
    JOHN J. MITCHELL AND AUGUSTINE L. HUMES, SURVIVING EXECUTORS OF THE LAST WILL AND TESTAMENT OF DELLORA R. GATES, DECEASED, v. THE UNITED STATES
    
    [No. C-1279.
    Decided March 23, 1925]
    
      On the Proofs
    
    
      Income tax refund,; Federal estate taxes deductible. — See Woodward et al., etc., v. United States, 56 C. Ols. 133.
    
      The Reporter's statement of the case :
    
      Mr. A. L. Humes for the plaintiffs. Mr. Stafford Smith and Humes, Buck c6 Smith -were on the briefs.
    
      Mr. Thomas H. Lewis, jr., with whom was Mr. Assistant Attorney General Robert H. Lovett, for the defendant. Messrs. Roseoe R. Koch, Herman J. Galloway, and Nelson T. Hartson were on the brief.
    The following are the facts as found by the court:
    I. The plaintiffs, John J. Mitchell and Augustine L. Humes, are the surviving executors of the last will and testament of Dellora R. Gates, deceased, the third executor, Charles E. Herrmann, having died since the filing of the petition herein.
    II. The said John J. Mitchell and Augustine L. Humes are citizens of the United States, the said John J. Mitchell being a resident of the city of Chicago, county of Cook, and State of Illinois, the said Augustine L. Humes being a resident of the borough of Spring Lake, county of Monmouth, and State of New Jersey, and each of them having at all times borne true allegiance to the Government of the United States and not in any way aided, abetted, or given encouragement to rebellion against the said Government, or at any time aided or abetted in any manner or given comfort to any sovereign or government that is or ever has been at war with the United States.
    III. Dellora It. Gates was a citizen of the United- States and resided at Port Arthur, Jefferson County and State of Texas, and died at the Hotel Plaza, in the city, county, and State of New York on the 28th day of November, 1918. The said Dellora It. Gates had at all times prior to her death borne true allegiance to the Government of the United States and had not in any way aided, abetted, or given encouragement to rebellion against the said Government, or at any time aided or abetted in any manner or given comfort to any sovereign or government that is or ever has been at war with the United States. .
    IY. The said Dellora II. Gates died leaving a last will and testament with codicil thereto, which will and codicil were duly probated in the county court of Jefferson County, State of Texas, on January 6, 1919, and letters testamentary thereon were issued to said executors by said county court on the 6th day of January, 1919, and the said executors thereupon duly qualified as such, and said appointment of said executors still remains in full force and effect. A certified copy of said last will and testament and codicil thereto and of said letters testamentary are annexed to the petition as Exhibit “A,” and are by reference made a part of this finding. Plaintiffs have been continuously executors of the said estate from the time of the issuance of said letters testamentary down to the time of the filing of the petition herein.
    V. The said Dellora R. Gates in and by said will and codicil made certain money bequests to legatees and made certain specific bequests and devises to certain legatees and devisees, bequeathing and devising to them certain personal and real property, which property was not income-producing and produced no income during the year 1919. All the rest and residue of the property, both real, personal and mixed of every kind and character of which said Dellora R. Gates, deceased, was seized and possessed, was bequeathed and devised by a general legacy and devise by said Dellora R. Gates to trustees in trust, the net income to be paid over as provided in Article “ Fifty-first ” of the said last will and testament. Dellora F. Angelí (now Dellora A. Norris) and Edward J. Baker, the persons named in said Article “ Fifty-first,” were both living at the death of said Dellora R. Gates, and are both living at the present time.
    VI. The said executors, in their capacity as executors of the estate of said Dellora R. Gates, during the year 1919 and prior to the 31st day of December, 1919, collected all the income and earnings on and from the property and assets of the said estate, of Dellora R. Gates, all of said income and earnings collected being collected from stock, bonds, choses in action and personal property, except that $212.15 of said income so collected was collected from real property, and none of said income or earnings was collected from property specifically bequested or devised by said will or codicil of said Dellora R. Gates, deceased. Of said income and earnings so collected by said executors the sum of $15,033.97 was applied by them for the support, education and maintenance of Dellora F. Angelí, in accordance with the provisions of Subdivision “ I ” of Article “ Fifty-first ” of the said last will and testament, and all the remainder of said income and earnings so collected by said executors was used and applied by them in their capacity as such executors in and toward the payment to the United States of the “ estate tax ” (imposed by the act of September 8, 1916, and amendments thereto by the acts of March 3, 1917, and October 3, 1917) and other valid claims or charges against said estate.
    The gross amount of income received by the executors from the said estate for the year 1919 was less than the amount of the said “ estate tax ” paid by them to the United States.
    In conformity with the practice and rules and regulations of the Treasury Department under sections 223-225 of the revenue act of 1918, the said executors, during the year 192o and within the time prescribed by law, and on March 14,1920, made and filed with the collector of internal revenue of Albany, New York, a return of all the income received during the year 1919 by said executors in their capacity as executors of the estate of said Dellora R. Gates-, deceased. In said income tax return said executors did not claim a deduction under the provisions of section 214 of the revenue act of 1918 for the whole or any part of the sum of $2,927,162.64, which was the amount of “estate tax” payable by and chargeable against said estate as shown by the return for “ estate tax ” filed by said executors on or about the 26th day of November, 1919, with the collector of internal revenue for the district in which Port Arthur, Texas, is situated, and of which amount of “ estate tax ” $1,000,000 was paid by said executors to said collector on the 25th day of February, 1920, and the balance of which amount of “ estate tax ” was paid by said executors to said collector on the 27th day of May, 1920. Said executors did not claim a deduction for said amount of “ estate tax ” for the reason that the regulations and rulings of the Commissioner of Internal Revenue and the Secretary of the Treasury, and among others, article 134 of Regulations 45, forbade and refused to allow any deduction of any part of the “ estate tax ” upon the said estate.
    At the time when in the year 1920 the executors made and filed as aforesaid their said return of income received and collected by them as such executors during the year 1919, the regulations and rulings of the Commissioner of Internal Revenue and the Secretary of the Treasury forbade and refused to allow any deduction from said income so received and collected during the year 1919 of any part of the “ estate tax ” upon said estate, and neither the decision of the Court of Claims nor the decision of the Supreme Court of the United States in the case of United States v. Woodward, 256 U. S. 632, had been rendered. The income tax computed upon the amount of income received by said executors as set forth in their said return without making any deduction for “estate tax,” amounted to the sum of $905,225.73. A copy of said income tax return is, together with the instructions printed on the return, annexed to the petition as Exhibit “ B ” and made a part of this finding by reference. The said executors on or about March 15, 1920, made payments, under protest, of the first quarterly installment of the said sum of $905,225.73 in order to avoid the imposition of penalties and interest by the Commissioner of Internal Revenue and the collector of internal revenue at Albany, New York, and to avoid distraint or other summary proceedings or other proceedings for the enforcement and collection of taxes consequent upon the failure or refusal to pay the tax as computed in accordance with the said regulations and rulings. Thereafter pursuant to said regulations and rulings and in accordance with the practice of the Treasury Department in such cases the collector of internal revenue at Albany, New York, made three several demands on the said executors for the payment- of the second, third, and fourth quarterly installments of said tax, respectively. In order to avoid the imposition of penalties and interest by the Commissioner of Internal Revenue and the collector of internal revenue at Albany, New York, and to avoid distraint or other summary proceedings or other proceedings for the enforcement and collection of the taxes consequent upon failure or refusal to pay the tax in accordance with said regulations, rulings, and demands said executors made the payments, under protest, of the second, third, and fourth quarterly installments of the said tax for the year 1919 amounting in the aggregate to a total $678,919.30, which together with the first quarterly installment amounted in the aggregate to a total of the sum of $905,225.73; that the said second, third, and fourth quarterly installments were paid to the collector of internal revenue at Albany, New York, in equal quarterly payments on or about the fifteenth days of June, September, and December, respectively, in the year 1920.
    VII. On January 6, 1922, said executors duly filed an application with the collector of internal revenue at Albany, New York, praying for the refund of all of said income tax for the year 1919 so paid, on the ground that the' “ estate tax ” was deductible in computing said income tax. Said application for refund was in all respects complete, regular, and in due form, but was denied and rejected by the Commissioner of Internal Revenue and the Secretary of the Treasury, who still deny and refuse to pay said executors the money asked for and demanded in said application.
    
      VIII. The said sum of $905,225.73 so paid by said executors as and for a tax as aforesaid was received and is still retained by the United States.
    IX. The said executors in their capacity as such are the sole owners of the claim sued upon herein, and no assignment or transfer of said claim or any part thereof or any interest therein has been made.
    X. No action upon this claim other than as herein set forth has been taken before Congress or other of the departments of the Government or in any court other than the petition filed in this court.
    XI. On or about the 14th day of February, 1923, the Commissioner of Internal Revenue, acting of his own motion and not in respect of any claim filed by the said executors, notified the said executors that the “ estate tax ” paid as aforesaid had been allowed as a deduction in computing the income tax payable with respect to the income of said estate received during the year 1920, and offered to remit the taxes with respect to said income received during the year 1920 so far as said taxes had not been paid, and to refund such part of said taxes as had been paid, but the said executors refused and still refuse to accept such application of said “ estate tax,” or remission or refund of said taxes in respect of income received during the year 1920, or any part thereof, and then demanded and still do demand that said “estate tax ” be allowed as a deduction in computing the tax payable in respect of income received during the year 1919.
    In the income tax return filed in 1920, of income received during the year 1919, as set forth in Finding VI hereof, said executors did not claim any deduction under the provisions of section 214 of the revenue act of 1918 for any inheritance tax, for the reason that the regulations and rulings of the Commissioner of Internal Revenue and the Secretary of the Treasury, and, among others, article 134 of Regulations 45, forbade and refused to allow any deduction of any part of the inheritance taxes upon the said estate.
    XII. During the year 1919 there became due and payable by the executors of the estate of Dellora R. Gates the inheritance tax imposed by the State of Texas, amounting to the sum of $357,739.34, which sum the executors paid to the State of Tesas on the 27th day of May, 1919. By the terms of the will of the said Dellora R. Gates the executors were required to pay said inheritance tax from the residuary estate, which was bequeathed and devised in trust as aforesaid. By the laws of the State of Texas the said executors were required to pay said inheritance tax and were subject to statutory penalties for noncompliance with the said requirement and to liability for said tax. In the income tax return aforesaid the executors did not claim a deduction for the said sum of $357,739.34 for the reason that the regulations and rulings of the Commissioner of Internal Revenue and the Secretary of the Treasury forbade and refused to-allow any deduction for any part of said inheritance tax. Said inheritance tax was paid to the State of Texas on the respective legacies and devises set forth in the will and the amount thereof was paid out of and deducted from the residuary estate.
    XIII. At the time when in the year 1920 the executors made and filed their said return of income received and collected by them as such executors during the year 1919, the regulations and rulings of the Commissioner of Internal Revenue and the Secretary of the Treasury forbade and refused to allow any deduction from said income so received and collected during the year 1919 for any part of any inheritance tax paid upon or in respect of said estate or any part thereof.
    XIV. On January 6, 1922, said executors duly filed an application with the collector of internal revenue at Albany, New York, praying for the refund of said income tax for the year 1919 paid as set forth in Finding VI, on the ground that said inheritance tax paid to the State of Texas was deductible in computing said income tax. Said application for refund was in all respects complete, regular, and in due form, but was denied and rejected by the Commissioner of Internal Revenue and the Secretary of the Treasury, who still deny and refuse to pay said executors the money asked for and demanded in said application.
    XV. The said sum of $905,225.73, so paid by said executors as and for a tax as aforesaid, was received and is still retained by the United States.
    
      XVI. The said executors in their capacity as such are the sole owners of the claim sued upon herein, and no assignment or transfer of said claim or any part thereof or any interest therein has been made.
    XVII. If said inheritance tax paid as aforesaid to the State of Texas had been allowed as a deduction in computing the income tax payable with respect to the income received during the year 1919 as aforesaid, said income tax would have been reduced by the sum of $261,149.72.
    The court decided that plaintiffs were entitled to recover $905,225.73, with interest, less $381,931.57, with interest, for income tax payable in the year 1921 in respect of the year 1920.
    
      
       Apjjcaled.
    
   MEMORANDUM BY THE COURT

This case, in the opinion of the court, is controlled by the decision of the Supreme Court in the case of United States v. Woodward, 256 U. S. 632. The judgment awarded is predicated upon said case.  