Court Opinion

ID: 9644542
Source: CourtListenerOpinion
Date Created: 2023-08-22 20:59:03.383838+00
Date Added: 2024-06-11T18:11:14.568307
License: Public Domain

BRATTON, Circuit Judge
(dissenting).
Deductions from gross income depend upon legislative grace. They do not rest upon equitable considerations. A taxpayer seeking a deduction must found his claim upon a statute and bring himself within its terms. New Colonial Co. v. Helvering, 292 U.S. 435, 54 S.Ct. 788, 78 L.Ed. 1348; Deputy v. Du Pont, 308 U.S. 488, 60 S.Ct. 363, 84 L.Ed. 416; Commodore Mining Co. v. Commissioner of Internal Revenue, 10 Cir., 111 F.2d 131; Sparkman v. Commissioner of Internal Revenue, 9 Cir., 112 F.2d 774. The asserted claim of this taxpayer is not sustainable unless it finds its genesis in -a statute.
Section 23(o) (2) of the Revenue Act of 1934, 48 Stat. 680, provides that in computing the net income of an individual a deduction shall be allowed for any contribution or gift made to a corporation, trust, community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, 'no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation; and section 162(a) provides that the net income of an estate or trust shall be computed in the same manner and on the same basis as that of an individual, except that in lieu of the deduction authorized by section 23 (o), there shall be allowed as a deduction any part of the gross income which pursuant to the terms of the will or deed creating the trust is during the taxable year paid or permanently set aside for the purposes and in the manner specified in section 23(o) or is to be used exclusively for religious, charitable, scientific, literary, or educational "purposes. The Bonfils Foundation is a charitable corporation within the meaning of the statute. But the plain language of the statute makes it clear that in order for the income of the trust to be deductible as a contribution to charity, it must be by the express terms of the will paid to or permanently set aside during the taxable yeár for a corporation organized and operated exclusively for charitable purposes. Stated otherwise, to be deductible the in*794strument must make it clear that it was the intention of the creator of the trust that the income should be either actually paid to charity during the taxable year or permanently set aside to it during such year.
The will of this decedent provides that profits resulting from the sale of any part of the estate shall be credited to principal, and shall not be deemed income; it also provides that in the event the net income from the trust estate is insufficient to pay all of the annuities in full, such additional amounts as may be required from time to time shall be paid out of the corpus of the trust estate; and it further provides that after the death of the last survivor of the annuitants, the trustees are authorized and directed, upon written demand of the foundation, to pay to the foundation from time to time all or such part of the corpus of the trust estate as may be reasonably required for the financing of any project or projects of the foundation, undertaken pursuant to the terms of the will, and that all of such corpus shall be paid over and delivered to the foundation within ten years after the death of the last survivor of the annuitants. These provisions must be considered together. Considered in that manner, they make it plain that the decedent intended that capital gains should be added to the corpus of the trust estate; that in the event the income should be insufficient from time to time to pay in full the annuities, enough of the corpus should be used to pay the deficiency; and that the corpus should be disbursed to the foundation after the death of the last survivor of the annuitants, and not before. By the terms of the will, capital gains become a part of the corpus, the entire corpus is subject to the charge of the annuities whenever ordinary current income is insufficient for that purpose, and the corpus is to be and remain subject to that charge until the death of the last survivor of the annuitants. The primary purpose is payment in full of the annuities. To that purpose the corpus is dedicated whenever the ordinary income is not enough. True, the dedication is contingent, but the corpus is dedicated to that purpose. The secondary purpose is payment of the corpus to the foundation, after all of the annuities have been paid in full' — that is, after the death of the last survivor of the annuitants. It cannot be said that by the terms of the will the capital gains which became a part of the corpus of the trust estate were set aside during the years 1934 and 1935 for the exclusive use of the Foundation. Boston Safe Deposit & Trust Co. v. Commissioner of Internal Revenue, 1 Cir., 66 F.2d 179, certiorari denied, 290 U.S. 700, 54 S.Ct. 227, 78 L.Ed. 602. Up to the present the ordinary, . annual income of the trust estate has far more than sufficed to pay the current annuities, and it seems reasonably certain that it will continue to do so in the future. Still, it cannot be foretold with absolute certainty that such condition will always exist to the death of the last survivor of the annuitants. The decedent had the right to and perhaps did take many factors, into consideration in providing in the will that capital gains be added to the corpus, that the corpus be liable for the payment of the balance of the annuities after current income had been exhausted, and that the entire corpus be contingently subject to that use and purpose until after the death of the last survivor of the annuitants. In any event, he had the right to make the dedication in that manner, and for reasons satisfactory to himself he did so.
The majority state that the question is “whether we should blindly adhere to the terms of the will which provide for recourse to corpus in the event income is insufficient to pay annuities, or whether we should be realistic and determine the effect of the terms of the will in the light of the amount of the corpus, the income therefrom, and the amount of the annuities. In other words, whether we should give regard to mere theory or to actuality.” But the statute does not commit to the realistic views of the court the question whether on equitable or other kindred considerations a.deduction shall be'allowed in a case of this kind. Instead, it provides in clear and unmistakable terms that the deduction shall be allowed only when by the terms of the will or deed creating the trust the sum is during the taxable year either paid to or permanently set aside for a charitable purpose. The court should give effect to that congressional mandate.