291 F. 560 | 3rd Cir. | 1922
Emma R. Catherwood died August 22, 1920. On February 25, 1921, the plaintiff, her executor, in obedience to the Revenue Act of 1918, 40 Stat. 1057, 1096-1101 (Comp. St. Ann. Supp. 1919, §§ 6336%a-6336%k), filed a return for federal tax on her estate and paid the tax. On the same day he filed two income tax returns. One covered income received by the decedent during the taxable year 1920 prior to her death. In computing taxable net income the executor did not deduct the estate tax he had that day paid because, under the Regulations of the Department of Internal Revenue then in force, the deduction would not have been allowed. Had the deduction been allowed and made, there would have been no taxable income for that part of the taxable year. The other return covered income of the estate received by the executor during the remainder of the taxable year. This was small and, oven without deducting the estate tax, it disclosed no taxable income for that period. Therefore, if the estate tax had been deducted in the first return, there would have been no taxable income shown by the two returns for any part of the taxable year. The executor brought this action to recover the amount of income tax he had paid on income received by the decedent during the part of the taxable year she was alive, calculated without deducting the estate tax. The case was heard as though on demurrer and the court entered judgment for the defendant. 280 Fed. 241. The plaintiff sued out this writ of error.
The question turns on the interpretation of several sections of the Revenue Act of 1918 and particularly on the interpretation of section 214 (Comp. St. Amu Supp. 1919, '§ 6336^g). 40 Stat. 1058-1082. We shall approach this section by reviewing the preceding sections to which it relates, freely using italics to direct attention to the points under discussion.
The matter falls first under title 2 of the Act dealing with income tax and later under title 4 dealing with estate tax. Section 210 (Comp. St. Ann. Supp. 1919, § 6336)4$ e), the first provision with which we are concerned, declares that “there shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tax at the following rates.” This provision is relevant to the matter in hand in three particulars: First, it refers to the income of an individual, who in this case was Emma R. Catherwood; second, it shows that the taxable income is the net income; and third, that the period for which such tax shall be levied, collected and paid is a “taxable year.” Section 200 (section 6336%a) defines “taxable year” to mean, in this instance, the calendar year. Emma R. Catherwood, dying in August, 1920, did not live throughout the calendar, or taxable, year of 1920. Had she lived - throughout that year, she would have obeyed
“Section 214 (a). That in computing net income there shall be allowed as deductions:
“(3) Taxes paid or acorneé within the taxable year imposed (a) by the authority of the United States, except, income, war-profits and excess-profits taxes.”
The estate tax, which by section 401 of the Act, is “imposed upon the transfer of the net estate of every decedent dying after the passage of this Act” is obviously not a tax that could have been “paid” by Emma R. Catherwood, or that could have “accrued within the taxable year” had she lived to file her owii return, for such a tax can neither accrue nor be paid until death. So, had Emma R.' Catherwood lived, she would not have been affected by, nor could she have deducted, an estate tax. But Emma R. Catherwood did not live throughout the taxable year. Income had been received by her during the part of the year in which she had lived and it was natural to expect that income would be received by her estate during the remainder of the year after her death.' For a tax on the income she had received during the taxable year while alive, she was liable. Though liable, she could not, as she was dead at the time the tax became due, make return and pay it herself. Anticipating such a case, and for the purpose of gathering a tax on all the income of a decedent for the whole of a taxable year (that which was received before death and that which was received after death), the law requires a return to be made by her personal representative for income received by herself (a fixed liability of her estate) and a return to be made by him for income received by her estate— a liability of his own. To this end the statute, by section 219 (Comp. St. Ann. Supp. 1919, § 6336%ii), provides:
“(a) That the tax imposed by sections 210 and 211 shall apply to the income of estates or of any kind of property held in trust, including—(1) Income received by estates of deceased persons during the period of administration or settlement of the estate; * * * (b) The fiduciary shall be responsible for making the return of income for the estate or trust for which he acts.”
In this connection the Act, by section 225 (section 6336%12), further provides:
“That every fiduciary * * * shall make under oath a return for the individual, estate or trust for which he acts. * * * Fiduciaries required to make returns under this Act shall be subject to all the provisions of this Act which apply to individuals.”
Therefore it is, that when an executor makes a tax return of net income received either by the decedent or by himself during the administration of an estate, he, too, is allowed the deduction, named in section 214 (section 6336%g), of “Taxes paid or accrued within the taxable year imposed (a) by authority of the United States, except income, war-profits and excess-profits taxes.” But this section conceivably al
Finding no error, we direct that the decree below be affirmed.