Crilly v. Commissioner , 15 B.T.A. 642 ( 1929 )

GEORGE SNYDER CRILLY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

EDGAR CRILLY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

FRANK LLOYD CRILLY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

ERMINNIE CRILLY MATHEWS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

ISABELLE CRILLY BUTLER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Crilly v. Commissioner

Docket Nos. 17211-17215, 28646-28650, 37951-37954, 38758.

United States Board of Tax Appeals

15 B.T.A. 642; 1929 BTA LEXIS 2815;

February 27, 1929, Promulgated

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The petitioners are life tenants under a trust which includes depreciable assets. The trustees, in returning the net income of the trust for the years 1921, 1922, and 1923, deducted in each year an allowance for exhaustion, wear and tear of the depreciable assets. The trustees distributed to the beneficiaries in each year the net income of the trust so computed, together with the amount deducted as an allowance for exhaustion, wear and tear. The petitioners did not include the latter amount in their income-tax returns. Held, that the entire amount distributed by the trustees among the petitioners constituted taxable income to them, and that under the Revenue Acts of 1918 and 1921 they are not entitled to deduct, in computing their net income, any allowances for exhaustion, wear and tear of the trust property.

E. Barrett Prettyman, Esq., and Benjamin M. Price, Esq., for the petitioners.

A. H. Fast, Esq., for the respondent.

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MARQUETTE

These proceedings, which were duly consolidated for hearing and decision, are for the redetermination of deficiencies in income taxes asserted by the respondent for the years 1921, 1922 and 1923, as follows:

	1921	1922	1923
George Snyder Crilly	$1,620.23	$2,295.39	$1,640.60
Edgar Crilly	1,448.05	2,304.86	1,059.28
Frank Lloyd Crilly	1,619.87	2,049.36	1,640.14
Erminnie Crilly Mathews	1,492.16	2,316.43	1,977.68
Isabelle Crilly Butler	1,483.33	1,827.19	3,093.32

FINDINGS OF FACT.

On or about January 24, 1917, Daniel F. Crilly of Chicago, Illinois, conveyed to his five surviving children, the petitioners herein, a number of parcels of improved real estate situated in Chicago and elsewhere. On January 24, 1917, the petitioners executed a written instrument reciting that said real estate had been conveyed to them in trust and that "the trust upon which the property hereinbefore mentioned and described has been conveyed and transferred to the parties hereto, is not fully set forth in the conveyances and transfers thereof from said Daniel F. Crilly to the parties hereto," and declaring the terms and provisions of the trust, which were that the property should be held in trust until the death of the last survivor of said five children, when it should terminate and the corpus thereof be divided among the descendants of said five children, per stirpes, and that during the life of said trust each of said five children should be paid in quarterly installments one-fifth of the net income from the trust, provided, however, that out of the net income there should be set aside $5,000 per year to create and maintain an emergency fund of $100,000. The petitioners herein were the trustees of said trust and the petitioners George Snyder Crilly, Frank Lloyd Crilly, and Edgar Crilly were constituted managing trustees.

During the years 1921, 1922, and 1923, said trust owned property subject to exhaustion, wear and tear and the amounts of the exhaustion, wear and tear thereof were $33,210 in 1921; $37,460 in 1922, and $37,460 in 1923.

For the year 1921 said trust filed a so-called "Information Return" of income on Form 1041, which showed a net income of $117,250.69 distributable to the beneficiaries. In computing said income of $117,250.69 the trustees deducted depreciation in the amount of $33,210.50. Each of the petitioners included in his or her individual income-tax return for 1921 the amount of $23,450.14, said amount being one-fifth of $117,250.69. The trustees of said trust distributed among the beneficiaries in addition to said amount of $117,250.69, shown on Form 1041 as the net income of said trust, the said amount of $33,210.50 deducted as depreciation by said trustees on said return. Of said amount of $33,210.50 each of the petitioners received $6,642.10, but none of the petitioners reported said $6,642.10, or any part thereof, in his or her income-tax return for 1921.

The respondent examined said fiduciary return, Form 1041, of said trust for the year 1921, and disallowed the deduction of $33,210.50 for exhaustion, wear and tear of the trust property, thus increasing the distributable net income of the trust from $117,250.69 to $150,460.69, and increasing each beneficiaries' share of the net income of the trust from $23,450.14 to $30,092.14.

For each of the years 1922 and 1923 the said trust filed an income-tax return, Form 1040 A, which showed a taxable net income to the trust of $5,000, on which a tax was paid in the amount of $160. In computing said net income of $5,000 no deduction was claimed on account of exhaustion, wear and tear of the trust property. For each of the years 1922 and 1923, said trust also filed a so-called "Information Return" on Form 1041, which showed a net income of $165,270.20 for 1922 and a net income of $207,178.61 for 1923, distributable to the beneficiaries. In computing each of said net incomes the trustees deducted as an allowance for the exhaustion, wear and tear of the trust property the amount of $37,460. Each of the petitioners included in his or her individual income-tax return for 1922 the amount of $33,054.04 as income from said trust, that amount being one-fifth of $165,270.20, and each of them included in his or her individual income-tax return for 1923 as income from said trust the amount of $41,435.72, that amount being one-fifth of $207,178.61. In addition to the distributions of $165,270.20 and $207,178.61 shown on Form 1041 as the net income of said trust for the years 1922 and 1923, respectively, the trustees also distributed among the beneficiaries the amount of $37,460 in 1922 and the same amount in 1923, they being amounts deducted as depreciation by said trustees on said "Information Returns" for 1922 and 1923. The share of each of the beneficiaries in the distributions of said $37,460 in 1922 and $37,460 in 1923, was $7,492 in each year. None of the petitioners included said amounts of $7,492 in his or her taxable net income for either the year 1922 or 1923.

The respondent, upon audit of said returns for 1922 and 1923, disallowed in each year the deduction of $37,460 claimed on the so-called "Information Return," thus increasing the distributable income of said trust by the amount of $37,460 for each year and increasing the share of each of the petitioners in the distributable income of said trust for each of said years 1922 and 1923 by the amount of $7,492.

OPINION.

MARQUETTE: The petitioners are the life tenants of a trust which holds among its assets certain depreciable property. The entire income of the trust for the years 1921, 1922, and 1923, computed without setting aside and retaining in the trust any amount to compensate for exhaustion, wear and tear of the depreciable property, was distributed among the petitioners, and they claim that the amount of the depreciation sustained by the trust should be allowed to them as deductions from their gross income.

These cases are practically identical in substance with, and involve the same principle as, ; affd. ; ; ; and , wherein it has been uniformly held that a life tenant receiving his share of the distributable income of a trust is not entitled to deduct, in computing his taxable income, any allowance for the exhaustion, wear and tear of the trust assets, and that a distribution to such life tenant from a depreciation reserve set up by the trust does not represent in his hands a distribution of capital which is nontaxable to him. The reasons upon which these conclusions are based are fully set forth in the several opinions and their restatement will serve no useful purpose here. We are of opinion that the decisions in the cases cited are controlling and decisive of these proceedings, and that the determination of the respondent should be approved.

Judgment will be entered for the respondent.