*2024 1. INCOME. - Rents and income from property were impounded in the hands of a receiver during litigation to determine the true owner thereof. Held, that the receiver was a fiduciary who should have filed returns and paid the tax on such income. Held, further, that when the funds were released and paid over to petitioner in 1922, they were not an item of income to her in that year.
2. DEDUCTION FOR TAXES ON REAL ESTATE. - The petitioner, a life tenant, during the years 1919, 1920, and 1921, paid taxes upon real estate, using borrowed money for that purpose. She repaid the borrowed money in the year 1922. Held, that the deduction for taxes paid must be claimed and allowed for the year in which paid and not for the year in which the borrowed money was repaid.
3. CAPITAL EXPENDITURES. - During the years under review the petitioner paid various expense items as the cost to her of defending litigation in respect to her title to the property held as a life tenant. She also paid cost of replacing a sidewalk in front of the property and of replacing a furnace for heating the building on the property. Held, that each of these three classes of payments are capital*2025 expenditures and she, being a life tenant, may have the benefit of a deduction of such expenditures spread over the period from the year in which the items were paid to the end of the time when her estimated life estate would end, or, in the matter of the sidewalk and furnace, over the period of the useful life of such improvements, whichever is shorter.
*1067 The petitioner contends that in determining income tax deficiencies of $1,493.35, $44.15, and $22.44 for the calendar years 1922, 1923, and 1924, respectively, the respondent erred in disallowing (1) as a deduction for 1922, taxes for the years 1919, 1920, and 1921, alleged to have been paid in 1922; (2) as deduction for 1922, 1923, and 1924, amounts paid in those years for legal services for defending title to a life estate; (3) as a deduction for 1923, the expense of replacing a sidewalk in front of property in which petitioner had a life estate; and (4) as a deduction, the amount of $265 expended for the replacement of a furnace in that property.
FINDINGS OF FACT.
Petitioner is a resident of Syracuse, N.Y.
By deed of her father, *2026 the petitioner obtained a life estate in certain property situated at 333 South Salina Street, Syracuse. That street was one of the principal and most traveled streets in the city. After the death of petitioner's father, other members of the family *1068 contested her life interest in the property, and, pending the outcome of the litigation, the rents and income therefrom were impounded by the Court for a period of about four years. The petitioner borrowed funds from banks and others to pay the taxes on the property for years prior to 1922. The Court released the income from the property at or about 1922 and out of such funds petitioner repaid the loans.
The amounts expended by petitioner for legal services in defense of her life estate in the property were deducted by her in her income tax returns. The amount expended by petitioner in 1923 in replacing the sidewalk in front of the property was deducted by her in her income tax return for that year. The petitioner expended $265 in replacing a furnace in the property, which was rented, and claimed a deduction thereof from gross income. The respondent disallowed the claimed deduction in the amount of $4,438.32 for taxes*2027 for 1919, 1920, and 1921, for the reason that they were not paid in 1922, and he disallowed the claimed deductions for the other three items for the reason that they constituted capital expenditures.
OPINION.
TRUSSELL: It appears that respondent has included in petitioner's gross income for 1922 the total amount paid over to her by the Court in that year upon the termination of the litigation and the ascertainment of the party entitled to receive the rents and income from the South Salina Street property. That sum released to petitioner in 1922 included rents and income derived from the property during each of several years while the true ownership of such rents and income was not known and the Court impounded such funds in the hands of a receiver who held them in trust for the unascertained owner. Sections 219 of the Revenue Acts of 1918 and 1921 provide:
(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 -
* * *
(2) Income accumulated in trust for the benefit of unborn or unascertained persons * * *
* * *
(b) The fiduciary shall be responsible for making the return of income for*2028 the estate or trust for which he acts. * * *
(c) In cases under paragraph (1), (2), or (3) of subdivision (a) * * * the tax shall be imposed upon the net income of the estate or trust and shall be paid by the fiduciary * * *.
Sections 200 of the Revenue Acts of 1918 and 1921 provide:
(2) The term "fiduciary" means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person, trust or estate.
*1069 That receiver appointed by the Court, who received and held for the unascertained owner the rents and income from the said property as it was actually produced in years prior to and including a portion of 1922, was a "fiduciary" within the meaning of the applicable revenue acts and he was required to file returns for and pay the taxes on such income. ; .
In the case of , the Board had this same question under consideration. In that case the Commissioner contended the amount impounded in the hands of a receiver*2029 and released to the taxpayer in 1917 was income to the taxpayer in that year for it was on the cash receipts and disbursements basis. The Board held that the taxpayer's accounting basis was immaterial; that the receiver, appointed by reason of litigation, actually received the income and should have reported it for taxation; that if the receiver did not report it, that is not a sufficient reason for taxing the taxpayer thereon in a later year; and that the amount released to the taxpayer in 1917 was not income to it in that year.
We are of the opinion that the amount released by the Court and paid over by the receiver to the petitioner in 1922 was not an item of income to her in that year, and the proper adjustment should be made accordingly.
The petitioner alleges that she paid in 1922 the real estate taxes on the property for the years 1919, 1920, and 1921. However, such taxes were actually paid during those years and not in 1922, when the petitioner repaid the money borrowed for the purpose of paying such taxes. The petitioner being on the cash basis, a deduction on account of taxes must be claimed and allowed in the year when actually paid and, accordingly, petitioner*2030 is not entitled to the claimed deduction in 1922 for taxes.
The expenditures made by petitioner for defending her title to real property and for replacing the sidewalk in front of and the furnace in said property, constituted capital expenditures and she is entitled to the deduction thereof spread over the period from the year in which the items were paid to the end of the period of her estimated life expectancy, or, in the matter of the sidewalk and furnace, over the period of the useful life of such improvements, whichever is shorter.
There is no controversy as to the amounts claimed by petitioner and disallowed by respondent, and accordingly, the petitioner's tax liability should be recomputed for the years under review in accordance with this decision.
Judgment will be entered pursuant to Rule 50.