FINDINGS OF FACT. The taxpayer was organized under the laws of the State of Missouri on April 13, 1909, since which time it has been engaged in the undertaking and funeral directing business in Joplin. During the years in question its capital was $10,000, divided into 100 shares, of which John P. Frank, the president of the company, owned 41 shares; his wife, Mattie E. Frank, 24 shares; and his daughter, Letha McFann, 5 shares. The secretary of the company, John J. Gees, owned 15 of the remaining shares, and the balance was owned by two other persons. In December, 1918, an informal meeting of three of the directors of the corporation, viz, John P. Frank, Mattie E. Frank, and John J. Gees, was held, at which time the matter of salaries to be paid the officers of the corporation for the years 1918 and 1919 was discussed. At that meeting it was agreed that the salary of the president for the years 1918 and 1919 should be at the rate of $10,000 per year. At a meeting of the board of directors held in December, 1920, it was decided that the salary of the president for the year 1920 should be $8,000 per year. Salaries in the amounts authorized at these meetings were paid for the years 1919 and 1920. It was the custom at the directors' meetings to keep the minutes on sheets of paper and thereafter to copy into the regular minute book of the corporation what occurred at those meetings. The minute book does not contain any reference to the salaries authorized at the meetings of the directors. By reason of the influenza epidemic the business of the taxpayer materially increased during the years 1918, 1919, and 1920. Frank was required by reason of this unusual situation to work both day and night and frequently put in 18 hours a day during the years in question. It was his duty to answer the first calls immediately after death, make the arrangements for the funerals and direct the funeral services. He was also the general manager of the company and did all its buying and selling and took care of the granting of credit. During the years 1916 and 1917 Frank received as president of the corporation a salary of $1,800 and $2,400, respectively. During the year 1916 it was decided that only a minimum salary would be paid, as the company needed all available money to buy out the business of the Cunningham Undertaking Co., one of its competitors. In 1917 the salary was kept at a low level in order that the taxpayer might purchase the real estate of the Cunningham Co., and this real estate was so acquired in that year. During the years 1919 and 1920 a small increase in salaries was authorized and paid to the employees and to Gees, the secretary of the company, and in 1919 the officers and employees received in addition to their salaries a bonus of $200 each. During the year 1919 the gross income of the taxpayer was $38,698.14, and the salaries paid during that year totaled $11,900, of which amount the president received $10,200. During the year 1920 the gross income of the corporation was $35,992.42, and the amount of salaries amounted to $11,000, of which amount the president received $8,000 and the secretary $3,000. Dividends were declared by the corporation in the following amounts: The deficiency should be computed in accordance with the following opinion. Final determination will be settled on 20 days' notice, in accordance with Rule 50. OPINION. ARUNDELL: We can not say that the salary duly authorized and paid to the president of this corporation for the years 1919 and 1920 was an unreasonable one. So far as the record discloses the salary paid bore no direct relation to his stock holdings in the corporation. An unusual situation confronted the taxpayer during the years 1918, 1919, and 1920. By reason of the influenza epidemic its business expanded far beyond its normal volume. It was the personality of Frank and the trust and confidence that the people of Joplin had in him that caused them to prefer the taxpayer company to handle the preparation and interment of their dead. During the emergency he was required to and frequently did work 18 hours at a stretch. He was always the one to answer the first calls, to make the arrangements, and to direct the funeral services. The entire management of the business was on his shoulders and he was the directing head of the organization. The corporation as such made money and during the years in question paid liberal dividends. We believe the salary paid to Frank for the years in question to be reasonable and it should be allowed. APPEAL OF FARMERS LOAN & TRUST CO., Docket No. 1399. Submitted March 18, 1925. Decided November 20, 1925. The taxpayer as administrator made return and paid tax on the transfer of the estate of Nathaniel Whitman in the year 1919 and claims the right to deduct the said tax from its return of income for the estate for the period in which the tax was paid. Held, that the New York State transfer tax was a proper deduction from income of an estate and that said tax is not deductible by the beneficiaries thereof. Russell Bradford, Esq., for the taxpayer. E. C. Lake, Esq., for the Commissioner. Before JAMES, LITTLETON, SMITH, and TRUSSELL. This is an appeal from the determination of a deficiency in income tax for the taxable period beginning January 8, 1919, the date of the death of the decedent, and ended December 31, 1919. The amount of the deficiency is $4,498.86. The sole question involved in the appeal is whether the New York State transfer tax may be deducted in the determination of the net income of an estate. FINDINGS OF FACT. Nathaniel Whitman died a resident of the State of New York on January 7, 1919, leaving a will in which he appointed one Arthur L. Lasher as sole executor. The said Lasher acted as executor of the estate until on or about February 18, 1919, when the petitioner in this appeal, the Farmers Loan & Trust Co., was appointed as administrator with the will annexed of the estate. Said Lasher, on July 10, 1919, paid a transfer tax upon the estate to the Comptroller of the State of New York in the amount of $121,120.07. Under date of June 10, 1921, the Surrogate's Court of New York County made final determination of the value of the estate of Nathaniel Whitman, said value being fixed at $2,500,312.45, upon which a transfer tax was assessed in the amount of $127,494.81, which tax was satisfied by the payment above mentioned because of the 5 per cent discount remitted under New York State law for payment within six months of the date of death. Nathaniel Whitman died seized of real estate in New York valued at $518,200, of which $87,000 in amount was specifically devised and the tax upon which amounted to $6,496.03. The decedent further provided in his will for the conversion by the executors of all the rest and residue of his estate into cash. Arthur L. Lasher, as executor of the estate of the decedent, made and filed in due course the income-tax return of that estate for the period from the date of the death of the decedent to the end of the taxable year 1919. In making that return he did not claim as a deduction the amount of inheritance or transfer tax paid to the State of New York. The Commissioner made other adjustments not here material or in question and from his refusal to offset against such adjustments the transfer taxes above set forth and his determination of a deficiency consequent thereon, the taxpayer brings this appeal. The return of the estate was on the cash basis, and the books were so kept. DECISION. The deficiency determined by the Commissioner is disallowed. OPINION. JAMES: The question involved in this appeal requires the construction of sections 210, 211, 214 (a) (3) and 219 (a) and (b) of the Revenue Act of 1918, and article 10 of the Tax Law of the State of New York, being the article dealing with the subject of taxable transfers. Sections 210, 211, and 219 of the Revenue Act of 1918 imposed taxes upon individuals, estates and trusts at rates therein named. Section 214 of that Act provides in part as follows: Sec. 214. (a) That in computing net income there shall be allowed as deductions: (3) Taxes paid or accrued within the taxable year imposed (a) by the authority of the United States, except income, war-profits and excess-profits taxes; or (b) by the authority of any of its possessions, * the authority of any State or Territory, Section 219 of that Act provides in part: * or (c) by 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 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 shall be computed in the same manner and on the same basis as provided in section 212, except It appears from the foregoing that, under the Revenue Act of 1918, a tax is imposed upon the net income of an estate during the period of administration or settlement, in the same manner as upon other taxable persons and with the same definition of gross and net income and the deductions allowable from gross income in ascer taining the amount of net taxable income. Inquiry here, therefore, is whether the New York State transfer tax, paid by the estate of the decedent represented in this appeal, may be taken as a deduction in ascertaining the net taxable income of that estate. The question turns upon whether the estate of Nathaniel Whitman. was the taxable entity which paid the New York State transfer tax in the year 1919. The solution of this question turns upon the nature of the tax so paid as defined by the statutes of that State as interpreted by the courts of the United States and of the State of New York. Section 220 of the New York Tax Law provides, so far as is material, as follows: TAXABLE TRANSFERS. A tax shall be and is hereby imposed upon the transfer of any tangible property within the state and of intangible property, or of any interest therein or income therefrom, in trust or otherwise, to persons or corporations in the following cases, subject to the exemptions and limitations hereinafter prescribed : 1. When the transfer is by will or by the intestate laws of this state of any intangible property, or of tangible property within the state, from any person dying seized or possessed thereof while a resident of the state. Section 221 (a) provides the rates of tax which are based upon the amount of the legacies, bequest or inheritance of each individual beneficiary. Section 222, so far as is material to this matter, reads as follows: ACCRUAL AND PAYMENT of tax. All taxes imposed by this article shall be due and payable at the time of the transfer, except as herein otherwise provided. Taxes upon the transfer of any estate, property or interest therein limited, conditioned, dependent or determinable upon the happening of any contingency or future event by reason of which the fair market value thereof can not be ascertained at the time of the transfer as herein provided, shall accrue and become due and payable when the persons or corporations beneficially entitled thereto shall come into actual possession or enjoyment thereof. Such tax shall be paid to the state comptroller in a county in which the office of appraiser is salaried, and in other counties, to the county treasurer, and said state comptroller or county treasurer shall give, and every executor, administrator or trustee shall take, duplicate receipts from him of such payment as provided in section two hundred and thirty-six. Section 224 provides for the method of collection of the tax and the persons responsible for its payment. It reads as follows: LIEN OF TAX AND COLLECTION BY EXECUTORS, ADMINISTRATORS AND TRUstees. Every such tax shall be and remain a lien upon the property transferred until paid and the person to whom the property is so transferred, and the executors, administrators and trustees of every estate so transferred shall be personally liable for such tax until its payment. Every executor, administrator or trustee shall have full power to sell so much of the property of the decedent as will enable him to pay such tax in the same manner as he might be entitled by law to do for the payment of the debts of the testator or intestate. Any such executor, administrator or trustee having in charge or in trust any legacy |