
    EDWARD A. FAUST v. THE UNITED STATES
    [No. E-405.
    Decided May 28, 1928]
    Oni the Proofs
    
    
      Income and excess-profits tames; date of payment of executor’s statutory fee; constructive receipt. — Where the ádministration of an estate was practically completed at the end of the year 1914, but a coexecutor’s statutory fee, due to disagreement among the executors and a beneficiary, was not paid to him until the year 1917 nor prior thereto set apart or directed by the executors or the court to be paid, although in 1914 there were sufficient assets in the executors’ hands to have paid it, there was no constructive receipt thereof in 1914 and it was properly taxable as a part of the coexecutor’s income for 1917.
    
      Same; executor of estate; trade or business. — The executor of an estate, who does not make his activities as executor his trade- or business, is not subject to the excess-profits tax, or the tax of 8 per cent on net income not derived from invested capital, applicable under the income tax laws to a trade or business.
    
      The Reporter’s statement of the case:
    
      Mr. Spencer Gordon for the plaintiff. Covington, Bur-ling ds Rublee were on the brief.
    
      Mr. Dwight E. Rover, with whom was Mr. Assistant Attorney General Mermcm J. Galloway, for the defendant.
    
      The court made special findings of fact, as follows:
    I. The plaintiff, Edward A. Faust, during the year 1914 and since that time has been a resident of the city of St. Louis, Missouri, and has always been a citizen of the United States.
    II. Adolphus Busch died October 10,1913, and by his will appointed así executors thereof Lilly Busch (his widow), Edward A. Faust, the plaintiff (his son-in-law), and Charles Nagel. Said executors qualified as such and proceeded to administer his estate.
    III. The statutory commission allowed executors by the statutes of Missouri at that time was 5 per cent on the value of the assets and cash distributed. The estate of Adolphus Busch exceeded $30,000,000. During the month of May, 1914, a conference was held for the purpose of determining the fees for the executors, at which were present the three executors, and Mr. August A. Busch, the eldest son of the testator, a trustee of the estate, and as such and personally one of the largest beneficiaries under the will, and it was agreed at that conference that the executors would not claim their statutory commissions but that in lieu thereof Charles Nagel should be entitled to receive $300,000, the plaintiff, Edward A. Faust, $150,000, and Mrs. Lilly Busch nothing. Prior to this conference there had already been paid to the plaintiff on account of such commissions $21,666.61 on or about March 12,1914. After the conference one of the members of the decedent’s family expressed the opinion that the plaintiff, Edward A. Faust, should take no fee for his services as executor, and the plaintiff thereupon agreed by written instrument that he would not take any fee and paid back to the estate the $21,666.61 that he had already received. Later, in November, 1914, on advice of counsel employed by the plaintiff to represent him he repudiated his agreement that he would take no fee and asserted his claim for full commission as executor as allowed by statute. Mrs. Lilly Busch was then in Germany. During her absence the other two executors did not take any action as to the plaintiff’s fee. Mrs. Busch was in Germany at the outbreak of the World War, and owing to war conditions she did not return until 1917.
    
      Mrs Busch, upon her return to the United States in 1917, gave her consent to the payment of $150,000 to the plaintiff, and in February, 1917, this fee was paid to the plaintiff. In 1914, the plaintiff retained counsel to protect his interests and prosecute his claim against the estate of Adolphus Busch, deceased, for fee alleged to be due him as an executor of that estate. Said counsel so represented the plaintiff until payment of the said fee was made in February, 1917, in the sum of $150,000. Foi the service thus rendered, the plaintiff paid the said counsel the sum of $10,000 which was taken as a deduction by the plaintiff and allowed as such by the Commissioner of Internal Revenue in computing the income tax due from the plaintiff for the year 1917.
    IY. Meanwhile payments had been made to the other executor, Mr. Charles Nagel, in conformity with the agreement, totaling $300,000.00. These payments were made during the year 1914. When the payment of $150,000 was made to the plaintiff, Edward A. Faust, in 1917 the sum of $20,192.03 was added as interest on that amount calculated from the dates of payments to Mr. Nagel. During the year 1914 and at time of the conference when the agreement was made, there were sufficient assets in the hands of the executors to have paid the $150,000 fee to the plaintiff, Edward A. Faust, in that year.
    V. The administration of the estate of Adolphus Busch was practically completed by the end of 1914, by which time most of the estate had been distributed to the beneficiaries and to the trustees -named under the will. Prior to November, 1914, the plaintiff’s office had been in the same building as the office of the estate, but in November, 1914, after this feeling arose about this commission he established an office in a different building and thereafter devoted very little time to the affairs of the Busch estate. The trustees, to whom the greater part of the estate had been distributed, practically became the active managers of the estate. From 1914 to 1917 the plaintiff was only required to sign a few papers in connection with the estate. The Final Settlement and Discharge ” in this estate was filed July 6, 1917.
    YI. The plaintiff has never acted as an executor of any other estate except that of his father and mother. For about fifteen years prior to 1914 the plaintiff had been vice president of the Anheuser-Busch Brewing Association and held that office until the fall of 1914, devoting all of his time to the duties of that office until he was appointed an executor of the Busch estate on October 29, 1913. Subsequently and to and including November, 1914, he devoted a large amount of his time to the administration of the said Busch estate. He resigned as vice president of the Anheuser-Busch Brewing Association in November, 1914, when the controversy over this fee arose, and for the remainder of 1914 and to and including the year 1917 his time was occupied as follows: He was general manager of the St. Louis Refrigerator Car Company and received a salary of $5,000 as such during the year 1917. He also was taking care of the assets of his wife resulting from her inheritance from the Busch estate. Mrs. Faust had a large estate and he devoted a great deal of time to its management. He was also director of the National Bank of Commerce, the Laclade Gas, and various other corporations. He also devoted a considerable amount of time to his own personal investments in 1914.
    VII. The plaintiff filed his income and excess-profits tax return for 1917 and paid taxes thereon of $30,468.33 to the United States on or about June 24, 1918. Thereafter, on or about August 2, 1920, the additional amount of $17,241.27 was assessed against the plaintiff as income and excess-profits taxes for the year 1917 and this additional amount was paid to the United States by the plaintiff on or about October 18, 1920, making a total of $47,709.60 income and excess-profits taxes paid by the plaintiff for the year 1917. In determining these income and excess-profits taxes the Bureau of Internal Revenue included as part of the plaintiff’s income for the year 1917 the executor’s fee of $150,000 (less $10,000 attorney’s fee which the plaintiff paid in connection therewith) and the Bureau of Internal Revenue assessed excess-profits taxes on the plaintiff’s income.
    VIII. September 18, 1922, the plaintiff filed a claim for refund of 1917 taxes in the sum of $38,072.67. This amount was disallowed in its entirety by the Commissioner of Internal Revenue June 28, 1923.
    
      IX. The plaintiff has at all times borne true allegiance to the Government of the United States and has not in any way aided, abetted, or given encouragement to rebellion against said Government; he is the sole and absolute owner of the claim herein presented and has made no transfer or assignment of said claim or any part thereof, and he is justly entitled to the amount claimed herein from the United States after allowing all just credits and set-offs.
    The court decided that plaintiff was entitled to recover.
   GheeN, Judge,

delivered the opinion of the court:

Adolphus Busch, a resident of the State of Missouri, died October 10, 1913, and by his will appointed as executors thereof his widow, Lilly Busch; his son-in-law, Edward A. Faust, the plaintiff herein; and Charles Nagel. These executors qualified and proceeded to administer his estate, which exceeded $30,000,000.

The statutory commission allowed executors by the laws of Missouri at that time was 5 per cent of the value of the assets and cash distributed, but at a conference held by the executors and August A. Busch, the eldest son of the testator and one of the largest beneficiaries under the will, in May, 1914, it was agreed that this statutory commission would not be claimed by the executors, but in lieu thereof Charles Nagel should receive $300,000; the plaintiff, Edward A. Faust, $150,000; and Mrs. Lilly Busch, nothing. Prior to the conference, the plaintiff had already received on account of his commission $21,666.67; but after the conference one of the members of the decedent’s family having expressed the opinion that the plaintiff should take no fee for his services as executor, the plaintiff thereupon agreed by written instrument that he would not take any fee and paid back to the estate the amount which he had already received. Later, in November, 1914, on the advice of counsel, the plaintiff repudiated his agreement to take no fee and asserted'a claim for full commission as allowed by the statute. Mrs. Lilly Busch being then absent and in Germany, no action was taken until her return in 1917, when, upon her consent being given to the payment of $150,000 to plaintiff, this fee was paid to him in February, 1917. In the meantime, the plaintiff had employed counsel to prosecute his claim against the estate at an expense of $10,000, which was subsequently taken as a deduction by him and allowed by the Commissioner of Internal Bevenue in computing the income tax due from the plaintiff in the year 1917.

The main issue in the case is whether this fee of $150,000 was taxable in the year 1914, when the original agreement was made between him and the other executors that he would accept this sum of $150,000, or in 1917, when it was actually paid to him; and also whether it is subject to an excess-profits tax. There being no excess-profits tax in 1914, the last question will apply only in case it is found that the plaintiff’s fee as executor is taxable in 1917, and this question will first be determined.

It is true that the law contemplates and the regulations provided that income which is credited to the account of or set apart for a taxpayer and which may be drawn upon at any time is subject to tax for the year during which it is so credited or set apart. • Although not then actually reduced to possession, it also appears that there was sufficient assets in the hands of the executors to have paid the $150,000 fee to the plaintiff in 1914, but there is no evidence that this money was at any time set apart to him as a fund for the purpose of paying his fee nor that the executors or the court directed it to be paid. The other executors in fact could have withheld the payment until the time came for the final settlement of the estate if they had seen fit, but beyond all this the plaintiff made payment impracticable by making a statement in writing that he would not accept anything. Subsequently, he repudiated this statement and demanded his full fee. In this situation the other executors declined to take any action until Mrs. Busch, who was absent in Europe, returned. Finally, in 1917, the matter was settled by paying the plaintiff the sum he had originally agreed upon, namely, $150,000, together with interest thereon in the sum of $20,192.03, being computed from the dates when payment was made to his coexecutor Nagel. Under these circumstances, we think it clear that there was no constructive receipt of this fee in 1914 and that it was properly taxable as a part of his income for the year 1917.

The next question is whether this fee was subject to an excess-profits tax. The report of the special agent, which reviewed the plaintiff’s tax return for 1917, shows that this fee of $150,000 was not only included as part of plaintiff’s income for that year but was assessed under the provisions of the excess-profits act of 1917, which applied to profits made in a trade or business, and where there was no invested capital required the payment of a tax of 8 per cent of the net income of such trade or business.

The Treasury regulations (article 8, 'Regulations 41) construe the term “ trade or business ” as an activity for gain or profit entered into with sufficient frequency, or occupying such a portion of the taxpayer’s time or attention as to constitute a vocation. But the regulations also state that “ Gains or profits from transactions entered into for profit, but which are isolated, incidental, or so infrequent as not to constitute an occupation ” are not subject to excess-profits taxes.

There is nothing in this case that would bring this fee within the scope of these regulations. An examination of Finding VI will show that his service as executor was “ isolated ” and “ incidental ” to his other activities, which as shown by Finding VI were very numerous; but neither before nor since has he ever acted as the executor of any other estate except that of his father and mother. It may be difficult to name any particular business as being that of the plaintiff, and his other occupations would not prevent his giving considerable time from May to November, 1914, to his duties as executor, but there is nothing in the evidence to show that the principal part of his time was occupied w,ith this business. In fact it would be a fair inference, taking into consideration the numerous other duties which he had, that only a comparatively small part of his time was so used. It is quite plain that being an executor did not constitute his vocation. It was not his profession or anything that he held himself out as prepared to do. See Cadwalader v. Lederer, 273 Fed. 879; affirmed by the Circuit Court of Appeals in 274 Fed. 753.

The plaintiff’s income tax for 1917 should have been computed by including the executor’s fee (after deducting the attorneys’ fee paid in connection therewith) in the gross income of the plaintiff, but it should not have been assessed with the excess-profits tax. When so computed, the plaintiff is entitled to recover the difference between the amount with which he was properly taxable and the amount actually paid by him for that year.

It seems to have been assumed by plaintiff that the overpayment under the rule laid down would be the amount of the excess-profits tax, to wit, $11,184, but the proof is not sufficient to show the correct amount of the refund. An examination of the report of the Government’s special agent, offered in evidence, shows that the amount of the excess-profits tax assessed was deducted in order to ascertain plaintiff’s net income. The evidence does not show how the computation of the tax was finally made but it is clear that no such deduction should be made. In order to ascertain the refund to which plaintiff is entitled the correct amount of his tax must first be computed in accordance with the rules laid down in this opinion. As there is not sufficient evidence to enable this to be done, the cause will be remanded to the general docket for further proof, and when the amount of the refund is determined judgment will be entered accordingly. It is so ordered.

Moss, Judge; Graham, Judge; and Booth, Chief Justice, concur.  