Smith v. United States, 69 C 192(3).

• Decision Date: 28 October 1970
• Docket Number: No. 69 C 192(3).,69 C 192(3).
• Parties: Philip Platt SMITH as Executor of the Estate of Virginia Wright Smith, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

319 F. Supp. 174

Philip Platt SMITH as Executor of the Estate of Virginia Wright Smith, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.

No. 69 C 192(3).

United States District Court, E. D. Missouri, E. D.

October 28, 1970.

Walter R. Mayne and Robert T. Johnson, Fordyce, Mayne, Hartman, Renard & Stribling, St. Louis, Mo., for plaintiff.

Daniel Bartlett, Jr., U. S. Atty., Harold E. Zahner, Asst. U. S. Atty., St. Louis, Mo., Johnnie M. Walters, Asst. Atty. Gen., Washington, D. C., for defendant.

MEMORANDUM OPINION AND ORDER

REGAN, District Judge.

This is an action for refund of federal estate taxes. The essential facts are not in dispute and have been stipulated. We will, therefore, state only so many of the agreed facts as may be necessary to an understanding of the question presented.

Plaintiff is executor of the estate of Virginia Wright Smith. During the course of administration of such estate it became necessary for plaintiff to sell a substantial amount of securities for the purpose of obtaining funds with which to pay administration expenses and taxes. In connection with the sale of securities in 1964, the executor incurred selling expenses aggregating $16,435.84. Thereafter, on December 15, 1964, the federal estate tax return was duly filed but the expenses of the security sales were not deducted on that return. Subsequently, in 1966, additional securities were required to be sold to obtain necessary funds, in connection with which the executor incurred sales expenses of $1,673.22. The total estate tax, including a deficiency assessment and interest paid by the estate was $1,700,665.69. A claim for refund of estate taxes in the sum of $7,916.06 was then filed. The claim was disallowed for the reason that plaintiff had used the "benefit" of the expenses of the sales to reduce his fiduciary income taxes for 1964 and 1966. It appears from the fiduciary income tax returns for those years that in Schedule D, reporting capital gains or losses realized from sales, the foregoing expenses of security sales were added to the cost basis of the securities sold so as to produce a corresponding reduction in the gain reportable.

The issue for our determination is whether expenses necessarily incurred in selling securities held by the estate which had been used as offsets against the selling price of the securities in computing the estate income taxes may also be deducted as expenses of administration for estate tax purposes.

There can be no doubt as to the right of the estate, under Section 2053 of the Internal Revenue Code of 1954, to deduct, as expenses of administration, the expenses incurred in connection with the sales of securities, the sales being necessary in order to pay expenses of administration and taxes. The Commissioner urges, however, that under Section 642 (g), of the Internal Revenue Code, plaintiff should be precluded from insisting upon his right to claim the deduction because he had already obtained a tax benefit from the identical expenses to reduce his income taxes. We do not agree.

To the extent here pertinent, Section 642(g) provides that "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 or of any other person, unless there is filed, within the time and in the manner and form prescribed * * * 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 * * *." Concededly, plaintiff did not file such a statement and waiver with the fiduciary income tax returns.

By its terms, Section 642(g), appears to apply only to bar income tax deductions, absent the required statement and waiver, without affecting the right of the estate to obtain the benefit of such deductions for estate tax purposes. The Tax Court so held in Estate of Baldwin v. Commissioner, 18 T.C.M. 902, construing the...