Court Opinion

ID: 4621379
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:44:33.099516+00
Date Added: 2024-06-11T07:55:59.613932
License: Public Domain

EUGENE SIEGEL, EXECUTOR, ESTATE OF JACOB SIEGEL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Siegel v. CommissionerDocket Nos. 28360, 29619.United States Board of Tax Appeals20 B.T.A. 563; 1930 BTA LEXIS 2093; August 13, 1930, Promulgated *2093  On May 21, 1918, the decedent transferred his leasehold interest in certain real property to a corporation in consideration of $12,000 and certain monthly payments to be made during the rest of his life.  On January 25, 1922, he assigned his rights under the contract of May 21, 1918, to his six children, and thereafter they received them.  With the exception of the payment made to the decedent in January, 1922, prior to the execution of the assignment, the respondent erred in including the payments in the decedent's gross income.  Fred R. Angevine, Esq., for the petitioner.  Brooks Fullerton, Esq., for the respondent.  MURDOCK *563  The Commissioner determined deficiencies of $9,053.24 and $6,953.40 in the income tax of the decedent, Jacob Siegel, for the calendar years 1922 and 1923, respectively.  The petitioner alleges that the Commissioner erroneously included $37,139.93 in the decedent's gross income in 1922 and $36,620.55 in 1923.  The cases were consolidated.  FINDINGS OF FACT.  The petitioner is the duly appointed and qualified executor of the estate of Jacob Siegel.  He resides in Detroit, Mich.In the year 1911 the decedent acquired, *2094  purchased and had assigned to himself a leasehold interest in certain property situated in Detroit.  The original lease was for a term of 99 years, terminating on December 31, 2004.  Under the terms of the lease and the assignment thereof to him, the decedent was required to pay a net annual rental of $12,500.  On or about July 7, 1914, the decedent entered into an agreement by which he contracted to erect a new building on this property and to sublet the premises to the S. S.  *564  Kresge Corporation.  The building was erected pursuant to this agreement and on July 7, 1914, the lease was executed for a term beginning on November 14, 1914, and ending on November 14, 1939.  It provided for a net annual rental of $50,000 for the first 10 years of its term, and of $55,000 for each of the remaining 15 years.  Rental payments were to be made in equal monthly installments in advance.  The sublessee was to pay all taxes and assessments against the property, and also to keep it insured.  On May 21, 1918, the decedent entered into an agreement with the Jacob Siegel Corporation by which he assigned to it his interest in the 99-year lease in consideration of a cash payment of $12,000*2095  and certain monthly payments to be made to him during the rest of his life.  The agreement was in part as follows: To have and to hold said premises, with the appurtenances, for the balance of the term, computed from this date, as said term is given by said recorded indenture of lease, the said party of the second part yielding and paying, any law to the contrary notwithstanding, during the period of the natural life of the party of the first part, the sum of Twenty-five hundred Dollars ($2,500.00) on the first day of each month in advance, Provided, however, that the annual total of the payments herein provided to be paid by the party of the second part shall never amount to more than the net revenue, that is, the revenue remaining after paying the ground rent, taxes, insurance, and necessary repairs.  And the said party of the second part does hereby covenant well and truly to pay or cause to be paid unto the party of the first part the amount of money above specified, and does now, for itself and for its successors and assigns, personally accept and assume all the terms, covenants, and agreements contained in the said recorded indenture or lease made the first day of August, 1905, *2096  as aforesaid, and will personally comply with them and be bound by them, and will keep and perform all the covenants and agreements in said recorded indenture or lease.  During the period from May 21, 1918, to February 1, 1922, the Kresge Corporation made its rental payments to the Jacob Siegel Corporation, the money was deposited to the account of the latter, and the whole net amount, even though in excess of $2,500 monthly, was paid to Jacob Siegel.  During this period he received $137,108.50 from the Jacob Siegel Corporation in addition to the $12,000 cash payment.  On January 25, 1922, the decedent entered into an agreement with his six children by which he relinquished and assigned to them his rights under the agreement of May 21, 1918.  This instrument provided in part as follows: Now, THEREFORE, in consideration of the premises, the promises hereinafter contained, and the sum of One Dollar ($1.00) and other good and valuable considerations, the parties have agreed as follows.  The said party of the first part does hereby assign and set over to the parties of the second part all his interest in and to the reservation in the assignment of May 21, 1918, of the said leasehold. *2097 *565  The parties of the second part severally agree that they will fulfill and perform all of the covenants and agreements in said lease contained, which the party of the first part would have been required to fulfill and perform had this assignment not been made, and the parties of the second part do further agree to indemnify and save harmless the party of the first part from any claim, liability, debt, or demand whatsoever, arising out of the said leasehold, or any matter or thing connected therewith, or connected with the maintenance and operation of the premises therein described.  In January, 1922, Jacob Siegel received a monthly payment from the Jacob Siegel Corporation in the amount of $3,095, which he reported as income in his return for that year.  From and after February 1, 1922, the Kresge rentals were paid during the years 1922 and 1923 to the Jacob Siegel Corporation, and the net amounts thereof were turned over by it to Jacob Siegel's children individually in equal shares.  In determining the decedent's income-tax liability for each of the years in question, the respondent included the payments so made in his gross income.  OPINION.  MURDOCK: The petitioner*2098  contends that the payments in question constitute a return of capital and not income, and, alternatively, that in no event are the amounts taxable income to the decedent.  The first contention fails for lack of evidence to support it.  On any theory of the case, the facts disclose no basis by which we might determine what part, if any, of the payments in question would be a proper deduction from the decedent's gross income in either of the years 1922 and 1923.  There is no contention by the petitioner that a different principle applies to the excess over $2,500 of the payment made to the decedent in January, 1922, than applies to $2,500 thereof.  We therefore can not hold that the Commissioner erred in including in the decedent's gross income the payment of $3,095 for January, 1922, which was received and retained by him.  The remaining question is to determine the effect of the agreement of January 25, 1922, upon the net amount of the payments made during the period from February 1, 1922, through December 31, 1923, by the S. S. Kresge Corporation to the Jacob Siegel Corporation and turned over by the latter to Jacob Siegel's children.  *2099  The transfer by the decedent of his leasehold interest on May 21, 1918, was absolute and irrevocable.  It effected a valid conveyance of his estate in the property to the Jacob Siegel Corporation.  See . From and after that date the decedent had a right to receive $2,500 monthly so long as he lived; or in case the property produced less than that amount, the total net revenue thereof.  On January 25, 1922, he made a valid *566  written assignment by which he divested himself of all of his right under the former contract and by which the right to the annuity was vested in his children.  See ; ; ; . The present case presents a set of facts at least as favorable, if not more favorable, to the petitioner's contention than were present in the following cases involving this same question, all of which were decided in favor of the taxpayer.  *2100 ; ; ; affirmed as to this point, ; ; ; ; . See also . We hold that the amounts paid after January 25, 1922, were not properly taxable to the decedent.  Judgment will be entered under Rule 50.