Davis v. Commissioner , 35 B.T.A. 1001 ( 1937 )

CHARLES S. DAVIS, SUCCESSOR TRUSTEE U/W AND OF THE ESTATE OF OTTO ERNST ISENBERG, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

HELEN L. ISENBERG TRUST, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

PAUL OTTO ISENBERG TRUST, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Davis v. Commissioner

Docket Nos. 74249, 71373, 71374.

United States Board of Tax Appeals

35 B.T.A. 1001; 1937 BTA LEXIS 811;

April 27, 1937, Promulgated

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">*811 1. In 1929 the petitioner, trustee of the estate of Otto Ernst Isenberg, received $287,323.40 from the former trustee of the estate in payment of a judgment against said trustee for breach of trust in connection with the sale of certain shares of stock which were a part of the trust corpus. The amount of the judgment consisted of the value of the stock at the time of the trial plus a surcharge representing the dividends paid thereon after the sale. Held, that the amount of the judgment is income to the trust, which, except the surcharge, was not distributable to the beneficiaries as it constituted corpus and is therefore taxable to the trust.

2. The expenses paid in recovering the damages are not deductible by the trust since they were paid by the beneficiaries in the protection of their rights.

F. Eberhart Haynes, Esq., J. Marvin Haynes, Esq., and Ebert J. Botts, Esq., for the petitioners. J. L. Backstrom, Esq., for the respondent.

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MORRIS

">*1002 The respondent having determined the following deficiences in income tax and penalties against the first named petitioner:

Year	Deficiency	25 percent penalty
1918	$107.55	$26.89
1924	85.08	21.27
1925	73.55	18.38
1926	67.65	16.91
1927	$211.41	$52.85
1928	119.97	30.00
1929	86,113.63	21,528.41
Totals	86,778.84	21,694.71

">*812 and a deficiency of $2,875.03 against each of the other petitioners for the taxable year 1930, they bring these duly consolidated proceedings for the redetermination thereof, asserting error in such first named proceeding by reason of (1) inclusion of $287,323.40 in taxable income, representing money damages received in 1929, or (2) failure to determine that said income is deductible by the trust and taxable to the beneficiaries, or (3) failure to determine that such income is taxable to ten separate trusts, or (4) failure to determine that certain shares of Kekaha Sugar Co., Ltd., and Pioneer Mills Co., Ltd., were the separate property of Paul Otto Isenberg, deceased, and Helen L. Isenberg, deceased, and that the income therefrom should be taxed to their separate estates, (5) failure to allow a deduction of $108,202.38 in the taxable year 1929 representing litigation expenses, and (6) failure to credit taxes paid by the Alien Property Custodian to the collector of internal revenue at Baltimore in the following amounts:

1919	$691.87
1920	102.55
1921	288.49
1922	$38.51
1923	28.92
1924	26.68

and (7) the respondent's penalty determination. In the other">*813 two proceedings the respondent is alleged to have erred in his determination as to whom the income of $35,785.91 for 1930 was distributable, and in creating the trust of Helen L. Isenberg and Paul Otto Isenberg when, in fact, no such trusts ever existed.

FINDINGS OF FACT.

Petitioner Davis, an individual, resident of Honolulu, Hawaii, was duly appointed "successor trustee" and trustee under the will of the estate of Otto Ernst Isenberg, deceased, by order of June 21, 1929, of the Circuit Court for the First Judicial District, Territory of Hawaii, and he qualified as such, succeeding to the trusteeship of the Trent Trust Co., Ltd. (hereinafter referred to as the Trust Co.), which was then removed as such trustee and required to and did, on said date, pay the estate damages in the sum of $287,323.40, together with interest thereon at the rate of 6 percent per annum from August ">*1003 31, 1923, of $100,083, for breach of trust in its failure to prevent the sale of certain shares of Kekaha Sugar Co., Ltd. (hereinafter referred to as Kekaha) stock by the Alien Property Custodian, which shares were in the possession of such former trustee when sold. He became vested as trustee">*814 on that date.

Otto Ernst Isenberg resided in Honolulu, Hawaii, where he died, testate, November 4, 1902, leaving as his heirs a widow, Helen L. Isenberg, and nine children, Anna Pauline, 26, Hans Carl Otto, 23, Helen Dearest Wilhelmina, 19, Abigail Darling Gretchen, 19, Agnes Cunningham, 16, Carl Heinrich Wilhelm, 14, Bertha Julita, 12, Dorothea Gertrude, 10, and Paul Otto, 7 years of age. His will was admitted to probate in that year and Pfotenhauer and Schultze qualified as executors and trustees under the will. By the terms of his will, his entire net estate vested in trust, one-third thereof to be held, the net income therefrom to be paid annually or oftener to his wife during her lifetime, the remaining two-thirds to be divided into as many equal portions as he had children then living, the principal to be paid to them upon attaining age 25, the net income therefrom to be paid to them annually or oftener pending such event, and upon the death of his wife, the said one-third to be divided in the same manner and held upon the same trusts as the said two-thirds portion.

Upon petition of decedent's widow, January 20, 1903, Pfotenhauer and Schultze were appointed, and they">*815 duly qualified as, guardians of the persons and estates of her five minor children, Agnes, Carl, Bertha, Dorothea, and Paul, 17, 15, 13, 10, and 7 years of age, respectively. The other two minor children, Abigail and Helen, were married and resided in Germany.

Their accounts having been approved, the executors, Pfotenhauer and Schultze, were discharged on September 18, 1905, and the estate was distributed to them as trustees. The estate, among other property, was composed of 730 shares of Kekaha stock and 454 shares of Pioneer Mill Co., Ltd. (hereinafter referred to as Pioneer Mill) stock.

On September 20, 1905, the trustees petitioned the Probate Court for an apportionment and partial distribution of the trust estate in accordance with a plan agreed to by the widow, children, and guardians, reciting that two of the children, Hans Carl and Anna Pauline Wiehen (nee Isenberg), had reached the age of 25 and were entitled to their distributive shares of and in two-thirds of the trust estate, and that the other children had received advancements, setting forth therein the amounts of such apportionment. The following order was entered:

NOW THEREFORE it is ordered that William">*816 Pfotenhauer and Hermann Schultze, Trustees of the Estate of Otto Ernst Isenberg, deceased, be and they ">*1004 hereby are as such Trustees authorized, empowered and directed to make an apportionment of said estate, as follows:

To the widow of said Otto Ernst Isenberg as her one-third of said Trust Estate, the income from which said widow is entitled under said Will for life;

236 shares of the Kekaha Sugar Company, Limited, stock

149 shares of the Pioneer Mill Company, Limited, stock;

and

Lots 48 and 71 and the westerly half of Lots 49 and 70 as laid out on Government Map of Kulaokahua Plains, being the premises described in Grant 291 and a portion of grant 292, and situate on King Street, in the City of Honolulu, Territory of Hawaii, together with the frame dwelling-house situate thereon and its furnishings.

To the beneficiary Anna Pauline Wiehen, nee Isenberg;

62 shares of the Kekaha Sugar Company, Limited stock

38 shares of the Pioneer Mill Company, Limited stock

To the beneficiary Hans Carl Otto Isenberg,

68 shares of Kekaha Sugar Company, Limited, stock

42 shares of the Pioneer Mill Company, Limited, stock

To the beneficiary Abigail Gretchen Zedler">*817 (nee Isenberg),

24 shares of the Kekaha Sugar Company, Limited, stock

15 shares of Pioneer Mill Company, Limited, stock

To the beneficiary Agnes Cunningham Isenberg,

68 shares of the Kekaha Sugar Company, Limited, stock

42 shares of the Pioneer Mill Company, Limited, stock

To the beneficiary Carl Heinrich Wilhelm Isenberg

68 shares of the Kekaha Sugar Company, Limited, stock

42 shares of the Pioneer Mill Company, Limited, stock

To the beneficiary Bertha Julita Isenberg

68 shares of the Kekaha Sugar Company, Limited, stock

42 shares of the Pioneer Mill Company, Limited, stock

To the beneficiary Dorothea Gertrude Isenberg

68 shares of the Kekaha Sugar Company, Limited, stock

42 shares of the Pioneer Mill Company, Limited, stock

To the beneficiary Paul Otto Isenberg,

68 shares of the Kekaha Sugar Company, Limited, stock

42 shares of the Pioneer Mill Company, Limited, stock

And it is further ordered that said trustees William Pfotenhauer and Hermann Schultze do forthwith distribute to the beneficiaries anna Pauline Wiehen, nee Isenberg, and Hans Carl Otto Isenberg the distributive shares of said Trust Estate to which they are respectively entitled under">*818 this apportionment.

Trustee Pfotenhauer having died April 14, 1913, Schultze, the surviving trustee, petitioned the court and on April 25, 1913, George Rodiek was appointed to succeed him.

On or before August 23, 1918, all of the children of the decedent, except Paul, had reached the age of 25 and had received, with the exception of Paul and Dorothea, their pro rata share of the two-thirds trust estate as so apportioned by the court.

When the United States declared war against Germany, April 6, 1917, and when "The Trading with the Enemy Act" was approved, ">*1005 October 6, 1917, the 236 shares of Kekaha stock and 149 shares of Pioneer Mill stock - held as the aforesaid one-third portion of the decedent's estate - had been increased by stock dividends and purchases to 500 and 1,353 shares, respectively. Of the 500 shares, 314 were principal and part of the corpus of the decedent's trust estate, and 186 were stock dividends, and of the 1,353 shares, 1,065 were principal and part of the corpus, and 288 were stock dividend accretions. The 68 shares of Kekaha and 42 shares of Pioneer Mill which had been set aside out of the two-thirds trust for Paul, had likewise been increased">*819 by stock dividends and purchases to 170 shares and 381 shares, respectively. Of the 381 shares, 210 were principal and 171 shares stock dividends.

The widow and seven of the children of the decedent had taken up their permanent residence in Germany and were residing there when the United States declared war. Paul served in the German Army and died in Germany, November 16, 1918. The six daughters married German citizens, all of whom served in the German Army, except one, who was an official. The widow and said seven children, by reason of their residence, were classed as "enemies" under the provisions of the aforesaid The Trading with the Enemy Act. The other two children were residents of the United States during the war and were not so classed.

On January 21, 1918, the Trust Co. was appointed depositary for all "enemy" property in Honolulu, with instructions to take possession of all such property reported.

On January 31, 1918, Schultze, as guardian of Paul, surrendered all of his ward's trust property derived from the decedent's estate to such depositary of the Alien Property Custodian, containing 170 shares of Kekaha stock and 381 shares of Pioneer Mill stock. Schultze">*820 having filed petition for approval of his final account, reciting that his ward, who had not attained the age of 25, was an enemy alien and that he had turned over all of such property to the Alien Property Custodian, was discharged as guardian by order of the Probate Court in August 1918. On January 31 and February 2, 1918, Schultze, as trustee of the decedent's estate, surrendered all of the property in which the decedent's widow had a life interest to the said depositary, containing 500 shares of Kekaha stock and 1,353 shares of Pioneer Mill stock.

Thereafter, Schultze and Rodiek - having petitioned for approval of their final accounting and for their discharge as trustees of the decedent's estate, pointing out, among other things, that all of the children of the decedent, except Paul, had reached 25 years of age, and the fact that they had turned over all of the property to the Custodian, as hereinbefore related - the court, among other things, ">*1006 approved their accounts and discharged them as trustees, also discharged Schultze as guardian of Paul. The certificates composing the 500 shares of Kekaha stock, which were a part of the one-third interest in trust for">*821 the benefit of the decedent's widow, delivered to the "depositary" on January 31, 1918, were in the names of the trustees, Pfotenhauer and Schultze. The certificates, three in number, composing the 170 shares delivered to the depositary on said date held in the two-thirds trust for Paul, were also in their names, one as trustees of the decedent's estate, another as trustees for Paul, and the third as trustees of the "estate of Otto Isenberg." At or about the time of delivery of these certificates to the depositary two new certificates were issued by Kekaha in the name of the Trust Co. as depositary for the Alien Property Custodian, covering the respective 500- and 170-share lots. Said certificates as so reissued were held until the sale on January 17, 1919, as hereinafter shown. These shares were incorporated in inventories to the Custodian in Washington, the 500 shares as the property of the decedent's trust estate and the 170 shares as the property of Paul. These said certificates were dilivered to the depositary prior to formal demand by the Custodian.

After the surrender of the Kekaha stock, Schultze made several formal reports to the Custodian, one on March 9, 1918, as">*822 trustee of the decedent's estate, in which he reported that as to the 500 shares of Kekaha stock and 1,353 shares of Pioneer Mill stock the widow was entitled to the income therefrom for life and that the nine children were entitled to a one-ninth interest each in the principal after her death, also that the shares were registered in the name of the trustees. Another such report was made by Schultze as guardian of Paul, in which he reported that the 170 shares of Kekaha and 381 shares of Pioneer Mill belonged to said Paul Otto Isenberg and, also, that the certificates for said 170 shares were registered in his name. A similar report was made by Schultze as guardian of Dorothea.

On May 7, 1918, the Alien Property Custodian served a number of formal demands on Schultze as trustee of the decedent's estate and as guardian of Paul and Dorothea containing the determination that the decedent's widow and Paul and Dorothea Isenberg were enemy aliens and requiring said trustee and guardian to deliver to him all property of said aliens. On the same date the said Custodian served a similar demand upon Kekaha, with specific reference to 840 of its shares, containing the determination that">*823 the estate of Otto Isenberg was an enemy alien and demanding that its property in the hands of that company be surrendered to the Custodian. Similar formal demands were served on the trustee, the guardian, and also on Pioneer Mill, covering the enemy-owned stock in that company. ">*1007 The said Custodian served fourteen such demands covering the interests of the widow, and the seven enemy alien children.

On August 15, 1918, the Custodian issued a receipt and acquittance to Schultze as trustee of the estate of the decedent for the 500 shares of Kekaha stock and the other property held in trust in which the widow had a life interest.

The Trust Co. petitioned the court for its appointment as trustee of the decedent, reciting seizure of the trust property by the Custodian, the fact that Rodiek was no longer a resident of Hawaii and that Schultze was a citizen of Germany, the fact that they had been discharged as trustees, and the further fact that all of the trusts had not been fully performed. The court sustained the petitioners by order of October 31, 1918, and that company qualified by the filing of required bond on November 9, 1918.

The Trust Co. was not, however, ">*824 appointed guardian of Paul wh0 died November 16, 1918, age 23, unmarried and without issue. Nor did it exercise legal control over his property. An administrator was appointed for his estate in 1922, who has not yet been discharged.

On January 17, 1919, the 500 shares of Kekaha stock - in which the widow, Helen L. Isenberg, had a life interest - and the 170 shares of Kekaha Sugar stock - which had been seized as the property of Paul - and the 170 shares of Kekaha stock - which had been seized as the property of Dorothea - were sold by the Custodian through the Trust Co., as depositary. The sale of the stock was made at public auction, in small parcels, to the highest bidders. The Pioneer Mill stock held in the one-third trust for the widow, also the shares of Pioneer Mill stock set aside in the names of Paul and Dorothea, were sold. The Kekaha stock brought an average of $158.30 a share. The Alien Property Custodian approved the sale of said shares on February 22, 1919.

The proceeds from the sale of the 170 shares of Kekaha stock, seized as the property of Paul as well as all other property including income and the proceeds of the 381 shares of Pioneer Mill stock were sent">*825 to the Custodian in Washington by the Trust Co., depositary, after it, the Trust Co., had been advised that Paul had a vested interest therein under the will of the decedent which would prevent reversion thereof to the trust estate. Trent Trust Co., Ltd., as trustee of the decedent's estate, gave its written consent on December 28, 1918, to the sale of the 500 shares of Kekaha stock and 1,353 shares of Pioneer Mill stock, advising the Custodian that the proceeds should be retained by the trustee and invested in Liberty bonds. On January 2, 1919, the Custodian approved this action on the part of the trustee. The proceeds derived from the sale of these shares, in which the widow had a life interest were retained by the Trust Co. as trustee.

">*1008 On October 26, 1921, the Trust Co., as trustee under the decedent's will, filed its account and requested approval thereof, at the same time reporting to the court the sale by the Custodian of the 500 and 170 shares, respectively, of Kekaha stock. Objections were filed on behalf of the widow and children or their legal successors, alleging a breach of trust in its failure to prevent the sale of such stock. When trial began on">*826 January 15, 1923, the objectors limited their cause of action, in so far as it related to Kekaha stock, to the sale of the said 670 shares, 500 shares in which the widow had a life interest, and 170 shares in the name of Paul, praying that the accounts be not allowed; that the Trust Co. be required to pay certain dividends earned upon said stock prior to March 1, 1922, and to purchase and restore to the estate 670 shares of the same said stock. The trial court found several breaches of trust by the Trust Co., decided that it should restore to the trust 670 shares of Kekaha stock, together with dividends and interest, also that because of its failure to properly perform its duties as trustee, it should be removed and it appointed a master with direction to ascertain and report the value of said shares of stock with all intervening dividends, together with the amount of interest and to report the value of the estate as it would have been, had it then contained 670 shares of said stock with dividends and interest, as compared with the value as it then was. The master recommended that the trustee be surcharged $32,723.40 in the event that the 670 shares were restored to the estate and">*827 if they were not restored, he found the difference between the estate as it was August 24, 1923, and as it should have been, was $282,697.29, plus commissions of $4,626.11, actually received by the trustee, or a total of $287,323.40.

On April 7, 1924, the trial court entered a decree removing the Trust Co. as trustee of the decedent's estate and directed that petitioner Davis qualify as such. It decreed that the Trust Co. account to the successor trustee; that the Trust Co. restore said 670 shares to the estate and pay the said sum of $32,723.40, with interest at the rate of 6 percent per annum from August 31, 1923, or $287,323.40 with interest at the rate of 6 percent per annum from said date, and that it pay master fees, expenses, and court costs. The trial court was finally affirmed by decision of the United States Circuit Court of Appeals, Ninth Circuit, on May 4, 1929. Isenberg v. Trent Trust Co., 31 Fed.(2d) 553. The mandate of the United States Supreme Court denying certiorari was filed in said Circuit on June 19, 1929. Trustee Davis finally received on June 21, 1929, the said $287,323.40 together with the computed interest of $100,083, or an aggregate">*828 sum of $387,406.40.

The decedent's widow died testate April 2, 1923, leaving all of her property, real, personal, and mixed, to their seven surviving ">*1009 children - Paul having died in 1918 and Bertha in 1920 - and Henry Waterhouse Trust Co., Ltd., having qualified as her executor, filed its appearance with the court in said cause of action. Said Waterhouse Trust Co. resigned December 12, 1930, as such executor, and Helen I. Zur Helle was appointed executrix with the will annexed of her said estate and she still so acts. That company was also appointed and it served as administrator of Paul's estate until December 12, 1930, when it was succeeded by Helen I. Zur Helle.

The decree of the trial court, which was reinstated by mandate of the United States Supreme Court, provided that the objectors; the children of the decedent, husband of Bertha, deceased, executor of the estate of the decedent's widow, and administrator of the estate of Paul, should, upon the payment and delivery to Davis, as trustee, execute and deliver to the Trust Co. an assignment of all their interest in the January 17, 1919, proceeds of sale of the 170 shares of Kekaha stock registered in the name">*829 of Paul, together with certain other property which the Trust Co., as depositary, had sent to the Custodian in Washington and which was still held by said Custodian as a part of the estate of Paul.

On June 13, 1929, petitioner Davis filed a motion for an order vesting title in himself as trustee of the estate of the decedent. The Trust Co., by way of answer on June 17, 1929, requested an order of the court permitting it to pay the judgment of the trial court to the successor trustee, Davis, on the condition that the money so paid should not be distributed until each of the beneficiaries had delivered to it an assignment of their right, title, and interest in and to all of the property belonging to or composing any part of the estate of the decedent and of the estate of Paul, deceased, remaining in the hands of the Custodian. Such order was entered by the court on June 21, 1929, in which, after recitation of the objectors' inability to deliver good and sufficient assignment and the willingness of the Trust Co. to deliver the trust properties, provided such properties should be so held, it was ordered that Davis, as trustee, be vested with the properties of the estate to be transferred">*830 to him; that the Trust Co. pay over to him $287,323.40 with interest at 6 percent per annum from August 31, 1923, and that he hold all such properties without distribution until the objectors were able to give such assignment.

On October 10, 1930, the Custodian paid over to the Trust Co. the amounts set forth in the decree of the court, namely:

The sum of Twenty-six Thousand Eight Hundred Ninety-four and 77/100 ($26,894.77) Dollars, being the proceeds of the sale of One hundred seventy (170) shares of Kekaha Sugar Company, Ltd. stock, or the securities, if any representing the investment of such proceeds, (2) the sum of Eleven Thousand Five Hundred Fifty and 81/100 ($11,550.81) Dollars, being the proceeds of ">*1010 the sale of Three hundred eighty-one (381) shares of Pioneer Mill Company, Ltd., stock, or the securities, if any, representing the investment of such proceeds, (3) the sum of Eleven Thousand sixty-one and 55/100 ($11,061.55) Dollars, being income disbursements on account of Paul Otto Isenberg paid by Trent Trust Company, Ltd., Trustee, to the Alien Property Custodian (said amount having been surcharged against said Trent Trust Company, Ltd., Trustee) or the securities, ">*831 if any, in which said sum has been invested by said Alien Property Custodian;

Together with all the interest and income which has accrued or shall accrue on or from all of said sums of moneys or securities.

as the property of Paul, deceased, which property included the January 17, 1919, proceeds of sale of the 170 shares of Kekaha stock and the 381 shares of Pioneer stock which were seized and sold as the property of Paul. The Custodian retained and still holds the remainder of Paul's property, to which his administratrix asserts claim.

On October 27, 1930, the court, in the matter of the decedent's estate, entered an order removing the restrictions on the distribution of the estate's funds, except as to the share of Carl Laschinsky, who had not complied with the previous court order requiring the execution of assignment to the Trust Co., all others having so complied.

Pursuant to a bill for instructions and construction of decedent's will filled by Davis as trustee of the estate of the decedent on July 31, 1930, as to whether or not total or partial distribution might be made and to what persons, the court, on January 12, 1931, entered its decree, which, after reciting">*832 that Davis held trustee property belonging to the estate of decedent's widow, deceased, Paul, deceased, and Abigail Darling Gretchen Pohlmann, deceased; the fact of filing a bill for instructions and an accounting to December 31, 1930, by the trustee; the fact that the will set aside a one-third interest for use of the widow and also a vested interest in each of the children; the fact that Paul was entitled to a one-ninth interest in said one-third, notwithstanding his death prior to attaining his twenty-fifth birthday; the fact that Bertha was also entitled to a one-ninth interest in said portion, notwithstanding her death prior to her mother, decedent's widow; the fact that the estate of Abigail Darling Gretchen Pohlmann was also entitled to a one-ninth portion; the fact that large sums had been expended by the several "beneficiaries" in litigation affecting recovery of property for the trust estate, which should be borne by them proportionately; that services rendered by certain attorneys were reasonably worth $4,000; that the account of the trustee should be approved and commissions allowed as therein set forth, and that a certain amount should be withheld from distribution pending">*833 the determination of the estate's tax liability and for other incidental expenses, it was ">*1011 ordered that the attorneys' fees of $4,000 be paid; that the trustee retain commissions of $15,682.14; that $94,346.04 paid by Waterhouse Trust Co. "representing the sum expended by the beneficiaries in recovering the assets of the Estate, be borne proportionately by the beneficiaries and/or their respective estates"; that complete distribution be made, except that reservation be made for taxes and incidentals ($38,000) (a) paying to the administratrix de bonis non with the will annexed of the widow's estate, all securities held by the trustee, valued at $40,281, and the sum of $164,610.09, representing the separate estate of the widow, deceased; (b) paying to the administratrix de bonis non of the estate of Paul $110,488.44, representing his separate estate, and (c) paying to each child or the estate thereof $11,429.39 less, in the case of Helen I. Zur Helle, nee Helen Isenberg, $2,050 chargeable against her interest because of a certain assignment, and in the case of Dorothea Von Koenigsmarck (nee Isenberg) $10,397.49, because of a certain assignment in connection therewith.

">*834 The "large sums" referred to as having been paid by the various beneficiaries aggregated $108,202.38, for which the decree directed the trustee Davis to reimburse them.

Trustee Davis distributed the property to the beneficiaries of the estate of the decedent on January 12, 1931, in compliance with the foregoing decree.

The Trust Co. filed no Federal income tax returns whatsoever during its term of office for the estate, nor its beneficiaries, either as trustee or as depositary of the Custodian.

On or about March 9, 1930, trustee Davis retained the services of a public accountant in Honolulu, to make an examination of the property held in the estate of the decedent, who investigated and reported that no returns had been filed by the former trustee for the years 1918 to 1929, both inclusive. Conferences ensued with Internal Revenue representatives to determine what the tax liability of the estate was for those years. On June 12, 1930, the trustee wrote the respondent for permission to invest the judgment proceeds in Government bonds under the provisions of section 112(f) of the Revenue Act of 1928, and on June 18, 1930, he wrote the collector at Honolulu requesting that an">*835 audit be made, which letter the Collector communicated to the respondent, and on August 27, 1930, the respondent's deputy advised that returns would have to be filed before any action could be taken respecting an audit. The respondent's response to the request of June 12 was to the effect that the facts did not disclose a case under the provisions cited for the investment of such funds. On September 15, 1930, the trustee advised the respondent that on that date he had filed returns for the years 1918 to 1929 for the decedent's estate with the collector at Honolulu and then requested ">*1012 an audit. The trustee also filed, on March 16, 1931, for the decedent's estate, a return for the calendar year 1930, and paid the tax shown to be due.

Individual income tax returns for Paul were prepared by the Bureau for the years 1919, 1920, 1921, 1922, and 1924, from the records of the Custodian and were filed with the collector at Baltimore. The respondent prepared statements of his taxable income for the years 1918, 1919, 1920, 1921, 1922, 1923, and 1924, from the records of said Custodian and certificates of overassessment for 1920 and 1924 issued. The said Custodian paid all">*836 taxes shown to be due upon said returns on the profits derived from the January 17, 1919, sale by it of the 170 shares of Kekaha and the 381 chares of Pioneer stock which had been seized by the Custodian as the property of Paul, also, all other taxes shown to be due thereon. The following amounts were so paid:

1919	$691.87
1920	102.55
1921	288.49
1922	$38.51
1923	28.92
1924	26.68

The Custodian paid a tax on a profit of $757.27 derived from the sale of the 170 shares of Kekaha stock and on a profit of $3,930.81 on the 381 shares of Pioneer Mill stock.

The March 1, 1913, values of Kekaha and Pioneer stocks were $150 and $25 a share, respectively. Seventy-nine thousand one hundred and fifty dollars having been received from the sale of 500 shares of Kekaha stock on January 17, 1919, the revenue agent computed a profit thereon of $4,150; $26,912 having been received from the sale of the 170 shares, he computed a profit of $1,412; and $32,814.90 having been received from the sale of 1,083 shares of Pioneer Mill stock, he computed a profit thereon of $5,739.90. The agent classified 270 shares of Pioneer Mill as dividend shares and he found that the entire">*837 amount, $8,181.40, received from the sale thereof in 1919 was profit. Nine thousand two hundred and forty-one dollars and fifty cents having been received from the sale of 305 shares of Pioneer Mill stock, the agent computed a profit thereon of $1,616.50. Upon 76 shares of Pioneer Mill stock sold in 1919, also regarded as dividend stock, the agent treated the entire amount received therefrom, $2,302.80, as profit in that year.

The respondent held, in his deficiency notice (a) that the decedent created but one trust under his will; (b) that there was a taxable transaction in 1919 when the stocks hereinbefore referred to were sold, measured by the excess over their March 1, 1913, value; (c) that in respect to the contention that certain of such shares were the property of Paul and the decedent's widow and that the income therefrom should be taxed to their separate estates, the income therefrom ">*1013 was, nevertheless, correctly taxed to the trust because the property was at all times treated as trust property, and furthermore the decree of court expressly prevented the current distribution thereof; (d) that the money judgment paid in 1929 should not be taxed to the beneficiaries">*838 but was correctly taxed to the trust because it was withheld by the trustee pending the settlement of litigation, and (e) that the litigation expenses were disallowed because they were the primary obligation of the beneficiaries. The deficiency notices in Nos. 71373 and 71374 carry the holding that four returns should have been filed in lieu of the 1930 return "filed March 16, 1931 for the Estate of Otto Ernst Isenberg", which should have been taxed as a single taxpayer for the reason that the estate, as such, had been closed in 1905, therefore, substitute returns were prepared in lieu of such single returns as follows:

Paul Otto Isenberg Trust

Helen L. Isenberg Trust

Estate of Paul Otto Isenberg

Estate of Helen L. Isenberg

and deficiencies identical in amount were found in both preceedings.

OPINION.

MORRIS: Petitioner Davis received $387,406.40 on June 21, 1929, being the sum of a judgment for $287,323.40 rendered against the Trust Co. growing out of the sale by the Alien Property Custodian on January 17, 1919, of certain corporate shares - 500 shares in which the decedent's widow had a life interest and 170 shares seized as the property of Paul - and $100,083, being">*839 the amount of interest upon such judgment as found by the court to be due. The first and principal issue relates to the inclusion of this judgment money in taxable income for the year in which received.

The argument of the petitioner, in the main, is that the negligence for which damages were awarded did not consist in the "selling" of the 670 shares of Kekaha stock but in the breach of trust by the trustee in failing to prevent the Alien Property Custodian from selling said stock. Therefore, since the income in question did not arise from the sale of the stock in 1919, the amount sought to be taxed was not "derived from capital, from labor, or from both combined", hence, not "income" within the definition of Eisner v. Macomber,252 U.S. 189">252 U.S. 189.

The petitioners rely strongly upon Farmers & Merchants Bank of Catlettsburg v. Commissioner, 59 Fed.(2d) 912, reversing the Board at 20 B.T.A. 622">20 B.T.A. 622. It was the custom of the petitioner in that case, a banking institution, to make a charge for the collection of checks on foreign banks and those drawn on it and sent from ">*1014 other banks. The petitioner was not a member of the">*840 Federal Reserve System so that checks drawn on it instead of being cleared through the Reserve Bank were sent directly to it by the holding bank and paid by drafts on Cincinnati or New York. In 1920 the Reserve Bank demanded that the petitioner clear checks at par. Having refused this demand the Reserve Bank notified its members that it would collect without charge all checks sent to it and drawn on the petitioner. Its method was to employ agents who would appear daily at the bank with these checks and demand payment in cash. This practice was followed about eighteen months. During a greater portion of the time collections were effected in such an unusual and unbusinesslike manner as to attract unfavorable public comment and the petitioner claimed that it was thereby "annoyed, embarrassed, and interfered with in the conduct of its affairs." It brought an action against the Reserve Bank for damages alleged to have been sustained by reason of these tactics, alleging, particularly, that by reason of the wrongful conduct of the Reserve Bank it had been forced to procure and keep in its vaults and with its correspondents unusually large amounts of money; that it had lost the earning">*841 power of a great deal of money; that it had lost deposits and depositors, and had failed to gain new ones; that it had been unable to grow and develop new business; and that it had been permanently injured in its reputation, standing, growth and prosperity. Claim for exemplary damages was also asserted. The action was finally compromised in 1925, the petitioner receiving a money judgment which the respondent here held to be taxable income. The Board sustained the respondent, primarily because of the failure of proof. The court found that the petitioner's action was not predicated upon the loss of profits, as the Board said, but that its claim for damages was based upon "an alleged tortuous injury to the good will of its business"; that "gravamen of petitioner's action * * * was the injury inflicted to its banking business generally, and that the true measure of damages was compensation to be determined by ascertaining how much less valuable its business was by reason of the wrongful acts." In conclusion, the court said: "One may be recompensed for an injury but it is a rare case in which one should have a profit out of it", and it held that the amount so received should not have">*842 been treated as taxable income.

Thus, in substantial effect, the court there found that a loss in capital had been sustained by the bank and that the amount received by it constituted a restoration of that loss rather than income upon which the statute might levy a tax. We do not understand the court's opinion to go so far as to hold that a known profit, susceptible of accurate determination under the terms of the taxing statute - a profit which, under normal circumstances would have been taxed - would ">*1015 be exempt from taxation merely because it was derived from a suit for and was denominated by the court as "damages."

In Central Railroad Co. of New Jersey v. Commissioner, 79 Fed.(2d) 697, reversing the Board at 29 B.T.A. 14">29 B.T.A. 14, one Joyce had been the executive officer of the railroad for a number of years in charge of its marine department. While such an official and in the employ of the railroad, Joyce and another organized certain other corporations and through such corporations "surreptitiously carried on business operations which were adverse to the interests" of the railroad. It was found that those corporations, without disclosing">*843 Joyce's relationship therewith, had been enabled to make advantageous leases and contracts with the railroad for his benefit. The railroad brought a suit in equity against Joyce and one of his corporate interests on the ground of conspiracy to defraud it and sought an accounting of the profits earned by such corporations or for the recovery of damages sustained by the taxpayer in entering into contracts and agreements therewith. The suit was settled in 1928, the railroad receiving property of considerable value, consisting of certain structures, equipment, and appurtenances which were located on property leased by one of the corporations from the railroad for a term of years. The Board sustained the respondent in his determination that the value of the property so received should have been included in taxable income and in this it was reversed. The court, after reviewing the several instances in which recoveries, such as alimony and separation allowances (Gould v. Gould,245 U.S. 151">245 U.S. 151), and compensation for injuries or sickness (expressly exempted by section 22 (b) of the Revenue Act of 1928) are not subjected to the tax and holding that the value of this property">*844 was likewise not includable in taxable income, said:

* * * It was a penalty imposed by the law on a faithless fiduciary, a gain granted gratuitously because of the necessity of keeping persons in positions of trust beyond the temptation of double dealing. It cannot be said that it was derived wholly or in part from the use of the taxpayer's capital or labor. The nearest that one can come to that is to say that Joyce and his dummies could not have operated but for Joyce's position with the taxpayer and its type of business. But Joyce's ultra vires operations were not carried on by the use of the taxpayer's capital and labor. They were entirely separate and apart from its business structure.

Moreover, the settlement was not based on a suit by the taxpayer to recover profits of which it had been deprived.

"Farmers & Merchants Bank recognizes the priciple that damages recovered for the loss of profits are taxable just as profits made in the regular course of business." Central Railroad Co. of New Jersey, supra. As we view the proceedings out of which the damages in question arose, the avowed purpose of the court was to restore to the trust the 670 shares">*845 of stock which had been wrongfully sold or in ">*1016 lieu thereof money damages which would restore the corpus to its value had there been no breach of trust and had the sale not taken place in 1919. In substantial, if not in real effect, the money damages received in lieu of stock constituted recovery "for the loss of profits" which would otherwise have been derived by the trust had the stock itself been received and sold in 1929 instead of in 1919. It is true that from the point of view of the court adjudicating that cause for damages, decedent's estate and its beneficiaries were faced with a loss by reason of that wrongful sale in 1919, but such loss would have been due not to the sale of such shares of stock below their cost or their taxable base, but to the failure to realize the appreciation that had taken place in the value of the stock. The amount awarded represented the realization of that appreciation. If, of course, the Trust Co. had purchased the shares of stock in the open market, under the court's decree, and had restored them to the trust, instead of paying cash, as it did, different considerations would be here involved. Cash having been received, the transaction">*846 in practical effect is as though the stock had been restored and in turn sold by the trust at a profit. See Armstrong Knitting Mills,19 B.T.A. 318">19 B.T.A. 318.

The definition of gross income in section 22 of the Revenue Act of 1928 is extremely broad. It "includes gains, profits, and income derived from salaries, wages, or compensation for personal service, of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever." Therefore, once satisfied that there has been a "gain or profit" as measured by the taxing statute, it must be included in gross income. Even under the much narrower definition in 252 U.S. 189">Eisner v. Macomber, supra, the amount in question, derived as it was from the ownership of "capital", in the form of corporate shares, falls squarely within that definition.

">*847 Examination of Koninklijke Hollandische Lloyd,34 B.T.A. 830">34 B.T.A. 830, convinces us of its inapplicability. The Board there merely held that the "damages" awarded to the petitioner, a foreign corporation, did not fall within the very limited scope of the statute applying to the income of such foreign corporations from sources within the United States, hence, could not be taxed, saying:

Section 119 contains no definition of income of a general or all-inclusive nature such as is found in section 22(a) and, therefore, the income shown to be taxed must come strictly within the limits of the statutory requirements. ">*1017 In other words the Board merely found that the damages received did not fall within the classification of interest, dividends, personal services, rentals, and royalties, nor sale of property, and, so finding, it had no alternative except to hold that such amount was not income within the meaning of the statute.

Upon the first and main issue we sustain the respondent's determination.

The second assignment of error is that if the respondent did not err in taxing the aforesaid $287,323.40, he did err in failing to determine that because the income of">*848 the trust is distributable annually or oftener the said income is deductible by the trust and taxable to the beneficiaries, relying upon section 162(b) of the Revenue Act of 1928, which provides in part as follows:

The net income of the estate or trust shall be computed in the same manner and on the same basis as in the case of an individual, except that -

* * *

(b) There shall be allowed as an additional deduction in computing the net income of the estate or trust the amount of the income of the estate or trust for its taxable year which is to be distributed currently by the fiduciary to the beneficiaries, and the amount of the income collected by a guardian of an infant which is to be held or distributed as the court may direct, but the amount so allowed as a deduction shall be included in computing the net income of the beneficiaries whether distributed to them or not. Any amount allowed as a deduction under this paragraph shall not be allowed as a deduction under subsection (c) of this section in the same or any succeeding taxable year.

In short it is contended that this amount should be taxed to the beneficiaries and not to the trust.

That this sum of $287,323.40">*849 (received in lieu of restoration of the stock itself), less $32,723.4o described as "surcharge" and representing dividends lost because of the sale of the stock, constituted corpus of the estate - as distinguished from income therefrom which would be distributable to the beneficiaries "annually or oftener" under the will of the decedent - is established, we are convinced, in sound reason and upon authority. Had a sale of this stock been made voluntarily by the trustee, certainly no one could contend effectively that the proceeds therefrom constituted income under the will and therefore were distributable to the beneficiaries. To so hold would have resulted in the distribution of the estate corpus prior to the fulfillment of the conditions specified by the decedent and would be in obvious violation of his expressed wishes. The proceeds from the sale of capital stock which was a part of the corpus, just as any other asset of an estate, not otherwise classified by the terms of the decedent's will or by the terms of the statute governing its administration, became a part of the corpus of the estate and must be so treated. ">*850 We have been cited to no authority ">*1018 of Hawaii, nor do we find any, which would justify the application of a different principle from that enunciated in Estate of Richard O'Brien,31 B.T.A. 149">31 B.T.A. 149. Furthermore, no actual distribution of the sum received was actually made within the taxable period to the beneficiaries, nor was any specific sum set aside for them by the trustee. It "must be borne in mind that a trust in rendering its income for taxation can only deduct income which has been actually distributed or properly credited to the beneficiaries, or such income as is mandatorily distributable currently by the fiduciary to the beneficiaries." 31 B.T.A. 149">Estate of Richard O'Brien, supra.

The facts and circumstances and the issues presented in Mary Clark de Brabant,34 B.T.A. 951">34 B.T.A. 951, are entirely different from those presented here. In that case the Board held that an amount withheld from distribution by the trustee pending litigation to determine whether such amount constituted corpus of the trust or income, was distributable income taxable to the beneficiary for the year when "mandatorily" distributable by the trustee, whether distributed">*851 in such year or not.

The petitioner is sustained as to the deductibility by the trust of $32,723.40, which represented dividends. It was, therefore, income of the trust, which was distributable under the will.

It is the "alternative" allegation and contention of the petitioner that ten separate trust estates were created by the will of the decedent - not one, as the respondent contends - and that "the income in question [presumably the same said $287,323.40] is taxable to ten separate trusts", such trust estates being one for the widow as to one-third of the estate and one for each of the nine children as to two-thirds thereof.

The arguments of both parties contain words and phrases extracted from the decision of the Court of Hawaii and of the Ninth Circuit Court of Appeals as they tend to evidence the views of the courts as to whether there was only one or several trusts. We do not find that this question was ever before those courts for consideration in any of the various proceedings and, therefore, words used in their determinations of other questions presented will be of little help to us. Therefore, we shall confine our consideration to an interpretation of the will">*852 itself. However, it may be said, in passing, that if we were called upon for a decision based upon the manner in which the courts have treated this question we would, nevertheless, be of the same opinion that we hereinafter reach. See Isenberg v. Trent Trust Co.,28 Haw. 590">28 Haw. 590; 26 Fed.(2d) 609; 31 Fed.(2d) 553.

In the first place, the most potent factor of all in construing the intention of the testator lies in the fact that he did not, as he may well have done, and doubtless would have had he entertained the views urged upon us by the present petitioners, expressly declare ">*1019 separate trusts. Furthermore - and this, too, is of the essence since the burden of proof is upon the petitioner - we find no motive whatsoever on the part of the testator, in the proof before us, for creating ten separate trusts instead of one for the benefit of ten separate beneficiaries.

We find from the instrument itself that the testator, in simple terms, declared "all" of his property "IN TRUST * * * for the following uses and purposes." In the paragraphs that follow this simple declaration he very briefly and, in our opinion, clearly set forth">*853 those "uses and purposes." His purpose, of course, was to provide a suitable annual income for his wife for her lifetime and for his children until they became 25 years of age, also the ultimate division of the entire trust corpus among his children. Judging from the conciseness with which his will was drafted he seems to have cared little for the mechanics by which this purpose was to be accomplished. True, he directed, among the uses and purposes provisions of his will, that one-third of the estate (the entirety of which had already been declared in a single trust) should be "set apart" for the "use and benefit" of his wife and that the remaining two-thirds, his trustees should "divide * * * into as many equal portions" as there were children, but these words alone, without others showing an intention to establish separate trusts as to each portion to be set apart or divided, merely express the quantum to which each beneficiary of the principal trust should be entitled. That this is the logical view is supported by the provision of the testator that none of his children should receive his or her portion of the "principal trust property" until reaching the age of 25. Otherwise, ">*854 if the testator had intended ten separate trusts instead of only one, with one trust res, he might just as well have referred to the "portion", omitting any reference to the "principal trust property." It is also significant to note that the testator in the provision empowering the trustees to sell referred not to the property of several trusts, but merely to "the trust property." Furthermore, notwithstanding some inferences to the contrary, it does not appear that there was any physical apportionment by the trustees under the will, for if there had been, it would have been entirely unnecessary for the trustees to have called upon the court in 1905 for an apportionment in order that distribution could be made to some of the beneficiaries who had qualified under the will. Indeed, the trustees themselves appear to have always regarded the trust with a singleness of purpose.

Upon the foregoing issue we hold that there was but a single trust. Cf. Charles B. Van Dusen et al., Trustees,33 B.T.A. 662">33 B.T.A. 662; Huntington National Bank, Trustee,32 B.T.A. 342">32 B.T.A. 342; ">*855 J. C. Wynne et al., Trustees,28 B.T.A. 125">28 B.T.A. 125; affd., 77 Fed.(2d) 473; and Johnson v. United States,65 Ct.Cls. 285; certiorari denied, 278 U.S. 611">278 U.S. 611.

">*1020 The petitioner alleges and contends that if the respondent did not so err as in the preceding issues disposed of, he erred in his determination that certain of those shares which we have been discussing were not the separate and private property of Paul and the decedent's widow, and that the income therefrom should be taxed to their separate estates. We find it unnecessary to dwell upon the subject at length. The Circuit Court of Appeals for the Ninth Circuit in Isenberg v. Trent Trust Co., supra, speaking of the 670 shares of Kekaha Sugar under consideration, said:

The Circuit Court [of Hawaii] found that the stock was part of the trust estate, and that at the time of the accounting it should have been in the appellee's [Trust Co.] possession as trustee, and that it had been lost to the estate, through its negligence in failing to reduce it to possession.

These 670 shares having been held to be the property of the trust estate by the Circuit">*856 Court of Hawaii and that court having been sustained in its view by the United States Circuit Court of Appeals, it follows that those shares could not have been the private property of Paul or the widow. The respondent is sustained upon this issue.

Error is alleged in the failure to allow the trust estate to deduct litigation expenses in 1929 aggregating $108,202.38, paid for the recovery of the damages hereinbefore discussed. This claim is based upon the action of the court when it, on January 12, 1931, directed the distribution of the damages to the beneficiaries, saying:

That large sums of money have been expended by the beneficiaries in the matter of the litigation to recover property for the trust estate and that said litigation was for the benefit of said estate and for all beneficiaries and that said expenditures should be borne by them in proportion to their respective interests.

Four hundred seventy-three dollars and twenty cents of that amount was paid by the estate in 1929 as a commission to the trustee "on income collected in the year 1929", but since this amount has not been specifically pleaded we shall not pass upon its deductibility.

The remainder of said">*857 sum of $108,202.38, it appears, was paid by the various beneficiaries or their representatives beginning with 1921 up to the year 1930. No part, however, was paid by the trust in the taxable year 1929. All that the court determined was that large sums had been expended by the beneficiaries and that such sums should, in the distribution of the amount recovered, be apportioned against the distributions made to the various beneficiaries. So that, it is perfectly clear, the beneficiaries and not the trust incurred and paid the amount sought to be deducted here. Upon this issue the respondent's determination must be approved.

The petitioners allege error in the failure of the respondent "to give credit for taxes paid by the Alien Property Custodian to the Collector at Baltimore" in certain stated amounts for the years ">*1021 1919 to 1924, both inclusive. The argument advanced is, of course, double taxation.

The taxes for which the petitioner is seeking credit were paid by the Alien Property Custodian on returns prepared by the Bureau for Paul. Regardless of the equities in the petitioners' contention in so far as the present deficiencies are based on income included in">*858 those returns, it is obvious that taxes paid for one taxpayer may not be credited against deficiencies of another taxpayer.

The respondent has asserted a penalty of 25 percent for the years 1918 and 1924 to 1929, inclusive, because of the failure of the decedent's estate to file timely returns of income as prescribed by the statute, such returns not having been filed until September 15, 1930.

It is now well settled that where no return is ever filed the 25 percent penalty becomes mandatory (Scranton, Lackawanna Trust Co., Trustee,29 B.T.A. 698">29 B.T.A. 698; affd., 80 Fed.(2d) 519; certiorari denied, 297 U.S. 723">297 U.S. 723), but where there is no "willful neglect" and where "reasonable cause" for the failure to file is shown, together with the ultimate voluntary filing of proper returns, the penalty should not be asserted. The Jockey Club,30 B.T.A. 670">30 B.T.A. 670; affd., 76 Fed.(2d) 597.

There is nothing whatsoever in the record before us to indicate that the trust estate was ever under the impression that it was exempt from the filing of returns of income. In fact, it seems that the matter of such returns or of the liability of the">*859 estate for taxes to the Federal Government, except in so far as the Government itself took the initiative, was completely ignored until Davis, on March 9, 1930, retained the services of an accountant who investigated and reported to Davis that no returns had been filed for the years 1918 to 1929. Conferences followed with the Bureau of Internal Revenue representatives in an effort to determine what the tax liability was for those years. Having requested an audit by the respondent for this purpose, the trustee was informed, on August 27, 1930, that returns would have to be filed before such a course could be taken. Returns for the years 1918 to 1929, both inclusive, were filed by Davis on September 15, 1930, showing the income - principally interest and dividends - and expenses of the estate.

What constitutes reasonable cause, which we have said "means such a cause as would prompt an ordinarily intelligent and prudent business man to have so acted under similar circumstances" (Charles E. Pearsall & Son,29 B.T.A. 747">29 B.T.A. 747), must be determined in the light of the facts of each case. Considering all of the facts and circumstances of this particular case, taking into">*860 consideration the many complications caused by the seizure of the trust property, the status of the beneficiaries, the negligence of the Trust Co. during its term of office and the litigation which followed, we find no "reasonable ">*1022 cause" for the failure upon the part of the trust estate to file returns of income for the years prior to 1929. The penalty therefore as to those years must be sustained. See Berlin v. Commissioner, 59 Fed.(2d) 996, and Rogers Hornsby,26 B.T.A. 591">26 B.T.A. 591.

We are of the opinion, however, that as to the taxable year 1929 Davis proceeded with due diligence under the circumstances to determine the tax liability of the trust estate and to file returns as required by law. The penalty as to 1929 is, therefore, disapproved.

Docket Nos. 71373 and 71374 pertain to deficiencies of $2,875.03 asserted against each petitioner for the calendar year 1930. The deficiency notices are addressed to "Helen L. Isenberg Trust, c/o Charles S. Davis" and "Paul Otto Isenberg Trust, c/o Charles S. Davis", respectively, and the petitions filed in respect thereto are similarly captioned. Such petitions, verified by said Davis, allege">*861 that "The petitioner is an alleged trust estate (so-called by the Commissioner of Internal Revenue), with a Post-Office address c/o Charles S. Davis, Honolulu, Hawaii." In both petitions it is alleged and with respect to both, it is contended that no such petitioners exist. The respondent's deficiency notices state that four returns should have been filed for 1930 "for the estate of Otto Ernst Isenberg" which he proceeds to hold "should not have been taxed as a single taxpayer for the reason that the estate, as such, had been closed by proper probate procedure in 1905." In his brief he states that it was determined in the deficiency notices that the entire income of $35,785.91 for 1930 was taxable "to two trusts and being unable to segregate the income of the two trusts asserted deficiencies for the full amount of the tax or said $35,785.91 against two trusts designated the Helen L. Isenberg Trust and Paul Otto Isenberg Trust."

The respondent's position upon this issue is inconsistent with the position he has taken, in which we have sustained him, respecting the trust of Otto Ernst Isenberg for the years prior to 1930. We have held respecting these prior years that there was but">*862 one trust estate operating under the will of Otto Ernst Isenberg, deceased, and that the entire income of the trust is taxable to the trustee thereof. In his brief the respondent says Davis, trustee of the estate of Otto Ernst Isenberg, knew clearly that the income sought to be taxed against the two trusts arose from the property in the estate of Otto Ernst Isenberg, and because he filed petitions the Board should hold that there is a deficiency of $2,875.03 in one of the dockets against said Davis as trustee of the estate of Otto Ernst Isenberg. In other words, what the respondent is now urging us to do is determine a deficiency against the trust of Otto Ernst Isenberg although no notice of deficiency was sent to that trust for 1930 and it is not before us for that year. The fact that the same individual who is ">*1023 trustee of that trust filed petitions on deficiencies asserted against two different alleged trusts does not justify the finding of a deficiency against that trust, although the income may have belonged to it. We are satisfied from the facts and argument of counsel that the respondent's determination of deficiencies against the so-called "Helen L. Isenberg">*863 Trust" and "Paul Otto Isenberg Trust" is erroneous and the respondent's contention on brief can not be sustained.

Reviewed by the Board.

Judgment will be entered under Rule 50 in Docket No. 74249, and judgment of no deficiencies will be entered in Docket Nos. 71373 and 71374.