Court Opinion

ID: 4599708
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:23:55.181574+00
Date Added: 2024-06-11T07:52:10.477716
License: Public Domain

J. H. ANDERSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Anderson v. CommissionerDocket No. 63827.United States Board of Tax Appeals30 B.T.A. 1275; 1934 BTA LEXIS 1202; July 24, 1934, Promulgated *1202  1.  The income of a trust created by a father for his adult child, not revocable as to income but revocable as to principal in a future year, held not within his gross income.  2.  The income of a decedent's estate during administration held not within the gross income of the person who was both administrator and sole successor of the personalty, in absence of undue or capricious delay in settlement and distribution of the estate.  W. T. Kennerly, Esq., and J. Harry Price, Esq., for the petitioner.  John D. Kiley, Esq., for the respondent.  STERNHAGEN *1275  Respondent determined a deficiency of $13,338.52 in petitioner's income tax for 1929, by adding to his individual income the income of a trust which he had created for his son and the income from the estate of his deceased wife.  FINDINGS OF FACT.  1.  Petitioner is a resident of Knoxville, Tennessee, and a large stockholder of Anderson-Dulin-Varnell Co.  On December 31, 1925, he transferred to the Fidelity Trust Co. of Knoxville 1,500 shares of stock in the Anderson-Dulin-Varnell Co. of a par value of $150,000, to be held in trust for his son, Waller Anderson, then twenty-two*1203  years of age.  The trust instrument provides that: The entire income, profits, increments and earnings from the properties conveyed hereunder shall be applied for the use and benefit of said Waller Anderson and shall be paid and distributed to him as and when the Settlor shall direct.  The settlor reserved the right to change the securities for others of equal value, to direct the investment of income in securities, to exercise the voting rights of trust stock, and to change the trustee.  He further reserved - * * * the right to revoke the trust herein created as to the original securities transferred hereunder or their equivalent in value if converted, on January 1st, 1931, * * * Provided, however, that the trust herein created is not revocable as to the income, profits or increments and earnings realized by the Trustee from the securities conveyed hereunder during the existence of the trust.  In case of the settlor's death prior to revocation, the trust properties were to become, on January 1, 1931, part of a testamentary trust created by the settlor for his son, and to be administered pursuant to a provision of his will.  On March 10, 1926, the trustee invested $73,500*1204  of trust income in other properties.  During the five-year period the trust paid more than $200,000 of income to the beneficiary.  In 1929 its income *1276  amounted to $40,963.05.  The trustee reported all income received and disbursed on a fiduciary return, and the beneficiary reported and paid a tax thereon.  For 1929 respondent included in petitioner's gross income $37,500 representing dividends of the trust, and $3,463.05 representing other income from it.  2.  On June 8, 1928, petitioner's wife, Anna Waller Anderson, died in Knoxville, Tennessee, after a long illness during which she had traveled extensively for medical treatment and had contracted substantial medical and hospital bills in Tennessee and other states.  She was survived by petitioner, a son, and a grandson.  At the time of her death no will could be located, and petitioner qualified as the administrator of her estate in the County Court of Knox County, Tennessee, on June 19, 1928, and administered the estate until July 21, 1931, when he made final settlement and was discharged.  Under Tennessee law he inherited all his deceased wife's personal property.  After her death he paid all her pressing debts from*1205  his personal funds, and as income was received by the estate he reimbursed himself with estate funds for the payments so made on behalf of the estate.  As administrator he kept a complete record of all receipts and disbursements, which he filed with the court, reported all income thereof for tax purposes, and paid all income and inheritance taxes assessed.  After retaining sufficient estate income to reimburse himself for expenditures made for the estate, he opened a bank account in his name as administrator, in which he deposited all receipts and from which he withdrew all disbursements of the estate until final settlement on July 21, 1931.  Petitioner paid debts of the estate aggregating $41,034.89, all of which were settled in 1928 except a medical bill of $187, paid February 1, 1929, and taxes, not finally settled until 1931.  On July 21, 1931, petitioner transferred all the estate's assets to the Hamilton National Bank of Knoxville, as trustee, subject to a trust directing payment of the income therefrom to a local Baptist Church.  The trust was revocable on or after January 1, 1937, but not before.  The net income of the estate in 1929 was $41,435.15.  In determining petitioner's*1206  income for 1929, respondent included that received by said estate as a distribution to him as sole heir.  OPINION.  STERNHAGEN: 1.  In Franklin Miller Handly,30 B.T.A. 1271">30 B.T.A. 1271, just decided, it was held that the settlor of a trust essentially similar to this petitioner's trust was not required to treat the trust income as his own.  In this case, since the beneficiary child was an adult, there is no guardianship relation and no question as to the father's *1277  freedom from duty to educate.  The respondent's determination as to trust income is reversed.  2.  The respondent has included in petitioners' income for 1929 the income of the estate of which he was administrator and sole successor to the personalty.  This is because respondent thinks that petitioner unduly prolonged the administration of the estate instead of winding it up promptly and receiving in his own right the income.  His alleged freedom thus to receive is treated as a sort of constructive receipt.  We cannot find enough support for this view to adopt it.  There may be cases imaginable where the failure to close the estate is so unnecessary as to be merely capricious and the estate a mere*1207  form - a subterfuge for spreading taxes out thinner.  But there is enough reason here for carrying on the estate through 1929 to compel recognition of it as a separate taxpayer under the statute.  Cf. Kuldell v. Commissioner, 69 Fed.(2d) 739. There were substantial debts and a reasonable possibility of others outside the State - enough to constrain a conservative administrator from a hasty distribution.  Cf. American Surety Co. v. Grace,151 Tenn. 577">151 Tenn. 577. The law is full of litigation brought about by an unexpected turn of events, and we should be slow to say that the delay through 1929 was specious and to disregard the date of the final accounting, the official discharge, and the adherence to the statutory system of the State, Shannon's Tennessee Code, secs. 4007, 4008, 4012, 4064.  The respondent's determination is reversed.  Judgment will be entered under Rule 50.