Source: https://caselaw.findlaw.com/us-supreme-court/313/121.html
Timestamp: 2019-04-25 09:17:48+00:00

Document:
[313 U.S. 121, 122] Mr. Rollin Browne, of New York City, for petitioner.
[313 U.S. 121, 123] Mr. Arnold Raum, of Washington, D.C., for respondent.
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, 26 U.S.C.A. Int.Rev.Code, 23(a)(1).
Pursuant to the will of Angier B. Duke, two trusts, consisting of stocks and bonds worth approximately $7,600,000, were established in 1923 for the benefit of Duke's two minor sons. Petitioner, as trustee, was charged with the duty of applying a sufficient amount of the income of each trust to the support and education of the beneficiary; [313 U.S. 121, 124] 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. 1 The Circuit Court of Appeals affirmed. 2 Differing interpretations as to the meaning and scope of 'carrying on any trade or business' prompted us to grant certiorari in this case, 312 U.S. 672 , 61 S.Ct. 619, 85 L.Ed. --, i the case of Pyne v. United States, Ct.Cl., 35 F.Supp. 81, and in the case of Higgins v. Commissioner, 2 Cir., 111 F.2d 795; Id., 312 U.S. 212 , 61 S.Ct. 475, 85 L. Ed. --.
In the Higgins case, decided on February 3, we affirmed the judgment of the same Circuit Court of Appeals that rendered the decision below. Higgins, an individual taxpayer whose activities did not vary materially from the activi- [313 U.S. 121, 125] ties of the taxpaying trusts in the case at bar,3 was denied the deduction which petitioner here seeks. And sections 161, 162 of the Revenue Act of 1928 provide: 'The taxes imposed by this title (chapter) 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 .... ' Since the trust is subject to the same rules as the individual, and since the findings of the Board of Tax Appeals in the Higgins case and in the case at bar are substantially the same,4 the Higgins case is controlling here, unless, as petitioner contends, dis- [313 U.S. 121, 126] tinguishable by reason of administrative practice in relation to trusts.
[ Footnote 1 ] Revenue Act 1928, 23(a), 161, 162, 26 U.S.C.A. Int.Rev.Code, 23(a) (1), 161, 162. Cf. George Vanderbilt Trust v. Com'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.
[ Footnote 2 ] 2 Cir., 112 F.2d 457.
[ Footnote 4 ] 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, 356 , 357 S., 56 S.Ct. 289, 294, 295; Von Baumbach v. Sargent Land Co., 242 U.S. 503, 515 , 37 S.Ct. 201, 204; Zonne v. Minneapolis Syndicate, 220 U.S. 187 , 31 S. Ct. 361.
[ Footnote 5 ] Biddle v. Commissioner, 302 U.S. 573, 582 , 58 S.Ct. 379, 383; Helvering v. New York Trust Co., 292 U.S. 455, 467 , 468 S., 54 S.Ct. 806, 809, 810.
[ Footnote 6 ] The case referred to was Van Wart v. Commissioner, 295 U.S. 112, 115 , 55 S.Ct. 660.

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