Court Opinion

ID: 4491305
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:02:49.033414+00
Date Added: 2024-06-11T15:03:37.392623
License: Public Domain

Black,
dissenting: I dissent from the majority opinion in this proceeding. The very title of ■ the petitioner is misleading. The title under which it conducted its business operations was “ Estate of James McCormick, Deceased.” ' From this sort of a title one would believe that James McCormick, prior to his death, conveyed his property, either by deed or will to a trustee, to be held in trust for the benefit of his heirs. As a matter of fact, James McCormick died intestate in 1870, and his property descended to his heirs under the Pennsylvania laws of descent and distribution, and these heirs, owning the property as tenants in common, for their own convenience and profit organized a common law trust and conveyed the property to trustees to be managed and operated and disposed of according to the terms of the trust. This organization continued until 1916, when it was superseded by the petitioner, another common law trust, organized by the then owners of the property for their own convenience and profit, and using the name of “ Estate of James McCormick, Deceased,” although he had died intestate 46 years prior to the organization of the trust.
I do not question the right of the heirs to organize themselves into a common law trust of this kind and to use the name of “ Estate of James McCormick, Deceased,” but such procedure should not deceive any one into believing that it makes petitioner any such trust within the meaning of the Federal taxing laws, as we had before us in Wilson Syndicate Trust, 14 B. T. A. 508. Petitioner strongly relies on the Wilson Syndicate Trust case in support of its contention in the instant case, but I think the two situations are wholly different. The Wilson Syndicate Trust, supra, was not a case where parties owning property as tenants in common .associated themselves in a common law trust for their own convenience and profit, but was a case where Laura D. Wilson, owner of a large estate, and desiring to make provision for her children, five married daughters, conveyed the property to a trustee in trust to be disposed of as directed in the trust instrument, and one-seventh of the proceeds distributed to each of her five daughters and two-sevenths to her. This kind of a trust presents quite a different situation from that which obtains where persons who own property as tenants in common, such as we have before us in the instant case. *1229associate themselves in a common law trust for their own convenience and profit, to hold the property, operate it, distribute the profits, and finaly dispose of the corpus. The distinction was well stated by the court in Blair v. Wilson Syndicate Trust, 39 Fed. (2d) 43, wherein the court said:
* * * A distinction is to be made between an agreement between individuals in the form of a trust and an express trust created by an ancestor, although they may have some features in common. The controlling distinction is that one is a voluntary association of individuals for convenience and profit, the other a method of equitably distributing a legacy or donation. Congress has recognized this distinction, classing the former as associations, to be taxed as corporations, and at the same time providing for a separate and distinct method of taxing the income of estates and trusts created by will or deed, classing them together for that purpose. Section 219, Revenue Act of 1921 (42 Stat. 246).
I am unable to see any distinction of substance between the common law trust (association) involved in this proceeding and the Hecht Real Estate Trust, one of the trusts involved in Hecht v. Malley, 265 U. S. 144. There were three separate trusts involved in the decision of Hecht v. Malley, supra. The Hecht Real Estate Trust case No. 99 was one of them. Said the Supreme Court, in describing the Hecht Real Estate Trust:
The Hecht Real Estate Trust was established by the members of the Hecht family upon real estate in Boston used for offices and business purposes, which they owned as tenants in common. It is primarily a family affair. The certificates have no par value; the shares being for one-thousandths of the beneficial interest. They are transferable; but must be offered to the trustees before being transferred to any person outside of the family. The trustees have full and complete powers of management; but no power to create any liability against the certificate holders. There are no meetings of certificate holders; but they may, by written instrument, increase the number of trustees, remove a trustee, appoint a new trustee if there be none remaining, modify the declaration of trust in any particular, terminate the trust, or give the trustees any instructions thereunder.
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The court also said :
We conclude, therefore, that when the nature of the three trusts here involved is considered, as the petitioners are not merely trustees for collecting funds and paying them over, but are associated together in much the same manner as the directors, in a corporation for the purpose of carrying on business enterprises, the trusts are to be deemed associations within the meaning of the Act of 1918; this being true independently of the large measure of control exercised by the beneficiaries in the Hecht and Haymarket Cases, which much exceeds that exercised by the beneficiaries under the Wachusett Trust. We do not believe that it was intended that organizations of this character — described as “ associations ” by the Massachusetts statutes, and subject to duties and liabilities as such — should be exempt from the excise tax on the privilege of carrying on their business merely because, such a slight measure of control may be vested in the beneficiaries that they might be deemed strict trusts within the rule established by the Massachusetts courts,
*1230I can see no material difference in petitioner’s operation for the years involved in this proceeding under the trust instrument set out in the findings of fact in the majority opinion herein from that of the concerns which we held in Lansdowne Realty Trust, 20 B. T. A. 119; Russell Tyson et al., 20 B. T. A. 597; and Zenith Real Estate Trust, 21 B. T. A. 656, to be associations and taxable as such. For that reason, I dissent from the majority opinion.
Sternhagen agrees with this dissenting opinion.