Source: https://caselaw.findlaw.com/us-supreme-court/313/127.html
Timestamp: 2019-04-21 23:15:06+00:00

Document:
The question presented is whether upon this record the Court of Claims1 committed error in concluding that respondents, as executors, were, in computing their federal income tax, entitled to deduct expenses properly incurred in the administration of an estate, Congress having provided that such a deduction could be taken only by individuals, estates, or trusts engaged in 'carrying on ... business.' Revenue Act of 1934, 23(a), 161, 162, 26 U.S.C.A. Int.Rev.Code, 23(a)(1), 161, 162. Compare City Bank Farmers Trust Co. v. Helvering, just announced, 313 U.S. 121 , 61 S.Ct. 896, 85 L.Ed. --.
In computing the 1934 net income of the estate, respondents claimed a deduction of $40,000 for fees paid to the estate's attorney during the taxable year. The Com- [313 U.S. 127, 129] missioner of Internal Revenue disallowed the deduction; the respondents paid under protest, and filed suit for refund in the Court of Claims. Their complaint alleged that 'The payment of attorney's fees and the claim for allowance thereof as a deduction from gross income is predicated upon the contention that the tremendous size of the corpus of the estate and the proper administration thereof constituted the operation of a business and the employment of an attorney as counsel to guide the executors in the handling of the affairs of the estate was just as much a necessary expense of the estate as is incurred in the operation of any commercial business engaged in the manufacturing or selling of commodities.' The court made detailed findings of fact, and as its single conclusion of law stated that the respondents should recover.
Nor can the judgment of the Court of Claims be supported by that court's statement that the executors were engaged 'in the business of conserving the estate and protecting its income.' Such activities are the traditional duty of executors. Executors who engage actively in trade and business are the exception and not the rule. Rather obviously, there could be clear cases where executors 'carry on ... business' by continuing to operate a store, a factory or some other well known, well marked type of business activity. But in the absence of evidence showing activities coming within the general acceptation of the concept of carrying on a trade or business, [313 U.S. 127, 132] it cannot be said as a matter of law that an executor comes into this category merely because he conserves the estate by marshalling and gathering the assets as a mere conduit for ultimate distribution. And determination of what constitutes 'carrying on ... business' under the Revenue Act does not depend upon the size of the estate or the number of people whose services are required in order properly to conserve it.
The judgment of the Court of Claims is vacated and the cause is remanded to that court for proceedings in accordance with the views herein expressed. It is so ordered.
[ Footnote 1 ] 35 F.Supp. 81.
[ Footnote 2 ] United States v. Esnault-Pelterie, 299 U.S. 201, 206 , 57 S.Ct. 159, 162.
[ Footnote 3 ] Cf. Chippewa Indians of Minnesota v. United States, 305 U.S. 479, 481 , 59 S.Ct. 313, 315; American Propeller & Mfg. Co. v. United States, 300 U.S. 475, 479 , 480 S., 57 S.Ct. 521.
[ Footnote 4 ] See, e.g., Von Baumbach v. Sargent Land Co., 242 U.S. 503, 514 , 515 S., 37 S.Ct. 201, 203, 204; McCoach v. Minehill & Schuylkill Haven R.R., 228 U.S. 295, 303 , 33 S.Ct. 419, 422; Zonne v. Minneapolis Syndicate, 220 U.S. 187, 190 , 31 S.Ct. 361, 362.

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