MATTHEWS v. COMMISSIONER

BETTIE MATTHEWS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. CHARLES D. MATTHEWS, JR., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. JOSEPH L. MATTHEWS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. EDWARD C. MATTHEWS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. MATTHEWS v. COMMISSIONER Docket Nos. 33191-33194. United States Board of Tax Appeals 21 B.T.A. 96; 1930 BTA LEXIS 1925; October 27, 1930, Promulgated *1925 DEDUCTIONS - ESTATE TAX - ADJUSTMENT ON REFUND. - Petitioners, as beneficiaries of an estate, took credit in 1923 against gross income for the total amount of estate taxes paid in that year. A portion of these taxes was refunded in 1924 as a result of a suit brought. Held that in determining, subsequent to the refund, the correct tax liabilities of petitioners for 1923, the deductions taken that year should be adjusted by the refund later made and credit allowed only for the net amount of taxes and interest ultimately paid. Mary W. Leach,16 B.T.A. 781. R. E. Bailey, Esq., for the petitioners. Harold Allen, Esq., for the respondent. TRUSSELL *96 These four appeals, involving the same question and consolidated for hearing and decision, are from deficiencies determined for the calendar year 1923 as follows: Bettie Matthews $935.58 Charles D. Matthews, Jr 249.98 Joseph L. Matthews 1,020.02 Edward C. Matthews 1,964.62 The only question presented is the correctness of respondent's action in reducing the credit taken in 1923 for estate taxes paid in that year by a portion of said payment refunded in*1926 the following year. *97 FINDINGS OF FACT. Petitioners are the widow and three sons of Charles D. Matthews, deceased, and reside at Sikeston, Mo. Each of these petitioners was during the calendar years 1923 and 1924 the owner of an undivided one-fourth interest in the estate of the said Charles D. Matthews. For those years information returns were filed for this estate reporting a net income, these petitioners each including their respective one-fourth shares thereof as income in their individual returns filed for those years. During the calendar year 1923 estate taxes and interest thereon assessed against the estate of Charles D. Matthews were paid under protest in the sum of $66,336.53, and on the return filed for the estate for that year credit was taken against gross income for the total amount of this payment. Suit was brought to recover the payment in question, and this suit was compromised and settled by the payment to the estate by respondent in the following year of $36,354.53, this representing a refund of a portion of the taxes and interest paid in the preceding year, together with interest on the amount so refunded. In the return filed for the estate*1927 for the calendar year 1924 the $36,354.53 paid in compromise of the suit for refund was included as income. Respondent, upon audit of the returns of the estate and of these petitioners for the calendar years 1923 and 1924, eliminated from the gross income reported for the estate for 1924 the amount representing the payment received in the compromise in the suit for refund as not representing taxable income, and for the calendar year 1923 decreased the deduction taken by the estate on account of the estate-tax payment made in that year by the amount of the total payment received in the following year in settlement of the suit for refund, allowing as a deduction the sum of $29,982. By this adjustment the respondent increased the net income of the estate for 1923 and accordingly determined the deficiencies here in question by increasing the pro rata shares of estate income reported by these petitioners on their individual returns for that year. OPINION. TRUSSELL: The question here involved is similar in all respects to the one decided in *1928 , in which we held that credit could be taken in 1922 for only that portion of estate taxes paid in that year which was in excess of the amount of such payment refunded in 1928 as a result of suit and judgment, the tax liability *98 for 1922 being still open and unsettled at the time the refund in question was made. On authority of the cited case and for the reasons discussed in the opinion filed therein, we sustain respondent's action in adjusting the estate-tax credit in 1923 by the refund made in 1924 in compromise for the suit for overpayment. In computing the adjustment, however, the payment made in 1923 should be reduced only by such portion of the $36,354.53, paid under the compromise in 1924, as represented a refund of taxes and interest overpaid in 1923, that portion of the compromise payment representing interest on the amount overpaid in the preceding year not being a refund of such overpayment. Judgment will be entered under Rule 50.