*2280 1. Where the evidence shows that a letter written by an executrix requesting assessment of taxes on the income of a decedent in his lifetime has never been found in the files of the Bureau of Internal Revenue, and the evidence is insufficient to establish that the letter was properly addressed and mailed, the presumption that it was received does not arise, and assessment and collection of the taxes are not barred under section 277(a)(3) of the Revenue Act of 1924.
2. The Commissioner did not err in including in the petitioner's income that share of the profits of a partnership to which she was entitled according to the partnership return and which she reported as received in her individual return. Deductions for rent paid by the partnership in 1922 and 1923 allowed. Other deductions claimed for the partnership disallowed.
3. Where income received by an estate is properly included in the estate's gross income and is not permitted to be deducted therefrom and charged to the beneficiary under the provisions of the Revenue Act, such income may never be included in the beneficiary's gross income.
*983 The Commissioner determined deficiencies in income tax as follows:
| Year | Docket | Deficiency | |
| No. | |||
| Louis E. Haag | 1922 | 26941 | $8,084.33 |
| Estate of Louis E. Haag | 1923 | 36290 | 133.12 |
| Elnora C. Haag | 1922 | 26942 | 1,811.18 |
| Do | 1923 | 36292 | 879.38 |
| Do | 1925 | 36292 | 141.58 |
The petitions contain allegations that the Commissioner erred:
(1) In attempting to assess and collect the deficiency in taxes on the income for 1922 of the decedent, Louis E. Haag, (a) after discharge of the executrix of the Louis E. Haag estate, when, at the time of such discharge, she had no notice or knowledge of the tax liability in question, (b) more than one year after written request for determination and assessment pursuant to section 277(a)(3) of the Revenue Act of 1924;
(2) In increasing the taxable net income of the decedent for the year 1922 and of his estate for a part of the year 1923 by disallowing a deduction of $9,000 for rent paid in each year by the Haag Drug Co., of which firm the decedent was a partner;
(3) In increasing Elnora Haag's net*2282 income for 1922 by $13,083.80, which amount was allocated to her as her distributive share of the profits of the Haag Drug Co., and, alternatively, in computing the amount of such profits;
(4) In computing the net income of the Haag Drug Co. for the year 1923 and her distributive share thereof;
(5) In disallowing the Haag Drug Co. certain deductions in the year 1925, thereby increasing her income from the company in that year, and in determining the amount of her net loss in 1924, thus decreasing the deduction to which she is entitled in computing her tax liability for 1925.
To the deficiency for 1925 a 25 per cent penalty was added for the petitioner's failure to file her income-tax return within the prescribed time.
*984 FINDINGS OF FACT.
Elnora Haag was the duly qualified executrix of the estate of Louis E. Haag, who died June 7, 1923. During the year 1922 the decedent resided in Indianapolis, where he was a member of a firm called the Haag Drug Co. For that year he filed an income-tax return reporting taxable net income of $47,951.57, upon which a tax of $6,782.75 was assessed and paid.
Under the will of Louis E. Haag, Elnora Haag was the chief beneficiary*2283 and sole executrix. She was discharged from her duties as executrix prior to November 14, 1924. At that time she had no notice or knowledge of any additional taxes due from the decedent for the year 1922.
On November 14, 1924, she wrote a letter as follows:
NOVEMBER 14, 1924.
COMMISSIONER OF INTERNAL REVENUE,
Income Tax Division, Treasury Department, Washington, D.C.
DEAR SIR: -
RE: ESTATE OF LOUIS HAAG
As Executrix of the Estate of my brother, Louis Haag, who died June 7, 1923. I filed an income tax return.
I have been advised by officials of the local revenue office that before I can be relieved of my responsibilities as Executrix I should request the Commissioner of Internal Revenue to make a final examination and audit of said return and of all tax returns of Louis Haag.
I, accordingly, hereby make formal request of you, as Commissioner, to make a final audit and examination of the tax return which I filed as Executrix of the Estate of Louis Haag, and of the tax returns filed by him prior to his death, upon which any liability might be found to exist against me as Executrix or as Beneficiary of his Estate.
Please consider this letter as my formal*2284 request for a final determination and assessment of any further income tax which may be found to be due the government on income received during the lifetime of the decedent.
Very respectfully yours,
EXECUTRIX OF LOUIS HAAG.
This letter was first written in longhand by the petitioner, after which it was typed by her nephew, now deceased. A copy was made at the time of typing the original.
The notice of deficiency in taxes on the income of Louis E. Haag for the year 1922 was mailed to the petitioner on February 19, 1927.
Counsel for the respondent has been unable to find the original of the letter of November 14, 1924, in the files of the Bureau of Internal Revenue, or any record of its receipt, although on several occasions he has searched all of the official files of the bureau which were entrusted to him in connection with this case. Unsuccessful searches for it have also been conducted by the senior clerk of the records division, whose exclusive duties are to find lost letters and assemble cases.
*985 Louis E. Haag went in the drug business in Indianapolis in about the year 1887. At that time he had two brothers, each of whom conducted a separate drug*2285 store in the same city. About 1895 the three brothers formed the Haag Drug Co. Some time prior to the taxable years in question one of them died or retired, and the active conduct of the business was continued by the other two brothers, Julius and Louis. On May 16, 1922, Julius Haag died. Louis thereafter conducted the business until his death on June 7, 1923.
Under Julius Haag's will all of his property, with the exception of a certain piece of real estate, was bequeathed and devised equally to Louis E. Haag and Elnora Haag, who were also named executors.
No articles of partnership nor written agreements of any kind pertaining to the interest which these parties had in the Haag Drug Co. were ever executed.
While Julius and Louis Haag were living, and were conducting the business, they often discussed its affairs with the petitioner. They thought a good deal of her judgment and often accepted her advice concerning business matters.
During the years 1922 and 1923 the Haag Drug Co. occupied two stores in Indianapolis. The Sentinel Realty Co., as lessee, had leased these properties for 99 years. During the years 1922 and 1923 substantially all of the stock of the latter*2286 company was owned by the Haags. The Haag Drug Co. paid $4,800 and $4,200, respectively, as rent for these stores in each of the years 1922 and 1923. The Commissioner disallowed these amounts as deductions from the company's income in each year.
In the petitioner's income-tax return for 1922 she reported an item of $1,200 received from the Haag Drug Co. as salaries, wages, commissions, etc., and also reported $2,445.45 as partnership income from the same company.
The Haag Drug Co. filed a partnership income-tax return for the same year, reporting net income of $50,218.08. This return allocated the partnership income to its members as follows:
| Louis E. Haag, 1/2 for 4 1/2 months, 3/4 for 7 1/2 months | $27,554.50 |
| Julius A. Haag, 1/2 for 4 1/2 months | 20,218.13 |
| Elnora C. Haag, 1/4 for 7 1/2 months | 2,445.45 |
The Commissioner determined the net income of the Haag Drug Co. to be $83,736.86, and upon the same basis of allocation as used above, computed the petitioner's share thereof to be $13,083.80. In so computing the income of the Haag Drug Co. for 1922 the respondent, in addition to disallowing the $9,000 deduction for rent. disallowed a deduction of $30,000*2287 claimed by the company for other business expenses.
For the year 1923 the Haag Drug Co. filed two partnership income-tax returns, one covering the period from January 1 to June *986 7, the day Louis died, and the other from June 7 to December 31. The first return showed net income of $12,825.93, distributable three-fourths, or $9,619.45, to Louis E. Haag, and one-fourth, or $3,206.48, to Elnora C. Haag. The second return showed a net loss of $21,517.51, distributable three-fourths, or $16,138.13, to the estate of Louis E. Haag, and one-fourth, or $5,379.38, to Elnora C. Haag. In her individual return for 1923 the petitioner deducted as a loss $2,172.90, being the difference between her share of the loss and her share of the gain of the Haag Drug Co. for the full calendar year 1923. The Commissioner determined that the Haag Drug Co. had a net profit for the full year of $12,279.27, which he allocated on the same basis as was used in the two partnership returns above mentioned.
The Commissioner determined the petitioner's net income for the year 1925 to be $13,025.05. In this computation he included $3,043.22 as income from the Haag Drug Co., which amount resulted in*2288 part from disallowing the company deductions of $500 for association dues and $7,984.43 as commissions paid. This computation included a deduction for the petitioner's net loss in 1924, which the Commissioner computed to be $3,258.64. In arriving at this loss the Commissioner determined the net loss of the Haag Drug Co. for 1924 to be $16,273, after disallowing the company deductions of $3,422.87 as repairs on a store building, $3,517.19 as commissions paid, and $75 as a loss by theft.
In determining the petitioner's net loss for 1924, the Commissioner included in her income for that year $5,218.68 as fiduciary income distributed to her in 1924 and representing the distributable share of the estate of Louis E. Haag in the income of the Haag Drug Co. for the period from June 7 to December 31, 1923.
In the year 1925 the petitioner failed to file her income-tax return within the prescribed time.
OPINION.
MURDOCK: No proof was offered as to when the return of Louis E. Haag for the year 1922 was filed, and we need not concern ourselves with the question of any statutory period of limitations based thereon. *2289 .
The discharge of an executrix does not bar collection of taxes on income received by a decedent in his lifetime, provided assessment is made within the statutory period. ; . See also . It is not important that the petitioner had no notice or knowledge of any taxes due from the decedent.
The petitioner alleges that the statement accompanying one deficiency notice purports to be an assessment against the "person of *987 the executrix." The notice is addressed to Elnora C. Haag, Executrix, Estate of Louis E. Haag. There is nothing in it to indicate that the Commissioner is attempting to assess and collect the taxes in controversy from the petitioner in any other than her representative capacity.
The petitioner further contends that her letter of November 14, 1924, constitutes a written request as contemplated by section 277(a)(3) of the Revenue Act of 1924, and that since the taxes in question were not assessed*2290 within one year after the date thereof, the assessment and collection are now barred.
The provision upon which the petitioner relies is as follows:
(3) In the case of income received during the lifetime of a decedent, the tax shall be assessed, and any proceeding in court for the collection of such tax shall be begun, within one year after written request therefor (filed after the return is made) by the executor, administrator, or other fiduciary representing the estate of such decedent, but not after the expiration of the period prescribed for the assessment of the tax in paragraph (1) or (2) of this subdivision.
The respondent does not contend that the tax was assessed or that any proceeding in court for the collection of such tax was begun within one year of the date of the petitioner's letter. His position is that he never received the request and that the above quoted section does not apply. If the petitioner's letter had been received by the Commissioner, it undoubtedly would have started the one year period. The petitioner, in order to sustain the burden of proof, claims that she is entitled to a presumption that the letter was received by the Commissioner. In Wigmore*2291 on Evidence, Second Edition, vol. 1, sec. 95, the rule is stated as follows:
The fixed methods and systematic operations of the government's postal service have been long conceded to be evidence of the due delivery to the addressee of mail matter placed for that purpose in the custody of the authorities. The conditions are that the mail matter shall appear to have conformed to the chief regulations of the service, namely, that it shall have been sufficiently prepaid in stamps, correctly addressed and placed in the appropriate receptacle.
The above statement was quoted in , in which case, after reviewing a number of authorities, the court said:
On principle and in accordance with common experience it is perfectly apparent that the statement that a letter was mailed to a certain person necessarily includes only such acts as are required by the postal authorities of the United States, namely, that a letter have some address and that it be properly stamped. Whether the letter is properly addressed is a matter of no concern of the postal authorities, nor have they any information or interest in the matter. But in*2292 order to establish a set of facts from which an inference or a presumption shall arise that a given letter was received by a given addressee, it must not only appear that a letter was "mailed," but that it was properly addressed to the addressee at the place where he resides or receives his mail.
*988 In accordance with this reasoning, the court held as follows:
Proof that "demand was made by mail" implies a prepayment of postage and a deposit of the demand in a United States post office; but that the letter was properly addressed to the addressee at the place where he resides or receives his mail is not thereby implied, and proof of that fact must be had before the receipt of the letter by the addressee will be inferred.
In , the decision of the lower court was reversed for refusing to give the jury the following instruction:
The jury are instructed that the placing in the mail of an envelope properly stamped is not even presumptive evidence of the receipt of the same, unless the same is properly addressed, and even if the jury believes from the evidence that a notice was placed in the*2293 mail, yet, unless the jury further believe from the evidence that the envelope was properly addressed to the person for whom it was intended, it is not even constructive notice, and may be wholly disregarded.
In the instant case the only evidence in regard to mailing the letter is the petitioner's testimony, which is in part as follows:
Q. Did you mail it? A. Yes, sir. Q. Was sufficient postage attached? A. Yes, sir. Q. Who did you mail it to? A. I don't remember. Q. Was it to the proper authorities in Washington? A. It was.It will be noted that the above testimony gives no information as to the specific acts done by the petitioner. She simply makes the general statement that she mailed the letter. We are left to presume that she placed the letter in an envelope, affixed sufficient stamps and deposited it in one of the Government's receptacles for mail. In a case of this kind, where the petitioner is relying on a presumption that a certain letter was received and she has had an opportunity to testify, it was incumbent upon her to testify more in detail as to what she did. But even disregarding these insufficiencies in the proof and assuming*2294 that the letter was properly mailed, the evidence does not satisfy us that it was properly addressed. We are unable to find as a fact to whom the letter was addressed, or even that it was addressed at all. Under the authorities already cited, the petitioner is not entitled to the presumption that the letter was received.
The cases cited by counsel for the petitioner do not uphold a rule contrary to this. Among them is . In that case the court held that the presumption of receipt by the addressee did arise, but it is to be noted that there was evidence "that the letter was directed to the plaintiff in error at New Orleans and to his proper address in that city."
*989 Evidence was introduced by the petitioner to show that a previous letter, written by her in regard to estate taxes on the Louis E. Haag estate, was temporarily lost in the Bureau of Internal Revenue. It also appears that this letter was later found. On the other hand, considerable testimony was offered by the respondent pertaining to the systematic method of handling correspondence in the Bureau and also regarding the numerous and exhaustive searches*2295 which were made for the letter in question by employees of the Bureau. These searches were begun as soon as the respondent was apprised that the petitioner claimed she had written the letter, and were conducted intermittently over a period of about two years without avail.
Upon consideration of all the evidence, we are of opinion that the petitioner has not sustained the burden of proving that she requested an assessment of the taxes in question. The assessment and collection are not barred.
The Commissioner erroneously disallowed the Haag Drug Co. a deduction of $9,000 per year for rent of two store buildings occupied by it during the years 1922 and 1923. The deduction should be allowed and the shares of the company's profits recomputed accordingly, using the same basis for allocating the income of the company as was used in determining the deficiencies.
In regard to the deficiency asserted against the petitioner individually for the year 1922, she contends that she was not a partner in the Haag Drug Co. during that year, and that she was not entitled to any of the company's profits. It appears, however, that she reported in her income-tax return for the year 1922 a total*2296 of $3,645.45 as income received from the Haag Drug Co., and also that the Haag Drug Co. filed a partnership return showing that the petitioner was entitled to one-fourth of its income for seven and one-half months. The Commissioner increased the amount of the net income reported by the Haag Drug Co., and correspondingly increased the petitioner's share thereof. The petitioner had the burden of proving facts which would entitle her to a favorable judgment, for the Commissioner's determination is presumed to be correct. She has failed to sustain her burden of proof, and therefore we will not disturb the determination of the Commissioner, except in so far as the petitioner's share of the company's profits is affected by the deduction of $9,000 for rent, which deduction we have allowed.
The petitioner alleges that, in computing her net income from the Haag Drug Co. in 1925, the Commissioner erroneously disallowed the company deductions of $500 as association dues and $7,984.43 as commissions, paid by it in that year. She also alleges that in computing the company's loss in 1924 the Commissioner erroneously disallowed *990 deductions of $3,422.87 as repairs on a store building, *2297 $3,517.19 as commissions paid, and $75 as a loss by theft. There is evidence to indicate that the amounts claimed as commissions were included in the deductions allowed for wages in the years 1924 and 1925, respectively. In any event, no evidence has been introduced by which we could determine that the Haag Drug Co. was entitled to the deductions claimed as commissions, or to any other of the deductions claimed for either of the years 1924 or 1925. The determination of the Commissioner in regard to all of these items is therefore sustained.
The petitioner further alleges that the Commissioner erred by including in her gross income for 1924 three-fourths of the net income of the Haag Drug Co. for the period from June 7 to December 31, 1923. This amount, $5,218.68, was included in the gross income of the Louis E. Haag estate for that period and was never deducted therefrom. The deficiency determined against the estate for 1923 was based on this item.
The Revenue Act neither specifically authorizes nor precludes the respondent's action. The Act provides, however, that income received by an estate during the period of administration be included in the gross income of the estate*2298 and the tax thereon paid by the fiduciary, except that under certain conditions prescribed by the Act such income may be deducted from the gross income of the estate and included in the income of the beneficiary. In the instant case, no contention was made by the petitioner or by the respondent that the estate was not entitled to three-fourths of the company's income for that portion of the year 1923 after Louis Haag's death, nor was it contended that such income was properly deductible from the gross income of the estate under the provisions of the Act. The scheme of taxing income under the revenue acts does not contemplate that income of an estate be taxable both to the estate and to the beneficiary in the same year. Furthermore, we think that it was not intended to tax such income to the estate in one year and to the beneficiary in another. The Commissioner has so interpreted the law in Regulations 65, article 344. We are therefore of the opinion that when income received by an estate is properly included in the gross income of the estate under the provisions of the Reveue Act and is not permitted to be deducted from the gross income of the estate and charged to the beneficiary*2299 for income-tax purposes under the provisions of the Revenue Act, such income may never be included in the gross income of the beneficiary. The petitioner's net loss for 1924 should be increased accordingly, and the total loss should be allowed as a deduction in computing her net income for 1925, in accordance with section 206(b) of the Revenue Act of 1924.
*991 In the statement attached to the deficiency notice, the Commissioner added a 25 per cent penalty to the deficiency of $141.58 for the year 1925. The petitioner alleged that she "delinquently" filed her income-tax return for that year, and offered no explanation for the failure to file it within the prescribed period. Under section 1002 of the Revenue Act of 1924, which contains Revised Statutes, section 3176, as amended, the 25 per cent penalty is proper, subject, however, to a recomputation of the petitioner's tax liability for the year 1925 in accordance with this opinion.
Judgment will be entered under Rule 50.