Spiegel v. Comm'r of Internal Revenue (In re Estate of Spiegel)

• Citation: 12 T.C. 524
• Decision Date: 31 March 1949
• Docket Number: Docket No. 14658.
• Parties: ESTATE OF MODIE J. SPIEGEL, DECEASED, LENA S. SPIEGEL AND MODIE J. SPIEGEL, JR., CO-EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

12 T.C. 524

ESTATE OF MODIE J. SPIEGEL, DECEASED, LENA S. SPIEGEL AND MODIE J. SPIEGEL, JR., CO-EXECUTORS, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 14658.

Tax Court of the United States.

Promulgated March 31, 1949.

Petitioners' decedent, in December 1942, drew and delivered two checks for contributions to organizations qualifying under section 23(o)(2) of the Internal Revenue Code. The checks were presented to the drawee banks and paid in January 1943, one of them after the death of decedent. Held, that under section 23(o), ‘payment‘ of the contributions or gifts was made in 1942 and denial of deduction of the amounts in that year was error. Frederick R. Shearer, Esq., and Harry Thom, Esq., for the petitioners.

R. L. Greene, Esq., for the respondent.

This proceeding was brought for a redetermination of a deficiency of $6,057.22 in income and victory tax for the taxable year January 1, 1943, to January 8, 1943. The Current Tax Payment Act makes the calendar year 1942 pertinent. Petitioners claim an overpayment of $22.04.

The primary question presented is whether respondent erred in disallowing the deduction for the year 1942 of two charitable contributions made by checks dated December 30, 1942, which were not deposited or cleared until the following year.

The case was presented upon a stipulation of facts and evidence adduced at the hearing. Those facts hereinafter recited which are not from the stipulation are otherwise found from the record.

FINDINGS OF FACT.

The stipulated facts are hereby found accordingly.

Petitioners are the executors under the will of Modie J. Spiegel, who died on January 8, 1943. The returns here involved were filed with the collector for the first district of Illinois, at Chicago.

On March 13, 1943, petitioners filed an income tax return on Form 1040 on behalf of decedent for the calendar year 1942, which, inter alia, set out as a deduction ‘Contributions paid‘ of $11,571.86. Included in this sum were two items of $5,000 and $2,800, described in the schedule annexed to the return as follows: 12/31, Anti-Defamation League, $5,000; and 12/31, Jewish Charities of Chicago, $2,800.

During all times material the Anti-Defamation League, the full name of which is Anti-Defamation League of B'Nai B'rith, and the Jewish Charities of Chicago were organizations of the character and satisfying the tests described in section 23(o)(2) of the Internal Revenue Code.

Under date of December 30, 1942, the decedent drew his personal check on the Northern Trust Co. of Chicago, Illinois, in the amount of $5,000, payable to the order of the Anti-Defamation League, and caused the check to be delivered to the Chicago office of the Anti-Defamation League. The payment was made by reason of a pledge made by decedent on June 14, 1941, at a fund-raising dinner. The check was received in the Chicago office of the league on December 31, 1942, and forwarded to the New York (principal) office of the league, where it was received on or about January 8, 1943. This check was deposited by the payee at the Bank of Manhattan, New York, New York, on January 8, 1943, and was presented to and paid by the drawee bank in Chicago on January 11, 1943. This check was not deposited, cashed, or negotiated by the payee in 1942, nor was it accepted, certified, or paid by the drawee bank in 1942, nor prior to the death of decedent. The records of the Chicago office of the league indicate that the pledge was paid on December 31, 1942.

Also on December 30, 1942, decedent drew his personal check on the Northern Trust Co., Chicago, Illinois, in the amount of $2,800, payable to the order of Jewish Charities of Chicago, and caused the check to be delivered to the Chicago office of the Jewish Charities of Chicago, accompanied by a letter of transmittal, dated December 30, 1942, reading as follows: ‘Enclosed you will find Mr. Modie J. Spiegel, Sr.'s check in the amount of $2,800.00— a donation to the Jewish Charities of Chicago.‘ The transmittal letter and check were mailed on December 31, 1942, and received by the payee of the check at 3 p.m. on December 31, 1942, after banking hours. The check was deposited by the payee at the American National Bank & Trust Co. of Chicago, in Chicago, Illinois, on January 4, 1943, and was presented to and paid by the drawee bank on January 4, 1943. The check was not deposited, cashed, or negotiated by the payee in 1942, nor was it accepted, certified, or paid by the drawee bank in 1942.

In determining the deficiency set forth in the notice of deficiency, dated March 13, 1947, respondent disallowed these two deductions. The determination of respondent was as follows:

(a) Contributions deducted in the return in the amount of $11,571.86 have been disallowed to the extent of $7,800.00 for the reason that this amount does not represent contributions for which payments were made within the taxable year, as required under section 23(o) of the Internal Revenue Code. The items disallowed are as follows:

+-----------------------------------------------------------------------+
                ¦Anti-Defamation League                                       ¦$5,000.00¦
                +-------------------------------------------------------------+---------¦
                ¦Check dated December 30, 1942, deposited at the Bank of      ¦         ¦
                +-------------------------------------------------------------+---------¦
                ¦Manhattan, New York, January 8, 1943, and cleared at Chicago,¦         ¦
                +-------------------------------------------------------------+---------¦
                ¦January 11, 1943.                                            ¦         ¦
                +-------------------------------------------------------------+---------¦
                ¦Jewish Charities of Chicago                                  ¦2,800.00 ¦
                +-------------------------------------------------------------+---------¦
                ¦Check dated December 30, 1942, deposited at American         ¦         ¦
                +-------------------------------------------------------------+---------¦
                ¦National Bank and Trust Co., January 4, 1943, and cleared    ¦         ¦
                +-------------------------------------------------------------+---------¦
                ¦January 4, 1943                                              ¦         ¦
                +-------------------------------------------------------------+---------¦
                ¦Total contributions disallowed                               ¦$7,800.00¦
                +-----------------------------------------------------------------------+
                

OPINION.

OPPER, Judge:

The first question, and the only one on the merits, is whether respondent erred in disallowing as charitable deductions for 1942 two contributions, one of $5,000, and another of $2,800, made by decedent by checks dated December 30, 1942, and delivered on December 31, 1942, but not cashed until in January 1943. The $5,000 check was cashed on January 11, after decedent's death on January 8, and the $2,800 check on January 4, 1943. It being conceded that the payee organizations were within the permitted class described in section 23(o)(2), the issue is whether the contributions were, under the circumstances, paid in 1942. In the disposition of this controversy, certain principles must be taken as accepted.

From the time of the adoption of the Uniform Negotiable Instruments Law, the concept of a check as an equitable assignment of a portion of the drawer's account fell into the discard. But both commercial usage and legal authority thereafter considered a payment by check as at least ‘conditional payment.‘ ¹ See Swope v. McClure, 239 Ill.App. 578. It was necessarily placed in a different category from a mere promise to pay; or even from such a promise reduced to formal terms and issued in the form of a negotiable promissory note. Cf. Eckert v. Burnet, 283 U.S. 140, with Estate of M. A. Bradley, 19 B.T.A. 49.

The condition imported in the transfer of funds by means of the delivery of a check is that the check must be paid upon presentation. But the problem remains whether that condition be thought of as precedent or subsequent, or, to adopt practical and ordinary terms, whether the check when paid should be considered as having constituted payment at the time it was delivered or at the time it was honored. That seems to us the test which will dispose of the pending question. We may assume that decedent's delivery of checks to the charities in question was at the time no more than a conditional payment of the charitable contribution for which the deduction is here sought. If the subsequent honoring of the checks by fulfilling the condition subsequent related the payment back to the date of delivery, the fact of the contribution and the time it was paid would become fixed.

Upon that point, an examination of the authorities renders it impossible to entertain the slightest doubt.

Payment by bill or check becomes absolute payment of the debt when the check is paid on presentation. On such payment of the check, the debt is deemed to have been discharged from the time the check was given. Thus, it has been held that a contract which is invalid because made on Sunday is not relieved of its invalidity by reason of the fact that a check given on that day was paid on a secular day. And if under the circumstances of a particular case it is necessary to make a payment at a particular time, as for example to satisfy the part payment provision of the statute of frauds, a check given and received at that time, but not cashed until after the specified time, will operate as a payment as of the date when given. (40 Am.Juris. 775.)

In Estate of M. A. Bradley, supra, p. 51, the Board of Tax Appeals said:

At the least, the payment * * * was a conditional one. * * * The check was duly paid. Under well established law the payment of the check * * * related back to the date of its delivery and the debt is deemed to be discharged from that date. 21 R.C.L. 70; Hooker v. Burr, 137 Cal. 663; McFadden v. Follrath (Minn.), 130 N.W. 542.

On review (Commissioner v. Bradley (C.C.A., 6th Cir.), 56 Fed.(...