Opinion
Docket No. 12717.
1949-02-10
ESTATE OF W. H. KISER, DECEASED, LUCY PEEL KISER, MARION C. KISER, LAWSON P. KISER and WILLIAM H. KISER, JR., EXECUTORS, AND LUCY PEEL KISER, SURVIVING WIFE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Furman Smith, Esq., Herman Heyman, Esq., and Peter J. Troy, Esq., for the petitioners. Edward L. Potter, Esq., for the respondent.
In 1893 William and John Kiser inherited, in equal shares, property which was managed as a joint business and not partitioned until 1936. John died in 1919, having withdrawn more than William and leaving his wife an income for life, with his share to go thereafter to William or his heirs. In a partition and accounting in 1936, the court decreed that in 1919 John's share of the joint property was 21.58 per cent and William's was 78.42 per cent and that $37,922.19 of subsequent income was due John's estate, and made partition accordingly. Held, respondent erred in including in William's income for 1936 interest on John's excess withdrawals and commissions as executor of John's estate. Furman Smith, Esq., Herman Heyman, Esq., and Peter J. Troy, Esq., for the petitioners. Edward L. Potter, Esq., for the respondent.
W. H. Kiser and Lucy Peel Kiser, his wife, filed a joint income tax return for the calendar year 1936 with the collector of internal revenue at Atlanta, Georgia, on the cash basis. Respondent determined a deficiency of $33,592.42. Petitioners allege error in respondent's determination that W. H. Kiser received during 1936 $54,186.06 as interest and $33,489.48 as executor's and trustee's commissions. Other adjustments made by respondent are not contested.
FINDINGS OF FACT.
Marion C. Kiser, the father of William H. Kiser and John F. Kiser, died in 1893, leaving a will in which he devised the residue of his estate to his two sons in equal shares. William was named as executor and testamentary guardian of John, then a minor.
The estate then consisted of real estate in Atlanta, Georgia, appraised at $456,500, and stocks and bonds, accounts, and other personal property, appraised at $215,438.84, a total of $671,938.84. On June 1, 1900, the executors turned over all the properties to William individually and as guardian for John. Under the terms of the will John was to receive a limited income until he attained the age of 25 years. This occurred in 1907. Thereupon he came into his full rights in the estate. The property devised to William and John was not divided during the lifetime of John. It was managed as a joint enterprise and each brother drew against the common fund as he needed money.
John died September 6, 1919, leaving a will in which he named William as his executor and made provision for the payment of $400 per month out of the income of his estate to his wife, Pearl Lewis Kiser, during her life or until her remarriage. Upon her death or remarriage his estate was to go to his brother, William, or in the event of his death before the legacy took effect, to the three sons of William, share and share alike.
Provision was made for the support and education of an adopted daughter until her marriage, in which event she was to receive $2,000 in cash, all other payments to terminate unless she should by death or divorce become a widow without adequate means of support, whereupon she was to be paid $1,200 per year during the rest of her natural life.
The will conferred broad powers on the executor to deal with and dispose of the property as necessary in his judgment.
During John's lifetime he had drawn from the common property a total of $411,477.84 and William had drawn $116,972.42. John also owned outstanding debts amounting to $127,153.28 and a note of $45,000, secured by a mortgage on one of the properties. William paid John's outstanding debts, except the $45,000 note, from proceeds of the common property.
William continued to manage the properties after 1919 on his own account and as executor and trustee of John's estate, paying the amounts provided for the widow and adopted daughter of John out of the income. In 1935 William was in financial difficulties. He had borrowed from Atlanta banks, which were pressing him for payment. Some of the properties had been sold for taxes and the banks had taken up the tax certificates to protect themselves. The value of the properties had depreciated and the rental income was greatly reduced.
In order to obtain clear title to some of the properties for the purpose of obtaining a loan thereon to pay the banks, William petitioned the Superior Court of Fulton County, Georgia, for an accounting and partition of the jointly owned properties. All interested parties, including the sons and minor heirs of William, were made parties to the proceeding. All defendants answered.
The court was asked to construe and determine whether the overdrafts made by John during his lifetime were chargeable to the corpus of his estate or became an indebtedness due by John to William, and, if an indebtedness, to find the amount thereof at the time of John's death and at the date of the final decree, and, if a charge upon the corpus, to determine John's actual interest in his father's estate at the time of John's death.
William rendered an accounting to the court and evidence was heard on the material allegations of the petition. William, in open court, waived any claim he might have to commissions for his services as executor and trustee of John's estate.
The Superior Court entered a decision on December 17, 1936, in which it found that at the time of John's death ‘he had heavily overdrawn against his interest in said estate of M. C. Kiser‘ and that he owed other debts. The court determined that in 1919 the value of the common property was $1,302,891.08, the gross value of John's estate was $664.445.54, the amount of his indebtedness was $383,350.52, and the net value of his estate was $281,095.02. Offsetting the excess payments made to John or for his account against his share of the common property, the court determined that as of 1919 John had a 21.58 per cent interest in the joint property and William a 78.42 per cent interest therein. In determining the amount to be charged against John's share of the property, the court did not include interest on the withdrawals he had made in excess of William's withdrawals.
The court then decreed that the net income from the common properties subsequent to John's death should be apportioned 21.58 per cent to John's estate and 78.42 per cent to William, and found that, after crediting the payments made to beneficiaries or for expenses of John's estate, there was a balance of $37,922.19 of such income due the estate. The court also found that William had earned, and was entitled to receive, commissions as executor and trustee of John's estate in the amount of $33,489.48.
The court's decree allotted to John's estate three tracts of improved real estate having a stated market value of $266,600, against one of which a mortgage of $45,000 was outstanding, and to William several tracts of land having a stated market value of $595,550. William, as executor of John's estate, was directed to pay certain bequests, including a monthly income to John's widow until her death or remarriage, out of the income or the corpus of the properties allotted to John's estate. In allotting properties having a net valuation of $221,600 to John's estate, the court included property to compensate such estate for the $37.922.19 of its income then retained by William, and it did not credit William with the commissions earned as executor and trustee.
William did not receive in 1936 interest from the estate of John or commissions for his services as executor or trustee of John's estate, nor did the value of the property allotted to William include any amounts for such purposes.
OPINION.
ARNOLD, Judge:
As the result of a decree of the Superior Court of Fulton County, Georgia, entered December 17, 1936, in a partition proceeding, William H. Kiser, owner of an undivided half interest in the property was allotted property with a valuation in excess of his half share. Of the part he was allotted in excess of this half interest, the respondent determined that William received $54,186.06 representing interest due him from his deceased brother's estate and $33,489.48 as commissions or fees earned as executor and trustee of his brother's estate and included those amounts in his income as income received in 1936.
Petitioners contend that William H. Kiser did not receive either interest or commissions in 1936, as determined by respondent.
In 1893 William and John inherited in equal shares the properties left by their father. The properties were not divided, but were kept together and managed as a joint business until 1936. John died in 1919, having drawn considerably more than William and leaving debts which William paid from proceeds of the properties. John's will named William as executor and provided a monthly income for his widow until her death or remarriage and payments for the benefit of his adopted daughter, the estate to go to William or his heirs upon the death or remarriage of John's widow. William paid these bequests from the income of the properties until 1936. He then found it necessary to ask for partition of the properties in order to borrow on his share and settle his own debts.
The proceeding involved an accounting as between the brothers. As the amounts withdrawn by John, or paid on his account, were in excess of the amounts withdrawn by William, the court offset the excess against John's half share of the common property and decreed that, as of 1919, John's estate had a 21.58 per cent interest and William a 78.42 per cent interest in the property. In the computation wherein 21.58 per cent was allotted to John's estate and 78.42 per cent to William, the court excluded any amount as interest on John's withdrawals. If the $54,186.06 which respondent in his determination taxed to William as interest received had been taken into consideration in fixing the relative shares of John and William in the common property, John's share would have been but 17.42 per cent, while William's share would have been 82.58 per cent. Thus it is clear from the evidence on which the decree was based, and the evidence submitted in the present proceeding, that the property William received did not include an allowance for interest.
Although the Superior Court found that William was entitled to receive $33,489.48 as commissions for his services as executor and trustee of John's estate, William expressly waived any claim thereto and the court gave effect to his waiver by allotting him no property on account of the commissions. William was entitled to receive 78.42 per cent of the net value of the common property, less the income since 1919 allocable to John's estate and not theretofore paid to John's beneficiaries of $37,922.19. The properties allotted him were of the value of $595,550. Had commissions been paid he would have received property in excess of that amount to the extent of the commissions. William had the privilege of renouncing his right to such commissions. See Estate of George Rice, 7 T.C. 223; acquiescence, 1946-2 C.B. 4.
The Superior Court did not allow interest to William on John's overdrafts and did not provide for the payment of commissions to William in any form. The evidence submitted before us, aside from the decree itself, convinces us that William in receiving property in excess of his half share, did not receive interest or commissions. We find that respondent erred in determining that William H. Kiser received interest and commissions in 1936. Since other uncontested adjustments are involved,
Decision will be entered under Rule 50.
Reviewed by the Court.