Mandell v. Pierce

CLIFFORD, Circuit Justice. Annual gains, profits, and income of persons residing in the United States or of citizens of the United States residing abroad, whether derived from property, rents, interests, dividends, or salaries, or from any profession, trade, employment, or vocation, carried on in the United States or elsewhere, or from any other source whatever, were subject annually, by the act of the 30th of June, 1864, to a duty of five per centum, on the excess over $60u, and not exceeding $5,000; and by the amendatory act of the 3d of March, 1805, it was provided that such annual gains, profits, and income are subject annually to a duty of ten per centum, on the excess over $5,000. 13 Stat. 281-479. Rules are therein enacted prescribing the mode to be adopted in ascertaining the income of any person liable to an income tax. Such of those rules as are material to the present investigation may be stated as follows: 1. That the duty should be assessed, collected, and paid upon the gains, profits, and income for the year ending the 31st of December next preceding the time for levying, collecting, and paying the same. 2. Duties on incomes as therein imposed are required to be levied on the 1st of May in each year, and they were therein declared to be due and payable on or before the 30th of June in the same year. 13 Stat. 283. 3. Incomes received from institutions whose officers are required by law to withhold a per centum of their dividends, and pay the same to the commissioner or other officer authorized to receive the same, and income derived from notes, bonds, and other securities of the United States, and also all premiums on gold and coupons, were required to be included in the estimate; but the provision was, that the amount so withheld by such institutions should be deducted from the tax which would otherwise be assessed. 13 Stat. 479. 4. One deduction only of the $000 could be made.from the aggregate income of all members of any family composed of parents and minor children or husband and wife. 5. Net profits realized by sales of real estate -purchased within that period were required to be deducted from the income of that year, [and were chargeable as income, but losses on sales of real estate purchased within that period were required to be deducted from the income of such year.]2 G. Taxes paid within the year, whether state, national, county, or municipal, were required from the gains, profits, or income of the person paying the same, whether owner, tenant, or mortgagor. Other deductions were also required to be made as specified in the substitute for the 117th section, as enacted the succeeding year. 13 Stat. 479. Plaintiff’s testatrix died on the 2d of July, 1865. and the agreed statement shows that the plaintiff was duly appointed the executor of her-last will and testament. The residence of the decedent during the year preceding her death, was at New Bed579 ford, which is included in the First district in this state for the collection of internal revenue. Pursuant to the requirement of the assistant assessor for that district, the plaintiff made return of the income made by his testatrix during that portion of the year which had elapsed at the time of her decease; but he denied the power of the officer to require any such return, and made it under protest. Despite the objections and protest of the plaintiff, the assistant assessor, on the 1st of May, 1866, assessed a tax on the gains, profits, or income of the decedent, as returned for that portion of the year preceding her death, of $1,512.36. Appeals were regularly taken by the plaintiff, first to the assessor of the district, and subsequently to the commissioner, and those officers respectively affirmed the taxation. Payment was subsequently demanded by the collector, and the plaintiff, on the 6th of September, 1866, paid the amount, under a written protest, to avoid a distraint of his property. Technical forms are waived by the parties on both sides, as appears by the agreed statement. They agree that if the income received by the decedent for that portion of the year prior to her death was liable to taxation .as income, under the internal-revenue laws, then the tax was legally assessed, and that the amount is correct, and that the defendant .acted in accordance with law. On the other hand, it is also agreed that the appeals and protests were sufficient in matter and form, .and that the suit was seasonably brought, .after due demand. Viewed in the light of those admissions, doubt could not be entertained as to the liability of the income of the decedent to taxation, under the internal-revenue laws, if she had lived through the entire income year, and had been in life when the tax was assessed. Assessment, in that event, undoubtedly would have been made for the gains, profits, and income for the entire year; but it is equally certain that the amount received prior to the 2d of July would have been equally liable to taxation, at the time appointed by law for the assessment, even if it appeared that she had ceased on that day to be the owner of any property, and had never afterwards, during the remainder of that income year, received any gains, profits, or income. Beyond question, her liability to taxation would have been the same in that event, except as to .amount, as if she had continued to be the owner of property, and the recipient of gains, profits, and' income, during the remainder of the income year. Equal distribution of the gains, profits, and income over every portion of the income year is not a condition precedent to the liability to taxation, under the internal-revenue laws. On the contrary, gains, profits, and income received within the income year are annual gains, profits, and income within the meaning of those laws, although the whole amount •of the same in a given ease may be received within the first month or the last month of the year. Such liability attaches to all gains, profits, and income received within the income year, although the property from which such gains, profits, or income are derived is acquired within the year or is conveyed away before the year closes; and the same rule will apply, although it appears that the gains, profits, or inc i? were derived from a business or avocation which from its nature could not be pursued, or was not pursued, only for a part of the income year. Great inequality would flow from the opposite rule of construction, as all persons who changed their business within the income year, and all those engaged in avocations which from their nature cannot be pursued throughout the year, would escape all such taxation. Obviously such a construction would defeat, instead of carrying into effect, the intention of congress, and therefore it cannot be admitted. When ascer-táined as required by law, the intention of congress was, that gains, profits, and income received within the income year, from the sources therein defined, should be subject to the prescribed taxation, whether such gains, profits, or income were derived from any kind of property, rents, interest, dividends, salaries, or from any trade, profession, employment, vocation, owned, collected, pursued, or followed for the whole or any part of the income year. All such gains, profits, or income received within that year prior to the 2d of July were liable to taxation, under the internal-revenue laws,,subject to the deductions which those laws allowed in ascertaining the aggregate amount as the basis for the computation of the tax. In ascertaining the aggregate amount of the gains, profits, or income liable to such taxation, the same deductions were required to be made, as would have been if the testatrix, instead of having deceased, had ceased on that day to be the owner of any property, and for the residue of the income year had received nothing as gains, profits, or income within the meaning of those laws. Argument is unnecessary to show that all the gains, profits, or income received by the decedent, within that income year, are those which accrued prior to July 2, and that it would be absurd to suppose that she continued to own property after that day, or that she sustained any subsequent loss, within the meaning of those laws. The principal objection to this theory is, that the death of the testatrix occurred before the time appointed for making the required return; and the argument is, that in that state of the ease no return can be required by her legal representatives. All guardians and trustees, whether as executors, administrators, or in any other fiduciary capacity, are required under the law then in force to make and render a list or return, in such form and manner as the commissioner should prescribe, to the [580] assistant assessor of their district, of the amount of gains, profits, or income of any minor or person for whom they acted as guardian or trustee. 13 Stat. 480. Taxes or duties on incomes thereby imposed are required to be levied on the 1st of May, and the provision is, as before explained, that they shall be due or payable on or before the 30th of June in each year. 13 Stat. 283. Guardians are required to make return for their wards, trustees for their eestuis que trust, and executors or administrators for whom they act. Suggestion is made that the testatrix, after her decease, was not a person residing in the United States, but the suggestion is quite too technical to be entitled to weight, as the executor in the ease of a will is the legal representative of the deceased, and by virtue of his appointment, and the probate of the will, is bound to execute tile trust reposed in him, by the terms of the will and the testamentary laws of the state. He is bound to collect all debts which are due, or which fall due to the decedent, and to pay all debts due from the decedent, or which fall due after his decease, unless the assets of the estate are insufficient. Such taxes as accrued before the decease of the testator or testatrix are a debt against the estate, and as such must be paid by the executor out of the assets of the estate. Liability to taxation arises, and in some sense it may be said that the taxes accrue, at the time the gains, profits, and income pass into the hands of the recipient. Return is required in every case before the day of levy, so that it is clear that the tax is due, that is. the recipient of the gains, profits, and income is liable for it before it is assessed, as the return is only to ascertain whether the liability exists, and its extent. 13 Stat. 225. Evidently such liability, in a case like the present, accrues in the lifetime of the recipient of the gains, profits, and income, and at his or her decease it passes over to the executor or administrator as a debt against the estate. Where the recipient dies within the year, he or she cannot make any return, and the duty of making it in that event devolves on the executor or administrator, as the legal representative of the deceased. The requirement of the law is, that the return shall be made in the collection district where the person resides upon whom the duty of making it is imposed; and it seems but a reasonable construction of that provision, to hold that in cases like the present, it may include the executor or administrator, as no return can be made by the actual recipient of the gains, profits, or income. Concede that an executor or administrator under that provision, may be regarded as a trustee, still the argument is, that it is impossible to regard him as the trastee for the decedent, which perhaps is a sound proposition as a technical rule; but he is the legal representative of the deceased, and as such is bound to collect the dues and pay the debts, and administer the estate, which is a sufficient answer to the proposition as applied to the case before the court. Internal-revenue taxes are also levied on persons having in charge or trust as executors, administrators, or trastees any legacies or distributive shares arising from personal property, where the whole amount shall exceed $1,000 in actual value; and the argument is, that those taxes in case of deceased persons, dying within the income year, are a substitute for the income taxes required to be paid by persons in full life; but it is impossible to adopt the proposition, as the legacy and succession taxes are. entirely distinct from the taxes on gains, profits, and incomes. 13 Stat. 287. Income taxes accrue on gains, profits, or income .received by the testator or intestate in his lifetime; but legacy and succession taxes accrue subsequent to the death of such testator or intestate. A suit may be maintained against a collector of internal revenue, to recover back taxes illegally exacted, if the payment was made under written protest to prevent a distraint of the plaintiff’s property; but the taxes in this case, under the agreement of the parties, were in judgment of law legally assessed against the plaintiff as executor of Sylvia Ann Howland, deceased. Judgment for the defendant for the costs of suit. Footnotes [2] [From 7 Int. Rev. Rec. 193.]