Ogilvie v. Commissioner , 9 B.T.A. 604 ( 1927 )

C. C. OGILVIE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Ogilvie v. Commissioner

Docket No. 17769.

United States Board of Tax Appeals

9 B.T.A. 604; 1927 BTA LEXIS 2544;

December 17, 1927, Promulgated

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Claim for exemption from taxation of salary as director of Goodwyn Institute, an educational institution of which the State of Tennessee is trustee, denied, on the ground that the director is neither an officer nor employee of the State.

H. D. Minor, Esq., for the petitioner.

W. Frank Gibbs, Esq., for the respondent.

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LANSDON

This proceeding is for the redetermination of deficiencies in income taxes for the years 1921, 1922, 1923, and 1924, in the respective amounts of $344.21, $317.38, $315.34, and $101.16.

FINDINGS OF FACT.

William A. Goodwyn, a citizen of Memphis, Tenn., died, leaving a last will and testament, which was probated in the County Court of Davidson County, Tennessee, October 24, 1898. Inter alia, it contained the following provisions:

SECTION 14: All the balance of my Estate, real, personal or mixed, including at the death of Myra McGavock that given to her in Section 11th during her life (excepting that part of the personalty, or mixed which I allow her to will or give away) I give after death of my wife to the State of Tennessee as Trustee for the following uses and purposes, and none other. I will and desire that the State upon the nomination of the Governor to be confirmed by the Senate, appoint three Commissioners to be known as "Commissioners of Goodwyn Institute", and said commissioners will hold their office for four years, and until their Successors are appointed and qualified; the said Commissioners are to purchase a Suitable lot in the City of Memphis (now Taxing District) in Shelby County, Tennessee, and erect Suitable buildings thereon, expending therefor such parts of this gift as to them may seem proper, and retaining the balance for Library and apparatus expenses, and endowment fund. They are to receive no compensation for their Services, and are required to render biennial reports and accounts to the Governor of all moneys received or spent, and their management of said Trust or it's fund, is to be at all times open to enquiry by the Legislature of the State, under the fostering care of which this institution is placed. The title to the lot purchased, and all other property shall be in the name of the State for the purposes of this Trust solely. The building or buildings to be erected shall be satisfactory to Said commissioners, but such portion thereof as can be Shall be rented for the purpose of obtaining a revenue for the maintenance of a public Library, and public Lectures. One part of Said building shall be devoted to lectures and another part to a library, and the use of the Library shall be free to all, under the rules and regulations to be made by said Commissioners and the lectures shall be free, and the whole will be for instruction, and not entertainment merely. All of the rents, profits, and income derived shall be faithfully used and applied together with any part of this legacy not used in purchasing or building (after payment of repairs expenses, insurance et cetera) to pay lectures, and the purchase of books, charts, maps, and apparatus. No part of the building is to be used for political gatherings, but when the lecture hall is not used otherwise, it may be rented for musical concerts, art exhibitions, or other purposes likely to elevate public morals, and taste. I request the Governor to nominate and the Senate to confirm as the first commissioners, my friends Samuel P. Read, Bedford M. Estes, and Rufus Laurence Coffin all of Memphis, Tenn., if living and will accept. If these do not for any reason accept, then he nominate three Gentlemen of Memphis of the highest integrity purity and responsibility. I estimate that the amount which will go to the State as Trustee, under this gift, and supplemented by the additional amount which will revert to my general estate, and thus to the State, after the death of Myra McGavock, as left to her in Section 11 - will amount to a large Sum and ample for the purpose intended. And every year that I live there will probably be more added; for I intend that all I may die possessed of, Not otherwise disposed of by my will shall go for this worthy purpose. My whole wish and desire as respects this "Goodwyn Institute" is to afford to the future youths who may desire, information upon such practical and useful subjects as will be beneficial in life. My reason for locating it in Memphis is - it was there I spent much of my life in the happy circle of wife and children. The latter Sleep near her borders, as I and my wife expect to do when we die - Here I made the friends, of my early life. Many of them are dead, but their descendants, many of them, remain in Memphis and were playmates of my children, and to them or their descendants I hope this gift may be of great benefit - This legacy for the benefit of my old home has long been thought of by myself and wife, and took shape in a will written by me in November 1887 and now repeated. * * *

* * * I will that the portraits of my wife and myself and the pictures of my children now in my dwelling in Nashville be hung in this "Goodwyn Institute" to which I will them.

On April 5, 1903, after the death of testator's wife, at which time the trust became effective, the General Assembly of the State of Tennessee enacted Chapter 353 of the Act of 1903, incorporating therein the full text of William A. Goodwyn's will, and provided in sections 1 and 2, as follows:

Section 1. Be it enacted by the General Assembly of the State of Tennessee, That the State of Tennessee accept the said trust as set forth in said will, and that the Governor of the State is authorized and required to nominate and appoint three commissioners, to be confirmed by the Senate, to be known as "Commissioners of the Goodwyn Institute", in compliance with the request of the said William A. Goodwyn, and in conformity with the provisions set forth and declared in his said last will and testament.

Section 2. Be it further enacted, That at the end of each four years, as designated in said will, the Governor of the State is authorized and required to nominate and appoint three successors to the commissioners originally nominated, appointed and confirmed, which successors shall also be confirmed by the Senate, and in like manner, if any vacancy occurs in said commission during any period of four years by the death, resignation, or removal from the State of any one of the said commissioners, the Governor may fill such vacancy for the unexpired term of such commissioner by appointment, subject to confirmation by the Senate; that by the acceptance of the trust created by the aforesaid will, the State of Tennessee does not assume the custody of the funds and property thereby devised and bequeathed, neither does it assume responsibility for the care and preservation thereof; and the executors of the said testator are accordingly authorized, empowered and directed to pay over the funds and moneys to be paid over pursuant to the terms of the said will, to the commissioners hereafter named and appointed by the Governor as the Commissioners of Goodwyn Institute, instead of to the State of Tennessee.

Thereafter, in compliance with the Act, as set out in section 14 of the will, three commissioners were duly nominated by the Governor of the State, their nominations were confirmed by the State Senate, and commissions were issued to them by the Governor on behalf of and under the seal of the State. The commission under which one of the three commissioners was acting at the time of the hearing of this appeal was as follows:

State of Tennessee, Executive Chambers,

To all who may see these presents, greetings:

Know Ye that whereas under Chapter 353 of the Public Acts of 1903 the Governor is authorized to appoint Commissioners of the Goodwyn Institute on vacancies existing on said Board, and having confidence in the ability and integrity of Honorable Charles Mr. Burch;

Now, therefore I, Austin Peay, Governor of the State of Tennessee, by virtue of the power and authority in me invested, do commission Honorable Charles M. Burch to fill said office of Commissioner of Goodwyn Institute, agreeable to the Constitution and Laws during the time, with all the powers, privileges and emoluments thereunto appertaining.

In testimony whereof I, Austin Peay, Governor as aforesaid have hereunto set my hand and caused the great seal of the state to be affixed at the department in Nashville on this 10th day of December 1924.

(Signed) Austin M. Peay, Governor,

or M. Haston, Secretary of State.

To that is attached the great seal of the State of Tennessee.

In 1905, in further compliance with section 14, these commissioners purchased a lot on which to erect a building. The habendum clause of the deed of conveyance is, in part, as follows:

Now then, in consideration of the premises, and of the payment of said sum of seventy-five Thousand Dollars ($75000.00) in cash, by the said S. P. Read, John R. Pepper and J. M. Goodbar Commissioners of the "Goodwyn Institute" to the said Napoleon Hill the receipt whereof is by him hereby acknowledged, the said Napoleon Hill and his wife Mary M. Hill have given, granted, bargained, sold, aliened and conveyed and by these presents do give, grant, bargain, sell alien and convey unto the State of Tennessee as trustee as aforesaid that certain lot or parcel of real estate lying in the City of Memphis, County of Shelby and State of Tennessee and more particularly described as follows, * * *

To Have and to Hold said lot and premises, together with all and singular the tenements, hereditaments and appurtenances thereunto belonging or in any wise appertaining to the said State of Tennessee as trustee for the Commissioners of "Goodwyn Institute", said Commissioners being at present the said S. P. Read, John R. Pepper and J. M. Goodbar, and their successors as Commissioners of "Goodwyn Institute", and as trustee for the uses and purposes set forth in the will of the said William A. Goodwyn, in fee simple absolute forever.

On this lot the commissioners erected a seven-story, fire-proof building 75 by 148 1/2 feet. The library occupied the seventh and the auditorium the first and second floors, the other floors being "devoted to business offices and other rental space." From 40 to 70 free lectures are delivered on the subjects of art, literature, science, history, and current events, explorations and travel, inspirational, and miscellaneous subjects, and a few dramatic readings are given each year. The lecture season extends from the middle of October to the middle of April. When not in use by the Goodwyn Institute, the auditorium is rented "for such purposes as are mentioned in Mr. Goodwyn's will, under regulations prescribed by the Commissioners"; but it is not loaned or donated free of charge under any circumstances. No part of the building is permitted to be used for political purposes. The library is conducted in strict accordance with the terms of the will. The only deviation from the terms of the will which appears in the testimony and exhibits is that whereas the will provides that "the use of the library shall be free to all, under the rules and regulations to be made by said Commissioners", the "Announcement" of the commissioners for the year 1926-1927 contains the information that "Goodwyn Institute is a unique popular educational institution, donated to the white citizens of Memphis, and providing for them two educational agencies."

The property of the Institute is valued at about $1,000,000, and all the expenses of every kind are paid from rents and profits. Under the state law governing these can not be used for any other purpose.

Petitioner has held his present position since the organization of the Institute became effective, first under the title of superintendent, and more recently as director. He holds under appointment of the commissioners and renders his reports to them. Prior to the hearing of this case neither he nor the commissioners had taken an oath of office or an oath to support the constitution of the State of Tennessee, or the United States of America under their respective appointments. One of the commissioners has held that position since April 15, 1903, having been one of the first three appointees.

Petitioner's rate of salary is determined by the commissioners at so much per year, and paid from the funds of the Institute, which are all subject to their control. The State makes no appropriation whatever to meet any of the expenses of the Institute. It functions as trustee entirely through the three commissioners, save that they render "biennial reports and accounts of all moneys received or spent to the Governor, and their management of said trust is * * * at all times open to enquiry by the Legislature of the State, under the fostering care of which this institution is placed."

Petitioner's position, as its name indicates, requires that he have supervisory charge and management of the Institute in all its business and educational relations. All the evidence as to his conduct of the business is in his favor.

OPINION.

LANSDON: Section 1211 of the Revenue Act of 1926 is as follows:

SEC. 1211. Any taxes imposed by the Revenue Act of 1924 or prior revenue Acts upon any individual in respect of amounts received by him as compensation for personal services as an officer or employee of any State or political subdivision thereof (except to the extent that such compensation is paid by the United States Government directly or indirectly), shall, subject to the statutory period of limitations properly applicable thereto, be abated, credited, or refunded.

If petitioner received the salary the taxation of which is here involved as "compensation for personal services" either as an officer or as an employee of the State of Tennessee, any taxes imposed by the Revenue Acts of 1921 or 1924 are abated under the provisions of this section. The only questions before us for decision are,

(1) Were the payments of salary herein received by petitioner "for personal services as an officer" of the State of Tennessee?, and

(2) Were they received "for personal services as an employee" of the State?

Petitioner alleges that he is an officer of the State of Tennessee. Each State in the Federal Union determines, for itself, the qualifications of its officers. Tennessee, among other qualifications, has declared in Article 10 of its Constitution, adopted in 1870, at Section 1:

Every person who shall be chosen or appointed to any office of trust or profit under this constitution, or any law made in pursuance thereof, shall, before entering on the duties thereof, take an oath to support the constitution of this state, and of the United States, and an oath of office. Shannon, 1916.

Special oaths of office are prescribed by law for clerks of court and their deputies, constables, coroners, county entry takers, county registers, county standard keepers and sealers of weights and measures, county surveyors and deputies, county trustees, judges, justices of the peace, notaries public, public administrators, public guardians, and sheriffs. Deputies are required to take the same oaths as their principals.

Neither the petitioner nor the commissioners, under whose appointment he holds, nor any one of them, has taken any oath to support the constitution of the State of Tennessee, or the United States of America, nor has any one of them taken an oath of office as such director or commissioner. This is indicative of a belief on their part and, we think, on the part of the chief executive and chief law enforcement officer of the State, that they have not been "chosen or appointed to any office of trust or profit under the state constitution, or any law made in pursuance thereof." We can not presume, or even suppose, that they have been holding such offices through a period of more than 20 years in violation of the constitution and laws of the State.

There are other reasons, however, more convincing than the mere fact that for a score of years they have not taken, or been required to take the oaths enjoined by the state constitution upon all its appointed or otherwise chosen officers. All state offices are created either by its fundamental law or some statutory enactment made in accordance with its requirements or authorization for the performance of some state function. The office of Commissioner of Goodwyn Institute was created by the testator under the will. The will, having been accepted by the State and made a part of its statutory law, must be followed. But, in following it, the State was neither creating new offices nor appointing new state officers. Nor was it delegating any part of its authority to agents, for it had no authority in this regard save and alone to reject the proffered trusteeship or to take and perform the action directed in the will as there directed. Having accepted either in part or in full and no more, it must perform the duties specified in the will and no more. It had no discretionary duties under the will. It must accept or reject; and, having accepted, it must either perform as required by the will of the decedent or refuse to perform. Its duties were purely fiduciary.

This practically disposes of the second question. There is, however, a further consideration which we deem important. While the legal title to the land and other property of the decedent passed, under the will and the deed, to the State, it was only the naked legal title. The will provides that "the title to the lot purchased and all other property shall be in the name of the State for the purposes of this trust solely." The equitable title passed to and remains in the cestuis que trust. Not one cent of the funds bestowed has ever gone into the state treasury, nor have any of the expenses incident to the trust been paid by appropriation from the treasury, nor can they be. The will provides that "all of the rents, profits, and income derived [from the trust] shall be faithfully used and applied together with any part of this legacy not used in purchasing or building (after payment of repairs, expenses, insurance et cetera) to pay lecturers, and the purchase of books, charts, maps, and apparatus." Petitioner is an employee of the trust. His employment is not a function of the sovereign State of Tennessee, nor is he an employee of the State.

Judgment will be entered for the respondent.

Considered by STERNHAGEN, ARUNDELL, and GREEN.