McCall v. Commissioner

FLORENCE MCCALL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. ELIZABETH K. NEWTON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. RACHEL S. CHRISTOPHER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. ISABEL K. J. GARRON, GORDON A. BLOCK AND WOODBURY TRUST COMPANY AS EXECUTORS OF THE ESTATE OF JOSEPH R. NEWTON, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. McCall v. Commissioner Docket Nos. 47702-47705. United States Board of Tax Appeals 26 B.T.A. 292; 1932 BTA LEXIS 1337; June 7, 1932, Promulgated *1337 Where subsequent to the filing and adjudication of a "first and final" account, but prior to the determination of a deficiency in estate taxes which respondent proposed to assess against the beneficiaries as transferees, other assets came into the hands of the executrix of an estate, which funds were more than sufficient to satisfy the deficiency in taxes determined by respondent and which funds remained undistributed in the estate up to and after the date of the notice of deficiency, respondent may not assess such deficiency against the beneficiaries as transferees. A. E. James, Esq., for the petitioners. B. U. Steele, Esq., for the respondent. VAN FOSSAN *292 In January, 1930, the respondent proposed for assessment against the respective petitioners as fiduciaries and transferees the amount of a deficiency in the estate tax of Mahlon W. Newton in the sum of $1,014.71. In these proceedings, which were consolidated for hearing and determination, the petitioners urge the following grounds of error: (a) The statute of limitations has run against the assessment of additional estate taxes against the estate of Mahlon W. Newton, deceased. *1338 (b) The petitioners are not transferees or fiduciaries within the meaning of the provisions of the Revenue Act of 1926. (e) The Commissioner erred in including in the gross estate of the said decedent real property situated in the State of New Jersey valued in the aggregate amount of $97,800. Errors lettered (c) and (d) were abandoned. FINDINGS OF FACT. Mahlon W. Newton of the city of Philadelphia, State of Pennsylvania, died on November 29, 1925. His last will and testament *293 was duly admitted to probate and letters testamentary were issued to Elizabeth K. Newton, Joseph R. Newton and Horace Stern, the persons named as executors and trustees in decedent's will. By the decedent's last will and testament certain bequests of money were made to decedent's wife, Elizabeth K. Newton, his daughter, Florence McCall, his sister, Rachel S. Christopher, and his brother, Joseph R. Newton. The rest, residue and remainder of the decedent's estate he gave, devised and bequeathed to his executors and trustees in trust for the purposes and uses set forth in the will. Prior to November 29, 1926, the executors duly filed a Federal estate-tax return for the estate of Mahlon*1339 W. Newton, deceased, and paid the tax as computed therein. The executors included in the gross estate the value of certain real property situated in the State of New Jersey and valued in the return in the sum of $94,100. In the audit of the return the respondent increased the valuation of this real property to $97,800 and included the latter amount in the value of the gross estate. Thereafter the executors under the will of Mahlon W. Newton, deceased filed a "first and final account" of the estate in the Orphans' Court of Philadelphia County, Pennsylvania. This account was adjudicated by the court under date of April 6, 1927. From the adjudication it appears that because of a large indebtedness of the decedent the personal property accounted for by the executors was not sufficient to pay in full the legacies bequeathed in the will. Out of the balance of personal property remaining after payment of expenses and the decedent's indebtedness, the sum of $500 was awarded and paid to the trustees named in the will in trust for the care of testator's burial lot, as provided in the will, and the balance was distributed among the several legatees named in the will on account of their*1340 respective legacies. Attached to the account and settlement are receipts executed by the several legatees named in the will acknowledging receipt of the amounts of cash awarded to them respectively by the adjudication on account of their several legacies. These legatees were Florence McCall, Elizabeth K. Newton, Rachel S. Christopher, petitioners herein, and Joseph R. Newton, now deceased, whose estate is one of the petitioners herein. The amounts received by the respective legatees were in excess of the deficiency in estate tax determined by the respondent. Prior to his death Mahlon W. Newton had owned certain certificates of stock in a diamond syndicate. These certificates had been lost by him. They were considered of no value. Subsequent to the accounting and adjudication hereinbefore referred to these stock certificates were found, the diamond syndicate liquidated, and in September, *294 1928, the sum of $4,400 in securities and cash on account of the stock represented by the certificates was paid to Joseph R. Newton as one of the executors of the estate of Mahlon W. Newton, deceased. At the date of the hearing herein there was on hand in the estate from the above*1341 funds and other funds so received after the date of the accounting hereinbefore referred to an amount of $3,600 in cash and a participation in a mortgage for $6,500, the same being in excess of the deficiency in estate tax determined by the respondent. Joseph R. Newton, one of the executors of the estate of Mahlon W. Newton, is now dead. His estate is solvent and able to meet an obligation in excess of $1,000. Horace Stern, one of the executors named in the will and appointed by the court, resigned as executor and trustee. Elizabeth K. Newton, who is the sole surviving executrix of the estate of Mahlon W. Newton, is solvent and able to meet an obligation in excess of $1,000. She has not been discharged as such executrix nor has the estate been closed. By notices in writing dated in January, 1930, the respondent proposed to assess against each of the petitioners the deficiency determined by him in the estate tax of the estate of Mahlon W. Newton in the amount of $1,014.71, as hereinbefore stated. No deficiency has been assessed or proposed for assessment against that estate. OPINION. VAN FOSSAN: In his brief counsel for the petitioners discusses only two of his allegations*1342 of error. He contends that the petitioners are not transferees within the intendment of section 316 of the Revenue Act of 1926 and, in the alternative, that the respondent erroneously included in the gross estate of Mahlon W. Newton, deceased, the value of certain real property situated in the State of New Jersey. Though the petitioners have not abandoned their allegation that the statute of limitations has run against the assessment of estate taxes against the estate of Mahlon W. Newton, deceased, it is not deemed necessary to discuss the same, in view of our conclusion on the merits of the case. We have held that the statute places a real burden of proof on the respondent and that he must establish the liability of the transferee against whom he proposes to proceed. ; . In the present proceedings, for the purpose of sustaining the burden of proof imposed on him, the respondent introduced in evidence the last will and testament of Mahlon W. Newton, together with a codicil thereto, and the "first and final account" filed by the executors as stated in the findings of fact, together*1343 with the adjudication thereof by the court *295 dated April 6, 1927. The respondent offered no other evidence to sustain the burden of proof. Thereupon the petitioners, by their counsel, moved for judgment on the ground that the respondent had failed in his proof for the reason that he had not proved whether or not subsequent to April 6, 1927, the date of the accounting and adjudication, the estate of Mahlon W. Newton had received funds not accounted for in the accounting, and also for the reason that the respondent had not proved that he had exhausted his legal remedies against the estate. The petitioners also moved for judgment on the ground that proceedings to collect the deficiency from the continuing estate in the hands of the trustees should have been prosecuted by the respondent to no avail before proceeding to enforce liability against specific legatees as transferees. Decision of these motions was reserved. The petitioners then offered evidence from which we have found as a fact that certain certificates of stock which Mahlon W. Newton had acquired and lost had been discovered after the date of the accounting and adjudication; that one of the executors had*1344 received on account of such stock and in cash the sum of $4,400; that from such sum and other after acquired property there remained in the estate at the time of the hearing herein a sum more than sufficient to satisfy the deficiency in estate tax asserted by the respondent against the petitioners as transferees. It has been held that before proceedings may be brought against a transferee it must appear that the remedies against the transferor would be of no avail. ; . It does not appear in these proceedings that such is the case. It is our opinion that the contrary appears. It is a principle of law that the accounts of executors, administrators and trustees, when approved by courts of competent jurisdiction, are conclusive only as to the matters and things embraced within the accounts. The law vests in executors and administrators the legal ownership of the personal property belonging to a decedent at the date of his death and they must account for it. *1345 ; ; ; : ; . In the last cited case the Pennsylvania court held that there is nothing to prevent a call upon the executors to file a supplemental account when goods, chattels and money have come into their hands after the accounting. "The account is conclusive only as to those matters accounted for." Cf. ; . Here it appears that after the date of the accounting and the adjudication dated April 6, 1927, the estate of the decedent came *296 into possession of funds in an amount sufficient to pay the deficiency in tax. It does not appear that such funds had been distributed to the beneficiaries or transferred to the trustees. They were still in the hands of the executrix and available for payment of the taxes in question. It also appears that even at the date of the hearing herein there were sufficient funds of the estate in the hands of the*1346 executrix with which to pay the deficiency. This sum was part of the proceeds of personal property discovered after the accounting and settlement hereinbefore referred to and ultimately must be accounted for by the executrix. The accounting referred to did not purport to be a final account in the sense that it was followed by discharge of the executrix. The estate has not been closed and there yet exists a duly qualified and acting executrix. The transferees' liability was not asserted against these petitioners until January, 1930, and so far as appears the respondent based his assertion of the petitioners' liability as transferees solely on the accounting of April 6, 1927. The respondent made no attempt between April 6, 1927, and January, 1930, to enforce either at law or in equity any liability against the estate of Mahlon W. Newton or the executors thereof, although it is apparent from the facts that the fund hereinbefore referred to could have been reached by execution at and prior to the date of the attempted assertion of the transferee liability. These proceedings are distinguishable from *1347 ; affd., , since in that case it was stipulated that the estate had been distributed and there were no known additional assets. It follows from the foregoing that the petitioners herein are not liable as transferees. Reviewed by the Board. Judgment of no transferee liability will be entered.