*35 Decision will be entered under Rule 50.
A partner died in January 1934. His debts were paid off within about a year. Due to business considerations, the surviving partner and the other heirs agreed to continue the estate in the partnership. On December 21, 1938, the surviving partner was appointed administrator. In October 1941 and February 1942 he was authorized by the Probate Court to continue the business. The court's orders recite agreement between the heirs for continuation of the partnership; that the present status of the estate is determined; and that management thereof by the heirs, and later by the administrator, is approved. Held, that the taxable years 1937, 1938, and 1939 did not constitute a "period of administration or settlement of the estate," under section 161 (a) (3) of the Revenue Act of 1938 and the Internal Revenue Code.
*936 These proceedings were consolidated for hearing and involve the redetermination of deficiencies in income taxes as follows:
| 1937 | 1938 | 1939 | |
| Docket No. 112,245 | $ 5,759.84 | $ 6,364.05 | $ 4,630.24 |
| Docket No. 112,478 | 1,740.22 | 1,879.42 | 1,953.46 |
*36 All of the issues raised by the petitioner in Docket No. 112,478, with one exception, were settled at the hearing by stipulation. These adjustments will be reflected in the recomputation to be filed under Rule *937 50. The remaining issue, common to both proceedings, is whether the income of Frederich's Market is taxable to petitioners or to the estate of the deceased partner. The amount of earnings of the business is not in controversy. An additional issue in Docket No. 112,245 is whether the petitioner is entitled to a credit for overpayment of taxes by the estate of the decedent.
FINDINGS OF FACT.
The petitioners in Docket No. 112,245 are husband and wife. The husband will be referred to as Frederich. The petitioner in Docket No. 112,478, Margaret Swisher Seever, is a sister of Frederich. The petitioners filed their returns for the taxable years with the collector at Jacksonville, Florida.
Herman Frederich died intestate January 6, 1934, leaving surviving him as heirs Frederich, Margaret Swisher Seever, and a half-brother, Nicholas Frederich, a minor. His estate consisted of a one-half interest in Frederich's Market, a partnership engaged in the grocery business in*37 Miami, Florida, having assets consisting primarily of cash, inventories, buildings, furniture and fixtures, automobiles, and real estate. The remaining half interest in the partnership was held by Frederich. The market was operated by Frederich after the death of the decedent. Margaret Swisher Seever worked in the market until January 1939, when she remarried and went to Tennessee to live.
A short time after the death of the decedent, the petitioners decided that an immediate probating of the estate might result in a forced liquidation of the business by creditors, with loss to the estate. Frederich operated Frederich's Market without probating the estate of the decedent. After demand by a representative of their half-brother, and under proper guardianship proceedings, in May 1934 Frederich and his sister each purchased one-half of the half-brother's interest in the estate of the decedent, amounting to 20 percent, for a total of $ 4,000. At that time Frederich was advised by counsel that he could delay the institution of proceedings for the administration of the estate. Thereafter, he did not consult counsel respecting the matter until about the summer of 1937.
In November *38 1937 an internal revenue agent in charge made a written request upon Frederich for information on whether an estate tax return should be filed for the decedent's estate. Frederich did nothing about the matter at that time except to deliver the letter to his attorney. On November 1, 1938, Frederich petitioned the County Judge's Court, Dade County, Florida, for letters of administration appointing him administrator of the estate of the decedent, and on December 21, 1938, was appointed administrator of the estate. Proof *938 of publication to creditors was filed with the court on January 25, 1939.
On January 11, 1939, Frederich, as administrator, filed an estate tax return for the estate of the decedent in which he reported a gross estate of $ 38,551.01, and deductions of $ 3,763.36. The collector determined estate tax liability of $ 1,122.26, which amount, with interest, was paid on January 6, 1940. On October 25, 1941, the County Judge's Court entered an order nunc pro tunc amending the petition for letters of administration decreasing the value of the estate of the decedent to $ 23,706.42, subject to personal claims, including funeral expenses of $ 2,080.35, all of which*39 expenses were paid during the first year following the death of the decedent.
In April 1940 a revenue agent examined the books and records of Frederich's Market in connection with a determination of tax liability of Frederich and Margaret Swisher Seever for the years 1937, 1938, and 1939. Frederich informed the revenue agent at that time that it was not necessary to administer the estate of the decedent.
At intervals of from 30 to 60 days between May 1939 and October 1941 a representative of the surety on the bond of Frederich as administrator communicated with Frederich and his attorney for information on when further action would be taken to close the estate of the decedent and was informed that they had not been able to prepare data for a final accounting; that as soon as the information was obtained, they would be in a position to close the estate; and that they expected to close the estate within 30 to 45 days. When the bond was issued the surety company was informed by Frederich's counsel that the administrator expected to close the estate within eight months.
Surety on the bond of the administrator caused the County Judge's Court to issue a citation to the administrator on*40 October 10, 1941, to file an accounting within ten days, showing the receipts and disbursements of the estate.
Answer was made on October 25, 1941, to the citation to make an accounting. At the hearing Margaret Swisher Seever testified that she did not want her interest in the decedent's estate in kind. She never agreed to accept her interest in that way. Frederich has tried to sell the business and is not interested in owning it if he must go in debt to make the purchase.
On October 24, 1941, the court entered an order captioned as follows:
Order directing the incorporation of guardianship proceedings heretofore adjudicated, directing the recording of an assignment of interest in the estate, adjudicating the interest of the present heirs, approving the heirs' management of the estate, and declaring the present status of the said estate
Furthermore, in the body of the order it is recited that the court is asked to hear evidence as to the present status and, inter alia, to find *939 that it was to the best interest of the estate and of the heirs that it was managed "as a partnership interest" from the date of death; that the court, being fully advised in the premises, *41 finds that there was an agreement between the heirs and the surviving partner, agreeing that the estate remain in the partnership; that pursuant to such agreement the estate was continued in the partnership; that the heirs properly managed the estate from the date of death "to the date of the granting of Letters of Administration," and the estate continued to be properly retained, handled, and managed as a partnership interest in the partnership to the date of the order; and that the partnership interest had been represented in the following proportions: 55 percent by Walter A. Frederich, 5 percent owned by Margaret Swisher Seever, and 40 percent owned by the estate, and that "by virtue of an agreement between the heirs of the estate of Herman Frederich, deceased, and the surviving partner * * * it is ordered * * * that four-fifths undistributed estate of Herman Frederich has been and now is properly a partnership interest in the business."
On February 10, 1942, the court entered an "Order on Citation for Accounting." It recites in pertinent part that there was testimony that the partners had agreed that in the event of the death of either the survivor would continue the partnership; *42 that the partnership had been continued by the heirs for three years and thereafter by the administrator; that after the death of Herman Frederich, the heirs decided to postpone taking out letters; that the apportionment of the percentages of the interest in the partnership had been agreed to by the principals in their capacity as partners and heirs; that:
* * * the surviving partner conducted such business at his peril without having first secured the authority of the Probate Court. The Court holds that in event of a loss or depreciation of the estate assets, the said Walter A. Frederich, as the surviving partner, would have been answerable therefor, but the results were the direct opposite. The financial statements * * * showed that Walter A. Frederich, as the surviving partner, increased the value of the estate's interest * * *. Whether the continuation of the partnership business was an authorized or unauthorized act, this Court could not find fault with the results and, therefore, entered an order approving Walter A. Frederich's handling of the estate's interest.
The order further recited that counsel for Walter A. Frederich individually urged that a bookkeeping entry allowing*43 Margaret Swisher Seever her proportionate share of, or interest in, the estate in the partnership would make possible the immediate closing out of the estate, and that Margaret Swisher Seever had petitioned the court, admitting an agreement to continue the interest of the estate in full partnership relation. The court concluded that it was to the best interests of the estate not to require immediate liquidation thereof, and that Walter *940 A. Frederich as administrator should continue the remaining interest of the estate in the partnership.
The first and partial income account filed by the administrator and approved by the court on March 7, 1942, discloses the following capital and income of the estate:
| Capital Account | ||
| Balance December 31, 1934 | $ 21,626.07 | |
| Distribution minor's interest and attorney's fee of $ 325 | 4,325.00 | |
| $ 17,301.07 | ||
| Net income to December 31, 1941 | $ 203,612.82 | |
| Less disbursements | 38,949.92 | |
| 164,662.90 | ||
| Total capital account | $ 181,963.97 | |
| Partial Distribution of Estate * | ||
| 1934 | $ 3,000.00 | |
| 1935 | 1,000.00 | |
| 1941 | 9,326.48 | |
| 13,320.48 | ||
| Undistributed capital | $ 168,637.49 |
As of January *44 1, 1934, the indebtedness of Frederich's Market consisted of the following items:
| Merchandise | $ 8,449.16 |
| Equipment | 1,400.53 |
| Real estate | 4,843.28 |
| Taxes and paving liens | 810.48 |
| Total | 15,503.45 |
The books of Frederich's Market disclosed liabilities, exclusive of capital accounts of the partners, as of the close of 1934 to 1939, inclusive, as follows:
| 1934 | $ 14,624.37 |
| 1935 | 9,966.53 |
| 1936 | 30,931.95 |
| 1937 | $ 24,976.74 |
| 1938 | 20,083.83 |
| 1939 | 78,249.06 |
The withdrawals from the business in 1934 and thereafter through 1941 were as follows:
| W. A. | Margaret | ||
| Year | Estate | Frederich | Swisher |
| Seever | |||
| 1934 | $ 2,055.36 | $ 6,913.07 | $ 900.93 |
| 1935 | 3,541.49 | 7,735.20 | 1,457.82 |
| 1936 | 1,991.93 | 10,596.43 | 2,676.24 |
| 1937 | 5,316.24 | 7,535.49 | 13,523.19 |
| 1938 | 6,909.09 | 26,639.96 | 1,718.86 |
| 1939 | $ 7,589.54 | $ 145,959.29 | $ 5,518.09 |
| 1940 | 7,321.65 | 9,446.53 | 2,445.58 |
| 1941 | 3,810.04 | 20,252.87 | 1,874.13 |
| Total | 38,535.34 | 235,078.84 | 30,114.84 |
*941 Income tax returns were filed for the taxable years, in which 50 percent of the profits of Frederich's Market was reported as taxable to the estate of the decedent.
Upon the findings by the Judge's Court that he*45 was entitled to 55 percent of the income of Frederich's Market, Frederich reported the additional income in amended income tax returns for 1937, 1938, and 1939. On May 8, 1942, the Judge's Court entered an order directing Frederich to assign to himself as heir of the decedent's estate, and to his wife, $ 6,000, plus interest thereon, of any refund found to be due on account of overpayment of income taxes of the estate for 1937 to 1939, inclusive, any amount so received to be treated as a partial distribution to Frederich as an heir of the decedent. Upon receipt of a notice and demand from the collector for an additional income tax under his amended income tax returns for 1937, 1938, and 1939, Frederich requested the collector to apply the overpayment of income taxes by the estate as a credit to the additional taxes due from him.
OPINION.
Prior to the death intestate on January 6, 1934, of Herman Frederich, the partnership conducting the business of Frederich's Market was owned in equal shares by the decedent and his brother Walter. Income tax returns were filed for the taxable years for the estate of the decedent in which a 50 percent share of the profits of the business was reported*46 upon the ground that the estate was a partner. In his determination of the deficiencies, respondent found that the estate of the decedent was not in process of administration during the taxable years, and, accordingly, that the profits attributable to the former interest of the decedent should be reported by his heirs, petitioners herein, one-half by each, including the interest purchased from a half-brother.
Income taxes imposed by Title I of the Revenue Acts of 1936 and 1938 and chapter 1 of the Internal Revenue Code are applicable to "estates of deceased persons during the period of administration or settlement of the estate." Sec. 161 (a) (3). Regulations promulgated under these statutes provide, in part, as follows:
* * * The period of administration or settlement of the estate is the period required by the executor or administrator to perform the ordinary duties pertaining to administration, in particular the collection of assets and the payment of debts and legacies. It is the time actually required for this purpose, whether longer or shorter than the period specified in the local statute for the settlement of estates. * * *
Art. 162-1, Regulations 94 and 101. Prior acts*47 and regulations thereunder contained like provisions. Sec. 219 (a) of the 1918, 1921, 1924, and 1926 Acts; sec. 162 (c) of the 1928, 1932, and 1934 Acts; art. 343, *942 Regulations 45, 62, 65, and 69; art. 863, Regulations 74 and 77; and art. 162-1, Regulations 86.
The broad difference between the parties is whether the taxable years were a "period of administration or settlement of the estate" within the statutory language. Respondent argues that they were not and that petitioners received the income of the business as tenants in common. Upon brief petitioners contend that administration of the estate was mandatory; that the statutes of Florida place no limitation upon the time for administering an estate after letters are issued; that personal representatives may carry on a trade or business on behalf of an estate; that the County Court found that the partners had an oral agreement for the continuation of the partnership business upon the death of either partner until the business could be liquidated to advantage; that after the death of decedent large sums were required from the business to meet partnership debts and capital expenditures; that any earlier appointment of*48 an administrator, or the timely filing of accounts by him, would not have hastened settlement of the estate of the decedent; and that the orders of the Probate Court fix the property interests of the petitioners and the estate, and are controlling here.
The contention of the respondent is that, since all of the debts of the decedent were paid in 1934 and the assets of the estate were in possession of the surviving partner, leaving nothing for administration except distribution of the partnership interest of the decedent to his heirs, petitioners herein, under his regulations the year 1934 was the time actually required for the collection of assets and payment of debts.
The administrative interpretation of the statute without change during reenactments of the provision by Congress amounts to an implied legislative approval of the regulation. National Lead Co. v.United States, 252, U.S. 140; .
No case has been called to our attention in which, as here, no personal representative had charge of the estate during a portion of the taxable years. Other proceedings before us, in which personal representatives*49 were functioning during the taxable years involved in the cases, were decided upon the theory that an executor may not unnecessarily delay the closing of an estate. In , we said that "There may be cases imaginable where the failure to close the estate is so unnecessary as to be merely capricious and the estate a mere form -- a subterfuge for spreading taxes out thinner." Other cases point out that the closing of an estate may not be arbitrarily or capriciously delayed. ; .
*943 Here the petitioners, the only heirs of the estate of the decedent after the purchase by them in May 1934 of the interest of their half-brother, took no steps towards closing the estate from the time of final payment in 1934 of personal debts of the decedent until November 1938, when Frederich applied for letters of administration. In January 1939 he, as administrator, filed an estate tax return showing no tax liability. No further action was taken by Frederich to close the estate until*50 October 1941, two years after the last taxable year involved herein, when he appeared before the probate court to answer an order of the court for an accounting.
During all of this period of inaction on the part of petitioners as heirs, and Frederich, as administrator, to close the estate, the assets of the decedent, consisting entirely of a one-half interest in Frederich's Market, were being managed by Frederich with the assistance of Margaret Swisher Seever as an employee of the business. Nothing remained to be done during that period except to distribute the assets of the estate to petitioners, the only interested parties.
At the hearing had on the order for an accounting, counsel for Frederich, individually, urged that a bookkeeping entry allowing Margaret Swisher Seever her proportionate share of the estate would make possible the immediate closing of the estate. Petitioners now contend that forced liquidation of the business at the time of decedent's death would have resulted in serious loss to the estate and that partnerhip debts continued in an increasing amount. The liabilities of the business at the close of 1934 to 1936, inclusive, were in round figures $ 14,600, $ 9,900, *51 and $ 30,900, respectively, and the earnings during those years were in the respective amounts of $ 43,200, $ 41,200 and $ 71,200. Those earnings are reflected in inventories in the amount of about $ 76,000; fixed and other assets in the amount of about $ 49,000, including an investment of $ 27,500 in land; withdrawals and advances to petitioners; and charges against the estate of the decedent, adjusted for the small increase in liabilities.
It is obvious from these facts that the earnings were used to expand the business and for investment purposes. No estate tax return was filed by Frederich, as administrator, until fourteen months after the receipt of a written request from an internal revenue agent in charge for the submission of data on estate tax liability of the decedent's estate. As late as April 1940 Frederich was of the opinion that he was not required to complete the administration of the estate. Petitioners had no right to prolong the estate as a separate taxable entity beyond the time allowed by the Federal statute, with or without the advice of personal counsel. There is no evidence that at any time prior to or during the taxable years petitioners endeavored to *52 sell the business or demanded that their share of the estate be distributed to them *944 in cash. The testimony on the point is merely that Frederich tried to sell the business, the times not being stated, and that Margaret Swisher Seever never agreed to accept her interest in kind. The evidence discloses intent, especially on the part of Frederich, to defer final distribution, for reasons not entirely clear, rather than to close the estate within the time actually required.
The petitioner urges that the County Judge's Court in Florida has determined that the estate of the deceased partner was in process of administration during the taxable years, and that such determination is conclusive here. We have here simply a question of whether there was, under section 161 (a) (3) of the Revenue Act of 1936 and of the Internal Revenue Code, during the taxable years, a "period of administration or settlement of the estate." If there was, under that section, the estate is separately taxable on its income. The regulations have construed the statute to mean that such period of administration or settlement of the estate is the period required to perform the ordinary duties pertaining to*53 administration, whether such period is longer or shorter than the period specified by local statute; and such regulations, as above seen, have subsisted throughout repeated reenactment of section 161 (a) (3) and therefore should be regarded by us as having the approval of Congress. Congress, in providing for the taxation of estates as such and specifying the period of such taxation, was providing a uniform system of Federal taxation. We have here involved, then, in substance, a Congressional mandate upon a question of uniform system of Federal taxation. Except in so far as the local decision determined the property rights of the heirs; i. e., their respective interests, with which we are not here interested, the decision of the state court did not lay down a local rule of property.
The time required for the performance of the usual administrative duties clearly did not extend into the taxable years here involved. The decedent's debts had been paid within about a year of his decease and no valid reason, such as the litigation found in some cases, appears for the continuation of an administration, even had one been instituted shortly after the death of the deceased. The law of *54 Florida, section 5541 (143) of the Compiled Laws, provides that in case the decedent was a member of a partnership the business and affairs of the partnership shall be wound up without delay, and accounting made to the personal representative; further, that any interest of an estate existing by virtue of partnership between the decedent and others may be sold in the same manner as other property of the estate. In fact, the interest of the minor half-brother was sold, indicating that, so far as necessity of administration is concerned, the interest of the decedent could have been sold in its entirety, the proceeds distributed to the heirs, and the estate closed. Only business reasons are advocated *945 why this was not done. We think it was Congressional intent to permit the taxation of the estate as such for income tax purposes only within the usually necessary period of administration and that facts indicating the financial wisdom of continuing the estate for the greater benefit of the heirs are not properly to be considered; therefore, that the continuation of an estate in a partnership by order of the Probate Court is not effective upon the question of Federal income taxation. *55 Were this not true, the business exigencies involved could in any case be made to control the matter of Federal income taxation, and might, in some circumstances, be made the means of selection of the year of taxation by the taxpayer. In our opinion, the instant situation is covered by such cases as ; ; ; . The period of administration may not be unduly prolonged. ; . , is not to the contrary and is distinguishable on its facts from the present situation. Our inquiry as to whether a period here involved comes within the intendment of the statute and the regulations so approved by Congress may not, in our opinion, be restricted by local statutes or decisions. We conclude that the decision of the County Judge's*56 Court is not controlling.
Moreover, in our opinion, the two orders of that court upon which reliance is placed do not constitute a holding that the taxable years here involved constituted a period of administration or settlement of the estate. We find no such language therein. One of the orders recites, in substance, that the heirs had managed the estate from death to the date of letters of administration. The other order recites that the partnership had been continued for three years by the heirs and thereafter by the administrator; but, considering the fact that the decedent died in 1934 and the administrator was not appointed until December 21, 1938, we conclude that the court meant to hold that the heirs continued the partnership up to the institution of administration proceedings. This, in our opinion, disposes substantially of the first two taxable years here involved. During that period there was no administration or settlement of the estate as such; and we think a fair interpretation of the orders precludes the idea that the court held that there was such at least prior to the appointment of the administrator.
As to the period after an administrator was appointed, that*57 is, the year 1939, we think the result is not different, for it was not until after the expiration of that year that the administrator approached the Probate Court and secured from it what the court in the order specifies as the necessary authority to continue the partnership. Moreover, *946 the court finds that the surviving partner conducted the business at his peril without having first secured the authority of the Probate Court, and that in the event of a loss or depreciation of the assets of the estate he would have been answerable. Reasonable construction of the general effect of the court's orders indicates to us that the court approved what had been done prior to securing such authority from the Probate Court, because the results had been beneficial; but this is far from a holding that the estate had actually been passing through a period of administration or settlement. That the assets of the estate had been, during the taxable years, embarked in a partnership, with or without the prerequisite of authority from the Probate Court, is, in our opinion, immaterial to the instant question, for it was not Congressional intent that the estate might continue to be taxed for*58 income tax purposes as such during any period, however extended, for which the parties in interest might place it in a partnership. The court denied the surviving partner compensation for management on the ground that he had derived benefit individually. This indicates that the partnership assets were not being managed, in the view of the Probate Court, as assets of an estate. In addition, such partnership is recited by the court to have arisen by virtue of an agreement entered into between the heirs of the decedent and the surviving partner. Such an agreed status does not, in our opinion, come within the Congressional intent as to period of administration or settlement during which an estate may pay income tax as such. Moreover, the finding that the partnership was by virtue of an agreement between the heirs and the surviving partner, together with recitations as to agreement of apportionment between the partners and recitation of the admission of an agreement to continue the estate and partnership, is clear indication that, so far as concerns the court's conclusion that there was a partnership, it is essentially based upon agreement of the parties, and therefore the judgment*59 of the court does not constitute such an adjudication as should be considered binding here.
There was no contest before the Probate Court on the question here involved. The parties were in agreement that there was a partnership and considered the estate to have been a member thereof; and proffered to the court no disagreement on that subject. Logically, therefore, such judgment may not be considered as controlling here. We consider the judgment, as stated in , "collusive in the sense that all the parties joined in a submission of the issues and sought a decision which would adversely affect the Government's right to additional income tax." ; ; , affirming . In addition, it is worthy of note that the judgment of the Probate Court recited that the status declared for the estate is "the *947 present status," from which it appears that *60 the order was not in fact intended to encompass a judgement that the estate had properly been in process of administration during 1937, 1938, and 1939, the taxable years here involved, but only to declare the status of the estate in 1941 and 1942, the dates of the two orders relied upon, and to approve the management of the heirs during the earlier period, in effect, because it was beneficial financially. The court, of necessity, viewed the proceeding as it then found it, not what it would have been if its jurisdiction had been invoked in 1934, 1935, or 1936. Its orders must be interpreted in that light. Additional reason thus appears why the judgment may not be accorded conclusive effect here.
In 1939 Frederich withdrew about $ 146,000 from the business. The court's opinion discloses that the funds were used to improve property adjoining Frederich's Market for the purpose of attracting business to that locality. Withdrawals by Frederich in excess of $ 15,000 annually were held by the court to constitute distributions in partial liquidation of the estate of the decedent. The capital account of the estate at the close of 1939 was about $ 134,000. Withdrawal of such an amount *61 then is opposed to the idea that the estate could not have made a final distribution prior to the taxable years, at least by a bookkeeping entry.
In , supra, we said that, "If there were evidence of capricious delay, there would be justification for entertaining the idea of constructive distribution, but such evidence must be more than the executor's tentative report of no claims against the estate." There was such delay here. Frederich, who had possession of the assets of the estate at all times important, manifested no desire to close the estate until directed by a court order to show cause why he should not. The laws of Florida gave the other petitioner, as the remaining heir, the right to an administration under the jurisdiction of the state court. Nothing here is opposed to the assumption that she was not fully aware of the status of the estate and is in no position to complain if she is charged with tax on income which she could have received had she elected to avail herself of the rights given her by the state statute.
In our opinion, the income flowing from the interests of the petitioners*62 is taxable to petitioners.
Under this view of the proceedings it becomes unnecessary for us to pass upon the question of whether Frederich is entitled to a credit for any overpayment of income taxes of the estate of the decedent on account of reporting in returns filed for it 50 percent of the profits of of Frederich's Market instead of 40 percent, the interest of the estate as decided by the state court.
Decision will be entered under Rule 50.
Footnotes
*. To petitioners, one-half to each.↩