Court Opinion

ID: 9639378
Source: CourtListenerOpinion
Date Created: 2023-08-22 16:15:03.732809+00
Date Added: 2024-06-11T18:10:17.030933
License: Public Domain

MORTON, Circuit Judge
(dissenting).
The petitioner was trustee under a trust created by his grandfather’s will. Under Massachusetts practice his appointment would be, and I assume was, made by the *371probate court. It imposed on him legal duties and responsibilities for the performance of which he was entitled to compensation. This compensation he turned over to his lawyers, but it was earned by him. In performance of his duties as trustee, he made an improper investment, and he was compelled by law to reimburse the estate for the resulting loss. He also incurred counsel fees and accountant’s charges in- connection with the matter. The majority opinion holds that he is not entitled to deduct the amount which he paid to the trust estate because the liability was not “incurred in trade or business”; and that he may not deduct the fees and charges because they were not “paid or incurred * * * in carrying on any trade or business.”
This seems to me much too narrow a construction of the statute. A compensated trustee managing an estate under appointment by the probate court is certainly engaged in business. Cases in which there was no official appointment stand on an absolutely different footing and involve very different considerations. The petitioner made the bad investment in carrying on that business. The resulting liability arose because he did not do the business properly. If he had not engaged in business, he would not have incurred the liability or the loss. In the majority opinion it said that, “when he (the petitioner) made the unauthorized loan (of trust funds) the liabilities he incurred were those of an individual. He cannot be said to have acted in his capacity as a trustee.” (Italics supplied.) This seems to me a non sequiter, legally speaking; it is not true that individual liability for an act precludes the possibility that it was done in a representative capacity; such a ruling is inconsistent with recognized principles. The fact that the liability to make restitution rests on the petitioner individually does not prevent the reimbursement loss and expenses from having been sustained by him in the business of managing the trust estate. I think the loss was clearly deductible under section 23 (e) (1), and that the Board of Tax Appeals made an error of law in holding to the contrary. I also think that the expenses for counsel and accountants necessary in connection with the matter should be considered as part of the loss, and were therefore deductible either under the section just referred to or section 23 (a).