1962 U.S. Tax Ct. LEXIS 46">*46
1.
2.
3.
39 T.C. 170">*171 In these consolidated proceedings, the Commissioner determined deficiencies in income tax and related transferee liability as follows:
Docket No. | Taxable year ended | Name of taxpayer |
Oct. 27, 1944, to | Elaine Yagoda (formerly | |
82641 | Dec. 31, 1944. | Elaine Drechsler). |
Dec. 31, 1945 | ||
82642 | Oct. 27, 1944, to | Trust for the Benefit of |
Dec. 31, 1944. | Lena Drechsler. | |
Oct. 27, 1944, to | Trust for the Benefit of | |
82643 | Dec. 31, 1944. | Elaine Drechsler. |
Dec. 31, 1945 | ||
Oct. 27, 1944, to | ||
82644 | Dec. 31, 1944. | Lena Drechsler |
Dec. 31, 1945 |
Docket No. | Kind of liability | Amount |
Transferee based on Docket | $ 14,686.30 | |
82641 | No. 82643. | |
13,002.84 | ||
82642 | Income tax | 14,686.30 |
82643 | Income tax | 14,686.30 |
13,002.84 | ||
Transferee based on Docket | 14,686.30 | |
82644 | No. 82642. | |
Income tax | 12,742.84 |
The initial question presented is whether the mitigation provisions of sections 1311-1314 of the 1954 Code apply herein to permit the assessment and collection of the determined deficiencies which would otherwise be barred by the statute of limitations. If this question is decided in the affirmative, the issues then remaining are whether Lena Drechsler is liable1962 U.S. Tax Ct. LEXIS 46">*49 as transferee for the tax liability of the trust for her benefit for the year 1944 and whether Elaine Yagoda is liable as transferee for the tax liability of the trust for her benefit for the years 1944 and 1945.
FINDINGS OF FACT.
Almost all of the facts were stipulated and, as stipulated, are incorporated herein by this reference. In addition, the parties have stipulated that the findings in
During the calendar years 1944 and 1945 Gus Drechsler and petitioner Lena Drechsler were husband and wife, and petitioner Elaine Yagoda (formerly Elaine Drechsler) was their daughter.
Gus was a 60-percent stockholder in T. Frederick Jackson, Inc., a corporation engaged in the business of electrical contracting. There were two other stockholders: Harold Webster and Ray Leroy Hagan. On March 8, 1944, the corporation entered into a contract with East Coast Shipyards, Inc. (a prime contractor under a contract with the National Maritime Commission), to perform work on certain tankers. On October 26, 1944, this contract was1962 U.S. Tax Ct. LEXIS 46">*50 assigned by the corporation to a partnership, T. F. Jackson Company, which was formed that day by Gus and the two remaining shareholders in the corporation. Gus held a 60-percent partnership interest in T. F. Jackson Company. The maritime contracts were assigned to the partnership in order to separate them from the work done by the corporation on shore projects.
Pursuant to prearranged plan, Gus created two irrevocable trusts with respect to his partnership interest in T. F. Jackson Company 39 T.C. 170">*172 on October 27, 1944. One trust was for the benefit of his wife, Lena, and the other trust was for the benefit of his daughter, Elaine. Gus was named as trustee of each trust; Charles Drechsler was named successor trustee of Lena's trust and Lena was named successor trustee of Elaine's trust. Gus made a gift of a 27-percent interest in the partnership to each trust, and he thereby retained only a 6-percent interest in the partnership in his own name. Webster and Hagan each similarly transferred a portion of their interests in the partnership to trusts for the benefit of certain members of their families.
On April 9, 1945, Lena terminated the trust for her benefit in accordance with1962 U.S. Tax Ct. LEXIS 46">*51 the provisions of the trust and received all of the property of the trust, including accumulated income. By this action Lena became a 27-percent partner in her own right in T. F. Jackson Company.
The partnership of T. F. Jackson Company "terminated" its business and existence on August 31, 1945. Thereafter, such actions were taken as were necessary to wind up its affairs and make final distribution of its assets.
The original partnership return for the period beginning October 27, 1944, and ended December 31, 1944, was filed on or about March 15, 1945, and an amended return for the same period was filed on or about May 15, 1945. The original return for this period reflected partnership net income of $ 118,821.03, and the amended return reflected net income of $ 140,777.20. In computing the distributable shares of ordinary net income for the partnership year ended December 31, 1944, Gus, the trust for the benefit of Lena, and the trust for the benefit of Elaine were shown as entitled to 6 percent, 27 percent, and 27 percent, respectively, of said partnership income after deducting salaries and loans to certain partners. These proportionate shares of partnership income were included1962 U.S. Tax Ct. LEXIS 46">*52 by Gus and the two trusts in their respective income tax returns for 1944.
The partnership return for the period beginning January 1, 1945, and ended August 31, 1945, was filed on or about October 31, 1945, and reflected net income of $ 124,678.08. In computing the distributable shares of ordinary net income for the partnership in this period, Gus, Lena, and the trust for the benefit of Elaine were shown on the partnership return as entitled to 6 percent, 27 percent, and 27 percent, respectively, of said partnership income after deducting salaries and interest on loans paid to certain partners. These proportionate shares of partnership income were reported in the respective 1945 income tax returns for Gus, Lena, and the trust for the benefit of Elaine.
In its original tax return for the period beginning October 27, 1944, and ended December 31, 1944, the trust for the benefit of Lena reported $ 29,133.28 as its share of distributable net income from the partnership, 39 T.C. 170">*173 and this amount was increased to $ 35,061.44 in an amended return. The original return was filed on or about March 15, 1945, and the amended return was filed on or about May 15, 1945. The tax shown on the 1962 U.S. Tax Ct. LEXIS 46">*53 original return for this period was $ 13,491.63, which was paid by the trust on or about March 15, 1945. The tax shown on the amended return was $ 17,433.78, and the additional amount due of $ 3,942.15 was paid by Lena on or about May 15, 1945.
In her individual income tax return for the calendar year 1945, filed on or about March 15, 1946, Lena reported $ 28,381.28 as distributable net income from the trust for her benefit, which in turn represented distributable net income from the partnership in 1945. The tax shown on Lena's return for 1945 and paid by Lena was $ 11,617.70.
The trust for the benefit of Elaine reported $ 29,133.28 as its share of distributable net income from the partnership in its original tax return for the period beginning October 27, 1944, and ended December 31, 1944. This amount was increased to $ 35,061.44 in an amended return. The original return was filed on or about March 15, 1945, and the amended return on or about May 15, 1945. The tax shown on the original return for this period was $ 13,491.63, which was paid by the trust on or about March 15, 1945. The tax shown on the amended return was $ 17,433.78, and the additional amount of $ 3,942.15 was1962 U.S. Tax Ct. LEXIS 46">*54 paid by the trust on or about May 15, 1945.
For the calendar year 1945, the trust for the benefit of Elaine reported $ 28,381.28 as its share of partnership income in 1945. The tax shown on the trust's return for 1945 and paid by the trust was $ 11,877.70.
The returns for the two trusts for 1944 and Lena's individual return for 1945 and the return for the trust for the benefit of Elaine for 1945 were each filed with the collector of internal revenue for the third district of New York.
Gus filed an original individual income tax return for the calendar year 1944 on or about March 15, 1945, and an amended return on or about May 15, 1945. Gus reported a 6-percent distributive share of the net income of the partnership for the taxable period ended December 31, 1944. Gus died on January 12, 1946, and Lena qualified as executrix on April 3, 1946. Lena also became successor trustee of the trust for the benefit of Elaine. Lena as executrix filed a Federal income tax return for Gus for the year 1945 sometime between April 3, 1946, and September 1, 1946. In such return a 6-percent distributive share of the net income of the partnership was reported for the period January 1, 1945, to August1962 U.S. Tax Ct. LEXIS 46">*55 31, 1945.
The income tax returns of the partnership (T. F. Jackson Company), Gus, and the two trusts for 1944 and 1945 and the individual return of Lena for 1945 were examined as a unit by the Commissioner. 39 T.C. 170">*174 By letters of transmittal dated October 29, 1947, the respective parties were advised that the income of the partnership was being taxed to its related corporation T. Frederick Jackson, Inc., and not to the reporting partners. All of the taxpayers were represented by the same counsel, who was not in agreement with this determination.
Subsequently, on June 30, 1948, after protest and several hearings, the Commissioner revised his determination and recognized a partnership of Gus, Webster, and Hagan, but not their families. It was also determined that $ 15,148.94 of income reported by the partnership was taxable to the corporation. The Commissioner refused to recognize either the two trusts or Lena, individually, as bona fide partners of T. F. Jackson Company during 1944 or 1945 and treated their respective shares of the partnership income, adjusted for the $ 15,148.94 transferred to the corporation, as income to Gus. As a result, deficiencies were determined against1962 U.S. Tax Ct. LEXIS 46">*56 Gus Drechsler, deceased, for the years 1944 and 1945 of $ 47,927.11 and $ 42,258.90, respectively.
Lena Drechsler, as executrix of the estate of Gus Drechsler, in his behalf filed waivers of the right to petition the Tax Court with respect to the deficiencies determined by the Commissioner for 1944 and 1945. At the time these waivers were signed, counsel for the estate of Gus Drechsler, although tentatively agreeing to the proposed deficiencies, stated that they disagreed with the Internal Revenue Service's interpretation of the decided cases and contemplated filing claims for refund after the deficiencies in tax were paid.
The deficiencies in tax, together with interest thereon, were paid in full on November 19, 1948, said payment being effected in part by the Commissioner crediting against the deficiencies the following proposed overassessments (scheduled on later dates, as set out below) in favor of the trusts and Lena Drechsler:
Taxpayer | Year | Date of certificate | Amount |
of overassessment | |||
Elaine Drechsler Trust | 1944 | Mar. 2, 1949 | $ 17,433.78 |
Elaine Drechsler Trust | 1945 | Mar. 2, 1949 | 11,877.70 |
Lena Drechsler Trust | 1944 | Mar. 2, 1949 | 16,983.26 |
Lena Drechsler Trust | 1944 | May 6, 1952 | 450.52 |
Lena Drechsler | 1945 | Nov. 22, 1949 | 11,617.70 |
1962 U.S. Tax Ct. LEXIS 46">*57 Interest refunds were received with respect to the overassessments as follows:
Taxpayer | Year | Date | Amount |
Elaine Drechsler Trust | 1944 | Aug. 27, 1950 | $ 3,708.84 |
Elaine Drechsler Trust | 1945 | Aug. 27, 1950 | 1,841.04 |
Lena Drechsler Trust | 1944 | Aug. 27, 1950 | 3,611.98 |
Lena Drechsler | 1945 | Mar. 24, 1950 | 1,800.74 |
39 T.C. 170">*175 On August 9, 1949, Lena Drechsler, as executrix of the estate of Gus Drechsler, filed claims for refund of the deficiencies for 1944 and 1945 which had been paid on November 19, 1948. These claims were based upon the correction in Gus Drechsler's share of the partnership income of T. F. Jackson Company and were for $ 48,517.92 and $ 42,333.24 for 1944 and 1945, respectively.
An examination of the claims for refund for 1944 and 1945 was made shortly thereafter by the office of the internal revenue agent in charge. Counsel for the estate of Gus Drechsler was informally advised by telephone by the revenue agent examining the claims that Eugene Kraus, previous conferee on the case, was of the opinion that the claims could not be allowed and recommended that they be withdrawn. Counsel for the estate shortly thereafter called Eugene Kraus and advised him that1962 U.S. Tax Ct. LEXIS 46">*58 the claims would not be withdrawn and that the Government should take the necessary steps to protect its position with regard to the trusts for the benefit of Lena and Elaine and with regard to Lena, individually. Kraus replied that it was not necessary to send out deficiency notices to these other taxpayers, since any refund to the estate could not exceed the cash payment of approximately $ 48,000 which had been paid within 2 years of the filing of claims for refund.
The claims for refund were officially disallowed by the Commissioner on January 26, 1950, and protest to such action was filed on behalf of the estate on February 10, 1950. A conference was held on August 31, 1951, with the Commissioner's appellate staff with respect to the claims for refund. The claims were rejected by letter dated February 6, 1952, and by registered mail dated March 27, 1952.
On December 16, 1953, Lena Drechsler, as executrix of the estate of Gus Drechsler, filed suit in the United States District Court for the Southern District of New York against the United States for refund of the 1944 and 1945 deficiencies in tax and interest. The suit was tried and resulted in judgment for the plaintiff. 1962 U.S. Tax Ct. LEXIS 46">*59 The District Court rendered its opinion (reported at
Correction of the effect of the error of eliminating or excluding any share of partnership income from the returns of the trusts for 1944 and the returns of Elaine's trust and Lena, individually, for 1945 was prevented by the operation of the normal statute of limitations on September 19, 1958, when the decision of the District Court became final.
Pursuant to the judgment of the District Court, the estate of Gus Drechsler received refunds for the years 1944 and 1945 on or about 39 T.C. 170">*176 January 9, 1959, in the aggregate amount of $ 169,374.47, composed of the following:
Refund of income taxes | $ 90,186.01 |
Refund of assessed interest previously paid | 15,391.01 |
Statutory interest on above | 63,797.45 |
169,374.47 |
Statutory notices of deficiency were sent to the petitioners herein by registered mail on June 5, 1959.
Prior to its termination on April 9, 1945, the trust for the benefit of Lena Drechsler had 1962 U.S. Tax Ct. LEXIS 46">*60 received total gross income from T. F. Jackson Company in the amount of $ 29,133.28, from which it paid Federal and New York State income taxes aggregating $ 14,841.70. The remaining balance of $ 14,291.58 was distributed to Lena on April 9, 1945. On or about May 15, 1945, Lena paid $ 3,942.15 as the balance due on the trust's 1944 Federal income tax liability.
Subsequent to the termination of the trust, funds were received by Lena from T. F. Jackson Company (both prior to and during the liquidation of its business) and deposited in Lena's personal account in the Federation Bank & Trust Company, New York, New York, as follows:
Date of receipt and deposit | Amount |
May 15, 1945 | $ 5,928.16 |
June 13, 1945 | 4,300.00 |
July 18, 1945 | 21,600.00 |
July 27, 1945 | 3,800.00 |
Nov. 9, 1945 | 2,700.00 |
July 21, 1947 | 1,161.00 |
39,489.16 |
Elaine Drechsler became 30 years of age on November 12, 1958. On or about this date, the trust for her benefit was terminated and all of its assets then remaining were transferred to Elaine.
The funds received by the trust for the benefit of Elaine from T. F. Jackson Company were deposited in the account of the trust in the Federation Bank & Trust Company, New1962 U.S. Tax Ct. LEXIS 46">*61 York, New York, as follows:
Date of receipt and deposit | Amount |
Jan. 10, 1945 | $ 10,800.00 |
Feb. 1, 1945 | 5,400.00 |
Mar. 28, 1945 | 12,933.28 |
May 16, 1945 | 5,928.16 |
July 26, 1945 | 21,600.00 |
July 30, 1945 | 8,100.00 |
Nov. 14, 1945 | 2,700.00 |
July 21, 1947 | 1,161.00 |
68,622.44 |
39 T.C. 170">*177 The account of the trust for the benefit of Elaine at the Federation Bank & Trust Company made the following disbursements of funds:
Date | Payee | Amount |
Mar. 13, 1945 | Collector of Internal Revenue | $ 13,491.63 |
Mar. 13, 1945 | New York State Tax Commission | 1,350.07 |
May 16, 1945 | Collector of Internal Revenue | 3,942.15 |
May 16, 1945 | New York State Tax Commission | 324.20 |
June 6, 1945 | Check to the order of Continental Bank & Trust | |
Company for purchase of Series E Bond, $ 5,000 face | 3,750.00 | |
Mar. 14, 1946 | Collector of Internal Revenue | 11,877.70 |
Apr. 8, 1946 | New York State Tax Commission | 873.05 |
Nov. 15, 1946 | Deposit in the account of Trust for Elaine Drechsler | |
in First National Bank of Inwood | 7,500.00 | |
Nov. 15, 1946 | Deposit in the account of Trust for Elaine Drechsler | |
in Rockaway Savings Bank | 7,500.00 | |
Mar. 24, 1947 | Deposit in the account of Trust for Elaine Drechsler | |
in Emigrant Industrial Savings Bank | 7,500.00 | |
Mar. 24, 1947 | Deposit in the account of Trust for Elaine Drechsler | |
in Bowery Savings Bank | 7,500.00 | |
Mar. 5, 1948 | Collector of Internal Revenue | 276.66 |
Apr. 5, 1948 | New York State Tax Commission | 6.67 |
$ 65,892.13 |
1962 U.S. Tax Ct. LEXIS 46">*62 The balance on hand in the trust's account at the Federation Bank & Trust Company immediately following the above disbursements was $ 2,730.31. On January 10, 1949, this balance of $ 2,730.31 was paid out by the trust from this account. The record does not indicate to whom this balance was paid.
It is stipulated that the trust also paid out the amount of $ 5,549.88, which it received on August 27, 1950, as interest refunds with respect to the overassessments of Federal income taxes for 1944 and 1945. The record does not indicate to whom this $ 5,549.88 was paid.
The balance in the trust's account at the Bowery Savings Bank on January 27, 1959, when the account was closed, was $ 40.80. The balance in the trust's account at the Emigrant Industrial Savings Bank on January 27, 1959, was $ 3,278.75. On that date, this balance was disbursed to Elaine Drechsler personally.
The trust's account in the First National Bank of Inwood was closed on February 8, 1951, and the balance therein of $ 7,961.92 was deposited in a new account on the same day at the Franklin National BankNew York, Franklin Square, Long Island. On or about November 12, 1958, the balance in the trust's account at the1962 U.S. Tax Ct. LEXIS 46">*63 Franklin National Bank was $ 4,674.84.
The trust's account in the Rockaway Savings Bank, Far Rockaway, had a balance of $ 7,727.53 on January 4, 1949, when such balance was transferred to a new passbook which was unavailable at the time of trial herein.
The correct taxable income of Lena Drechsler and the trust for the benefit of Elaine Drechsler for 1945 is stipulated to be $ 26,650.31 each.
OPINION.
1.
1962 U.S. Tax Ct. LEXIS 46">*64 39 T.C. 170">*179 The first requirement in
The next requirement is that the determination be "described in one or more of the paragraphs of
The third prerequisite as set forth in
The fourth and fifth requirements applicable herein are contained in subparagraphs (b)(1) and (b)(3) of
Petitioners contend, however, that
1962 U.S. Tax Ct. LEXIS 46">*70 But even if there were such further requirement of the maintenance of inconsistent positions by the related taxpayers (whose liabilities were not before the District Court and who therefore were not maintaining any position in that litigation), petitioners would not be entitled to prevail on this ground. We think that the evidence of record fails to support their premise that they have never taken a position inconsistent with that of Gus. Granted petitioners and Gus viewed the tax consequences of their partnership relationship the same prior to the unsolicited overassessments, we think that they did not view them the same thereafter. Regardless of whether petitioners agreed with the Commissioner's theory in making the overassessments, they did permit him to apply such overassessments to the deficiencies determined against Gus. By so doing, they in fact adopted a position inconsistent with that maintained in behalf of Gus in the refund suit. The trusts and Lena might have elected to have had such overassessments paid directly to themselves. Or they might have refused to accept the overassessments either directly or indirectly through a credit for the benefit of Gus. However, 1962 U.S. Tax Ct. LEXIS 46">*71 by allowing the overassessments to be used in paying the deficiencies determined against Gus, the trusts and Lena in effect accepted the overassessments and the position which the overassessments represented that they were not taxable on partnership income. As a result, when the determination of the District Court upheld Gus' claim that they were taxable on their shares of partnership income and that he was not taxable on such shares, the court necessarily adopted a position contrary to the exclusion of this income from the gross income of the trusts and Lena. And it is at this point of time, namely, when the "determination" is made (
As already noted, the fifth requirement for application of the mitigation provisions herein is contained in
We think that Lena and the trust for the benefit of Elaine continued to be "partners" within the meaning of the statute during 1946. On the record before us, the only local law which appears applicable is New York State law, since the partnership apparently was formed 39 T.C. 170">*183 in New York, existed there, and filed its tax returns in that State. In
1962 U.S. Tax Ct. LEXIS 46">*76 Thus, all of the statutory requirements and conditions for application of the mitigation provisions have been proven to exist. Nevertheless, petitioners strenuously argue that such provisions were never intended to be applicable in circumstances such as are present here where the record shows that the Commissioner had an opportunity (upon learning that a refund claim had been filed in behalf of Gus) to protect his position with regard to them prior to the running of the statute of limitations. Petitioners contend that the Commissioner in these circumstances is not entitled to relief under the mitigation provisions.
It is true that the record reveals that a claim for refund in behalf of Gus for the years 1944 and 1945 was filed on August 9, 1949, when the Commissioner still had ample time to protect his position with regard to the related overassessments to petitioners herein, and that shortly thereafter counsel representing Gus expressly advised the Commissioner's representative that such protective action should be taken. But the Commissioner's failure in this regard does not affect the present cases. While the mitigation provisions might have been formulated in terms of the 1962 U.S. Tax Ct. LEXIS 46">*77 Commissioner's or the taxpayer's ability to correct the error when the inconsistency involved was first brought to his attention, they were not so written. Instead, all that the provisions of sections 1311-1314 require is that correction of the error is prevented by the operation of any law or rule of law when the
Petitioners' reliance on
On brief petitioners raise for the first time the contention that application of the mitigation provisions to them and imposition of any1962 U.S. Tax Ct. LEXIS 46">*79 further income tax liability with respect to the years 1944 and 1945 would be unconstitutional as a deprivation of property without due process of law as guaranteed by the
We hold that the mitigation provisions of sections 1311-1314 apply herein to permit the proposed adjustments to the income tax of the petitioner trusts for their taxable period in 1944 and to the income tax of Lena, individually, and the trust for the benefit of Elaine for 1945.
2.
When the distribution was made, on April 9, 1945, the trust's original return for 1944 had already been filed and the $ 13,491.63 tax shown thereon had been paid. Thereafter, on or about May 15, 1945, the amended return was filed and the additional amount of $ 3,942.15 shown thereon to be due was then paid. Thus, by May 15, 1945, an aggregate of $ 17,433.78 had been paid in behalf of the trust. Its taxes for 1944 were then fully paid. At that point it owed the Government nothing further, and Lena's liability as a transferee was then fully discharged.
The liability which the Commissioner now asserts arises because of the subsequent erroneous overassesment. To be sure, the trust has again become liable for 1944 taxes; but that liability, in the1962 U.S. Tax Ct. LEXIS 46">*81 peculiar context of this case, is the consequence of events which transpired long after Lena became a transferee. Her transferee liability came to an end no later than May 15, 1945, when the 1944 taxes were fully paid. If she became liable subsequently in connection with the erroneous overassessment, such liability was not that of a transferee in the circumstances of this case. We express no opinion upon whether the Government may have some other remedy against Lena, but we hold that her liability as transferee had been fully discharged prior to the overassessment, and that she did not become chargeable again
3.
39 T.C. 170">*186 It was specifically stipulated that Elaine's trust terminated on or about November 12, 1958, "and all of its assets then remaining were transferred to Elaine." The only assets which the record affirmatively shows were "then remaining" in the trust were certain cash balances in various bank accounts in the trust's name. Thus, there was $ 40.80 in the trust's account at the Bowery Savings Bank, $ 3,278.75 at the Emigrant Industrial Savings Bank, and $ 4,674.84 at the Franklin National Bank, or an aggregate amount of $ 7,994.39. The stipulation does not indicate whether the series E bond in the face amount of $ 5,000, purchased by the trust on June 6, 1945, was still 1962 U.S. Tax Ct. LEXIS 46">*83 held by the trust at its termination, nor is there any showing that the trust's account at the Rockaway Savings Bank (which it is stipulated had a balance of $ 7,727.53 on January 4, 1949, when such balance was "transferred to a new passbook which is not available") remained in existence on or about November 12, 1958, and if it did what its then existing balance was. Taking the evidence as we find it, and bearing in mind that the burden of proof is upon the Commissioner in transferee cases to establish the value of the assets transferred, we think that the Commissioner has proved at best that Elaine received assets of a total value of $ 7,994.39 on the termination of the trust. Accordingly, we hold that such amount is the extent of her transferee liability in these circumstances. Cf.
1. Proceedings of the following petitioners are consolidated herein: Trust For The Benefit of Lena Drechsler, Lena Drechsler, Exec. of The Estate of Gus Drechsler, Deceased Trustee, Docket No. 82642; Trust For The Benefit of Elaine Drechsler, Lena Drechsler, Trustee, Docket No. 82643; and Lena Drechsler, Docket No. 82644.↩
2.
(a) General Rule. -- If a determination (as defined in
(b) Conditions Necessary for Adjustment. -- (1) Maintenance of an inconsistent position. -- Except in cases described in paragraphs (3)(B) and (4) of * * * * (B) in case the amount of the adjustment would be assessed and collected in the same manner as a deficiency under and the position * * * maintained by the taxpayer in the case described in subparagraph (B) is inconsistent with the erroneous inclusion, exclusion, omission, allowance, disallowance, recognition, or nonrecognition, as the case may be. * * * * (3) Existence of relationship. -- In case the amount of the adjustment would be assessed and collected in the same manner as a deficiency (except for cases described in
The circumstances under which the adjustment provided in * * * * (3) Double exclusion of an item of gross income. -- (A) Items Included in Income. -- The determination requires the exclusion from gross income of an item included in a return filed by the taxpayer or with respect to which tax was paid and which was erroneously excluded or omitted from the gross income of the taxpayer for another taxable year, or from the gross income of a related taxpayer; * * *
(a) Determination. -- For purposes of this part, the term "determination" means -- (1) a decision by the Tax Court or a judgment, decree, or other order by any court of competent jurisdiction, which has become final; * * * *
(c) Related Taxpayer. -- For purposes of this part, the term "related taxpayer" means a taxpayer who, with the taxpayer with respect to whom a determination is made, stood, in the taxable year with respect to which the erroneous inclusion, exclusion, omission, allowance, or disallowance was made, in one of the following relationships: * * * * (6) partner, * * *
(b) Method of Adjustment. -- The adjustment authorized in
3. In contrast to the facts herein, in
4. Petitioners' reference to certain language in the legislative history does not establish the contrary. Thus in the Senate Finance Committee Report (S. Rept. No. 1567, 75th Cong., 3d Sess., p. 49) it is stated: "The legislation here proposed is based upon the following principles: (1) To preserve unimpaired the essential function of the statute of limitations, corrective adjustments should (a) never modify the application of the statute except when the party or parties in whose favor it applies shall have justified such modification by active inconsistency * * *." But this reference is obviously to the inconsistency that is spelled out in the statute in
5. Petitioners do not argue that the intervening death of Gus on January 12, 1946, prevented the requisite relationship from existing when Lena, as executrix under his will, filed his 1945 income tax return. Since the partnership was dissolved prior to Gus' death and not because of his death, it is undisputed that his estate stood in the same relationship to the partnership and the partners after his death as Gus did prior to his death.↩
6. It is stipulated that both Lena and the trust for the benefit of Elaine received distributions from T. F. Jackson Company on July 21, 1947. Prior to this, each had received a distribution from the partnership in November of 1945. No intervening or subsequent distributions from the partnership are shown in the record.↩
7. In using the word "terminated" the stipulation was obviously referring to the "dissolution" of the partnership, not its "termination." If it did refer to the latter, then it would be a conclusion of law, contradicted by the underlying facts which were also stipulated, and such stipulation of law would not be binding on this Court. Cf.