*2216 1. A commission received in connection with the sale of some real estate was not income from a trade or business, the sale having been an isolated transaction.
2. The Commissioner's determination that a commission for services as an executor awarded by a court in 1907 but received in part in 1917, was as to such part taxable income for 1917, approved, where the evidence does not indicate that a part or all of the payment was not an increment since March 1, 1913, in the value of the right to receive the commission.
*956 The Commissioner determined a deficiency of $73,021.29 in the petitioner's income tax for the calendar year 1917. The petitioner alleges that the Commissioner erred (1) in failing to recognize that the collection of any deficiency in tax for the year 1917 is barred by the statute of limitations; (2) in holding that part of the distribution received during the year 1917 from the United Thacker Coal Co. was taxable as income; (3) in computing an excess-profits tax on a commission of $400,000 received*2217 in the year 1917 on the sale of coal property for the United Thacker Coal Co. and (4) in computing income and excess-profits tax on a commission of $12,500 received in the year 1917 as executor of the estate of Augustus Kountze, deceased.
FINDINGS OF FACT.
Luther Kountze was an individual who died April 17, 1918, at the age of 76. T. Irving Hadden is an executor of his estate. On May 1, 1918, an income and profits-tax return for Luther Kountze for the year 1917 was filed. An amended return for this same year was filed on December 30, 1918. On April 28, 1926, a deficiency notice was mailed to T. Irving Hadden, Executor, Estate of Luther Kountze, which was the final determination of a deficiency for the year 1917. This notice denied the petitioner's claim in abatement. The taxes in controversy were assessed before June 2, 1924, but were not paid in full before that date.
In the latter part of December, 1917, Luther Kountze owned 11,145.155 shares of the common capital stock of the United Thacker Coal Co. By a distribution made December 22, 1917, he received $835,865.63 from the United Thacker Coal Co. as a distribution with *957 respect to his shares. The Commissioner*2218 included in his taxable income for 1917 the sum of $295,145.99, representing that portion of the total distribution which represented a distribution of profits. The above mentioned distribution was declared at a directors' meeting on December 21, 1917.
This case was heard with the case of Annie P. Kountze, Docket No. 11878, and the findings of fact in that case set forth under paragraphs 3, 4, and 5 inclusive, are incorporated herein.
Augustus Kountze, a brother of Luther Kountze, died in 1892. Luther Kountze was one of the three original executors of his brother's estate who qualified shortly after Augustus died. Luther continued to be an executor of his brother's estate until his death in 1918. On June 20, 1907, a surrogate's decree was entered in connection with the estate of Augustus Kountze. This decree set forth that Luther Kountze and Charles B. Kountze had made application for the judicial settlement of the account of themselves and of Herman Kountze as executors of the last will and testament of Augustus Kountze to November 20, 1906, and that the condition of the said account to May 13, 1907, was found to be as set forth in the following summary statement thereof*2219 made by the said surrogate as judicially settled and adjusted by him to be recorded with and taken to be a part of the decree, to wit:
| The said Executors are charged as follows: | ||
| With amount of Inventory | $1,095,681.05 | |
| With amount of Increase as shown by Schedule A of the Account | 1,868,239.02 | |
| 2,963,920.07 | ||
| The said Executors should be credited as follows: | ||
| With amount of losses on sales as per Sched. B. of Account | $308.48 | |
| With amount of Schedule C of Account | 212,200.11 | |
| With amount of Schedule D of Account | 120,081.23 | |
| With amount of Schedule E of account | 2,572,239.57 | |
| 2,904,829.39 | ||
| leaving a balance of | 59,090.68 |
Consisting of Assets, Property and Cash, as set forth in Schedule H of the Account, as follows:
| Kentucky Coal Company stock: | |
| 769 shares, par value $100 each. | |
| Inventoried at | $5,000.00 |
| Mexico & Oriental Stock: | |
| 15 shares, par value $100 each. | |
| Inventoried of nominal value. |
Kennebec Mining Company Stock received in Exchange for 4.800 shares.
Orphan Boy Mining stock, Par value $50 each, inventoried of nominal value.
Kingston & Pembroke Iron Company stock. Inventoried nominal value.
16,900 shares Jason Gold*2220 Mining Company stock, par value $1 each.
Not in inventory.
Land contracts on Western lands:
Ringwald, not in Inventory.
S. Otis not in Inventory.Rev. P. Docharty not in Inventory.
| $6,000 Atchison, Topeka & Santa Fe R.R. Gen Mtge. 4% bonds, purchased by Executors, at | $5,901.25 |
| Cash | 298.13 |
| Furniture &c., in House No. 238 Madison Avenue, New York City, inventoried in the aggregate at | 23,691.80 |
| Paintings &c., in house No. 238 Madison Avenue, New York City, inventoried in the aggregate at | 24,200.00 |
| By the terms of the will of the decedent his widow, Mrs. CatharineKountze is given the use for life of the aforementioned furniture, &c., paintings &c.; After the expiration of said life estate said property is to become a part of decedent's residuary estate. | |
| The following securities are now held by the Trustees for Catharine Kountze, the widow of testator, upon the trusts created for her benefit by the will of decedent, viz: - | |
| 1000 shares Colorado National Bank of Denver, Colorado; | |
| 1000 shares First National Bank of Omaha, Nebraska; | |
| After the termination of the said trusts said securities become a part of testator's residuary estate. | |
| Total | 59,090.68 |
*2221 *958 The decree further set forth that the account was thereby judicially settled and allowed, and that the surviving executors, viz, Luther Kountze and Charles B. Kountze were each entitled to commissions on this accounting amounting to and fixed at the sum of $27,297.19, and that the estate of Herman Kountze, the deceased executor, was entitled to commissions on this accounting amounting to and fixed at the sum of $27,248.44, the same being one-half commissions for receiving all sums of money as shown by the account up to the 20th day of November, 1906, and one-half commissions for paying out all sums of money as shown by the account of said date, on account of which commissions each of said surviving executors and the deceased executor in his life time received the sum of $6,592.25, thereby leaving a balance of commissions on this accounting to which each of the surviving executors was entitled, the sum of $20,704.94, and the balance of said commissions to which the estate of the deceased executor was entitled, the sum of $20,656.19. The said decree further set out that it appeared from the account that the surviving executors and the deceased executor had distributed*2222 to the several parties entitled to distribution under the will of the testator, the moneys and property which came into their hands, the greater part of which had been *959 distributed within a few years of the testator's death, without retaining their commissions, excepting the said sum of $6,592.25, and without retaining moneys on hand to pay their commissions as therein allowed, and by reason thereof there were not then sufficient moneys or assets in the hands of the said surviving executors which were presently applicable to or available for the purpose of paying said commissions, and it further appearing from the account that further property was to come into the hands of the executors out of which the commissions could be paid, it was ordered that the surviving executors out of the moneys and property then in their hands or which might thereafter come into their hands or the proceeds of sales of any such property, each should retain a sum of $20,704.94 and pay to the estate of Herman Kountze the sum of $20,656.19.
On September 19, 1913, a surrogate's decree was entered in the estate of Augustus Kountze, approving the account of Luther Kountze as surviving executor of*2223 the last will and testament of Augustus Kountze, deceased, from the 13th day of May, 1907, to the 1st day of February, 1913. In this decree the surrogate made a summary of this account as indicially settled and allowed as follows:
| The said surviving Executor is charged as follows: | |
| With amounts on hand May 13th, 1907 as per decree dated June 20th, 1907 | $59,090.68 |
| Capital received, as per Schedule "A" | 15,353.91 |
| Income received, as per Schedule "B" | 1,535.65 |
| 75,980.24 | |
| The said surviving Executor should be credited as follows: | |
| With expenses, as per Schedule "C" of account | 14,476.72 |
| Leaving a balance of | 61,503.52 |
This decree also allowed Luther Kountze, as sole surviving executor, an additional fee of $126.82, and also allowed the estate of Charles B. Kountze, deceased executor, a commission of $89.63, being a commission for receiving and paying out money up to the 18th day of November, 1911. It further decreed that Luther Kountze be discharged from all liability respecting all money embraced in the account except the balance of $61,226.82 which he was to retain in accordance with the terms of the will subject to the deductions for commissions allowed in*2224 this and former accounts, if any.
Luther Kountze received $2,000 of his commission as executor of Augustus Kountze on or about August 28, 1907. He received $2,000 on or about March 7, 1914. In 1917 he received $10,000 and $2,500, or a total of $12,500, on account of his commission in this estate. The estate was finally settled about 1920. The Commissioner subjected the $12,500 received by Luther Kountze to income and profits taxes in 1917 in computing the deficiency in controversy.
*960 Luther Kountze was a senior member of a partnership, consisting of himself and a number of his brothers, known as Kountze Brothers. This firm was formed about 1871 and thereafter conducted a private banking business. One of the partners had a seat in the New York Stock Exchange, but the firm did not act as stockbrokers transacting business on the floor of the exchange. Luther Kountze regularly attended to his business in connection with this firm and was active in that business up to the time of his death. He engaged in but one transaction for the sale of real estate on a commission. The one transaction of this kind which he did engage in was the sale of a large part of the property*2225 of the United Thacker Coal Co. to the United States Coal & Coke Co., which sale was consummated on or about September 17, 1917. The firm of Kountze Brothers never acted as brokers in real estate transactions. In the latter part of 1916 Luther Kountze got in touch with L. E. Johnson, president of the Norfolk and Western Railway, in regard to the possible sale of the United Thacker Coal Co. property by Johnson. Thereafter, on January 13, 1917, the board of directors of the United Thacker Coal Co. authorized Luther Kountze to negotiate for the sale of the property at a certain price and to employ assistants. Thereafter, Johnson sold the property, receiving $500,000 for his services, and in 1917 Luther Kountze received $400,000 as part of a commission of $600,000 which was paid him by the United Thacker Coal Co. for his services in selling the property. The property, consisting of about 39,000 acres, was sold to a subsidiary of the United States Steel Corporation, with whom negotiations for the sale had been made principally by Johnson. Johnson had frequent conferences with Luther Kountze in regard to the proposed sale, including arrangements for an examination of the property by*2226 representatives of the purchaser and the mining of certain carloads of coal for shipment to the United States Steel Corporation for test purposes.
The amount of $400,000 received by Luther Kountze in 1917 was subjected by the Commissioner to income and excess-profits taxes of 1917 when computing the deficiency in controversy. It was not income from a trade or business carried on by Luther Kountze.
OPINION.
MURDOCK: There is no deficiency in this case, due to the bar of the statute of limitations. The reasons for this are more fully set out in the companion case to this one, Annie P. Kountze, decided this day. The difference in dates of the filing of the return and of the Commissioner's final determination make no material difference in the two cases. In principle they are the same.
*961 In this case as in the Annie P. Kountze case, counsel for the petitioner asked for a decision on the merits, even though we held that the statute of limitations barred the determination and collection of the deficiency.
For the same reasons as set forth more fully in the Annie P. Kountze case, we can not hold that the Commissioner erred in holding that certain portions*2227 of the distribution received by Luther Kountze from the United Thacker Coal Co. in 1917 were of income and profits accrued since March 1, 1913.
During the year 1917 Luther Kountze received $400,000 as a commission for the sale of part of the real estate of the United Thacker Coal Co. The evidence discloses that he was not in the real estate business and that this transaction was an isolated one so far as he was concerned as an agent. Only income received from a trade or business is subject to the war-excess-profits tax. ; ; ; . The sum received by Luther Kountze was not income from his trade or business and was not properly subjected to the war-excess-profits tax.
He also received $12,500 in 1917 as a commission for services as an executor of the estate of his brother. The award was made by the court in 1907, but the evidence fails to show the value on March 1, 1913, of his right to receive this commission. From an examination of the account as approved by the*2228 court, it would appear that the award was not worth face value in 1913 because there were not sufficient funds then available to pay the various commissions awarded by the court. The principal items in the balance charged to the executors were pictures and household furnishings charged with a life estate. We do not know when this life estate might have been expected to cease and release the articles for disposition by the executors. To the extent that the payments in 1917 represented an increment in value after March 1, 1913, of the right to the award, Kountze surely received taxable income. Not knowing the amount of the increment, we can not say the payments were not subject to tax. These amounts were not, however, income from his trade or business and were not subject to the war-excess-profits tax.
Reviewed by the Board.
Judgment will be entered under Rule 50.
GREEN did not participate.