*3001 Unpaid executors' commissions allowed as a deduction from the gross estate for estate-tax purposes where it appears that such commissions are allowed by the law of the jurisdiction under which the estate is being administered. John A. Loetscher,14 B.T.A. 228">14 B.T.A. 228, followed.
*1010 This is a proceeding for the redetermination of a deficiency in estate tax under the Revenue Act of 1921 in the amount of $127,216.18. Of this amount $114,572.37 is in controversy.
*1011 It is alleged that the respondent erred in computing the net estate for the determination of the estate tax due, in failing to make deduction from the gross estate of the amount of $520,783.50 on account of commissions of executors allowed as administration expenses by the laws of the jurisdiction under which the estate is being administered.
FINDINGS OF FACT.
The facts material to this proceeding which are set forth herein were stipulated by the parties.
Henry P. Goldschmidt died on the 16th day of March, 1923, a resident of*3002 the City of New York, County of New York and State of New York.
On the 22d day of March, 1923, the last will and testament of the decedent was duly admitted to probate and the petitioners were duly appointed executors of the estate of the decedent, by the Surrogate's Court of the County of New York, State of New York, and said petitioners duly qualified as such executors and ever since have acted as such.
No probate or other similar proceedings of any character for the administration of the estate of the decedent have ever been instituted except as stated in the foregoing paragraph, and the jurisdiction under the laws of which said estate is being administered, is the State of New York.
On the 19th day of February, 1924, the said Surrogate's Court duly designated and appointed M. F. Loughman to fix the fair market value of the property of the decedent pursuant to the provisions of the laws of the State of New York, relating to taxable transfers of property.
On the 10th day of June, 1925, the said Loughman duly filed in the said Surrogate's Court a report that he had made an appraisal of the property of the decedent as provided by the laws of the State of New York relating*3003 to taxable transfers of property, and that he found the fair market value of the gross assets or estate to be $8,700,960.85, in which said gross assets were included personal effects to the value of $22,235.85; that he found the gross assets to be subject to deductions for purposes of computing the transfer tax under the New York laws of $676,761.43, included in said deductions being commissions to three executors in the amount of $520,783.50; and that he found the value of the net estate of the decedent to be $8,024,199.42.
In the said report the said Loughman further reported to the Surrogate's Court the names of all beneficiaries entitled to an interest in the estate of this decedent, the relationship, if any, of the beneficiaries to the decedent, the amount of the share of interest of each *1012 beneficiary, and whether said share or interest was taxable under the laws of New York relating to taxable transfers of property.
In computing the amount of executors' commissions to be deducted from the gross assets in said report, the said Loughman eliminated from gross assets the sum of $22,235.85, being the value of the personal effects which were specifically bequeathed*3004 by the will of the decedent.
On the 23rd day of June, 1925, the said Surrogate's Court duly made and entered an order assessing the transfer tax upon the estate of this decedent, in which order the said court duly approved the report filed by the said Loughman, as above set forth, and ordered that the cash value of the property, the transfer of which was subject to tax imposed by the laws of New York relating to taxable transfers of property, was as set out in the said report of said Loughman and duly assessed tax upon the said transfers in the total amount of $300,698.31.
The account of the petitioners as executors of the estate of the decedent has not been settled by the said Surrogate's Court or by any court.
No intermediate or final account has been filed by the petitioners as executors of the estate of the decedent in the said Surrogate's Court or any court.
No amount on account of commissions as executors has been paid by the estate of the decedent to the said executors.
It is the customary practice in the Surrogate's Court of the State of New York, in connection with the probate of the wills of decedents and the administration of such estates, for executors to*3005 make no payment to themselves on account of commissions, unless and until the final account of the executors has been approved and settled by the Surrogate's Court having jurisdiction of the proceedings. In occasional cases an intermediate account is filed, upon the approval of which the executors receive payment of a portion of the compensation prescribed by the laws of New York; such portion is never more than one-half of the compensation prescribed by such laws.
The notice of deficiency which is the basis of this appeal was mailed to the petitioners on March 20, 1926, and states a deficiency of $127,216.18 in estate taxes alleged to be due under the Revenue Act of 1921. The petition herein was duly filed on May 19, 1926.
In said notice of deficiency it is stated that the gross estate of the decedent is $9,033,122.35 for purposes of said estate taxes; that the deductions allowed by law for purposes of said estate taxes are $307,786.67; and that the net estate subject to tax is $8,725,335.68.
In computing the deductions allowed by law for purposes of said estate taxes, the respondent did not include any amount whatsoever *1013 on account of commissions of executors. *3006 In computing the net estate subject to tax, the respondent made no deduction from the gross estate of any amount on account of executors' commissions.
The amount of the deficiency stated in the notice of deficiency is $127,216.18, of which amount $114,572.37 is in controversy. The petitioners have acquiesced in, and do not appeal from, all decisions of the respondent and the determination of the amount of the gross estate, the amount of deductions allowed by law and the amounts of the net estate, as set out in said notice of deficiency and in the preceding paragraph hereof, except that the petitioners have contended, and do contend, that the said amount of the net estate subject to tax should be further reduced by the amount of $520,783.50, on account of commissions to executors.
The said amount of $520,783.50 for executors' commissions deducted by the said Loughman was computed in accordance with section 285, as amended, of the Surrogate's Court Act of the laws of the State of New York, as follows:
| Gross assets found by said appraiser | $8,700,960.85 | |
| Less personal effects - specific legacy in paragraph "FIFTH" of Will | 22,235.85 | |
| $8,678,725.00 | ||
| $2,000.00 at 5% | 100.00 | |
| $20,000.00 at 2 1/2% | 500.00 | |
| $28,000.00 at 1 1/2% | 420.00 | |
| $8,628,725.00 at 2% | 172,574.50 | |
| Total commissions computed for one executor | 173,594.50 | |
| Total commissions computed for three executors | 520,783.50 |
*3007 The will of Henry Philips Goldschmidt provided in part:
NINTH: I hereby nominate, constitute and appoint my beloved wife GEORGETTE GOLDSCHMIDT executrix, and my sons-in-law, ARTHUR SACHS and HENRY L. MOSES, Executors, of this my Last Will and Testament, and all of them Trustees of the trust created under this my Last Will and Testament, for the benefit of my wife GEORGETTE GOLDSCHMIDT.
Georgette Goldschmidt, widow of the deceased, is a beneficiary under the will. The other two executors, Henry L. Moses and Arthur Sachs, are husbands of the daughters of the deceased who are beneficiaries under the will.
OPINION.
SIEFKIN: The sole question to be decided in this proceeding is whether the respondent erred in disallowing as a deduction from the gross estate the amount of $520,783.50 claimed by the petitioners on the return as commissions of executors.
*1014 Section 403 of the Revenue Act of 1921 provides:
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*3008 mortgages upon, or any indebtedness in respect to, property (except in the case of a resident decedent, where such property is not situated in the United States), losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft when such losses are not compensated for by insurance or otherwise, and such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, 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 * * *.
The laws of the State of New York, the jurisdiction in which this estate is being administered, provide for the allowance of executors' commissions as follows (Sec. 285, Surrogate's Court Act; L. 1920, ch. 928):
Commissions of executor, administrator, guardian or testamentary trustee.
On the settlement of the account of any executor, administrator, guardian or testamentary trustee, the surrogate*3009 must allow him his just, reasonable and necessary expenses actually paid by him, and if he be an attorney and counselor-at-law of this state, and shall have rendered legal services in connection with his official duties, such compensation for such legal services as shall appear to the surrogate to be just and reasonable; and in addition thereto the surrogate must allow to such executor, administrator, guardian of testamentary trustee for his services in such official capacity, and if there be more than one, apportion among them according to the services rendered by them respectively;
For receiving and paying out all sums of money not exceeding two thousand dollars, at the rate of five per centum.
For receiving and paying out any additional sums not amounting to more than twenty thousand dollars, at the rate of two and one-half per centum.
For receiving and paying out any additional sums not exceeding twenty-eight thousand dollars at the rate of one and one-half per centum.
For all sums above fifty thousand dollars, at the rate of two per centum.
The value of any real or personal property, to be determined in such manner as the surrogate may direct, *3010 and the increment thereof, received, distributed or delivered, shall be considered as money in making computation of commissions. But this shall not apply in case of a specific legacy or devise.
* * *
If the gross value of the principal of the estate or fund accounted for amounts to one hundred thousand dollars or more, each executor, administrator, guardian or testamentary trustee is entitled to the full compensation on principal and income allowed herein to a sole executor, administrator, guardian or testamentary trustee, unless there are more than three, in which case the compensation to which three would be entitled must be apportioned among them according to the services rendered by them, respectively. * * *
The *1015 Surrogate's Court of the County of New York, State of New York, appointed M. L. Loughman to fix the fair market value of the property of the decedent. In his report to the court Loughman included in the deductions from gross income, for purposes of the New York transfer tax, commissions to the three executors in the amount of $520,783.50. This report was approved by the court and an order was entered assessing the transfer tax.
*3011 No claim has been filed by the executors for payment of the fees nor have any fees been paid. The respondent contends that since no fees have been paid no deduction can be allowed for purposes of the estate tax under the Revenue Act of 1921. However, we find that the amount claimed by the petitioners as a deduction for executors' fees is allowed by the law of New York, and this amount is deductible under section 403(a) of the Revenue Act of 1921. See , which follows , and holds that in computing the net estate of a decedent subject to estate tax, deductions should be allowed for such charges as commissions, expenses and attorneys' fees as will be ultimately allowed by the laws of the jurisdiction under which the estate is being administered, whether or not such amounts have been allowed by order of court or paid at the time of the hearing before the Board.
The correct deficiency is $12,643.81, the difference between the deficiency stated in the deficiency letter and the amount in controversy.