The appellant seeks to recover income taxes amounting to $1,086.47 because in estimating the taxes the Commissioner refused a deduction from appellant’s gross income of the sum of $11,524.03 which it had paid during the year ending December 31, 1926, as inheritance taxes levied by the state of California. It appeals from the judgment against it.
The appellant corporation was organized as a family corporation by the heirs, legatees, devisees, and distributees of the estate of Mary Emily Parrott, deceased. Under the law of California, this tax was upon the right of succession of the several legatees and devisees under the will of. Mary Emily Parrott and constituted a lien upon the estate. Cal.Stats.1921, pp. 1500, 1503, 1506, §§ 3, 7; In re Estate of Letchworth,
The error assigned is that the findings do not support the judgment which was in favor of the government. It appears 'from the opinion of the trial judge contained in the record that the sole contention of the parties in the lower court was as to whether or not the appellant was a “distributee” within the meaning of section 703 of the
It will be observed that under the law of California the incidence of the inheritance tax was the date of the death. Cal. Stat.1921, p. 1506, § 7, and that under section 234 (a) (3) of the Revenue Act of 1926 (44 Stat. 41) the tax was deemed to have accrued at the time it became due. Reg. 69, art. 134.
The first difficulty that presents itself on the appeal is that the right to deduct a payment of taxes is not necessarily applicable to the taxable year in which the tax was paid (1926), but may be deductible only in the year in which it accrued (1922); the right to deduct in 1926 being dependent upon whether or not the taxpayer kept its accounts on a cash basis. Elmhirst v. Duggan (D.C.)
The burden of showing by allegation and proof that a tax levied and collected was void is upon the taxpayer seeking to recover the tax he has paid. Niles Bement Pond Co. v. United States, supra. There is no allegation, evidence, or finding that the taxpayer kept his books upon a cash basis. It must be assumed, therefore, in the absence of such evidence, that the taxpayer’s books were kept on an accrual basis and hence that it is not entitled to the deduction in the year 1926 in which the tax was paid. The complaint did not state a cause of action. The findings do not remedy this defect, nor does the evidence disclose the essential facts necessary to a recovery by the appellant. This necessitates the affirmance of the judgment.
The appellant claims that inasmuch as the only question considered by the trial court or urged against the deduction claimed was that the a-ppellant was not a “distributee” within the meaning of section 703, the case should not be disposed of on the appeal upon a different theory, citing Sacramento Suburban Fruit Lands Co. v. Melin (C.C.A.)
Reargument was called for in this case because of the doubt as to whether or not the term “distributee” as used in the Revenue Act of 1928 should receive the broad interpretation given to that term in the California statutes which describes as distributees all persons to whom the estate is distributed by the court sitting in probate, whether as heirs, legatees, devisees, or assigns of distributees; or whether it should have the narrower interpretation it received at common law. As we are considering the meaning and intent of the word as used in the Act of Congress, we are inclined to agree with the government that, as distinguished from an heir, it should receive the more general and universal interpretation, namely, that a “distributee” is one entitled to the personal property of an intestate under the laws of distribution. Black’s Law Dictionary (3d Ed.) ; Bouv.Law Diet. (3d Ed.); Murchison v. Wallace,
But this does not solve the problem presented by the record because section 234 of the Revenue Act of 1926, supra, also authorizes a corporation to deduct from its income state inheritance taxes it has paid. It would follow that if the appellant is not entitled to the claimed deduction under section 703 as a distributee, it would be entitled to the deduction under section 234, supra, unless that right is limited by other considerations.
The appellant did not base its claim for the deduction upon section 234 of the Revenue Act of 1926, which expressly authorized a deduction of taxes paid by the taxpayer, but predicated its contention solely on section 703, supra, authorizing a distributee to claim a deduction. We might have been justified in holding that as appellant was not entitled to a deduction under section 703 of the Revenue Act, supra, and as it did not claim a deduction under section 234 of the Revenue Act, supra, that it was unnecessary to consider the latter question; but we have asked the parties for their views concerning the effect of section 234, supra, and briefs and argument have followed. As we recollect it, the government now contends in its argument that by reason of the enactment of section 703 of the Revenue Act of 1928, supra, such enactment covers the whole subject of deduction for inheritance taxes. Consequently, it argues that we should not look to section 234, supra, for such authority. In this it is in error. All that section 703, supra, purports to dq is to determine as between the executors or administrators on one hand and the beneficiaries on the other which ones are entitled to such deduction. Here the tax was paid by neither. The appellant on the other hand now insists upon the applicability of section 234, supra, if section 703, supra, is not applicable, and that it is entitled to the deduction by reason of that section (section 234 of the Revenue Act of 1926, supra).
We therefore next consider the question of whether or not the appellant under section 234, supra, is entitled to deduction from its gross revenue of the state inheritance tax it paid in 1926. It alleges in its complaint that it paid the taxes for and on behalf of the legatees and distribu-tees. The allegation was framed with the idea, no doubt, of showing that the appellant was a mere agent of those who were required by law to pay the tax and that it should be entitled to the same deduction given the heirs, devisees, and legatees in section 703, supra. However, if this allegation is true, as we must assume it to be, the appellant having paid the tax as agent for the beneficiaries, they would be entitled to the deduction from their income. It clearly is not entitled to deduction on its own behalf under the provisions of section 234, supra. Furthermore, if we ignore the allegation that the appellant paid the tax as an agent for the heirs, we have the bare allegation that the appellant paid the tax and the fact that until paid the tax was a lien upon the corpus of the estate which passed by assignment and transfer of the heirs to the appellant. It has been held that where such payment was made as a part of the consideration for the purchase price the purchaser is not entitled to make the deduction from his income tax because the payment by him is a payment of the consideration for the land although it happens to take the form of the payment of taxes. Falk Corporation v. Com’r (C.C.A.) 60 F. (2d) 204.
The Board of Tax Appeals has held in a recent case that it will assume that a tax paid by a purchaser because it is a lien upon the land purchased is in substance and legal effect a mere payment of a part of the consideration for the land rather than the payment of taxes, and that the grantee paying the tax is not entitled to a deduction. First Bond and Mortgage Co. v. Com’r,
We conclude then: First, that the complaint herein does not state a cause of ac
Judgment affirmed.