Opinion
No. 42129.
December 6, 1937.
Edward F. Colladay, of Washington, D.C., and Wm. D. Gaillard, of New York City (Colladay, McGarraghy, Colladay Wallace, of Washington, D.C., and Gaillard, Fisher, Allen Bateson, of New York City, on the brief), for plaintiff.
Joseph H. Sheppard, of Washington, D.C., James W. Morris, Asst. Atty. Gen., and Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Action by John Sherman Hoyt, executor, estate of Henry R. Hoyt, against the United States.
Judgment for plaintiff in accordance with opinion.
Plaintiff seeks to recover $112,175.01, alleged overpayment of estate tax, with interest from the date of payment, January 4, 1922. This claimed overpayment results from the failure of the Commissioner of Internal Revenue to give the estate the benefit of two deductions as claims against the estate in the amounts of $582,681.48 and $113,440.68, and for executors' fees and commissions in the amount of $123,640.70. The reason for the disallowance of these deductions when final action was taken with respect thereto, December 29, 1930, was that the estate had not made a timely claim for refund on account thereof.
In this proceeding the defendant does not question the legality of the first and third items mentioned above but opposes recovery of any amount on the ground that no claim for refund was made by the estate with reference to any of the items sued upon within the time required by law. The alleged deduction of $113,440.68 is opposed on the merits.
Special Findings of Fact.
1. Henry R. Hoyt died testate January 4, 1921. John Sherman Hoyt and Alfred O. Hoyt were named as executors of the estate and were duly appointed and qualified. Alfred O. Hoyt resigned as executor December 9, 1926, and John Sherman Hoyt served until his final accounting was accepted by the Surrogate's Court November 15, 1929. The decree of the court directed that he turn over to himself, as trustee, all the assets of the estate then remaining in his hands as such executor. The executors duly filed a federal estate tax return for the estate of Henry R. Hoyt reporting a net estate of $2,889,489.75 and a tax liability of $300,028.57 which was paid January 4, 1922. An additional tax of $161,000 was paid February 22, 1922.
2. At the time this return was prepared and at the time it was filed, the executors had before them the matter of deductions for (1) executors' fees and commissions, (2) contingent liability on a promissory note of T.H. Frothingham for $112,500 with interest which the decedent had indorsed (an involuntary petition in bankruptcy had been filed against Frothingham), and (3) claims of P.A. Rockefeller and others against the estate in a suit that had already been instituted and claims in respect of which a suit was thereafter instituted. These unascertained claims were estimated in the amount of $850,000. The estate was large and there were many items of property and many claims, other than those above mentioned, to be dealt with, accounted for, and settled. The executors had no way of accurately estimating what the executors' fees and commissions would ultimately amount to or of determining with any degree of accuracy the amounts which the estate would finally be called upon to pay on account of the asserted liability in respect of the items of $112,500 and $850,000 above mentioned. The best the executors could do with reference to the deduction for executors' commissions was to take a deduction for the amount of $78,443.40 which had been submitted to the Surrogate's Court, and was to be allowed by the court. Accordingly this amount was deducted under Schedule H of the return. And with reference to the other two items of claims against the estate as above mentioned, which at that time were indeterminate in amount, the executors took no deductions on account thereof, but in the return, Schedule I (Debts of Decedent), there was included the following:
Contingent Liabilities
B. Contingent liability of decedent for payment of demand promissory note dated August 30, 1920, made by Thomas H. Frothingham of Far Hills, New Jersey, to the Chatham and Phenix National Bank for $112,500 with interest, and secured by 1,820 shares of preferred stock of Old Reliable Motor Truck Corporation (organized in Illinois), said note having been duly endorsed by decedent for the maker's accommodation. An involuntary petition in bankruptcy was filed against said Frothingham on December 12, 1921, in the United States District Court for the Southern District of New York. Decedent's estate is liable for the payment of the face value of the note amounting to .......................... $112,500
And interest, less proceeds of sale of securities held as collateral therefor.
N.B. — It is submitted that the deduction if any to be allowed with respect to the foregoing item in fixing the taxable value of decedent's estate be suspended, pending the determination of the a mount of the estate's liability in the premises.
C. Claims of P.A. Rockefeller and others:
The executors have been notified by attorneys for the claimants that actions are about to be commenced against the decedent's estate on claims for damages alleged to have been sustained in certain stock transactions. The claims above referred to which will be disputed by the executors are represented as amounting in the aggregate to the sum of about ............. 850,000
The claimants have hitherto refrained from presenting to the executors their formal claims against the estate of decedent.
N.B. — It is submitted that the determination of any deduction to be allowed with respect to the claims above referred to in fixing the taxable value of decedent's estate be suspended pending the result of any litigation to be instituted for the purpose of enforcing the collection of said claims.
In computing the net estate no portion of the above-mentioned items of $112,500 and $850,000 was taken as deductions on the return.
3. August 30, 1920, Thomas H. Frothingham, a son-in-law of the decedent, borrowed $112,500 from the Chatham Phenix National Bank of New York City on a demand collateral note which was indorsed by the decedent. Payment of the note was secured by the hypothecation by the maker of certificates representing 2,362 shares of stock of the Old Reliable Motor Truck Corporation. Frothingham, in this note, represented that the stock had a total value on the date pledged of $118,000.
The note, by its terms, empowered the holder thereof to sell the collateral security in event of nonpayment of the note, and contained the following further provisions: "If the collaterals held by the owner of this note shall at any time decline to within ten percent in excess of the amount then remaining unpaid thereon, this note shall, at the option of the holder at any time thereafter, be deemed due and payable forthwith without demand or notice, and the holder shall thereupon have all the power above given as to sale of securities and application of the proceeds in case of non-payment at maturity."
4. The bank made demand on the maker for the payment of this note. On October 13, 1921, plaintiff, as executor of the decedent's estate, upon demand paid the bank the amount borrowed, $112,500, together with accrued interest in amount of $940.68, whereupon the bank surrendered the note to plaintiff, together with the collateral attached thereto. Upon receipt of these stock certificates the executor surrendered them to the company and received therefor 1,820 certificates. The stock had a book value at the date of the decedent's death and at the time it was surrendered to the executor of at least the face of the note, plus accrued interest, or a total of $113,440.68. The estate took it up on its books at that value. The Old Reliable Motor Truck Company was discharged in bankruptcy July 10, 1927. Plaintiff has never received anything for said stock so held by him.
In October 1921 Thomas H. Frothingham was a member of the brokerage firm of Potter Co., to which he was indebted in sums aggregating more than $2,000,000. That firm held collateral security for the indebtedness, some of which was readily salable and some not. In order to prevent the sacrifice of the securities which did not have a ready market, he borrowed $481,945.38 from A.M. Hoyt Co., composed of the decedent and his two brothers, liquidated his indebtedness to Potter Co., and received back his collateral.
On September 26, and October 1, 1921, Frothingham and his wife executed deeds of trust appointing William R. Perkins and Charles Caldwell trustees, to whom he turned over all his assets for the benefit of his creditors. The assets received by the trustees were sold by them, for which the sum of approximately $465,000 was realized. On December 3, 1926, the trustees submitted their report setting forth the income and disbursements of their trust, and they were thereupon duly released as such trustees.
A fund was subscribed by members of Frothingham's family and others, the proceeds of which were used in effecting a compromise with a creditor who had on December 12, 1921, filed an action in bankruptcy against him. As a result of these contributions, the action in bankruptcy was discontinued by the petitioning creditor and, therefore, no occasion arose to compel the executors to surrender the stock of the Old Reliable Motor Truck Company to the trustees appointed by Frothingham.
5. In December, 1921, suit was instituted in the Supreme Court, New York, by one Percy A. Rockefeller against Alfred O. Hoyt and John S. Hoyt as executors of the estate of Henry R. Hoyt, deceased, and Thomas H. Frothingham, seeking recovery of $278,750 as damages alleged to have been sustained by said Rockefeller in the purchase of certain stock, as to which Rockefeller claimed the decedent and his son-in-law Frothingham had made false and fraudulent representations upon which Rockefeller relied in purchasing the stock.
In June, 1926, a similar suit was instituted against the aforesaid executors by Thomas A. Howell and others alleging a similar cause of complaint and claiming damages in an aggregate amount of $464,001.
The suits were settled by the parties thereto late in 1929 for the sums of $271,250 and $278,750, and releases were given by the plaintiffs in such suits to the defendants therein. During the pendency and in the settlement of the suits, the estate incurred and paid attorney's fees in the amount of $32,681.48.
6. On October 17, 1929, the executor rendered his final account to the surrogate, wherein he claimed, as deductions from the estate, the aforesaid attorney's fees of $32,681.48, the amount of $550,000 paid in settlement of the Rockefeller and Howell suits, and $123,640.70 as executors' fees and commissions paid to the plaintiff and his former coexecutor, Alfred O. Hoyt.
On November 15, 1929, the surrogate entered a decree on accounting in the decedent's estate allowing and approving, among others, the above expenditures by the executors and the settlement of his account as such executor. In the decree the surrogate also allowed executors' fees and commissions as follows:
John S. Hoyt ................................ | $58,190.67 10,450.03 Alfred O. Hoyt .............................. | 55,000.00 __________ 123,640.70
7. For a period of more than four years after the estate tax return was filed, the same was under consideration and audit in the Commissioner's office; various items and matters in connection with the estate and with reference to the estate tax liability were considered and discussed, and a number of conferences were held between the Commissioner through his authorized representatives and the estate. Many affidavits, briefs, and statements of evidence on behalf of the estate in connection with the various matters discussed, considered, or decided by the Commissioner were filed by the estate during the period from early in 1922 to about October, 1925. In a number of these conferences in 1924 and 1925 during consideration and audit of the estate tax return, the matters of the proper amounts to be deducted on account of the claims of Rockefeller, Howell, and others, estimated in Schedule I of the return at $850,000, deductions on account of executors' fees and commissions to be allowed on the final accounting in the Surrogate's Court, and the proper refund, if any, to be allowed to the estate on account thereof, were suspended and held in abeyance and were not taken up and considered or decided in connection with various other items relating to the value of the estate and to the tax liability or in connection with certain refunds allowed by the Commissioner in 1924 and 1925.
On November 10, 1923, the executors, in an affidavit filed with the Commissioner with reference to matters then under consideration, other than the items involved in this suit, set forth, among other things, the following: "And deponent further shows that no deduction has yet been attempted to be made to cover the amount of the executors' commissions which have not been determined and cannot be awarded until such time as the executors are enabled to commence their proceedings for a final accounting; nor for any additional expenses or attorneys' fees and for disbursements which will undoubtedly accrue in the future in the various proceedings which are still pending in the court of the administration of the decedent's estate. And deponent respectfully submits that by appropriate notation any rights accruing to the estate with reference to a proper refund to cover commissions and supplementary expenses of administration should be protected in the usual manner."
June 25, 1924, the executor of the estate, in an affidavit filed with the Commissioner in connection with another item then under consideration, set forth the following: "In this connection we again beg to call the Department's attention to the other contingent liability items, decision as to which must necessarily be suspended, which are enumerated under the head of contingent liabilities listed in Schedule I of the executors' return." In a letter to the executors of September 17, 1924, the Commissioner, in allowing an overpayment of $27,365.71 in respect of certain items in connection with the return, other than those involved in this suit, stated to the executors that no deduction was being made in connection with that refund for executors' commissions for the reason that such commissions had not been paid. October 31, 1924, the executors in filing a claim for refund on items not involved in this suit attached thereto an affidavit stating that "Deponent further says that the claims of P.A. Rockefeller and others referred to Schedule I, Contingent Liabilities, Item C, still remain pending and undetermined; that no proceedings for a judicial settlement of the executors have been begun; and that no award of executors' commissions has yet been made." This refund claim was allowed, but no decision was made or action taken by the Commissioner on the other items mentioned above.
In addition to the partial refund of $27,365.71 allowed and made as above mentioned, the Commissioner on September 25, 1925, in connection with another refund claim made by plaintiff October 31, 1924, in connection with items other than those involved in this suit, allowed and paid a further refund of $18,024.63. In none of his decisions on the refunds allowed on other items which arose and were considered and decided during the audit of the return did the Commissioner consider or deny the claim of the estate that it was entitled to deductions on account of the claims made against the estate by Rockefeller and others and for executors' commissions; but, as hereinbefore stated, these matters and the facts with reference thereto were brought to the attention of the Commissioner and, in conferences held, it was agreed that the proper amount to be deducted and the refund, if any, accruing to the estate on account thereof, would be held in abeyance.
8. With reference to the item of $112,500 which was one of the contingent liability items on account of the Frothingham note mentioned in Schedule I of the return, and in connection with which no deduction was taken in the return, it appears that prior to June 25, 1924 (the note having been paid by the estate and the collateral attached thereto having been received by the estate), the Commissioner valued such collateral, consisting of 1,820 shares of stock of the Old Reliable Motor Truck Corporation, at $182,000 and proposed in a letter to the estate to increase the gross estate in the amount of $69,500 on account thereof. In an affidavit of June 25, 1924, filed by the executors with the Commissioner in connection with this proposed action with reference to the Frothingham note matter, the executor stated:
"It has already been made clear to the Department through the affidavit of John Sherman Hoyt verified December 17, 1923 (fol. 5 seq.), that the note in question secured by 1,820 shares (par value $100) of the stock of the Old Reliable Motor Truck Corporation as collateral had been discounted by the Chatham Phenix Bank. The bank's loan had been made in favor of Thomas S. Frothingham, the maker of the note. The collateral was the sole property of the maker to which neither our testator nor the executors under his will ever had or claimed a scintilla of title. Our decedent was merely an accommodation endorser. Some time after the decedent's death the maker defaulted. Decedent's executors were compelled to pay the amount due by Frothingham under the endorsed note and thereupon the payee turned over to the executors both the original note and the stock held as collateral for its payment. Both note and collateral still remained in the executors' hands, the note unpaid and the collateral unsold. For the information of the Department, it is proper to state that the involuntary proceedings in bankruptcy against Frothingham, the maker of the note, which were reported in the estate's return as having been filed on December 12, 1921, have been discontinued. A fund was subscribed by members of the debtor's family and others, the proceeds of which were used in effecting a compromise with the petitioning creditor in bankruptcy, to which the decedent's estate was not a contributor. No occasion, therefore, ever arose to surrender the collateral to any trustee in bankruptcy.
"There can exist no possibility of a doubt that the Chatham Phenix Bank had a valid claim against the maker of the note to the extent of $112,500. The bank had an equally valid claim aganist the decedent and the executors of his estate. The maker was insolvent; so that upon payment of the note by the executors upon the maker's default they would be entitled to deduct the amount paid as a proper allowance in determining the taxable corpus. This deduction would become subject to revision only by an amount representing not the intrinsic value of the collateral but the actual proceeds of its sale. If the sale should realize, say, $50,000, the estate would be entitled, in fixing the estate tax to a deduction not hitherto claimed, of $62,500, the difference between $112,500 and the proceeds of the collateral. If it should realize, say, $150,000, the debt would be liquidated; and the surplus proceeds of, say, $37,500 would become distributable pro rata among the creditors of Frothingham; and the estate would be entitled to its pro rata share for application on the amount of Frothingham's general indebtedness.
"Now it may be stated that the executors have continued to remain the involuntary custodians of this collateral since they were compelled to intervene. It represents the stock of a private manufacturing corporation. The book value of the security, whatever such value may be, seems quite irrelevant to the present inquiry. Whatever else may be said, the executors may certify to the Department that they have hitherto been quite unable to dispose of any of this stock; that there exists, so far as they have been able to discover, no demand for it; and that, as matters now stand, if offered in the open market, the stock would probably elicit but a nominal bid. We have no wish or desire to reflect upon the standing of the corporation; but the Government is entitled to be informed as to the facts in regard to the present possibility of marketing the stock to advantage. As a matter of fact under present conditions, there exists no such possibility, so that for the present at least and until conditions change, the executors will be obliged to retain it in their custody unsold; and it follows that the specific inquiries of the Department along the lines which you have indicated are not at present answerable. The entire situation, so far as ultimate adjustments are concerned, still remains and, for the present must continue to remain, a purely speculative proposition.
"On the occasion of an early hearing in Washington we received the impression that under the circumstances the Government would be disposed to waive the question of the ultimate application of the collateral if the debt to the Chatham Phenix Bank was not pressed as a deduction; or, in other words, that the estate be considered as having been repaid; and we had presumed that the item would be subject to disposition upon some such basis. We are still willing that the matter be disposed of in this way so as to reduce in so far as possible the element of contingency. If this is not to be done, however, but one alternative would seem to present itself; and that would be to provide that the deduction, if any, to be allowed with respect to the debt and the application of any possible equity in the collateral be suspended pending the actual determination of the amount of the estate's liability. The Department may take notice that this disposition of the matter was suggested in the executors' return.
Thereafter, upon consideration of this item in connection with the audit of the return the Commissioner on September 17, 1924, in making a partial refund of $27,365.71, as hereinbefore mentioned, definitely decided the estate's claim with reference to a deduction on account of the Frothingham note which had been indorsed by the decedent and paid shortly thereafter by the estate, and advised the estate of his decision thereon in connection with the statements contained in the executors' affidavit of June 25, 1924, mentioned above, as follows:
Returned Determined 1,820 shares Old Reliable Motor Truck Corporation which is determined as having a value of $182,000 at the date of the decedent's death. This, however, was held merely as collateral security and inasmuch as the bankruptcy proceedings have been vacated and this estate may at some later time participate with other creditors should a sale thereof prove to be in excess of the estate's equity of $112,500, no value is placed thereon at this time but a supplemental return should be filed and tax paid thereon at a future date if the estate realizes anything thereon, in excess of $125,000 .. 00.00 00.00
9. On May 2, 1930, when the liability of the estate with reference to the claims against it by Rockefeller and others was settled and finally determined in the amount of $582,681.48, and the executors' fees and commissions had been determined and allowed by the Surrogate's Court in the amount of $123,640.70, the estate filed with the Commissioner a formal claim on Treasury Form 843 for a refund based on the correct amount to be allowed as deductions on account of these items and, also, on account of the Frothingham note and accrued interest, totaling $113,440.68. The grounds set forth in this formal claim were as follows:
"I. The contingent liability of decedent for payment of demand promissory note set forth in Schedule I, contingent liabilities, item B, in the Executor's main affidavit in the sum of $112,500 with interest has been determined on July 10, 1927, as an actual liability for $113,440.68. (Reference is made to affidavit of John Sherman Hoyt verified April 8th, 1930, hereto annexed and made part hereof.)
"II. The claims of P.A. Rockefeller and others set forth in Schedule I, contingent liabilities, item C, in the Executor's main affidavit in the sum of $850,000 have been determined on May 23, 1929, as an actual liability for $582,681.48. (Reference is made to affidavit of John Sherman Hoyt verified April 8th, 1930, hereto annexed and made part hereof.)
"III. Proceedings for a judicial settlement of the accounts of the Executors have been had, and on November 15, 1929, Executors' fees in the amount of $123,640.70 were allowed by the Surrogate on said account. (Reference is made to affidavit of John Sherman Hoyt verified April 8th, 1930, hereto annexed and made part hereof.)"
The determination of the deduction to be allowed with respect to said items having been suspended pending the determination of the amount of those items, request is now made for refund of tax as follows:
Net estate (Department's letter Sept. 25, 1925) ...................................... $2,690,172.69 Deduction as finally ascertained, Schedule I, Item B ............. $113,440.68 Deduction as finally ascertained, Schedule I, Item C ............. 582,681.48 Schedule H, Executors' fees as finally ascertained ............ 123,640.70 ___________ 819,762.86 ____________ Corrected net estate ..................... 1,870,409.83
The estate has made an excess payment computed as follows:
Paid January 4, 1922 ........................ $300,028.57 Paid February 22, 1922 ...................... 161.00 ___________ Total amount paid ........................ 300,189.57 Refund September 17, 1924 ........ $27,365.71 Refund September 25, 1925 ........ 14,699.68 __________ 42,965.39 ___________ 258,124.18 Tax upon the transfer of $1,870,409.83 ...... 145,949.17 ___________ Amount to be refunded as per foregoing finally ascertained claims .............. 112,175.01
To this claim for refund was attached a lengthy affidavit by the executor calling attention to the claims made in Schedules H and I of the return with reference to these items, to the correspondence which had passed between the estate and the Commissioner, to the various affidavits filed, and to the conferences held and the discussions and understandings had as to the refunds theretofore made by the Commissioner from time to time, all of which were, by reference, made a part of the formal claim, No. 843, of which such affidavit was a part. The facts with reference to the deductions made the basis of this formal claim for refund which had theretofore been brought to the attention of the Commissioner were again set forth in detail in such affidavit of the executors attached to the formal claim for refund.
The refund claim was rejected December 29, 1930, and the estate was advised as to the reasons for such rejection as follows:
"Your claim is based upon the contention that certain contingent liabilities of the decedent which were disallowed as deductions from the gross estate have since been paid, together with executors' commissions amounting to $123,640.70, making a total deduction of $819,762.86, thereby resulting in a refund as claimed by the estate of $112,175.01.
"The records of this Bureau show that the claim was filed on May 2, 1930, and that tax was paid in the amount of $300,028.57 on January 4, 1922, and $161.00 on February 28, 1922, which was more than four years prior to the date of the filing of your claim for refund. Under the provisions of Section 3228 of the Revised Statutes of the United States, as amended, the tax having been paid more than four years prior to the filing of the claim, no part of the tax paid is subject to refund.
"Therefore, in view of the foregoing provisions, your claim for refund is rejected in its entirety.
The statement in the above rejection letter, that the claim was based upon the contention that certain contingent liabilities of the decedent had been disallowed as deductions, was erroneous, except as to the Frothingham note item. The asserted deductions for claims against the estate by Rockefeller and others and for executors' fees and commissions had not been specifically disallowed by the Commissioner in any decision previously rendered.
In principle this case is like that of Bourne v. United States, 2 F. Supp. 228, 76 Ct.Cl. 680, and Jones, et al. v. United States, 5 F. Supp. 146, 78 Ct.Cl. 549. Compare Night Hawk Leasing Co. v. United States, 18 F. Supp. 938, 84 Ct.Cl. 596; American Cyanamid Co. v. United States, 4 F. Supp. 937, 78 Ct.Cl. 313. On the facts disclosed by the record, when considered in the light and in the manner in which they were considered and treated by the taxpayer and the Bureau of Internal Revenue, there was no fatal departure from the requirements of the statutes relating to claims for refund, nor was there a material departure from the requirements and the procedure authorized by the rules and regulations of the Bureau of Internal Revenue with reference to bringing the matters in controversy to the attention of the Commissioner and to disclosing the grounds and the facts upon which the Commissioner might intelligently act in the premises. The only departure from the perfect procedure upon which counsel for defendant insists was merely a matter of form and not of substance. Had the estate typed upon a printed Treasury Form, 843, the written statements concerning the items of the claims against the estate and the administration expense involved in this suit or prepared on such a printed form the subsequent sworn statements concerning these items and the grounds and the facts disclosed in such sworn statements with reference to the propriety and legality of the claimed treatment of such items in the determination of the tax liability of the estate for any refund to which it might be entitled, a demand for refund within the meaning of the statutes and the regulations would not, in substance, have been more definitely asserted. Moreover, these matters and the facts relating thereto were brought to the attention of the authorized representatives of the Commissioner during consideration and audit of the returns and the consideration of all matters affecting the value of the estate and the resulting tax liability. At that time it was understood and agreed by the Commissioner's office that these matters, particularly with reference to the claims of Rockefeller and others and the executors' fees and commissions which were until November, 1929, indefinite only as to amounts, should be suspended and held in abeyance pending ascertainment of the amounts which might be allowed as deductions in determining the correct tax liability of the estate. The Commissioner was not in any way misled. He had before him all the facts with reference to the items which the executors could furnish; the grounds on which the estate claimed that some allowance as deductions from the gross estate should be made on account thereof and he recognized that a proper refund resulting from the deductions, to which the estate claimed to be entitled, should be made. The Commissioner was in a position to act in the premises had he so desired. He did act and rendered a decision with reference to the Thomas H. Frothingham note item as we shall hereinafter show. However, with reference to the matter of the deductions to which the estate might be entitled on account of the claims of Rockefeller and others and the executors' fees and commissions, the Commissioner, as the facts disclose, agreed to wait until definite figures could be submitted on these items. He was clearly authorized to do this, thereby keeping the matter open. Such amounts were definitely determined in 1929, whereupon the estate submitted proof of the correct amounts to the Commissioner and requested the allowance as deductions and the refund of the resulting overpayment in accordance with its claims and the contentions previously and timely made. The deductions were refused and the claim for refund was denied on the ground that claim therefor had not been asserted within the time required by law. In this we think the Commissioner erred with respect to the claimed deductions of $582,681.48 paid to Rockefeller and others in settlement of claims against the estate and of $123,640.70, executors' fees and commissions allowed by the Surrogate's Court. Plaintiff is therefore entitled to recover such overpayment as may result from the allowance of these items as deductions from the gross estate, together with interest as provided by law.
With reference to the item of $113,440.68, representing the principle and interest of a note of Thomas H. Frothingham which the estate paid upon default of the maker on demand of the Chatham Phenix National Bank, it appears that the Commissioner in his allowance of a partial refund of $27,365.71 on September 17, 1924, definitely decided upon this item in accordance with the contention then made by the estate. Shortly prior to the date mentioned the Commissioner had taken this item up for consideration and proposed in connection with an audit and investigation of the estate to increase the gross estate by the amount of $69,500 by reason of the fact, as found by him, that the stock of the Old Reliable Motor Truck Corporation, which was received by the estate when the Frothingham note was paid, had a value in excess of the principle and interest of the note. The estate requested that this not be done but that the stock be treated as taking the place of the amount paid on the Frothingham note for the reason that "On the occasion of an early hearing in Washington we received the impression that under the circumstances the Government would be disposed to waive the question of the ultimate application of the collateral if the debt to the Chatham Phenix Bank was not pressed as a deduction; or, in other words, that the estate be considered as having been repaid; and we had presumed that the item would be subject to disposition upon some such basis. We are still willing that the matter be disposed of in this way so as to reduce in so far as possible the element of contingency." The Commissioner treated the matter of the Frothingham note and the Old Reliable Motor Truck Corporation stock in the manner requested. In holding that the motor corporation stock received by the estate upon payment of the note repaid it for the amount paid out, the Commissioner acted upon the claim of the estate for a deduction on account of payment of this note. This suit was not instituted until more than two years after that decision. Plaintiff is, therefore, not entitled to recover on this item. The Old Reliable Motor Truck Corporation was discharged in bankruptcy July 10, 1927. The loss, if any, which may have been sustained by the estate on that account was a deduction properly to be allowed from income in the year in which the loss was sustained. That question is not before us.
Judgment for the amount due plaintiff will be entered upon the filing of a computation of the amount of the overpayment in estate tax in accordance with this opinion. It is so ordered.