*3628 The petitioner made income-tax returns for the estate of which she was administratrix upon the basis of the calendar year. The Federal estate tax and certain inheritance taxes payable by the estate were not paid until after the close of the first calendar year for which a return was made. Held, that the liability of the estate to income tax may not be determined upon the basis of a fiscal year merely for the purpose of enabling the estate to get the greatest benefit from the deduction of such taxes.
*1381 A deficiency of $3,593.18 has been determined for the period April 17, 1921, to December 31, 1921. The petitioner contends that *1382 the respondent has erred in (1) refusing to allow as a deduction any part of the Federal estate taxes paid by said estate; (2) refusing to allow as a deduction any part of the inheritance taxes paid to the Commonwealth of Pennsylvania, and States of Arkansas, Minnesota, South Dakota, New Jersey and Ohio, except $19,000 paid to the Commonwealth of Pennsylvania; and (3) refusing to allow the estate to file*3629 an amended return covering the year of administration.
The parties have submitted a stipulation setting forth the facts upon which the issues shall be decided.
FINDINGS OF FACT.
1. The late Charles H. McKee died April 16, 1921, and at the time of his death resided at 4215 Bigelow Boulevard, in the City of Pittsburgh, County of Allegheny, Commonwealth of Pennsylvania. On April 21, 1921, his widow, Clara A. McKee, the petitioner herein, was duly appointed administratrix of the estate of Charles H. McKee, c.t.a. The said petitioner resides at 4215 Bigelow Boulevard, in the said City of Pittsburgh, Pa.
2. The deficiency letter determining a deficiency in tax of $3,593.18 for the period from April 17, 1921, to December 31, 1921, was mailed to the taxpayer on January 18, 1926.
3. The taxes in controversy are income taxes for the period from April 17, 1921, to December 31, 1921, and are less than $10,000, to wit, $3,593.18.
4. Petitioner, as administratrix of the estate of Charles H. McKee, filed an income-tax return for the decedent for the period from January 1, 1921, to April 16, 1921. No controversy has arisen nor exists as to the tax liability of petitioner for*3630 such period.
5. Petitioner, as administratrix of the estate of Charles H. McKee, filed an income-tax return on behalf of such estate for the period from April 17, 1921, to December 31, 1921, and also filed an income-tax return on behalf of such estate for the period from January 1, 1922, to July 3, 1922, the date of the decree of distribution of the Orphans Court of Allegheny County, Pennsylvania, in said estate. The said estate kept its books and its income was reported on a basis of cash receipts and disbursements.
6. In the return filed by the petitioner for the period from April 17, 1921, to December 31, 1921, a deduction of $88,502.78 was claimed for inheritance and estate taxes, explained in such return as follows:
| Paid July 15, 1921, Pennsylvania inheritance tax ($20,000.00 less 5% discount) | $19,000.00 |
| Paid January 12, 1922, Arkansas inheritance tax | 2,492.50 |
| Paid April 15, 1922, Minnesota inheritance tax | 3,100.00 |
| Paid April 15, 1922, Federal estate tax | 99,352.61 |
*1383 There is deducted in the year 1921 $88,502.78 of such inheritance and estate taxes being the amount of such taxes accruing in the year 1921 and the remainder will be deducted*3631 from the income of the administratrix in the year 1922, which is largely in excess of such income.
7. The final determination of the Commissioner for the taxable period from April 17, 1921, to December 31, 1921, disclosed the gross income, deductions and net income to be as follows:
| Interest on bonds | $26,874.95 | |
| Partnership income | 3,907.57 | |
| Rents and royalties | 9,140.95 | |
| Sale of stocks and bonds | 6,350.00 | |
| Dividends | 13,953.50 | |
| Gross income | 60,226.97 | |
| Deductions: | ||
| Local taxes paid | $1,279.50 | |
| Pennsylvania inheritance taxes | 19,000.00 | |
| Other expenses | 3,596.43 | |
| Total deductions | 23,875.93 | |
| Net income | 36,351.04 |
8. The final determination of the Commissioner for the taxable period January 1, 1922, to July 3, 1922, disclosed the gross income deductions and net income to be as follows:
| Interest | $16,313.97 | |
| Income from partnership | 915.81 | |
| Rents and royalties | 10,707.38 | |
| Profit from sales | 17,925.68 | |
| Dividends | 5,643.00 | |
| Total | 51,505.84 | |
| Deductions: | ||
| Federal estate tax | $99,352.61 | |
| Balance Pennsylvania inheritance tax | 3,464.18 | |
| 102,816.79 | ||
| Net income | None. |
9. The Federal estate tax on the said estate*3632 in the sum of $99,352.61 was paid on April 16, 1922, and such amount was allowed by the respondent as a deduction from gross income for the period January 1, 1922, to July 3, 1922, which amount was in excess of the gross income and resulted in no taxable net income for such period.
10. The said administratrix filed her first and final account of said estate in the Orphans Court of Allegheny County, Pennsylvania, on April 17, 1922, and the same was in due course audited and a decree of distribution was made on July 3, 1922.
11. In the return as filed by the said administratrix for the period January 1, 1922, to July 3, 1922, and as the income for said estate was finally determined by the Commissioner, the only income *1384 received after April 17, 1922, and included therein, were the following items:
| May 1 - Interest on deposit, First National Bank | $9.29 |
| University Club, interest on bonds, January, 1922 | 12.50 |
| Patterson Heights Water Co., interest on bonds February 1, 1922 | 75.00 |
| Beaver Valley Water Co., interest on $3,000 note | 60.00 |
| June 1 - First National Bank, interest on deposit | 7.40 |
| July 1 - First National Bank, interest on deposit | 7.64 |
| 171.83 |
*3633 OPINION.
SMITH: The petitioner made income-tax returns for the estate of which she is administratrix upon the basis of the calendar year. The first return filed was of the income of the estate from the date of the death of the decedent to December 31, 1921, and the second return from January 1, 1922, to July 3, 1922. In the return filed for the calendar year 1921, the respondent has permitted the deduction of all taxes paid in the calendar year 1921. He has not determined any deficiency in income tax for such portion of the period of administration as fell within the calendar year 1922. The returns were made upon the basis of cash receipts and disbursements. Since there is no claim that inheritance taxes paid by the States of Arkansas, Minnesota, South Dakota, New Jersey and Ohio were paid during the calendar year 1921, and since no deficiency in tax has been determined for 1922, it becomes unnecessary to consider whether such taxes paid in 1922 are deductible from gross income of that year.
The petitioner contends that inasmuch as the total taxes paid during the period of administration and admittedly deductible from gross income were in excess of the gross income of*3634 the estate during such period, the petitioner should be permitted to file an amended return upon the basis of a fiscal year beginning April 17, 1921, and ending April 17, 1922, the latter date being that on which she filed a complete and final account of the estate in the Orphans Court of Allegheny County, Pennsylvania.
The statute provides for the making of returns and the computing of net income of estates in section 219 of the Revenue Act of 1921, which reads in part as follows:
(a) That the tax imposed by sections 210 and 211 shall apply to the income of estates or of any kind of property held in trust, including -
(1) Income received by estates of deceased persons during the period of administration or settlement of the estate;
* * *
(b) The fiduciary shall be responsible for making the return of income for the estate or trust for which he acts. The net income of the estate or trust *1385 shall be computed in the same manner and on the same basis as provided in section 212, except * * *
Section 212 provides as follows:
(a) That in the case of an individual the term "net income" means the gross income as defined in section 213, less the deductions allowed*3635 by section 214.
(b) The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the Commissioner does clearly reflect the income. If the taxpayer's annual accounting period is other than a fiscal year as defined in section 200 or if the taxpayer has no annual accounting period or does not keep books, the net income shall be computed on the basis of the calendar year.
(c) If a taxpayer changes his accounting period from fiscal year to calendar year, from calendar year to fiscal year, or from one fiscal year to another, the net income shall, with the approval of the Commissioner, be computed on the basis of such new accounting period, subject to the provisions of section 226.
Section 200(1) provides that:
The term "taxable year" means the calendar year, or the fiscal year ending during such*3636 calendar year, upon the basis of which the net income is computed under section 212 or section 232. The term "fiscal year" means an accounting period of twelve months ending on the last day of any month other than December. * * *
The claim of the petitioner that she should be permitted to file a fiscal year return ending on April 17, 1922, is in any event untenable. The taxing statute specifically requires that net income shall be computed upon the basis of a twelve-month period "ending on the last puted upon the basis of a twelve-month period "ending on the last day of any month other than December" or on the basis of the calendar year. A twelve month period ending April 17th is not a "fiscal year" as defined in the statute and is not an accounting period which the respondent has authority under the statute to accept as a basis for an income-tax return.
The statute requires that a return be made upon the basis of "the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method*3637 employed does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the Commissioner does clearly reflect the income. * * *"
It is the contention of the petitioner that the annual accounting periods used by her in making returns for the estate of the decedent *1386 do not clearly reflect the income of the estate. It is apparent, however, that the last part of the sentence above quoted does not refer to the taxpayer's annual accounting period but only to the "method of accounting" used by the petitioner. The petitioner made a return for the estate for the calendar year 1921. The record does not show that the books of account of the estate were kept upon the basis of any other accounting period. The return is indicative of the accounting period used. The situation here is parallel to that before the court in , in which the court stated:
* * * The return shows that it was made on the basis of income actually received in 1919. This indicates that the accounts were kept on the basis of actual receipts and disbursements, and there is nothing in the record*3638 to show that any other method was employed. * * *
The only object which the petitioner seeks in having returns made upon a basis other than a calendar year is that the estate may have the benefit of deducting from the gross income of the period of administration the full amount of the taxes payable by the estate. There is no warrant in the statute for this.
Reviewed by the Board.
Judgment will be entered for the respondent.