Court Opinion

ID: 4484752
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:58.309317+00
Date Added: 2024-06-11T07:58:25.332852
License: Public Domain

Goffe, J., concurring in part and dissenting in part: I respectfully dissent as to the second issue. In my view, the majority has failed to heed the admonition of Justice Frankfurter, "The baby is not to be thrown out with the bath.” International Salt Co. v. United States, 332 U.S. 392, 405 (1947). I fully recognize the problems that have been created by what the majority describes as "canned” trusts sold by ESP and others. Horvat v. Commissioner, 671 F.2d 990 (7th Cir. 1982), affg. a Memorandum Opinion of this Court. Nevertheless, the instant case does not involve an attempt to tax income from personal services to a trust instead of taxing it to the true earner of the income. In its enthusiasm to deny the deduction for the $20,000 which petitioner and her husband paid for the creation of the trust, the majority has seriously undercut the case law which permits deductions under section 212(2). I was the trier of fact in this case. I agree with the findings of fact as stated by the majority but I do not agree with some of the inferences which it draws, and I strongly disagree with the manner in which the majority has applied the law. The majority points out that petitioner received no legal advice regarding the trust until 1976. If this is interpreted to mean that petitioner received no advice from a lawyer until 1976, then it is correct. If, instead, it implies that petitioner and her husband received no advice as to the legal effect of having their property held in trust, then the inference is incorrect. As the majority points out, petitioner and her husband prepared and executed meticulous minutes of the meeting of the trustees. This fact demonstrates that they received considerable instructions on the law, the cost of which should be deductible as part of the cost of management, conservation, or maintenance of property held for the production of income. Petitioner, her husband, and their daughter carefully observed the legal distinctions brought about by the creation of the trust. I strongly disagree with the legal reasoning of the majority. Its opinion is in conflict with our previous holding in Bagley v. Commissioner, 8 T.C. 130 (1947), as to what constitutes a deduction for estate planning under section 212(2). Indeed, the majority overrules that decision. Bagley was not appealed by the Commissioner, nor has it previously been criticized nor limited in its application, although it has been relied upon for a long period of time. In Schultz v. Commissioner, 50 T.C. 688, 700 (1968), we stated the following: The record herein furnishes no basis for an allocation. Such being the case, we cannot determine to what extent the services included estate planning of the type which might give rise to a deductible expense under section 212. Nancy Reynolds Bagley, 8 T.C. 130 (1947). * * * The present case, involving a trust tainted with the pejorative connotations of an ESP trust which was expressly designed to shift income, is an exceedingly poor vehicle for reconsidering the parameters of section 212(2). The vast majority of estate planning expenses are legitimate in all respects. I would not characterize the expenses which we allowed in Bagley as "investment advice” as does the majority, but would, instead, describe them as estate planning expenses. The expenses incurred by the Lumans were for advice in the establishment and operations of an inter vivos trust, the income from which is deemed retained by them for life. Under the rationale of Bagley, the $20,000 fee paid by the Lumans is deductible. Let us suppose, for example, that an elderly couple owns a large ranch with a large herd of cattle. They want their children to inherit the ranch and, in the meantime, want the ranch to be managed carefully. They consult their attorney, who is a member of a prominent, "silk stocking” law firm, who prepares an inter vivos trust to own the ranch in which the couple retains the income of the trust for life. They approve the trust agreement and appoint the trust department of a large bank as trustee because it has a very competent farm and ranch management department. Under the rationale of the majority in the instant case, the fee which the couple pays to their attorney is not deductible. But doesn’t this fee represent services rendered for the management, conservation, or maintenance of property held for the production of income? I think that it does and that such a fee should be deductible. I view the payment in my example, in Bagley, and in the instant case as coming within the plain language of section 212(2). The majority attempts to bolster its holding by relying upon Epp v. Commissioner, 78 T.C. 801 (1982). I likewise think Epp is a poor vehicle for overruling Bagley. I viewed Epp when it was filed as merely a case where the taxpayer failed to prove that the property she conveyed to the trust was income-producing property. In the instant case, the majority makes a point of the fact that the residence on the ranch was not income-producing property. The residence on an active, income-producing ranch has been held by us to be a part of the business premises of a ranch, and it follows, therefore, that it is an integral part of the income-producing asset, the ranch. McDowell v. Commissioner, T.C. Memo. 1974-72. Lastly, the suggestion of the majority as to an allocation of such fees is unworkable. If I were an attorney preparing an estate plan, I could not conceive of a way to allocate my fee among the various results of my work in order for some of the fee to be deductible. Any allocation would be nothing more than a fiction. I conclude, therefore, that the Court should have continued to apply the correct interpretation of section 212(2) as it did in Bagley.