Richards v. Comm'r of Internal Revenue (In re Estate of Bray), Docket Nos. 2757-64

Citation46 T.C. 577
Decision Date10 August 1966
Docket NumberDocket Nos. 2757-64,2758-64.
PartiesESTATE OF VIOLA E. BRAY, DECEASED, BERTHA BRAY RICHARDS, GYLES E. MERRILL AND HARRY G. GAULT, EXECUTRIX and CO-EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
CourtUnited States Tax Court

OPINION TEXT STARTS HERE

Harry G. Gault, for the petitioners.

Charles R. Abbott, for the respondent.

Securities in an estate were sold to secure funds for administration purposes, and the selling expenses were deducted as administration expenses under section 2553, I.R.C. 1954, for estate tax purposes, and used as an offset against the selling price in computing the estate's income tax. Held: Such deduction and offset were proper and section 542(g), I.R.C. 1954, which is designed to disallow double deductions as between income and estate taxes was not applicable because the selling expense was an offset against selling price and not a true deduction. The statement and waiver prescribed by section 642(g), I.R.C. 1954, need not be filed before using the selling expenses as an offset against sale price for income tax purposes.

OPINION

MULRONEY, Judge:

Respondent determined deficiencies in the estate tax (docket No. 2757-64) and the 1961 income tax (docket No. 2758-64) of the Estate of Viola E. Bray, in the amounts of $175,294.07 and $19,434, respectively. All of the facts have been stipulated and are found accordingly.

The dockets were consolidated for trial and opinion and all of the issues have been resolved and disposed of by the parties with the exception of one issue with respect to whether an item of selling expenses of stock can be used as both an offset against the sales price of the stock in computing estate income tax and as an administration expense deduction in the estate tax return.

Viola E. Bray died in the city of Flint, Mich., on May 24, 1961. Her estate is in the process of administration in the Probate Court for Genesee County, Mich., and the duly qualified and acting fiduciaries are Bertha Bray Richards, coexecutrix, Gyles E. Merrill, coexecutor, and Harry G. Gault, coexecutor, all of the city of Flint, Mich.

During the period June 9, 1961, through June 23, 1961, it became necessary to sell estate assets for the purpose of obtaining funds with which to pay administration expenses and taxes. As a result of such necessity, the fiduciaries of said estate caused to be sold 50,000 shares of General Motors Corp. 1 2/3 par value common stock, comprising a part of the assets of the Viola E. Bray Estate. In connection with the sale of such stock, said fiduciaries incurred and paid the following fees and expenses in the total amount of $23,832.94.

+-----------------------+
                ¦Commissions ¦$20,877.17¦
                +------------+----------¦
                ¦S.E.C. fee  ¦46.01     ¦
                +------------+----------¦
                ¦State tax   ¦2,000.00  ¦
                +------------+----------¦
                ¦Federal tax ¦909.76    ¦
                +------------+----------¦
                ¦Total       ¦23,832.94 ¦
                +-----------------------+
                

In Schedule D of the fiduciary income tax return for 1961, the sales expense amount of $23,832.94 was claimed as an expense of sale of stock and used as an offset against the selling price thereby reducing the amount of capital gain subject to income tax.

In Schedule J of the Federal estate tax return filed for the Estate of Viola E. Bray, deceased, the same amount of $23,832.94 was deducted as a miscellaneous expense of administration.

The stipulated facts show that in October of 1962 it became necessary to sell another block of stock in order to obtain additional funds for administration expenses. The selling expenses for this sale of stock were $4,911.42. The 1962 income tax is not before us but, since the estate tax return had been filed before this latter sale, the petition herein in docket No. 2757-64 asks for a refund of estate tax in the amount of $2,70128, based on the right to take these sales expenses as administration expenses.

In connection with the stock sale expense item of $23,832.94 reported in Schedule D of the fiduciary income tax return for 1961, no statement and waiver of deductions referred to in section 642(g) of the Internal Revenue Code of 1954 has been filed and likewise, in connection with the stock sale expense item of $4,911.42 reported in Schedule D of the fiduciary income tax return for 1962, no statement and waiver of deductions referred to in section 642(g) of the Internal Revenue Code of 1954 has been filed.

Section 2053, I.R.C. 1954, provides, in part:

(a) GENERAL RULE.— For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate such amounts—

(2) for administration expenses,

Section 812(b)(2) of the Internal Revenue Code of 1939 is the antecedent statute providing for the same deduction for administration expenses as is now contained in section 2053, I.R.C. 1954, supra. But section 642(g), I.R.C. 1954, provides, in part, that:

DISALLOWANCE OF DOUBLE DEDUCTIONS.— Amounts allowable under section 2053 * * * as a deduction in computing the taxable estate of a decedent shall not be allowed as a deduction in computing the taxable income of the estate, unless there is filed, within the time and in the manner and form prescribed by the Secretary or his delegate, a statement that the amounts have not been allowed as deductions under section 2053 * * * and a waiver of the right to have such amounts allowed at any time as deductions under section 2053 * * *

It is admitted petitioner took deduction for the brokerage fee and other selling expenses in the total sum of $23,832.94 as an administration expense under section 2053, I.R.C. 1954. Respondent makes no argument that said $23,832.94 would not be an allowable deduction under section 2053. On brief respondent merely states he disallowed it in order to preserve petitioner's option if it be decided the said selling expenses may not be used as an offset against the sale price of the stock in determining gain for income tax purposes. Petitioner has not filed the statement of waiver of deductions referred to in section 642(g), I.R.C. 1954, as it is petitioner's position that the statute is inapplicable where the selling expense of the stock is used only as an offset against the selling price in reporting the gain from the sale on the estate's income tax return.

In the 1942 Revenue Act there was added a new section 23(a)(2) to the 1939 Internal Revenue Code providing for some nonbusiness expense deductions (such as expenses ‘for the production or collection of income, or * * * the management, conservation, or maintenance of property held for the production of income’) and this 1942 Revenue Act also added section 162(e) to the Internal Revenue Code of 1939, which is as follows:

Section 162(e), I.R.C. 1939:

(e) Amounts allowable under section 812(b) as a deduction in computing the net estate of a decedent shall not be allowed as a deduction under section 23, except subsection (w), in computing the net income of the estate unless there is filed, within the time and in the manner and form prescribed by the Commissioner, a statement that the items have not been claimed or allowed as deductions under section 812(b) and a waiver of the right to have such items allowed at any time as deductions under section 812(b).

It is petitioner's position that the addition of section 162(e) to the 1939 Code in 1942 made no change in the treatment of brokerage commissions and other security sales expenses. Petitioner's argument is that the situation that prevailed before 1942 was that the selling expenses in connection with the necessary sale of securities by a fiduciary of an estate were deductible for estate tax purposes as administration expenses and such expenses were also an offset against the selling price for the estate's income tax. There is no question but that this was the rule governing the treatment of such selling expenses prior to 1942. Respondent admits this. See Estate of Dudley S. Blossom, 45 B.T.A. 691, where we allowed the selling expenses as a deduction for estate tax and pointed out the same expenses had been used to ‘diminish gain and increase losses in computing the Federal income taxes of the estate.’

It is possible such treatment continued for a while after 1942 but in 1956 respondent issued his ruling, Rev. Rul. 56-43, 1956-1 C.B. 210, wherein he interprets section 642(g), I.R.C. 1954, as forbidding the offset for income tax purposes of sale expenses allowed as administration expenses for estate tax. This ruling is as follows:

Expenses incurred in the sale of property, other than by a dealer, are considered as an offset against the sale price and not deductible as an ordinary and necessary business expense. See G.C.M. 15430, C.B. XIV-2, 59 (1935). However, such expenses may not be used as an offset against the sale price of property in determining gain or loss for Federal income tax purposes where they have already been allowed as a deduction for Federal estate tax purposes. Such items of expense fall within the concept of section 642(g) of the Internal Revenue Code of 1954. Although section 642(g) of the Code refers to the disallowance of double deductions, it is the position of the Internal Revenue Service that such section contemplates the disallowance, as a reduction in computing the taxable income of the estate, of such items which have been allowed as a deduction in computing the taxable estate. See Rev. Rul. 240, C.B. 1953-2, 79.

It seems to be respondent's position that Congress has by the enactment of section 642(g), I.R.C. 1954, prohibited double tax benefits from a single economic transaction. In other words respondent reads the section as a general limitation against double tax benefits whether they arise from deductions or reductions. But it appears, contrary to respondent's position, that section 642(g) is only a specific limitation directed only against deductions.1 See Mary E. Burrow Trust, 39 T.C. 1080, 1091, affd. 333 F.2d 66.

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  • Bridges v. Comm'r of Internal Revenue
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