Case Name: Commercial Trust Co., Petitioner, v. Commissioner of Internal Revenue, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1930-12-16
Citations: 21 B.T.A. 732
Docket Number: Docket No. 31927
Parties: Commercial Trust Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
Judges: MoRRis, Marquette, Sternhagen, Murdock, McMahon, and Matthews agree with this dissent.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 21
Pages: 732–735

Head Matter:
Commercial Trust Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
Docket No. 31927.
Promulgated December 16, 1930.
J. 8. T. Ivins, Esq., and Eustis Myres, Esq., for the petitioner.
A. H. Fast, Esq., for the respondent.

Opinion:
OPINION.
Smith :
The- only question presented by this proceeding is whether a sole trustee carrying on business for the benefit of three beneficiaries, namely, himself, his wife, and his brother, is taxable as an association under section 2 of the Revenue Act of 1924, which provides that:
(a) When used in this Act—
*
(2) The term " corporation " includes associations, joint-stock: companies, and insurance companies.
The Supreme Court in Crocker v. Malley, 249 U. S. 223, in holding that a certain organization constituted a trusteeship, said:
There can be little doubt that in Massachusetts this arrangement would be held to create a trust and nothing more. " The certificate holders are in no way associated together nor is there any provision in the [instrument] for any meeting to be held by them. *. "
On the other hand, the trustees by themselves cannot be a joint-stock association within the meaning of the act unless all trustees with discretionary powers are such, and the special provision for trustees in D is to be made meaningless. We perceive no ground for grouping the two — bene ficiaries and trustees — together, in order to turn them. into an association, by uniting their contrasted functions and powers, although they are in no proper sense associated.
In Hecht v. Malley, 265 U. S. 144, in distinguishing that case from Crocker v. Malley, supra, the Supreme Court said:
⅜ And the language used arguendo in reaching this conclusion that the trustees could not be deemed an association unless all trustees with discretionary powers are such, and that there was no ground for grouping together the beneficiaries and trustees in order to turn them into an association — is to be read in the light of the trust agreement there involved, under which the trustees were, in substance, merely holding property for the collection of the income and its distribution among the beneficiaries, and were not engaged, either by themselves or in connection with the beneficiaries, in the carrying on of any business.
In the course of its opinion, the court said further, in defining the word " association," as used in the revenue acts, that:
The word " association " appears to be used in the Act in its ordinary meaning. It has been defined as ,a term used throughout the United States to signify a body of persons united without a charter, but upon the methods and forms used by incorporated bodies for the prosecution of some common enterprise." I Abb. Law. Diet. 101 (1879) ; 1 Bouv. Law Dict. (Rawle's 3d Rev.) 269; 3 Am. & Eng. Law (2 Ed.) 162; and Allen v. Stevens, 33 App. Div. 485, 54 N. Y. Supp. 8, 23, in which this definition was cited with approval as being in accord with the common understanding.
The respondent, relying upon J. W. Pritchett et al., Trustees, 17 B. T. A. 1056, contends that the petitioner is an association within the meaning of the taxing statute. In that case, however, we found that the trustees were associated and actively engaged in carrying on a business venture for profit.
The evidence in this case conclusively proves that there was no association of trustees; that there was no association of beneficiaries; that the beneficiaries did not control the actions of the trustee; that the trustee and beneficiaries were not associated, and that the petitioner did not transact business under corporate forms. The petitioner is not an " association " subject to tax as a corporation.
Reviewed by the Board.
Judgment will he entered for the fetitioner.