Court Opinion

ID: 4603656
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:32:29.839988+00
Date Added: 2024-06-11T07:52:53.309033
License: Public Domain

ESTATE OF HETTY H. R. GREEN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Green v. CommissionerDocket No. 42618.United States Board of Tax Appeals27 B.T.A. 1195; 1933 BTA LEXIS 1236; April 14, 1933, Promulgated *1236  A testamentary trust was created to conserve an estate, with powers to the trustees to change the form of investments.  Four items of assets were sold in 1923, the net proceeds being less than the cost.  Held, the estate was not engaged in a trade or business regularly carried on, within the meaning of section 204(a) of the Revenue Act of 1921, and was not entitled to the benefit of the net loss provisions for the years 1924 and 1925.  Campbell E. Locke, Esq., for the petitioner.  Prew Savoy, Esq., for the respondent.  MARQUETTE *1195  This proceeding is for the redetermination of deficiencies in income tax asserted by the respondent for the years 1924 and 1925 in the respective amounts of $8,654.58 and $6,581.12.  The error alleged is the disallowance of a deduction, for each year, in respect of losses sustained in 1923.  The parties filed four joint exhibits, and stipulated all other facts.  FINDINGS OF FACT.  Hetty H. R. Green died on July 3, 1916, leaving a will, by the terms of which two trusts were created to continue for ten years.  Trustees were appointed, with power to rent, lease, sell or convey real estate, and reinvest the*1237  proceeds of any such sale; to invest and keep invested the personal estate, and to change the investments as the trustees deemed safe and prudent; to collect all rentals, issues and profits accruing from the trusteed property and distribute the income every three months to the beneficiaries; to manage and control the trust estate and exercise all powers necessary to that end.  The periodical distributions of income and the final distribution of the corpus of the estate were all to be free from the debts, control or interference by any spouse of either beneficiary, and not subject to any previous disposition or incumbrance by way of anticipation.  The trustees entered upon their duties on July 22, 1916.  By 1923, and continuously thereafter throughout 1925, the bulk of the trust estate consisted of Federal, state and municipal bonds, corporate stocks, and cash.  At no time has the estate purchased securities or other property with a view of deriving profit upon subsequent sales thereof.  During the year 1923 the income received, with which petitioner was chargeable as an entity, was derived from seventy-five capital *1196  transactions, seventy-one of which consisted in receiving*1238  money paid for redemption of bonds at maturity.  The other four comprised the sales of one lot of stock, two mortgages, and a parcel of land.  The total proceeds of the sales were $137,621.07 less than the cost or other valuation basis of the assets involved.  That amount was reported by petitioner as a net loss for 1923.  During the year 1924 petitioner realized a gain of $69,236.63 from the redemption or sale of bonds.  Petitioner, as an entity, had no other income chargeable to it for that year.  In its return petitioner reported the above amount as gross income for 1924 and deducted therefrom the amount of loss for 1923, leaving a balance of such loss in the amount of $68,384.44.  The bonds involved were acquired subsequent to testatrix's death and prior to 1922.  During 1925 petitioner realized a gain of $52,648.99 from the redemption or sale of bonds and stocks which were acquired subsequent to testatrix's death and prior to 1923.  Petitioner, as an entity, had no other income chargeable to it for the year 1925.  In its return for that year petitioner reported the above amount as its gross income and deducted therefrom the balance of its loss for 1923, $68,384.44.  The*1239  net loss deductions for 1924 and 1925 were disallowed by the respondent.  From July 22, 1916, continuously throughout the year 1925, petitioner's activities consisted of the receipt of interest and dividends, collection of other income, receipt of bond redemption amounts and proceeds of sales of assets, reinvestment of the proceeds of such redemptions and sales, distribution of income to beneficiaries, and activities incidental to such matters.  The trustees were the beneficiaries of the two trusts, and were also the remaindermen upon termination of the trusts.  OPINION.  MARQUETTE: The question here involved is whether petitioner was engaged in a trade or business regularly carried on, during the years 1923, 1924 and 1925.  If so, it is entitled to the deductions claimed for the two later years.  The petitioner concedes, in its brief, that it was not engaged in trade.  The business activities of the petitioner consisted of the collection of income produced by the trust property, and distributing it to the beneficiaries; in receiving amounts paid in redemption of securities, and reinvesting the same; in changing the form of investments of the trust estate from time to time*1240  in the discretion of the trustees, through sales and reinvestments.  Whenever property was acquired it was taken as an investment, never for the speculative purpose of deriving profit from a sale thereof later on.  *1197  With certain exceptions not applicable here, section 219 of the Revenue Act of 1921 provides that the net income of a trust shall be computed in the same manner as that of an individual.  Section 204(a) of the same act provides that the term "net loss" means only net losses resulting from the operation of any trade or business regularly carried on.  Section 204(c) extends the benefit of the net loss provisions to the beneficiaries of an estate or trust, but not to the estate itself as a taxable entity.  Section 206(h) of the 1924 Revenue Act extends the benefit of the net loss provisions to estates and trusts.  In support of its contention that it comes within the purview of the net loss section petitioner cites many decisions of this Board.  In one, ; affd., *1241 , it was definitely held that holding the assets of an estate, converting some of them into cash, reinvesting the proceeds, receiving rents and interest, paying taxes, interest, expenses, etc., did not constitute the "operation of a trade or business regularly carried on" within the meaning of the net loss section of the statute.  All the other decisions cited involved the question of allowing deductions, as ordinary and necessary expenses, of amounts paid in managing an estate over a prolonged period of administration, in conserving an estate through litigation, and the like.  Only in the case of , were the facts analogous to those now before us.  The term "business" is defined in Bouvier's Law Dictionary as: "That which occupies the time, attention and labor of men for the purpose of a livelihood or profit." That definition has not accepted by the Federal courts.  See ; . And in *1242 , we held that under the net loss provisions of the statute a trade or business regularly carried on means a vocation, not occasional transactions. In the present proceeding the petitioner was not engaged in buying and selling real estate and securities with a view to profit on the transaction.  During 1923, when the loss in question occurred, out of seventy-five capital transactions, seventy-one consisted merely in receiving money paid to redeem bonds at maturity.  In only four instances did petitioner sell property - one block of corporate stock, two mortgages, and one parcel of land.  While those sales were business transactions, they were occasional, isolated transactions, not a business regularly carried on.  The language employed by the testatrix to safeguard the trusteed property clearly indicates that the purpose of the trusts was to conserve the estate corpus for ten years, and protect it from the hazards of active business enterprise.  The whole tenor of the instrument *1198  distinctly negatives any idea that the estate should regularly carry on a business for profit, and the*1243  evidence shows, we think, that none was carried on.  Considering the facts before us, and the cases above cited, we are of opinion that the respondent committed no error in disallowing the net loss deductions for 1924 and 1925.  Decision will be entered for the respondent.