Botts v. Commissioner

ESTATE OF CARRIE M. BOTTS, DECEASED, TRANSFEREE, HOMER H. TOOLEY, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. JOHN PARKER, ENTITLED AS "MR. JOHN PARKER, TRANSFEREE," PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Botts v. Commissioner Docket Nos. 96766, 96854. United States Board of Tax Appeals 42 B.T.A. 977; 1940 BTA LEXIS 927; October 15, 1940, Promulgated *927 James M. Botts died in 1934. After his death his widow filed a joint return including their income and deductions for the year 1933. The return was accepted and audited by the Commissioner and formed the basis of a notice of deficiency. The executor of Botts' estate caused his will to be probated and included in the estate 1,749 shares of stock which had been issued to decedent and his wife as joint tenants with right of survivorship. The Probate Court included this stock in decedent's estate and issued a decree of settlement distributing the stock and discharged the executor of the estate of James M. Botts. After the discharge of the executor of the estate of James M. Botts, respondent sent the former executor a notice of deficiency, asserting an additional deficiency against decedent for income taxes for the year 1933. The discharged executor filed a proceeding with the Board in which, pursuant to stipulation of the parties, the Board entered its decision on October 20, 1938. On November 10, 1938, respondent sent notices of deficiency to petitioners, as transferees of assets of decedent James M. Botts. Held, the statute of limitations does not bar respondent in his action*928 against these petitioners; held, further, that petitioners received the shares from the estate of James M. Botts and not by virtue of joint tenancy. Byron Coleman, Esq., for the petitioner in Docket No. 96766. Adolphus E. Graupner, Esq., for the petitioner in Docket No. 96854. E. A. Tonjes, Esq., for the respondent. VAN FOSSAN *977 These proceedings were brought for the redetermination of the liability of petitioners as transferees for the year 1933 in the sum of $16,507.80. The single issue before the Board is whether or not petitioners are liable as transferees for the payment of income taxes of James M. Botts, deceased, for the year 1933. FINDINGS OF FACT. Carrie M. Botts, the executor of whose estate is petitioner in Docket No. 96766, died on January 20, 1938. On February 10, 1938, Homer H. Tooley was appointed executor of her will. Petitioner in Docket No. 96854 is an individual having a principal place of business in San Francisco, California. For many years prior to March 1, 1934, James M. Botts and Carrie M. Botts were husband and wife, residing in San Francisco, California. *978 During the entire year*929 1933 and until March 1, 1934, they lived together. For many years prior to March 1, 1934, James M. Botts was president of the American Marine Paint Co., hereinafter called the company, a corporation organized and existing under the laws of the State of California. In the year 1933 he was president, John Parker, vice president, and Carrie M. Botts, secretary, of the company. During the year 1933 James M. Botts received a salary of $24,000 and his wife received a monthly salary of $225 from the company. On July 12, 1933, there were 1,980 shares of the capital stock of the company outstanding. On that date 1,749 of these shares were in the name of J. M. Botts and 204 shares stood in the name of C. M. Botts. James M. and Carrie M. Botts had contemplated placing their stock in a joint tenancy with right of survivorship. From the certificates issued in the names of J. M. and C. M. Botts, the following certificates dated July 12, 1933, signed "C. M. Botts, Secretary" and "J. M. Botts, President" were issued to "J. M. Botts and C. M. Botts as joint tenants with right of survivorship": Certificate No. Shares [4] Total 1,958 *930 On March 1, 1934, J. M. Botts died testate. On or before March 14, 1934, Parker became president of the company. After the death of J. M. Botts, Carrie M. Botts placed certificates Nos. 45, 46, 47, 48, 49, and 51 in the stock book marked "cancelled" and caused new shares to be issued to herself. The new certificates were signed by Parker as president and C. M. Botts as secretary, under date of March 14, 1934, and transferred shares as follows: New certificate No. From original certificate No. Shares transferred [4] Total 1,958 On March 15, 1934, Carrie M. Botts filed form 1040 with respondent, reporting thereon income of herself and James M. Botts for the year 1933. The document bears the heading "James Monroe Botts" and "Yes" is entered after the questions "Is this a joint return of husband and wife?" and "Were you married and living with husband or wife *979 during your taxable year?" The document is signed "C. M. Botts" and the signature of J. M. Botts does not appear. On April 13, 1934, R. Stanley Dollar, named as executor in the will of J. M. Botts, filed a petition*931 for the probate of the will and letters testamentary in the Superior Court of California. On May 7, 1934, Dollar was appointed executor by the court and duly qualified and assumed his duties. In the petition for probate and for letters testamentary, Dollar alleged "that at the time of his death, the said James M. Botts, deceased, held real and personal property in joint tenancy with his wife, Carrie M. Botts, the value and character of which property is unknown to your petitioner." Attached to the petition for probate was the will of James M. Botts dated April 1, 1922. The will contains the following provisions: THIRD: Inasmuch, as my beloved wife Carrie M. Botts, of the City and County of San Francisco, State of California, is entitled under the law to one-half of the estate of which I may die possessed by reason of her community interest therein, I make no other provision for her in this Will, and desire that she do not take anything in excess of her said community interest. FOURTH: I give and bequeath to John Parker of Alameda, State of California, as a mark of appreciation for his loyal and faithful service and friendship, Twenty per cent. (20%) of the Capital Stock*932 of the American Marine Paint Company of California, which shall stand in my name upon the books of said corporation at the time of my death. FIFTH: I hereby give and bequeath to Stanley Dollar of Piedmont, Alameda County, State of California, the sum of Twenty Thousand ($20,000.00) Dollars. SIXTH: I hereby give, devise and bequeath all the rest, residue and remainder of my estate of whatsoever kind, character, or description, whereof I may die seized, possessed or to which in any manner I may be entitled, unto my mother, Mary J. Botts, of San Francisco, State of California; my sister, Dora Horton, of San Francisco, State of California, to my brothers T. C. Botts, of Oakland, State of California, and A. T. Botts, of San Francisco, State of California, to be divided among them share and share alike. For many years prior to J. M. Botts' death he had informed Parker that Parker would receive 20 percent of the company's stock upon his death. At the time certificates Nos. 45, 46, 47, 48, 49, and 51 were issued, J. M. and C. M. Botts informed Parker that he would still receive his 20 percent of the stock. After J. M. Botts' death, Carrie M. Botts told Parker that her husband's*933 wish that Parker receive 20 percent of the company's stock would be carried out. On August 13, 1934, the original inventory of the estate of J. M. Botts was filed. Property in the hands of the executor at that time was appraised in the sum of $1,969.92. On December 26, 1935, Carrie M. Botts filed a "complaint to quiet title" against the company and R. Stanley Dollar, executor of the will of James M. Botts, deceased, in which she alleged that she *980 was the owner of 1,958 shares of the capital stock of the company as the survivor of the joint tenancy of July 12, 1933. An answer was filed to the complaint by each of the defendants and the parties stipulated that the action be set for trial. No decision was ever entered in this action. An amended inventory and appraisement was filed March 12, 1936. The inventory included 1,749 shares of capital stock of the company which had been issued to J. M. and C. M. Botts with right of survivorship. Under the amended inventory and appraisement, the property in the hands of the executor was appraised in the sum of $180,623.98. On July 23, 1936, Dollar filed a document entitled "First and Final Account of Executor and Petition*934 for Distribution" with the court. Together with other property with which he charged himself as executor, he included 1,749 shares of capital stock of the company valued at $204,633. After deducting liabilities of the estate, the total value of property available for distribution to beneficiaries was $116,631.69. The document contains the statement that the residuary legatees under the will had assigned their rights to Carrie M. Botts and that Dollar had assigned his legacy to Carrie M. Botts. On August 4, 1936, the Superior Court of California approved the first and final account of Dollar and ordered final distribution of the estate. The decree provided that the estate be distributed as follows: To John Parker, 390.5 shares of the capital stock of the American Marine Paint Company. To Carrie M. Botts, all the rest residue, and remainder of the said estate as follows, to wit: 1,358.5 shares of the stock of the American Marine Paint Company. * * * On August 6, 1936, Parker acknowledged receipt from Dollar, as executor, of 390.5 shares of the capital stock of the company. On the same date Carrie M. Botts acknowledged receipt of 1,358.5 shares of the company's capital*935 stock and certain other property. The 390.5 shares received by Parker were issued to him on August 6, 1936, by certificates numbered 63, 64, and 65 from certificates issued to "J. M. Botts and C. M. Botts as joint tenants with right of survivorship." On the stubs of certificates numbered 52, 53, 54, 55, 56, and 57 appears the notation "canceled - issued by mistake." In lieu of certificates numbered 52 to 57, certificate No. 58 for 20 shares, No. 59 for 204 shares, No. 60 for 495 shares, No. 61 for 415 shares, and No. 6i for 448 1/2 shares were issued to C. M. Botts under date of August 6, 1936. On August 17, 1936, the Superior Court of California released and discharged Dollar as executor of the estate of James M. Botts and decreed that the estate was fully distributed and closed. *981 The value of the capital stock of the company at James M. Botts' death and at the date of distribution of his estate was $117 a share. Under date of February 15, 1936, a consent extending to June 30, 1937, the period of limitation for assessment of 1933 income tax of James M. Botts, deceased, signed by R. Stanley Dollar as executor and Carrie M. Botts as taxpayer, was filed with*936 respondent. On May 27, 1936, a waiver of restrictions on assessment and collection of a deficiency in tax in the amount of $11,897.28 for the taxable year 1933 as proposed by respondent (form 870) was signed "J. M. Botts, deceased, MRS. J. M. BOTTS, TAXPAYER, Carrie M. Botts." A typewritten endorsement on the said form 870 reads as follows: "This waiver is being signed by Mrs. J. M. Botts, the chief beneficiary of decedent's estate, who will arrange payment from the estate assets." In July 1936 respondent assessed against the estate of James M. Botts a deficiency in income taxes for the year 1933 in the amount of $11,897.29, plus interest of $1,631.56. These taxes and interest were paid by installments from the personal funds of Carrie M. Botts. By a letter dated November 19, 1936, addressed to R. Stanley Dollar, executor of the estate of James M. Botts, deceased, in care of H. H. Tooley, Crocker Building, San Francisco, California, respondent stated that an additional deficiency was to be proposed against the estate in the sum of $21,038.71. A protest was filed with respondent in regard to the proposed additional deficiency, dated and marked "received, December 7, 1936, Audit*937 Division E." The protest was signed "Respectfully, Estate of James M. Botts, deceased, by Carrie M. Botts, residuary legatee." Respondent addressed a notice of deficiency dated May 14, 1937, to "Mr. R. Stanley Dollar, executor, Estate of James M. Botts, deceased, c/o H. H. Tooley, Crocker Building, San Francisco, California." This notice advised Dollar of a deficiency in income taxes of James M. Botts for the year 1933 in the amount of $21,038.71 and gave Dollar ninety days within which to file a petition with the Board. On or about July 6, 1937, in response to the above mentioned notice of deficiency, Dollar filed a petition with the Board, which was given Docket No. 89717. The petition in Docket No. 89717 recited that "the petitioner was the duly qualified and appointed executor of the estate of James M. Botts, deceased (now discharged) * * *." There were two verifications to the petition, one by Dollar, who stated that he had been discharged as executor but had not previously given respondent notice of that fact, and one by Carrie M. Botts, who stated that she was "the sole legatee of the estate of James M. Botts, deceased, said estate having been distributed on August 17, 1936 * *938 * *." *982 On August 3, 1937, respondent filed an answer to the petition in Docket No. 89717. On October 14, 1938, a stipulation signed "W. J. Renz, counsel for petitioner" and "J. P. Wenchel, Chief Counsel, Bureau of Internal Revenue, counsel for respondent", was entered into, fixing the deficiency in income tax for the year 1933 of R. Stanley Dollar as executor of the estate of James M. Botts, deceased, at the sum of $16,507.80. On October 20, 1938, the Board entered its decision in accordance with the above mentioned stipulation. In accordance with the order of the Board, respondent assessed against the estate of James M. Botts the sum of $16,507.80, plus interest. No part of this assessment has been paid. Under date of November 10, 1938, respondent mailed a notice of deficiency to "Homer H. Tooley executor, estate of Carrie M. Botts, deceased, transferee in re: Estate of James M. Botts, deceased, R. Stanley Dollar executor." Under date of November 10, 1938, respondent mailed a notice of deficiency to Parker entitled "Mr. John Parker, transferee in re: Estate of James M. Botts, deceased, transferor, R. Stanley Dollar, executor." Each of the notices of deficiency*939 to petitioner herein asserts transferee liability in the sum of $16,507.80. Each notice further states: The above mentioned amount represents your liability under section 311 of the Revenue Act of 1932 as a transferee of the assets of the Estate of James M. Botts, deceased, for the deficiency of income due from said decedent for the taxable year 1933. The correctness of the amount of the deficiency due from the estate of James M. Botts, San Francisco, California, has been determined by order of the United States Board of Tax Appeals, Docket No. 89717 entered on October 20, 1938. Your right to protest, therefore relates only to your liability as transferee. OPINION. VAN FOSSAN: The only issue for our consideration concerns the liability of petitioners as transferees for income taxes of James M. Botts, deceased, for the year 1933. Petitioners contend that respondent is barred by the statute of limitations. They maintain that, in any event, they received nothing from the estate of James M. Botts and, hence, are not transferees of assets of the deceased. They further claim that our decision fixing the deficiency of the alleged transferor was void. Petitioner Parker urges*940 that he was a specific legatee and action against him may not be taken until respondent has proceeded against the residuary beneficiaries. Respondent argues that the limitation period has not run and asserts that Carrie M. Botts and Parker received assets in the distribution of James M. Botts' estate. He denies that petitioners may here attack the validity *983 of our decision regarding the liability of James M. Botts, deceased, for income taxes in the year 1933. Our first inquiry relates to the question of whether or not respondent is barred by the statute of limitations. Respondent asserts that the filing of form 1040 by Carrie M. Botts on March 15, 1934, did not constitute the filing of a return which would start the statute running. We can not agree. Carrie M. Botts, one of the two persons for whom the return purported to speak, included income and deductions of her husband and herself and stated that it was a joint return. The "return" was received by respondent and was audited in due course, and a deficiency was asserted against the husband's estate. It appears to have complied with the law. *941 Germantown Trust Co. v. Helvering,309 U.S. 304. See Mrs. D. Sydney Smith,4 B.T.A. 385. In our opinion the statute began to run upon the filing of the return by Carrie M. Botts. The limitation period was extended until June 30, 1937, by a consent signed by Carrie M. Botts as taxpayer and Dollar as executor of James M. Botts' estate. On May 14, 1937, respondent sent Dollar, as executor of the estate of James M. Botts, a notice of deficiency relating to income taxes of the decedent for the year 1933 in the sum of $21,038.71. On July 7, 1937, Dollar filed a petition with this Board in response to the notice of deficiency dated May 14, 1937. Section 272(a) of the Revenue Act of 1932, as amended by section 501 of the Revenue Act of 1934, prohibits respondent from making an assessment of a deficiency until after the expiration of the 90-day period within which the taxpayer may appeal to the Board or, if a petition has been filed with the Board, until the decision of the Board has become final. Section 277 of the Revenue Act of 1932 provides for the suspension of the statute of limitations for the period during which respondent may not assess, *942 and for 60 days thereafter. Petitioners contend that the notice of deficiency dated May 14, 1937, was void because it was addressed to Dollar, who had previously been discharged as executor of the estate of James M. Botts. They maintain that a void notice of deficiency will not prohibit respondent from making an assessment and, hence, will not suspend the statute of limitations. We are of the opinion that the notice of deficiency was valid. Respondent sent the notice to Dollar, who had been executor of the estate. The record shows Dollar had not, prior to his receipt of the notice, informed respondent of his discharge. Section 312(a) of the Revenue Act of 1932 provides that upon notice to respondent of fiduciary capacity the fiduciary shall "assume the powers, rights, duties and privileges of the taxpayer * * * until notice is given that the fiduciary capacity has terminated." At the time Dollar received the notice he was still the "taxpayer" to whom the notice of deficiency *984 might be addressed. Respondent has complied with requirements of the law in this regard. *943 Jessie Smith, Executrix,24 B.T.A. 807. Petitioners assert that we had no jurisdiction in the proceeding begun by the petition filed by Dollar as former executor of the estate of James M. Botts, citing Estate of Joseph B. Dabney,40 B.T.A. 276. The cited case is not in point here, because in that case a jurisdictional question was raised upon the initiation of the proceeding by the administrator. Such is not the fact here. The facts here are more comparable to those in Marie Minor Sanborn,39 B.T.A. 721; affd., 108 Fed.(2d) 311. There, a notice of deficiency was sent to the discharged executrix and coexecutor of the estate of the deceased taxpayer. The executrix and coexecutor in due course filed a petition with this Board for the redetermination of the proposed deficiency. Both petitioners in their verifications of the petition stated that they had been discharged as representatives of the estate. We rendered an opinion and entered a decision finding a deficiency. Respondent was unable to collect the amount of the deficiency because no assets remained in the estate and proceeded against the former executrix of*944 the deceased taxpayer as "transferee and/or fiduciary." In considering the question of suspension of the statute of limitations by the proceeding commenced in the Board by the discharged representatives of the estate, we stated: First, while it may be conceded for present purposes that the discharge of petitioners as executors terminated their powers under the law of the State of Missouri, it does not follow that for purposes of Federal taxation they were without standing, particularly that their authority with respect to the institution on behalf of the estate of a proceeding before the Board was terminated. We further stated: * * * And entirely beyond this the provisions of the Revenue Act of 1928, section 318, make it clear that the power under the Revenue act of a fiduciary to represent and take the place of the taxpayer, upon notice of a fiduciary relationship, does not terminate until contrary notice. Petitioner's signature, verification, and filing of an income tax return entitled "Mrs. Marie N. Sanborn, Executrix, Estate of Dr. W. E. Minor, Deceased" and executed "Marie M. Sanborn, John A. Minor, Executors" clearly gives the first type of notice. It was given on April 9, 1930, after*945 the discharge on which petitioner relies as terminating her authority and as far as the record shows nothing happened thereafter to change the situation until after the filing of the petition in 1932. Even though it be conceded, as petitioner contends, that the petition was notice to the Commissioner of the termination of such fiduciary responsibility, that notice could not have been brought to the Commissioner's attention until after the petition had actually been filed with the Board. This filing can thus by no remote inference be regarded as ineffectual, invalid, or void in so far as the provisions of the Federal revenue laws are concerned. Second, the proceeding thus placed upon the docket of the Board, even though it had not been commenced under circumstances giving it every aspect of *985 legality, would nevertheless have been sufficient to toll the running of the statute. And it would have had that effect until the decision of the Board therein became final, even though the circumstances had been such that they would eventually have required the dismissal of the petition. Revenue Act of 1928, sec. 277. Both the express language of the section and the purpose to*946 be served call for that interpretation. "Because the effect of the passage of time would be the same whether the Board made its decision on the merits or on some other ground, if the period stated in the statute of limitations meantime expired, it is reasonable to believe that Congress did not intend to have the time a proceeding was pending before the Board counted any more when the decision was a dismissal for want of jurisdiction than when it was not." American Equitable Assurance Co. of New York v. Helvering, 68 Fed.(2d) 46 (C.C.A., 2d Cir.), affirming 27 B.T.A. 247. In the present proceeding sufficient notice of fiduciary capacity was given respondent by Dollar's signature as executor on the consent extending the period of limitation for assessment filed February 15, 1936. Here, as in the Sanborn case, the executor gave respondent no notice of his discharge before filing the petition before the Board. The filing of the petition suspended the running of the statute of limitations. The proceeding was pending upon our docket and tolled the statute during its pendency. Our decision in regard to the deficiency of James M. Botts, deceased, *947 for the year 1933, did not become final until October 20, 1938. The limitation period applicable to these petitioners could not expire until at least one year and 60 days from October 20, 1938. Revenue Act of 1932, sec. 311(b)(1). The notices of deficiency addressed to petitioners in the present proceeding were dated November 10, 1938, well within the statutory period. We hold, therefore, that respondent is not barred by the statute of limitations. We now turn to petitioners' contention that the shares of stock of the American Marine Paint Co. were owned by Carrie M. Botts as survivor of the joint tenancy and should not have been included in the estate of the deceased husband. California law must determine whether or not the shares were received from the estate or by virtue of the joint tenancy. Freuler v. Helvering,291 U.S. 35; Blair v. Commissioner,300 U.S. 5; Sharp v. Commissioner,303 U.S. 624; reversing per curiam,91 Fed.(2d) 802; Susan B. Armstrong,38 B.T.A. 658; *948 Estate of Frederick R. Shepherd,39 B.T.A. 38. The Supreme Court in Freuler v. Helvering, supra, said: * * * The decision of that court, until reversed or overruled, establishes the law of California respecting distribution of the trust estate. It is none the less a declaration of the law of the state because not based on a statute, or earlier decisions. The rights of the beneficiaries are property rights and the court has adjudicated them. What the law as announced by that court, adjudges distributable is, we think, to be so considered in applying section 219 of the Revenue Act of 1921. *986 In the case of Frederick R. Shepherd, supra, we said: * * * The Board, like the Federal courts, is bound by decisions of the state courts in regard to property rights and the effect of conveyances executed within the state relating to property situated therein. The decision of a state court, until reversed or overruled, establishes the law of that state respecting the distribution of trust property within its jurisdiction and the rights of beneficiaries to that property. * * * *949 Petitioners here assert that the law of California is contrary to the conclusions to be drawn from the decree of settlement of the estate of James M. Botts and cite the cases of Young v. Young,126 Cal.App. 306; 14 Pac.(2d) 580; Williams v. Williams,160 Cal. 625, and others for the proposition that a surviving joint tenant takes property to the exclusion of the estate of the deceased tenant. They point out that the decree of the Probate Court distributed only such title as the deceased had at the time of his death and urge that the deceased had no power to pass title to the stock to his estate or heirs, citing Pometti v. Laraia,134 Cal.App. 545; 25 Pac.(2d) 857. We are not constrained to inquire behind the decree of the Superior Court of California. So far as we are concerned, the court's decree of settlement of the estate of James M. Botts is the law of the case. Petitioners received the shares in the distribution of the estate. Petitioner Parker, however, contends that his status as specific legatee defers any transferee proceedings against him until it has been shown that the residuum*950 of the estate was insufficient to pay the deficiency. He relies on section 750 of the California Probate Code, which provides that specific legacies are exempt from claims of creditors if the Probate Court finds such exemption necessary in order to carry out the testator's intent, and there is sufficient other estate to satisfy the claim. The effect of this statute in the instant proceeding is not for us to consider. Moreover, the record does not reveal that the Probate Court has taken any action affecting the collection of the taxes due. Both petitioners received assets from the estate of James M. Botts in excess of the deficiencies asserted by respondent against the estate. We hold that petitioners are transferees of the estate of James M. Botts, and that each is liable for the deficiency in income taxes of deceased for the year 1933 in the sum of $16,507.80. Decision will be entered for the respondent.