*2512 ESTATE TAX - DEDUCTIONS BY BENEFICIARY - RECOUPMENT BY REFUND - METHOD OF ACCOUNTING. - Petitioner, the residuary legatee of an estate of a decedent who died in 1918 and upon which the estate tax was due in 1919, paid in 1922 a deficiency in estate tax finally determined in that year. Subsequently, as a result of suit and judgment the greater part of the sum paid was refunded, with interest, by the Government, this refund being subsequent to 1922, but prior to the hearing on the appeal. Upon the facts, held that petitioner was on a cash basis and is entitled to credit in the year 1922 for any deduction due on account of the payment made, and that the credit taken for the total of the payment made in 1922 should be adjusted by deduction of any portion of such payment refunded to petitioner in a succeeding year but prior to the final adjustment of her tax liability for the year in question.
*781 In these two proceedings, consolidated for hearing and decision, petitioner appeals from deficiencies in income taxes of $7,133.45 for the calendar year 1921, *2513 and $1,823.09 for the calendar year 1922, determined and advised of by respondent on January 26 and May 21, 1926, respectively. The issue in each proceeding is the same - the disallowance in each of the taxable years by respondent of deductions from gross income by petitioner of payments made by her on account of estate tax assessed against an estate of which she was the sole residuary legatee.
FINDINGS OF FACT.
Petitioner is a resident of Taunton, Mass., and is the sole residuary beneficiary under the will of her father, William E. Walker, who died on November 9, 1918. Upon the death of William E. Walker, Robert M. Leach, petitioner's husband, qualified as executor of his estate and on May 8, 1919, filed an estate-tax return and paid on November 3, 1919, the tax shown thereon of $37,700.68. Thereafter, on November 14, 1919, all of the known debts of the estate having been paid, and petitioner being the sole residuary legatee, although the period for administration had not expired, the executor transferred and paid over to petitioner all of the assets of the estate and took from petitioner a form of distribution bond by which she bound herself to pay to him any amount for*2514 which he might be held liable as executor by reason of deficiencies in taxes later determined *782 or other claims which might yet be filed against the estate. No returns of income were filed for the estate and all of such income for the calendar years 1919, 1920, and 1921 was included by petitioner in her individual returns filed for those years.
No deductions were claimed in any year by the executor in respect to estate taxes paid by him or by petitioner on the estate of William E. Walker.
On April 14, 1921, respondent, upon audit of the estate-tax return filed by the executor, determined a deficiency in estate tax of $79,759.16 over and above the $37,700.68 already paid, and on May 23, 1921, the executor filed a claim in abatement as to all of such deficiency. After several conferences with the representatives of respondent in respect to the claim in abatement, it appearing evident that the claim would only be allowed in part and the final deficiency determined would be in excess of $50,000, and desiring to save the accrual of further interest on the deficiency, the executor secured on December 5, 1921, from petitioner her check for $50,000, drawn in favor of the*2515 collector of internal revenue and on the same day delivered it to his attorney, with direction that it be transmitted to the collector as payment on the deficiency to be finally determined. This check was finally delivered to and accepted by the collector on February 21, 1922.
On March 18, 1922, respondent redetermined the estate-tax deficiency to be $52,034.98 instead of $79,759.16, and on March 27, 1922, the executor delivered to the collector, petitioner's check for $6,017.40. Of this sum, $2,034.98 represented that portion of the final deficiency unpaid on that date and $3,982.44 represented interest.
Petitioner, in her individual income-tax return for 1921, deducted from gross income $50,000 and in her return for 1922 deducted $6,017.40, both of these deductions being on account of the payments made as above described. Subsequent to March 27, 1922, Robert M. Leach, as executor, brought suit to recover from the Government the $56,017.40 paid under the deficiency determined, and as a result of this litigation received from respondent in July, 1928, the sum of $60,329.32, of which $43,865.30 represented a refund for excess taxes paid on the estate of William E. Walker and*2516 $16,463.95 represented the interest on such refund.
Petitioner during the taxable years here involved maintained her accounts upon the basis of cash received and disbursed.
OPINION.
TRUSSELL: William E. Walker, petitioner's decedent, died on November 9, 1918. Sections 204 of the Revenue Act of 1916 and 406 of *783 the Revenue Act of 1918 provide that estate taxes "shall be due one year after decedent's death" and section 214 of the Revenue Act of 1921 provides:
(a) That in computing net income there shall be allowed as deductions: * * * (3) Taxes paid or accrued within the taxable year except (a) income, war-profits, and excess-profits taxes imposed by authority of the United States * * *. For the purpose of this paragraph estate, inheritance, legacy, and succession taxes accrue on the due date thereof except as otherwise provided by the law of the jurisdiction imposing such taxes; * * *
By section 703 of the Revenue Act of 1928 it is provided that:
(a) In determining the net income of an heir, devisee, legatee, distributee, or beneficiary (hereinafter in this section referred to as "beneficiary") or of an estate for any taxable year, under the Revenue Act of*2517 1926 or any prior revenue Act, the amount of estate, inheritance, legacy, or succession taxes paid or accrued within such taxable year shall be allowed as a deduction as follows:
* * *
(2) If the deduction has been claimed by the beneficiary, but not by the estate, it shall be allowed to the beneficiary;
* * *
(b) As used in this section, the term "claimed" means claimed -
(1) In the return; * * *
In the case before us the items in controversy were not claimed by the estate, were paid by the beneficiary, and were claimed as deductions in her returns for the taxable years 1921 and 1922. They accordingly represent proper deductions if paid or accrued in those respective years within the meaning of section 214 of the Revenue Act of 1921 above quoted.
The record shows that petitioner's only book of account was a check book, on the stubs of which her bank balance appeared, and that as checks were drawn their amounts were deducted from this balance and that the first item in question was a check for $50,000 drawn on December 5, 1921, as a part payment on account of the total deficiency determined and which was not delivered to or accepted by the collector until February 21, 1922. *2518 It is insisted that this is a consistent method of accrual, the liability being charged as of the date of the check, but we can not so see it. Under such a system no item of income would be accrued as the balance would be increased only by actual deposits as made without reference to the date of receipt. Checks drawn under such a system are charged against the balance as of the date drawn merely because in the usual case payment is made immediately. The fact that occasionally delivery and payment of a check might be delayed to a date in the following taxable year does not determine even that item as one accrued, but merely calls for a correction of the account to accord *784 with the actual date of payment. There is no indication from the proof that petitioner used an accrual method or that such a basis would more correctly reflect her income, and we conclude that petitioner was on a cash basis. Both the item of $50,000 and the item of $6,017.40 were paid by her in the calendar year 1922, and any credits for deduction from gross income on account of such payments pertain to that taxable period as estate taxes paid in that year.
In this connection respondent insists that*2519 in no event is petitioner due a deduction for the full amount paid, as the record shows that several years subsequent to such payment suit was brought against the United States by the executor to recover the sum in question as an overpayment, and in this suit a judgment was finally recovered in 1928, under which $43,865.30 of estate tax was refunded to petitioner and $16,463.95 in interest paid her, and that any deduction allowed should be reduced by the amount ultimately recovered.
In , we held that amounts paid by a taxpayer as beverage taxes in 1919 and 1920 and deducted from gross income in returns for such years were not subject to deduction where it is shown that subsequent to the taxable years in question but prior to the final determination of the tax liability for those years through the proceeding before the Board, the sums so paid had been refunded as collected in error. The United States Circuit Court of Appeals for the Fourth Circuit on April 9, 1929, in affirming this decision, said:
* * * It is elementary that one who seeks to have a mistake corrected must surrender what he has received by reason thereof; and likewise*2520 one who accepts the correction of a mistake is estopped to claim a benefit to which he would be entitled if it were not corrected. In this case, the taxpayer as the result of the payment under mistake received the deduction from its gross income of the amount so paid. When the mistake was rectified and it accepted the return of the amount paid with interest, it ought not be heard to claim the benefit of the deduction on account of the payment.
We think that the rule stated is sound and applies to the facts involved in the instant proceeding.
Petitioner is entitled to deduct from gross income for the year 1922 the sum of the estate tax paid in that year, or $52,034.98 less the $43,865.30 of such tax subsequently recovered, or $8,169.68 plus the interest paid by her on this latter amount and included in the total of $3,982.44 interest paid by her in 1922.
Reviewed by the Board.
Judgment will be entered pursuant to Rule 50.
MURDOCK dissents.