The opinion of the court was delivered by: CLARY
This is an action for the recovery of estate taxes paid in the Estate of Anna C. Burr, deceased. The facts have been stipulated by the parties and the Stipulation, as filed, is adopted as the Findings of Fact of the Court. In brief summary, they are as follows:
Anna C. Burr, died March 6, 1942, a resident of Philadelphia, Pennsylvania. The executors of her will, plaintiffs herein, timely filed their Federal Estate Tax Return on June 3, 1943, showing an estate tax due of $ 132,938.45, which amount was paid. Upon review, the Internal Revenue Agent in Charge determined a deficiency of $ 11,171.85, which additional amount was paid plus interest of $ 783.87 on September 20, 1944. The basis of the deficiency was a disallowance of the amount of $ 18,285.33 of a claimed deduction of $ 79,366.31 executors' commissions, reducing the allowance to $ 61,080.98. $ 79,366.31, the amount agreed to by the executors and the only person in interest under the terms of the will, the residuary legatee, was actually paid to the executors and was reflected in the account of the executors filed in the Orphans' Court of Philadelphia and called for audit January 11, 1943. That court in an adjudication by Hunter, J. dated January 25, 1943, passed upon the objection of the Commonwealth of Pennsylvania to the amount of executors' commissions therein claimed. The Commonwealth contended that the commissions were excessive and, since the commissions had a direct bearing on the amount of commonwealth inheritance taxes legally due, asked the court to reduce them from 4% to 3%. The legal question there involved was determined by the court in the following language:
'After careful consideration I am unable to find in the services and responsibility of these executors and trustees justification for commissions of 4% against the claim of the Commonwealth. While valuable services have and will be rendered to the estate, I am convinced that they are not so extraordinary as to warrant such allowance in an estate of this size. I find that 3% is fair compensation.
Insofar as concerns the residuary beneficiary, the commissions will stand, as stated in the account, because of its approval, but as to the Commonwealth in its claim for transfer inheritance tax the executors are surcharged with commissions at 1%.' (Emphasis added.)
In its audit the Internal Revenue Bureau adopted as a proper deduction for federal estate taxes the executors' commissions at the rate allowed by Judge Hunter as a deduction against the state inheritance tax. The stated disallowance increased the estate taxes due to the Government which, as aforesaid, were actually paid with interest and this action for refund resulted.
The claim of the plaintiffs here is based upon two rulings of the Tax Court of the United States; Estate of Cardeza, 5 T.C. 202, and Estate of Freed, 6 T.C.M. 216. In the Cardeza case the facts appear to be substantially identical with the present facts. That case, before the Tax Court, involved redetermination of a deficiency of $ 2,345.759.09 in estate taxes which the Commissioner claimed were due from the estate. One of the minor issues involved was a claimed deduction of $ 22,180.35 for executor's fee whereas the Commissioner allowed by $ 13,808.21, the amount also allowed by the Orphans Court as a deduction for Pennsylvania inheritance tax purposes. Without any extended discussion the Tax Court allowed the full deduction, since it had actually been paid, basing its finding upon part of Regulation 105 § 81.33 of the Treasury Department, reading as follows:
'The executor or administrator, in filing the return, may deduct his commissions in such an amount as has actually been paid * * *'
This decision of the Tax Court was appealed by both the Commissioner and the taxpayer to the United States Court of Appeals for the Third Circuit. Understandably this minor item was not included in any of the assignments of error and our Court of Appeals was not asked to pass upon this particular phase of the case. In its opinion, reported at 173 F.2d 19, 9 A.L.R.2d 1368, the action of the Tax Court was affirmed. However, both parties to this action agree that the question here involved was not at issue before the Court of Appeals. There is, therefore, no appellate authority for the proposition of law contended for by the plaintiffs in this action.
The Tax Court in the Freed case, relying upon its decision in the Cardeza case and again stating that the Commissioner should follow his own regulations, allowed deduction of the executor's commission actually paid which was computed at a higher rate than that determined by the Commissioner to be reasonable. There is no indication in Judge Harron's opinion that there had been any contest in the Orphans Court as to the reasonableness of the full allowance. It rather appears that the Commissioner independently made a determination of 'reasonableness'. It would seem, therefore, that the Cardeza case is the only case directly in point with the instant case and in which there had been a prior adjudication in a state court.
In determining the question involved in this case we fully recognize that the amount an executor may charge as a commission in Pennsylvania is not governed by statute. In all cases the standard of compensation allowed is fixed by decisional law and in accordance with the responsibility incurred and the services and labor performed. See Gardner's Estate, 323 Pa. 229, 185 A. 804; Harrison's Estate, 217 Pa. 207, 66 A. 354, and Young's Estate, 204 Pa. 32, 53 A. 511. Each case is decided strictly on the merits of the particular facts and circumstances involved. The standard has always been 'fair compensation'. On the other hand, the deductions allowed by Federal statute for estate tax purposes are fixed by statute, 26 U.S.C.A. § 812(b), and Treasury Regulations issued thereunder. To the extent that the regulations implement the statute they have the force and effect of law, Spreckels v. C. I. R., 9 Cir., 119 F.2d 667, affirmed 315 U.S. 626, 62 S. Ct. 777, 86 L. Ed. 103. The statute, explicit as to deductions for estate tax purposes, of necessity encompasses many items and elements. As it affects the instant situation it reads as follows:
'For the purpose of the tax the value of the net estate shall be determined, in the case of a citizen or resident of the United States by deducting from the value of the gross estate -- * * *
'(b) Expenses, losses, indebtedness and taxes. Such amounts -- * * *
'(2) for administration expenses, * * * as are allowed by the laws of the jurisdiction, whether within or without the United States, under which ...