Case Name: Acacia Park Cemetery Association, Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1932-12-07
Citations: 27 B.T.A. 233
Docket Number: Docket No. 30210
Parties: Acacia Park Cemetery Association, Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent.
Judges: 
Reporter: Reports of the United States Board of Tax Appeals
Volume: 27
Pages: 233–244

Head Matter:
Acacia Park Cemetery Association, Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent.
Docket No. 30210.
Promulgated December 7, 1932.
Leonard L. Cowan, Esq., for the petitioner.
Arthur Camdujf, Esq., for the respondent.

Opinion:
OPINION.
Smith:
In this proceeding the petitioner contends that the cost of the lots in each of the two sections to its cemetery was $100,000 greater than the amount allowed by the respondent in the determination of profits upon the sales. If this contention be denied, the petitioner contends that 10 per cent of the amount received from sales was received by it in trust and hence was no part of petitioner's net income.
We are of the opinion that there is no merit in the petitioner's contention that the cost of the lots sold was inclusive of an amount to be paid in by lot purchasers to provide for perpetual care. The cost of the land and improvements was not enhanced by the fact that the petitioner was to provide perpetual care. While we have held, under certain conditions, that the cost of improvements and additions legally bound to be made by contract when lots in a real estate development are sold may be added to the cost of the lots (Milton A. Mackay, 11 B. T. A. 569; Birdneck Realty Corp., 25 B. T. A. 1084), it does not follow that future ordinary expenses and upkeep may be so treated. Expenses are deductible when paid or incurred. Even when it is known that expenses will be incurred in a subsequent year, it is not a ground for allowing a deduction in a previous year. The petitioner's contention upon this point is not sustained.
It is necessary to consider the petitioner's alternative contention that a portion of the sale price was received by the petitioner in trust and accordingly that a portion of it did not represent taxable income.
The Board has held in a number of cases that, where lots in a cemetery are sold with the provision that a portion of the sale price is to be set aside in a separate fund and the income used for perpetual care, the amount thus set aside is not taxable income. Los Angeles Cemetery Assn., 2 B. T. A. 495; Greenwood Cemetery Assn., 2 B. T. A. 910; Metairie Cemetery Assn., 4 B. T. A. 903; Inglewood Panic Cemetery Assn., 6 B. T. A. 886. A court has held to the same effect in Portland Cremation Assn. v. Commissioner, 31 Fed. (2d) 843. In the last named case the court stated:
It is true that a mere honorary obligation which one may perforin or not at his will does not create a trust. But a trust may be created by parol, and its creation does not depend on the use of particular words of trust. Chicago, etc., Ry. Co. v. Des Moines, etc., Ry. Co., 254 U. S. 196, 208, 41 S. Ct. 81, 65 L. Ed. 219. It may be inferred from facts and circumstances. Thus the owner and donor of personal property may create a perfect trust by Ms unequivocal declaration in writing or by parol that he himself holds such property in trust for purposes named. 26 R. C. L. 1182. And any words which indicate with sufficient certainty a purpose to create a trust will be effective in so doing. Gutch v. Fosdick, 48 N. J. Eq. 353, 22 A. 590, 27 Am. St. Rep. 473; Foulds v. Dillon, 231 Mich. 509, 204 N. W. 733. While the petitioner here may be said to have had control of the money which it had placed in the maintenance fund, diversion of that fund for corporation purposes or any purpose other than that designed by its promise to maintain the same, and the specific resolution of its board of directors to devote to that purpose 20 per centum of its receipts from sales, might be enjoined by a suit in equity as a violation of the trust agreement. The crucial question is, Did the petitioner's patrons possess the right to protect themselves and demand the preservation of the fund which the petitioner had covenanted with them to maintain and by its resolution had set apart for maintenance? That question is by the authorities answered in the affirmative.
On brief the petitioner admits that the precise question presented for determination by this proceeding, so far as the published reports indicate, has never before been directly presented to this Board or the Federal courts; that in cases heretofore decided the question has been whether or not the fund set aside is a trust fund and, if so, whether under the peculiar facts in the case the funds were received in trust or placed in the trust fund.
So far as the record before us shows, there was never any corporate resolution adopted by the petitioner's stockholders or directors relative to the creation of a trust fund to provide for perpetual care. The president of the corporation testified, with reference to the establishment of a perpetual care fund in 1922, that:
Our arrangement was tbat we would establish a $100,000 fund for the first 25% acres we opened up, and that, in selling lots, we were to set aside 10 per cent on the 25% acres, to be sold at a minimum price or an approximate price of at least $155 a lot, which would figure up to approximately $975,000, and 10 per cent of that was to be set aside, making a minimum) of approximately $100,000 for the first 25 acres.
He instructed salesmen that they might inform prospective purchasers that a perpetual care fund was to be set up and that 10 per cent of the amounts received were to be placed in such fund. Two salesmen of the petitioner testified that they were so instructed and that they advised prospective purchasers that 10 per cent of the amounts paid in on their lots would be set up in a perpetual care fund. The president testified that the $100,000 perpetual care fund was not set up as originally contemplated, for the reason that:
We needed the money for improvements necessary, that we were putting in, and we decided that, any time under the construction period, or any time during that time, as long as we had available lots for sale, that that fund would he intact, and that the proceeds from the sale would be charged and put in, up to the entire amount.
He further testified that 725 lots had been set aside for this purpose.
From a consideration of the entire evidence we are of the opinion that it does not establish the fact that any part of the amounts paid in by the lot purchasers was received by the petitioner in trust. The contract of sale provided that each lot should receive perpetual care. In 1924 a comparatively small amount was deposited with a trustee, the income of which was to be used for the perpetual care of the cemetery as distinguished from the care of lots sold, but only so far as necessary. Any excess of the income which might be received from such fund was available to the petitioner for any corporate purpose. The record does not show that any liability for perpetual care was recognized in the keeping of the petitioner's books of account, or that any action was taken by its stockholders or board of directors recognizing such liability. In this situation we are of the opinion that the petitioner has failed to establish that the money was received in trust, and that the proceeding at bar involves a situation substantially the same as was considered in Springdale Cemetery Assn., 3 B. T. A. 223, and Mt. Plymouth Corp., 25 B. T. A. 1201. In the last named case the facts were that a corporation selling lots from a tract in Florida gave assurance that each lot owner would for 21 years have the privileges of a golf course and club house in the tract, and stated that $100 of the price of each lot would be used to maintain such golf course and club house. We held that no trust existed in respect of the $100 received from the sale of each lot and that such $100 was within the corporation's gross income.
Reviewed by the Board.
Judgment will be entered under Rule SO.