Court Opinion

ID: 4476354
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:58.709753+00
Date Added: 2024-06-11T14:53:54.030285
License: Public Domain

Disney, /., dissenting: The majority opinion first holds deductible, only under section 121 of the Revenue Act of J942, the expenses of contesting a deficiency which was determined by the Commissioner on the theory that taxable gain was realized through the payment of a legacy in securities which had appreciated in value. The reason given for such allowance is that the effort of the petitioner through the litigation to give relief to the estate was a factor in the conservation, management, and maintenance of the property of the estate, since in resisting the imposition of the tax the trustees were performing their duty in defending the trust property against the claim for tax. I can not agree with that conclusion. The mere fact that the payment of the deficiency would consume resources of the estate is no sufficient answer for allowing the deduction, for on such a theory any expense of any litigation, incurred by a trust or an individual, would be deductible merely because the litigation might have terminated in a judgment collectible out of the property or estate of the litigant, and without regard to whether the litigation concerned property held for the production of income. For instance, on the same theory, expenses of defending litigation for personal injuries caused by negligence would be deductible, though having no connection with properties held for the production of income. Regulations 103, as amended in the light of section 142 of the Revenue Act of 1942, in my opinion properly provide that expenditures incurred for the purpose of resisting a proposed additional assessment of taxes are not deductible, unless the taxes are on property held for the production of income. The tax involved in the deficiency which was litigated was not a tax upon the property held by the estate, but upon gain realized in the act of paying a legacy. Clearly, I think, paying the legacy can not be called conservation, management, or maintenance of the property of the estate, within the terms of the statute, for the property of the estate was being disposed of instead of being maintained, managed, or conserved. In my view, the words were used in their usual significance, intended to allow the ordinary and necessary expense requisite to the proper preservation or use of the property involved, such, for example, as repairs and expenses of supervision; but I do not believe that the deduction may properly be allowed merely because, to use the words of the majority opinion, “in resisting the imposition of the tax the trustees were performing the required duty of protecting and defending the trust property in their hands against any claim or lien for the tax.” This is not a question of the duty of the trustees under the trust instrument, but one as to whether ordinary and necessary expenses were paid “for the management, conservation, or maintenance of property” held for the production of income, and I can not subscribe to the idea that to litigate any question which might result in a judgment collectible out of. that property is to manage, conserve, or maintain it, within the intendment of the statute. I therefore think that the expense of litigation over the deficiency does not come within the statute. Nor can I agree that the expenses for services in connection with the payment of the legacy to the University, of North Carolina and “other problems resulting from the expiration of the trust and delivery of its assets to the legatees,” as the majority opinion expresses the facts, are deductible under the statute. The majority opinion allows these also, on the theory that in distributing the property under the trust instruments the trustees were managing it. Apparently, conservation or maintenance of the property is not relied upon in the majority view. Again, however, I note that Regulations 103, amended to cover section 121 of the Revenue Act of 1942, provides, as to expenditures of executors or administrators, that expense incurred “in distributing the remaining assets to the beneficiaries or in conserving the assets for ultimate distribution to the parties entitled thereto are not deductible under this section.” The same logic applies to distributions by trustees. I do not think that it was the intent of the statute to so broaden the meaning of the word “management” as to include expenses of distributing an estate. Not only is the statute providing for a deduction to be strictly construed, but also ordinary significance of the word must be assumed. I note that In re Knight's Estate, 208 N. Y. S. 822, involved trustees required by will to manage realty. It was held, “The word ‘manage’ implies the supervision, maintenance, and care of the premises, the making of necessary repairs, and the payment of taxes and water rents,” and therefore that these duties, not being upon the trustees after the property had been leased for a long period, the trustees were not entitled to commissions upon the rents. We think the above quotation is a fair definition of “manage,” with reference to the property of an estate and that the term does not connote such duties as distributing the property under a will or trust instrument. Indeed, the distribution and winding up of an estate or trust, through it may have to do with property included in the estate, is in a very real sense merely the performance of a legal function or duty under the will or trust instrument, not of the same character as the actual handling or dealing with the property itself. Distribution would be necessary, though only cash in hand was involved. Such performance of general administrative duty is, in my opinion, sufficiently distinct from the management or even the management, conservation, or maintenance of property in the usual and ordinary sense, as to require the conclusion that Congress did not intend to include it within the statutory expression. The statute does not provide for the expenses of management of an estate or trust, but “of property.” To enlarge the meaning of the word, as is done by the majority opinion, is, as I see it, judicial legislation; and if sucli effect is desirable, I think the matter should be left to Congress. In my opinion, section 121 does not, as the majority opinion holds, cover the situation. HaeRON, </., agrees with this dissent.