Court Opinion

ID: 4604454
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:34:16.865852+00
Date Added: 2024-06-11T07:59:27.654463
License: Public Domain

FIDELITY-PHILADELPHIA TRUST COMPANY, TRUSTEE UNDER THE WILL OF WILLIAM L. DUBOIS, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Fidelity-Philadelphia Trust Co. v. CommissionerDocket Nos. 48492, 51669.United States Board of Tax Appeals25 B.T.A. 1359; 1932 BTA LEXIS 1385; April 30, 1932, Promulgated *1385  1.  Where the widow elected to take under decedent's will in lieu of dower, held that income of the trust estate paid over to the widow during the taxable years in accordance with the terms of the will is not deductible as a distribution of income to a beneficiary, within the provisions of section 219(b)(2) of the Revenue Act of 1926.  Julia Butterworth et al., Trustees,23 B.T.A. 838">23 B.T.A. 838, followed.  2.  Where one-third of the corpus of the trust estate was, by the terms of decedent's will, given to charitable institutions after the widow's death, but during her lifetime the income was payable to her, held, that the respondent did not err in failing to allow as a deduction on that account any portion of the income so paid to the widow during the taxable years.  Robert T. McCracken, Esq., and John B. Peery, C.P.A., for the petitioner.  Maxwell M. Mahany, Esq., for the respondent.  TRAMMELL*1359  These proceedings, duly consolidated for hearing, are for the redetermination of deficiencies in income tax as follows: Docket No.YearDeficiency484921926$905.765166919271,044.97In Docket No. *1386  48492, petitioner alleged in paragraph 4(b) of its petition that in determining the deficiency for the year 1926 respondent erred in computing a normal tax upon the sum of $3,746.42 representing dividends on stock of domestic corporations.  At the hearing, respondent also confessed error on this point as alleged.  In Docket Nos. 48492 and 51669, covering the years 1926 and 1927, two substantially identical issues are raised by the pleadings and submitted for decision here, namely, (a) whether or not respondent erred in determining that income received during the taxable years and distributed to the widow under the terms of the decedent's will constitute capital expenditures, taxable to the trustee; and (b) in the event such income is held to be taxable to the trustee, whether or not the respondent erred in failing to allow as a deduction from gross income the amount thereof alleged to have been accumulated for the benefit of certain charitable institutions named in the decedent's will.  *1360  FINDINGS OF FACT.  The petitioner, a Pennsylvania corporation, with its principal office at Philadelphia, is successor to the Philadelphia Trust Company, and the duly appointed, qualified*1387  and acting trustee under the will of William L. DuBois, deceased.  Decedent died testate on October 26, 1918, while a resident of Pennsylvania.  Decedent's will, dated December 14, 1915, with codicils thereto, provided, so far as pertinent here, as follows: VI. - All the rest, residue and remainder of my estate, real, personal and mixed, * * * I give, devise and bequeath to my son, Henry C. DuBois, and the Philadelphia Trust Company, in trust for the following uses, intents and purposes, that is to say, to hold and invest the said Trust Estate either in the securities and other assets that I may leave or in such others as my trustees in their discretion may acquire, with the power to acquire real estate, and to alter, sell change and shift the investments, * * * releasing them from all liability to loss by reason of the exercise of this discretion; to collect the income and to pay first the sum of Four thousand (4,000) Dollars per annum to my son Henry C. DuBois, * * * until the death of his mother, and the balance to my wife, Mary C. DuBois, for and during all the term of her natural life, and upon her decease, * * * to continue the said trust estate for the following purposes, *1388  viz: * * * to pay two-thirds of the income to my son Henry C. DuBois * * * for and during all the term of his natural life, and upon his decease to transfer, convey and assign the portion of the Trust Estate thus directed to be held for him to such person or persons * * * or charities, and for such estate or estates as he, * * * shall by his last will and testament direct, limit and appoint, * * * and in default of his exercise of his power of appointment, to transfer, convey and assign the said portion to the children and issue of deceased children of my son Henry by representation * * * and in default of appointment and issue, then to the following charities in the proportions herein named: * * * Pennsylvania Hospital55%The Presbyterian Orphanage15%The Presbyterian Hospital15%The Board of Foreign Missions of the Presbyterian Church15%As to the remaining one-third of the income, I direct that it be accumulated during the minority of my granddaughter, Mary C. DuBois, the said accumulations not be for her benefit except as to the allowance hereinafter provided, but to be paid from the time of my decease up to the time of her majority, or death if it*1389  occur earlier, with all accretions and increase, to the Pennsylvania Hospital as a gift to it; and from and after her majority, the said income shall be paid to her for and during the term of her natural life * * * and from and immediately after her decease then to transfer the principal upon which she had thus been appointed to receive the income, and which was held for her benefit, being the one-third part remaining of my residuary estate, to the children and remoter issue of my said granddaughter by representation, and in default of issues, then to the same charities and in the same proportions as already named in connection with my said son Henry's share; provided that a sum not exceeding Three thousand (3,000) Dollars per annum out of the income may be expended or accumulated for her benefit during her minority, should that amount be required for the purpose, and I appoint Henry C. DuBois and the Philadelphia Trust Company to be her guardians to arrange for and *1361  to control under their discretion the expenditure or accumulation for her benefit insofar as it may be necessary.  * * * VII.  In case of the decease of my said son and granddaughter without issue before*1390  my own decease, I give and bequeath the whole estate after the death of my wife, to the same charities and in the same proportions as enumerated in the residuary Section VI, or in case of the decease of either of them, then the share appointed for the one so dying shall be paid or transferred to the said charities.  By writing, signed, acknowledged, delivered to the executors of the decedent, and duly filed and recorded as required by the statutes of Pennsylvania, Mary C. DuBois, the widow, elected to take under the will in lieu of the interest allowed her in decedent's estate by the law of Pennsylvania.  During 1926 and 1927, the years involved in this proceeding, the trustee made payments to the widow as provided for under the will, which amounts, added to payments of prior years, did not aggregate a sum equal to that which would have been apportionable to her as of the date of deceased's death under the Pennsylvania statutory provisions had she not elected to take under the will.  Mary C. DuBois, a granddaughter of the deceased, died on August 26, 1924, while a minor, having no issue as of the date of her death, and never having had issue.  Mary C. DuBois, the widow, died*1391  on November 22, 1927.  Petitioner for the year 1926 filed a Form 1041 only, and for the year 1927 petitioner filed a Form 1041 return and a Form 1040 return.  For the year 1926, no Form 1040 return was filed by the petitioner, and no tax was paid.  The Form 1041 return filed by the petitioner for the year 1926 disclosed the following: Income:Interest$25,021.68Dividends4,346.00$29,367.68Deductions: Taxes and other deductions2,678.01Net income$26,689.67DISTRIBUTED: DividendsOther IncomeTotalHenry DuBois (son)$599.58$3,082.53$3,682.11Mary C. DuBois (widow)3,746.4219,261.1423,007.56$4,346.00$22,343.67$26,689.67For the year 1927 a Form 1040 return was filed by the petitioner, which reflected the following computation of tax: Income: Profit Sale of Stocks$2,748.46Deduct: "Proportion 1/3 of the principal of this Trust Fund is payable to Organized Charities"916.15Net Income$1,832.31Tax payable (and paid thereon)4.98*1362  The petitioner also filed a Form 1041 return for the year 1927, which disclosed the following: Income: Interest$24,951.46Dividends5,014.00$29,965.46Deductions: Interest taxes and other deductions2,180.87Net Income$27,784.59*1392 DISTRIBUTED: DividendsOther IncomeTotalHenry C. DuBois$619.03$2,797.49$3,416.52Exr. of will of Mary D. DuBois (Bal. Income collected to 11-22-27)4,014.4018,077.4222,091.82F.P. Co. Exr. Will of Mary C. DuBois, Decd. Income accrued to 11/27/27380.571,895.682,276.25$5,014.00$22,770.59$27,784.59OPINION.  TRAMMELL: During the taxable years the petitioner trustee paid over to the decedent's widow income from the corpus of the trust estate in accordance with directions contained in the will.  The widow elected to take under the will in lieu of her statutory dower interest.  The amount so paid to the widow in the taxable years, together with the amounts paid to her in prior years, did not equal the value of her dower interest at the date of decedent's death, thereafter surrendered by her.  Respondent, in computing the deficiencies, disallowed as deductions from the petitioner's gross income the amounts so paid to the widow during the taxable years.  The correctness of this action of the respondent is the basis of the first issue presented for consideration here.  The amounts of said income of the trust estate so paid to the*1393  widow are claimed by the petitioner as deductions under section 219(b)(2) of the Revenue Act of 1926, the provisions of which are the same as those of section 219(b)(2) of the Revenue Act of 1924.  The decedent died a resident of Pennsylvania.  In , the decedent died testate in 1925, while a resident of Pennsylvania, and the widow in that case elected to take under the will in lieu of dower.  In the taxable years 1924 and 1925 the trustees under the decedent's will paid over to the widow the sums to which she was entitled under the will and claimed deductions therefor in computing the net income of the testamentary trust.  The amounts so paid to the widow, plus *1363  the amounts similarly paid to her in previous years, were not equal to the value of the dower interest that she relinquished by electing to take under the will.  We held that the amounts so paid to the widow were paid to her in satisfaction of her dower right and were not distributions of income within the meaning of section 219(b)(2) of the Revenue Act of 1924, and, hence, not deductible in computing net income of the trust. *1394  To the same effect see also . The question presented in the case at bar is the same as that considered and decided by us adversely to the petitioner's contention in the cases above referred to, and both the law and the facts in all essential respects are identical.  Accordingly, on authority of those decisions, the respondent's action on the first issue here is approved.  The second issue raised by the petitioner involves the question whether the respondent erred in denying as deductions amounts equal to one-third of the income of the trust paid to the widow in the taxable years, one-third of the corpus being payable, after the death of the widow, to certain charitable institutions.  This issue also, we think, must be decided against the petitioner.  In Paragraph VI of his will, decedent devised and bequeathed the residue of his estate to the trustee, for the purpose, among other things, of collecting the income and paying first the sum of $4,000 per annum to decedent's son, Henry, until the death of his mother, and the balance of the income to the decedent's wife (widow) "for and during all the term of her natural*1395  life." Upon the death of the widow two-thirds of the income was to be paid to the son for and during the term of his natural life.  The remaining one-third of the income, after the death of the widow, was to be accumulated during the minority of the decedent's granddaughter, and this accumulated income upon the happening of certain contingencies, was to be given to the Pennsylvania Hospital.  The principal, consisting of one-third of the decedent's residuary estate, to or corpus of the trust, after the decease of the granddaughter, was to be transferred to the granddaughter's children, if any, but in default of such issue, was to go to certain designated charities.  By these provisions of the will, the entire income from the decedent's residuary estate, which constituted the corpus of the trust, less $4,000 per annum given to the son, was payable to the widow for and during the term of her natural life.  It follows that during the widow's lifetime the charitable institutions were not entitled to receive any portion of the income.  Upon the death of the granddaughter in 1924 without issue, the contingent interest of the charities in the one-third part of the residuary estate became*1396  vested, but such institutions still were not entitled to receive any income therefrom until after the death of the widow.  The amounts of income *1364  from the trust estate paid over to the widow during the taxable years in accordance with the terms of the will do not, therefore, constitute income accumulated for the benefit of or in any event payable to the charitable institutions, and hence are not deductible from gross income in computing the net income of the trust estate.  The respondent's action on this point is approved.  In Docket No. 48492, judgment will be entered under Rule 50.  In Docket No. 51669, judgment will be entered for the respondent.