Kemper v. Commissioner

JACKSON B. KEMPER, ADMINISTRATOR, ESTATE OF ERNEST E. SMYTHE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Kemper v. Commissioner Docket No. 12198. United States Board of Tax Appeals 14 B.T.A. 931; 1928 BTA LEXIS 2886; December 26, 1928, Promulgated *2886 INCOME OF ESTATE. - Amounts due decedent for salary and bonus, covering periods prior to this death, held not to be income to his estate when collected by the administrator. Frank S. Bright, Esq., and Jackson B. Kemper, Esq., for the petitioner. Clark T. Brown, Esq., and O. J. Toll, Esq., for the respondent. TRUSSELL *931 By this proceeding, Jackson B. Kemper, as administrator of the estate of Ernest E. Smythe, deceased, appeals from a deficiency in income tax of the estate for the calendar year 1920 in the sum of $1,236.38, determined and advised of by the respondent on December 28, 1925. Two errors by respondent are assigned by petitioner, (a) his disallowance of a deduction from gross income of the estate of payments made the decedent's widow as her allowance for maintenance under order of the probate court, and (b) his inclusion in income of the estate for the taxable year in question of the sum of two bonus payments and an item of salary owing to decedent at the time of his death and collected by the administrator. At the hearing petitioner withdrew his assignment of error (a), leaving the one issue (b) for consideration*2887 and decision. FINDINGS OF FACT. Petitioner is a resident of Milwaukee, Wis., and was duly appointed as administrator of the estate of Ernest E. Smythe, by the County Court of Dodge County, Wis., the decedent being a resident of that county at the time of his death. Ernest E. Smythe was for some years and at the time of his death on February 9, 1920, general manager of the Western Malleables Co., his compensation as such being fixed at $10,000 per year plus a fixed percentage of the profits of the corporation *932 as a bonus or commission. The custom of the corporation for some years, under this bonus agreement, had been to compute the profits of the year shortly after the close thereof and then compute the amount of Smythe's bonus and make payment of it about the first of March. At the time of Smythe's death on February 9, 1920, his bonus for the year 1919 in the sum of $14,672.28 had not been paid, but within a few weeks thereafter it was paid in full to petitioner as administrator. The corporation also paid to petitioner decedent's salary earned but not drawn in the sum of $229.88 for nine days of the month of February and, waiving the question of any right it might*2888 have to await the expiration of the year 1920 to determine and pay any bonus for the period from January 1 to February 9, 1920, it computed the amount for that period to be $2,742.98, and paid this sum to petitioner during that year. Decedent consistently kept his books and made his returns during his lifetime on a cash basis. OPINION. TRUSSELL: Upon decedent's death debts due him and unpaid represented assets of his estate in the hands of his administrator and no part realized by the administrator upon such assets constituted income to the estate if not in excess of the value of the asset at the time of death. ; ; ; ; ; . Respondent admits the rule to be as stated, but insists that the burden is upon petitioner to prove a value in these claims for salary and bonus, at the time of death, equal to the amounts realized and*2889 that this he has failed to do. In this we do not agree. No issue as to the value of these items of compensation was raised by the deficiency letter; no issue as to their values was raised in respondent's answer, nor was any point respecting their values made at the trial. There appears therefore to be no presumption which petitioner could be required to rebut. The record further shows that these bonus items were computed upon a percentage of not more than 5 per cent of the net income of the Western Malleables Co. Decedent's bonus for the year 1919 at 5 per cent would indicate a net profit earned by that company for the year of $293,445 and for the month of January and the first 8 days of February, 1920, a net income of $54,859. The record further shows that in valuing the gross estate of the decedent, 250 shares of the Western Malleables Co.'s stock was *933 inventoried at $225 per share. We must conclude that this record establishes that the Western Malleables Co. was at all times here involved solvent and able to meet its ordinary business obligations and, furthermore, that it did meet these obligations promptly and that petitioner has sufficiently proven that the said*2890 items of compensation earned by petitioner's decedent had values at all times in amounts equal to their face values. Respondent further insists that the amounts representing bonus, not having been shown to have been computed at the date of death and a definite or liquidated claim for the amount involved to have existed, enforceable by decedent as of that date, these amounts must be considered as having become due and payable subsequent to the date of death and consequently to represent income to the estate. Even though this condition existed, we could not agree with the conclusion reached as the payments are for services rendered prior to death. In , we said: We are also of the opinion that the respondent erred in including in the income of the estate the amount of interest and rents that had accrued at the date of Isaias W. Hellman's death. Such interest and rents had not been received by Hellman and had not accrued in the sense that they had become due and payable. They had accrued, however, in the sense that they had been earned and they constituted a property right which was a part of the decedent's estate and the*2891 value thereof was, we think properly included in the gross estate subject to the Federal estate tax. But this accrued interest and rents, when collected by the executors, did not constitute income to the estate. The amounts representing salary and bonus earned by the decedent and paid petitioner as administrator of his estate were corpus and not income to the estate. The deficiency will be redetermined in accord with the foregoing findings of fact and opinion. Judgment will be entered under Rule 50.