*2722 1. The unexpended balance of a bequest received by a decedent from a preceding estate within five years prior to his death, remaining in his account in a bank at the time of his death, held deductible under section 303(a)(2), Revenue Act of 1924.
2. The value of corporation securities acquired in exchange for property received by decedent within five years prior to his death from a prior-taxed estate allowed as a deduction from the gross estate in full, or to the extent they were included in such estate and not otherwise deducted.
*1122 This is an appeal from the action of respondent in his determination of a deficiency in the estate tax of Alexander Harrison Brawner, *1123 in the amount of $1,853. The deficiency results from respondent's rejection of a deduction claimed by the petitioner from the gross estate in the amount of $100,000, said sum having been received by the decedent from a previously taxed estate within five years, a part of which was thereafter invested in securities. The issues are the identity of (1) the unexpended*2723 portion of said fund, and (2) the securities thus purchased under the provisions of section 303(a)(2) of the Revenue Act of 1924.
FINDINGS OF FACT.
The petitioner is the executrix of the estate of Alexander Harrison Brawner, who died October 4, 1924, in the State of New York. On July 3, 1922, Ella Frances Brawner, wife of the decedent, died in said State, leaving an estate consisting of mixed property made up of stocks and bonds valued at $1,539,676, and cash on deposit in various banks in the aggregate sum of $42,622.86. Upon these values an estate-tax return was duly made by the administrator of said prior decedent and taxes in the sum of 107,480.68 paid to the Federal Government.
In the distribution of the estate of Ella Frances Brawner, the decedent, Alexander Harrison Brawner, was paid the sum of $100,000 in accordance with a provision in the will of said prior decedent, reading as follows:
I give, devise and bequeath to my husband, Alexander Harrison Brawner the sum of $100,000, and I direct that any and all notes which I may hold at the time of my decease made by my said husband to me with any unpaid interest thereon be first deducted from said sum, and when so*2724 deducted shall be deemed to have been paid.
This money was received by the decedent on the 21st day of May, 1924, and deposited by him in a general account with the Corn Exchange Bank of New York City. On the date of this deposit the balance standing to the credit of decedent in this bank, exclusive of the deposits made that day, was $1,742.65; simultaneously with this bequest the decedent received the sum of $49,108.38 in payment of commissions allowed to him by the court for services as executor of said estate, which sum was likewise deposited to his account in said bank. Other sums were thereafter placed in this account at times up to and including October 1, 1924, at which time the total deposits thus made, together with the initial balance of May 31, amounted to $156,128.09.
At the time of the death of the prior decedent, and before receipt by him of the monies from that estate, Alexander Harrison Brawner owned no property or source of income excepting said bank balance and certain common and preferred stock in the Whiting-Adams Co. *1124 and the American Radiator Co., and some Liberty bonds. From these securities decedent derived income during the period following*2725 May 31 to September 16, 1924, in the aggregate of $7,015.90, which was likewise placed to his credit in the above-mentioned account and formed a part of the balance so shown. From this balance and upon this account the decedent drew from time to time, as his demands required, money to defray his personal expenses and items other than for investment in the aggregate sum of $5,647.66; he also drew from said account during this period money which he invested in securities in amounts shown as follows:
| 100 shares United States Steel preferred | $7,165 |
| 100 shares American Bank Note Company preferred | 5,315 |
| 100 shares American Bank Note Company preferred | 5,415 |
| 100 shares Union Pacific preferred | 7,215 |
| 100 shares American Radiator Company preferred | 12,520 |
| 100 shares Delaware, Lackawanna & Western R. R | 12,115 |
| 200 shares United States Steel preferred | 24,455 |
| Total | 74,200 |
The decedent left a gross estate which, as found by the respondent, consisted of the property described and valued as follows:
| Gross estate | Returned (706) | Determined on review |
| Real estate | ||
| Stocks and bonds | $295,304.98 | $295,304.98 |
| Mortgages, notes, cash, and insurance | 76,409.58 | 76,409.58 |
| Jointly owned property | 301.00 | 301.00 |
| Other miscellaneous property | ||
| Transfers | ||
| Powers of appointment | ||
| Property identified as previously taxed | ||
| Total gross estate | 372,015.56 | 372,015.56 |
*2726 In the extate-tax return petitioner claimed a deduction from the gross estate in the sum of $100,000, as being an amount equal to the value of property received by decedent within five years from a prior-taxed estate. This claim was disallowed by the Commissioner of Internal Revenue in a Bureau letter under date of February 6, 1926, the grounds of such disallowance, as stated therein, being as follows:
Under the caption "property identified as taxed within five years" the bequest of $100,000.00 in cash shown to have been received by this decedent from the prior estate of Ella F. Brawner, is excluded from deductions since it appears to have been so intermingled with other funds of this decedent, and purchases made therewith of securities returned in the present estate, that identification for purposes of deduction is impossible.
*1125 Additional reasons were assigned for said disallowance by the Commissioner in the deficiency letter dated March 23, 1926, as follows:
* * * There has been furnished no evidence to show that the bequest of $100,000 was paid from the corpus of the prior estate or from income received by it subsequent to the death of the decedent, nor whether*2727 the purchases of stocks were made with money received from or taxed in the prior estate. * * *
OPINION.
LANSDON: The right of petitioner to the deduction claimed in this case is governed by the provisions of that part of the Revenue Act of 1924 relating to the taxing of estates, which reads as follows:
SEC. 303. 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 -
* * *
(2) An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from such donor by gift or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax or an estate tax under this or any prior act of Congress was paid by or on behalf of the donor or the estate of such*2728 prior decedent, as the case may be, and only in the amount of the value placed by the Commissioner on such property in determining the value of the gift or the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate and not deducted under paragraph (1) or (3) of this subdivision.
To avail himself of the benefits of this section of the statute the petitioner must show, in respect to the property involved, four concurring conditions: (1) That it was received by the decedent from such prior decedent by gift, bequest, devise or inheritance within five years prior to his death; (2) that an estate tax under the Revenue Act of 1924 or any prior act of Congress was paid on behalf of said prior decedent; (3) that the property now included in the estate can be identified as having been received by decedent from the prior estate, or as having been acquired in exchange for property so received; and (4) that it has not been deducted from the gross estate under other provisions of the law.
The first two conditions are conceded by the respondent except as to the application of the second to the facts in this case. *2729 In respect to these he contends that before the petitioner is entitled to the benefits of this section he must show not only that the tax was paid on the *1126 preceding estate but that the property received formed a part of the assets of such estate at the time the tax was paid. He argues that, inasmuch as the bequest in this case was not paid to the decedent until nearly two years after the death of the prior decedent, there is a bare possibility that it might have been paid out of subsequent accretions and not the corpus upon which the estate tax was paid. We have considered carefully respondent's argument in connection with the law and the facts in this case, but find nothing in either that justifies the speculations thus advanced or the claims in respect thereto. The property in this case was bequeathed to decedent by the will of the prior decedent. The record indicates that the estate of the prior decedent was solvent and much more than sufficient to pay the amount here in question. In these circumstances the legal presumption is that the bequest was paid from the corpus of the prior decedent's estate, which the respondent admits was taxed within five years of the*2730 death of this decedent.
The remaining question, and the only real issue here, has to do with the identity of property, a part of which petitioner claims was acquired in exchange for property received from the preceding estate.
The original bequest consisted of $100,000 in money, which was paid to the decedent. The records show that he received this money on May 31, 1924; also, the further sum of $49,108.38 as commissions for services as executor of said estate, all of which he deposited to his credit in the bank. Before this deposit his balance in this bank was $1,742.65. On the same date he withdrew from said account the sum of $12,480, which he invested in corporation stock. Thereafter at different dates up to and including August 11, 1924, he made further withdrawals from said account and further purchases of corporation securities with the funds so withdrawn, the total withdrawals for investment amounting to the sum of $74,200. Other withdrawals than these mentioned were made during this time from this account by decedent, but inasmuch as the aggregate of such was less than the total deposits, independent of this bequest, made to the same account during the period, it*2731 follows that the unexpended balance of this bequest, not withdrawn for investment as hereinbefore noted, remained in said account and formed a part of the assets of the estate of decedent at the time of his death. We have previously held, under such circumstances, that funds thus identified are deductible under section 303(a)(2), supra, ; . It follows, therefore, that in so far as the claims of the petitioner pertain to the deduction of such ascertained residue remaining on deposit in the bank at the date of decedent's death, his contention must be sustained in the amount of $25,800.
*1127 The record shows the exchange of $74,200 of these funds for corporation securities. We are of the opinion that petitioner is entitled to deduct such amount from the gross estate of the present decedent to the extent that any part thereof was included in such estate at date of death and has not been deducted from said gross estate under the provisions of subdivisions 1, 3, or 4 of section 303 of the Revenue Act of 1924. *2732 ; .
Reviewed by the Board.
Decision will be entered under Rule 50.