Opinion
Docket Nos. 28498 28499.
1953-02-27
ALMA IGOE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.JOHN FRANCIS IGOE, MARIE L. KELLER, GENERAL GUARDIAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
G. A. Garvey, Esq., for the petitioners. John Clark, Esq., for the respondent.
G. A. Garvey, Esq., for the petitioners. John Clark, Esq., for the respondent.
ESTATE INCOME PROPERLY CREDITED TO BENEFICIARIES— Sec. 162(c), I.R.C.—Under the facts, held that proportionate amounts of income of an estate for 1941 were properly credited in 1941 to each of the petitioners within the meaning of section 162(c) of the Code so that the respective amounts of income so credited are taxable to each of the petitioners in 1941.
The Commissioner has determined deficiencies in income tax for the year 1941 as follows:
+--------------------------------------+ ¦Docket No. 28498, Alma Igoe¦$12,649.89¦ +---------------------------+----------¦ ¦Docket No. 28499, John Igoe¦3,616.75 ¦ +--------------------------------------+
The petitioners are legatees of the estate of Andrew J. Igoe, deceased. The Commissioner has determined that income of the estate for 1941 is taxable to each petitioner, $30,355.42, to Alma Igoe, and $15,177.71, to the minor son of the decedent, John Francis Igoe. The Commissioner held that the above amounts of estate income for 1941 were ‘properly credited * * * by the executors of the estate of Andrew J. Igoe in the year 1941‘ to the respective accounts of the petitioners and, therefore, under section 162(c) of the Code, are taxable, respectively, to each petitioner.
The question to be decided is whether the income in question is includible in the income of the petitioners for 1941 under the provisions of section 162(c).
FINDINGS OF FACT.
The facts which have been stipulated are found as facts, and the exhibits attached thereto are incorporated herein by reference.
The petitioners are residents of Brooklyn, New York. The income tax returns of the petitioners for 1941 were filed with the collector for the first district of New York. The petitioners' returns were made on the basis of a calendar year.
The petitioner, Alma Igoe, is the widow of Andrew J. Igoe who died on June 16, 1937, a resident of Kings County, New York. The petitioner, John Francis Igoe, is a minor child of Alma Igoe and Andrew J. Igoe, deceased. Marie L. Keller, a sister of Alma Igoe, was appointed the general guardian of John Francis Igoe by the Kings County Surrogate's Court on July 31, 1939. The decedent was survived by three children in addition to John Francis; there are, therefore, five surviving legatees.
The decedent, Andrew J. Igoe, died testate. In September 1937, his will was admitted to probate in the Kings County Surrogate's Court. His two brothers, Peter and James Igoe, and Alma Igoe, were duly appointed the coexecutors of the estate.
Under the will of the decedent, and by virtue of Subdivision 1 of Section 83 of the Decedent's Estate Law of New York, Alma Igoe and the decedent's four children, Peter and John Igoe, and Catherine Igoe Dailey, and Elizabeth Igoe Murphy are entitled to share the entire net estate as residuary legatees; Alma Igoe is entitled to receive a one-third share, and each child is entitled to receive a one-sixth share.
The will of the decedent, Andrew J. Igoe, is brief and provides, in general, as follows: After the payment of all debts and testamentary expenses, the residuary estate is bequeathed to the persons who would be entitled to receive it under the laws of New York had the decedent died intestate. The executors of the will are given broad powers to sell, transfer, and convey any and all property of the estate, real or personal, upon such terms as to them may seem best. The decedent authorized the executors to make distribution of his estate among the distributees in kind or in cash, or partly in kind and partly in cash, whichever to them may seem best. He directed that none of the executors should be required to file any bond for the performance of their duties.
The estate was in process of administration during 1941 and for at least 6 months after January 1, 1942. The estate made its income tax returns on the basis of a fiscal year ending May 31. The first fiscal year of the estate ended on May 31, 1938.
The assets of the estate of Andrew J. Igoe, deceased, consisted of stocks, bonds, interests in partnerships and joint ventures, miscellaneous property, mineral deeds, and real estate. The value of the gross estate as determined by the Commissioner of Internal Revenue for estate tax was $1,257,650.97. In his audit of the estate tax return, the Commissioner determined that allowable deductions amounted to $156,129.50, and that the net estate, before various credits, amounted to $1,101,521.47, as follows:
+-----------------------------------------------------------------------------+ ¦Assets of the Estate ¦ ¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Real estate ¦$13,150.92¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Stocks and bonds ¦859,166.66¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Cash ¦751.11 ¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Insurance ¦99,015.17 ¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Jointly owned property ¦10,000.00 ¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Other miscellaneous property ¦121,904.11¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Transfers (gifts in lifetime) ¦153,663.00¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Total gross estate ¦ ¦$1,257,650.97¦ +----------------------------------------------------+----------+-------------¦ ¦Expenses of the Estate ¦ ¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Funeral expenses ¦$2,971.50 ¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Executorial commissions ¦58,396.95 ¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Attorneys' fees (paid) ¦10,500.00 ¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Miscellaneous administration expenses ¦11,215.00 ¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Debts of decedent ¦73,046.05 ¦ ¦ +----------------------------------------------------+----------+-------------¦ ¦Total above deductions ¦ ¦156,129.50 ¦ +----------------------------------------------------+----------+-------------¦ ¦Value of the net estate before allowance of specific¦ ¦$1,101,521.47¦ ¦exemptions ¦ ¦ ¦ +-----------------------------------------------------------------------------+
The Commissioner determined the Federal estate tax on the estate of the decedent to be $225,309.75. The obligations of the estate for payment of debts, administrative expenses, funeral expense ($156,129.50), and Federal estate tax, supra, totaled $381,439.25.
Included in the assets of the estate were debenture bonds, and preferred and common stocks in two corporations of the Igoe family, Igoe Brothers, Inc., an operating company, and Eybro Realty Corporation, a holding company in which the decedent owned about 25 per cent of the securities. The securities of the Igoe and Eybro corporations held by the estate, and the values placed thereon by the examining revenue agent are as follows:
+----------------------------------------+ ¦Eybro Realty Corporation: ¦ ¦ +----------------------------+-----------¦ ¦$366,600 20-Year 5% Bonds ¦$293,280.00¦ +----------------------------+-----------¦ ¦7,332 shares Preferred Stock¦128,310.00 ¦ +----------------------------+-----------¦ ¦3,055 shares Common Stock ¦0 ¦ +----------------------------------------+
Igoe Brothers, Inc.: $244,400 20-Year 5% Bonds 195,520.00 12,220 shares Preferred Stock 97,760.00 3,055 shares Common Stock 76,375.00 Total $791,245.00
Books of account for the estate were kept. The books of account were located at the offices of the Igoe corporation in Brooklyn. The estate employed an accountant, E. Glasser, to keep the accounts of the estate. The books were under the supervision of James J. Igoe, one of the executors.
Alma Igoe was an executrix of the estate at least until November 21, 1941, and prior to that time she had not received a discharge from her duties as executrix by the Surrogate's Court. Subsequently, on April 30, 1943, the Surrogate's Court approved Alma Igoe's resignation as executrix and discharged her from executorial duties. She filed an account of her acts as executrix and a petition for judicial settlement of her account as executrix in the Surrogate's Court on March 12, 1942, in which she petitioned the court, inter alia, to permit her to resign as executrix.
The estate received, during its fiscal years ended May 31, 1940, and May 31, 1941, net income in the respective amounts of $49,643.55, and $91,066.27, which it reported in its Federal income tax returns. The net income of the estate for its 1940 and 1941 fiscal years was credited proportionally to the five residuary legatees as follows:
+-----------------------------------------+ ¦Beneficiary ¦1940 ¦1941 ¦ +-------------------+----------+----------¦ ¦Alma Igoe ¦$16,547.85¦$30,355.42¦ +-------------------+----------+----------¦ ¦Peter Igoe ¦8,273.93 ¦15,177.72 ¦ +-------------------+----------+----------¦ ¦Catherine I. Dailey¦8,273.93 ¦15,177.71 ¦ +-------------------+----------+----------¦ ¦Elizabeth I. Murphy¦8,273.92 ¦15,177.71 ¦ +-------------------+----------+----------¦ ¦John F. Igoe ¦8,273.92 ¦15,177.71 ¦ +-----------------------------------------+
The petitioners included the respective amounts of the 1940 income of the estate which were credited to them, as above set forth, in their income in their respective income tax returns for 1940.
With respect to the 1941 income of the estate, each petitioner was advised by Glasser, the accountant for the estate, by letters dated February 6, 1942, that various items of income had been credited to them during the year 1941, including their respective distributive shares of income of the estate of the decedent. Both letters of Glasser to Alma Igoe and Marie Keller, guardian, were the same in substance, differing only with respect to amounts. Glasser's letter to the petitioner, Alma Igoe, dated February 6, 1942, is as follows:
Please be advised that it is necessary to report to the Commissioner of Internal Revenue and the Collector of Internal Revenue the following amounts received or credited to your account from the following sources during the calendar year 1941:
+-----------------------------------------------------------------------------+ ¦1-Your distributive share of income of the Estate of Andrew J. ¦$30,355.42¦ ¦Igoe ¦ ¦ +------------------------------------------------------------------+----------¦ ¦2-Bond Interest from Igoe Brothers, Inc ¦428.00 ¦ +------------------------------------------------------------------+----------¦ ¦3-Bond Interest from Eybro Realty Corporation ¦428.00 ¦ +------------------------------------------------------------------+----------¦ ¦4-Dividend on Igoe Brothers Inc. Preferred Stock ¦128.40 ¦ +------------------------------------------------------------------+----------¦ ¦5-Dividend on Eybro Realty Corporation Preferred Stock ¦192.75 ¦ +------------------------------------------------------------------+----------¦ ¦6-Dividend on Igoe Brothers Inc. Common Stock ¦428.00 ¦ +------------------------------------------------------------------+----------¦ ¦Yours very truly, ¦ ¦ +-----------------------------------------------------------------------------¦ ¦E. Glasser for the Above Sources ¦ +-----------------------------------------------------------------------------+
Copies of these letters were sent to Paul H. Keller, petitioners' attorney. The letter to Marie Keller advised her, inter alia, that $15,177.71, her distributive share of the income of the estate of Andrew J. Igoe, had been ‘received or credited to you as General Guardian of Property for John Francis Igoe from the following sources during the calendar year 1941.‘
The petitioners did not include in their income, in their income tax returns for 1941, the amounts of income of the estate for 1941 which were credited to them in the estate's books of account. Each petitioner attached to his income tax return for 1941, a statement to the effect that he (and she) had received information that in the fiduciary return of the estate ‘distribution‘ had been reported as made to each but that no distribution had been made. Alma Igoe stated in her return that she believed that the purported distribution had not been properly credited to her account in the estate's books.
The income tax returns of the estate for its fiscal years ended in 1940 and 1941 were signed by James J. Igoe as executor; neither return was signed by Alma Igoe as coexecutrix. In each fiduciary return of the estate, the respective amounts of income of the estate for 1940 and 1941 which had been credited to each of the five legatees, including the petitioners, on the books of the estate were reported as income which was distributed or distributable to each legatee. That is to say, the estate reported all of its income for 1940 and 1941 as distributable to legatees, took deductions for the credits, and accordingly, did not report any income tax due by the estate. The parties have stipulated that the estate did not pay any income tax on the taxable net income it received in its 1941 fiscal year.
Paul H. Keller, brother of Alma Igoe and of Marie L. Keller (guardian), a member of the New York Bar, was originally retained by the three executors to act as attorney for the estate, but after August 31, 1940, he ceased to represent two of the executors, James and Peter Igoe. He continued to represent the petitioner individually and as executrix, and Marie Keller, guardian. However, at some time prior to August 1940, differences arose between Keller and James and Peter Igoe which led to the termination of his employment as their counsel. Thereafter Keller instituted a suit against the estate for the purpose of having his fee for services to the estate judicially determined. At about this time, Alma Igoe also had certain difficulties with Peter and James Igoe, and strained relations between them existed.
On November 21, 1941, petitioners and Keller entered into a written Settlement Agreement with James and Peter Igoe, as executors, by the terms of which, all claims of the petitioners and Keller against the estate were settled, and distributions were made to Alma and John Igoe, beneficiaries, of their respective shares in the estate. In the agreement, Alma Igoe agreed to execute and file with the Surrogate's Court her resignation as executrix. This agreement was subsequently affirmed and approved by the Kings County Surrogate's Court on March 3, 1943. A second agreement was simultaneously entered into between petitioner and the Eybro Realty Corporation, pursuant to which Alma Igoe, and Marie L. Keller, guardian of the property of John Francis Igoe, conveyed to the corporation all of their respective interests in the securities and other assets of the estate in consideration of payment to them of cash in the amounts of $227,850 and $137,966, respectively. Court approval of the guardian's action in this regard was subsequently obtained on March 3, 1943.
The Settlement Agreement of November 21, 1941, was made by Alma Igoe individually and as executrix under the decedent's will, and was made by Marie Keller as guardian of John Igoe. Paul Keller's claims against the estate for fees and compensation were settled by the agreement; he agreed to resign as attorney for Alma Igoe as executrix, except for representing her at her own expense in final representation in settling her claims; he confirmed that his representation as attorney for Peter and James Igoe ceased as of August 31, 1940; and he agreed to deliver to another attorney representing the executors, Peter and James Igoe, all papers and documents belonging to the estate and appertaining to its assets, liabilities, or other affairs in the possession or under the control of himself or of Alma Igoe.
In connection with Keller's suit against the executors, Peter and James Igoe, for fees from August 1937 to August 31, 1940, about 20 hearings were held in the Surrogate's Court, and hearings were held in 1941 between January and October. During the period Keller's suit was pending, , the negotiations toward settlement of claims of Alma Igoe as a legatee of the decedent began. Whether in connection with Keller's suit against the two executors, the claims of Alma and John Igoe, as legatees, or the preparation of the Settlement Agreement, or any other matters, no proceeding was ever filed in the Surrogate's Court asking the coexecutors or the executrix and the coexecutors to make an accounting of their administration of the estate, and no proceedings were ever instituted to mandamus or require the coexecutors, Peter and James Igoe, to produce the books and records of the estate for examination or for any other purpose.
After 1941, the coexecutors, Peter and James Igoe, filed in the Surrogate's Court a complete account of their administration of the estate for the period June 16, 1937, to June 30, 1941, and a Supplemental Account for the period June 30, 1941, to July 31, 1942. These accounts are incorporated herein by this reference.
Paul Keller acted as attorney for Alma Igoe, both as an individual and as executrix of the estate, during the negotiations toward settlement of all of her claims against the estate, and the period of preparation of the Settlement Agreement. He prepared her income tax return for 1941.
Included in the Settlement Agreement of November 21, 1941, and made part thereof, are statements of account of the assets of the estate. The values of the assets are set forth on the basis of the Federal revenue agent's report and on a second basis, lesser values, agreed upon by the parties to the Settlement Agreement. The executors had agreed that for purposes of Federal estate tax the gross estate of the decedent amounted to $1,257,650.97, and that the net estate amounted to $1,101,521.47; and that the testamentary estate, passing under the will, amounted to $872,405.68, based on the valuations determined by the Federal revenue agent. The parties to the Settlement Agreement agreed that the total Federal estate tax paid up to November 21, 1941, amounted to $190,458.91; that New York estate tax had been paid in the amount of $38,952.92; that interest paid on both estate taxes was $20,677.43; and that the value of the testamentary estate passing under the will, based on Federal estate tax valuations, after payments of taxes and interest noted above was $622,316.42; and that after further deductions for debts and expenses of administration of $92,507.90 the net testamentary estate amounted to $529,808.52. The parties agreed, further, that net income and dividends of the estate brought the value of the net estate up to $835,729.07, as follows:
+-----------------------------------------------------------------------------+ ¦Net testamentary estate on basis of Federal tax values ¦$529,808.52¦ +-----------------------------------------------------------------+-----------¦ ¦Net income of estate, 6/16/37 to 5/31/41, including amounts ¦284,535.55 ¦ ¦distributed or distributable to beneficiaries ¦ ¦ +-----------------------------------------------------------------+-----------¦ ¦Dividends received by estate in June 1941 on Eybro and Igoe stock¦21,385.00 ¦ +-----------------------------------------------------------------+-----------¦ ¦Total net estate plus income (distributed or distributable) ¦ ¦ +-----------------------------------------------------------------+-----------¦ ¦approximately ¦$835,729.07¦ +-----------------------------------------------------------------------------+
In the Settlement Agreement, the parties agreed that there had been distributed to Alma Igoe, income of the estate in the net amount of $32,318.77; that her one-third interest in the estate as a legatee, using the Federal estate tax valuations was (1/3 of $835,729.07) $278,576.36, or $246,257.59, after subtracting the net income of the estate theretofore distributed to her; that the one-sixth interest of John Francis Igoe (1/6 of $835,729.07) was $139,288.18; that $2,856.59 of estate income had been distributed to John Francis, and that the balance of his one-sixth interest was $136,431.59. It was further agreed that the figure of $136,431.59 included $50,986.76 income.
In the Settlement Agreement, the parties agreed, everything considered, that the Federal revenue agent's valuation of the securities of Igoe and Eybro corporations in the estate were too high to the extent of $149,695, and that the one-third and one-sixth interests in the estate of the petitioners should be proportionately reduced to eliminate such agreed overvaluation, to $196,359.26, interest of Alma Igoe, and to $111,482.42, interest of John Francis.
Finally, it was agreed that the respective shares of the net estate to be distributed under the Settlement Agreement to Alma and John Francis Igoe, were, respectively, $221,484, and $118,650, consisting of securities. Also, it was agreed that distribution would be made to Alma as follows:
+--------------------------+ ¦Securities ¦$202,234.00¦ +--------------+-----------¦ ¦Cash ¦16,698.77 ¦ +--------------+-----------¦ ¦Mineral deeds ¦2,551.23 ¦ +--------------+-----------¦ ¦ ¦$221,484.00¦ +--------------------------+
It was agreed that there would be distributed to Marie Keller, guardian of John Francis, securities having an agreed value of $118,650.
It was agreed, further, that income of $32,318.77, previously distributed to Alma Igoe, and $2,856.59, previously distributed to John Francis, was not to be repaid to the estate; and that the distributions provided for in the agreement of bonds, stocks, cash, and mineral deeds to Alma and John Francis, respectively, would be accepted by them as full satisfaction and payment to each of them of all of the interest of each as a beneficiary under Andrew J. Igoe's will, ‘both as to principal and income,‘ and of all claims of each against the estate, or against Peter and James Igoe, as coexecutors and individually, except Alma Igoe's claim for executor's commissions of $19,465.65.
From time to time, the petitioners, as beneficiaries of the estate, received distributions out of the amounts credited to their accounts in the estate's books of estate income, but such distributions did not exceed the total amounts of $32,318.77, and $2,856.59 prior to November 21, 1941. At all times the executors could have provided the amounts of income credited to them on the books of the estate and the estate itself also could have secured the cash for such purpose through the family corporations, which had ample current resources available therefor and which, controlled by Peter Igoe and James J. Igoe, two of the executors, were ready and willing to respond to any demand to pay estate taxes or any income payments so credited.
The executors were advised that they must be able and ready to pay over the estate income credited to petitioners in the estate's books without any hesitation or debate at any time it might be demanded.
During the year 1941 Alma Igoe made no direct request either as an individual beneficiary or as an executrix of the estate of the other executors to be allowed access to the books of the estate.
Paul H. Keller, as attorney for Alma Igoe individually and as executrix, and Marie L. Keller, guardian for John Francis Igoe, made no request ‘except possibly a written request‘ of the executors, to produce the books of the estate for examination, nor was any action started before any court to compel the executors to produce or file an accounting of their administration.
The executors, during the period of administration, collected from insurance proceeds $33,562.38, and from sales of securities, approximately $140,000.
The executors, Peter and James Igoe, waived executors' commission on principal and income of the estate, Alma Igoe claimed and received commissions in the amount of $19,465.65.
The deficiency in Federal estate tax after payment in 1938 and 1939, of $84,688.39, was $140,621.36. As of June 30, 1940, the total paid on Federal estate tax and New York estate tax was $123,641.31. After June 30, 1941, $105,770.52 was paid on Federal and state estate taxes.
The executors' accounts of James and Peter Igoe were approved by the Surrogate's Court on April 30, 1943, and on that date they were discharged as executors. The executors' account of Peter and James Igoe, as of June 30, 1941, reported the balance of estate assets to be $919,778.88. Their executors' account as of July 31, 1942, showed that total distributions to legatees amounted to $778,506.86, and that after all charges against assets the balance of the assets of the estate was $57,409.33. The executors' account filed by James and Peter Igoe, which was approved by the Surrogate's Court on April 30, 1943, reported as follows:
+-----------------------------------------------------------------------------+ ¦Total estate assets ¦$1,259,188.13¦ +---------------------------------------------------------------+-------------¦ ¦Total charges against assets including distributions to ¦1,201,778.80 ¦ ¦legatees ¦ ¦ +---------------------------------------------------------------+-------------¦ ¦Balance of estate assets, 7/31/42, consisting of cash, ¦ ¦ ¦$10,656.57; securities, $31,924.46; and equity in joint ¦$57,409.33 ¦ ¦ventures, $14,828.30 ¦ ¦ +-----------------------------------------------------------------------------+
Under the Settlement Agreement of November 21, 1941, the executors of the estate distributed, inter alia, securities of the Eybro and Igoe corporations in the amount of $202,234 to Alma Igoe, and $118,650 to John Francis Igoe, total $320,884. Under the Supplemental Agreement of November 21, 1941, the Igoe and Eybro corporations purchased these securities from Alma and John Igoe for $320,874; and the corporations also purchased from them other securities of the corporations owned by Alma and John Igoe for $44,932, making a total of $365,816.
The assets of the estate of Andrew J. Igoe were more than adequate to provide for the payment of all obligations of the estate, including debts, taxes, and administrative expenses without use of the 1941 net income involved in these proceedings.
The amount of $30,355.42 was properly credited to the petitioner, Alma Igoe, by the estate of Andrew J. Igoe, during the year 1941, within the meaning of section 162(c) of the Internal Revenue Code, and constituted income taxable to her in that year.
The amount of $15,177.71 was properly credited to the petitioner, John Francis Igoe, by the estate of Andrew J. Igoe, during the year 1941, within the meaning of section 162(c) of the Internal Revenue Code, and constituted income taxable to him in that year.
OPINION.
HARRON, Judge:
The question in these proceedings is whether the amounts of income for 1941 of the estate of Andrew J. Igoe which were credited to each of the petitioners as of May 31, 1941, in the estate's books of account were ‘properly‘ ‘credited‘ within the meaning of section 162(c) of the Code.
No other provision of the I.R.C. is involved in the pleadings in this proceeding.
SEC. 162. NET INCOME.The net income of the estate or trust shall be computed in the same manner and on the same basis as in the case of an individual, except that—(c) In the case of income received by estates of deceased persons during the period of administration or settlement of the estate, and in the case of income which, in the discretion of the fiduciary, may be either distributed to the beneficiary or accumulated, there shall be allowed as an additional deduction in computing the net income of the estate or trust the amount of the income of the estate or trust for its taxable year, which is properly paid or credited during such year to any legatee, heir, or beneficiary, but the amount so allowed as a deduction shall be included in computing the net income of the legatee, heir, or beneficiary.
The question is considered upon the evidence which was adduced upon the trial of these proceedings. We may not, and do not, take judicial notice of the record made in this Court upon the trial of the proceeding of Estate of Andrew J. Igoe, 6 T.C. 639. See B. F. Edwards, 39 B.T.A. 735, 738.
On the question of law presented in these proceedings, the respondent relies upon the decision of this Court in Estate of Andrew J. Igoe, supra, in which he acquiesced, 1946-2 C.B. 3. In the Estate of Andrew J. Igoe, supra, this Court held upon the evidence adduced in that proceeding that proportionate amounts of estate income for 1941 were properly credited to Alma Igoe, and John Francis Igoe, as beneficiaries of the estate of Andrew J. Igoe in 1941. Under the provisions of section 162(c) of the Code, estate income which is properly credited during a year to a legatee or beneficiary is deductible by the estate in the fiduciary income tax return of the estate, ‘but the amount so allowed as a deduction shall be included in computing the net income of the legatee heir, or beneficiary.‘ Unless the evidence in these proceedings establishes the ultimate fact that the 1941 income of the estate, in the correct proportionate amounts, was not properly credited in 1941 to each of the petitioners in these proceedings, on the books of the estate, which findings of fact would be contrary and opposed to Findings of Fact made in Estate of Andrew J. Igoe, supra, it follows under the provisions of section 162(c) that each of the petitioners is required by the mandatory clause in section 162(c) to include in his (and her) net income for 1941 the amount of the estate income for 1941 which is in dispute in these proceedings.
The question presented is chiefly a question of fact and in this respect, all of the evidence in these proceedings has been carefully and diligently examined. However, the question to be decided is, in part, a question of law, involving interpretation of section 162(c), and this aspect of the question is largely controlled by Commissioner v. Stearns, 65 F.2d 371.
The authorities which have been cited by both parties have been considered. Many of the cases cited by the petitioners are distinguishable on their facts, namely, Carrie G. Cox, 31 B.T.A. 819; Garrett J. Donnelly, 31 B.T.A. 577; Estate of C. R. Hubbard, 41 B.T.A. 628; Estate of B. Brasley Cohen, 8 T.C. 784; Guitar Trust Estate, 34 B.T.A. 857. It is unnecessary for us to point out the differences in the facts as between these proceedings and the above cited cases.
It is a fact that the estate in question had net income in 1941, and that all of the net income was credited, in the books of account of the estate, to the five residuary legatees in amounts proportionate to their respective interests in the estate. The question presented by the issue raised in these proceedings is whether the credits to these petitioners in 1941 constituted a true crediting of income effective in making the income so credited to each petitioner available to each, or distributable to each. Upon consideration of all of the evidence adduced in these proceedings, it has been found as a fact that the estate income in question was ‘properly credited‘ to each petitioner within the scope of section 162(c). This finding and conclusion finds support in these circumstances and facts: There is no credible and substantial evidence that the credits of income were sham, or were intended to be ineffective for the purposes of distribution, or were made with an intramural understanding that income so credited was neither available nor distributable. It is the testimony, in substance, of the coexecutors, Peter and James Igoe, that they understood that the crediting of income to the legatees represented making the income available and distributable to the distributees and legatees. This testimony refutes any suggestion that the credits were a sham, or were part of some device or sub rosa understanding that no distributions of income could be made based upon the crediting of income to the legatees.
Furthermore, the coexecutors held in the estate assets having a total value substantially in excess, in 1941, of the then unpaid obligations of the estate which consisted chiefly of estate taxes. We understand, nothing in law or fact to the contrary having been shown, that the unpaid obligations of the estate in 1941 were charges which could be satisfied out of estate principal and did not have to be paid out of the accumulated estate income. There is evidence that during the course of administration the coexecutors sold, from time to time, principal assets for cash, and there is before us testimony of James and Peter Igoe that during 1941, after the credits were made, they, as coexecutors, were in a position to make distribution of the sums credited in 1941 to the accounts of these petitioners. The preponderance of the evidence establishes that the estate income in question could have been properly paid in 1941 to these petitioners, and ergo, that it was properly credited to them; and no law of New York has been cited which would make payment of the income, or crediting, unlawful. Cf. Simon v. Hoey, 88 F.Supp. 754, affd. 180 F.2d 354.
It is our conclusion upon the evidence that the credits of the 1941 estate income to the respective accounts of these petitioners put the income in question beyond the executors' recall, that they constituted valid and effective accounts stated between these beneficiaries of the estate and the executors, Commissioner v. Stearns, supra, and that the 1941 income in question was properly credited to each of the petitioners.
In the course of arriving at this conclusion, we have taken into consideration all of petitioners' contentions and arguments. Two of them warrant particular mention. The petitioners argue that no distribution has ever been made to them of the proportionate amounts of the 1941 estate income credited to them. That contention is rejected as unsound and unfounded in fact. The petitioners by entering into the Settlement Agreement of November 21, 1941, agreed to accept the distributions therein provided in full satisfaction of all of their claims against the estate with respect to both principal and income. And, it is observed, that the decedent specified in his will that distributions to legatees could be made by the executors in kind or in cash, or partly in kind and partly in cash. In the Settlement Agreement, Alma Igoe agreed to take both cash and property, and under the Supplemental Agreement she realized cash for securities, as did, also, John Francis. We think it is clear that the provisions of the Settlement Agreement were separate and apart from the previously made credits of income to the accounts of the petitioners, which were made on or as of May 31, 1941, that nothing in the Settlement Agreement vitiated or set aside the credits of income on the books of account to these petitioners, and that by operation of the terms of the Settlement Agreement, the petitioners, in fact, received distribution of the 1941 estate income which was credited to them.
The petitioners, particularly Alma Igoe, contend that they had no knowledge in 1941, of the crediting of the 1941 income to them, and they argue from that, that there was no proper crediting of income to them in 1941 within the intendment of section 162(c). This contention taxes our credulity because the petitioners were represented by an attorney, Keller, throughout 1941, and he was in contact with James and Peter Igoe, at least in the preparation of the Settlement Agreement. If the petitioners, albeit one of them was executrix of the estate, were inclined to abstain in 1941 from making certain whether their shares of 1941 estate income were credited to them, as had been done by the coexecutors in 1940, nevertheless they cannot succeed in avoiding the impact of the mandatory clause in section 162(c) which requires that they include in their net income, income of the estate which was properly credited to them by the estate. Their professed ignorance in the matter is not convincing for it is not likely that, according to standards of reasonableness and prudence, the petitioners did not ascertain all facts about their shares in the principal and income of the estate during the course of preparing and agreeing upon the terms of the Settlement Agreement, if not themselves, then through Keller, their attorney and brother. Alma Igoe was, during 1941, executrix of the estate and is chargeable with knowledge of the administration of the estate unless she was derelict in her duties, which she does not admit, and which we will not assume. Although Alma Igoe's relationship with her coexecutors was strained during 1941, there is no evidence that either she or her attorney Keller was refused access to the books of the estate. To accept as having merit, the bald assertion of the petitioners that they were wholly ignorant of the crediting to their accounts of the estate income in question, would result in approval of an easy method of avoiding compliance with the requirement of section 162(c) that beneficiaries include in their income, income properly credited to them.
The respondent's determinations are sustained.
Decisions will be entered for the respondent.