ESTATE OF GEORGE RICE, FAE H. RICE, HAROLD M. GREENEBAUM AND Docket No. 6570. Promulgated June 26, 1946. Petitioners' decedent, who died May 26, 1941, acquired through the will of his wife, who died August 12, 1937, and named bim the executor of her estate and sole legatee thereof, certain specified items of real and personal property, the value of which at the time of her death was $72,518.12. Decedent's wife was indebteded to him to the extent of $54,500. Her gross estate was valued at $112,228.10. The decedent duly qualified as executor of his wife's estate on September 13, 1937. No other proceedings in the administration of the estate were taken and no final accounting thereof was ever filed. His debt was not asserted against the estate and was not approved or paid. Held, that under the provisions of section 812 (c), Internal Revenue Code, as amended by section 407 of the Revenue Act of 1942, decedent's estate is entitled to a deduction of $72,518.12 representing the value of items properly identified as having been received by the petitioners' decedent by inheritance. John A. Gage, Esq., for the petitioner. Ellyne E. Strickland, Esq., for the respondent. The respondent determined a deficiency of $2,633.87 in the estate tax liability of the estate of George Rice, deceased. The petitioners claim an overassessment of $832.08, plus an additional credit of $2,778.11 for state taxes paid to the State of New York, or a total overassessment of $3,610.19. The sole issue is the proper amount of deduction allowable for property previously taxed, under the provisions of section 812 (c), Internal Revenue Code, as amended by section 407 of the Revenue Act of 1942. The specific question is whether the decedent acquired certain items of property from the estate of his deceased wife as the sole legatee or as a creditor thereof. FINDINGS OF FACT. The facts were stipulated. The material portions thereof are as follows: George Rice died on May 26, 1941, a resident of the City, County, and State of New York, leaving a last will and testament which was duly admitted to probate in the Surrogate's Court of the County of New York, New York. Under date of July 2, 1941, letters testamentary were granted to the petitioners as executors of the will of George Rice. George Rice was the sole legatee under the last will and testament of his wife, Adele Stern Rice, who died on August 12, 1937. He was also the duly qualified executor of the will of Adele Stern Rice, letters testamentary having been granted to him by the Surrogate's Court of New York County on September 13, 1937. The relevant provisions of the will of Adele Stern Rice (which was executed jointly by George Rice and Adele Stern Rice, husband and wife) are as follows: FIRST: We direct our executors hereinafter named to pay all our just debts, funeral and testamentary expenses. SECOND: All the rest, residue and remainder of our estate, of every nature and description, either real, personal or mixed, and wherever situate, of which we may die seized or possessed, or in which we may in anywise be interested or entitled at the time of the death of either of us, including lapsed legacies, if any, we hereby give, devise and bequeath unto the survivor of us, absolutely and forever. On November 10, 1938, George Rice, as executor, filed with the collector of internal revenue for the third collection district of New York the Federal estate tax return due from the estate of Adele Stern Rice, disclosing a tax liability of $166.08. A deficiency in estate tax of $149.75 was subsequently assessed and paid, making a total Federal estate tax paid of $315.83 on that return. In the estate of Adele Stern Rice there were no debts or liabilities secured by mortgage or other liens which were allowed as deductions in determining the Federal estate tax on her estate. In determining the Federal estate tax on the estate of Adele Stern Rice, there were allowed as deductions all of the items claimed to be deductible as debts of the decedent, listed under schedule K of the estate tax return, as follows: Debts of Decedent Creditor and nature of claim Mt. Sinai Hospital for services_ George Rice-evidenced by two unsecured notes, one dated Dec. 2, Loan to decedent__ Credit on loan__ Balance owing--- Total Amount $46. 60 175.00 35.00 400.00 25.00 $67,500 54, 500 54, 500.00 55, 181. 60 In determining the Federal estate tax on the estate of Adele Stern Rice there were allowed as deductions, in addition to the debts above set forth, the following sums which were claimed to be deductible as funeral and administration expenses, under schedule J: Funeral expenses_ Miscellaneous administration expenses-- Total $2,000. 66 2,000.00 150.00 4, 150. 66 No final accounting was ever filed by George Rice as executor of the will of Adele Stern Rice and there were no other proceedings in the administration of the estate of Adele Stern Rice. Inasmuch as he was the sole legatee under the will of Adele Stern Rice, he received all the assets of her estate not used for the payment of the debts and charges against the estate. The net estate of Adele Stern Rice, the prior decedent, which was received by the present decedent, George Rice, was as follows: The following specific items of real estate, stocks, bonds and mortgages have been properly identified as having been owned by the present decedent at the date of his death and as having formed a part of the gross estate of Adele Stern Rice: 1046 East 24th Street, Brooklyn, New York. 25 shares American Water Works & Electric Co. 10 shares Burns Bros. 7% cum. pfd. 25 shares Irving Trust Co. 20 shares Mangel Stores conv. pfd. 10 shares Mangel Stores common 300 shares Mock, Judson, Voehringer Co. common 5 shares 145 West 188th Street Corporation 100 shares United Corporation. $1,000 Bell Telephone Co. of Pa. 5% 1/1/48 $2,000 Third Avenue Railway Co. 4/60 Mortgages: 1930 Tenbroeck Ave., Bronx 1934 Tenbroeck Ave., Bronx 1938 Tenbroeck Ave., Bronx 1255 Pawnee Place, Bronx 4320 Ely Ave., Bronx 1250 Choctaw Place, Bronx 131-07 225th St., Laurelton-1⁄2 interest. 175 Locust Boulevard, Valley Stream. The foregoing items are determined to have had a value of $93,776.68 upon the date of the present decedent's death and a value of $72,518.12 upon the date of death of Adele Stern Rice. The respondent determined that the estate of George Rice, the present decedent, is entitled to a deduction for property previously taxed in the amount of $52,280.49, which is the value of the net estate received by George Rice as sole legatee of the estate of Adele Stern Rice, the prior decedent. The petitioners contend that they are entitled to a deduction for property previously taxed in the amount of $72,518.12, which is the lower of the two valuations referred to above. OPINION. VAN FOSSAN, Judge: The issue before us is whether certain items of property, assets of the estate of Adele Stern Rice, deceased, specifically described and identified and valued at stipulated figures, were received by George Rice, the decedent in the case at bar, by bequest, devise, or inheritance, or were acquired by him as a creditor of her estate. If he received them by bequest, devise, or inheritance, section 812 (c), Internal Revenue Code (as amended by section 407 of the Revenue Act of 1942)1 is applicable. The respondent defines his position as follows: It is not because the net estate of the prior decedent was valued at $52,280.49 that the respondent has limited to that amount the deduction allowable for property previously taxed. The petitioners are entitled to a deduction in no greater amount for the reason that the decedent did not receive by bequest or devise, as required by Section 812 (c), property of a greater value. The petitioners contend that, as a matter of law in the State of New York, the decedent received the property as a legatee under the 1SEC. 812 NET ESTATE [as amended by section 407 of the Revenue Act of 1942]. For the purpose of the tax the value of the net estate shall be determined, in the case of a citizen or resident of the United States by deducting from the value of the gross estate (c) PROPERTY PREVIOUSLY TAXED.-An amount equal to the value of any property (1) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (2) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. will of Adele Stern Rice, and argue that the debt due to George Rice was never paid by his wife's estate, either by direct payment from such estate or by the application of the specific items in controversy to the payment of his notes. There is no evidence here that the husband's claim and rights against the estate were ever presented, allowed, or paid. On the contrary, there is every indication that he waived all such claims, whatever they may have been. Cf. First National Bank of Portland, 39 B. T. A. 828; A. P. Giannini, 42 B. T. A. 546; affd., 129 Fed. (2d) 638. In the Giannini case we said that "it is elemental that an individual may refuse to enforce a right, forswear a debt due him, or relinquish a claim.” Section 212 of the Surrogate's Court Act of the State of New York provides: An executor or administrator shall not satisfy his own debt or claim out of the property of the deceased until proved to and allowed by the surrogate; and it shall not have preference over others of the same class. The stipulated facts recite that no final accounting was filed by George Rice and no further proceedings were taken to administer his wife's estate. It is obvious, therefore, that George Rice's debt was neither proved to, nor allowed by, the surrogate and was not satisfied out of his wife's estate. This situation clearly leads to the conclusion that George Rice waived his right to the payment of $54,500 loan due from Adele Stern Rice's estate. The specific items in question were properly identified as a part of her estate, were not used to pay the decedent's debt, and their value at the date of her death has been established to have been $72,518.12. Therefore, such items are allowable as deductions from the estate of George Rice in that amount. In further support of the petitioners' position that George Rice took the real estate as sole legatee and not as a creditor of his wife's estate, they cite the fact that no deed was ever executed conveying such real estate to him, as would have been necessary if he had acquired it as a creditor. This fact corroborates the petitioners' claim that George Rice's status was not that of a creditor. The Estate of Ada M. Wilkinson, 5 T. C. 1246, is not contra. In that case the respondent contended "that a legatee who receives property from the decedent's estate before the estate's debts are paid and thereafter pays the debts out of his own funds is the purchaser of the property to the extent of the debts so paid." Debts, taxes, and expenses against the prior estate in the amount of $1,080,961.77 were paid by the decedent therein and the respondent argued that the deduction claimed should be reduced by the above amount. We held that the respondent should prevail. |