Court Opinion

ID: 4610032
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:46:00.095016+00
Date Added: 2024-06-11T07:53:59.802093
License: Public Domain

PARKVIEW MEMORIAL ASSOCIATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Parkview Memorial Asso. v. CommissionerDocket No. 60826.United States Board of Tax Appeals34 B.T.A. 406; 1936 BTA LEXIS 704; April 22, 1936, Promulgated *704  A Michigan cemetery corporation which in the taxable years was not required by statute to set up a trust for perpetual care and maintenance and which did not in fact set up or make contributions to such a trust, held not entitled to have amounts placed in reserve excluded from gross income or deducted.  Arthur J. Lacy, Esq., for the petitioner.  Thomas F. Callahan, Esq., for the respondent.  STERNHAGEN *406  The Commissioner determined deficiencies in petitioner's income tax of $4,005.16 for 1927 and $10,262.63 for 1928.  He said: Your contention that a reserve for perpetual care which is accrued upon the books [$38,734.06 for 1927 and $76,455.70 for 1928] is deductible as a part of the cost of real estate sales was denied in conference.  Since no investment has been made from income in the securities directed by the state statute, this office holds that the deduction of the amount of reserves for perpetual care from gross income is not allowable.  This the petitioner contests, and the pleadings raise questions both of fact and law.  FINDINGS OF FACT.  Petitioner, a Michigan corporation with principal office at Detroit, was organized*705  on June 1, 1926, under Act 12 of the Public Acts of Michigan 1869 (secs. 11160-75, Compiled Laws of Michigan 1915), "An Act to authorize and encourage the formation of corporations to establish rural cemeteries and provide for the care and maintenance thereof." It contracted to purchase 100 acres of land about 18 miles from Detroit, and entered upon the execution of a *407  plan to level the area, divide it into 15,000 burial plots, and prepare roads, ornamental entrances, and other embellishments.  It has spent about a quarter of a million dollars on such improvements, which are not yet completed, and there are now some 7,000 graves scattered through the cemetery.  The land itself is not fully paid for, but more than half of it has been conveyed to petitioner.  During 1927 and 1928 petitioner sold burial plots under uniform contracts requiring a cash down payment and monthly payments with interest.  The purchaser received a "Pass Book Contract", in which all payments were credited, and which contained the conditions of the purchase agreement.  By the first paragraph, the seller agreed to convey the section or sections to the purchaser for burial purposes when full payment*706  was made.  SECOND: SELLER further agrees and binds itself to improve and beautify said section, or sections, heretofore designated, for cemetery purposes, and to create a perpetual care fund for the perpetual upkeep thereof.  The purchaser also received a printed certificate of guarantee which contained inter alia the following provisions: 5 - Park View Memorial Association, Guarantees that all sections sold will be improved and beautified for burial purposes and that a perpetual care fund will be created for the perpetual upkeep of Park View Memorial.  6 - Park View Memorial Association, Guarantees that there will be no cost to the purchasers for improvements, or perpetual care of their sections, other than the original price.  7 - Park View Memorial Association, Guarantees the Installation of Improvements and the Establishment of a Perpetual Care Fund, that the improvements will be installed as soon as the sale of the sections in Park View Memorial will provide the funds therefor after payment of necessary expenses, and that provision has been made for setting aside from the total sales of the Park approximately $1,500,000.00 to be used for improvements, embellishments*707  and perpetual care.  The purchaser also received an indenture reciting that petitioner "does hereby sell and convey" to him a specific section, and agrees "to give the above described premises perpetual care * * *." On September 13, 1927, petitioner's board of directors: * * * resolved that the Association guarantee to section purchasers the expenditure of approximately $1,500,000 in the embellishment, improvement and establishment of a fund for perpetual care of Parkview Memorial, and that a proper reserve be made for the establishment of such Perpetual Care Fund, and for the development and embellishment of the property in accordance with the plan outlined * * *.  On October 11, 1927, the board passed the following resolution: RESOLVED, that the Board of Directors, in accordance with the provisions of Section No. 11166 of the Compiled Laws of the State of Michigan for 1915, hereby determine that the sum of $500,000.00 shall be established as a permanent fund sufficient to meet the expense of keeping the grounds of Parkview Memorial Association perpetually in good condition after the same has been *408  once properly laid out, improved and embellished according to*708  the plans heretofore presented to the Board, and that such amount, will, in the opinion of the Board be sufficient to constitute a permanent fund, which when invested in accordance with the provisions of such Statute shall produce an income large enough to meet the expense of keeping the said grounds perpetually in good condition; and that all the receipts of said Corporation, after the payment of the necessary expenses and the costs of improvement and embellishment, shall be reserved for such purpose until such fund shall have been established and invested in accordance with the terms of such Statute; that the officers and salesmen of the Corporation be and hereby are authorized to represent to purchasers that such fund will be established in accordance with the terms of this resolution and that such fund shall not be diminished at any time.  Petitioner's books indicate that it spent $54,240.03 for improvements and embellishments in 1927 and $74,107.21 in 1928.  In its tax return for 1927 petitioner listed among its liabilities a "reserve for perpetual care" of $38,734.06.  In its 1928 return this "reserve" was increased by $76,455.70, to $115,189.76.  No such funds were actually*709  set aside, but all moneys received were spent by petitioner either for operation or improvements.  OPINION.  STERNHAGEN: The subject of cemetery maintenance funds has been frequently considered. 1 A mere appropriation to a reserve set up by a taxpayer to provide for his contractual obligations does not serve to lessen his taxable net income either by way of exclusion from gross or by way of deduction, irrespective of whether the accounting system be a cash system or an accrual system.  If, however, there is a trust which the law recognizes, whether express or implied, and a prescribed part of the contract price received for a lot can be said to be received in trust, such part is excluded from gross income; or if, although not received in trust, a part is necessarily immediately turned over to an established trust, such part is deductible.  The facts must in each case be examined, as well as the corporation's legal obligations under the local statutes of its creation and operation, its charter, bylaws, and resolutions, its contracts, accounts and practices.  See *710 ; ; ; affd., ; . It can not be found from the evidence that the petitioner has either set up a trust or made contributions to a trust.  The Michigan statute (sec. 10446, Compiled Laws of Michigan, 1915) which the petitioner relies upon did not expressly required a trust during the *409  years in question.  It provides that after the petitioner has fully paid for its land it shall reserve two-thirds of the sales receipts above current expenses and improvements as a maintenance fund, such fund to be accumulated until, in the opinion of the directors, it is large enough, when properly invested, to produce income sufficient for perpetual maintenance.  During the years 1927 and 1928 petitioner's land was not fully paid for, and its expenses and improvements apparently*711  consumed substantially all its income.  It was therefore not required by the Michigan statute to put aside any of its sales proceeds in trust, and it can not be found from the evidence that in fact it did so.  In so far as its income was used to meet expenses, the Commissioner appears to have permitted the deduction.  In so far as petitioner's proceeds were used for permanent improvements, it had no right to a deduction, Revenue Act of 1926, sec. 215; Revenue Act of 1928, sec. 24, but only to have its investment cost increased.  Under its sale contracts, petitioner was required to maintain the lots and the cemetery, but this can not be construed as an undertaking presently to establish a trust.  The directors' resolutions which are set forth in the findings undertake only to establish a maintenance fund after the grounds have been laid out and embellished according to the plan adopted, and it appears from the evidence that the time to begin the reservation of such a fund had not yet arrived.  Since, therefore, it can not be found that a trust was set up or that any part of the amount received for the sale of its lots was impressed with a trust, and it appears only that the petitioner*712  was under a contractual obligation to maintain its properties and at some indefinite future time to begin the establishment of a trust, it can not be concluded as a matter of law that the respondent's determination was in error.  Judgment will be entered for the respondent.Footnotes1. See the cases collected in Law of Federal Income Taxation, Paul and Mertens, vol. 2, §§ 14.14, 14.15. ↩