Wheeler v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 15 June 1939 |
| Docket Number | Docket No. 84992. |
| Citation | 40 BTA 92 |
| Parties | LENA P. WHEELER (FORMERLY CURTISS), PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
W. S. Hammers, Esq., for the petitioner.
Arthur H. Fast, Esq., for the respondent.
The Commissioner determined a deficiency of $36,003.45 in the petitioner's income tax for the calendar year 1933. The only adjustment in controversy is the addition of $509,718.31 to the petitioner's income as a loss disallowed. The petitioner claims the deduction, either as a bad debt due from the estate of her husband or as a capital loss by reason of her guarantee to National Investment Holdings, Inc., to secure advances made by the latter to the estate of Glenn H. Curtiss, deceased. The explanation given by the Commissioner denying the deduction is as follows:
The item of $509,718.31 claimed as a bad debt or capital loss was due to the fact you were guarantor for money borrowed to pay off certain debts of the Estate of Glenn H. Curtiss, your late husband, for which you were not reimbursed owing to your having made an election to take your dower rights under the laws of the State of Florida in lieu of the amounts provided under the Will.
This deduction has been disallowed for the reason that the facts and evidence on file fail to show that in paying the debts of the estate you were discharging a personal liability.
Summary of the Stipulated Facts.
The petitioner was formerly the wife of Glenn H. Curtiss. The latter died on July 23, 1930. He was survived by the petitioner and one son. The estate of the decedent had a value of over $2,800,000. The decedent by his will practically divided his estate between his widow and his son. The petitioner had advanced money to the decedent during his life. Her claim against the estate in the amount of $944,647.27 was allowed.
The decedent had been a defendant in certain litigation instituted by Herring-Curtiss Co. and the latter company filed a claim against the decedent's estate in an amount in excess of $26,000,000. The petitioner elected to claim her dower under the laws of Florida in lieu of accepting the provisions of the will and she was allotted one-third of the real estate for life and one-half of the personal estate absolutely. The value of the share of the personal property which she received was $1,334,879.92. The transfer of the dower interest to her was confirmed by a decree of the court on August 14, 1931. The petitioner, acting as executrix of the estate, made a compromise settlement of the claim of the Herring-Curtiss Co. in the latter part of 1931 by paying $565,000 in full satisfaction of all claims of the corporation.
The decedent owned about 81 shares of stock of National Investment Holdings, Inc., which had a value at the time of his death of $1,448,867.08. The petitioner owned the remaining shares of stock of National Investment Holdings, Inc. — about 85. She made a request of that corporation in February 1931 to advance to her as executrix of the estate such cash as she might deem necessary for the payment of claims against the estate, court costs, administration fees, and attorney's fees. She turned over to the corporation as security for the advances the 81 and a fraction shares of stock which had been owned by her husband, and she agreed to be personally responsible for any excesses of the advances over the value of the stock pledged as security. She was to pay the difference in cash or surrender part of her own stock to make up the difference. The company accepted her offer in the latter part of July 1931, and made advances during the administration of the estate which amounted to over $900,000.
The dower allotted to the petitioner included 17 and a fraction shares of the National Investment Holdings, Inc., stock belonging to her husband. The only asset remaining in the estate at the time of the final liquidation thereof was 63.9104 shares of stock of National Investment Holdings, Inc., of the value of $1,134,766.50. That stock was being held by the company as collateral for the net amount due it from the estate, $872,231.53. The amount due the petitioner at that time upon her claim against the estate amounted to $772,253.28. The liabilities of the estate thus exceeded the assets by $509,718.31. The petitioner wrote a letter to National Investment Holdings, Inc., dated June 15, 1933, in which she notified the company that she desired a sufficient amount of the stock held by it as collateral to satisfy the balance due her from the estate, but explained that she would then owe the company $509,718.31 because of her personal guarantee to return all payments in full. She, therefore, requested that, instead of issuing any of the collateral stock to her in payment of her claim, the company retain 20.416924 shares of the stock of the value of $362,513.22 and 28.70753 shares of the value of $509,718.31 against the advances, and issue the remaining 14.78607 shares of the value of $262,534.97 to her. The corporation carried out her request.
The petitioner in her final report and accounting to the court as executrix in 1933 reported that 28.70753 shares of the value of $509,718.31 had been received by her in payment of her claim against the estate and that it had been transferred by her to National Investment Holdings, Inc., in payment of advances made by it to the estate. The report was approved and the petitioner discharged as executrix in 1933.
The amount of $509,718.31 was written off the petitioner's books as a bad debt and deducted on her return for 1933. The Commissioner disallowed the deduction.
Additional Findings Made From the Testimony.
The petitioner thought that the Herring-Curtiss Co. would be more willing to accept a compromise of its claim if she elected to take dower and to reject the will, and she further thought that she could preserve a part of the estate for herself only by that election. The compromise agreement between her and the Curtiss Co. was reached on December 31, 1931.
The method of having National Investment Holdings, Inc., make advances to the estate of Glenn H. Curtiss, deceased, was...
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