Nichols v. Commissioner

GEORGE NICHOLS AND MARY B. NICHOLS, EXECUTORS, ESTATE OF JOHN W. T. NICHOLS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Nichols v. Commissioner

Docket No. 9599.

United States Board of Tax Appeals 10 B.T.A. 919 ; 1928 BTA LEXIS 3998 ; February 21, 1928 , Promulgated *3998 Decedent's distributive share of commissions earned during his lifetime by a partnership of which he was a member is not income to his estate when received by it.

D. A. Embury, Esq., for the petitioners.

John W. Fisher, Esq., for the respondent.

LOVE *919 This proceeding is for the redetermination of a deficiency in income tax for the calendar year 1922 in the amount of $45.30. The petitioners allege that the Commissioner erred in including in the gross income of the estate for the year 1922, the amount of $2,752.83 paid to them during that year by a copartnership of which decedent prior to and at the time of his death was a member, which amount represented decedent's distributive share of commissions received by the partnership during the year 1922 on account of services performed prior to decedent's death and which amount had been theretofore included in decedent's gross estate for the purpose of determining the tax thereon.

FINDINGS OF FACT.

John W. T. Nichols died April 25, 1920, leaving a will wherein and whereby petitioners herein were named as executors. The decedent prior to his death kept his books on the basis of cash receipts *3999 and disbursements and the estate, subsequent to his death, kept its books on the same basis.

The decedent prior to and at the time of his death, was a member of a copartnership trading under the name and style of Minot Hooper & Company, at 11 Thomas Street, New York City. The business of the partnership was that of selling agents, on commission.

The articles of copartnership in effect at the time of decedent's death contained the following provision:

In case of the death of any partner, his interest in the partnership shall cease with the last day of the month in which he dies and his interest in the partnership shall be liquidated and paid over to his estate as fast thereafter as the proper conduct of the business will allow.

Prior to April 25, 1920, the date of decedent's death, while he was a member thereof, the partnership had, for the accounts of the principals, sold certain goods, wares and merchandise, on commission. The commissions on the sales were earned prior to April 25, 1920, but were not due and payable until after that date.

*920 During the year 1922, the partnership received certain sums as commissions earned prior to decedent's death, and of *4000 the sums so received, the decedent's distributive share amounted to $2,752.83, which amount was in the year 1922 paid to the petitioners as executors of the estate.

The amount of $2,752.83 so received by the petitioners during the year 1922, was included as a part of decedent's gross estate and an estate tax was assessed and paid thereon.

The petitioners, in the income-tax return of the estate for 1922, excluded the sum of $2,752.83 from gross income reported therein. Upon audit of the return, the Commissioner determined that the amount had been erroneously excluded, and, accordingly, the gross income was increased by that amount, which action resulted in the deficiency herein.

OPINION.

LOVE: It is contended by the petitioners that the decedent's distributive share of commissions earned by the partnership prior to his death was capital in the hands of the estate and was not taxable income when received by it. The respondent, on the other hand, contends that the commissions constituted taxable income when received by the estate.

The same issue with respect to the year 1920 as is presented in this proceeding for the year 1922 was decided favorably to the petitioners *4001 by the United States Court of Claims in Nichols v. United States, 6 Am.Fed. Tax Rep. 6592.

The Board, in considering substantially the same issue, in , cited with approval Nichols v. United States, supra. Accordingly, the Commissioner's action in including the amount of $2,752.83 in income of the estate for the year 1922 is reversed.

Judgment will be entered for the petitioners.