received payments on account of dividend arrearages thereon, those dividends became income to the recipients subject to income tax. 26 U.S.C. § 102.
It is the further contention of the plaintiff Income taxpayers that the dividends received by them during the critical years constituted 'income in respect of a decedent' within the provisions of Section 1.691(a)-1 of the Treasury Regulations (26 C.F.R. Sec. 1.691(a)-1) interpreting section 691 of the Internal Revenue Code of 1954. That section of the Regulations defines 'income in respect of a decedent' as 'those amounts to which a decedent was entitled as gross income, but which were not properly includible in computing his taxable income for the taxable year ending with the date of his death or for a previous taxable year in the method of accounting employed by the decedent.' None of the preferred dividends declared and paid after testator's death to the individual Income taxpayers constituted any portion of testator's gross income for the reason that they were neither declared nor paid during his lifetime nor during any ownership by him of the shares of preferred stock upon which they were subsequently declared and paid. No preferred dividends upon the Dispatch stock were received by testator in his lifetime because he was not the owner of the generating stock. Such payments as were made on account of the accumulated dividend arrearages to the distributees of the assets of the Boyle Company in dissolution were income to those payees, not receivables of the testator. They were not income in respect of the decedent. See O'Daniel's Estate v. C.I.R., 2 Cir.1949, 173 F.2d 966.
Plaintiff Income taxpayers invoke the doctrine of equitable recoupment in support of their respective claims for income taxes allegedly overpaid. They rely upon Bull v. United States, 1935, 295 U.S. 247, 55 S. Ct. 695, 79 L. Ed. 1421 for support of their claims. That case affords no such support because it is distinguishable from that before us. As was pointed out in Rothensies v. Electric Storage Battery Co., 1946, 329 U.S. 296, 299, 67 S. Ct. 271, 272-273, 91 L. Ed. 296, 'The essence of the doctrine of recoupment is stated in the Bull case; 'Recoupment is in the nature of a defense arising out of some feature of the transaction upon which the plaintiff's action is grounded.' 295 U.S. 247, 262, 55 S. Ct. 700, 79 L. Ed. 1421. It has never been thought to allow one transaction to be offset against another, but only to permit a transaction which is made subject of suit by a plaintiff to be examined in all its aspects, and judgment to be rendered that does justice in view of the one transaction as a whole. * * * In both cases ( Bull, supra, and Stone v. White, 301 U.S. 532, 57 S. Ct. 851, 81 L. Ed. 1265, also here relied upon by plaintiffs) a single transaction constituted the taxable event claimed upon and the one considered in recoupment. In both, the single transaction or taxable event had been subjected to two taxes on inconsistent legal theories, and what was mistakenly paid was recouped against what was correctly due. In Bull v. United States, the one taxable event was receipt by executors of a sum of money. An effort was made to tax it twice -- once under the Income Tax Act as income to the estate after decedent's death and once under the Estate Tax Act as part of decedent's gross estate. This Court held that the amount of the tax collected on a wrong theory should be allowed in recoupment against an assessment under the correct theory . In Stone v. White, likewise, both the claim and recoupment involved a single taxable event, which was receipt by an estate of income for a period. The trustees had paid the income tax on it but this Court held it was taxable to the beneficiary. Assessment against the beneficiary had meanwhile become barred. Then the trustees sued for a refund, which would inure to the beneficiary. The Court treated the transaction as a whole and allowed recoupment of the tax which the beneficiary should have paid against the tax the Government should not have collected from the trustees.'
The distinguishing features of the case at bar are obvious. In the present case there were two distinct unrelated transactions creating tax liability under two separate and distinct statutes. Neither of the two transactions or taxable events has been subjected to two taxes on inconsistent legal theories. The accumulated arrearages of undeclared and unpaid dividends on the preferred stock of Dispatch were properly considered in appraising the value of the Boyle Company stock. See Maass v. Higgins, 1941, 312 U.S. 443, 448, 61 S. Ct. 631, 85 L. Ed. 940, 132 A.L.R. 1035. The Boyle Company stock was an asset of testator's estate. The Estate tax assessed and paid on the estate attached to the estate as a whole, and did not include a tax on the right of the beneficiaries. New York Trust Co. v. Eisner, 1921, 256 U.S. 345, 349, 41 S. Ct. 506, 65 L. Ed. 963, 16 A.L.R. 660. No right to receive any dividend payment on the Dispatch preferred stock had accrued to or become part of the gross estate of the testator. The impact of the Estate tax did not fall upon the dividend payments subsequently received by the beneficiaries under the will. Such payments were properly subject to Income tax for the tax year in which received. What was paid in each instance was correctly due and not mistakenly paid. No specific single asset has been taxed twice. Bull and Stone rest upon their particular facts. They are inapposite here.
'Claims for refund, however prosecuted, depend upon proving that the Treasury is retaining money which in justice belongs to the claimant, * * *.' Helvering v. Schine Chain Theaters, 2 Cir. 1941, 121 F.2d 948, 950; citing Lewis v. Reynolds, 1932, 284 U.S. 281, 52 S. Ct. 145, 76 L. Ed. 293; Stearns Co. of Boston, Mass., v. United States, 1934, 291 U.S. 54, 54 S. Ct. 325, 78 L. Ed. 647; Stone v. White, 1937, 301 U.S. 532, 57 S. Ct. 851. The uncontradicted evidence in the case at bar fails to disclose that 'the Treasury is retaining money (the Boyle Estate tax) which in justice belongs to the claimant' distributees of a stock asset of the estate upon which dividends were declared, paid and received after testator's death. No error, in respect of either the Estate tax or the Income taxes, has been shown which would warrant readjustment pursuant to 1311-1315 of the Internal Revenue Code of 1954. See C.I.R. v. Weinreich's Estate, 9 Cir.1963, 316 F.2d 97.
The Government's motion to dismiss the amended complaint filed by the Estate of John F. Boyle, Jr. in this action, and so much of the amended complaint filed by the remaining taxpayers as prays for a refund of Federal Estate taxes, for lack of jurisdiction in this Court to entertain the same, is granted.
The Government's motion for summary judgment in its favor upon the amended complaint is granted.
The Government's motion for leave to file an amended answer to the amended complaint is waived.
Plaintiffs' motion for summary judgment in their favor against the defendant upon the amended complaint is denied.
Counsel for the Government is directed to submit draft of order not inconsistent with the views herein expressed.