*2625 1. The Board will not inquire into the basis for the Commissioner's belief that jeopardy exists as provided by section 250(d) of the Revenue Act of 1921. Appeal of California Associated Raisin Co.,1 B.T.A. 1251">1 B.T.A. 1251 followed.
2. The Commissioner has the authority to reconsider and reverse a decision of a predecessor in office, unless precluded by the statute of limitations, where such decision and reversal involve only a question of law.
3. The bequests to the Lakeside Hospital and the College for Women of the Western Reserve University, involved herein, held not to be proper deductions in computing the petitioner's net income.
*255 This appeal is from the determination of a deficiency in income tax for the year 1918 in the amount of $90,283.66.
FINDINGS OF FACT.
Washington Tyler, a resident of Cleveland, Ohio, died May 27, 1917, leaving a last will and testament, which was duly admitted to probate and record in the probate court in and for Cuyahoga County, Ohio. Marion C. Tyler, wife of the decedent, Proctor Patterson, *2626 and James H. Dempsey, who were nominated as executors in the will and codicils thereto, were duly appointed and qualified as such executors. The will of the decedent, after making certain bequests not material here, provided that:
Item VIII. I give and bequeath the sum of Fifty Thousand Dollars ($50,000.00) to the College for Women of the Western Reserve University, of Cleveland, Ohio; said sum to be received by said College and to be thereafter known as the "Tyler Endowment Fund", the principal of which shall never be used for any *256 purpose, and the income of such fund devoted to the educational work of the institution. I desire that this fund shall be paid over at as early a date as may, in the judgment of my executrix and executor, be practicable, considering the interests of my entire estate, and that such sum may be paid in money or in such stocks or securities as and when my said executrix and executor may decide.
Item IX. It is my expectation to expend about the sum of Two Hundred Thousand Dollars ($200,000.00) in the erection in the City of Cleveland of a maternity hospital and the establishment to some extent of a fund for the maintenance and medical equipment*2627 thereof, for Lakeside Hospital.
If I should die during the construction of such hospital and before its completion, I hereby direct that the same be completed according to the then-existing plans and specifications therefor, and the expenses thereof paid from my estate, and that the total cost of the erection of said hospital be deducted from said sum of $200,000.00 and that the remainder of said sum be paid by my executrix and executor to Lakewise Hospital for the establishment by it of a permanent fund, the principal of which shall never be expended for any purpose, and the entire annual income therefrom disbursed under the supervision of the Board of Trustees of Lakewise Hospital for the maintenance and operation of said maternity hospital.
In the event said maternity hospital shall not have been completed and partially endowed by me prior to my death, or is not completed thereafter as hereinbefore set forth in this item, I give, devise and bequeath to Lakeside Hospital, of Cleveland, Ohio, the sum of Two Hundred Thousand Dollars ($200,000.00) which said sum shall, by the Trustees of said institution, be used as follows, to-wit:
1st. About the sum of One hundred thousand*2628 dollars ($100,000.00), shall be expended for the erection and equipment of a suitable building to be used by said institution as a maternity hospital.
2nd. The remainder of said fund shall be devoted to the establishment of a permanent fund, the principal of which shall never be expended for any purpose, and the entire income therefrom disbursed under the supervision of the Board of Trustees of Lakeside Hospital for the maintenance and operation of said maternity hospital.
3rd. In the event a maternity hospital shall have been otherwise provided for said Lakeside Hospital prior to my death, I give, devise and bequeath to said Lakeside Hospital the sum of Two Hundred Thousand Dollars ($200,000.00) payable in money or securities of that value, in the discretion of my executrix and executor, for the establishment of a fund, the principal of which shall never be used for any purpose, and the entire income therefrom expended under the supervision of said Trustees for the maintenance and operation of the Maternity Hospital of said Lakeside Hospital.
The provisions of this item are to be complied with by my executrix and executor as soon after my decease as is consistent with the*2629 best interests and management of my estate and are made, for the purpose aforesaid, as a joint gift from my beloved wife, Marion C. Tyler, and myself.
Item X. In the event my wife, Marion C. Tyler, shall survive me, I give, devise and bequeath to her all the rest, residue and remainder of my estate, real, personal and mixed, of which I shall die possessed or to which I shall be entitled, to be hers absolutely and to her heirs, forever. From the income derived from said rest, residue and remainder of my said estate, it is my wish that there be paid to my said wife during her natural life, and I so request, to my beloved daughter, Elizabeth Clark Tyler Miller, a sum not less than Twenty-five *257 Thousand Dollars ($25,000.00) per annum, in such amounts and at such times as shall be most convenient to my said wife and daughter. The provision for the payment of said sum of twenty-five thousand dollars per annum to my said daughter shall not in any sense be an obligation upon my estate, as I fully trust my beloved wife to execute my wish in this respect.
Item XI. In the event that my wife, Marion C. Tyler shall not survive me, I give, devise and bequeath all the rest, residue*2630 and remainder of my estate, real, personal and mixed, of which I shall die possessed or to which I shall be entitled, and that may hereafter come into the possession of the representatives of my estae, to The Citizens Savings & Trust Company, a corporation of the State of Ohio, having its principal office in the City of Cleveland, Ohio, as Trustee, in trust for my daughter, Elizabeth Clark Tyler Miller of Cleveland, Ohio, and her children; the conditions of said trust being as hereinafter provided.
* * *
Item XII. * * * I direct my said executrix and executor to collect all sums due to me from any and all persons, and I authorize and empower them or either of them, to compromise, extend, or settle, all claims due to me; to make such sales and leases of my property real and personal, as to them shall seem wise; to make any change in any or all of my investments from time to time as to them shall seem to the interest of my estate; hereby giving to them full power of sale, disposition, management, investment and reinvestment, of all property of which I shall die possessed, with authority, to make, execute and deliver deeds and conveyances of real estate or transfers or assignments*2631 of all other property.
By codicil of his will, the testator provided that:
I direct that no sale of any portion or all of my stock in the W. S. Tyler Company, of Cleveland, Ohio, be at any time made by The Citizens Savings & Trust Company, the trustee named in my said will, without the approval, in writing, of the then President of said institution, Proctor Patterson and James Dempsey, or the survivor of the last two mentioned.
By another codicil to his will, the testator also provided that:
I do hereby revoke that portion of Item X of said will, which requests my beloved wife, Marion C. Tyler, to pay from my estate the sum of Twenty-five Thousand Dollars ($25,000.00) per annum to my beloved daughter, Elizabeth Clark Tyler Miller, and, in lieu of said request, in the event my said wife is living at the time of my decease, and during the remainder of the natural life of my said wife, I hereby give, devise, and bequeath to my said beloved daughter, Elizabeth Clark Tyler Miller, the sum of Twenty-four thousand dollars ($24,000.00) per annum, payable in equal monthly installments of two thousand dollars each; and I direct that my executrix and executors pay said amount to her*2632 in such equal monthly installments from income from my estate during said period, and that the same shall be a charge upon my estate; and in the event my estate should be closed in the Probate Court, I hereby authorize my executrix and executors to make such provision as to them may seem advisable for the payment of said annual sum. I do not intend that this provision, for the annual payment of said sum of Twenty-four thousand dollars, as aforesaid, shall prevent the closing of my estate in the Probate Court if that becomes desirable, and, in order that it shall not so operate, I hereby authorize and empower my executrix and executors, or their survivors, to make such arrangements as to them may seem wise for the payment of said sum annually as hereinbefore provided in the event it becomes desirable to close my estate.
*258 Marion C. Tyler, wife of the testator, survives him and is one of the executors in this appeal.
In the income-tax return of the Estate of W. S. Tyler, for the year 1918, the executors deducted from gross income as "payments to charity," $218,000, consisting of $200,000 paid during the year to Lakeside Hospital and $18,000 paid to the Western Reserve*2633 University, in accordance with the provisions of items 8 and 9 of the testator's last will and testament. The then Commissioner disallowed the deductions and, on or about March 29, 1920, assessed additional tax against the estate for the year 1918 in the amount of $82,607.62. A claim for abatement of the additional tax was filed by executors of the estate and on April 28, 1921, they were notified by the then Commissioner that the claim for abatement was allowed in full.
On January 22, 1924, the executors were served with a copy of a report dated May 14, 1923, made by the internal revenue agent in charge at Cleveland, Ohio, having reference to the tax liability of the estate for the years 1918 and 1919, and recommending additional tax for the year 1918 in the amount of $90,283.66. The additional tax for 1918 was based on the disallowance as a deduction from gross income of the payments aggregating $218,000, made to the Lakeside Hospital and the Western Reserve University in that year. The executors later received a letter from the Commissioner dated February 9, 1924, notifying them that an examination of the income-tax return of the estate for the year 1918 disclosed additional*2634 tax liability for that year in the amount of $90,283.66, and that because of the expiration, at an early date, of the statutory period for assessment, and in order that the interests of the Government might not be jeopardized, assessment of the additional tax would be made immediately without giving the 30 days' notice provided by section 250(d) of the Revenue Act of 1921. The additional tax was assessed in February, 1924, and the petitioner filed a claim for the abatement thereof. The claim for abatement was rejected by the Commissioner on March 2, 1925.
No new evidence or date bearing on any issue involved herein, nor on the accounts, receipts and payments of the estate, had been adduced by or presented to the Commissioner since the filing and allowance of the petitioner's original claim for abatement in the year 1921.
The estate of the decedent, at the time of his death, was of the value of $1,120,567.51, and consisted of the following property:
| Cash | $53,267.51 |
| Real estate | 50,000.00 |
| 7,108 shares of the capital stock of the W. S. Tyler Co | 888,500.00 |
| Other securities | 128,800.00 |
| Total | 1,120,567.51 |
*259 During the period from May 27, 1917, to*2635 March 28, 1919, the date the executors filed their final account, the estate of the decedent received dividends and interest in the amount of $377,976.94. During that period the executors made disbursements in the amount of $458,233.25, including the payment of all legacies provided for in the will of the decedent, all debts and taxes due from the estate, and the expenses of administration. The entire amount of the legacy of $200,000 to the Lakeside Hospital was paid in the year 1918. Eighteen thousand dollars of the legacy to the Western Reserve University was paid in the year 1918 and the remainder thereof was paid in the year 1919.
On March 28, 1919, Marion C. Tyler, one of the executors of the decedent's estate and the residuary legatee under his will, entered into a written agreement with Elizabeth C. Tyler Miller, the decedent's daughter, who, by the second codicil to decedent's will, was devised and bequeathed $24,000 per annum during the lifetime of the said Marion C. Tyler, which written agreement was as follows:
I, Marion C. Tyler, residuary legatee under the will of Washington S. Tyler, deceased, hereby assume and agree to pay, during the period of my lifetime, the*2636 sum of two thousand dollars per month, as provided by the terms of said will to be paid to my daughter, Elizabeth C. T. Miller, and in accordance with the provisions in said will authorizing the said executrix and executors to arrange for payment of the sum aforesaid otherwise than by the said executrix and executors under said will.
And I, Elizabeth C. T. Miller, hereby release and discharge the executrix and executors under the will of my father, Washington S. Tyler, and the estate of said decedent, from all liability to me for the payment of said two thousand dollars per month during the life of my mother, Marion C. Tyler; and I hereby accept, ratify and approve the provision made for me by said executrix and executors for said monthly payment.
MARION C. TYLER.
ELIZABETH C. T. MILLER.
The estate of the decedent was thereupon closed and the final account of the executors was duly filed in the probate court in and for Cuyahoga County, Ohio.
OPINION.
MARQUETTE: The petitioner contends that the assessment of tax involved herein is invalid for the reason that the early expiration of the statute of limitations does not constitute jeopardy to collection of the tax, within*2637 the meaning of section 250(d) of the Revenue Act of 1921, under which the assessment was made, and that the petitioner was entitled to the 30-day notice and opportunity to protest provided by said section. We think the petitioner's contention is not well founded. Section 250(d) of the Revenue Act of 1921 provides that, if upon examination of a return made under the Revenue Act *260 of 1916, the Revenue Act of 1917, the Revenue Act of 1918, or the Revenue Act of 1921, a tax or a deficiency in tax is discovered, the taxpayer shall be notified thereof and given a period of not less than 30 days in which to file an appeal and show cause or reason why the tax or the deficiency should not be paid, that opportunity for a hearing on the appeal should be given, but "that in cases where the Commissioner believes that the collection of the amount due will be jeopardized by such delay, he may make the assessment without giving notice or awaiting the outcome of such hearing." It will be observed that the Commissioner is expressly authorized to dispense with the 30-day notice and the hearing provided by section 250(d) when he believes that collection of the tax will be jeopardized by the*2638 delay incident to the giving of such notice and hearing. The Commissioner, in this case, determined that the collection of the tax would be jeopardized if the usual 30-day notice and opportunity for appeal were given, and this Board will not inquire into the correctness of his determination. . The assessment involved in that appeal was made under the authority of section 274(d) of the Revenue Act of 1924, which contains a provision in regard to jeopardy assessments substantially the same as the above quoted provision of section 250(d) of the Revenue Act of 1921. The Board, in holding that it would not inquire into the basis of the Commissioner's belief that jeopardy exists as provided in section 274(d) of the Revenue Act of 1924, said:
But the taxpayer urges that the assessment was erroneous because no jeopardy in fact existed, and that any belief of the Commissioner of the necessity of a jeopardy assessment is not well founded and can not form the basis for a valid assessment under subdivision (d). The ground of the Commissioner's belief and assessment is that the taxpayer is bankrupt and its property*2639 is in possession of a trustee in bankruptcy under the Bankruptcy Act. This, says the taxpayer, so far from denoting jeopardy, assures to the United States the protection of the assets for the purpose of paying taxes as a preferred obligation. Furthermore, it is said that the trustee, having already filed his official bond for faithful performance, is not in position to file any bond which may be required by the Revenue Act, section 279, to accompany a claim for abatement; and hence it will have no opportunity to appeal under section 279.
We are, however, constrained to the view that these are matters which, if they be true, are not within our authority to adjudicate. Congress has expressly based the power of jeopardy assessment upon the Commissioner's official belief, consistently with his responsibility for the protection and collection of the revenue. If he so exercise this power as to be arbitrary and oppressive the remedy lies with the courts, as it does with any official abuse of power or discretion.
We think that the decision in the *2640 , applies with equal force as to the situation presented *261 here and on the authority of that decision we determine this issue in favor of the Commissioner.
The next question relates to the power of the respondent to reconsider and reverse the decision of his predecessor in office. We are of the opinion in the instant case he has that power. There is no dispute as to the facts. They were the same before the former Commissioner as before the present one and the decision of each involves only an interpretation of the statute authorizing deductions in computing net income. They involve no conclusion of fact. As we have heretofore stated in the Appeal of Yokohama Ki-Ito Kwaisha, ltd.,, "An erroneous interpretation of a statute by the Commissioner does not conclude the United States on a subsequent modification of the ruling, or create equities in favor of the petitioner requiring the judicial adoption of the first interpretation." See also *2641 .
Under the statute it was clearly the duty of the present Commissioner to determine the petitioner's true tax liability at any time within five years from the date the return was filed, and we are of the opinion that since his action in reversing the decision of his predecessor involved only a question of law and was not barred by any statute of limitations, it is valid.
The final question is, whether or not the petitioner is entitled, in computing its net income for the year 1918, to deduct the amount of $218,000 paid in that year to the Western Reserve University and the Lakeside Hospital, under the circumstances set forth in the findings of fact. The petitioner contends that it is entitled to the deduction under the provisions of section 219(b) of the Revenue Act of 1918. Section 219 of the Revenue Act of 1918, provides in part:
ESTATES AND TRUSTS.
SEC. 219. (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*2642 of the estate;
(2) Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests;
(3) Income held for future distribution under the terms of the will or trust; and
(4) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct.
(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 shall be computed in the same manner and on the same basis as provided in section 212, except that there shall also be allowed as a deduction (in lieu of the deduction authorized by paragraph (11) of subdivision (a) of section *262 214) any part of the gross income which, pursuant to the terms of the will or deed creating the trust, is during the taxable year paid to or permanently set aside for the United States, any State, Territory, or any political subdivision thereof, or the District of Columbia, or any corporation organized and operated exclusively for religious, charitable, scientific, *2643 or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual; and in cases under paragraph (4) of subdivision (a) of this section the fiduciary shall include in the return a statement of each beneficiary's distributive share of such net income, whether or not distributed before the close of the taxable year for which the return is made.
(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, except that in determining the net income of the estate of any deceased person during the period of administration or settlement there may be deducted the amount of any income properly paid or credited to any legatee, heir or other beneficiary. In such cases the estate or trust shall, for the purpose of the normal tax, be allowed the same credits as are allowed to single persons under section 216.
It is admitted by the Commissioner that the Western Reserve University and the Lakeside Hospital are corporations organized and operated exclusively for religious, *2644 charitable, scientific, or educational purposes. It is therefore only necessary to determine whether the $218,000 in question was "part of the gross income which, pursuant to the terms of the will or deed creating the trust," was paid to those institutions in the year 1918. The construction placed by the petitioner on the language just quoted assumes the existence of a comma after the word "will," and that the language should be construed as meaning that if a will gives an executor discretion to pay a legacy as he sees fit, out of principal, income, or both, and the executor in fact pays the same out of income, then the payment is made out of income "pursuant to the terms of the will." But we should not stop there. The language which Congress enacted in the law, was "terms of the will or deed creating the trust." The clause "creating a trust" modifies or limits both "will" and "deed." That the omission of the comma was not a mere accident, is apparent from the conference report submitted on behalf of the managers of the Senate and House on the legislation which became the Revenue Act of 1918. In two places in that report there appears the identical language used in the Act, that*2645 is, "pursuant to the terms of the will or deed creating the trust." It seems clear to us that Congress intended to cover the situation where a trust was created either by a will or by a deed, and where the terms thereof provided for the payment to a charitable, religious, scientific, or educational corporation of all or part of the income of that trust, and not to the situation where executors, acting within discretionary powers, pay a legacy out of income. We are, therefore, of the *263 opinion that the situation presented in the instant appeal does not come within the provisions of section 219(b) of the Revenue Act of 1918, and that the petitioner is not entitled to any deduction from gross income under that section.
While the petitioner, incomputing its net income for the year 1918, is not entitled to deduct the legacies in question, under the provision of section 219(b) of the Revenue Act of 1918, it might be contended that it is entitled to the deduction under section 219(c) of that Act, which provides that -
in determining the net income of the estate of any deceased person during the period of administration or settlement there may be deducted the amount of any*2646 income propery paid or credited to any legatee, heir or other beneficiary.
In order properly to determine whether or not the petitioner is entitled to a deduction under section 219(c) of the Revenue Act of 1918, we must inquire as to whether the legacy was, by the terms of the will, made payable out of the income of the testator's estate. The will contains no provisions expressly directing the executors to pay the legacies to the Western Reserve University and the Lakeside Hospital out of income rather than principal. It may be observed that when the testator had in mind the use of the income of his estate for the payment of a legacy, he made a definite provision to that effect, for instance, the codicil of March 15, 1916. In our opinion the language of the will giving the executors discretion as to the time when the legacies should be paid was inserted for the purpose of preventing the legatees from making any legal demand for payment at a time which might force the sale of the principal of the estate to the disadvantage of the estate, thereby adversely affecting the interest of the testator's wife as the residuary legatee, or his daughter, as the recipient of an annuity or*2647 the income from the trust. The petitioner attaches great weight to the codicil of October 8, 1910, as an expression of the testator's intent that the stock in the W. S. Tyler Co. should not be used for the payment of legacies provided by his will. We do not think, however, that the codicil of October 8, 1910, is susceptible of that construction. It was clearly intended to operate as a restriction upon the powers of the Citizens Savings & Trust Co., as trustees for the testator's daughter, in the event the trust for her benefit should come into existence, and was not intended as a limitation or restriction upon the powers of the executors. The trust for the benefit of the daughter was to be created only in the event that the testator's wife did not survive him. However, she did survive him, so that the trust was never created and the codicil of October 8, 1910, did not become operative.
*264 We are unable to find any authority in the decedent's will for holding that the legacies in question were intended by him to be paid out of the income rather than the corpus of his estate. The construction most favorable to the petitioner, of which the provisions of the will are*2648 susceptible, is that they do not expressly prohibit the legacies from being paid out of income. However, they would have been payable, even if the estate had no income, and they were required to be paid before any part of the estate could be turned over to the residuary legatee. The Western Reserve University and the Lakeside Hospital had no right, under the testator's will, to demand any part of the income of his estate but they did have a right to $250,000 of the corpus of his estate. We therefore think that it can not be properly held that the legacies in question represent "income properly paid or credited to any legatee, heir or beneficiary" during the period of the administration or settlement of an estate, and that the petitioner is not entitled, in computing its net income for the year 1918, to deduct the amount of the legacies paid in that year, under the provisions of section 219(c) of the Revenue Act of 1918.
The testator died in May, 1917, and his estate bore an estate tax under the Revenue Act of 1916 which did not permit the deduction from the gross estate of legacies payable to charitable, religious, scientific or educational corporations. By the Revenue Act of*2649 1918 such deductions were granted to the estates of all persons dying after December 31, 1917. If the testator had died subsequent to December 31, 1917, we are satisfied that the legacies involved herein would have been deductible in computing his net estate subject to the Federal estate tax, under the Revenue Act of 1918, but we do not think they are proper deductions in computing the net income of the estate under the Revenue Act of 1918.
Reviewed by the Board.
Judgment will be entered for the Commissioner.
MILLIKEN did not participate.