77 F.2d 859 | 2d Cir. | 1935
John F. Degener died April 15, 1924, leaving a will naming appellants executors. They sue to recover income taxes paid on profits derived from a partnership of which he was a member, C. A. Auffmordt & Co., whose fiscal year began December 1st of each year. Seven thousand six hundred and twenty-two and 18/100 dollars was paid as a tax on behalf of the decedent for his profits for the period from December 1, 1923, to April 15, 1924, which will be referred to as the first period. The second item of tax, $4,031.38, was paid for profits derived upon the decedent’s share of the partnership from April 15, 1924, to November 30, 1924, which will be referred to as the second period. The interest and profits in the first period and the right to receive the profits in the second period were determined to be part of the corpus of the estate and an estate tax was assessed and paid. The appellants contested the obligation to-pay this estate tax and appealed to the Board of Tax Appeals, who decided against them, affirming the action of the Commissioner and included the items as part of the gross estate.
This action is brought to recover income tax páid for each period. The claim of the appellants is, principally, that these items could not be both income and part of the corpus of the estate. There is no allegation in the bill of complaint seeking a recovery for the estate tax paid.
The copartnership articles provided that in the case of the death of one of the partners, the business should be nevertheless continued the same as it was before such death until the 30th of November next following, and, upon any accounting with the estate of the deceased member, the surviving partner should be required to account for and pay over only the value of the deceased’s partnership interest as shown by the books of the partnership. Provision was made for an inventory and balance taken at the expiration of each year and the partners were allowed interest at the rate of 6 per cent, per annum- upon their capital investment in the business. There is no provision for withdrawals of partnership profits before the expiration of the fiscal year.
In the first period, the decedent’s share of the profits was $57,804.42; for the second period, $37,590.99. The question presented is whether the executors are not entitled to recover the amount of the income tax paid during each of these periods. It is also argued that relief should be accorded by way of repayment of the estate tax.
Bull v. United States, 55 S. Ct. 695, 698, 79 L. Ed. - (April 29, 1935), dealt with the question of the propriety of the imposition of an estate tax and also an income tax
On appeal to the Board of Tax Appeals, in the estate tax proceedings, it held that, in the absence of a showing by the appellants that the Commissioner’s determination was erroneous as to the method and amount, his inclusion of the sum of $45,-243.68 in decedent’s gross estate as a measure of the value of the decedent’s right, as of the date of death, to receive a share of future partnership earnings, was correct.
The Bull Case, in line with earlier decisions in the lower courts, recognized that there is a distinction between measuring the value of a contract right which accrued for the decedent at the date of death and taxing income which arises in the future by virtue of the contract. The appellants reported the sum of $37,590.99 as income of the estate, and so it was. It is the profits for the second period which the Bull Case holds may be subject to income tax. Under the partnership agreement, the partnership continued until the end of the year — December 1, 1924 — and the profits derived were subject to the income tax.
The effort to recover the estate tax, it having been litigated in another proceeding and passed on adversely to the appellants, may not now be brought into question in this action, particularly in view of the failure to seek its recovery in the complaint.
Judgment affirmed.