Opinion
Docket No. 2092.
1944-08-2
ESTATE OF JAMES MILLER, DECEASED, LEON R. JILLSON AND CENTRAL HANOVER BANK AND TRUST COMPANY, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Julian S. Bush, Esq., and Leon R. Jillson, Esq., for the petitioners. Ellyne Strickland, Esq., for the respondent.
Julian S. Bush, Esq., and Leon R. Jillson, Esq., for the petitioners. Ellyne Strickland, Esq., for the respondent.
A decedent who died within five years of his prior decedent and received a bequest from the estate of such prior decedent, deposited the bequest in his bank account containing personal funds. Thereafter, he made additional deposits in the account and withdrew from the account moneys for the purchase of securities and for personal expenditures. Held, under the facts, that petitioners have sufficiently identified the securities and the balance in the account at decedent's death as derived from the bequest and are entitled to a deduction therefor under section 812(c) of the Internal Revenue Code.
Respondent determined a deficiency in estate tax in the amount of $1,029.32. Some of the adjustments have been conceded, but petitioners claim an overpayment of tax. The only issue is the amount of the deduction which is properly allowable to petitioners under section 812(c) of the Internal Revenue Code for property previously taxed.
The estate tax return was filed with the collector for the third district of New York.
FINDINGS OF FACT.
James Miller, hereinafter referred to as the decedent, died on July 7, 1940, a resident of the City, County, and State of New York. Leon R. Jillson and Central Hanover Bank & Trust Co. are the duly appointed executors of the decedent's estate and are presently acting in such capacity. Decedent's sister, Annie Miller, hereinafter referred to as the prior decedent, died on January 3, 1938, a resident of the City, County, and State of New York. By the terms of her last will and testament a cash legacy of $50,000 was bequeathed to decedent. The executor of the prior decedent duly filed a Federal estate tax return and paid an estate tax in the total amount of $1,112.94, the said cash legacy having been appraised at its full face value. No deduction of any kind for previously taxed property was either claimed by or allowed to the estate of the prior decedent.
The cash legacy of $50,000 was paid to the decedent in three installments and was deposited by him as follows: $2,500 on April 18, 1938; $22,500 on August 31, 1938; and $25,000 on April 17, 1939. Each of these three amounts was deposited by the decedent in a general bank account maintained by him in the Manufacturers Trust Co. and they were commingled therein with decedent's other personal funds. On April 18, 1938, immediately prior to the deposit by the decedent of the first installment of the legacy as set forth above, decedent's bank account in the Manufacturers Trust Co. showed a balance of $5,127.93. From April 18, 1938, until the date of his death, decedent deposited personal funds in the account in the total sum of $17,215.92. During the same period, he deposited the $50,000 legacy in three installments as hereinabove set forth, together with the sum of $3,150.42 received from the redemption of securities previously purchased by him from the said legacy. His total deposits in the account, including the bank balance on April 18, 1938, the legacy, and the miscellaneous deposits, all of which were commingled, amounted to $75,494.27. During the period from April 18, 1938, until the date of his death, he withdrew from the account the sum of $27,319.30 for personal expenditures and $31,357.92 for the purchase of securities, which left a balance in the account at the date of his death in the sum of $16,817.15. Since the personal expenditures during the period exceeded the deposits of personal funds and the amount on deposit on April 18, 1938, the balance of $16,817.15 in the account on the date of the decedent's death was derived from and was a part of the deposit of the $50,000 legacy.
At the time the decedent received the inheritance from his sister, he was 73 years of age and in poor health. He was not engaged in business and he lived on the income of funds inherited from his father and mother. He was careful and conservative in financial affairs and his standard of living was modest. After the receipt of the inheritance from his sister, decedent discussed the investment thereof with his personal attorney, who was also coexecutor of the sister's estate, and with his banker, who frequently advised him on investments. In those conversations the decedent informed both his lawyer and his banker that the source of the moneys used for the purchase of the securities was the legacy of $50,000. It was decedent's plan to invest the legacy in good stocks and bonds and to live on the income from his securities. After the receipt of the legacy and the investment thereof, decedent did not change his standard of living, but continued to live modestly. During the administration of his sister's estate, he was informed by his attorney of the provision of the Federal estate tax law which allows a deduction for property previously taxed.
The securities purchased by the decedent during the period from April 18, 1939, to the date of his death, the purchase price of which amounted to $31,357.82, were purchased by decedent from the $50,000 legacy received by him from the estate of the prior decedent. The cash balance in decedent's account at the date of his death in the sum of $16,817.15 was the unexpended portion of the $50,000 legacy received by decedent from the estate of the prior decedent.
OPINION.
HARRON, Judge:
The question arises under section 812(c) of the Internal Revenue Code.
The decedent, after receiving a cash legacy of $50,000 from the estate of his sister within five years before his own death, purchased various securities. When he died he possessed the securities. Also, there was a cash balance in his bank account. The issue here requires proving facts. Have petitioners introduced evidence to show that certain cash can be identified as having been received as a legacy and that the securities in question were purchased out of the legacy? Regulations 105, section 81.41, sets forth certain conditions which are prerequisites in obtaining the deduction for property previously taxed. The parties are in dispute only over the point of identity of certain property of which the decedent died possessed.
SEC. 812. NET ESTATE. (As amended by section 407 of the Revenue Act of 1942.)For the purpose of the tax the value of the net estate shall be determined, in the case of a citizen or resident of the United States by deducting from the value of the gross estate—(c) PROPERTY PREVIOUSLY TAXED.— An amount equal to the value of any property (1) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (2) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. * * *
Respondent allowed petitioners a credit for property previously taxed in the amount of $20,617.22. Petitioners now claim that the deduction should be in the amount of $41,349.56, which is greater than the amount of the deduction which was taken on the estate tax return. The parties are in substantial agreement on the figures used in their respective computations.
Respondent cites Rodenbough v. United States, 25 Fed.(2d) 13, as the chief authority to sustain his determination. His position appears to be that the property in question can not be traced to the cash legacy of $50,000, the ‘property previously taxed,‘ because the inherited fund was commingled by the decedent in one bank account with other funds, and the evidence presented by the petitioners does not identify the securities in question and a cash balance in the bank account as ‘having been acquired in exchange‘ for the cash legacy from the prior decedent. Respondent contends that the evidence shows a mere intent of the decedent to use the inheritance for the purchase of the securities in question, and such evidence is said to be insufficient under section 812(c). Under the circumstances, respondent contends that the Rodenbough case is decisive of the question. He has followed the procedure which the court suggested in that case, with the result that he has allowed a deduction of $20,617.22, his holding being that securities and cash of that value only can be traced to the inherited funds.
The burden of proving identity of property under section 812(c) is upon the taxpayer. Commingling of funds does not necessarily preclude identification. Arthur W. Bingham, Executor, 15 B.T.A. 1001, 1010. The court recognized this when it remanded the Rodenbough case to give opportunity to the taxpayer to produce evidence to identify the ‘acquired‘ securities. See United States v. Rodenbough, reported in 15 American Federal Tax Reports 551, but unreported in the Federal Reporter System. It is true that funds were commingled here, as in the Rodenbough case, but the evidence here, in our opinion, distinguishes this case from the Rodenbough case, that evidence being other than as respondent describes. In this case there is evidence to distinguish the source of the moneys used to purchase the securities in question and the cash balance in the bank account. Here, proof of the source of the moneys used does not rest solely upon an analysis of decedent's bank statements showing deposits and withdrawals. The decedent had made a practice of consulting his attorney for many years about his problems. After he received the cash legacy of $50,000, he told his attorney that he would invest the inherited funds in securities, and he made lists of possible investments and discussed them with the attorney. He said to his attorney that ‘he was trying to invest this legacy of $50,000.‘ The decedent purchased securities at a total cost of $31,357.82, of which amount $23,209.69 was invested during the first three months of 1939 and the balance during the first part of 1940. The evidence shows that the decedent was a cautious person, who made decisions only after much thought. We do not think it is decisive that the decedent, who handled his own affairs, made his investments over the period as set forth above. The fact is that the decedent clearly expressed to his chief advisor a plan to invest the $50,000 legacy, and the evidence shows that he carried out his plan, although he did not invest the entire amount. We think petitioners have shown that the decedent, in withdrawing the funds he used to purchase the securities in question, had in mind the inheritance as the source of the funds. He stated frequently that the fund received as a legacy was to be invested, and his expressions serve to distinguish the source from which the decedent purchased the securities in question. It is held that petitioners have identified those securities as having been acquired with proceeds from the legacy. Wiggin v. Hassett, 56 Fed.Supp. 263.
With respect to the cash balance in decedent's bank account in the amount of $16,817.15, the facts show that it is of necessity a balance of the inherited fund, taking all the facts into consideration, and also as a result of the above holding.
Under the holding above made, petitioners are entitled to a deduction under section 812(c) in the amount of $16,817.15, plus the value of the securities at the date of death. That amount will be less than the $41,349.56 claimed, which includes $171.79 income accrued on the securities at the date of death. In his determination of the deficiency respondent excluded certain amounts representing such accrued income. Petitioners did not contest that part of the determination, and there is no issue relating to items of that character.
Decision will be entered under Rule 50.