Lesser v. Commissioner

Rosalyne A. Lesser, Petitioner, v. Commissioner of Internal Revenue, Respondent. Moe A. Lesser, Petitioner, v. Commissioner of Internal Revenue, Respondent Lesser v. Commissioner Docket Nos. 24608, 24609 United States Tax Court 17 T.C. 1479; 1952 U.S. Tax Ct. LEXIS 251; March 14, 1952, Promulgated *251 Decisions will be entered for the respondent. Petitioner, an attorney, while acting as co-executor of an estate, received executor's commissions under two separate provisions of the California Probate Code; he allocated the amount received under one section of the Code over the 44-month period of his co-executorship. Held, the commissions received by the co-executor were not divisible, and since the allocated amount was not more than 80 per cent of the total compensation received as a co-executor, petitioner is not entitled to the benefits of section 107, I. R. C. Moe A. Lesser, Esq., for the petitioners. R. E. Maiden, Jr., Esq., for the respondent. Johnson, Judge. JOHNSON *1479 Respondent determined deficiencies in income tax for the year 1944 as follows: Docket No. Petitioner Deficiency 24608 Rosalyne A. Lesser $ 1,266.48 24609 Moe A. Lesser 1,276.96 These proceedings were consolidated for hearing. The sole question presented is whether or not petitioners are entitled to compute their tax on income received for Moe A. Lesser's extraordinary services to an estate under the provisions of section 107 (a), Internal Revenue Code. Moe A. Lesser will hereinafter be referred to as the petitioner. *1480 FINDINGS OF FACT. A portion of the facts are stipulated, and are so found. Moe A. Lesser and Rosalyne A. Lesser are, and were at all times material to these proceedings, husband and wife. They filed individual income tax returns with the collector of internal revenue for the sixth district of California for the calendar year 1944, reporting their income on the community property and cash basis. In the last will and testament*253 of Carl Schilling, who died on December 30, 1940, the petitioner and John W. Eagle were named co-executors of decedent's estate. Petitioner and Eagle were duly appointed by the Superior Court of the State of California, in and for the County of Los Angeles, as co-executors of Schilling's estate and letters testamentary were issued to them on January 22, 1941. Both the petitioner and Eagle were attorneys-at-law admitted to practice in all the courts of the State of California. Under sections 900 and 901 of the California Probate Code, 1 the co-executors received a fee for their ordinary and regular services to the estate, computed on a sliding scale on the amount of the estate accounted for by them. For these services each co-executor received a total of $ 7,531.38. Petitioner received his share as follows: [1941] $ 6,500.00 [1942] 600.00 [1944] 431.38 Total $ 7,531.38 *254 Under section 902, additional fees are allowed as follows: § 902. Allowances for extraordinary services: [Sales, etc., litigation, tax returns, carrying on business, etc.]. Such further allowances may be made as the court may deem just and reasonable for any extraordinary services, such as sales or mortgages of real or personal property, * * * the preparation of estate, inheritance, income, sales or other tax returns which require the appointment of a tax counsel, * * *. *1481 On or about March 20, 1941, the co-executors of Schilling's estate filed a "Petition for Instructions" with the Superior Court of the State of California, setting forth in part the following: VI That reference be made to the provisions of Section 902 of the Probate Code relative to tax problems; that the estate herein is a substantial one and there are many intricate tax problems involved, both Federal and State, pertaining to Estate and Inheritance, Income and Gift Taxes aggregating, conservatively, $ 250,000.00, which require the services of tax counsel; that one of the co-executors herein is a specialist in tax matters and is well qualified to handle such matters herein; that your petitioners herein*255 request that they be authorized to act as such tax counsel in connection with all tax matters pertaining to this estate. WHEREFORE, your petitioners pray * * * * 4. That they be authorized to act as tax counsel in connection with all tax matters pertaining to this estate. On April 23, 1941, the court issued an order pursuant to the Petition for Instructions, which provided in part: That the said co-executors are hereby authorized to employ such tax counsel as may be necessary in connection with the above estate and to pay a reasonable fee therefor; that one or both of the said co-executors herein may be employed as such tax counsel under the same conditions as though outside counsel were employed. In the opinion of the co-executors the petitioner was well qualified to handle the tax matters of the estate, and they decided that he should handle these matters in accord with the court's instructions. Petitioner performed most of the work pertaining to the tax problems while Eagle performed most of the work involved in the other extraordinary services. The administration of the estate continued until August 11, 1944, when the co-executors filed their final account and report with the*256 Superior Court. In this account and report the co-executors also petitioned for the allowance of extraordinary fees under section 902, reciting in part: That your co-executors, in addition to performing all ordinary matters pertaining to the estate, in Pro Per, have performed extraordinary services for and on behalf of the estate and are entitled to reasonable extraordinary compensation for such services. Such services have been performed since the inception of the estate up until the present time, which covers approximately three years and eight months; that such services are reasonably worth the sum of $ 35,000.00, and this sum has been agreed and consented to by the principal beneficiaries of this estate, * * *. On August 24, 1944, the court issued its order allowing the co-executor the sum of $ 35,000 for extraordinary services rendered to the estate. Of the total award of $ 35,000, the co-executors agreed between *1482 themselves that the petitioner was entitled to $ 19,500 as his share. The petitioner paid out $ 5,500 to others who assisted him in his work, leaving him a net amount of $ 14,000. This amount, on a community property basis, was reported on his 1944 income*257 tax return, and allocated over 44 months, the period of his co-executorship. OPINION. The sole question before us is whether petitioner is entitled to apply the provisions of section 107 (a)2 to certain income received while acting as the co-executor of Schilling's estate. It is petitioner's contention that the special and extraordinary services rendered by him, under section 902 of the California Probate Code, to the estate are separable in law and in fact from the ordinary services performed by him as co-executor. Moreover, he contends, since he received all of the compensation for the extraordinary services in the year 1944 for a work period covering 36 calendar months or more, he is entitled to the benefits as provided in section 107 (a). *258 On the other hand, respondent's position is that the "personal services" here involved consisted of the entire services which petitioner was required, as co-executor, to perform in the administration of the estate. The total compensation therefore must include the compensation received from the ordinary as well as the extraordinary services. Further asserts the respondent, since the compensation received in the taxable year 1944 is less than 80 per cent of the total compensation received from the estate, section 107 by its very terms has no application. Petitioner admits that the estate was the single source of the compensation for ordinary services and also the compensation for extraordinary services. However, he attempts to come within section 107 by arguing for the divisibility of ordinary and extraordinary services. His contention epitomized is that an executor's compensation under section 901 of the California Probate Code, and that same executor's additional compensation under section 902, are separate and distinct for Federal tax purposes. Petitioner cites no authority which supports this contention. He has attempted to buttress his argument by citing E. A. Terrell, 14 T. C. 572,*259 wherein the taxpayer "undertook a special task, separate *1483 and distinct from all others, and especially from his regular duties," and as a result the Court found that the taxpayer was entitled to utilize section 107 in reporting his income. We can not find that petitioner undertook a special task which is separate and distinct from all others he performed as a co-executor. The mere filing of a petition for additional compensation does not make his work a special task. Alfred J. Loew, 17 T. C. 1347. What is obvious to us is that petitioner as a co-executor not only performed the ordinary and routine duties required of an executor but also successfully accomplished the difficult and the more complicated tasks which a less capable executor might relegate to others. Regular commissions allowable under section 901 are taken into account by the courts of California when fixing extraordinary commissions under section 902, which recognizes performance of only one service under a single appointment. In re Pomin's Estate, 92 P. 2d 479. We have carefully considered the evidence and in particular the "THIRD AND FINAL *260 ACCOUNT AND REPORT OF CO-EXECUTORS: PETITION FOR EXECUTOR'S EXTRAORDINARY COMMISSIONS AND PETITION FOR DISTRIBUTION," and nowhere do we have what could logically be denominated as a separate and special service. Under the California Probate Code the petitioner received a commission for extraordinary services, but these extraordinary services were only an extension and a processing to completion of an executorship already undertaken. Even the petitioner inadvertently admitted this when he reported his "spread" income on the 1944 return from the date of testator's death, instead of the date of the "ORDER IN RE PETITION FOR INSTRUCTIONS." The services are not divisible and as we said in Ralph E. Lum, 12 T. C. 375, 379, quoting from George J. Hoffman, Jr., 11 T. C. 1057, "unless the services themselves are divisible, the compensation received therefor, regardless of source, must be lumped together." Also see Paul H. Smart, 4 T. C. 846, 853, affd. (C. A. 2), 152 F. 2d 333; Harry Civiletti, 3 T. C. 1274, affd. 152 F. 2d 332.*261 After reading the court's order pursuant to the Petition for Instructions, which provided that the co-executors might be employed "under the same conditions as though outside counsel were employed," it might be argued that the co-executors acted as attorneys in addition to their tasks as co-executors. This argument is without merit for it is a long established rule in California that an executor, who is also an attorney, may not receive under the guise of executor's compensation allowances for legal services when he acts as his own attorney. In re Scherer's Estate, 136 P. 2d 103. Decisions will be entered for the respondent. Footnotes 1. § 900. Expenses and compensation of executor, etc.: [Testamentary provision: Renunciation]. The executor or administrator shall be allowed all necessary expenses in the care, management and settlement of the estate, and, for his services, the compensation hereinafter provided; but when the decedent, by his will, makes other provision for the compensation of the executor, that shall be a full compensation for his services, unless by written instrument, filed in the court, he renounces all claim for compensation provided for in the will. § 901↩. Commissions: [Rates: Two or more representatives]. The executor, when no compensation is provided by the will or he renounces all claim thereto, or the administrator, shall receive commissions upon the amount of estate accounted for by him, as follows: For the first thousand dollars, at the rate of seven per cent; for the next nine thousand dollars, at the rate of four per cent; for the next ten thousand dollars, at the rate of three per cent; for the next thirty thousand dollars, at the rate of two per cent; and for all above fifty thousand dollars, at the rate of one per cent. If there are two or more executors or administrators, the compensation shall be apportioned among them by the court according to the services actually rendered by each. 2. SEC. 107. COMPENSATION FOR SERVICES RENDERED FOR A PERIOD OF THIRTY-SIX MONTHS OR MORE AND BACK PAY. (a) Personal Services. -- If at least 80 per centum of the total compensation for personal services covering a period of thirty-six calendar months or more (from the beginning to the completion of such services) is received or accrued in one taxable year by an individual or a partnership, the tax attributable to any part thereof which is included in the gross income of any individual shall not be greater than the aggregate of the taxes attributable to such part had it been included in the gross income of such individual ratably over that part of the period which precedes the date of such receipt or accrual.↩