Comm'r of Internal Revenue

This case is not covered by Casetext's citator
Tax Court of the United States.Sep 7, 1950
15 T.C. 209 (U.S.T.C. 1950)

Docket No. 15228.



Robert Ash, Esq., and Carl F. Bauersfeld, Esq., for the petitioners. Paul P. Lipton, Esq., for the respondent.

Ancillary administration proceedings were instituted in June 1941, approximately 20 years after the decedent's death, for the purpose of transferring securities of decedent to petitioner as heir and legatee. $45,850 of dividends declared on decedent's stock in 1940 and 1941 were paid to the ancillary administrator in 1941. Petitioner received $25,955.31 of this amount and paid income tax thereon. The administrator reported the balance after allowable deductions as fiduciary income and paid the tax thereon. The administration was completed and final distribution made in July 1942.

Respondent's determination that the administration should be disregarded and that the fiduciary income reported by the estate for 1941 should be taxed to petitioner held error. Robert Ash, Esq., and Carl F. Bauersfeld, Esq., for the petitioners. Paul P. Lipton, Esq., for the respondent.

Respondent has determined a deficiency in petitioner's income tax liability for the taxable year ending December 31, 1941; in the amount of $9,939.37. The deficiency results from respondent's determination that income in the amount of $17,808.48 reported as fiduciary income by the estate of John Ryan should be taxable instead to petitioners.

The proceeding has been submitted upon the pleadings, oral testimony, and a stipulation of facts, including exhibits. The stipulations are incorporated in material part into our findings of fact.


The petitioners, husband and wife, reside in Danbury, Connecticut. Their joint income tax return for the calendar year 1941 was filed with the collector of internal revenue for the district of Connecticut. For convenience Jean (John) E. L. Ryan will hereafter be referred to as the petitioner.

Petitioner is the son of John Ryan, Sr., a citizen of the United States who was born in New York City and who died on May 1, 1922, in Paris, France. Prior to his death John Ryan, Sr., had resided for a number of years in France, acting as the French sales representative of the Potter & Johnston Machine Co. of Pawtucket, Rhode Island, (hereinafter referred to as Potter & Johnston). Between the years 1913 and 1922, Ryan, Sr., received total salaries and commissions from Potter & Johnston of $878,067.73 and dividends from his stockholdings therein of $145,464.82.

The will of John Ryan, Sr. bequeathed his entire estate, except for certain relatively small amounts not here material, to his son and heir, John Ryan, Jr., the petitioner herein. Petitioner, born May 4, 1905, was 16 years of age at the death of his father. In the will the testator estimated his gross estate at 7 million francs and directed that petitioner have the disposition of the income of the estate at the age of 21 and ‘the free disposition of the capital and of the interest‘ at the age of 27. Included in the assets owned by the decedent at the date of his death were the following American securities:

262 shares common stock of Potter & Johnston Machine Co.

20 shares common stock of Pilgrim Mills

25 shares common stock of Fort Dummer Mills

17 shares common stock of Altavista Cotton Mills

The following dividends were declared on the Potter & Johnston stock subsequent to the death of the decedent:

+-----------------------+ ¦Date ¦Amount ¦ +--------------+--------¦ ¦Aug. 29, 1924 ¦$5,240 ¦ +--------------+--------¦ ¦June 25, 1940 ¦6,550 ¦ +--------------+--------¦ ¦Dec. 18, 1940 ¦13,100 ¦ +--------------+--------¦ ¦Nov. 17, 1941 ¦26,200 ¦ +-----------------------+

In accordance with French law the decedent's will and codicil thereto were deposited with the French notary on May 2, 1922. The minutes of the notary which were registered in Paris on June 8, 1922, recited (1) that the guardians named in the codicil renounced their appointment and that Madam Moreau, petitioner's grandmother, had qualified as guardian, and (2) that proof had been offered that under the laws of the State of New York the decedent's personal property would be governed by the laws of his domicile in fact, i.e., France.

In December 1925, petitioner, Madam Moreau, and Gaston Moreau, his uncle, came to the United States for a visit. On this visit petitioner remained in the United States until May 1, 1926. The purpose of the visit was to give petitioner an opportunity to learn something about the rubber industry in the United States. He worked for a short time in several different departments of a rubber company in Providence, Rhode Island. This company was a licensee of patents held by Fred Roberts, an American inventory. Roberts, Gaston Moreau, and petitioner's father, the decedent, had previously been associated in a French firm, Lick Paramount Co., manufacturing rubber products under the Roberts' patents.

Gaston Moreau, Madam Moreau, and petitioner, who was still a minor at the time, discussed the American stockholdings of the decedent with Roberts. A decision was reached to probate the will of the decedent and to have the stocks transferred in the name of petitioner. The Rhode Island Hospital Trust Co. was approached with a view to having it act as ancillary administrator, but it referred the question to its attorneys. Following a conference between the attorneys, the Moreaus, and petitioner there was prepared a petition to have the Hospital Trust Co. appointed ancillary administrator of the estate of John Ryan, Sr. This petition was signed by Madam Moreau as guardian of the petitioner and was filed in April 1926, in the Probate Court of the City of Providence. It was not prosecuted by was continued ‘nisi‘ in October 1927 for the following reasons: (1) The attorneys were uncertain whether the securities as part of the corpus of the estate could be turned over to petitioner at 21 years of age or whether, in accordance with the terms of the will, distribution would have to be delayed until petitioner was 27 years of age. (2) The will and associated documents filed with the Providence Probate Court were improperly certified. (3) The attorney advised the Hospital Trust Co. not to undertake the administration unless it was prepared to file income tax returns on behalf of the decedent if they had not been previously filed.

On recommendation of Roberts, arrangements were then made by Gaston Moreau to have E. H. Marsters of Boston, take care of the securities. Marsters was given a communication signed by ‘J. Ryan‘ and ‘J. E. Ryan‘, addressed to Pilgrim Mills, requesting them to send dividend checks, stock certificates, and all other papers for the account of John Ryan to ‘E. H. Marsters, trustee‘ and ‘making the same payable or returnable to him.‘ Following petitioner's return to France, the stock certificates for the securities were sent to Marsters in August 1926 through J. P. Morgan & Co. and its Paris associate, Morgan, Harjes & Co. A 1924 stock dividend of Pilgrim Mills was also forwarded to Marsters. Marsters collected the dividends and sent his personal checks in the same amounts to Madam Moreau or petitioner, requesting them not to deposit the checks for collection until he advised them to do so.

In 1927 Roberts advised the Providence attorneys that his business dealings with Marsters had turned out to be very unsatisfactory and that he was ‘very anxious for the safety of the securities of Mr. Ryan‘ and ‘would like to know what is necessary for Johnny to do in order to have Mr. Marsters turn over the securities to you.‘

In the last part of December 1927, petitioner again visited the United States for a few weeks. The trip was partly a pleasure trip and partly for the purpose of recovering from Marsters the securities of the Ryan estate. On this visit petitioner conferred with Wallace Potter, President of the Potter & Johnston Co., in regard to the Potter & Johnston stock. Potter advised him that the stock had little value. Petitioner decided to do nothing about it in the belief that the legal fees, expenses, and inheritance taxes would exceed the amount that could be realized from it.

When petitioner returned to France from his first visit to America, he was employed as a rubber technician by the Lick Paramount Co. at Ivry sur Seine, Paris. Later he had charge of production in another plant of Lick Paramount. This plant manufactured rubber play balls using a patent of Roberts'.

In 1937 Thayer Durell, an accountant, became treasurer and purchasing agent of Potter & Johnston. Realizing that the company had a very successful period ahead of it, Durell and other executives became anxious to acquire the 262 shares of Potter & Johnston stock outstanding in the name of John Ryan, Sr. Durell was advised by the attorneys for Potter & Johnston that Ryan, Sr., had been a citizen of the United States and that, as such, administration of the estate had to be taken before his stock could be transferred. In 1941 Durell sought the advice of Potter & Johnston's patent attorney, Edward R. Walton, Jr. Walton advised him by letter of March 27, 1941, that ‘there are no representatives of either Ryan, Sr., or Ryan, Jr., with which you can deal for the transfer of the stock with impunity. While there is some evidence that Ryan, Sr., may have left a Will in France, we do not know that it has been probated in accordance with French Law and, even if it has, that is not sufficient for your purpose to enable you to transfer the stock in this country. There should be, at least ancillary, administration of Ryan, Sr.'s estate in this country by a court of competent jurisdiction. * * *‘

Walton recommended in the above letter (1) that the corporation not deal with Ryan, Jr., or any representative of his except a legally appointed representative and (2) that the corporation in order to pay the dividends which it held and to effectuate the transfer of the stock, petition a local probate court to take jurisdiction of such property of Ryan, Sr., and that ‘If, by this means, Ryan, Jr., obtains the stock and then wishes to sell it to you, the negotiation could be made.‘

In April 1941, Walton and Durell held a conference in Washington with representatives of the Bureau of Internal Revenue in regard to the monies which Potter & Johnston held as declared dividends on the Ryan stock. Following this conference Walton wrote the Bureau that:

* * * Our advice and information is that Mr. Ryan was an American citizen born in this country and that on several occasions obtained an American passport as an American citizen. He was our factory representative in Paris and resided in France for many years. He left a son, John Ryan, Jr., who, to the best of our information and belief, is still alive, but had no other children. We also have heard that Mr. Ryan left a will in Paris which is said to have been probated in France.

We are not informed as to whether John Ryan, Jr. is an American citizen, not knowing exactly his place of birth or whether he has claimed American citizenship. John Ryan, Jr. was born, according to our best information, in 1905 and visited this country in or about 1924 or 1925. Pursuant to the conference which we had on April 8th, my client is arranging to institute an administration proceedings in Rhode Island in order that a Court of competent jurisdiction will appoint an administrator for those assets of John Ryan, Sr., which we have to his credit so that the proper administration and distribution of these funds and other properties may be effected for reasons which are obvious from the facts herein recited.

Through the aid of the American Red Cross petitioner escaped from German-occupied France and arrived in the United States in April 1941. He brought with him the stock certificates of Potter & Johnston stock, but did not bring the certificates for the Pilgrim Mills, for the Fort Dummer Mills, or Altavista Cotton Mills stock.

On petitioner's arrival in New York on April 28, 1941, a meeting was held between petitioner, Wallace Potter, Thayer Durell, Fred Roberts, and Edward R. Walton in regard to the Potter & Johnston stock. At this meeting petitioner advised Durell that he was in need of funds. Potter had instructed Durell to see that petitioner's desires were met as far as possible. Durell hired Ryan as an employee of Potter & Johnston and, ascertaining that Ryan was interested in acquiring a small rubber plant, suggested that Ryan sell to him his Potter & Johnston stock in order to raise the required capital. Negotiations were undertaken but the transaction was not consummated as it was decided that petitioner would first institute the ancillary administration proceedings which Durell and Walton had previously determined to bring on Potter & Johnston's behalf before the arrival of petitioner.

On June 11, 1941, a petition for the appointment of Edward R. Walton as ancillary administrator for the estate of John Ryan was filed in the Probate Court in the City of Pawtucket, Rhode Island, by petitioner as ‘sole heir at law and next of kin of decedent.‘ This petition was granted and Walton was appointed administrator c.t.a. on July 2, 1941.

Walton engaged a Providence attorney, Frank F. Mason, to represent him in administering the estate.

The inventory filed in the Pawtucket Probate Court showed a total gross estate for the decedent as of May 1, 1922, as follows:

+-----------------------------------------------+ ¦ ¦Description of Security ¦Value ¦ +----------+----------------------------+-------¦ ¦ ¦ ¦ ¦ +----------+----------------------------+-------¦ ¦262 shares¦Potter & Johnston Machine Co¦$52,400¦ +----------+----------------------------+-------¦ ¦17 shares ¦Altavista Cotton Mills ¦None ¦ +----------+----------------------------+-------¦ ¦20 shares ¦Pilgrim Mills ¦2,900 ¦ +----------+----------------------------+-------¦ ¦25 shares ¦Fort Dummer Mills ¦None ¦ +-----------------------------------------------+

On September 9, 1941, Walton filed an estate tax return for John Ryan, Sr., listing as the total estate owned by the decedent the above securities and valuing them at the values set forth in the inventory filed in the Pawtucket Probate Court, except for the Potter & Johnston stock which was valued at $100 per share, or a total of $26,200. An estate tax of $291 on the basis of this return was paid. Following an examination of the return by the Bureau, valuation of the Potter & Johnston stock was increased to $400 per share, the Fort Dummer Mills stock to $40 per share, and the Altavista Cotton Mills stock to $175 per share, or a total increase in the value of the gross estate from $29,100 to $111,635. Walton agreed to this deficiency and paid the additional tax of $1,441.70 thereon. Thereafter, on December 16, 1941, a transfer certificate was issued by the Bureau certifying that the estate taxes had been fully discharged on the above shares.

On August 22, 1941, Walton wrote to Pilgrim Mills stating that he had been appointed ancillary administrator of the estate of John Ryan, that the decedent had bequeathed 34 2/7 shares of Pilgrim Mills stock to petitioner, and that petitioner had lost the original certificates representing these shares. Walton requested that duplicate certificates be issued and stated that petitioner would furnish a surety bond to indemnify the company against any loss or liability resulting from the issuance of the duplicate shares. Following this request, Pilgrim Mills issued new certificates in the petitioners' name. Petitioner sold these shares in October 1941 at $75 per share. On learning of this sale, Walton questioned the propriety of issuance of the duplicate certificates in petitioner's name in view of the pending ancillary administration proceedings. Mason, however, as Walton's attorney, approved the issuance of the certificates and the sale by petitioner, but recommended that petitioner endorse over to Walton the check received in payment for the shares. Petitioner did so and Walton deposited the check in the fiduciary bank account. After deducting expenses of the estate incurred to that date, Walton distributed the balance of the proceeds to petitioner.

On September 25, 1941, petitioner wrote to Potter & Johnston as follows:

Mr. Walton noticed (sic) me during a telephone talk we had yesterday that your Company was unable to remit to him the past dividends belonging to my father's estate, which dividends amount to 24,000 Dollars. This is not very clear to me, and would be glad if you could explain why it cannot be done.

In November 1941, petitioner received $25,000 from Potter & Johnston as part payment of two dividends declared on the Ryan stockholdings. Petitioner used this sum to acquire all the outstanding stock of the Danbury Rubber Co. of Danbury, Connecticut. He signed an indemnity agreement in which he promised to save harmless Potter & Johnston from any loss or liability that it might suffer because of payment to him of the above $25,000. The indemnity agreement further provided that as security for its performance petitioner would transfer to Potter & Johnston all the outstanding shares of Danbury Rubber Co. to be held by it until all liability of the estate of John Ryan, Sr., for inheritance taxes should be paid. In return Potter & Johnston gave Ryan a proxy to vote the Danbury stock. Subsequently Walton, as administrator, gave Potter & Johnston a receipt for the $25,000 and in his final account treated this amount as received by the estate and disbursed to the petitioner as sole heir and legatee. Following the delivery of Walton's receipt for the $25,000, Potter & Johnston returned to petitioner through Walton the indemnity agreement and the Danbury Rubber Co. stock.

In December 1941, Potter & Johnston paid $20,850 to Walton, representing the balance of the dividends claimed by it to be due and owing on the Ryan stock. This sum, together with $25,000 previously received by petitioner, represented payment of all dividends declared by Potter & Johnston subsequent to the death of the decedent except for the dividend declared August 29, 1924. As to the latter dividend, Potter & Johnston took the position that the statute of limitations had run. Its attorney explained the company's refusal to pay in the following letter to Walton:

Potter & Johnston Machine Company, of Pawtucket, Rhode Island, has requested that I inform you of its attitude with reference to the payment to you as administrator of the estate of John Ryan of a dividend of the Company declared August 29, 1924. The position of the Company is that under the will of John Ryan and the French law applicable thereto the possibility that title to all dividends on said stock vested in John Ryan, Jr., from and after the date of his father's death in 1922 cannot be ruled out. Under such circumstances the dividends would not be payable to you as administrator.

So far as John Ryan, Jr. is concerned, he became twenty-one on May 4, 1926, and resided in the United States about three weeks during the month of January, 1928. His residence in the United States in January, 1928, started the operation of the statute of limitations, which at this time has long since run upon any rights which Mr. John Ryan, Jr. was entitled to enforce at the time of his residence in this country in January, 1928.

The company is not willing to waive the possibility that the right to receive this dividend is in John Ryan, Jr., and that the statute has run. It will assist in expediting litigation to determine the issue.

On being advised by Walton of Potter & Johnston's position on the 1924 dividend, petitioner stated that because of the provisions of his father's will, he was not entitled to make a demand for the dividend in 1928 and further that he had never been advised of the dividend until 1941. The dividend was subsequently paid to Walton by Potter & Johnston in 1942.

On December 31, 1941, Mason, as attorney for the administrator, advised Walton against making substantial distributions from the estate prior to January 16, 1942, a date 6 months after Walton's appointment as administrator. Walton filed his first and final account as administrator on July 22, 1942. The account was allowed by the Probate Court July 31, 1942. The account listed $106,595.50 as the total received, including personal estate valued at $55,300 and income received of $51,295.50. The account showed the following distributions to petitioner:

+-----------------------------------------------------------------------------+ ¦Oct. 31, ¦Cash ¦$955.31 ¦ ¦1941 ¦ ¦ ¦ +---------+---------------------------------------------------------+---------¦ ¦Dec. 24, ¦Cash ¦25,000.00¦ ¦1941 ¦ ¦ ¦ +---------+---------------------------------------------------------+---------¦ ¦Feb. 28, ¦Cash ¦1,000.00 ¦ ¦1942 ¦ ¦ ¦ +---------+---------------------------------------------------------+---------¦ ¦Apr. 7, ¦12 1/2 shares Berkshire Fine Spinning Associates, Inc. ¦205.50 ¦ ¦1942 ¦* plus accrued dividends. ¦ ¦ +---------+---------------------------------------------------------+---------¦ ¦June 12, ¦Cash ¦3,000.00 ¦ ¦1942 ¦ ¦ ¦ +---------+---------------------------------------------------------+---------¦ ¦July 22, ¦13,100 shares of Potter & Johnston Machine Co. Common ¦52,400.00¦ ¦1942 ¦Stock ** ¦ ¦ +---------+---------------------------------------------------------+---------¦ ¦July 22, ¦Cash (Final Distribution) ¦6,163.40 ¦ ¦1942 ¦ ¦ ¦ +---------+---------------------------------------------------------+---------¦ ¦ ¦ ¦ ¦ +-----------------------------------------------------------------------------+

FN* Exchanged for 25 shares common stock Fort Dummer Mills.FN** Received in exchange for 262 shares common stock of Potter & Johnston in stock split up

The account showed the remaining disbursements of the administrator as being made for Federal estate and income taxes, premiums on surety bonds, legal expenses and fees for the administrator and the counsel for the administrator. On March 13, 1942, Walton filed a fiduciary income tax return for the estate of John Ryan, Sr., for the period beginning July 16, 1941, and ending December 31, 1941. He reported income from dividends in the amount of $45,850, a net long term capital loss in the amount of $165.90 on the sale of Pilgrim Mills stock, claimed an interest deduction of $1,920.31, and disclosed net income of $43,763.79. The amount distributed to beneficiaries was shown as $25,955.31, leaving net income taxable to the fiduciary as $17,808.48. The tax computed on the latter amount and paid with the filing of the return was $4,107.74.

Petitioner in his income tax return for 1941 reported as ‘fiduciary income‘ from the ‘Estate of John Ryan‘ the amount of $25,955.31. In the deficiency notice respondent increased ‘fiduciary income‘ by $17,808.48, representing the difference between the entire net income reported by the fiduciary and the portion thereof previously reported by petitioner.



The only question confronting us is the propriety of respondent's action in taxing to petitioner the fiduciary income reported by the estate of John Ryan, Sr.

The applicable statutory provisions governing the taxation of the income of estates are found in sections 161 and 162 of the Internal Revenue Code. Section 161 provides that the tax upon income of estates should include ‘income received by estates of deceased persons during the period of administration or settlement of the estate; and income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated.‘ Section 162 provides that the net income of an estate or trust is computed in the same manner as that of an individual except an additional deduction is permitted for the income which is to be currently distributed by the fiduciary to beneficiaries, whether distributed to them or not.

Decision will be entered under Rule 50. SEC. 161. IMPOSITION OF TAX.(a) APPLICATION OF TAX.— The taxes imposed by this chapter upon individuals shall apply to the income of estates or of any kind of property held in trust, including—(2) Income which is to be distributed currently by the fiduciary to the beneficiaries, and income collected by a guardian of an infant which is to be held or distributed as the court may direct;(3) Income received by estates of deceased persons during the period of administration or settlement of the estate; and(4) Income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated.

SEC. 162. NET INCOME.The net income of the estate or trust shall be computed in the same manner and on the same basis as in the case of an individual, except that—(b) There shall be allowed as an additional deduction in computing the net income of the estate or trust the amount of the income of the estate or trust for its taxable year which is to be distributed currently by the fiduciary to the beneficiaries, and the amount of the income collected by a guardian of an infant which is to be held or distributed as the court may direct, but the amount so allowed as a deduction shall be included in computing the net income of the beneficiaries whether distributed to them or not. Any amount allowed as a deduction under this paragraph shall not be allowed as a deduction under subsection (c) of this section in the same or any succeeding taxable year;(c) In the case of income received by estates of deceased persons during the period of administration or settlement of the estate, and in the case of income which, in the discretion of the fiduciary, may be either distributed to the beneficiary or accumulated, there shall be allowed as an additional deduction in computing the net income of the estate or trust the amount of the income of the estate or trust for its taxable year, which is properly paid or credited during such year to any legatee, heir, or beneficiary, but the amount so allowed as a deduction shall be included in computing the net income of the legatee, heir, or beneficiary.

In view of the clear statutory provisions for the taxation of income of estates, some impelling and cogent reason should be present for us to go beyond the statutory mandate and tax the income of an estate to the beneficiary when not yet distributed or credited to him. Itola M. Evans Ransom, 2 T.C. 647; Estate of Robert L. Harwood, 46 B.T.A. 750; J. H. Anderson, 30 B.T.A. 1275; First National Bank of Birmingham, Guardian, 31 B.T.A. 847.

The administrator here instituted the ancillary administration proceedings in June 1941, and closed the estate in July 1942. In the Harwood case, supra, we held that the estate was actually in process of administration during the taxable year and that its continued administration appeared neither arbitrary nor capricious. Similarly in the instant case, it is apparent that the administration, once undertaken in 1941, was not arbitrarily or capriciously delayed for the purpose of securing a tax advantage for petitioner. Respondent does not argue to the contrary. His position appears to be that since the administration was not instituted until nearly 20 years after the death of the decedent, the Commissioner may refuse to recognize the administration and may disregard the estate as a taxable entity. For authority for this proposition, respondent relies upon section 29.162-1 of Regulations 111, which provides in pertinent part as follows:

* * * The period of administration or settlement of the estate is the period required by the executor or administrator to perform the ordinary duties pertaining to administration, in particular the collection of assets and the payment of debts and legacies. It is the time actually required for this purpose, whether longer or shorter than the period specified in the local statute for the settlement of the estates. * * *

He further relies upon our decisions in Walter A. Frederich, 2 T.C. 936, revd., 145 Fed.(2d) 796, and William C. Chick, 7 T.C. 1414, affd., 166 Fed.(2d) 337, construing the above regulations.

We regard the holdings of the Frederich and Chick cases as inapposite herein. In both of the above cases the taxpayers were in control of the income of the estate during the years in question. Here, Potter & Johnston, whose stock constituted the major portion of the decedent's American estate, refused to transfer the stock to petitioner until ancillary administration proceedings were had. There was no income for the Potter & Johnston stock from the date of decedent's death in 1922 until substantial dividends were declared by the company in 1940. The 1940 dividends, along with the 1941 dividends, were paid to the administrator, Walton, in 1941. Petitioner repeatedly asked Walton for a distribution in 1941 of all the income of the estate but Walton refused to distribute it since he deemed it advisable to retain a substantial amount of the income to meet debts and expenses of the estate.

We have disregarded the dividend declared in 1924 by Potter & Johnston as the record does not show that petitioner was aware of it until 1941. Moreover, the 1924 dividend income is not material since it was not received by the administrator until 1942 and thus was not put in issue in this proceeding.

The respondent's determination that petitioner, who was on the cash basis, is taxable for the income which he sought but could not obtain in 1941, finds no support in the statute, regulations, or decided cases. Furthermore, if the administration should be disregarded, as respondent asserts, then the 1940 dividends should have been income to the petitioner in that year, not in 1941. Regulations 111, section 29.42-3. ‘* * * Dividends on corporate stock are subject to tax when unqualifiedly made subject to the demand of the shareholder. * * *‘ Samuel Goldwyn, 9 T.C. 510, 517. If it be said that the dividends were not unqualifiedly subject to petitioner's demand in 1940 because of Potter & Johnston's refusal to pay them until ancillary administration was had, it should be equally apparent that they were not unqualifiedly subject to petitioner's demand in 1941 when the administrator refused to pay them to petitioner.

Once petitioner learned that the American securities of his father's estate had a value in excess of the expenses of administration and estate taxes, he promptly undertook, upon his arrival in this country in 1941, the ancillary administration necessary to obtain title to the securities. The time actually required by the administrator to collect the income from the securities, pay the estate taxes, effectuate the transfer of the securities, and to distribute the securities and income to the beneficiary was the period between June 1941, and July 1942. See Regulations 111, section 29.162-1, supra.

In the alternative respondent contends that the dividends which comprised the income here in issue (1) automatically belonged to petitioner under the law of France without the necessity of administration, or (2) were currently distributable to petitioner under the provisions of his father's will. We are not impressed by either contention. The first assumes that the taxability of the income from American securities must turn upon foreign laws of descent and administration despite evidence that petitioner, whatever his title or right to the income might be under French law, could not obtain the dividends until proper ancillary administration had been effected in this country. As to the second alternative contention, we do not construe the will as respondent would have us construe it. The provisions giving petitioner disposition of income at the age of 21 is concerned with the details of a guardianship. It has no relation to the exercise of discretion by the administrator to withhold income to meet possible debts of the estate during the period in which creditors might file claims. The administrator's determination to withhold a substantial portion of the estate's income until the period for filing claims had expired was a proper exercise of discretion under the law of Rhode Island.

General Laws of Rhode Island (1938), Chapter 579, sections 11, 12, 13, 17, and 18.

For the above reasons, we conclude that respondent's action in taxing to petitioner the fiduciary income reported by the decedent's estate was error. Because of increased adjustments in petitioner's income,