller died. His will named A. T. Miller sole heir and executor. The Florida court having jurisdiction of the Estate of Addison Miller, deceased, authorized A. T. Miller, as Executor, to carry on the business of Addison Miller Company for and on behalf of the Estate. George Faltico died in 1945, and A. T. Miller, individually, then acquired Faltico's 20% interest in Addison Miller Company. Hence, from 1946 until final distribution of the Estate of Addison Miller, deceased, in 1957, Addison Miller Company was ostensibly owned 55% by the Estate of Addison Miller and 45% by A. T. Miller.

The Federal Estate Tax liability of the Estate of Addison Miller, deceased, was with finality determined in June of 1954. The Commissioner of Internal Revenue, on April 7, 1960, administratively determined, pursuant to the Treasury Regulation 1.641(b)-3, ante, that the administration of that estate had been unduly prolonged beyond the end of 1955. As a consequence of such finding, the income of the Estate of Addison Miller, deceased, for 1956 and part of 1957, was charged to A. T. Miller, sole heir, and included as a part of his income for those years; which income is the basis for the deficiencies assessed against A. T. Miller for the years 1956 and 1957.

As to the calendar year 1958, the deficiency determined by the Commissioner revolves around the disallowance of a deduction claimed by A. T. Miller, in the sum of $170,740.76, from business income in that year for claimed loss of good will. Tersely stated, the facts in relation thereto are these: In 1944, A. T. Miller, as sole heir of Addison Miller, deceased, inherited the 55% interest of Addison Miller in the Addison Miller Company. The business of Addison Miller Company was that of performing certain services for railroads, under cost-plus contracts, such as furnishing railroad boarding camps with meals and lodging; operating retail concessions; icing railroad cars; cleaning railroad cars; operating coal docks; and similar operations. The principal source of all income earned by Addison Miller Company came from such cost-plus contracts, which were terminable by either party thereto, on short notice — from thirty days to six months. In 1958, all contracts then remaining in force were cancelled by the railroads; and Addison Miller Company went out of business. A. T. Miller deducted the sum of $170,740.76 from business income for the year 1958, because of claimed value for "loss of good will."

Such claimed loss is dually premised by petitioners as follows: "It is petitioners' contention that" the good will here to be considered "came into being either one or both of two ways":* * *

"(1) When the Estate of Addison Miller succeeded to Addison Miller\'s 55% interest in the partnership, the cost basis of said interest to the estate was at least $170,740.76 in excess of the value of the partnership assets underlying said 55% interest. This excess became good will in the hands of the estate and subsequently, by inheritance, in the hands of

A. T. Miller."

Or * * *

"(2) When A. T. Miller received the assets of Addison Miller Company in liquidation (of the partnership) in 1957 the cost basis to him of his 100% interest in said partnership was at least $170,740.76 in excess of the value of the assets transferred to him. This excess became good will in (the hands of A. T. Miller)."

The Commissioner of Internal Revenue rejected both such contentions and did not allow any claim for loss of good will, in making his deficiency assessment against A. T. Miller for the year 1958. The Tax Court sustained that determination of the Commissioner.

I.

Petitioners' first contention is that the Commissioner was wrong in determining that the period of administration of the Estate of Addison Miller was unduly prolonged beyond the end of 1955, and the Tax Court erred in sustaining the deficiency so assessed against A. T. Miller on any such theory.

By brief in the case at bar, petitioners assert:

"In the present case the Tax Court considered each extenuating circumstance separately and found, as a result thereof, that no one of them represented a basis for extending the administration of the Estate of Addison Miller beyond 1955. Petitioners do not contend that there was any one fact or circumstance which required the continuation of administration until 1957, but they do claim that when all the factors are considered together it was not unreasonable to continue"

that administration after 1955. Such is the core of the whole argument here made by petitioners as to claimed error on the part of the Tax Court in affirming the Commissioner's ruling that the prolonged continuance of the Addison Miller Estate was contra to Income Tax Regulation 1.641(b)-3, relating to "Termination of Estates and Trusts" for income tax purposes under the 1954 Code.

That the cited regulation is valid for income tax purposes, regardless of the period allowed for closing a decedent's estate under local law, is established by Chick v. Commissioner, 166 F.2d 337 (1 Cir. 1948), affirming 7 T.C. 1414, cert. den. 334 U.S. 845, 68 S.Ct. 1514, 92 L.Ed. 1769; Helvering v. Winmill, 305 U.S. 79, 83, 59 S.Ct. 45, 46, 83 L.Ed. 52 (1938); Taft v. Commissioner of Internal Revenue, 304 U.S. 351, 58 S.Ct. 891, 82 L.Ed. 1393 (1938); 6 Merten's Law of Federal Income Taxation, Section 36.47. Since such Treasury Department Regulation is binding on the Commissioner and taxpayer alike, McCord v. Granger, 201 F.2d 103 (3 Cir. 1952), and it "may not be lightly disregarded," Burge v. Commissioner of Internal Revenue, 253 F.2d 765, 770 (4 Cir. 1958), all we need determine is whether there are substantial facts established in the record before us revealing that petitioners could be found to have violated such regulation, reasonably construed and applied. Estate of Iverson v. Commissioner, 255 F.2d 1 (8 Cir. 1958); Spangler v. Commissioner, 278 F.2d 665 (4 Cir. 1960).

It is manifest in the opinion of the Tax Court, supra, that the only matter pending in relation to the Florida administration of the Estate of Addison Miller, deceased, that could reasonably be considered as cause for not closing that administration prior to 1955, was the pendency of certain litigation which could while pending be said to have imposed a contingent liability on the Addison Miller Company; but it is clear from the Tax Court's opinion that all such litigation was "ended in September 1955." Petitioners do not point to any other fact essential to continuation of the primary administration of the Estate of Addison Miller, deceased, after the end of 1955. We, like the Tax Court, can find no cause here established why the Florida administration could not have been closed not later than the "end of 1955." As the opinion of...