Horn v. Commissioner

JOSEPH V. HORN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Horn v. Commissioner Docket No. 43695. United States Board of Tax Appeals 23 B.T.A. 1131; 1931 BTA LEXIS 1765; July 14, 1931, Promulgated *1765 Petitioner in 1925 paid gift taxes. Thereafter and before petitioner filed its income-tax return for the year 1925, the Revenue Act of 1926 was passed, reducing retroactively the rate of tax on gifts. Respondent thereupon in 1926 refunded to petitioner a part of the gift tax paid in 1925. Held that under section 214(a)(3) of the Revenue Act of 1926 petitioner is entitled to deduct, in computing his net income for the year 1925, only the amount of gift tax which petitioner was actually required to pay under the Revenue Act of 1924 as amended by the Revenue Act of 1926. A. E. James, Esq., for the petitioner. R. S. Scott, Esq., for the respondent. MCMAHON *1132 This is a proceeding for the redetermination of a deficiency in income taxes for the year 1925 in the amount of $602.66. It is alleged that the respondent erred in adding to petitioner's net income for the year 1925 the sum of $3,545.06, representing a portion of a gift tax paid in that year by petitioner and refunded in the same amount in the year 1926. The proceeding was submitted upon the pleadings and, based thereon, we make our findings of fact as follows: FINDINGS OF*1766 FACT. Petitioner is an individual, residing at Douglasville, Pa. During the year 1924 petitioner made gifts of various sums of money and/or property of the nature described in Part II of Title III of the Revenue Act of 1924. The petitioner made return in respect of the gifts to the collector of internal revenue and paid tax in the year 1925 of $12,850 thereon, the tax being computed on taxable gifts of a total amount of $347,500, at the rates specified in section 319 of the Revenue Act of 1924. Thereafter and on March 15, 1926, petitioner made a tentative income-tax return and on May 12, 1926, filed a final income-tax return for the year 1925, and claimed therein as a deduction for gift taxes paid the sum of $12,850. Pursuant to section 324(b) of the Revenue Act of 1926, the Commissioner in the year 1926 refunded to petitioner the sum of $3,545.06 of the gift tax paid by petitioner in 1924. Thereafter the Commissioner examined petitioner's return for the year 1925 and reduced the deduction theretofore claimed of $12,850 on account of gift tax paid in the said year by the sum of $3,545.06. The petitioner kept his books and records and made returns on the basis of*1767 cash receipts and disbursements. The notice of deficiency, which is the basis for this proceeding, was mailed to the petitioner on March 29, 1929. The petition in this proceeding was filed on April 16, 1929. OPINION. MCMAHON: There is no controversy between the parties in this proceeding as to the facts. It is agreed between them that the amount *1133 of $12,850 paid in 1925 by the petitioner, who operated upon the cash receipts and disbursements basis, was the correct amount of gift tax due under section 319 of the Revenue Act of 1924 as it existed in 1925. However, section 324(a) of the Revenue Act of 1926 amended section 319 of the Revenue Act of 1924 the reduce the tax upon gifts made in 1924 and 1925, and subdivision (b) of that section provided that subdivision (a) should take effect as of June 2, 1924. The parties are in agreement that the amount of $3,545.06, which the respondent refunded to the petitioner in 1926 pursuant to section 324(b) and section 325 of the Revenue Act of 1926, was the proper amount by which section 324(a) of the Revenue Act of 1926 reduced the tax due from the petitioner. It is the contention of the petitioner that regardless of*1768 the fact that a refund was made to him in 1926, he is still entitled, in computing his income tax for the year 1925, to deduct the full amount of $12,850, since that was the amount which was due and payable during that year as gift taxes, and which he actually paid in that year. Petitioner relies upon section 214(a) of the Revenue Act of 1926, which provides in part as follows: (a) In computing net income there shall be allowed as deductions: * * * (3) Taxes paid or accrued within the taxable year except * * * [exceptions not material]. We find ourselves unable to agree with the contention of the petitioner. Prior to the time that petitioner filed his income-tax return for the year 1925 the Revenue Act of 1926 was passed and is, in so far as we are here concerned, applicable to the year 1925. See section 1200 of the Revenue Act of 1926. Section 214 of that act, in providing that there shall be allowed as deductions taxes paid within the taxable year, contemplates taxes legally required to be paid. As pointed out above, that act, in section 324(a), amended section 319 of the Revenue Act of 1924 to reduce, effective as of June 2, 1924, the tax upon gifts made in 1924*1769 and 1925. It follows, therefore, that, under section 214(a)(3) of the Revenue Act of 1926, petitioner is entitled to no greater deduction for gift taxes paid in 1925 than he was required to pay under the provisions of section 319 of the Revenue Act of 1924 as amended by the Revenue Act of 1926. ; affd., ; and . See also ; affd., . We conclude that the respondent did not err in reducing the petitioner's claimed deduction of $12,850 by the amount of $3,545.06. Judgment will be entered for the respondent.