*2368 1. Where payment of expenditures deductible under paragraph (1) of section 403(a) of the Revenue Act of 1921 was made from previously taxed property, although there was at all times sufficient property in the present estate other than previously taxed property to meet payment of all such expenditures as made, held that the deduction allowable under paragraph (2) of said section for previously taxed property should not be reduced to any extent on account of deductions allowable under paragraph (1).
2. The amount of additional deductions allowable under section 403(a)(1) of the Revenue Act of 1921 determined.
*616 This proceeding is for the redetermination of a deficiency in estate tax of $8,354.29. The petition alleges error in the respondent's determination of the amounts allowable as deductions for (1) executor's commissions, (2) attorney's fees, (3) miscellaneous administration expenses, (4) property identified as having been taxed within five years. A stipulation submitted by the parties at the hearing has eliminated all of the issues*2369 except that involved in No. (4).
FINDINGS OF FACT.
Charles J. Tagliabue died testate and a resident of the State of New York on November 2, 1922, leaving personal property of the cash value of $634,846.34. A portion of this was property identified as having been received by bequest from the decedent's sister, Clara L. Tagliabue, who died August 1, 1922, and upon whose estate the Federal estate tax was paid. The value placed by the respondent on such identified property in determining the gross estate of Clara L. Tagliabue and the extent that the value of such property was included in the gross estate of Charles J. Tagliabue was $67,049.39. *617 The respondent allowed $27,703 of this amount as a deduction for property identified as having been taxed within five years, but refused to allow the remainder, $39,346.39. The $39,346.39 was used by the petitioners to pay claims against the decedent's estate and for which deductions were allowed in determining the net estate.
The net inventory value of the personal property at the death of Charles J. Tagliabue in excess of property identified as having been taxed within five years and property specifically bequeathed to*2370 the trustees under a trust created by the will was $446,624.72. While a portion of the property was sold at the value at which it was inventoried the following items of property were not sold:
| Inventory value | |
| Entire capital stock Charles J. Tagliabue Manufacturing Co | $360,000 |
| Mortgage certificates Suffolk County Land Co | 10,000 |
| Sundry other assets | 20,000 |
| 390,000 |
The capital stock of the Charles J. Tagliabue Manufacturing Co. was entirely owned by the estate at all times after the decedent's death, and in June and July, 1923, and before any property identified as having been taxed within five years had been used for the payment of debts, the executors received an offer in cash of $425,000 for the stock from a person financially able to complete the sale. The executors considered selling the stock at this price but as the will provided that they could operate the business for the benefit of the decedent's family and of certain employees, and as the family and such employees strenuously objected to the sale of the stock, the executors finally concluded to hold it, operate the business and use for the payment of debts other property of the estate including*2371 previously taxed property from the estate of Clara L. Tagliabue.
At the time of the death of Charles J. Tagliabue the mortgage certificates of the Suffolk County Land Co. were and since have always been salable for $10,000, the executors having had a continuing offer to purchase them at that amount. The sundry other assets were also worth their inventory value.
The net cash value of the personal property in excess of the previously taxed property and property specifically bequeathed has been sufficient at all times to pay all indebtedness against the estate.
In determining the deficiency here involved the respondent determined the gross estate to be $760,546.61, the total deductions to be $339,423.34 and the net estate $421,123.27.
In addition to the amounts previously allowed by the respondent as deductions for such purposes the petitioners are entitled to the *618 following amounts as deductions in determining the amount of the net estate:
| Executor's commissions | $9,715.09 |
| Attorneys' fees | 17,500.00 |
| Miscellaneous administration expenses | 7,280.70 |
OPINION.
TRAMMELL: The issues raised by the petition with respect to the amounts allowable as*2372 deductions for executor's commissions, attorneys' fees and miscellaneous administration expenses were disposed of by a stipulation submitted by the parties at the hearing, in which it was agreed that the additional amounts set out in our findings of fact are allowable in determining the amount of the net estate.
The remaining issue is whether the respondent erred in refusing to allow as a deduction $39,346.39 of the amount claimed by the petitioners for previously taxed property.
The petitioners contend that as the actual value of the decedent's gross estate after deducting therefrom the value of previously taxed property, largely exceeded the funeral expenses, administration expenses, debts, claims and other deductions allowable by statute, they are entitled to a deduction of the entire value placed on the previously taxed property by the respondent in determining the value of the gross estate of the prior decedent.
The respondent contends that he did not err in refusing to allow the amount of $39,346.39 as a deduction for previously taxed property, since that amount of the previously taxed property was used to pay claims against the estate which he has allowed as deductions*2373 in determining termining the net estate.
Section 403 of the Revenue Act of 1921 provides in part as follows:
That for the purpose of the tax the value of the net estate shall be determined -
(a) In the case of a resident, by deducting from the value of the gross estate -
(1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness in respect to, property * * * as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not including any income taxes upon income received after the death of the decedent, or any estate, succession, legacy, or inheritance taxes;
(2) An amount equal to the value of any property 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 where such property can be identified as having been received by the decedent from such prior decedent by gift, bequest, device, or inheritance, or which can be identified as having been acquired in exchange for property so received: Provided, That this deduction shall be allowed*2374 only where an estate tax under this or any prior Act of Congress was *619 paid by or on behalf of the estate of such prior decedent, and only in the amount of the value placed by the Commissioner on such property in determining the value of the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate and not deducted under paragraphs (1) or (3) of subdivision (a) of this section. This deduction shall be made in case of the estates of all decedents who have died since September 8, 1916;
(3) The amount of all bequests, legacies, devises, or transfers, * * * to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, or to a trustee or trustees exclusively for such religious, charitable, scientific, literary, or educational purposes. This deduction shall be made in case of the estates of all decedents who have died since December 31, 1917.
*2375 In , funds of the estate derived from the sale of previously taxed property were commingled with funds derived from other sources and expenditures deductible under paragraph (1) of section 403(a) were made therefrom. The funds from other than previously taxed property were insufficient to meet all such expenditures as made, but the present estate at the death of the decedent and at all times thereafter was of sufficient value to cover all charges against it deductible under paragraphs (1) and (3) of section 403. In holding that the deduction allowable under paragraph (2) of section 403 for previously viously taxed property should not be reduced to any extent on account of deductions allowed and allowable under paragraph (1), we said:
It seems clear that the purpose of the changes indicated was to prevent, among other things, the allowance of a double deduction for the same value or property, as in some cases might have occurred under the 1918 Act. This conclusion is supported by a consideration of the legislative history of section 403. * * *
If such, then, was the Congressional intent, the deduction*2376 under paragraph (2) of section 403(a) for prior-taxed property should be an amount equal to the full value at which the property was included in the gross estate for the prior decedent and in the gross estate of the present decedent, subject to be reduced only to the extent that the allowance of such amount would result in a double deduction by reason of deductions allowed under paragraphs (1) and/or (3) for the same value.
If the value of the present estate which came into the hands of the executor at the time of the decedent's death was sufficient in amount to cover all expenditures deductible under paragraphs (1) or (3), a double deduction would not result from the allowance under paragraph (2) of an amount equal to the value at which the prior taxed property was included in the gross estates of the prior and present decedents. The statute deals with values and not with specific, earmarked pieces of property. , and authorities cited. See also .
*620 In considering the question again in *2377 , we said:
In , we held that the provision in section 403(a)(2) which prescribes that the deduction with respect to property received from a prior decedent is limited to amounts not deducted under paragraphs (1) or (3) of subdivision (a), was inserted by Congress for the purpose of preventing a double deduction; that a double deduction did not result when the estate of the decedent received from sources other than the prior decedent was greater in value than the deductions permitted by paragraphs (1) and (3); and that when the estate of decedent received from sources other than the prior decedent was in value in excess of the amount of the deductions under paragraphs (1) and (3), the whole of such deductions should be taken from such part of the estate, regardless of from what sources such items was paid.
The rule laid down in , was also followed in *2378 and in . Also, see , wherein our decision in , was cited with approval.
In the instant case there is no controversy as to the $67,049.39 being the amount or value of the property identified as having been received from the prior decedent, or being the amount of the value placed by the respondent on such property in determining the value of the gross estate of the prior decedent and the extent that the value of such property is included in the decedent's gross estate. Neither is there any controversy as to $39,346.39 of the $67,049.39, so identified, having been used by the petitioners in payment of debts against the decedent's estate which were claimed and allowed as deductions from the gross estate under paragraph (1) of section 403(a) of the Act. The issue therefore is squarely presented.
Although the petitioners used previously taxed property in the amount of $39,346.39 to pay claims against the estate, the facts show that the unsold*2379 personal property of the estate from other sources out of which such claims could have been paid had a value of at least $390,000 or several times the amount of the indebtedness paid. Applying the rule in , followed by us in later cases, to the instant proceeding, we think that the petitioners are entitled to have as a deduction under paragraph (2) of section 403(a) for previously taxed property the amount of $39,346.39 disallowed by the respondent.
Counsel for respondent in his brief calls attention to the language used in , wherein the court affirmed our action in the case at , with respect to our holding that the amount allowable as a deduction *621 for previously taxed property should not be reduced by the amount allowable as deductions under section 403(a)(1) and (3) or any part thereof where one bank account was maintained in which was deposited funds received from the sale of previously taxed property and funds received from other sources and payments were made therefrom which give rise to deductions under section 403(a)(1) *2380 and (3), provided the funds from sources other than previously taxed property were always sufficient to pay the amounts allowable as deductions under section 403(a)(1) and (3).
While the language of the court might indicate that if it had been called upon to decide the issue presented in the instant case its decision would likely be other than ours, we think our decision here is in conformity with the intent and purpose of section 403(a)(2) as indicated by the legislative history thereof. It is accordingly our opinion that the Commissioner was in error in refusing the deduction in question.
Reviewed by the Board.
Judgment will be entered under Rule 50.