Court Opinion

ID: 4591163
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:05:12.061494+00
Date Added: 2024-06-11T07:50:36.971098
License: Public Domain

ROBERT ALLERTON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Allerton v. CommissionerDocket No. 16431.United States Board of Tax Appeals13 B.T.A. 1383; 1928 BTA LEXIS 3055; November 2, 1928, Promulgated *3055  Income from securities held in trust such income being periodically distributed, held not taxable to grantor.  Jay C. Halls, Esq., for the petitioner.  Paul E. Peyton, Esq., for the respondent.  SIEFKIN*1383  This is a proceeding for the redetermination of a deficiency in income tax for the calendar year 1922 of $1,260.05.  The deficiency asserted results from the determination of the respondent that income from certain securities, alleged by the petitioner to have been held by him as trustee, was taxable to the petitioner.  FINDINGS OF FACT.  The petitioner is an individual residing in Monticello, Ill.  On November 24, 1915, in writing, he declared himself trustee of certain securities, amounting to $80,600, with the provision that the income from such securities was to be turned over semiannually to one Chislett, to be used by him for charitable purposes.  The instrument was as follows: KNOW ALL MEN BY THESE PRESENTS, that whereas, I ROBERT ALLERTON, of Monticello, Piatt County, Illinois, received under the will of my father, the late Samuel W. Allerton, of Chicago, Illinois, property formerly constituting his homestead, situated at*3056  the northwest corner of Prairie Avenue and 20th Street, in the said City of Chicago, and; WHEREAS, I have sold same and invested substantially the net proceeds, amounting to about Eighty Thousand Six Hundred ($80,600.00) Dollars in sundry securities, as more fully appears from my books of account, and; WHEREAS, I have desired and do now desire to establish a trust fund with the proceeds of said sale for some philanthropic work, in memory of my said father; NOW, THEREFORE, I do hereby declare, in respect to said securities, as follows: FIRST: I retain control over the same, with power to invest and reinvest the principal proceeds and income in such manner as to me shall seem wise; also reserving to myself the right to establish a permanent trust fund with such trustee as I may see fit to appoint, or authorize my executors to appoint, upon such terms and conditions, and for such purposes as I or they may designate in connection with the appointment of such trustee.  SECOND: The net income, arising from such trust fund, I will turn over half-yearly, as near as may be to Doctor Howard R. Chislett, so long as he shall be in the active practice of medicine and be willing to accept*3057  the same, the sum so turned over to him to be applied by him, in his practice as a physician, for the benefit of such cases as in his judgment may seem worthy and deserving of philanthropic assistance in the way of services and attention; that is, I desire the net income from such fund to be at the service and disposal of the said Doctor Howard R. Chislett, to do with, and relieve humanity in such *1384  manner as in his good judgment, in which I have great confidence, may seem wise.  THIRD: In other that I may keep in touch with, and know of the good that is being done with the income from said fund, I request from Doctor Howard R. Chislett, as a condition hereof, that he make to me semi-annually, as near as may be, a report of the use made by him during the period of each previous six months of the fund so received by him.  The said Doctor Howard R. Chislett joins herein, in evidence of his agreement and understanding that this declaration is the consummation of previous oral arrangements, and of the correspondence in regard thereto, as evidencing the terms and conditions of this trust.  IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seals in*3058  duplicate this 24th day of November, 1915.  (Signed) ROBERT ALLERTON (Seal) (Signed) HOWARD R. CHISLETT (Seal) The income from the securities covered by the instrument, amounting to $2,695.31 for the year 1922, was not included by the petitioner in his income-tax return for 1922.  In determining the deficiency herein, the respondent added the said amount of $2,695.31 to the petitioner's income as reported.  At the time of the execution of the above instrument the petitioner set aside some bonds in connection with the trust by enclosing them in separately labeled envelopes and placing them in his safe deposit box in the National Safe Deposit, Chicago.  As coupons were clipped they were deposited in the petitioner's account and the petitioner's secretary issued checks twice a year, May 1 and November 1, to Chislett to offset the deposit, covering the amount of the interest.  Chislett is a surgeon who has been practicing actively in Chicago since 1888.  He has known the petitioner for 30 years and had been family physician to the petitioner's father for many years.  At the time of his father's death the petitioner wished to make a trust to his memory and knowing his father's*3059  fondness for Dr. Chislett, he conceived the idea of linking their association.  At first a hospital was considered but that idea was rejected since it was considered by Dr. Chislett and the petitioner that the income would do more good if used for the care and protection of the indigent.  The plan agreed on was that the income was to be used for any charitable purpose which seemed wise to Dr. Chislett, but especially to take care of people who were ill and unable to pay for their hospital expenses.  Most of the income has, in fact, been devoted to defraying expenses for patients who needed hospital care.  All the income turned over to Dr. Chislett was retained by him and he expended all that was expended.  He did not use all of the money received in 1922 before the end of the year.  He made a record of the expenditures made and reported to the petitioner every six months.  No part of the income was ever repaid to the petitioner.  *1385  OPINION.  SIEFKIN: The question is whether income of $2,695.31 is income of the petitioner or not.  It is admitted by the pleadings that "the income from this trust fund, amounting to $2,695.31 for the year 1922" was not included in the petitioner's*3060  return for 1922, and that the respondent added it.  The parties are at cross purposes in their briefs.  The petitioner argues that, since the only averment of fact which the respondent denies is the one that the income was actually distributed semiannually in accordance with the terms of the instrument, and that fact having been proved, nothing remains under section 219(a)(4) and (d) of the Revenue Act of 1921 except to hold that the income is not taxable to the petitioner.  This conclusion is based upon the language of the statute above as construed by us in , and , and as now construed by the Bureau of Internal Revenue in article 342 of its Regulations 65 and 69.  This construction makes the test as to whether a trust is taxable to the trustee or the beneficiary, dependent on whether distribution is actually made rather than whether the trustee has discretion to distribute or not.  If this were the only question we might hold for the petitioner without further words, but the respondent's position, as set out in his brief, is based upon another ground.  It is that no valid trust resulted*3061  from the instrument set out in our findings.  This proposition is based on the argument that the property subject to the trust is not described or identified with sufficient certainty to create a valid enforceable trust.  This position has doubtful force in view of the respondent's admission of the allegations of the petition which state that "petitioner in writing declared himself trustee of certain securities, amounting to $80,600," and in view of the evidence which seems to us to indicate with some certainty that the securities were identified and segregated.  We conclude that the respondent was in error in adding the income therefrom to the petitioner's income.  Judgment will be entered under Rule 50.