Source: https://supreme.justia.com/cases/federal/us/313/121/
Timestamp: 2019-04-23 04:01:31+00:00

Document:
The administration of a trust by a testamentary trustee whose duties and activities are confined to holding and safeguarding a fund of stocks and bonds, collecting income, making safe investments and reinvestments, distributing income to beneficiaries, keeping accounts, preparing and filing income tax returns, etc., is not a "carrying on business" within § 23(a) of the Revenue Act of 1928. Hence, the commissions allowed and paid the trustee are not deductible under that section as expenses of carrying on a business. In computing the taxable income, the trust is subject to the same rules as an individual, Revenue Act, 1928, §§ 161-162. Higgins v. Commissioner, 312 U. S. 212, followed. P. 313 U. S. 124.
Certiorari, 312 U.S. 672, to review a judgment affirming a decision of the Board of Tax Appeals, 39 B.T.A. 29.
The ultimate question here involved is whether two testamentary trusts of which petitioner is trustee were, in 1931, "carrying on . . . business" within the meaning of section 23(a) of the Revenue Act of 1928.
the surplus income was to be accumulated until the beneficiary's majority, and, at that time, all accumulated income was to be paid to the beneficiary, while the principal was to be continued in trust for the benefit of the son and his descendants. By 1931, the principal and accumulated income of the two trusts aggregated about $10,000,000. In that year, the Surrogate Court of New York County allowed trustees' commissions of about $77,000, ordering that payment be made out of principal. In reporting trust income for 1931, the trustee did not claim any deduction for these commissions. Later, in proceedings before the Board of Tax Appeals, the deduction was claimed but denied. The ground of denial was that, during the taxable year, the trusts had not been "carrying on any trade or business," the carrying on of such an activity being a condition precedent to the allowance of the claimed deduction under the controlling Revenue Act. [Footnote 1] The Circuit Court of Appeals affirmed. [Footnote 2] Differing interpretations as to the meaning and scope of "carrying on any trade or business" prompted us to grant certiorari in this case, in the case of Pyne v. United States, 92 Ct.Cls. 44, 35 F.Supp. 81, post, p. 313 U. S. 127, and in the case of Higgins v. Commissioner, 111 F.2d 795; 312 U. S. 312 U.S. 212.
"The taxes imposed by this title upon individuals shall apply to the income of estates or of any kind of property held in trust."
"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. . . ."
by reason of administrative practice in relation to trusts.
"is adequately supported by this record, and rests upon a conception of carrying on business similar to that expressed by this Court for an antecedent section. [Footnote 6]"
Revenue Act 1928, §§ 23(a), 161, 162. Cf. George Vanderbilt Trust v. Comm'r, 36 B.T.A. 967. Though petitioner urges that the Commissioner, because of concessions made before the Board of Tax Appeals, should be barred from asserting that the trusts were not carrying on business, the judgment of the Board rested on its finding that the trusts were not so engaged, and the issue is properly before us.
"The above facts demonstrate conclusively to us that this is a case of passive investment, and not of carrying on a business, for not only is the trustee limited in its investments, but it is cautioned, in effect, to be a safe investor, rather than a participant in trade or business, and, plainly carrying out the testator's injunctions, it conducts no business, because it has, as above seen, no expenses of conducting business other than the collection of coupons and mailing bonds, amounting to a few dollars, and an even more negligible amount for transfer stamps or notary fees. . . . Extensive authority need not be compiled to demonstrate that a mere passive investor, collecting interest and clipping coupons, and making a very few reinvestments, is not engaged in trade or business."
It is clear that the Board was justified in reaching the conclusion that the instant trusts were not "business trusts," but existed merely to hold and conserve property and distribute the income received. Compare Morrissey v. Commissioner, 296 U. S. 344, 296 U. S. 356-357; Von Baumbach v. Sargent Land Co., 242 U. S. 503, 242 U. S. 515; Zonne v. Minneapolis Syndicate, 220 U. S. 187.
Biddle v. Commissioner, 302 U. S. 573, 302 U. S. 582; Helvering v. New York Trust Co., 292 U. S. 455, 292 U. S. 467-468.
The case referred to was Van Wart v. Commissioner, 295 U. S. 112, 295 U. S. 115.

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