1934 BTA LEXIS 1361">*1361 1. JURISDICTION. - Where a deficiency notice was mailed to a taxpayer more than two years before the executrix of her estate included her estate in an appeal which the transferee was making from a transferee notice of deficiency, the Board has no jurisdiction to hear the appeal of the executrix because it was filed long after the statutory period had expired.
2. TRANSFEREE LIABILITY. - Where prior to her death a mother transferred to her daughter without monetary consideration property having a greater value than the amount of the taxes due and such transfer left the mother insolvent, the daughter is liable as transferee of the assets of the mother.
3. CASH RECEIPTS AND DISBURSEMENTS BASIS. - Where a taxpayer is on the cash basis and during the taxable years in question earns certain profits in trading in stocks but only draws down a certain part of such profits in cash and leaves the balance with her brokers to be reinvested in other stocks and kept in her margin accounts, such profits are all taxable in the year in which earned, even though not all drawn down in cash from the brokers.
30 B.T.A. 188">*188 On April 23, 1931, respondent mailed Margaret Wilson Baker, Claymont, Delaware, a notice advising her that "there had been assessed against her income taxes amounting to $41,625.97, together with interest for the calendar years 1927 and 1928 as transferee of Mrs. Ida Carr Addicks, Claymont, Delaware."
From said notice a petition was filed with the Board on June 22, 1931, captioned as Margaret Wilson Baker, petitioner. On January 17, 1933, an amended petition was filed wherein Margaret Wilson Baker appealed to the Board not only in her individual capacity, but as executrix of the estate of Ida Carr Addicks, it being alleged 30 B.T.A. 188">*189 in the amended petition that the "petitioner is executrix under the last will and testament of Ida Carr Addicks who died a resident of Claymont, Delaware on June 26, 1931."
In the amended petition, petitioner prays that the proposed deficiencies be dissolved and that the Board determine that Ida Carr Addicks overpaid her income taxes in 1927 and 1928 in the amounts of $388.48 and $14,357.15, respectively.
The issues raised in the amended petition and by respondent's1934 BTA LEXIS 1361">*1363 answer will be stated in the opinion.
FINDINGS OF FACT.
Petitioner, who resides in Wilmington, Delaware, is the daughter of Ida Carr Addicks, who died June 26, 1931, subsequent to the filing of this appeal. Mrs. Addicks, had been in bad health for a period of three years prior to her death. In 1921 petitioner lived in Bath, Maine, with her husband, now deceased, who was a naval constructor and in that year her mother, who was aged and eccentric, came to live with her. In 1924 petitioner and her husband returned with her mother to Delaware to reside. While living in Maine, petitioner's husband was offered employment in Galveston, Texas, with the United States Shipping Board, and petitioner was anxious for him to accept this employment, but, because of her mother's age, health, and promises to reward her, she prevailed upon her husband to remain at home. In 1927 petitioner's mother handed her a deed dated December 14, 1927, conveying certain real property situated in New Castle County, Delaware, to the petitioner. This deed, however, was not recorded in the office of the County Recorder until December 12, 1929. This property comprised about 18 acres of land, improved by1934 BTA LEXIS 1361">*1364 a pretentious stone residence, together with a garage and other buildings, and on the date the deed was recorded the property had a fair market value of $43,000.
During the years 1927 and 1928 petitioner's mother bought and sold stocks and other securities quite extensively. These transactions for the most part were handled in what are known as margin accounts. The transactions were all handled through brokers. In the latter part of the year 1929 Mrs. Addicks suffered financial reverses on account of the sudden break in the price of securities on the New York Stock Exchange and her brokers sold her out. In March of 1930 her brokers brought suit against her to recover the balance due in the accounts over and above the collateral. The suit was ultimately decided in Mrs. Addick's favor. After the break in the stock market and petitioner's mother had suffered financial reverses, her mother deeded to her certain other real estate in New Castle County, Delaware, situated on the Philadelphia Pike about five miles from Wilmington, Delaware, and comprising about 13 30 B.T.A. 188">*190 acres of land. The deed was dated December 5, 1929, and was recorded on the same day. This property at the1934 BTA LEXIS 1361">*1365 time of the transfer had a fair market value of $18,000.
On December 2, 1929, Mrs. Addicks gave to petitioner 3,500 shares of stock of the General Motors Corporation. This stock was in a safe-deposit box in Wilmington and petitioner was asked by her mother to get the certificates, which she did, and her mother endorsed them and handed them to petitioner, with the request that petitioner "have them made out to herself." This was done. On December 2, 1929, the fair market value of the General Motors Corporation was $38.50 per share.
After the above transfers of real estate and stocks, petitioner's mother, the taxpayer, was without any property whatsoever, with the exception of a small annuity of $210 per month from a trust which she was to receive during her lifetime. Mrs. Addicks owned no interest in the corpus of the trust.
The income tax return of Ida Carr Addicks for the year 1927 showed a net income computed upon the cash basis of $39,306.53 and a tax liability of $2,172.21, which was duly paid. In computing her net income Mrs. Addicks reported a profit from the sale of stocks of $31,977.25. The balance of her reported income for that year was from dividends on stocks. 1934 BTA LEXIS 1361">*1366 For the year 1928 her income tax return showed a net income of $140,303.35 computed upon the cash basis and a total tax of $24,636.87, which was duly paid. She reported a profit from the sales of stocks of $117,620.10. The balance of her reported income for that year was from dividends on stocks.
The respondent duly audited said returns and determined that petitioner's mother had additional profits from the sales of stock in the years 1927 and 1928. As a result of such audits, respondent determined there were additional taxes due from Mrs. Addicks of $26,825.87 for the year 1927 and $14,800.10 for the year 1928.
Respondent's action in increasing the profits of Mrs. Addicks from the sales of stock in the years 1927 and 1928 was due to the application of the rule "first bought, first sold." Details of respondent's determination as shown by the statement attached to the deficiency notice mailed to Mrs. Ida Carr Addicks on November 19, 1930, are as follows:
| 1927 | ||
| Net income reported on return | $39,306.53 | |
| Add: | ||
| 1. Rent received | $360.00 | |
| 2. Additional profit on sales | 112,984.08 | |
| 3. Increase in dividends | 3,496.00 | |
| $116,840.08 | ||
| Net income adjusted | $156,146.61 |
1934 BTA LEXIS 1361">*1367 30 B.T.A. 188">*191 1. Your net income has been increased by $360.00 representing rent received for a cottage. This income was not reported on the return.
2. Information submitted in the agent's report indicates that profit on sale of stocks in the year 1927 was $144,961.33 instead of $31,977.25 as reported, and your net income has accordingly been increased by $112,984.08.
3. Your net income has been increased by $3,496.00 representing additional dividends received.
| 1928 | |
| Net income reported on return | $140,303.35 |
| Add: | |
| 1. Increase in profit on sales | 75,379.90 |
| Total | $215,683.25 |
| Deduct: | |
| 2. Interest | 16,179.50 |
| Net income adjusted | $199,503.75 |
1. Your net income has been increased by $75,379.90 representing additional profit on sale of stocks.
Of the profits from the sale of stocks which respondent has determined are taxable to Ida Carr Addicks for the years 1927 and 1928, she actually drew from her brokers, Laird, Bissell & Meeds, and Ardis, Smith & Warwick, the sum of $30,188 in cash in 1927 and $74,511.83 in 1928. The balance of the profits in these accounts as determined by respondent was either reinvested in stocks on margin by Mrs. Addicks, 1934 BTA LEXIS 1361">*1368 or was allowed to remain in the accounts during the respective taxable years.
In 1929 when the stock market creash came, these profits, accumulated in the accounts in 1927 and 1928, were all wiped out, the stocks held on margin were sold and the accounts of Ida Carr Addicks were closed out by the brokers.
The deficiencies determined against Ida Carr Addicks by the Commissioner for the years 1927 and 1928 were duly assessed, but being without assets, she was unable to pay them and they remain unpaid.
OPINION.
BLACK: The issues involved in this proceeding are three.
(1) Has the Board jurisdiction in so far as it involves Margaret Wilson Baker, executrix of the estate of Ida Carr Addicks, for the purpose of determining whether there was an overpayment of taxes by Ida Carr Addicks during each of the taxable years in question?
(2) Is petitioner, Margaret Wilson Baker, liable as a transferee of Ida Carr Addicks for additional taxes due and unpaid by the latter for the years 1927 and 1928?
(3) Is there any deficiency in tax due by Ida Carr Addicks for the years 1927 and 1928?
We will discuss these issues in the order stated.
30 B.T.A. 188">*192 (1) We think the Board clearly1934 BTA LEXIS 1361">*1369 has no jurisdiction to entertain the appeal of Margaret Wilson Baker as executrix of the estate of Ida Carr Addicks. At the hearing respondent moved to dismiss her appeal. This motion was taken under advisement. A copy of the deficiency notice addressed to Ida Carr Addicks was introduced in evidence and it bears date of November 19, 1930. As stated in our findings of fact, the first effort of Margaret Wilson Baker to appeal as executrix of Ida Carr Addicks was in the amended petition filed January 17, 1933. This was more than two years after the deficiency notice was mailed to Ida Carr Addicks. As a matter of fact, when petitioner as an individual filed her petition appealing from the deficiency notice which had been mailed to her as transferee, her mother, Ida Carr Addicks, was still living. She died June 26, 1931, which was more than six months after the mailing of the deficiency notice to her and was a few days after petitioner had filed her original petition contesting her liability as transferee, yet up to the time of her death, Ida Carr Addicks had filed no appeal from the deficiency notice which had been mailed to her. Plainly, under such state of facts we have no jurisdiction1934 BTA LEXIS 1361">*1370 to entertain the appeal of Margaret Wilson Baker as executrix of the estate of Ida Carr Addicks, and respondent's motion to dismiss the appeal as to her in her representative capacity, is granted.
Appeals to be in time must be filed within 60 days from the date the deficiency notice was mailed and the statute must be strictly complied with. . This is not an appeal of a transferee from a deficiency notice mailed to the original taxpayer such as was present in ; .
But even if we are wrong in dismissing the appeal of Margaret Wilson Baker as executrix, she could not prevail in her contention that there was an overpayment of tax in 1927 and 1928, for reasons which we shall state in discussing error No. (3).
(2) We think it is clear that petitioner is liable as transferee. Prior to her death Mrs. Addicks transferred all her property to petitioner. This included real estate having a fair market value of $61,000 and common stock of the General Motors Co. having a fair market value of $134,750. 1934 BTA LEXIS 1361">*1371 For this property petitioner paid no money consideration and the transfer left the taxpayer insolvent. It is true that one piece of real estate having a value of $43,000 was transferred in 1927 prior to the accrual of Mrs. Addick's tax liability for the taxable years in question. As to that piece of property, we hold petitioner is not liable as transferee. However this holding does not affect the result, because the remainder of the property transferred had a greater fair market value at the time 30 B.T.A. 188">*193 of transfer than the amount of the taxes due plus interest thereon as provided by law.
Petitioner contends that she knew nothing of any additional tax liability of her mother, Ida Carr Addicks, at the time the several transfers of property were made, but this fact makes no difference. Such additional taxes were due and owing at the close of the years 1927 and 1928 prior to the time the transfers, except the one noted, were made. Such tax liabilities must be taken into consideration in determining transferee liability, even though unknown at the time the transfer of property is made. 1934 BTA LEXIS 1361">*1372 ; affd., ; ; .
Petitioner contends that she is in effect a purchaser for value without notice, in that her mother was getting old and required attention and that she and her husband sacrificed opportunities of their own elsewhere to go to Delaware and care for her mother. This of course was commendable and we have no doubt that a claim on the part of petitioner for monetary remuneration for the services which she rendered her mother could be well supported in law up to a reasonable amount, but we have no evidence what that amount is. Certainly we would not be justified in saying that it equaled the value of the property which was transferred to her by her mother.
In ; affd., , we held that the Government has a prior claim to general creditors and where a transferee claims that he has used the money which he received to pay debts, the purden is on him to show the debts had priority over those of the Government. 1934 BTA LEXIS 1361">*1373 The evidence in this proceeding is not sufficient to show that petitioner had claims against her mother which had priority over the taxes due the Government. On that point petitioner has not met the burden of proof. Cf. .
(3) Petitioner, while not admitting but denying that she is liable as a transferee, contends that, even if she is liable as a transferee, there is no liability in this proceeding because there is no tax due.
As has been stated in our findings of fact, the Commissioner determined the deficiencies in question by applying the rule of "first bought, first sold" to shares of stock which the taxpayer, Ida Carr Addicks, bought and sold during the taxable years while trading on margin accounts with brokers. Respondent's use of this rule under such circumstances is justified. ; . There is no showing that respondent made any error in applying this rule. In fact petitioner apparently does not dispute the correctness of the determination of the gain which respondent made, but relies upon the fact that only certain parts of these1934 BTA LEXIS 1361">*1374 gains were actually paid over to Ida Carr 30 B.T.A. 188">*194 Addicks by the brokers during the taxable years in question and that these sums were all reported by her for taxation and more.
It is on this ground that petitioner contends that Ida Carr Addicks overpaid her tax in each of the taxable years and that her estate is entitled to a refund. In answer to this contention it is sufficient to point out that a taxpayer, even though on a cash basis, cannot escape taxation on profits by a mere failure to withdraw them in cash from his brokers. If he could, traders on the New York Stock Exchange and other exchanges would have an easy way to avoid taxation. They could simply leave their profits to accumulate with their brokers and thus escape taxation, but such is not the law. Amounts received by an agent for his principal are income to the principal in the year in which the income is received by the agent. , and cases there cited. It was unfortunate for the taxpayer that she allowed a portion of her profits to remain with her brokers and used them in buying other stock and saw them all vanish when the stock market crash came in the fall1934 BTA LEXIS 1361">*1375 of 1929, but that does not change the tax liability for 1927 and 1928. The income that is subject to a man's unfettered command and that he is free to enjoy at his own option, may be taxed to him as his income whether he sees fit to enjoy it or not. .
Decision will be entered for the respondent.