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Tax 2 Case Digest: Bull v. United States

Bull v. United States

Laws Applicable:

Lessons Applicable: estate tax, income tax,

  • Archibald H. Bull died February 13, 1920. He had been a member of a partnership engaged in the business of ship-brokers. The agreement of association provided that, in the event a partner died, the survivors should continue the business for one year subsequent to his death, and his estate should "receive the same interests, or participate in the losses to the same extent," as the deceased partner would, if living, "based on the usual method of ascertaining what the said profits or losses would be. . . . Or the estate of the deceased partner shall have the option of withdrawing his interest from the firm within thirty days after the probate of will . . . , and all adjustments of profits or losses shall be made as of the date of such withdrawal."  The estate's representative did not exercise the option to withdraw.
o    share of profits from January 1, 1920, to the date of his death, February 13, 1920, was $24,124.20
o    Profits accruing to the estate for the period from the decedent's death to the end of 1920 were $212,718.79, $200,117.90 being paid during the year and $12,601.70 during the first two months of 1921.
  • Court of Claims: the sum of $200,117.09 received in 1920 should have been returned by the executor as income to the estate for the period February 13 to December 31, 1920
  • Board of Tax Appeals: sustained
  • executor filed a claim for refund of this amount due to erroneous collection – rejected
  • Petition for certiorari

ISSUE: W/N the profits accruing to the estate for the period from the decedent's death is subject to estate tax

HELD: NO. reversed
  • amount received from the partnership as profits earned prior to Bull's death was income earned by him in his lifetime is included in his gross estate - estate tax
  • sums paid his estate as profits earned after his death were not corpus, but income received by his executor - income tax for the years 1920 and 1921.