Opinion
No. M-90.
April 2, 1934.
L.L. Hamby, of Washington, D.C., for plaintiff.
Elizabeth B. Davis, of Washington, D.C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Action by the People's Pittsburgh Trust Company, executor and trustee of the estate of J.J. Fisher, deceased, against the United States.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following special findings of fact:
1. Plaintiff is, and during the times hereinafter mentioned was, a Pennsylvania corporation engaged in a general banking and trust company business at Pittsburgh. It is the same corporation which was previously known as the People's Savings Trust Company, its corporate name having been changed September 14, 1929.
2. J.J. Fisher (hereinafter sometimes referred to as the "decedent") died testate in Pittsburgh, Pa., November 13, 1919, leaving the following survivors: Mary M. Fisher, his widow; Jason Arter Fisher, a son; Augusta F. Porter, a daughter; and William L. Mitchell, Jr., and John Fisher Mitchell, grandsons (sons of a deceased daughter). One of the aforementioned grandsons became of legal age shortly prior to the decedent's death and the other was a minor at that time.
3. The decedent's will, dated August 2, 1919, was admitted to probate November 18, 1919. After providing for the payment of various legacies, the instrument made the following provisions with respect to a part of the residue of the estate:
"Fifth. All the rest, residue, and remainder of my estate, of whatsoever nature and kind and wheresoever situate of which I shall die seised or to which at the time of my death I may be entitled, I dispose of as follows:
"I give, devise, and bequeath unto my wife, Mary M. Fisher, should she survive me, such an interest and estate therein as she would have taken under the laws of Pennsylvania had I died intestate. Should she not be living at my death, this share of my estate shall go to my executor and form part of the estate hereinafter disposed of.
"Subject to the foregoing, I direct that the remainder of my estate shall be divided into three (3) equal parts or shares, one of which said equal parts or shares I give, devise, and bequeath unto Peoples Savings and Trust Company of Pittsburgh, my executor hereinafter named, in trust, nevertheless, for William L. Mitchell and John Fisher Mitchell, minor children of my deceased daughter, Edna Fisher Mitchell, under the following conditions and provisions, viz: Said executor and trustee shall hold said trust estate under and subject to each and every power hereinafter more particularly enumerated, and shall pay over the net income therefrom in equal shares to the guardian or guardians of said William L. Mitchell and John Fisher Mitchell in semiannual payments until said minors shall, respectively, arrive at the age of twenty-one (21) years. After each of said minors shall have reached his majority, his respective share of said net income shall be paid to him semiannually until he shall arrive at the age of thirty-five (35) years, when said trustee shall pay and make over to him the one half (½) part of his share of the principal of said trust estate. Said trustee shall thereafter continue to pay to him semiannually the net income from the balance of his share of said trust estate remaining, until he shall arrive at the age of forty (40) years, when said trustee shall pay and make over to him the remaining one half (½) part of his share of said estate. * * *"
The part left to the widow under the foregoing provisions constituted three-ninths of the residue, and that left in trust for the two grandsons as shown above constituted two-ninths. The remaining four-ninths was divided equally between the surviving son and daughter, the will providing that each should receive his or her share absolutely and in fee simple.
4. November 18, 1919, letters testamentary were issued to plaintiff, who thereafter qualified and has continued to act as executor of the estate. Those letters were still in effect July 27, 1931, at the time of a hearing in this case. Plaintiff also became trustee under decedent's will with respect to the part of the estate to be held for, and the income to be distributed to, the said William L. and John Fisher Mitchell. Prior to the decedent's death, plaintiff had been appointed legal guardian for the same individuals upon the death of their father and was continuing to act in such capacity at the time of decedent's death.
5. For many years prior to his death, the decedent in his individual capacity had dealt extensively in stocks and bonds, giving his entire time thereto. In carrying on his business, he maintained offices and had a corps of four assistants. He was not a broker, nor a member of a stock exchange, nor did he buy securities for other people, but merely purchased and sold stocks and bonds for his own account. At his death he left an estate, consisting almost entirely of stocks and bonds, which had a gross value of approximately $7,274,000, but which was subject to debts of approximately $4,000,000. The stocks and bonds consisted of about 300 different securities, widely scattered in various companies and in various states, and in none of the companies did decedent hold a controlling interest. The debts were owing 60 debtor organizations, consisting of 56 banks and 4 other corporations. Most of the indebtedness was secured by collateral.
6. Decedent's death occurred at the beginning of a severe financial depression which lasted at least until about the spring of 1922. The market value of the stocks and bonds constituting the estate began to fall shortly after his death and continued to decline very rapidly until at one time the estate was insolvent. As a result of this serious condition, a conference of the heirs was held shortly after the decedent's death, at which a representative of plaintiff was present, and at that time an understanding was reached that all parties would forego the receipt of any income pending the settlement of the estate. Plaintiff used the income from the estate in carrying its indebtedness, in paying loans which were called, and generally for whatever it considered the best interests of the estate. A trust officer of plaintiff, with the assistance of a former employee of the decedent, who became an employee of plaintiff, carried on active trading and dealing in the securities of the estate over a period of two or three years from the date of the decedent's death. Securities were purchased and sold and in the usual manner traded in upon the market in an effort to realize as much as possible therefrom and to liquidate the indebtedness of the estate. Some of the loans of the estate were taken over by plaintiff in its individual capacity to satisfy creditors and to prevent other creditors from demanding immediate payment. In addition plaintiff borrowed money from banks to buy new stocks when there was a drop in the market of a particular stock which it desired to dispose of. In thus attempting to liquidate the estate in the most advantageous manner and save as much as possible for ultimate distribution, the business activities carried on by plaintiff were to a large extent similar to those theretofore carried on by the decedent prior to his death.
7. The action set out in finding 6 saved the estate from insolvency and resulted in plaintiff's having assets to distribute to the beneficiaries under the will when it was ultimately determined to make distribution. Authorization for such action was placed in the decedent's will at the request of a trust officer of plaintiff and reads as follows:
"Sixth. I do hereby nominate, constitute, and appoint Peoples Savings and Trust Company of Pittsburgh to be the executor of this my Last Will and Testament and trustee hereunder, and I give to it as executor in the settlement of my estate and as trustee after it shall have settled my estate, the following powers, all or any of which it may exercise in its own sound judgment and discretion:
"(1) As executor it shall not be required to settle my estate within the period prescribed by law, but in its own sound judgment and discretion may hold the same intact and undivided until such time as it shall have paid all of my debts and worked out each and every enterprise or transaction in which I may be occupied or engaged at the time of my decease to full completion, exactly as I might or could do if living, and to that end, I do hereby empower it to renew from time to time any and all loans which may have been made to me by banks or individuals during my lifetime and to pledge and hypothecate such securities as may be required as collateral for this purpose, it not being my intention that said loans shall be paid unless my executor deems it wise and expedient to pay off and liquidate the whole or any portion of my indebtedness. I do further empower my said executor to borrow all monies which it may find necessary for the purpose of settling my estate, or for completing such transactions as I may be engaged in at the time of my death; in like manner granting unto it full power to pledge and hypothecate such securities as may be necessary for this purpose.
"(2) To take over and to retain unconverted so long as it sees fit each and every item of real and personal property of which I may die possessed, it not being my desire that investments shall be changed unless my executor and trustee shall feel it advantageous so to do.
"(3) To make subscription for stock and bond privileges and allotments, and for syndicate interests, to such extent as it shall see fit in companies in which my estate may have an interest at the time.
"(4) Generally, to make investments and reinvestments, and to alter, vary, and change investments and reinvestments without being confined to such securities as are authorized and sanctioned by the Laws of Pennsylvania as proper investments to be made by trustees; or to surrender or deposit shares of stocks and bonds belonging to my estate at any time for the purpose of taking part in any foreclosure or reorganization proceedings, and in its discretion to pay assessments in connection therewith.
"(5) To deal with any indebtedness which may at any time exist to my estate exactly as I could do, making extensions and compromises of the same as its judgment approves.
"(6) To make leases of any realty belonging to my estate for any length of term, and upon such conditions and for such rentals as it may deem proper.
"(7) To collect all rents, income, and dividends of my estate, and to employ such agents and attorneys in respect to the management of my estate as it may deem necessary.
"(8) To sell and convert real estate; to square and exchange real estate; to make deeds of conveyance of real estate for the purpose of perfecting such sales, conversions, squarings, and exchanges, and for every other purpose. Said executor and trustee shall have power to make all necessary deeds of conveyance of any real estate and there shall be no obligation on the part of any purchaser or purchasers to see to, or be responsible for the application of the purchase money.
"(9) It is my will and intention that my said executor and trustee shall insofar as possible be possessed of full power to act in and about the management of my estate exactly as I could or might do if living.
"(10) I have filed with this will a letter giving my opinion as to the course to be adopted by my executor in regard to certain securities owned by me. As these securities may be changed by me in my lifetime and as business conditions may change, I wish it understood that this memorandum is to be considered more as a suggestion and letter of advice than as a definite mandate to be carried out in all events."
8. Distributions of the estate were made pursuant to a decree of the orphans' court dated November 13, 1923, which did not become final until approximately 30 days thereafter. The aforementioned decree was based upon the account submitted by plaintiff, in which the use of income from the estate as heretofore shown was set out. Prior to that time no distributions of income had been made, nor, during the first two or three years after the decedent's death, would it have been expedient, due to the condition of the estate, to have made any distributions; but distributions were made shortly after the decree became final. The entire estate was not then distributed nor had a complete settlement been effected at the time of a hearing in this proceeding July 28, 1931. Under the decree of November 13, 1923, $260,298.50 was turned over to plaintiff to take care of any additional taxes which might be levied and to meet any possible demands against the estate. A part of such amount has been disbursed. How much was distributed from the entire estate, or became available for distribution, either from corpus or earnings, does not appear from the record.
9. (a) March 14, 1921, plaintiff as executor filed an income-tax return for the estate for the calendar year 1920 which showed a net taxable income of $374,078.14 and a tax liability of $185,663.26. The income was shown as derived from the following sources:
Net profit from the sale of securities ........ $ 33,853.96 Income from rents and royalties ............... 8,144.61 Interest on bonds ............................. 1,567.50 Dividends ..................................... 352,135.81 Miscellaneous income .......................... 2,102.57 ___________ $397,804.45
Certain deductions for salaries, taxes, and miscellaneous items reduced the above amount to a net income of $374,078.14. The tax as shown on the return was paid as follows:
March 22, 1921 ...... $ 46,415.82 May 1, 1923 ......... 11,213.59 (by credit). June 26, 1923 ....... 68,367.11 plus interest, $6,153.12. ___________ Total ......... $125,996.52
May 1, 1923, the difference between the tax assessed on the return and the total payments shown above, namely, $59,666.74, was abated by the Commissioner and the following explanation given therefor:
"The original return filed by you in behalf of the estate of J.J. Fisher discloses a net income of $374,078.14, upon which there was assessed a tax of $185,663.26. The amended return subsequently filed to increase the interest on bonds of foreign countries from $1,211.11 to $4,241.11; to decrease dividends from $352,135.81 to $348,221.31, the correct amount; to deduct $92,044.23 interest on loans and $286.20 for documentary stamps, formerly not claimed, shows a net income of $280,863.11, with a tax liability of $125,996.52. The second amended return is the same as the first, except that $288,525.90, Federal estate tax, is deducted which results in no net income and no tax liability.
However, since the returns of the estate were rendered on the cash receipts basis and the Federal estate tax was not paid until the year 1921, it is not an allowable deduction for 1920. Accordingly, the first amended return has been accepted as correct.
Tax assessed, 1921 list, account #309161 .... $185,663.26 Tax liability ............................... 125,996.52 ___________ Overassessment .............................. $ 59,666.74
(b) June 17, 1927, plaintiff filed a claim for refund of $79,590.70 for 1920, and set out the basis therefor as follows:
"1. The tax was assessed and computed on the total income of the estate on form 1040 without regard to the fact that the greater portion of the income was the property of the several existing heirs and the rate of tax and the method of computing the same shall be based in each case upon the amount of the individual share to be distributed, as set forth in section 219(a)(4)(d), Revenue Act of 1918 [ 40 Stat. 1071].
"2. The loss for the period from November 13, 1919, to December 31, 1919, of $12,798.89 was not allowed as a deduction for the year 1920 in accordance with section 204(b) of the Revenue Act of 1918 [ 40 Stat. 1060].
"3. The State inheritance taxes paid to the States of Pennsylvania and West Virginia, etc., hereafter shown in detail, were not deducted from the gross income of the estate before determining the net income distributable to the several existing heirs and taxable to the estate of said beneficiaries. See T.D. 3316 amending article 134, regulations 45, act of 1918."
The deductions claimed for state inheritance taxes were for a payment of $61,032.56 to Pennsylvania and $16,686.82 to West Virginia, Arizona, Montana, Maine, Ohio, Oklahoma, New Jersey, and the Province of Ontario, Canada; that is, a total of $77,719.38.
(e) October 10, 1927, the Commissioner issued a certificate of overassessment to plaintiff for $36,619.54 for 1920 on account of the allowance of a deduction of $61,032.56, representing inheritance tax paid to the state of Pennsylvania, and such amount was duly refunded to plaintiff. As $3,295.80 of $6,153.12 paid June 26, 1923, with the installment of $68,367.11, represented interest on the foregoing refund of $36,619.54, such interest was refunded to plaintiff December 19, 1927.
(d) August 16, 1928, the Commissioner issued a certificate of overassessment to plaintiff for $15,906.82 for 1920 on account of a deduction allowed for inheritance tax of $26,988.56 paid to New Jersey, Maine, Montana, Oklahoma, Arizona, Ohio, West Virginia, and the Province of Ontario, and such amount was duly refunded to plaintiff. At or about the same time $1,431.63 was also refunded as interest for reasons similar to those stated in finding 9(c).
(e) The refunds which were made as stated in findings 9(c) and 9(d) returned and restored to plaintiff $52,526.36 of the tax and $4,727.43 of the interest payments made June 26, 1923 (shown in finding 9(a), leaving as the balances not refunded $15,840.75 tax and $1,425.69 interest. The refunds so made represent an allowance for deductions in excess of that specifically claimed on the third and last ground stated in the claim for refund filed June 17, 1927, and set out in finding 9(b).
(f) During the period November 13, 1919, to December 31, 1919, plaintiff sustained a net loss of $12,798.89 and such net loss has not been allowed by the Commissioner as a deduction in computing plaintiff's net income for the calendar year 1920.
(g) October 22, 1929, the Commissioner wrote plaintiff as follows:
"Reference is made to your undated letter, which was received in the Bureau on October 6, 1928, wherein request is made for the reopening of claim for refund filed by you on June 17, 1927, for the year 1920.
"You contend (1) that the net loss sustained by the estate for the period from November 13, 1919, to December 31, 1919, is deductible from the income of the estate for the taxable year 1920; and (a) that the taxes should be assessed to the individual beneficiaries under the will rather than to the fiduciary in total.
"With respect to the first contention, although the period from November 13 to December 31, 1919, constitutes a taxable year in accordance with the decisions in the cases of the Carroll Chain Company and the Pennsylvania Chocolate Company, which are referred to by you, it does not follow that your case comes within the net loss provisions of section 204 of the Revenue Act of 1918 [ 40 Stat. 1060]. The same reasoning set forth in the decision in the case of Butler's Warehouses, Incorporated, 1 B.T.A. 851, applies to your case since the estate had no profits in 1918, and your contention cannot be conceded.
"With respect to the second contention, you are advised that under the provisions of section 219(c) of the Revenue Act of 1918 [ 40 Stat. 1071], the entire income of the estate for the year 1920, less the amount of income paid or credited to the beneficiaries, is taxable to the executors, the estate being in process of administration and settlement in that year. The trust was not actually established until the year 1924 subsequent to the decree of dissolution, affirmed January 25, 1924, at which time the assets were transferred from the estate to the trust. That the income of the estate between the date of decedent's death and transfer of the assets from the estate to the trust is income in process of administration is in accordance with the decision of the United States Board of Tax Appeals in the case of Titusville Trust Company, 3 B.T.A. 868, and with Solicitor's Memorandum 3505, Cumulative Bulletin IV-1, page 183. The decision in the case of David H. Blair, Commissioner, v. Mary L. Barton, trustee, cited in your letter in substantiation of the contention that in any event two ninths of the income of the estate is taxable to the beneficiaries William L. Mitchell and John F. Mitchell pertains to income of trusts after the establishment of the trust and not to income of an estate in process of administration.
"Accordingly, your request to reopen the above-mentioned claim is denied.
"It is not deemed expedient to arrange a conference, since an oral discussion would not result in a modification of the action which has been taken."
The record does not disclose any action by the Commissioner on the claim filed June 17, 1927, other than set out above, nor evidence that other claim or claims were filed for 1920.
10. (a) March 15, 1923, plaintiff filed an income-tax return for the calendar year 1922, which showed a net income of $71,884.59 determined as follows:
Interest on bank deposits, notes, etc. ..................... $ 2,966.92 Rentals and royalties ...................................... 342.07 Net profit from the sale of stocks and bonds ..................................................... 16,836.74 Dividends on stock of domestic corporations ................ 201,994.52 Foreign dividends .......................................... 2,550.58 ___________ Total .................................................... $224,690.83 Less statutory net loss on return for 1921 ..... $123,965.34 Interest ....................................... 18,178.21 Taxes .......................................... 3,645.11 Commission and miscellaneous expenses .......... 7,017.58 ___________ Total deductions ......................................... 152,906.24 ___________ Net income ............................................... $ 71,884.59
The tax liability of $8,957.10 shown due thereon was paid as follows: $2,239.27 March 15 and June 13, 1923; and $2,239.28 September 15 and December 14, 1923.
(b) November, 1925, the Commissioner assessed an additional tax against plaintiff of $53,976.73 for 1922, which amount, plus interest, $7,466.06, was paid November 28, 1925, to avoid threatened imposition of penalties for failure to make payment.
(c) August 24, 1928, plaintiff filed a claim for the refund of $53,976.73 on account of tax paid for 1922; and in substance assigned the following basis therefor:
"First. The income to the estate was not assigned and assessed in accordance with section 219 of the Revenue Act of 1921 [ 42 Stat. 246].
"Second. This income was erroneously reported by the taxpayer on form 1040 and assessed to the fiduciary entirely based upon revenue agent's report."
The foregoing claim was disallowed by the Commissioner on a schedule dated March 13, 1929.
(d) The net income of plaintiff for 1921, before the deduction of federal estate tax paid of $288,525.90, was $164,560.56, but by the allowance of such tax as a deduction a loss would be shown for 1921 of $123,965.54. In computing the taxable income of plaintiff for 1922, the Commissioner refused to allow the loss so computed for the calendar year 1921 as a statutory net loss on the ground that the deduction allowed for payment of the federal estate tax in 1921 was not a "usual and ordinary expense incurred in the operation of a trade or business," and excluded such amount as a deduction from net income for 1922. The claim set out in finding 10(c) makes no claim for a refund on account of the disallowance of such loss as a deduction, nor was evidence presented to the effect that such a claim had been filed.
11. (a) March 25, 1924, plaintiff filed an income-tax return for the calendar year 1923 which showed net income of $7,372.85. The foregoing net income was made up entirely from a net profit in that amount shown in the schedule attached to the return as a net profit derived from the sale of stocks, bonds, etc. The tax liability of $363.56 shown on such return was paid as follows: March 25, 1924, $181.78; and June 13, 1924, $90.89. The balance, $90.89, was abated under the provisions of section 1200, Revenue Act of 1924 ( 43 Stat. 353).
(b) January 26, 1927, the Commissioner made an additional assessment for 1923 of $36,737.91, which amount, with interest in the sum of $4,916.08, was paid January 29, 1927, in order to avoid the imposition of penalties.
(c) September 4, 1928, plaintiff filed a claim for the refund of $36,737.91 on account of taxes paid for 1923, and in substance assigned the following basis therefor: (1) That the correct taxable income of the estate was an item of $7,372.85 profit on the sale of stocks and that the balance of the total net income of $201,566.92 was properly taxable to the beneficiaries of the estate rather than to the estate itself, in accordance with the provisions of section 219 of the Revenue Act of 1921 ( 42 Stat. 246); (2) that the total taxable income as determined by the Commissioner of Internal Revenue erroneously included an item of $6,192.96 as dividends received from the Fisher Oil Company for the reason that the same was, by reason of a deficit, a distribution made from capital rather than a taxable dividend to the estate; and (3) that the Commissioner of Internal Revenue also erred in not segregating a part of the estate's income which represented gain upon the sale of capital assets received at the decedent's death and computing the tax thereon at the rate of 12½ per cent.
(d) May 2, 1929, the Commissioner issued a certificate of overassessment of $968.54 to plaintiff for 1923, and such amount was duly refunded. Of the amount refunded $886.41 represented tax and $82.13 interest. The following explanation appears on the certificate of overassessment:
"This overassessment is due to profit from sale of capital assets being computed in accordance with section 206 of the Revenue Act of 1921 [ 42 Stat. 232].
"Your claim for refund of taxes to the extent not herein allowed was disallowed by the Commissioner as of the date of the schedule above noted."
(e) February 13, 1931, the Commissioner issued a further certificate of overassessment to plaintiff for 1923 of $1,778.67, representing tax $1,536.60 and interest $242.07, and such amount was duly paid to plaintiff. The refund was due to the elimination from income of dividends of $4,235, received by plaintiff from the Fisher Oil Company, for the reason that they represented distributions from earnings accumulated prior to February 28, 1913.
12. As heretofore shown in findings 4 to 8, inclusive, the decedent's estate was in process of administration at least from November 18, 1919, until the last part of 1923 or early part of 1924, when the decree of the court for the distribution of the property became final. During such period no distributions of income or corpus were made by plaintiff, nor did plaintiff's records show any income set apart or credited to the beneficiaries within that time.
This suit was begun by a petition filed March 12, 1931, to recover alleged overpayments of income taxes collected for the years 1920, 1922, and 1923, in the respective amounts of $74,846.95, $53,976.73, and $36,737.91, with interest. The plaintiff, as executor under the will of J.J. Fisher, deceased, claims that it was entitled to deduct from the income of the estate certain amounts which were distributable under the will to the beneficiaries; also for the year 1920, plaintiff contends that it is entitled to deduct a net loss sustained in 1919.
The decedent in his lifetime was engaged in the business of buying and selling stocks, bonds, and securities. His will provided among other things for the payment of various legacies and to his wife the amount to which she would be entitled under the law after which the residue of his estate was granted to the executor as trustee for two grandsons of the decedent with provisions that for a certain length of time periodical payments should be made to them of their share of the income therefrom.
The testator died November 13, 1919. His will was admitted to probate November 18 of the same year, and letters testamentary were issued to the plaintiff on the same date. Almost immediately after his death the market value of the stocks and bonds constituting the estate began to decline, and this decline continued until at one time the estate was insolvent. Some time after the death of the testator the executor had a conference of the heirs which resulted in an understanding that all parties would forego the receipt of any income until the estate was settled and plaintiff, acting through its trust officers, carried on active dealings upon the market and even borrowed money at times to buy new stock and used other measures to protect the property of the estate, all of which are set forth more particularly in finding 6. The result of these activities on the part of the executor was to save the estate from insolvency and in the end have assets for distribution under the will.
Taking up first plaintiff's claim for a deduction in computing the 1920 taxes by reason of a loss in 1919, it is evident that it can only be allowed in event the plaintiff was carrying on a business during the period when the loss was sustained.
The parties agree that a loss was sustained in the brief period from the date of the appointment of the executor on November 18, 1919, to and including December 31, 1919; but there is no testimony as to how the loss occurred.
There is no question but that an executor may carry on a business, and where this is done the same rules apply as would if an individual were so acting. The evidence, however, fails to show what the plaintiff was doing with the estate property up to the time when an agreement was made with the heirs to use the income in paying debts. It was some time later when the executor began buying and selling stocks when it was thought to be for the best interests of the estate and even borrowed money when necessary for the purchases which were made. The authorities are not entirely uniform as to whether a party whose occupation is buying and selling stocks is engaged in a trade or business. The activities of the executor were very similar to those in which the decedent engaged, but the purpose was not to carry on a business but to close out a business and to realize as much as possible out of the assets of the estate. While the evidence is not very definite, we think that when stocks were bought or sold it was not for the purpose of enabling the estate to continue in the field where the decedent had occupied himself. The evidence shows that the purpose in buying stocks was to sustain the market until stocks of a similar kind could be sold without a loss.
In Refling v. Burnet (C.C.A.) 47 F.2d 859, 860, it is said with reference to a similar situation: "The statute is restricted in its application to those regularly engaged in business, while it is the business of a personal representative to administer and wind up the affairs of the deceased."
In Ames v. Commissioner (C.C.A.) 49 F.2d 853, the court found that the executors in order to conserve the property of the estate carried on operations very similar to those shown by the operations of the executor in the case before us. While the court intimated that an executor might carry on a business, it was held that the executors were not carrying on a business in the statutory sense. See, also, Rogers v. United States, 41 F.2d 865, 70 Ct. Cl. 159.
It is not necessary, however, that we should determine whether the executor was carrying on a business after December 31, 1919. Our concern is with reference to the short period that intervened between November 18, 1919, and that date, and, as we have before stated, there is nothing in the evidence to show what the executor was doing with the property of the estate in that brief period. It may be that some stocks or securities were sold at a loss, for the market was rapidly declining, but this would not show that the executor was carrying on a business for profit. It is true that the will authorized the executor to continue the business on its former lines, but conceding that it had the power, there is nothing to show that it exercised such power during this period. On the contrary, the executor seems to have waited to obtain an agreement with the heirs before engaging in those activities which the evidence shows were eventually pursued. Our conclusion is that plaintiff is not entitled to a deduction for a net loss sustained in 1919 for the purpose of reducing the amount of tax paid in 1920.
Plaintiff also seeks to recover a part of the taxes paid for 1920, 1922, and 1923, on the ground that it was entitled to deduct the income distributable to the beneficiaries or any of them under the will of John J. Fisher.
The plaintiff relies on the provisions of section 219(a)(4) and (d) of the Revenue Acts of 1918 and 1921 ( 40 Stat. 1071, 42 Stat. 246), but defendant contends that these provisions have no application to income which is not distributed unless under the will it was required to be distributed periodically. This rule seems to be conceded, but counsel for plaintiff insists that there were considerable sums which were distributable although they do not undertake to fix the amount thereof.
The findings in the case, to which both parties agree, show that no amounts were actually distributed until after December 13, 1923. Some distributions were made shortly after, but how long after does not appear from the evidence, nor is there anything from which an itemized statement can be made up of the distributions. Under the decree made November 13, 1923, $260,298.50 was turned over to plaintiff to take care of any additional taxes which might be levied and to meet any possible demands against the estate. A part of such amount has been disbursed. Under the will, the executor was authorized to hold the estate "intact and undivided until such time as it shall have paid all of my debts and worked out each and every enterprise or transaction in which I may be occupied or engaged at the time of my decease to full completion." In order to accomplish this the executor was given very extensive powers practically the same as the decedent "could do if living." Shortly after his death, the market value of stocks and bonds constituting the estate began to fall and continued to decline until at one time the estate was insolvent. By agreement with the heirs, plaintiff used the income from the estate in carrying its indebtedness and in paying loans when it was deemed for the best interests of the estate. Securities were purchased and sold and traded in upon the market. Loans were taken over by the plaintiff in its individual capacity. Plaintiff borrowed money from banks to buy new stocks when there was a drop in the market of a particular stock which it desired to dispose of and in general endeavored to liquidate the estate in the manner considered most advantageous by its trust officer. These operations saved the estate from insolvency and as before stated, resulted in plaintiff's having assets to distribute to the trustee under the will when it was finally determined to make distribution, but the amount to be distributed was uncertain even after the decree of the court authorizing distribution had been made. If the estate in the final outcome had been insolvent the claims of the creditors would have come first and there would have been nothing to distribute.
The argument for plaintiff proceeds as if the executor and trustee were one and the same under the will, when in fact the plaintiff acted in a dual capacity, first as executor and then as trustee, and in law there were two different entities. The will is not entirely clear, but we do not think it was intended to require the executor to pay over income of the estate to distributees before the estate was settled; and if it had, under the particular circumstances of the case, such a provision could not prevail over the claims of creditors and no distribution could properly be made until authorized by the probate court. There is nothing in the evidence to show that the probate court authorized any distribution until November 13, 1923, when a large sum was turned over to plaintiff to take care of taxes. The record is silent with reference to any order for distributions to the legatees, of which the trustee was one. All we know is that the estate was not completely settled at the time the last evidence was taken. There is not even any evidence to show when the trust was established beyond a statement made by the Commissioner in denying a refund in which he says that the trust was established January 25, 1924, and at that time the assets were transferred from the estate to the trust. Although this is not disputed by the plaintiff, it cannot be accepted as evidence, and we are left without any testimony as to when the trust was established, which does not help plaintiff's case, to say the least. It is clear that during the years involved the estate was in process of settlement. No distributions were in fact made to the heirs and none were authorized by the court to be made to them. The evidence as a whole shows plainly that no sums were distributable for which the executor could claim an allowance or deduction in computing the taxes for the years in question.
For the reasons above given, the petition must be dismissed, and it is so ordered.