OPPER

1. Failure to report income in petitioner's individual return in excess of 25 percent of that shown thereon, held, to make five-year statute of limitation applicable, notwithstanding that the omitted income was included in an estate return filed by petitioner as executrix. Revenue Act of 1934, sec. 275(c).

2. Prior determination in which petitioner's interest was adjudicated to be a conventional life estate by the Circuit Court of Appeals, which had before it, but refused to follow, a state court's adjudication of petitioner's interest to the contrary, held, res judicata as to petitioner's interest in this proceeding.

3. Income tax improperly paid by petitioner as executrix on the estate income, held, not a proper offset against the deficiency in petitioner's individual income tax. George H. Jones, Executor, 34 B.T.A. 280, followed. Harry C. Weeks, Esq., and Benjamin L. Bird, Esq., for the petitioner. Frank B. Appleman, Esq., for the respondent.

Petitioner, by this proceeding, challenges respondent's determination of a deficiency in her 1935 income tax in the amount of $7,069.84.

The questions presented are whether respondent's right to assess additional 1935 income tax against petitioner is barred by the statute of limitations; whether the income during the year 1935 from the properties of the estate of petitioner's deceased husband, R. B. Masterson, was taxable to petitioner in its entirety or only in such part as was distributed to her for her support and maintenance; if the entire income is taxable to petitioner, whether she is entitled to an offset against the deficiency for 1935 of taxes paid by and on behalf of the R. B. Masterson estate. As to the issue relating to the amount of R. B. Masterson estate income which is properly taxable to petitioner, respondent, by amended answer, affirmatively pleads that it is res judicata by reason of a prior proceeding between the parties involving petitioner's gift tax.

Other issues have been conceded or withdrawn.

FINDINGS OF FACT.

R. B. Masterson and petitioner became residents and citizens of Texas while infants and at all times they have been residents and citizens of that state. R. B. Masterson was first married to petitioner's sister and of that marriage two sons, T. B. Masterson and R. B. Masterson, Jr., were born. While these two sons were quite young their mother died and R. B. Masterson thereafter married petitioner. There are four children of the last marriage— Sallie Lee (Scott), Anna Belle (Kritser), Mary (Fain), and Fannie Fern (Weymouth). All the property owned by R. B. Masterson and petitioner at the time of R. B. Masterson's death had been acquired during their marriage. On December 6, 1928, R. B. Masterson and petitioner executed a joint will and covenant, ‘to take effect at the time of the death of either of us and at the time of the death of the survivor,‘ in which they recognized and declared that ‘all of the property * * * of either of us * * * is and constitutes our community estate, ‘ that all of their properties pending distribution to children, ‘shall remain intact,‘ and that it was their intention to treat all of the children equally and as of the full blood, and by which they covenanted and agreed that neither was to change, modify, or revoke the joint will or any part thereof, except by mutual written consent, and that it was their ‘mutual, solemn covenant and agreement with each other that neither of us shall hereafter execute any will other than as mutually agreed,‘ and ‘that all the terms, provisions and conditions hereof shall be from and after the execution hereof binding upon us and the survivor of us as the agreed means and method of making effective our desires and directions as to the disposition of said community estate.‘ Each waived his or her respective community rights and interests in their properties, and agreed that the survivor should be independent executor of the estate of the one first to die, and that no action was to be taken in or by the probate court except to probate the will and file an inventory and appraisement. The will further provided that the survivor was to have, with certain rights and duties, all of the estate for the purposes of managing and controlling it, reserving the rents and revenues, investing all moneys, and paying all taxes and debts and claims; but that the survivor should have no power to sell or dispose of any of the property except to pay debts, provide for the survivor's support and maintenance, and distribute the estate equally among the six children. It authorized the survivor, at discretion, to distribute one-half of the estate to the six children, share and share alike, and, upon the death of the survivor, the then executor to divide and distribute the estate to the six children equally. The will gave to the executor who qualified at the time of the survivor's death the same powers of management given to the survivor and independent executrix. This joint will and covenant was never revoked or altered thereafter. R. B. Masterson died on August 1, 1931, and upon petitioner's application this joint will and covenant was duly admitted to probate in the County (probate) Court of Potter County, Texas, on August 17, 1931. Petitioner announced her acquiescence in the joint terms of the will and covenant, elected to accept under it, and qualified as independent executrix of the estate of R. B. Masterson.

At the time of Masterson's death the estate was indebted to the approximate amount of $300,000 and at least until the date of the transfer of August 19, 1935, some $56,000 of these debts were still owing. At that time the legacy provided in the joint will and covenant to Bettie McGregor had not been paid. These unpaid debts consisted of moneys which Masterson owed his daughters at the time of his death for collections made on their accounts, rentals on their pastures, and amounts he had borrowed from them. The estate had sufficient funds or convertible current assets with which to have paid off the children prior to 1935. There was no discharge or disposition of the debt to the children on August 19, 1935, when petitioner made the gift to the children as hereinafter set forth.

Subsequent to Masterson's death and petitioner's qualification as independent executrix in 1931, all transactions pertaining to the estate and its properties have been handled in the name of the R. B. Masterson estate. All funds have been deposited in the name of the R. B. Masterson estate in one bank account; all checks thereon have been signed ‘Anna Eliza Masterson, individually and as Independent Executrix of R. B. Masterson Estate‘ by petitioner, or pursuant to her instructions, by C. E. Weymouth, who was petitioner's son-in-law and business manager of the estate. Petitioner maintained no separate bank account. All of her expenses were paid by her with the estate funds or by the estate for her. Petitioner has made no claim that she, individually, owned any part of the estate properties or any part of the income therefrom except that she required for support and maintenance. From the death of R. B. Masterson in August 1931 to August 19, 1935, no segregation of the properties of the estate was made. No part of the estate was set off, credited, conveyed or delivered to petitioner. All income from the properties was handled by petitioner as independent executrix of the estate. During the period 1931 to 1935 there was a substantial amount of income from the properties over and above its expenses and the amounts required to support and maintain petitioner, and such income is hereinafter referred to as accretions.

On August 19, 1935, petitioner, pursuant to the authority given her by paragraph II 2 of the joint will and covenant, conveyed to the six children, share and share alike, all of her individual right, title, and interest in and to an undivided one-half of the properties of the R. B. Masterson estate and the accretions thereof, excepting only the residence in Amarillo, occupied by petitioner. Thereafter and in due time petitioner filed a gift tax return with respect to this relinquishment and a controversy developed with respondent with respect to petitioner's gift tax liability for 1935, which was subsequently decided in Anna Eliza Masterson, 42 B.T.A. 419, promulgated July 23, 1940. Motion for rehearing was filed and denied and on December 5, 1940, the decision was entered. In its opinion the Board held that, under the joint will and covenant, petitioner was vested with a full conventional life estate in all of the estate properties, that therefore all of the net income of the estate belonged to petitioner individually in fee simple, and that the subject matter of the 1935 gift consisted of (1) an undivided one-half fee simple interest (valued at $92,050.55) in the accretions which had accrued between August 1, 1931, and August 9, 1935; and (2) an undivided one-half interest in all of petitioner's right, title, and interest in the estate properties, i.e., petitioner's full life estate therein.

After the decision had been entered in the gift tax case petitioner and Weymouth consulted with the estate's attorneys and were advised that, while the holding of the Board of Tax Appeals was not binding or controlling on titles in Texas, such holding should not be ignored; that if the Board's views were correct and all of the accretions belonged to petitioner individually, there would have to be an accounting to charge the estate with such parts thereof as had been used by the estate and that henceforth the income should be segregated and the books corrected; that such accretions, which were substantial, would constitute a ‘separate‘ estate at petitioner's death which would not pass under the joint will and covenant; that as she was barred by the covenant of the joint will and covenant from making any other will, petitioner would die intestate as to this separate estate, which would go to her children, the four daughters, to the exclusion of the two boys. The attorneys recommended that a suit be brought in an appropriate Texas court to have the will construed, all property rights definitively determined, and all questions settled. Petitioner was a woman of advanced age and did not want any trouble to come up among her children. While there was no dissention in her family at that time, the situation was such as would lead to serious difficulty, and to maintain peace and harmony in her family, and to procure a final determination of property rights during her lifetime, petitioner concluded to adopt the attorney's recommendation. It was recognized that the suit would have a bearing on tax questions and this was one of the purposes in bringing it.

An action was brought by petitioner, individually, and as independent executrix of the R. B. Masterson estate, in the early part of 1941 (after the Board's decision in the gift tax case and before the decision of the Circuit Court of Appeals for the Fifth Circuit, to which Circuit the case had been appealed) against the six children and the surviving legatee, Bettie McGregor. The action was brought in the 108th District Court of Potter County, Texas. In the petition petitioner as plaintiff alleged that:

* * * serious questions have arisen and will arise as to the rights of the Plaintiff, individually, the estate of R. B. Masterson, deceased, and the aforesaid six children, to wit, R. B. Masterson, Jr., T. B. Masterson, Sallie Lee Scott, Anna Belle Kritser, Fannie Fern Weymouth and Mary Masterson Fain, in and to said estate, the properties thereof, and the accumulated and unexpended revenues thereof. These questions are chiefly: Whether the Plaintiff individually owns outright the net accumulated revenues, or whether these revenues fall into and become part of the estate and pass at her death by the terms of said will; and whether she can during her lifetime, or at her death, dispose of these net accumulations as she may see fit, or whether her individual rights in and to said estate and its income are limited to such amounts as may properly be expended by her for her support and maintenance.

The prayer of the petition was for service upon all of the defendants and that upon final hearing the court construe the joint will and covenant, hear and determine the adverse claims of all parties in and to the estate and to the properties thereof, and determine the nature and character of the rights, privileges, and estates bestowed upon plaintiff in her individual capacity and upon the defendants by the joint will and covenant, to examine and approve plaintiff's accounts as independent executrix, and:

Adjudge and determine the respective claims and rights of plaintiff in her individual capacity, and the estate of R. B. Masterson, deceased, and the defendants in and to all net income which has been realized heretofore by said estate, and determine and clear the title to such net income and properties into which said net income has gone and, if need be, require an accounting, make and lay such charges on or against the estate of R. B. Masterson, deceased, and the assets and properties thereof as may be necessary in the premises in order to do justice.

In these proceedings plaintiff was represented by Adkins, Pipkin, Madden & Keffer of Amarillo, Texas, and Weeks, Bird & Cannon of Fort Worth, Texas.

In due time after the petition was filed the four defendants daughters, joined pro forma by their husbands, filed an answer in which they took the position that their mother had an unqualified life estate in all of the Masterson properties, which ‘life estate was in no wise limited to such reasonable sums as might properly be expended by such survivor for his or her maintenance‘ and that in any accounting ‘that said accounting shall credit to the individual account and separate estate of said Anna Eliza Masterson the net income derived from the whole of said estate up until August 19, 1935, and with all of the income derived from an undivided one-half of said estate from said last-mentioned date until the date of such accounting, less all sums of money used or expended by her on her own behalf.‘ These defendants were represented by Otis Truelove of Amarillo, Texas.

The defendants, R. B. Masterson, Jr., and T. B. Masterson, filed an answer to plaintiff's petition alleging that ‘by reason of the premises the plaintiff herein became vested with a limited life estate in the community assets of herself and the said R. B. Masterson, Deceased, and the increase thereof, and the rents, revenues and income thereof, and these defendants each became vested with one-sixth‘ of the Masterson properties ‘subject only to the limited estate vested by such joint will and covenant in the plaintiff herein * * * which life estate of the plaintiff herein was limited to her support and maintenance throughout her natural life, and that other than the right to use the income and revenue from said estate, and the corpus thereof, if necessary, for her support and maintenance throughout her natural life, the plaintiff herein was not vested with any interest‘ in the Masterson properties or the income thereof. These defendants prayed that their title to an undivided one-sixth interest in the Masterson properties, and all increase, rents, and revenues realized, and to be realized, therefrom in the future, subject only to plaintiff's limited life estate be cleared. These defendants were represented by Clayton & Bradley, attorneys of Amarillo, Texas.

The judgments of the District Court of Potter County, dated June 19, 1941, recited:

On the 16th day of May, A.D., 1941, the above styled and numbered cause came on regularly to be heard, and came all parties in person and by their attorneys and announced ready for trial. A jury being waived, all matters of fact as well as law were submitted to the Court. The Court thereupon heard the pleadings, the evidence and argument of counsel and after considering the same, made and filed herein Findings of Fact, and Conclusions of Law, * * *

In the court's findings of fact and conclusions of law it found that on December 6, 1928, petitioner and Masterson entered the joint will and covenant, which had never been altered, that Masterson died ‘and on that date the plaintiff qualified as independent executrix of said estate and continuously since that time has been acting as such,‘ and that on August 19, 1935, pursuant to authority granted by the joint will and covenant, petitioner transferred to the six children her right, title, and interest in and to an undivided one-half of the Masterson properties and accretions, that petitioner's accounting of her stewardship to April 1, 1974, was correct, that the acts and conduct of petitioner and Masterson showed an entire equality of treatment of all of the six children, that except for amounts needed for her support and maintenance, petitioner had never withdrawn any of the funds or income from the estate but that, with that exception, all of the funds had been left in the estate and devoted to estate purposes, and further:

Questions and controversies have arisen between the plaintiff and the six children named as to the nature of plaintiff's interest in the revenues from the estate in her hands not used to care for the estate and to provide for her support and maintenance, as to the rights of plaintiff with respect to revenues used either to improve the estate or to discharge the indebtedness existing at the death of R. B. Masterson, and as to the rights of the six children in said accumulated funds, which present under the circumstances of this case a bona fide controversy.

XII.

The dominating purpose and intention of the scheme of testamentary disposition which the plaintiff and R. B. Masterson had in executing the aforesaid joint contract and will, as the same is disclosed by the instrument itself when viewed in the light of the family situation and surrounding circumstances as disclosed by the record in this case and without giving any weight to testimony offered at the trial of this case as to the intention or understanding of either the plaintiff or R. B. Masterson in executing said will or in its effect, was this: They desired to provide for the support, maintenance and comfort of the survivor of them in a manner suitable to people of their means, age and station in life. They desired that all of the properties of the estate— including accretions thereto and the unexpended revenues thereof— not used to support and maintain the survivor should be held intact during the lifetime of the survivor, and that all of this property, including accretions and accumulated revenues, should go at the death of the survivor, share and share alike and without any distinction whatsoever, to all of the aforesaid six children, with the right given to the survivor to anticipate this ultimate disposition by transferring, whenever he or she might see fit, during his or her lifetime, one-half of the properties, accretions and accumulated revenues to said six children, share and share alike. They desired that no difference in treatment should be brought about, or discriminations made, as between the six children, on the ground that the two boys were of the half blood, while the four girls were of the whole blood, and they intended that such difference in treatment or discriminations should be impossible.

And further:

The controversies above referred to have also arisen in respect to various Federal tax matters relating to said estate. The Attorney General of the United States, the Commissioner of Internal Revenue Agent in Charge of Dallas, Texas, and the United States Attorney for the Northern District of Texas were duly notified of the filing of this suit, but have taken no action with respect thereto. * * *

With respect to these findings the court concluded that it had jurisdiction of the controversy, that the joint will and covenant became irrevocable upon Masterson's death, that it dealt with the entire community properties of petitioner and Masterson, and that after Masterson's death and her acceptance petitioner had only such rights in all of the estate properties as were given to her by the joint will and covenant, that the dominant purposes and intentions of the makers of the joint will and covenant were as set out in the findings of fact and that:

The revenues which were accumulated from said estate and which have not been expended in caring for said estate or in supporting and maintaining plaintiff do not belong to her, individually, but fall into and remain a pa t of the estate in her hands to go ultimately to the six children named in said will. Plaintiff, individually, has no rights or claims by virtue of the fact that revenues of the estate have heretofore been used to pay the debts of the estate or to make improvements or betterments thereto, or in and to the investments and acquisitions of the estate, but plaintiff has the right to be supported and maintained out of the estate now in her hands as Independent Executrix, and its revenues and accretions, in a manner in keeping with her station in life and the value of said estate; * * *

At the death of R. B. Masterson all of the property then on hand vested, share and share alike, in the aforesaid six children (subject to the special provisions for Mary Masterson Fain, Mrs. Flora Masterson and Mrs. Bettie McGregor), but with the rights of control and management granted to plaintiff, as Independent Executrix by said contract and will, and charged with the liability to pay the debts of said estate, and also charged with the burden of supporting and maintaining the plaintiff, as heretofore set forth. The plaintiff's rights to support and maintenance from said estate are personal to her. The plaintiff cannot make any testamentary disposition with respect to the revenues which have or will accumulate in said estate, but the disposition of the same upon the death of plaintiff is and will be controlled by the terms and provisions of the aforesaid joint contract and will.

The accounts of the independent executrix to April 1, 1941, were approved.

Based on the findings of fact and conclusion of law, the court, in its judgment, adjudged that upon Masterson's death title to all of the properties and the estate vested in the six children equally, subject to special bequests, debts, administration expenses, and the support and maintenance of petitioner, that the independent executrix has the right and duty of holding, managing, and controlling the estate's assets and properties during her lifetime; that ‘Anna Eliza Masterson, individually, is entitled, as a right personal to her, to be supported and maintained from said assets and properties and the receipts and revenues thereof,‘ but that ‘other than this right to be supported and maintained, Anna Eliza Masterson, individually, was not given and does not have any right, title or interest in the aforesaid properties and assets‘; that all income from the properties not used for expenses, debts, and the survivor's support and maintenance fell into and became a part of the corpus of the estate, and that similar revenues and income which may arise in the future should be treated in the same manner; that, except for support and maintenance, petitioner individually ‘was not given, nor does she have any right, title or interest in such accumulated revenues‘; that the claims of petitioner, individually, to a conventional life estate in the properties and the revenues and income thereof should be and were denied and that the titles of the six children thereto were cleared and quieted and that the petitioner's claims with respect to charging the estate with accumulated revenues used by it were denied; that petitioner's accounts as independent executrix were confirmed; and, further:

That Anna Eliza Masterson, as Independent Executrix of the estate of R. B. Masterson, deceased, shall, during her lifetime, hold, control and manage said estate and in the properties thereof in keeping with the terms and provisions of the aforesaid joint contract and will as construed by the foregoing findings, conclusions and orders.

This judgment became final.

On March 14, 1936, petitioner filed her 1935 income tax return with the collector of internal revenue for the second district of Texas. It disclosed a tax liability of $1,866.34. This amount was paid by petitioner by check drawn on the R. B. Masterson estate bank account and signed ‘Anna Eliza Masterson, individually, and as independent executrix of the Estate of R. B. Masterson,‘ by C. E. Weymouth. An additional income tax for 1935 of $208.79 was assessed against petitioner and paid in a similar fashion.

On March 14, 1936, petitioner, individually, and as independent executrix of the estate of R. B. Masterson, filed a 1935 income tax return in the name of the estate with the collector of internal revenue for the second collection district of Texas. This return was signed ‘Anna Eliza Masterson, individually, and as independent executrix of the Estate of R. B. Masterson ‘ and disclosed a tax liability of $2,919.93. Additional income tax for the year 1935 of $499,80 was asserted by respondent. The taxes shown by the return and the additional tax asserted were paid by petitioner by checks drawn on the R. B. Masterson bank account and signed Anna Eliza Masterson, individually, and as independent executrix of the estate of R. B. Masterson, by C. E. Weymouth.

Each of the above mentioned returns, in answer to question No. 5 of the preliminary questions, referred to the other return. Question No. 5 reads: ‘5. State name of husband or wife if a separate return was made and the Collector's office to which it was sent.‘

No claims for refund have been filed with respect to any taxes paid for 1935 and no refunds thereof have been made.

In her 1935 return petitioner included in her gross income for that year all of the amounts physically received by her from the R. B. Masterson estate and all of the amounts expended in her behalf by the estate during that year. Other than these amounts and those in controversy, petitioner had no income in 1935. The amounts reported on the income tax return of the R. B. Masterson estate in the year 1935 represented the balance of income from the estate properties not physically received by petitioner nor actually expended in her behalf.

Respondent, in the notice of deficiency dated February 21, 1941, seeks to add to the gross income shown on petitioner's return, $31,636.64, the corrected net income, $28,351.94, of the R. B. Masterson estate.

OPINION.

OPPER, Judge:

A preliminary question is raised by petitioner's plea of the statute of limitations. The deficiency notice was concededly subsequent to the expiration of the three-year period prescribed as the general rule. Revenue Act of 1934, sec. 275(a). It is asserted that it was nevertheless timely as being within the five-year period specified in section 275(c) for cases in which the ‘taxpayer omits from gross income an amount properly includible therein which is in excess of 25 per centum of the amount of gross income stated in the return * * * .‘ The addition to petitioner's taxable income proposed by the deficiency notice is incontrovertibly in excess of 25 percent of the gross income shown on the return which petitioner filed on her own behalf; but she contends that by filing a further return for the estate showing the balance of the income, she has in effect reported the entire income by considering the two returns together, so that there was in fact no actual omission of income under the principal of Germantown Trust Co. v. Commissioner, 309 U.S. 304.

This is reasoning which we are unable to approve. The question in the Germantown case was whether a return filed by a fiduciary on the theory that the organization was a trust could be considered as its return when the same organization was shown to be an association taxable as a corporation. The Court held that it could, since all the information necessary to the determination of the correct amount of tax was included in the return. There was no question of treating two returns as one, and the interpretation of section 73(c) was not involved.

That section is explicit in its reference to ‘the taxpayer.‘ The ‘gross income‘ from which an omission brings the section into play must be the gross income of that taxpayer and ‘the return‘ referred to must be his return. If the provision were to be considered so that an omission from one taxpayer's return would be without effect upon a showing that the unreported income was contained in the return of some other taxpayer, its effect would be largely nullified. In other words, it does not comport with the purpose or language of the statute to say that the gross income shown on the return of another taxpayer is the same as ‘the gross income‘ of ‘the taxpayer.‘ It might as well be argued that the return of the omitted income for another year would equally constitute a complete return of all the income even though on two different returns. Yet it is clear that this is one of the exact situations to which the provision was directed, it being assertedly designed to cover a taxpayer who ‘might report as income for one year an item of income which properly belonged in another year.‘ Senate Report 558, 73d Cong., 2d sess., p. 43.

The section is not punitive and was enacted in its ultimate form in order not to bear too heavily on ‘a taxpayer who makes an honest mistake * * * . ‘ Ibid. The statute is extended for only two years, not indefinitely, as by the provision considered in the Germantown case. And, finally, the facts necessary to a correct determination of the tax due would not appear from two returns of the type before us here, since there might be nothing on the face of either to show that the income included in the estate return was the same as that omitted from the beneficiary's. For these reasons we think it inadmissible to say that this income was included in petitioner's gross income or that there is any reason for reducing the period of limitation below five years. The plea in bar must therefore be overruled. Foster v. Commissioner (C.C.A., 5th Cir.), 131 Fed.(2d) 405; Estate of C. P. Hale, 1 T.C. 121.

On the merits the controversy is whether petitioner's interest in what had formerly been the community property of herself and her deceased husband was a conventional life estate or the limited right to maintenance and support. It is on the former assumption that the respondent has taxed to petitioner, as constructively received, the entire income from the property in question; and it is on the latter that petitioner returned and paid tax on only so much of the income as she actually received for living expenses, which she now contends was the limit of her tax liability.

The same issue, that is, the nature of petitioner's interest in this income, was before the Board in connection with an asserted gift tax deficiency, in a proceeding decided at 42 B.T.A. 419. It was there held, contrary to petitioner's contention, that her interest was a conventional life estate and that the gift which she made to her children in the present tax year included the unspent and accumulated income. This result was reached in the face of the same contention which petitioner makes here, that the unused income did not belong to her, but was from the beginning the property of the remaindermen, who were there also the donees.

An appeal from that determination was taken to the Circuit Court of Appeals for the Fifth Circuit. But in the meantime the question was litigated in what appears to have been the appropriate local court, and a decision was there obtained that petitioner was entitled to no conventional life estate but merely to the right of maintenance. The proceedings in that case were tendered to the Court of Appeals upon its review of the Board's decision. That court refused to accept them ‘as evidence,‘ but held that, ‘so far as the legal questions decided by the Texas State Court are concerned we take judicial knowledge of the decision * * * . We are not bound by that decision, and to the extent that it differs from what we have said we do not agree with it. ‘ 127 Fed.(2d) 252, 256. The court, affirming the Board, held that what petitioner ‘then owned was a life estate in all the property, and she, therefore, conveyed to the children one-half of her life estate, plus the accretions earned and on hand from this one-half.‘

In that posture of this proceeding respondent contends that the judgment of the Circuit Court, on the contrary, rests upon the state court decision as being binding, notwithstanding the prior adjudication, in reliance upon Blair v. Commissioner, 300 U.S. 5, and Estate of George H. Balzereit, 46 B.T.A. 959.

In the absence of complicating factors, a prior adjudication of the same issue in litigation between the same parties would foreclose all further consideration. The Evergreens, 47 B.T.A. 815. A recognized exception exists, however, where a subsequent change in the applicable law may be said to affect the fundamental question. Such a change can be supplied by a subsequent state court decision adjudicating the property rights in issue. Blair v. Commissioner, supra; Estate of George H. Balzereit, supra. The circumstance then existing, as described in Blair v. Commissioner, is that ‘after the decision in the first proceeding, the opinion and decree of the state court created a new situation.‘

But there is nothing to indicate that the principle of res judicata is inapplicable merely because there is involved a decision of a state court settling the property rights of the parties. The cases cited are no more than instances of an acceptance of the general principle, from which they emerge as exceptions due to a change in the state of the law. Cf. Tait v. Western Maryland Railway Co., 389 U.S. 620.

In the present case, the issue is whether the decision of the Circuit Court of Appeals for the Fifth Circuit in a proceeding in which these parties litigated the same question is conclusive; and in disposing of that question we can not resort to the concept of a changed situation. Here the Texas court's decision did not follow but preceded the previous adjudication. By taking judicial notice of that decision the appellate court had before it the action taken by the state court to precisely the same extent as if it had been introduced in evidence. Lamar v. Micou, 114 U.S. 218; see Oetjen v. Central Leather Co., 246 U.S. 297, 301. There is no more than that before us here.

Nor is the adjudication by the Circuit Court of Appeals any the less conclusive because it may be said that the issue it decided was partly one of law. The binding effect of an application of the principle of res judicata is as inescapable in the one case as in the other. ‘ * * * a right, question of fact distinctly put in issue and directly determined by a court of competent jurisdiction, as a ground of recovery, can not be disputed in a subsequent suit by the same parties or their privies.‘ Southern Pacific Railroad Co. v. United States, 168 U.S. 1, 48. The disposition of the issue is what is conclusive and it follows that whatever was involved in the question originally decided as to both fact and law is subsequently binding. For example, in Bissell v. Spring Valley Township, 124 U.S. 225, 231, 232, 236:

The question for determination in this case relates to the effect of the former judgment upon the present action, which is upon different coupons, though attached to the same series of bonds. * * * Is the litigation any the less concluded because the fact upon which the judgment rested was established by the demurrer? * * * In the former action against the present defendant the adjudication was that the bonds themselves were never signed by the proper officers required by the statute of the State to sign them, and therefore they were not legal obligations of the township. * * * the bonds being found to be invalid and void, he is precluded from attempting to show the contrary, either of the fact of their wanting the signature of the county clerk, or of the law that for that reason they were not binding obligations of the municipality. The fact and the law are adjudged matters between the parties, and not open, therefore, to any further contest.

See also Northern Pacific Railway Co. v. Slaght, 205 U.S. 122, 131; Passailaigue v. Herron (C.C.A., 5th Cir.), 38 Fed.(2d) 775, 776. The doctrine of res judicata is, it might be said, a device for easing the burden of the courts as a desideratum of public policy. It assumes that there must be an end to litigation. Where the parties and the issues are the same the adjudication of a question of law is hence completely controlling in subsequent proceedings. New Orleans v. Citizens' Bank, 167 U.S. 371.

Nor could it be of any consequence, if this can be suggested without presumption, whether the decision in the prior proceeding were completely erroneous. The function of res judicata is to make it unnecessary that the correctness of the former adjudication be reexamined. If it were only prior decisions with which the subsequent triers of the question could independently agree, to which the rule applied, there would be no need for or benefit from the rule. It is for that reason at least that the former decision is said to make white black, black white, the crooked straight, the straight crooked. Jeter v. Hewitt, 22 How.(U.S.) 352, 364. ‘'Matters once determined in a court of competent jurisdiction may never again be called in question by parties or privies against objection, though the judgment may have been erroneous and liable to, and certain of, reversal in a higher court.’‘ New Orleans v. Citizens' Bank, supra, 398.

Here there can be no question but what the issue in this case, namely the character of petitioner's interest in this income, was ‘distinctly put in issue and directly determined by a court of competent jurisdiction‘ in the prior litigation; and that it was there determined to be a conventional life estate, notwithstanding the state court decision to the contrary. We can not hold in these proceedings that petitioner's interest in the income in question was limited to the right to maintenance without flying in the face of the previous adjudication of the same question between the same parties by the Fifth Circuit Court of Appeals. We can not disregard that disposition of the issue without doing violence to the accepted principles of res judicata. And there is nothing here to justify departing from those principles under the Blair doctrine, since nothing has in the meantime ‘created a new situation.‘ We conclude that the Fifth Circuit Court's decision is binding and that accordingly petitioner's interest was a legal life estate. It follows that the respondent correctly charged her with the entire income.

The final question is whether we can grant petitioner's claim to an offset, against the deficiency, of the income tax paid on behalf of the estate. However desirable might be such a procedure, we think the difficulties to be overcome are too great. If the estate has overpaid its tax, it will not do to permit the tax liability of a different taxpayer to be reduced thereby. Charles v. Parker, 117 B.T.A. 608; Robert C. Roebling, 28 B.T.A. 644, 656; reversed on other grounds (C.C.A., 3d Cir.), 78 Fed.(2d) 444. Any claim for refund which the estate may have on account of the overpayment is not before us, since the estate is not a party to these proceedings, but if it has such a claim and the refund is still permissible, see Revenue Act of 1938, section 820, the possibility that respondent might there be subjected to a double detriment is too great to justify the deduction of the same claim here. Cf. George H. Jones, Executor, 34 B.T.A. 280. The result must be to deny the set-off.

Other issues are now conceded.

Decision will be entered under Rule 50.