Morrell v. Commissioner , 43 B.T.A. 651 ( 1941 )

ESTATE OF JOHN EDGERLY MORRELL, DECEASED, NATIONAL BANK OF TOPEKA, KANSAS, ADMINISTRATOR WITH THE WILL ANNEXED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Morrell v. Commissioner

Docket No. 103776.

United States Board of Tax Appeals

43 B.T.A. 651; 1941 BTA LEXIS 1471;

February 18, 1941, Promulgated

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The decedent on November 3, 1936, became entitled to the immediate distribution of the corpus of five trusts of which he was the sole surviving beneficiary. Distribution was made in the year 1937. Iowa personal property taxes for the year 1936 on the corpus of the trusts, assessed against the trusts, were paid by decedent in 1937 after such distribution. Held, the decedent may deduct such taxes, under section 23(c) of the Revenue Act of 1936, since he was the beneficial owner of the property at the time these taxes accrued and was liable, at least secondarily, for their payment. Hord v. Commissioner, 95 Fed.(2d) 179, followed.

Ralph W. Oman, Esq., for the petitioner.

Gene W. Reardon, Esq., for the respondent.

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ARUNDELL

This proceeding is brought for redetermination of an income tax deficiency for the calendar year 1937 in the sum of $1,674.70, only a part of which is here in dispute. The contested portion of the deficiency arises from the respondent's disallowance of a deduction claimed for 1936 Iowa personal property taxes paid by John Edgerly Morrell, the decedent. The question raised is whether these taxes were the tax obligation of the decedent, accruing after he became the owner of the properties on which they were assessed, or were the tax obligation of the prior owner, accruing before title to the properties passed to the decedent.

The facts have been largely stipulated and as so stipulated are adopted as our findings. The portion of them material to the decision of the issue here is set out hereinafter.

FINDINGS OF FACT.

John Edgerly Morrell, called hereinafter the petitioner, whose estate is before us in these proceedings, died on November 15, 1939, a resident of Topeka, Kansas. The administrator, a national banking corporation with its principal place of business at Topeka, Kansas, is the duly appointed, qualified, and acting administrator of his estate.

Prior to the year 1921, John H. Morrell, a resident of Ottumwa, Iowa, the petitioner's father, established four trusts the terms of which were substantially identical and provided as follows: The settlor conveyed certain stocks to two named individuals, also residents of Ottumwa, as trustees to be held by them under certain broad powers of management, the trustor reserving to himself during his life the right to veto investments of corpus or income proposed by the trustees. John Edgerly Morrell, the petitioner, was named beneficiary of the trusts, with the right to have the corpus of each distributed to him free of the trust on his attaining the age of 25 years. In the event of his death before attaining that age, the corpus was to be held in trust for the petitioner's issue surviving him, the corpus ot be distributed in equal shares to such issue as each attained 21 years of age and to such other issue as should be under 21 years of age and living at the expiration of a period of 20 years and 10 months from petitioner's death. Further provisions were made for distribution of the corpus to petitioner's brother and sister should he die before 25 without surviving issue. The trustees were given the power to pay out such portions of the net income of the trust as "they may consider necessary and proper" to the beneficiary presumptively entitled at the time to the ultimate distribution of the corpus. Income not so paid out was to be reinvested and distributed with the corpus. Annual reports were to be made by the trustees to the settlor, and after his death to the beneficiary presumptively entitled to the distribution of the corpus. Provision was made for the appointment of successor trustees by the trustor during his life and after his death by the surviving trustee in case of the death of one trustee or by the beneficiary presumptively entitled to distribution of the corpus in case of the death of both.

John H. Morrell died during the year 1921, leaving a will by which he left to his wife life interests in certain of his properties, devising and bequeathing the remainder interest in such properties, together with the rest and residue of his estate, with the exception of minor specific bequests, to three named individuals to hold the same as trustees. Out of the income of this trust the testator directed that his wife should be paid an annuity of $5,000, that such sums as his wife deemed necessary for the education and maintenance of his children should be paid from the remaining income of the trust, and that such additional sums as the trustees deemed necessary for the support of his children should be paid out from that same source. The corpus was made distributable in equal shares to the testator's children as each attained the age of 25 years, the trustees reserving, however, sufficient funds to pay the annuity mentioned above. Additional provisions were made for the distribution of the corpus in the event the testator's children died before reaching 25 years of age. The trustees were given broad powers of management, and provision was made for the appointment of their successors, in the event of the decease or resignation of all three, by the District Court of Wapello County, Iowa.

On January 1, 1936, while the trusts described above were in effect, personal property taxes of the State of Iowa for the year 1936, in the sum of $1,458, were assessed against the four trusts established by John H. Morrell during his lifetime for assets held by those trusts, and taxes of a similar nature, in the amount of $2,105.18, were assessed against the testamentary trust established by John H. Morrell for assets held by it. against the testamentary trust established by John H. Morrell for 1937, as of December 31, 1936, he received the sums of $1,038,103.57 and $707,527.33 as his distributive shares respectively of the corpus of the inter vivos trusts and testamentary trust established by his father. The petitioner was the sole remaining beneficiary of these trusts and received in the distribution of their assets all of the properties for which the 1936 Iowa personal property taxes were assessed.

Subsequently, during the year 1937, the petitioner paid the 1936 personal property taxes in question, in the total sum of $3,563.18. The receipts for such payment were issued, however, in the names of the trusts which held the properties before distribution to the petitioner.

OPINION.

ARUNDELL: The question arising for decision in these proceedings is whether the estate of John Edgerly Morrell, petitioner, may deduct 1936 personal property taxes paid by the decedent on property held in trust for him during the year 1936.

Allowance of deductions for tax obligations of the taxpayer which are paid by him is made by section 23(c) of the Revenue Act of 1936. This provision of the statute has generally been construed to grant the deduction only for payment by the taxpayer of levies which accrue as an obligation during the time when he owns the property taxed. ; affd., ; ; affd., ; ; affd., ; . We have recently held that Iowa property taxes such as are involved here accrue on the date on which the applicable rate is determined and the tax is levied, which is accomplished, by direction of the statute, at the meeting of the county board of supervisors in September of the year for which the tax is assessed. .

The circumstances of the instant case, however, require that principles other than those involved in these decisions be applied here. The petitioner was the beneficial owner of the trust properties during the whole of the year 1936, even though legal title did not pass to him until the year's end, and by express provision of sections 6956 and 6957 (Iowa Code of 1935) ^{*1478 the beneficiary for whom they were held in trust. The provisions of this statute are substantially similar to those of Ohio considered in . In that case personal property taxes accruing against property held in trust were paid by the beneficiary to whom distribution was made after their accrual. It was held there that the taxes were an obligation of the beneficiary, since the Ohio statute in order "to secure more effectively the collection of its revenue burdened the beneficiaries with at least a secondary obligation to discharge the taxes" in the event distribution of the taxed assets was made to them before the taxes were paid (p. 181). Accordingly, it was held that the tax obligation which the beneficiary paid and for which he sought deduction was essentially his own, and he was therefore allowed to deduct these taxes paid by him after the distribution.}

The facts in the instant case are similar in all significant details to those in the Hord case, supra, and in face of the identity between the provisions of Iowa and Ohio law in this respect, that case must control our decision here.

Respondent's argument that the petitioner is not shown to have been the beneficial owner of the trust properties prior to the accrual of the taxes is not well taken. By provisions of the four inter vivos trusts he was during the entire year the beneficiary entitled to income and distribution of the corpus on attaining 25 years of age. In the instance of the testamentary trust he was likewise entitled during the year 1936 to the distribution of the corpus, and while under this trust it is possible that other children of John H. Morrell might have been, during that year, presumptively entitled to the share in the distribution, it is not essential that the petitioner be the sole beneficiary at the time the taxes accrue, when he later receives the entire property taxed. See

Our decision must, accordingly, be for the petitioner on the issue presented.

Decision will be entered under Rule 50.

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Footnotes

• 1. 6956. Listing - by whom. - Every inhabitant of this state, of full age and sound mind, shall list for the assessor all property subject to taxation in the state, of which he is the owner, or has the control or management, in the manner herein directed:

  1. The property of one under disability, by the person having charge thereof.

  2. The property of a married woman, by herself or husband.

  3. The property of a beneficiary for whom the property is held in trust, by the trustee.

  4. The personal property of a decedent, by the executor or administrator, or if there is none, by any person interested therein.

  5. The property of a body corporate, company, society or partnership, by its principal accountant, officer, agent, or partner, as the assessor may demand.

  6. Property under mortgage or lease is to be listed by and taxed to the mortgagor or lessor, unless listed by the mortgagee or lessee. [C51, § 458; R60, § 714; C73, § 803; C97, § 1312; S13, § 1312; C24, 27, 31, § 6956.]

  6957. Listing property of another.↩ Any person required to list property belonging to another shall list it in the same county in which he would be required to list it if it were his own, except as herein otherwise directed; but he shall list it separately from his own, giving the assessor the name of the person or estate to which it belongs. [C51, § 461; R60, § 716; C73, § 805; C97, § 1316; C24, 27, 31, § 6957.]