Court Opinion

ID: 4618614
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:38:59.803007+00
Date Added: 2024-06-11T07:55:30.324709
License: Public Domain

NANCY CARVER LATHROP CAMPBELL, MARGUERITE HYDE, SUFFOLK & BERKSHIRE, JOSEPH LEITER, AND W. J. WARR, TRUSTEES UNDER THE LAST WILL AND TESTAMENT OF LEVI Z. LEITER, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Campbell v. CommissionerDocket No. 16617.United States Board of Tax Appeals15 B.T.A. 414; 1929 BTA LEXIS 2861; February 14, 1929, Promulgated *2861  Will of decedent construed and held to create one trust, not two.  Herbert G. Mayer, Esq., for the petitioners.  J. L. Backstrom, Esq., for the respondent.  SIEFKIN*414  This is a proceeding for the redetermination of deficiencies in income taxes for the years 1918 and 1920 in the amounts of $27,463.95 and $86,788.65, respectively.  Two questions are presented, (1) whether the will of the decedent created two trusts or one, and (2) whether the deficiency for 1918 is barred by the statute of limitations.  FINDINGS OF FACT.  The petitioners are fiduciaries acting for the trust estate created by the last will and testament of Levi Z. Leiter, deceased.  The trustees have their principal office in Chicago, Ill.  On April 20, 1926, the notice of deficiency, as to which the petition in this proceeding was duly filed, was sent to the petitioners.  In said notice of deficiency the respondent determined deficiencies in income taxes for the years *415  1918 and 1920 in the amounts of $27,463.95 and $86,788.65, respectively.  The notice of deficiency stated: The report of the Supervising Internal Revenue Agent at Chicago, Illinois, dated December 19, 1925, a*2862  copy of which has been furnished you, has been reviewed and approved by this office.  The report of the supervising internal revenue agent referred to stated that - recommendation is being made to the Commissioner of Internal Revenue that your income-tax returns for these years [1918 to 1921, inclusive] be accepted as correct and closed as filed.  On the same date, December 19, 1925, the supervising internal revenue agent transmitted a supplemental report to the respondent relating to the report furnished to the petitioners.  This supplemental report was not furnished to the petitioners or their counsel until July 9, 1928, the date of the hearing of this proceeding.  The supplemental report raised questions as to whether the will of the decedent created two trusts and whether, if it did, a separate return should be filed for each trust.  The will of Levi Z. Leither, deceased, so far as material, is as follows: Fourth: I hereby devise and bequeath to my wife, Mary T. Leiter, and to my son Joseph Leiter, and to my daughters Nancy Lathrop Carver Leiter and Marguerite Hyde Leiter, and to Seymour Morris of the City of Chicago and to the survivors of them and to their successors*2863  in trust as hereinafter provided, all the rest, residue and remainder of my estate, wheresoever situate, both real and personal, of which I am now seized and possessed, or may hereafter acquire, excepting only the coal lands situated in Franklin and Williamson Counties in the State of Illinois, and also certain shares of the capital stock of the Universal Fuel Company, hereinafter referred to in the Sixth Paragraph of this my will.  * * * After and subject to the said payment or proper provision for the said payment of one-third (1/3) of the said net annual income to my wife as aforesaid, during her life, and before the distribution of the balance of two-thirds of said net annual income among my children as hereinafter provided, there shall be added to said balance of two-thirds (2/3) of the said net annual income an amount equal to four (4) per cent, interest on the respective advances made by me to each of my said children as hereinafter referred to in the Fifth Paragraph of this my last will, which said interest on said advances, shall be treated by my said trustees as so much additional income received by them from said trust estate, and the amount thereof shall be by my said*2864  trustees divided into four (4) equal parts of shares; one (1) part or share thereof shall be paid over by my said trustees to my daughter, Mary Victoria Curzon, after deducting therefrom the amount due by her as interest at the rate of four (4) per cent, per annum on the advancements made to her as hereinafter referred to in the Fifth Paragraph of this my will; one (1) part or share thereof shall be paid to my daughter, Nancy Lathrop Carver Leither, after deducting therefrom the amount due by her as interest at the rate of four (4) per cent, per annum on the advancements made to her as hereinafter referred *416  to in the Fifth Paragraph of this my will; one (1) part or share thereof shall be paid to my daughter, Marguerite Hyde Leiter, after deducting therefrom the amount due by her as interest at the rate of four (4) per cent, per annum on the advancements made to her as hereinafter referred to in the Fifth Paragraph of this my will; and one (1) part or share thereof to my son, Joseph Leiter, after deducting therefrom the amount due by him as interest at the rate of four (4) per cent per annum on the advancements made to him as hereinafter referred to in the Fifth Paragraph*2865  of this my will; it being my intention to make equal the amounts which my said children shall severally receive from my said estate.  * * * * * * Sixth: I have purchased and acquired the title to about Seven thousand five hundred (7,500) acres of coal lands situated in Franklin and Williamson Counties in the State of Illinois, and also certain shares of the capital stock of the Universal Fuel Company.  The amount of money invested in said properties is shown on my books under the heads of "Franklin County Lands," "Franklin County Land Improvement," and "Universal Fuel Company;" and in ascertaining the amount invested in said properties from time to time, interest at five (5) per cent, per annum, without compounding, shall be added thereto.  A corporation may be organized under the laws of the State of Illinois for the purpose of owning and operating said coal lands, either before or after my death, and in the event of the formation of such corporation in the shares thereof shall stand in place of the said coal lands and Universal Fuel Company stock, and all the provisions herein contained shall be applicable to said shares of said corporation which may be formed.  Said coal lands*2866  situated in Franklin and Williamson Counties, in the State of Illinois, and also the said shares of the capital stock of the Universal Fuel Company, or all the shares of said corporation which may be formed as aforesaid, I give, devise and bequeath unto my said trustees above named in the Fourth Paragraph of this my said will, in and upon the following uses and trusts; that is, in trust to permit my said son, Joseph Leither, to manage and control the same, and the operations thereof, and I direct that the rents, issues, profits, and dividends derived therefrom after the payment of all operating or other expenses, shall be paid over to my said trustees and shall be applied as a credit by them to the amount of money invested by me in said coal lands and stock as aforesaid, said earnings to bear interest at the rate of five (5) per cent per annum from the time the same are paid over to my said trustees.  And whenever my said son, Joseph Leiter, shall have repaid my estate in full, with interest as above stated, the whole amount invested in said coal lands and Universal Fuel Company, it is My Will and I Direct that my said trustees shall execute and convey to my said son Joseph Leither*2867  absolutely and in fee-simple by proper deed, said coal lands, and shall turn over to him as his own property all of said shares of the capital stock of the Universal Fuel Company, or all the shares of said corporation which may be formed as aforesaid; and from and after the date when my said son shall receive as his own property the coal lands and stocks of the Fuel Company above referred to, or all the shares of said corporation which may be formed as aforesaid, the provision contained in *417  the Fifth Paragraph of my will in regard to his being paid a sufficient amount to make up his annual income from my estate to the sum of Forty thousand dollars ($40,000) or Ten Thousand dollars ($10,000), as the case may be, shall cease and be at an end.  Jeopardy assessments were made on March 15, 1926, by the respondent, pursuant to section 279(a) of the Revenue Act of 1926, in the amounts and for the years involved in this proceeding, using as a basis the report and supplemental report of December 19, 1925, the determination of the respondent being that the will of Levi Z. Leiter created two trusts and that the petitioners were required to file a separate return for each trust.  It*2868  is stipulated by the parties that if only one trust was created, the respondent's determination was erroneous and there is no deficiency due from the petitioners for either year.  It is further stipulated that no income-tax waivers have been filed by the trustees of the estate for either year and that no law suits of any kind have been instituted for the collection of the taxes, other than this proceeding.  The trustees of the estate of Levi Z. Leiter, deceased, on June 16, 1919, filed an income-tax return on Form 1041 for the calendar year 1918, and on March 15, 1921, filed an income-tax return on Form 1041 for the year 1920.  The assets of the estate of Levi Z. Leiter, administered by the petitioners in this proceeding, consisted of improved and unimproved real estate in Chicago, two pieces of real estate in Wisconsin and Kansas, a large holding in Wyoming, a mining property in Franklin County, Illinois, and stocks.  In the income-tax returns of the estate for 1918 and 1920 there were included the gross income and deductions from the mining property, the income from all other real estate of the estate and all dividends upon stock.  The income from the various properties was kept*2869  in a common fund, the income from the mining property going into an account that contained other monies of the estate and being handled in the same cash book.  The capital accounts of the estate were kept in one ledger.  The mining property was shown in the balance sheets prepared by accountants each six months and sent to the beneficiaries.  In the accounts of the estate from its beginning in 1904, no distinction was made between the mining property and other property of the estate so far as being an asset of the estate.  The accounts of the estate contained a segregation of the income from all the various items of property that produced income.  OPINION.  SIEFKIN: The principal question to be answered in this proceeding, and the one upon which the respondent's determination rests, is *418  whether the will created one trust or two.  If only one trust is created, it is agreed that the deficiencies asserted by the respondent must be held erroneous.  If two trusts were created and the trustees were under a legal obligation to file a separate return for each trust, then the deficiencies asserted are correct as computed by the respondent, since the losses as to one trust can*2870  not be applied against the income of the other.  If we reach that point, another question arises, i.e., whether the 1918 deficiency can be collected because of the statute of limitations.  The petition alleged error in this respect as to both 1918 and 1920, but in their brief the petitioners rely only upon the point as to 1918.  In brief, the will of the decedent provided separate treatment for two lots of property, to be administered by the same trustees.  The first lot (that devised by paragraph 4) consisted of the residue of the estate, except the coal lands and certain stock, and was to be managed for the benefit of the decedent's wife and children and the income distributed to them.  The second lot (that dealt with by paragraph 6) consisted of the coal lands and stock excepted from the devise in the fourth paragraph of the will and was conveyed to the same trustees - In trust to permit my said son, Joseph Leiter, to manage and control the same, and the operations thereof, and I direct that the rents, issues, profits, and dividends derived therefrom after the payment of all operating and other expenses shall be paid over to my said trustees.  until the amount so paid to the*2871  trustees equaled the decedent's investment, when the trustees were directed to convey the property to the son.  Although it is clear that one instrument may create more than one trust, and that when it does one trust can not have the benefit of deductions from the other (), we are satisfied that the facts in this proceeding show that but one trust was created.  Paragraph 6 of the will, relied on by the respondent as creating a separate trust from the property included in the fourth paragraph, as we view it, merely gave the decedent's son the right to acquire the coal lands and stock by making the property pay for itself.  When that was done the son got the property and the estate had the decedent's investment in it.  The money so received by the estate from the son was not disposed of by the sixth paragraph of the will to the son or anyone else except as it became a part of the residue of the estate to be administered for all the beneficiaries.  This seems clear by the following language of paragraph 6, which says: * * * Whenever my said son, Joseph Leiter, shall have repaid my estate in full * * * my said Trustees shall*2872  convey to my said son * * * said coal lands.  *419  As we view the provisions of the will, paragraph 6 does no more than to give the son the right to acquire the mining property at the cost to the decedent.  It does not, we believe, create a separate trust.  In this conclusion our opinion is strengthened by the practical interpretation put upon the will by the trustees since 1904, and by the reasoning of the Court of Claims in , in which certiorari was denied by the United States Supreme Court, . In that case it was being contended by the taxpayer that three separate trust funds were created by the will.  The court held only one trust was created, and in its opinion placed considerable reliance upon the long continued treatment of the property by the trustees in one fund.  In view of the above it becomes unnecessary to discuss the other questions raised by the petitioners.  Judgment will be entered for the petitioners.