Estate of Reimer v. Commissioner

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Estate of Reimer v. Commissioner

• Chris J. Anderson
• TX 8020
• July 23, 2007

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Estate of Reimer v. Commissioner

• Citation 12 TC 913 (1949)
• Affd per Curiam 180 F2d 159 (6th Cir. 1950)
• Justice Arundell
• Code Sections 293(b)

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Facts

• Charles Reimer was a partner in an operation
  known as Reimer Bloomgren Machine Co. located
  in Ohio.
• 1941-1944 Reimer filed annual returns for the
  partnership.
• June of 1945 Reimer filed amended returns for
  years 1943 and 1944.
• February 23, 1947 Reimer died.
• November 5, 1947 IRS made jeopardy assessments
  against Reimers estate including a 50 addition
  to the tax for fraud for the tax years in
  question (1941-1944).
• Reimers wife is the executor of his estate and
  is the petitioner in this case.
• She admits he fraudulently understated his
  correct net income in order to evade tax for the
  years involved.

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Issue

• Is the 50 addition to the tax for fraud provided
  by section 293(b) allowed to be imposed against
  and collected from the estate of a decedent who
  during his lifetime fraudulently understated his
  correct net income with intent to evade tax?
• Ruling
• Yes, the estate is still liable for the 50
  additions to tax and is not avoided due to the
  death of the taxpayer.

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Case History

• There was no Federal statute covering the
  survival of the cause of action provided by Sec.
  193 (b) against a taxpayers estate where
  proceedings had not been instituted prior to his
  death.
• Before 1940 The Commissioner took the position
  that imposing additions to the tax were penalties
  inflicted as personal punishment for the failure
  of the taxpayer to comply with the revenue laws
  and did not survive the death of the taxpayer.
• National City Bank of New York, Executor
• Van Choate v. General Electric Co.
• Schreiber v. Sharpless

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Case History

• 1940 Decision was reversed in Helvering v.
  Mitchell, 303 U.S. 391, 401.
• Supreme Court held the 50 tax due to fraud with
  the intent to evade tax under 293 (b) was not
  barred by the acquittal of the taxpayer on an
  indictment charging willful attempt to evade tax
  under 146 (b) (criminal).
• The court held that the 50 tax penalty was a
  civil penalty and was properly imposed against
  the decedents estate.
• The 50 addition to the tax for fraud is imposed
  as a remedial measure to indemnify and compensate
  the U.S. for the loss resulting from the wrongful
  act or tort committed by the taxpayer.
• The final question is whether a cause of action
  of this nature survives against the estate in
  Reimers case.

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Reasoning

• Court ruled in Sullivan v. Associated Billposters
  Distributors that the cause of action survives
  if the injury upon which it is based is one
  affecting property rights as distinguished from
  an injury affecting the person.
• Therefore, a cause of action for injury done to
  these rights can achieve its purpose as well
  after the death of the owner as before if it
  affects the right to property.
• The primary purpose of taxation is to obtain
  money which the sovereign may use in the
  performance of its many governmental functions.
  The result of the taxpayer filing fraudulent
  income tax returns which understates his true tax
  liability is to deprive the sovereign of money it
  is entitled to receive and obligated to collect.

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Reasoning

• The Government also had to expend other funds in
  order to uncover the fraud and collect the proper
  tax due. These are monetary losses.
• The Court ruled that the taxpayers wrongful act
  is in the nature of an injury to the property of
  the U.S.
• The fraudulent cause of action survives against
  the estate of the taxpayer, regardless of whether
  proceedings were initiated before or after his
  death. The respondents deficiency notice must be
  sustained due to the petitioner conceded that
  decedent, fraudulently understated his correct
  net income for the tax years involved.

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Affd Per Curiam

• Sixth Circuit U.S. Court of Appeals affirmed this
  decision in Kirk v. Commissioner, 1950, 179 F2d
  619.
• The decision was based on reasoning from the
  Supreme Court ruling in the Mitchell case along
  with the Tax Court ruling in this case.