Shubert v. Commissioner , 41 T.C. 243 ( 1963 )

^* Jacob J. Shubert, Transferee, and E. F. G. Corporation, Petitioners, v. Commissioner of Internal Revenue, Respondent

Shubert v. Commissioner

Docket Nos. 91443, 91444

United States Tax Court

41 T.C. 243; 1963 U.S. Tax Ct. LEXIS 15;

November 21, 1963, Filed

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Decisions will be entered for the respondent.

E. F. G. Corporation, a cash basis taxpayer, did not file a personal holding company return for 1948. Respondent's agent proposed deficiencies in 1948 income and personal holding company taxes and a penalty for failure to file a personal holding company return upon audit of income tax return, to which corporation did not agree. At the end of 1955, taxpayer had not executed waiver and consent to assessments or requested any assessment; agent's final report had not been made; no assessments of any deficiencies or of any interest had been made. In 1956, petitioner executed Form 870, the agent filed his final report, and deficiencies and interest were assessed. E. F. G. made a voluntary remittance on account of interest, only, on December 30, 1955, which the district director deposited in his suspense account. Held, there was no payment of interest in 1955 on indebtedness within section 163(a), 1954 Code, with respect to the disputed and proposed deficiencies in 1948 taxes, and a deduction for interest "paid" is not allowable under section 163(a). Rosenman v. United States, 323 U.S. 658">323 U.S. 658; Lewyt Corp. v. Commissioner, 215 F. 2d 518;Fred J. Arheit, 31 T.C. 46">31 T.C. 46, followed.

Gerald Schoenfeld and William W. Schneck, for the petitioners.

Bernard Goldstein, for the respondent.

Harron, Judge. Mulroney, J., dissenting. Forrester and Hoyt, JJ., agree with this dissent.

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HARRON

In docket No. 91444, E. F. G. Corp., the respondent determined for the year 1955, deficiencies in income tax and personal holding company tax in the total amount of $ 17,245.96, of which the personal holding company tax is $ 14,053.56. The question is whether E. F. G. Corp. is entitled to a deduction in 1955 for interest under section 163(a), 1954 Code, in the amount of $ 20,000. The claimed deduction in 1955 relates to interest on a deficiency in tax for 1948.

It is stipulated in docket No. 91443, Jacob J. Shubert, that if it is determined that there is a tax deficiency for 1955 owed by E. F. G. Corp., Jacob J. Shubert is liable therefore as the transferee of the corporation's assets under section 6901.

FINDINGS OF FACT

The stipulated facts are incorporated herein by reference and are found as stipulated.

E. F. G. Corporation, sometimes referred to hereinafter either as the petitioner or the corporation, a Delaware corporation, was organized in about 1937 and dissolved on December 26, 1956; it had its office in New York City. On about June 11, 1956, it filed its 1955 corporation income tax return and personal holding company tax return with the district director of internal revenue for the Manhattan District, New York City. It kept its books and prepared its returns on a calendar year basis under a cash method of accounting.

A partnership known as Lee and J. J. Shubert (Jacob J. Shubert) was the sole stockholder of E. F. G. Corp. When the corporation was dissolved, all of its assets were distributed to Shubert, the then surviving member of the former partnership and sole stockholder. The assets had a value at the time of the transfer of at least $ 17,245.96, together with statutory interest thereon. Shubert is a transferee of assets of the corporation within the provisions of section 6901.

In its 1955 corporation income tax return, E. F. G. Corp. took a deduction of $ 20,000 for interest; it reported and paid income tax for 1955 in the amount of $ 72.33. It filed a personal holding company return for 1955 in which it was reported that no personal holding company tax was due. The deduction of $ 20,000 related to the corporation's taxes for 1948. The Commissioner disallowed the deduction with the following explanation in the deficiency notice:

It is held that the amount of $ 20,000.00 claimed as a deduction on your return for advance payment of interest on an expected 1948 tax deficiency does not constitute an allowable deduction within the purview of Section 163(a) of the Internal Revenue Code of 1954.

The denial of the deduction, with certain adjustments not in dispute, resulted in income tax of $ 3,264.73 (rather than $ 72.33, reported) and personal holding company tax of $ 14,053.56; a total of $ 17,318.29; and a deficiency of $ 17,245.96.

The particular facts material to the issue to be decided are as follows: In 1948, E. F. G. Corp. sold a note and realized a profit of $ 100,000 (note of Magoro Corp. to Garrick Building Co.), which it reported in its 1948 corporation income tax return as gain from the sale or exchange of a capital asset under section 117(f) of the 1939 Code, rather than as personal holding company income consisting of gain from the sale or exchange of securities under section 502(b), 1939 Code. The corporation's 1948 income tax return was prepared under the supervision of a CPA and member of the firm of Homes and Davis, certified public accountants, the corporation's regular accountants. The accountants advised E. F. G. Corp. that a personal holding company return for 1948 was not required and none was filed.

An examining revenue agent, John T. Healey, audited the 1948 income tax return of the corporation in the early part of 1953. He questioned only a deduction for franchise taxes, found that a deduction for them was not allowable because they had not been paid in 1948, and advised the corporation of his determination. The corporation was willing to agree to that determination and the resulting income tax deficiency. The agent solicited and received from the corporation a signed consent (Form 870) to such proposed deficiency under section 272(d), 1939 Code, which also is a waiver of the restrictions in section 272(a) which stays the assesssment of a deficiency if a petition is filed in this Court. The agent thereupon submitted his report and the consent (also called a waiver) to his reviewing superior in April 1953.

The reviewing officer did not accept Healey's report as a final one because he questioned the item of capital gain of $ 100,000 reported in the corporation's income tax return, and he suggested that Healey obtain more information about the sale of the Magoro Corp. note. Healey then continued his examination of the return and eventually concluded that the transaction did not result in capital gain but, rather, resulted in ordinary income of $ 100,000, and, also, personal holding company income. As part of this inquiry, Healey learned that no personal holding company return for 1948 had been filed. The reviewer requested Healey to consider whether a penalty (addition to personal holding company tax) should be asserted for failure to file such return.

In May or June 1953, Healey advised the corporation's comptroller, J. R. Becker, that he had disallowed capital gains treatment of the profit realized on the sale of the note and that on that determination there would be deficiencies in income and personal holding company taxes and a penalty for not filing a personal holding company return might be determined. Becker advised Healey by letter dated January 13, 1955, that the corporation would not agree to the disallowance of capital gains treatment. There was, therefore, a dispute about this determination and there was not consent.

The corporation referred the disputed adjustment to its accountant, X. The first conference of X with Healey was on December 6, 1954, when Healey advised him about his determinations. The next conference of X with representatives of the Internal Revenue Service was on March 31, 1955. The dispute about the capital gains treatment and a personal holding company return penalty was discussed. X's position at this conference was that after his study of the question whether the profit from the sale of the note was capital gain or ordinary income, he was of the opinion that the Internal Revenue Service was correct in its "contention" that it was ordinary income, but he opposed the proposed penalty for the failure to file a personal holding company return. This conference was with Healey and another agent. They were not authorized to enter into any binding agreement with the taxpayer on behalf of the Treasury Department, and no agreement was entered into.

On April 1, 1955, E. F. G. Corp. wrote to the district director of internal revenue in New York City, for the attention of the agent, Healey, stating that Homes and Davis, its accountants, had advised it when its 1948 income tax return was prepared, that it was not a personal holding company in 1948. The purpose of this letter was to have the penalty (addition to tax) for failure to file a personal holding company return for 1948 waived by the Treasury Department.

On November 4, 1955, there was an informal conference of Bernard Harris, a conferee in the Internal Revenue Service, with X. Harris requested X to submit an affidavit about his supervision of the preparation of the corporation's income tax return for 1948, his opinion at that time about the nature of the gain from the sale of the Magoro note, his instructions to his assistant about how the gain should be treated in the return, and his opinion when the return was filed about whether the gain represented personal holding company income. X prepared the affidavit and executed it on December 8, 1955.

On December 9, 1955, at another conference with Harris, X gave him his affidavit in which X stated, inter alia, that when the 1948 return was prepared it was his opinion that the profit from the sale of the note did not come within section 502(b) and therefore was not personal holding company income, and that "there was no intention to defraud the United States Government of its just revenue," and that it was urged that "no penalty will be imposed with respect to the nonfiling of the Personal Holding Company Tax return for said year."

X's understanding upon the conclusion of the conference on December 9, 1955, was that the agent and the conferee would recommend that the gain in question was ordinary income for both income and personal holding company taxes but that a penalty would not be asserted for failure to file a personal holding company tax return for 1948.

X wrote a letter dated December 29, 1955, to Jacob J. Shubert, president of the corporation, in which he advised Shubert that "On the basis of recent court decisions" income of $ 100,000 had been realized from the sale of the Magoro note in 1948, rather than capital gain, as reported; that in connection with the examination of the corporation's income tax return for 1948, additional income tax was due in the sum of $ 33,553.75; that the corporation was also subject to a personal holding company tax in the sum of $ 51,313.23, but that this latter tax could be obviated by the payment of a deficiency dividend out of 1948 earnings in the sum of $ 60,600. It was stated in the letter, also, as follows:

Such dividend [of $ 60,600] to be effective, should not be paid before the Treasury Department agrees to the additional taxes in question. We expect an agreement from the Treasury Department some time next month.

Moreover, interest is payable on both of the above additional taxes of approximately $ 35,000. For the year 1955, the taxable income of E. F. G. Corporation is estimated to equal $ 20,500. Since E. F. G. Corporation is a personal holding company for the year 1955, you will be required to include this income of $ 20,500 in your personal income tax return for the year 1955 and pay the highest personal income tax rates thereon. Therefore, we recommend that E. F. G. Corporation pay the sum of $ 20,000 on its interest obligation referred to previously. This will be applied against the income of E. F. G. Corporation for the year 1955, and reduce the sum that you will be required to include in your personal income tax return for the year 1955 to a negligible amount.

As of the time of the conference on December 9, 1955, of X and the conferee, Harris, the dispute of the corporation with the Commissioner which was the chief matter for discussion was whether a penalty should be finally determined for failure to file a personal holding company return for 1948. Harris indicated that he would not recommend the penalty, but X understood that there could not be any agreement about the matter until at least some time in January 1956. There could not be any agreement about anything, either treating the gain as ordinary income or the penalty, until the examining agent, Healey, made his final report and the corporation signed a Form 870, waiver of restrictions on and consent to the assessment and collection of the deficiencies and interest under section 272(d), 1939 Code. Healey could not prepare his final report until he received the conferee's report. He did not receive it until during March 1956, when Harris directed him to prepare his final report. Healey then prepared his final report in which he did not make a determination of the penalty but determined that the gain was ordinary income and that the deficiencies for 1948 were $ 33,553.75, income tax, and $ 41,313.23, personal holding company surtax. Healey submitted a copy of his final report to the corporation together with a Form 870 for execution. The corporation executed the Form 870 in 1956, apparently in April, which had the effect under section 6601(d), 1954 Code, of suspending interest for a period beginning 30 days after the filing of the waiver. Interest was suspended immediately after May 13, 1956, which indicates that the waiver was executed April 13, 1956. Healey noted in his final report, dated April 16, 1956, that the corporation's agreement had been secured. The corporation's execution of Form 870 represented its agreement to the assessment and collection of the deficiencies and interest and its waiver of the restrictions imposed on such assessment and collection by section 272(a). Healey's final report was eventually approved in the Internal Revenue Service without any changes and with the Form 870 served as the basis for the assessment of the deficiencies and interest thereon. On June 8, 1956, the district director for the Manhattan District made assessment of the deficiencies plus statutory interest to May 13, 1956, as follows: Income tax, $ 33,553.75, deficiency, $ 14,411.49, interest; personal holding company surtax, $ 51,313.23, deficiency, $ 22,044.30, interest March 15, 1949, to May 13, 1956. There was not any assessment of a penalty for failure to file the return.

In the Internal Revenue Service an examining agent's actions and reports are at all times subject to review by a superior. The agent does not have authority to enter into a binding agreement with a taxpayer, although he can solicit and accept a proposed agreement under a waiver and consent subject to review by the review section, and any agreement received by the agent is subject to review. Healey was governed by this procedure and followed it in his contacts with representatives of the E. F. G. Corp. In general, agents do not enter into oral agreements with a taxpayer. It was Healey's practice not to do so, and he did not do so in this instance. Prior to the corporation's execution of Form 870 in 1956, there was no agreement with respect to the dispute about the corporation's liability for deficiencies in income and personal holding company taxes for 1948.

In spite of the foregoing facts and prior to receipt of Healey's final report and its execution of Form 870 in 1956, the corporation took the following step on December 30, 1955, which is the basis of the present dispute in this Court.

A letter dated December 30, 1955, from the comptroller of the corporation, J. R. Becker, together with a check of the corporation for $ 20,000, bearing the same date, was delivered by hand on that date to the district director of internal revenue for the Manhattan District, New York City. A duplicate copy of the letter bears the stamp, "Rec'd. with remittance Dec. 30, 1955." The letter, addressed to the director of internal revenue, stated that the check "represents interest for E. F. G. Corporation on additional Income Tax and Personal Holding Company Tax for the year 1948." On the check, the notation was written, "Interest on Federal Income Tax -- Year 1948."

The check was deposited by the district director of internal revenue in a suspense account under the date of December 30, 1955. Deposit of the check in a suspense account was a routine matter because the remittance was not accompanied by a tax return or a Treasury Department statement of tax due, and after the customary search by the revenue accounting office for an applicable open account and assessment to which the remittance could be credited, which revealed none, it was deposited on January 9, 1956, in a Federal Reserve bank in the district director's special deposit or suspense account fund. The check was stamped with several customary identifying numbers and processed in the customary way, receiving a deposit fund account symbol, 20 X 6879; a predeposit research number, 22780; and a cashier's deposit block number, 288; and the amount of the remittance was entered on a Document Register form, Form 813, dated January 9, 1956, for deposit in a Federal Reserve bank.

It is customary in the cashier's division of an Internal Revenue Service district, when a remittance is received which cannot be credited to an applicable open account and assessment, to prepare as part of the processing thereof a set or assembly of papers called a Form TY Item 15 assembly, with respect thereto, consisting of four parts. One part is the notice to the taxpayer, another is for the bookkeeping posting department, another is an alphabetical search copy, and the fourth is a numerical search copy. It is automatic procedure in the cashier's division to detach and mail to the taxpayer the taxpayer's Form TY notice. With respect to the check of E. F. G. Corp. for $ 20,000, a Form TY Item 15 was prepared, as is shown on Document Register Block 288, dated January 9, 1956, on which 24 items were listed, including the E. F. G. Corp.'s check for $ 20,000, and notation was made of 24 TY 15 forms, numbers 9193 through 9216.

On December 13, 1956, the sum of $ 20,000 was transferred from the suspense account and applied and credited to the statutory interest which had been assessed on the assessed deficiency in the corporation's personal holding company tax on June 8, 1956. This credit was made in an open account which was set up in the name of E. F. G. Corp. when the assessment was made on June 8, 1956.

E. F. G. Corp. declared a deficiency dividend in 1956, for the year 1948, in the amount of $ 51,310, which was credited on July 1, 1957, against the personal holding company tax for the year 1948, as an offset. Thereafter, on December 26, 1956, the corporation was dissolved.

The Commissioner did not issue a statutory deficiency notice for 1948. Petitioner did not request in 1955 assessment of a deficiency for 1948.

It was the corporation's intention, if it eventually was determined that the corporation was a personal holding company in 1948 due to a final determination or agreement that the sale of the note resulted in ordinary income and personal holding company income, to declare a deficiency dividend under section 506(c), 1939 Code, which would provide a deficiency dividend credit against the amount of the deficiency so established, under section 506(a). However, under section 506(f) no deficiency dividend credit could be allowed if there was a finding that failure to file a personal holding company return for 1948 was not due to reasonable cause but was due to willful neglect.

The corporation declared in 1956 a deficiency dividend in the amount of $ 51,310 for 1948, in due course, after the agent's final report and the Form 870 executed by the corporation were accepted by the Commissioner. On July 1, 1957, the district director for Manhattan credited the assessed deficiency in personal holding company tax for 1948 with $ 51,310, which he could do only after petitioner filed the required claim for such credit under section 506(d), 1939 Code.

As of December 31, 1955, the examination of the corporation for 1948 by the examining agent was still in process. No agreement existed between the corporation and the respondent as of December 31, 1955, with respect to 1948 income and personal holding company taxes and whether a penalty would be determined for not filing a personal holding company return for 1948.

E. F. G. Corp. had no existing indebtedness, fixed as to amount or liability, in 1955 with respect to its 1948 income and personal holding company taxes. It is not entitled to a deduction in 1955 under section 163(a), 1954 Code, for interest in the amount of $ 20,000 on a tax deficiency for 1948, which deficiency was assessed on June 8, 1956.

OPINION

The question is whether the corporation's remittance of $ 20,000 to the district director on December 30, 1955, designated "interest on 1948 income tax," prior to the assessment of taxes and interest, constituted payment of interest for the purpose of a deduction under section 163(a), 1954 Code. The amount tendered in advance of assessment was deposited by the district director in a suspense account.

Respondent's position is that the remittance prior to assessments of the deficiencies and interest did not constitute payment of interest, but was a mere deposit pending the determination of both the liability and the amount of additional taxes for 1948. He contends that both the existence and the amount of the corporation's liability for 1948 deficiencies were in dispute at the end of 1955 until settlement in 1956, so that in 1955 there was no payment of interest, and that his position is consistent with the principle stated in Rosenman v. United States, 323 U.S. 658">323 U.S. 658; Lewyt Corp. v. Commissioner, 215 F.2d 518">215 F. 2d 518, modified on another issue 349 U.S. 237">349 U.S. 237; and Fred J. Arheit, 31 T.C. 46">31 T.C. 46.

We agree with the respondent.

There was a dispute with the Commissioner about whether the sale in 1948 of the Magoro Corp. note was a transaction which resulted in capital gain rather than ordinary income, and whether the failure to file a personal holding company return for 1948 was due to reasonable cause and not to willful neglect. The dispute, which arose in June 1953, necessarily required consideration by the parties of the provisions of the 1939 Code dealing with the tax on personal holding companies, secs. 501, 502(b), and 506. There is no proof that before the end of 1955 petitioner had indicated to the conferee or the agent that it would agree to assessment in 1955 of all or part of the proposed tax deficiencies for 1948 even if the agent determined that a penalty should be asserted. A clear inference is to be drawn from the entire record and all of the circumstances that petitioner would not agree in 1955 to a determination that its failure to file a personal holding company return for 1948 was due to willful neglect, and that any agreement on its part that ordinary gain and personal holding company income of $ 100,000 was realized upon the sale of the note was dependent upon respondent's not making a determination to that effect and not asserting a penalty. Section 506(f), 1939 Code, provides that no deficiency dividend credit shall be allowed under section 506(a) if there is a finding in a closing agreement, or a decision of this Court, or a judgment of another court that any part of the deficiency is due to fraud, or failure to file a personal holding company return within the time prescribed, unless it is shown that the failure to file such return was due to reasonable cause and not due to willful neglect. Unless petitioner could have declared a deficiency dividend for 1948 under section 506(c), it would have had to pay a 1948 personal holding company tax of $ 51,313.23, without any deficiency dividend credit under section 506(a) against the amount of the 1948 deficiency in personal holding company tax. It is obvious that any agreement to a deficiency in 1948 income tax was dependent upon whether petitioner could get a deficiency dividend credit against a deficiency in personal holding company tax. All aspects of the dispute about the gain from the sale of the Magoro note were interrelated.

It was not until 1956 that it became settled that a penalty for failure to file the particular return for 1948 would not be determined by respondent and until that factor was settled the amount of the proposed liability for 1948 taxes was not fixed in a definite amount because a penalty is an addition to the tax.

Upon the entire record, we have made the finding that "There could not be any agreement about anything, either treating the gain as ordinary income or the penalty, until the examining agent, Healey, made his final report and the corporation signed a Form 870." These events did not occur until April 1956. It is concluded that as of December 31, 1955, there was no agreement between the corporation and the respondent settling the dispute about 1948 tax deficiencies and the proposed penalty, and that in 1955 there had not come into existence, as the result of an agreement settling the dispute, an indebtedness, fixed as to liability and amount, with respect to 1948 income and personal holding company taxes. Because of that situation there was no assessment in 1955.

It is now well established that a remittance which is credited to a collector's suspense account does not constitute a payment of tax. Rosenman v. United States, supra;Lewyt Corp. v. Commissioner, supra;Rose v. United States, 256 F. 2d 223, reversing 151 F. Supp. 514">151 F. Supp. 514; Budd Co. v. United States, 252 F. 2d 456; United States v. Dubuque Packing Co., 233 F. 2d 453, 460; Busser v. United States, 130 F.2d 537">130 F. 2d 537. A collector's suspense account is a separate internal bookkeeping account maintained for the purpose of recording identified remittances received with respect to additional taxes or interest which have been proposed or recommended for assessment but have not been assessed. "Money held in these accounts is held not as taxes duly collected are held but as a deposit made in the nature of a cash bond for the payment of taxes thereafter found to be due." Rosenman v. United States, supra.Interest does not accrue and is not owing by the Government on the amount deposited to a suspense account which proves to be in excess of the amount of the tax eventually assessed. Busser v. United States, supra.For the same reasons which underlie the above, if the amount of the tax and interest which eventually is assessed is less than the total sum which was deposited to a suspense account, the excess will be refunded to the taxpayer by the collector on the basis of a credit memorandum issued by the collector to a disbursing agent, without the taxpayer's filing a claim for refund.

At the end of 1955, respondent's agents had made informal recommendations but the final report of the agent in charge had not been completed and the respondent had not concluded that a penalty would not be determined for failure to file a personal holding company return for 1948. The corporation at the end of 1955 voluntarily tendered to the district director $ 20,000, which it estimated would represent part of the interest which would be assessed when tax deficiencies for 1948 were assessed. But as of December 30, 1955, the corporation did not enter into an agreement with the Commissioner establishing his liability for any additional taxes and interest. It could not obtain such agreement at the end of 1955 because the dispute about the proposed penalty had not been concluded and presumably the corporation would not agree to a liability for additional taxes until the Commissioner agreed not to determine the penalty. The facts here closely resemble those in the Arheit case.

The corporation did not request the district director to make any assessment in 1955 of any tax for 1948 and interest; none had been made prior to the remittance, and none was made in 1955. The district director deposited the remittance in a suspense account thereby treating it as a deposit in the nature of a cash bond. Deficiencies and interest were not assessed until June 8, 1956, at which time the district director set up two open accounts for assessed deficiencies for 1948 for income tax and interest and personal holding company tax and interest. Thereafter, in 1956, he transferred on his books the $ 20,000 from the unclassified suspense account to the 1948 personal holding company tax deficiency account and credited interest with the above sum.

We are unable to conclude that the remittance to the district director on December 30, 1955, was a payment of interest. The district director was not under a duty in 1955 to regard the voluntary remittance as payment of interest on a liability for a tax deficiency. As was observed in Lewyt Corp. v. Commissioner, supra at 522:

A remittance made in respect of an asserted or putative tax liability in no proper sense constitutes a tax "payment" except to the extent that it is effective to discharge such liability in whole or in part. That in turn depends upon the agreement of the taxpayer and the Commissioner or his representatives, acting within their powers, or upon whether the taxing authorities have a duty under the particular circumstances involved to accept the remittance as a payment of the tax in full or pro tanto.

Petitioner is not entitled in 1955 to a deduction of $ 20,000 as interest paid on indebtedness under section 163(a). Rosenman v. United States, supra;Lewyt Corp. v. Commissioner, supra;Rose v. United States, supra;Fred J. Arheit, supra.

Decisions will be entered for the respondent.

MULRONEY

Mulroney, J., dissenting: The only burden any taxpayer has under the interest deduction statute is to show, (1) the existence of an indebtedness during the year in question, and (2) that he made the payment that year sought as a deduction to the creditor which was directed to, or should have been applied to, the payment of interest on said indebtedness.

We said in First National Co., 32 T.C. 798">32 T.C. 798, 807, that the word "indebtedness" in the interest deduction statute "means an existing, unconditional, and legally enforcible obligation for the payment of money." ¹ An indebtedness can be a statutory or contractual obligation to pay money. For the purpose of the operation of the interest deduction statute respondent's position is that of any other creditor of the taxpayer.

Petitioner's first burden was to show the existence in the year 1955 of an obligation to pay the 1948 income and personal holding company taxes. Respondent on brief argues "no indebtedness existed in income or personal holding company taxes * * * during the taxable year 1955."

I feel petitioner satisfied his burden of showing the existence in the year 1955 of his 1948 tax obligation. Respondent's assessment of June 8, 1956, is an admission that petitioner's indebtedness for 1948 taxes was then in existence and had been in existence for prior years back to 1948. The assessment did not bring the indebtedness into existence. The indebtedness for taxes arises annually by operation of the taxing statutes. Also the existence of the obligation to pay the tax does not depend upon a taxpayer's consent or agreement with the collector. The required unconditional and legally enforcible obligation to pay the 1948 taxes was created by the taxing statute. Respondent even collected interest on this 1948 tax indebtedness for the year 1955, and indeed for all of the years back to 1948. To uphold his argument that the 1948 tax indebtedness was not in existence in 1955 would be to say he collected interest on a debt for a year the debt was not in existence. It may well be that estoppel would lie against respondent in a case like this where respondent's status is that of a creditor with respect to the indebtedness on which the interest deduction is claimed.

It is incontestable that petitioner paid $ 20,000 interest in 1955 if the tax indebtedness to which the labeled interest payment was directed was then in existence. Respondent hardly argues otherwise. However, he does make some point of his deposit of the 1955 remittance in a suspense account.

Again it is well to note respondent's double role: He is a party to this litigation but he was also petitioner's creditor. For the purpose of the application of the interest deduction statute, the taxpayer's burden ends when he shows the existence of the indebtedness in the year in question and delivery in that year to his creditor of a check directed to the payment of interest on his debt. The taxpayer has no burden to show his creditor credited the payment to his interest liability. The interest deduction cannot be defeated by reason of the creditor's bookkeeping arrangement for handling the remittance. The interest deduction statute does not give any creditor, including respondent when he happens to be the creditor, the right to dictate the year of interest deduction by delaying the entry of credit on his records of an interest payment.

The cases cited by respondent where a suspense account deposit was of some significance are easily distinguishable. None of them involved the interest deduction statute where the respondent, if he is the creditor to whom the debt is owed, is cast in the role of any other creditor.

I feel Fred J. Arheit, 31 T.C. 46">31 T.C. 46, which respondent states on brief is the case on which he "primarily relies" was wrongly decided. I would overrule it and allow the deduction.

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Footnotes

• *. Caption changed by Court order Jan. 30, 1964, to Estate of Jacob J. Shubert, Deceased, Muriel K. Shubert, Kerttu H. Shubert, and Morgan Guaranty Trust Co., Executors, Transferees, and E. F. G. Corp.↩

• 1. Although this case was reversed on appeal on another issue, the Court of Appeals for the Sixth Circuit specifically approved our definition of the term "indebtedness" in the interest deduction statute. First National Co. v. Commissioner, 289 F. 2d 861, 865↩.