Summary
In Benfield v. United States, 27 F. Supp. 56, 88 Ct.Cl. 486, it was urged that the difference between what Margaret T. Walker, Walker's widow, would have received as an annuity under Walker's will ($50,000) and what she did receive under the family agreement ($75,000) had been received contractually from the heirs and so was subject to taxation as income.
Summary of this case from C.I.R. v. Vease's EstateOpinion
No. 42879.
April 3, 1939.
Arthur L. Evely, of Detroit, Mich. (Raymond H. Berry and Ralph W. Barbier, both of Detroit, Mich., on the brief), for plaintiffs.
Elizabeth A. Davis, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by Gustavus G. Benfield and others, as executors of the last will and testament of Margaret T. Walker, deceased, against the United States to recover income taxes with interest thereon for the years 1930 and 1931.
Judgment for plaintiffs.
This case having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following special findings of fact:
1. Sidney R. Small and F. Caldwell Walker, two of the above-named plaintiffs, are resident citizens of the United States, the former being a resident of Detroit, Michigan, and the latter of Santa Barbara, California.
Gustavus G. Benfield, the other plaintiff, is a resident citizen of the Dominion of Canada, residing in the Town of Walkerville, Province of Ontario. The Government of the Dominion of Canada accords to citizens of the United States the right to prosecute claims against the Government of Canada in its courts.
2. Margaret T. Walker, a resident of Detroit, Michigan, died July 18, 1933, leaving a last will and testament which was duly admitted to probate by the Probate Court of Wayne County, Michigan, September 20, 1933. On the same day letters testamentary were issued by that court appointing plaintiffs in this proceeding as executors of her last will and testament. Plaintiffs acted as executors continuously from the date of their appointment to May 3, 1935, on which date F. Caldwell Walker submitted his resignation, which was accepted by the Probate Court. The remaining executors are now, and have been continuously since the date of their appointment, acting as executors of the last will and testament of Margaret T. Walker.
3. The husband of Margaret T. Walker was James Harrington Walker, who died December 16, 1919, leaving a last will and testament which was duly admitted to probate by the Probate Court of Wayne County, Michigan, February 25, 1920. Letters testamentary were issued by that court appointing Hiram H. Walker, F. Caldwell Walker, and Harrington E. Walker as executors of that will. These executors duly qualified and acted as such until their discharge on March 25, 1930. On June 2, 1922, these individuals were duly appointed trustees under that will, and letters of trusteeship were issued by the court on that day. June 17, 1921, the same will was duly proved and registered in the surrogate court of the County of York, Province of Ontario, Dominion of Canada, and ancillary administration of the estate was granted by that court to Harrington E. Walker, Hiram H. Walker, F. Caldwell Walker, and National Trust Company, Ltd., a Canadian corporation.
4. The beneficiaries of the estate of Margaret T. Walker are her three children, Mary Margaret Walker Small, Elizabeth Walker Patterson, and F. Caldwell Walker. The beneficiaries of the estate of James Harrington Walker are Harrington Walker, Hiram H. Walker, F. Caldwell Walker, Mary Margaret Walker Small, Elizabeth Walker Patterson, and the children of Mary Margaret Walker Small and Elizabeth Walker Patterson.
5. The last will and testament of James Harrington Walker contains the following provisions relating to certain payments to be made to Margaret T. Walker:
"Second: I hereby direct my trustees to set apart out of the assets of my estate and to hold separately sufficient thereof amply to provide the necessary funds and income to carry out the provisions of this second subdivision of my Will. I hereby give and bequeath to my wife, Margaret Talman Walker, and I hereby instruct my trustees to pay to her out of the income of said funds above provided to be set apart the sum of fifty thousand dollars per annum during her natural life, such payments to be made to her at such convenient times and in such amounts monthly or quarterly as she may from time to time desire.
"My trustees shall also, out of my estate, pay over to or for my said wife during her life the rent of the apartments in Garden Court in Detroit, where we now reside, or of such other suitable apartments of a similar character, in lieu thereof, as she may desire. They shall also allow her the use of the garage and property located on the south side of Woodbridge Street, No. 666, west of Joseph Campau Avenue, Detroit, and shall also pay the taxes on said garage and keep the same in repair. My trustees shall also allow my wife, during her life, the use of the furniture and effects in the said apartments where we now reside, and the use of the furnishings and contents of the said garage, including automobiles, furniture, and equipment. Should my wife prefer to reside in a private dwelling house instead of an apartment, my trustees are hereby authorized and instructed to expend an amount not exceeding fifty thousand ($50,000.00) dollars for the purpose of either buying a house already built or buying a lot and erecting a house thereon under her direction, and in either case my trustees shall provide for her the use of such house during her life free of taxes and cost of repairs, in the same manner as if she had continued to live in an apartment. My trustees shall also provide for her free of taxes and cost of repairs, during her natural life, our summer home at Magnolia, Massachusetts, and the furniture and effects thereof including the garage and its furnishings and contents including automobiles, furniture and equipment. If desired by my said wife, said summer home may be sold by my trustees for what may be in their judgment a reasonable price, and the proceeds thereof may be used to purchase another, including garage, or to pay the rent of another summer home and garage for my said wife's use as she may elect, or in lieu thereof she may have the income arising from the sale of said summer home during her natural life. When selling this summer home my trustees shall have full discretion as to the terms and manner of sale, and as to credit and security, and may accept other property in exchange in whole or in part. Should another summer home be procured for my wife my trustees shall allow her the use thereof free of taxes and repair charges.
"The provisions made in this my Will for my said wife shall be in lieu of all dower and other rights given her by law in my estate.
"Upon the decease of my said wife, the principal of the above provided funds for my wife, including the principal arising from a sale of said summer home (if it shall have been sold) shall fall into and become part of the residue of my estate hereinafter referred to in subdivision seven of this Will, together with all income from the above mentioned funds which are not required to meet the charges imposed in favor of my wife by this subdivision.
"Third: The bequests given by this third subdivision are to be paid or delivered at such times and in such amounts from time to time as my trustees may deem expedient, and no legatee shall have the right to call for payment or delivery until my trustees so deem expedient, and I expressly declare that the bequests in this clause are subject to the setting apart of the portion of my estate pursuant to the second subdivision hereof, and should my trustees deem it expedient to delay the payment or delivery in whole or in part of any bequest in this clause because of such setting apart, I give them uncontrolled discretion as to which bequests are to be delayed and how much thereof from time to time and as to which and how much are to be paid or delivered. Pending payment or delivery of any bequest I authorize my trustees to pay out of the income of my estate to those entitled such interest or income upon the bequests as my trustees may from time to time decide from such dates after my death as they think proper."
6. December 28, 1919, a written agreement was entered into by and between Margaret T. Walker, widow of James Harrington Walker, and Harrington E. Walker, Hiram H. Walker, and F. Caldwell Walker, the three sons of James Harrington Walker, and Mary Margaret Walker Small and Elizabeth T. Walker, the two daughters of James Harrington Walker. The agreement provided as follows:
"Agreement made the 28th day of December A.D. 1919, between the undersigned who are the widow and three sons and two daughters of James Harrington Walker of Detroit, Mich., who died in New York on the 16th of December 1919.
"Mr. Z.A. Lash having under the said J. Harrington Walker's directions given in New York on the 11th and 12th of December prepared for him a new Will which Mr. Lash would have sent him for completion and signature on the very day of his death, and which would have been signed had he not died suddenly. We, his family, have agreed, and do hereby agree, the one with the others and with each other, to do everything which may be necessary in order that the wishes of the said J. Harrington Walker as contained in the said Will prepared by Mr. Lash may, so far as we are or any of us is concerned or affected, be carried out, and all consents and documents required for that purpose and all instructions to the executors and trustees of the existing executed Will which may be required will be signed and given by us, and we request Mr. Lash to see to the carrying out of this agreement. We have not seen the Will prepared by Mr. Lash, nor the existing Will, and we requested Mr. Lash not to disclose to us their contents or the differences between the existing Will and that prepared by him, as we wish to sign this agreement before we know the contents of these papers for we regard as sacred his last wishes and directions. Whatever application to any Court may be necessary on behalf of Elizabeth (who is a minor) to make this agreement and the carrying out thereof effective will be made. Probate of the existing Will shall be applied for in order that this agreement may be properly and effectively carried out."
7. The unexecuted will of James Harrington Walker, which had been prepared shortly prior to his death and which is referred to in finding 6, contains the following provisions relating to certain payments to be made to Margaret T. Walker:
"Second: I direct my trustees to set apart out of the assets of my estate and to hold separately such parts thereof as in their judgment will provide amply for the annuity hereby given to my wife Margaret Talman Walker, and I hereby instruct my trustees to pay to her out of the income of said assets so set apart the annuity of seventy-five thousand dollars per year during her life, such annuity to be paid to her at such convenient times and in such amounts monthly, quarterly, or otherwise, as she may from time to time desire.
"In setting apart such assets the trustees may exercise their discretion from time to time, and may add to or take from or change those first set apart, and may deal with and distribute the remaining assets in accordance with the provisions of my will, and no error of judgment with reference to the value or sufficiency of the assets set apart or the income thereof for the purposes of said annuity shall render the trustees liable or accountable to any person, or shall prejudice any dealing with or distribution of remaining assets. If for any reason the income of the assets set apart shall fail to yield a sum sufficient to provide for said annuity in any year or years, the deficiency may be made up out of the principal or corpus of the assets set apart.
"I give to my said wife the furniture, furnishings, and other household effects in or used in or for the apartments in Garden Court, Detroit, where we now reside; also my automobiles and garage furnishings, effects, and equipment used or intended for use in connection with such automobiles.
"I direct my trustees to allow my said wife to live in and use during her life or so long as she may desire free of rent or charge to her my summer home at Magnolia, Massachusetts, and in connection therewith the furniture, furnishings, and effects thereof and therein, or intended for use therein, including the garage and its furnishings and effects, including automobiles and garage equipment, and I give my said wife the right to select and retain as her own property such things from said furniture, furnishings, and effects of said summer home as she may wish to keep as her own.
"My trustees shall decide any questions which may arise as to what is or is not included in the furniture, furnishings, and other effects of the said apartments in Garden Court or of the summer home at Magnolia or in garage furnishings, effects, and equipment.
"I wish to say that instead of providing for payment by my estate of rent, taxes, or other outgoings in connection with the apartments in Garden Court should my wife decide to reside there, or in connection with any other residence chosen by her or in connection with her residence in said summer home, I have decided upon the amount of the annuity and the legacies and other interests which my wife will take under my Will bearing in mind the probable expenditures which she will have to make for the above purposes and for her own living and personal expenses. This will, I think, be more satisfactory both to my wife and my trustees than if I had provided for the payment by my estate of such items and outgoings, and fixed her annuity at a smaller amount. Should my wife decide at any time not to occupy personally the said summer home and so notify my trustees, or should she not occupy the same during three consecutive calendar years, or in the event of her death my trustees may sell the said summer home and appurtenances and its furniture, furnishings and effects, automobiles, garage furnishings, effects and equipment, or may lease the same for such term from time to time and on such conditions as they think expedient; the said summer home may be sold or leased together with the furniture, furnishings, effects and equipment or parts thereof, or separately therefrom, and until sold I direct my trustees at the expense of my estate to keep the same in proper repair, but during the years of her occupancy my wife is to pay the taxes thereon."
8. In accordance with provisions of the agreement referred to in finding 6, the executors and trustees of the estate of James Harrington Walker have followed the terms and provisions of the unexecuted will in the administration of his estate, and in accordance with the second paragraph of the unexecuted will paid to Margaret T. Walker $75,000 per year subsequent to the death of James Harrington Walker until the death of Margaret T. Walker on July 18, 1933.
9. In the year 1929 the trustees of the estate of James Harrington Walker set aside certain assets of the estate in the amount of approximately $800,000 as a separate trust fund for the purpose of making payments to Margaret T. Walker. This procedure was authorized by court order of November 3, 1928, which permitted the allocation of certain securities in the amount of approximately $800,000 to a fund to be established for the provision of an annuity of $75,000 to the widow of the deceased.
10. During 1930 Margaret T. Walker received from the trustees of the estate of James Harrington Walker the amount of $75,000. Of that amount the sum of $37,573.27 constituted all the income for the year 1930 from the assets which had been set aside as a trust fund for the purpose of making payments to Margaret T. Walker as required by the provisions of the second paragraph of the unexecuted will heretofore referred to. The balance of the payment for that year in the amount of $37,426.73 was paid out of the corpus or principal of those assets.
11. Margaret T. Walker duly filed an individual income tax return for 1930 in which she reported as taxable income the sum of $37,573.27 as income from the estate of James Harrington Walker, that amount being the income from the assets set aside in trust as shown in finding 10. In connection with that return Margaret T. Walker paid an income tax of $2,801.20 on February 26, 1931.
12. During the year 1931 Margaret T. Walker received from the trustees of the estate of James Harrington Walker, $75,000. Of that amount the sum of $21,651.32 constituted all the income for the year 1931 from the assets set aside as a trust fund for the purpose of making payments to her as required by the provisions of the second paragraph of the unexecuted will heretofore referred to. The balance, $53,348.68, was paid out of the corpus or principal of those assets.
13. Margaret T. Walker duly filed an individual income tax return for the year 1931 in which she reported as taxable income the sum of $21,651.32, the income from the estate of James Harrington Walker, referred to in finding 12. In connection with that return Margaret T. Walker paid an income tax of $950.11 in two installments, namely, March 17, 1932, $237.53; June 9, 1932, $712.58.
14. February 21, 1933, Margaret T. Walker filed a claim for refund of income tax for 1930 in the sum of $2,801.20 and assigned the following basis for such claim:
"Deponent disclosed a net taxable income for the calendar year 1930 in the amount of $36,645.49. In determining this amount deponent erroneously included as income from the Estate of J.H. Walker, Walkerville, Ontario, the sum of $37,573.27, which amount was not in fact taxable income to deponent, but constituted a return of capital instead. This was the amount paid currently in the form of an annuity from the said estate, the said annuity arising by virtue of the Last Will and Testament of J.H. Walker, deceased, and certain agreements between the heirs and legatees of said estate. A copy of a Departmental letter, bearing date of February 11, 1933, bearing symbols IT:AR:D -2; MHP, is attached hereto and made a part hereof.
"As a result of the elimination of said sum of $37,573.27 claimant derived no taxable income, and no tax in fact is due."
The Departmental letter attached to that claim which suggested the filing of a claim for refund in order to protect her against the expiration of the statute of limitations read in part as follows:
"The determination of your income-tax liability for the year 1930 indicates an overassessment in the amount of $2,801.20, the basis of which is as follows:
"Taxable income from the Estate of J. Harrington Walker was reported on your return for the year 1930 which income appears to be taxable income to the Estate of J. Harrington Walker in accordance with General Counsel Memorandum 8668."
15. April 6, 1933, Margaret T. Walker filed a similar claim for refund of income tax for 1931 in the amount of $950.11. That claim was likewise filed in response to the suggestion of the Commissioner that a claim be filed in order to protect her against the expiration of the statute of limitations and suggested a similar basis for overassessment.
16. March 28, 1934, the Commissioner notified plaintiffs that the claim of Margaret T. Walker for 1930, heretofore referred to, would be rejected and on June 16, 1934, that claim and the claim for 1931 were rejected. No payment of these claims or any part thereof has ever been made by the Commissioner.
17. March 15, 1931, the trustees for the estate of James Harrington Walker filed a fiduciary return for that estate for the year 1930. They did not include in that return any part of the amount of $37,573.27, being that portion of the $75,000 paid by them to Margaret T. Walker during that year and representing the income from assets placed in trust for the purpose of making that payment.
18. March 11, 1933, the Commissioner notified the trustees of the estate of James Harrington Walker of a deficiency in income tax for the year 1930 of $3,140.99. In a statement attached to that deficiency notice it was stated that the deficiency resulted from the inclusion in taxable income of the amount of $37,573.27 heretofore referred to, since information on file in the Commissioner's office indicated that that amount reported on the return of Margaret T. Walker represented income taxable to the estate of James Harrington Walker.
19. May 8, 1933, the trustees of the estate of James Harrington Walker filed a petition with the United States Board of Tax Appeals seeking a redetermination of the deficiency referred to in the preceding finding. That proceeding was terminated by a decision by the Board of Tax Appeals entered February 28, 1934, finding no deficiency in income tax and no overpayment for the year 1930, which decision was entered pursuant to a stipulation filed on behalf of the respective parties.
20. March 15, 1932, the trustees of the estate of James Harrington Walker filed their fiduciary income-tax return for 1931. They did not include in that return any part of the amount of $21,651.32, being that portion of the $75,000 paid to Margaret T. Walker in that year and representing the income from assets placed in trust for the purpose of making that payment, and they have not paid any income tax on such amount.
21. The income taxes as paid by Margaret T. Walker for the years 1930 and 1931 in the amounts of $2,801.20 and $950.11, respectively, were due and payable in any part only by reason of the inclusion in her taxable income for those years of the amounts of $37,573.27 and $21,651.32, respectively, being the portions of the payments received by her for those years which constituted income from the assets set aside by the trustees of the estate of James Harrington Walker for the purpose of making such payments.
This is a suit brought for the recovery of income taxes with interest thereon for the years 1930 and 1931 alleged to have been erroneously assessed and collected from Margaret T. Walker.
Margaret T. Walker died in 1933 and plaintiffs are her executors. Her husband was James Harrington Walker, who died December 16, 1919, leaving a will. The will was probated in Wayne County, Michigan, on February 25, 1920, and the executors named therein having duly qualified were appointed trustees thereunder.
The beneficiaries of the estate of Margaret T. Walker and also the beneficiaries of the estate of James Harrington Walker are named in Finding 4.
The second provision of the will of James Harrington Walker, set out in Finding 5, directed his trustees to set apart sufficient of the assets of his estate to pay his wife out of the income thereof the sum of $50,000 per annum during her life and also made other provisions in her behalf.
It appears that shortly prior to the death of James Harrington Walker a new will had been prepared but he died before having an opportunity to execute it. His heirs, believing that this unexecuted will expressed his final intentions, on December 28, 1919, entered into and executed an agreement that the provisions of the unexecuted will should be carried out after the existing will was probated. This agreement is set out in full in Finding 6.
The provisions of the unexecuted will so far as material to this action are set out in Finding 7 from which it will be seen that it directed the trustees to pay to the testator's wife, Margaret T. Walker, an annuity of $75,000 a year during her life and to set apart such a sum from his estate as would provide amply therefor.
In 1929 the trustees of the estate of James Harrington Walker, with the approval of the court, set aside certain assets in the amount of $800,000 as a separate trust fund for the purpose of making the payments of $75,000 a year to his wife. During the years 1930 and 1931, Margaret T. Walker received $75,000 a year from the trustees of the estate of James Harrington Walker. These payments were derived partly from the income on the fund set apart for the payment of the annuity and partly from the corpus of the fund.
For the years 1930 and 1931, Margaret T. Walker reported as taxable income on her individual income tax return the portion of the annuity payment received each year which represented income earned by the fund set aside to make payment thereof. The entire income tax paid by her for the years 1930 and 1931 resulted from the inclusion in her return as taxable income the income of the trust fund. In due time, Margaret T. Walker filed claims for refund of the amount so paid on both the 1930 and 1931 income tax, alleging that the amount returned as paid out of income was erroneously included in her income tax returns for these years, being in fact the payment of an annuity to her as legatee and therefore not taxable. On behalf of the defendant it is argued that the widow was a beneficiary of a trust and not a legatee. This constitutes one of the issues in the case.
In defendant's argument it is said that "the whole question turns upon whether the widow can be considered as taking under the will of her husband or under a subsequent agreement." On this point we think there is no substantial difference between the provisions of the will and those of the unexecuted will put in force by the agreement. The will provided that sufficient be set apart out of the assets (corpus) of the estate to amply provide "funds and income" to make the annual payment of $50,000. Defendant contends that the payments were only to be made "out of the income" of the fund set apart, but the intent of the will was that an "ample fund" be set apart for that purpose and we think they were payable out of the assets of the estate if the trustees disregarded the terms of the will by not setting aside an ample fund. The unexecuted will made substantially the same provisions, referring to the payment of $75,000 a year to the widow as an "annuity." Under either the executed or unexecuted will, we think there was a charge on the whole estate for the annual payment to be made to the widow. Clearly this was the case under the unexecuted will which provided for the payment of an annuity in the amount of $75,000 and made a special provision that any deficiency of income should be made up out of the corpus of the assets set apart. In fact a part of the annuity was paid under this provision.
Where annual payments are made by the fiduciary of a trust under a will and such payments do not depend upon income from the trust estate but are payable without regard to the income received by the fiduciary, they are made in discharge of a gift or legacy and are not taxable. Helvering v. Butterworth, 290 U.S. 365, 370, 54 S.Ct. 221, 78 L.Ed. 365; Burnet v. Whitehouse, 283 U.S. 148, 151, 51 S.Ct. 374, 75 L.Ed. 916, 73 A.L.R. 1534.
It is argued on behalf of defendant that under the executed will the widow occupies the status of a beneficiary of a trust and the amounts received by her as income from the trust constitute taxable income to her. It is also said that if anything was received by her in addition to what she was entitled to under the will, such amounts should be considered as received contractually from the heirs.
What we have said above shows, as we think, that the widow was not a mere beneficiary of a trust created for her benefit but was, under the requirement of the will that a certain sum be paid to her annually as an annuity, a legatee and that the exemption of her annuity from taxation was not altered by the agreement executed by the heirs.
Defendant cites in support of its contention the case of Lyeth v. Hoey, 2 Cir., 96 F.2d 141, in which there was a contest over the provisions of a will. The heirs entered into an agreement providing for the probate of the will and the distribution of the estate in accordance with the will and an agreement of settlement between them. The plaintiff acquired property under the compromise agreement which he would not have received under the terms of the will as originally offered for probate. On this property he was assessed and paid income taxes which he sought to have refunded. The Circuit Court of Appeals held that the property so received and assessed was income under the meaning of section 22 of the Revenue Act of 1932, 47 Stat. 169, 178, 26 U.S.C.A. § 22 and note, and consequently taxable. On appeal this decision was reversed by the Supreme Court in Lyeth v. Hoey, 305 U.S. 188, 59 S.Ct. 155, 83 L.Ed. 119, 119 A.L.R. 410, decided December 5, 1938, and it was held that a settlement of an estate which provides for the probating of a will does not do away with statutory exemptions, also that what the plaintiff received by virtue of the agreement over and above what he would have got under the will, he received because of his standing as an heir and his claim in that capacity. The claim of the plaintiff that what he received was exempt from tax was therefore sustained.
The case before us is somewhat different in its facts but the case last cited settles some of the controversies we are now considering. Under the rules laid down therein, the fact that annual payments were made to Mrs. Walker by virtue of an agreement under which she received more than she would have under the executed will would not prevent the payments made from being exempt if she was an heir, as in fact she was. In the instant case there was no legal conflict between the heirs. The settlement agreement was voluntary and amicable. Under these circumstances, we think that whatever additional amount she received under the agreement was merely a gift and consequently not taxable. In any event being an heir in fact, we think there is no substantial difference in the effect of the agreement in the instant case from that made in Lyeth v. Hoey, supra, and that she was consequently entitled to hold all she received thereunder free from tax.
Our conclusion is that none of the reasons presented on behalf of defendant for requiring Mrs. Walker to pay an income tax on the payments received by her are well founded. We are of the opinion that there is no substantial difference between the provisions of the original will and the unexecuted will with reference to the payments being a charge upon the whole estate of her husband; that even if the will which was probated does not have this effect the agreement made by the parties to put in force the unexecuted will is controlling and under it the annual payments made to the widow were a charge upon the whole estate. There was, as we view it, an annuity payable to the widow which did not depend upon income from the trust estate. This annuity was granted to her by a legacy and as legatee she was not subject to a tax by reason of receiving it.
The defendant also contends that even if no part of the payments received by Mrs. Walker constituted income taxable to her no refund should be allowed to the plaintiffs. In support of this contention the defendant cites the case of Stone v. White, 301 U.S. 532, 57 S.Ct. 851, 81 L.Ed. 1265, in which the Supreme Court held that where the income of a trust was taxed to the trustee when it should have been taxed to the beneficiary the trustee could not recover the tax paid by him. In the Stone case, supra, the beneficiary was entitled to the whole net income of the trust and the Government was permitted to interpose a defense of equitable estoppel because, as is pointed out by the court, any recovery obtained by the trustee would inure entirely to the benefit of the beneficiary who should have paid the tax in the first instance.
In the case before us there was no obligation on the part of Mrs. Walker to pay the tax and her recovery would inure to her benefit alone without affecting the interests of the heirs of her husband.
It should be said also that recent cases have placed a limitation on the rule laid down in Stone v. White, supra. In Sewell v. United States, Ct.Cl., 19 F. Supp. 657, it was held that it did not apply where the beneficiary was entitled to only part of the net income and the balance was retained in the estate for the benefit of the remainderman. In the case of McNaghten v. United States, 17 F. Supp. 509, 84 C.Cls. 349, attention was called to the fact that in the case of Stone v. White, supra, the Commissioner determined and assessed the tax there involved in accordance with the decision of the Circuit Court of Appeals which decision was later reversed, while in the case then being submitted the Commissioner was bound by no interpretation of the law, except his own, with respect to the question before him, and all of the facts necessary to a determination and assessment of taxes against the trustees and beneficiaries were fully known before any statute of limitations ran against the assessment of the tax against the trustees. It was held in the McNaghten case, supra, that when the Commissioner neglected properly to assess the tax and permitted the limitation statute to run, there was no equitable estoppel.
The same situation existed in the case now before us. Before the statute of limitations had run, the Commissioner had advised Mrs. Walker to file a claim for refund. With a full understanding of the matter he determined to assess the tax involved herein to Mrs. Walker.
Since the filing of the refund claims on which the action is based Mrs. Walker died. If this suit is successful, the recovery will go to the heirs of her estate and the beneficiaries of her estate are a part but not all of the beneficiaries of the estate of James Harrington Walker. These facts show merely an undetermined advantage derived through the failure of the trustees of James Harrington Walker to pay the tax, which is insufficient to warrant the application of the doctrine of equitable estoppel. See Schlemmer v. United States, 2 Cir., 94 F.2d 77, in which the case of Stone v. White, supra, was distinguished.
It follows from what is said above that plaintiffs are entitled to recover $2,801.20 taxes for the year 1930 paid on February 26, 1931, and $950.11 taxes for the year 1931 paid in two installments, namely March 17, 1932, $237.53, and June 9, 1932, $712.58, with interest as provided by law upon the several sums so paid. Judgment will be rendered accordingly.