*2633 1. Where at all times there were sufficient assets in the present estate to pay administration expenses and debts of the present estate without recourse to previously taxed property, held that respondent was in error in reducing the deduction for previously taxed property by an amount representing a portion of the administration expenses and claims of the present estate.
2. Where securities were purchased with the proceeds from the sale, redemption and liquidation of previously taxed property held that the property so acquired is to be identified as property received in exchange for previously taxed property, and deduction to be made therefor against the gross estate in determining the net estate.
3. Present decedent received certain stock from the estate of her husband, on which the Federal estate tax was paid. At some unknown date rights to purchase additional shares of such stock were issued. These rights were sold and a portion of the proceeds, together with other funds, was used to purchase other securities. Where evidence does not show the amount at which the stock on which the rights were issued was taxed in the previous estate, held, evidence insufficient*2634 to determine that the portion of the proceeds from the sale of stock rights used to purchase other securities is to be identified as previously taxed property.
*181 This is a proceeding for the redetermination of a deficiency in estate tax of $2,316.01. The matters in controversy are (1) the action of the respondent in reducing the deduction taken against the gross estate of property identified as previously taxed by an amount of $40,137.70, representing a portion of the total of funeral and administration expenses and claims against the estate, and (2) the respondent's action in reducing the deduction taken against the gross estate of property identified as previously taxed by an amount of $38,960.35.
FINDINGS OF FACT.
SUSAN K. Thorn, the wife of William E. Thorn, died testate and a resident of the county of Albany, State of New York, on May 21, 1924. The Farmers Loan & Trust Co. is one of the duly appointed executors under the will of Susan K. Thorn and was one of the executors under the will of William E. Thorn, who died November 18, 1919.
*2635 *182 Susan K. Thorn was a legatee under the will of her husband, William E. Thorn, and from his estate received, among other property, certain stocks and bonds which she placed in a "Custodian Account" with the Farmers Loan & Trust Co. These stocks and bonds were included in the gross estate of William E. Thorn and the Federal estate tax was paid thereon.
Of the securities placed in the "Custodian Account" by Susan K. Thorn, some were called for redemption prior to her death, some were sold at her instructions, and a partial return of capital was received on some. Rights to subscribe for additional shares of the stock of the Consolidated Gas Co. of New York, which she had received from the estate of her husband and had placed in the "Custodian Account," were also sold at her instructions and $2,170.20 was received therefor. The proceeds from the sale of stock rights were placed in the "Custodian Account," to which Susan K. Thorn transferred $6,662.15 in cash. The proceeds from the redemption or sale of the securities and stock rights, the amount received as a partial return of capital and cash placed in the "Custodian Account," were, with the exception of $833.98, used*2636 to purchase other securities, which in turn were placed in that account, and remained there at the death of Susan K. Thorn. Of the proceeds from the sale of stock rights, $1,336.22 was used in the purchase of securities held in the account at the time of Susan K. Thorn's death. The "Custodian Account" was kept in such a manner that it showed separately all items of income and of principal that were placed in it.
The securities sold or called for redemption or on which there was a partial return of capital, together with the amounts received therefrom, were as follows:
| Par value | Amount | |
| realized | ||
| Bonds Alabama Tennessee & Northern R. R. Corp. Gen 30 | ||
| Yr 6% Due Oct. 1, 1948 | $ 1,100 | $ 108.35 |
| Bond Broadway & Seventh Ave. R.R. Co. 1st | ||
| Cons 5% Due Dec. 1, 1943 | 1,000 | 723.50 |
| Bond Central States Electric Corp. 10 Yr Secured Gold | ||
| Notes 5% Due June 1, 1922 | 1,000 | 1,000.00 |
| BondConn. Rwy. & Lighting Co. 1st & Rfg. 4 1/2% Due | ||
| Jan. 1, 1951 | 1,000 | 801.00 |
| Bonds Kansas City Rwys Co. 1st Mrtge 5% Due July 7, | ||
| 1944 | 2,000 | 9,371.00 |
| Bonds Lima Locomotive Corp. 1st S/F 6% due | ||
| May 1, 1932 | 2,000 | 2,200.00 |
| BondsMissouri Pacific R.R. Co. 1st & Refg. Ser B 5% | ||
| Due Jan. 1, 1923 | 5,000 | 5,000.00 |
| Bonds New Orleans Great Northern R.R. Co. 1st 5% Due | ||
| Aug. 1, 1955 | 2,000 | 737.00 |
| BondsNew York Susquehanna & Western R.R. Co. General | ||
| 5% Due Aug. 1, 1940 | 2,000 | 1,087.00 |
| Bonds Northern States Power Co. 10 Yr. Gold Notes 6% | ||
| due April 1, 1926 | 3,000 | 3,030.00 |
| Bonds Providence Securities Co. Gold Debenture 4% due | ||
| May 1, 1957 | 5,000 | 2,442.50 |
| Bonds Seaboard Airline Railway Co. 1st Cons. Mrtge | ||
| Ser "A" 6% Due Sept. 1, 1945 | 2,000 | 1,287.00 |
| Bonds St. Joseph & Grand Island Rwy Co. 1st Mortgage | ||
| 4% Due Jan. 1, 1947 | 3,000 | 2,268.00 |
| Bonds St. Louis Transit Co. 20 yr Imp. 5% Due 1924 | 5,000 | 2,692.50 |
| Bonds Syracuse Light & Power Co. Coll Trust S/F 5% | ||
| Due July 1, 1954 | 5,000 | 5,250.00 |
| BondsUlster & Delaware R.R. Co. 1st & Rfg Gold 4% | ||
| Due Oct. 1, 1952 | 24,000 | 15,150.00 |
| Bonds Wilkes-Barre and Eastern R.R. Co. 1st Mortgage | ||
| 5% due June 1, 1942 | 1,000 | 608.50 |
| Ctf of Deposit Colorado Springs & Cripple Creek | ||
| District Rwy. Co. - 1st Cons. Mrtge 5% Due Oct. 1, | ||
| 1942 | 600.00 | |
| BondsMissouriKansas & Eastern Rwy Co. 2nd Mortgage | ||
| 5% due April 1, 1942 | 5,000 | 1,692.50 |
| Wells Fargo Co. (Return of Capital $50 per share) | 1,500.00 | |
| Total | 49,114.85 |
*2637 *183 In the estate-tax return of the estate of Susan K. Thorn the above listed securities, with the exception of the stock of Wells Fargo Co., were reported at $45,622.50 in Schedule K-1 of the return as a part of the deduction of property identified as previously taxed, and deduction was taken therefor. The respondent refused to allow as a deduction the amount of $45,622.50, upon the ground that he was not able to determine that the securities were to be identified as having been received from the estate of William E. Thorn, or as having been acquired in exchange for property so received.
The following securities were acquired by Susan K. Thorn at the amounts indicated. These securities were purchased from the proceeds realized from the sale or redemption or partial return of capital of the above listed securities, cash transferred by Susan K. Thorn to the "Custodian Account," and $1,336.22 of the amount received from the sale of stock rights:
| Par value | Cost | |
| Bonds American Tel. & Tel. Co. 20 yr S/F 5 1/2% | $6,000 | $6,036.50 |
| Bonds City of New York - 3 1/2% | 3,000 | 2,727.00 |
| Bonds Northern Pacific Ry. Ref. & Imp. 6% | 5,000 | 5,432.50 |
| Bonds New York Telephone Co. Refdg. Mrtge 20 yr 6% | 1,000 | 1,067.75 |
| Bonds Pacific Tel. & Tel. Co. 6% | 9,000 | 8,413.50 |
| Southern Railway Co. Dev. & Gen. 4% | 26,000 | 18,322.75 |
| New York Central R.R. Co. Ref. & Imp. 5% | 6,000 | 5,844.33 |
| Total | 47,844.33 |
*2638 The securities listed immediately preceding were reported as a part of the gross estate in the estate-tax return for the estate of Susan K. Thorn and as property identified as previously taxed.
They were reported as having a fair market value of $48,011.25 at the date of the death of Susan K. Thorn.
The sales, redemption, partial return of capital and purchases of the securities here involved were made at intervals during the period beginning about January 10, 1922, and ending about April 15, 1924.
The respondent determined the gross estate of Susan K. Thorn to be $505,548.28, the deductions to be $282,142.81 and the net estate to be $223,405.47.
There was reported in the return as a part of the gross estate property in the amount of $331,157.67 identified as previously taxed, of which $45,500 represented real estate. The respondent determined the amount of previously taxed property to be $331,150.17. In the return there was taken as a deduction against the gross estate for property identified as previously taxed an amount of $295,933.62, of which $40,500 represented the real property included in the gross estate. The deduction of $295,933.62 taken in the return was*2639 reduced by the respondent to $186,481.93. In determining the amount of $186,481.93 the respondent reduced the deduction taken in the return, *184 among other amounts, by that of $40,137.70, being a portion of the funeral expenses, executor's commissions, attorneys' fees, miscellaneous administration expenses and debts of the decedent totaling $45,660.88, upon the ground that it was not shown by the estate whether the $40,137.70 was paid out of the property or funds of the present estate other than property received from the estate of William E. Thorn. The expenses of administration and the debts of the decedent were paid out of a commingled cash account. There were always enough funds in the estate of Susan K. Thorn that did not originally come from the estate of William E. Thorn to defray all administration expenses and the debts of the decedent without recourse to the assets received from the estate of William E. Thorn.
There was no real property in the estate of Susan K. Thorn other than that received from the estate of her husband and which was reported in the return for her estate as previously taxed property.
Under the will of Susan K. Thorn there were specific*2640 legacies amounting to $41,000. Payment of these legacies commenced on March 7, 1925, and by April 1, 1925, payments thereon amounting to $38,000 had been made. There was sufficient personal property in the present estate after the payment of the specific legacies to pay the expenses here involved without resorting to previously taxed property.
OPINION.
TRAMMELL: In the return filed for the estate there was reported as a part of the gross estate previously taxed property in the amount of $331,157.67. In his determination, the respondent reduced this amount to $331,150.17. As to this action of the respondent, there is no controversy. In the return a deduction of $295,933.62 for previously taxed property was taken against the total gross estate.
The respondent has determined that the amount allowable as a deduction for previously taxed property is only $186,481.93. In determining this amount, the respondent has reduced the deduction taken in the return, among other amounts, by (1) $40,137.70, representing a portion of funeral expenses, executor's commissions, attorneys' fees, miscellaneous administration expenses and debts of the decedent totaling $45,660.88, which amount*2641 he found to be deductible and allowed as a deduction in determining the net taxable estate, and (2) by $38,960.35, representing an amount taken for previously taxed property upon the ground that he was unable to identify it as previously taxed property or property acquired in exchange for such property.
The petitioner contends that the respondent's action in reducing the deduction taken for previously taxed property by the above mentioned *185 amounts of $40,137.70 and $38,960.35 is erroneous, and that the reductions should not be made.
With respect to the amount of $40,137.70, the evidence shows that the respondent reduced the deduction for previously taxed property upon the ground that it was not shown by the estate whether the amount was paid out of the property or funds of the estate of Susan K. Thorn other than property received from the estate of her husband. The evidence clearly shows that at all times there were sufficient funds in the estate of Susan K. Thorn over and above specific legacies that did not originally come from the estate of William E. Thorn to defray all administration expenses and debts of the decedent. We think our decision in *2642 , is applicable and controlling here. In accordance with our decision in that case, the contention of the petitioner as to this item is allowed.
With respect to the amount of $38,960.35, Susan K. Thorn received as legatee from the estate of William E. Thorn, among other property, stocks and bonds on which the Federal estate tax was paid. She placed these stocks and bonds in the "Custodian Account." Prior to her death certain of the bonds were sold at her direction and certain other bonds were called for redemption. A partial return of capital was received from some of the stock. With respect to other stock, rights to acquire additional shares of such stock were sold for $2,170.20. The proceeds from these transactions were placed in the "Custodian Account." Susan K. Thorn also transferred to the account $6,662.15 in cash. Of the total of the amounts thus placed in the "Custodian Account," all except $833.98 was used in purchasing certain securities which were held in the "Custodian Account" at the time of the death of Susan K. Thorn.
The securities acquired in the above described manner are reported*2643 in the estate-tax return for the estate of Susan K. Thorn, as a part of the gross estate, as previously taxed property and as having a fair market value of $48,011.25 at the date of her death. The bonds that were sold or redeemed were reported in the return as a part of the deduction for previously taxed property at an amount of $45,622.50. The respondent refused to allow the deduction of $45,622.50, upon the ground that he was unable to identify the property reported as a part of the gross estate as previously taxed property or property acquired in exchange for such property. It is conceded by the petitioner that the $6,662.15 in cash transferred by Susan K. Thorn to the "Custodian Account" and used in the purchase of securities can not be identified as having been included in the estate of William E. Thorn. The petitioner contends, however, that the difference between the $45,622.50 and the $6,662.15, or $38,960.35, is deductible as *186 representing property acquired in exchange for previously taxed property.
A cash account that was kept for the "Custodian Account" shows that except on two occasions there were sufficient funds on hand from the sale or redemption of*2644 bonds, the partial return of capital, and the $6,662.15 in cash transferred by Susan K. Thorn to the "Custodian Account" to purchase the securities reported as a part of the gross estate as previously taxed property, without resorting to the proceeds from the sale of stock rights. The cash account shows that at one time when securities were purchased the cash from sources other than from the sale of stock rights was insufficient by $1,006.97 to pay for the securities then being purchased. Consequently, cash in the amount of $1,006.97 from the sale of stock rights was used. At another time cash in the amount of $329.25 from the sale of stock rights was used in making payment for securities. The total amount from this source, therefore, was $1,336.22. With the exception of that amount, we are of the opinion that the amount here in controversy represents property purchased with the proceeds from the sale, redemption or liquidation of property received by Susan K. Thorn from the estate of her husband.
The evidence shows that with the exceptions heretofore indicated the securities purchased were acquired from the sale, liquidation or redemption of securities actually received by*2645 Susan K. Thorn from the estate of her husband. We are therefore of the opinion that $37,624.13 is allowable as a deduction representing property identified as acquired by Susan K. Thorn in exchange for previously taxed property of that value received from the estate of her husband. ; .
Among the property received by Susan K. Thorn from the estate of her husband were shares of stock in Consolidated Gas Co. of New York which were held by her in the "Custodian Account" at the time of her death. Rights to subscribe to additional shares of stock were sold and the proceeds placed in the "Custodian Account." Of the proceed, $1,336.22 was used in purchasing the securities involved here. While the record shows that the first sale of the rights was made about December 21, 1922, and another about December 21, 1923, it does not show whether the rights were issued and outstanding at the time of the death of William E. Thorn, and whether they were taxed as a part of his estate. Neither does it appear at what value the stock of Consolidated Gas Co. of New York was*2646 taxed to the estate of William E. Thorn. Granting for the sake of argument that the rights were issued subsequent to the death of William E. Thorn, and that they were not taxed in his estate, we are unable *187 to determine whether $1,336.22 of the proceeds from their sale plus the fair market value of the stock of the Consolidated Gas Co. of New York at the time of the death of Susan K. Thorn exceeds the amount at which the stock was taxed to the estate of William E. Thorn. If the $1,336.22 of the proceeds from the sale of rights that was used in the purchase of other securities, plus the fair market value at the date of the death of Susan K. Thorn of the stock of the Consolidated Gas Co., does not exceed the amount at which the stock was taxed in the estate of William E. Thorn, then the $1,336.22 is to be considered as previously taxed property. . Since we are unable to determine from the record whether such is the situation here, we must approve the action of the respondent is so far as the amount of $1,336.22 is involved.
Reviewed by the Board.
Judgment will be entered under Rule 50.