Tutwiler v. Commissioner

HERBERT TUTWILER, EDWARD M. TUTWILER, TEMPLE TUTWILER, AND MARGARET C. TUTWILER, TRUSTEES, E. M. TUTWILER TRUST ESTATE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Tutwiler v. Commissioner Docket No. 48688. United States Board of Tax Appeals 28 B.T.A. 495; 1933 BTA LEXIS 1112; June 22, 1933, Promulgated *1112 1. Capital assets sold by executors of an estate within two years after the death of the decedent are not within the provisions of section 208 of the Revenue Act of 1926. 2. The basis for determining gain from the sale of assets of an estate on April 6, 1926, is the value of such property at the date of decedenths death. Shuford B. Smyer, Esq., for the petitioners. De Witt M. Evans, Esq., for the respondent. LANSDON *495 The respondent has determined a deficiency in income tax for 1926 in the amount of $55,836.17. Petitioners have pleaded that the respondent has erroneously deprived them of the benefits of section 208 of the Revenue Act of 1926. On their brief, however, they appear to have abandoned their allegations of error and have argued that the basis for determining gain realized from the sale of certain securities is that to which the decedent would have been entitled had the sale been made by him. The parties have filed a stipulation, which we accept and adopt as our findings of fact. FINDINGS OF FACT. Petitioners reside at Birmingham, in Jefferson County, Alabama, and are now trustees under the will of E. M. Tutwiler, *1113 deceased, and were, prior to December 5th, 1927, the executors of his said will. E. M. Tutwiler died on April 19th, 1925, leaving a last will and testament and codicils thereto which were duly admitted to probate and record in the Probate Court of Jefferson County, Alabama. Decedent was at the time of his death a legal resident of Birmingham, in Jefferson County, Alabama. On July 1, 1921, the decedent purchased two thousand (2,000) shares of common stock of American Traction Light and Power Company for $16,000, which were subject to a voting trust. By subsequent nontaxable reorganizations, stock dividends or stock split-ups, these were converted into voting trust certificates for twenty thousand (20,000) shares of common stock of South-eastern Power and Light Company. The decedent also made two additional purchases of American Traction Light and Power Company common stock, 150 shares on October 1, 1924 for $8,760 and 150 shares on November 1, 1924 for $9,465, which were similarly converted into voting trust certificates in the Southeastern Power and Light Company for 3,000 shares of common stock. The 23,000 shares of said converted stock were owned by said decedent at*1114 the time of his death. In the Federal estate tax return filed by the executors of the estate of said decedent for his estate, said 23,000 shares of said stock were valued at $286,350 or $12.45 per share at the date of the death of said decedent and this valuation was accepted by the proper officials of the Treasury Department *496 On March 3, 1926, said voting trust certificates representing said 23,000 shares of said stock were sold by the executors of said estate for $869,745, or $37.815 per share, said sale being made for the express purpose of paying Income and Estate Taxes and other legal charges against the estate of said decedent. On March 15, 1927, petitioners in their capacity as executors of said estate filed on Form 1040 their report for the Federal income tax for said estate for the calendar year 1926 and included therein the amount of $583,395 as income from the sale of said shares of stock, which sum was the amount of the excess of said sales price over the value of said stock at the date of the death of said decedent as fixed by said Federal estate tax return and showed said profit as capital gain taxable under the provisions of Section 208 of the Revenue*1115 Act of 1926. The petitioners have not filed refund claim nor written election not to come within the provisions of subsection (a) of Section 702 of the Revenue Act of 1928. The petitioners were discharged as executors of said will of said decedent by the Probate Court of Jefferson County, Alabama, on December 5, 1927, and immediately took over the properties of said estate as trustees under said will. On March 13, 1930, the Commissioner of Internal Revenue mailed to petitioners the deficiency letter and statement, whereby it was proposed to assess additional income and surtaxes for the calendar year 1926 in the sum of $55,836.17. The petitioners are also residuary legatees under the will. OPINION. LANSDON: Petitioners originally pleaded that tax on the income derived from the sale of securities as set out in the stipulated facts should be computed under the provisions of section 208 of the Revenue Act of 1926. 1 This contention is based on the theory that for income tax purposes a decedent and his estate constitute a single continuing entity. Apparently the petitioners now abandon this contention, as no part of their brief is directed thereto. It is well settled*1116 that a decedent and his estate constitute separate taxable entities and that existence of the second dates from the death of the first. ; affd., ; *497 ; ; ; . Since the decedent died on April 19, 1925, and the securities in question were sold by the executors less than one year thereafter, it is plain that the petitioners had not held them as an investment for a period of two years. The transaction is not within the statutory provisions upon which the petitioners rely. *1117 On brief petitioners argue that the profit from the sale in question should be computed on the basis of cost to the decedent. The record discloses that the sale was made on March 3, 1926, and that the computation of profit was made under regulations then in effect and which provided that gain or loss resulting from the sale by executors of property acquired by the death of a decedent should be computed on the basis of value thereof at the date of decedent's death. This regulation remained in effect until April 6, 1927, when it was revoked by the Commissioner on account of the decision of the Court of Claims in . This change in the regulations, however, avails these petitioners nothing, since they had already filed their return for 1926 under regulations then in effect. Nor has their failure to elect a settlement under section 702(a) of the Revenue Act of 1928 any bearing on the issue here, since that provision applies only to estates that filed returns between April 6, 1927, and July 7, 1928. *1118 . In our opinion the gain resulting from the sale of the securities in question should be computed on the basis of the value thereof at date of decedent's death as set out in the stipulation. Decision will be entered for the respondent. Footnotes 1. SEC. 208. (a) For the purposes of this title - * * * (8) The term "capital assets" means property held by the taxpayer for more than two years (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale in the course of his trade or business. In determining the period for which the taxpayer has held property received on an exchange there shall be included the period for which he held the property exchanged, if under the provisions of section 204 the property received has, for the purpose of determining gain or loss from a sale or exchange, the same basis in whole or in part in his hands as the property exchanged. In determining the period for which the taxpayer has held property however acquired there shall be included the period for which such property was held by any other person, if under the provisions of section 204 such property has, for the purpose of determining gain or loss from a sale or exchange, the same basis in whole or in part in his hands as it would have in the hands of such other person. In determining the period for which the taxpayer has held stock or securities received upon a distribution where no gain is recognized to the distributee under the provisions of subdivision (c) of section 203 of this Act, or of the Revenue Act of 1924, there shall be included the period for which he held the stock or securities in the distributing corporation prior to the receipt of the stock or securities upon such distribution. ↩