Taylor v. Commissioner

ALBERT TAYLOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

GERTRUDE R. TAYLOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

OLIVIA TAYLOR GRIFFIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

HAROLD K. TAYLOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

RUTH C. TAYLOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

JOHN TAYLOR, JR., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Taylor v. Commissioner

Docket Nos. 29055-29060.

United States Board of Tax Appeals

19 B.T.A. 688; 1930 BTA LEXIS 2346;

April 24, 1930, Promulgated

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Beneficiaries of a trust created by a will held not entitled to claim a deduction for depreciation of the trust estate, where they received the income undiminished by the amount of the depreciation.

Charles E. McCoy, Esq., for the petitioners.

W. R. Lansford, Esq., for the respondent.

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SEAWELL

The deficiencies now in controversy are for income taxes for 1922 and 1923 and are caused by the disallowance of depreciation in each of the years, in the amount of $21,200 on buildings owned by the trust estate, from the income of which trust estate petitioners are beneficiaries and are claiming the benefit of said deduction in their returns. The cases are consolidated for hearing and decision and are submitted on admissions in answers of respondent and stipulated facts.

FINDINGS OF FACT.

All the petitioners are individuals of Kansas City, Mo.

The Commissioner determined income-tax deficiencies for the years 1922 and 1923 in the amounts stated below, which are admitted by the petitioners to be correct to the extent there indicated, leaving only the residue or balance contested.

Petitioner	Deficiency determined	Admitted 1922	Admitted 1923
Albert A. Taylor	$4,221.95	$763.88	$857.73
Gertrude R. Taylor	3,274.08	688.10	522.11
Olivia Taylor Griffin	3,471.97	706.27	578.93
Harold K. Turner	3,493.02	708.93	580.96
Ruth C. Taylor	3,470.54	705.79	578.90
John Taylor, jr	5,036.90	905.06	1,038.31

John Taylor died November 30, 1919, leaving a will which, after providing for specific bequests not here in question, and under which the trust estate of John Taylor was created, provided for a trust for his residuary estate, the acting trustees of which, during the years in question, were Gertrude R. Taylor, Allen A. Taylor, John Taylor, Jr., Joseph U. White (since deceased), and Grant I. Rosenweig.

The property in said estate consisted of both personal property and real estate. The trust was to determine when testator's youngest living child reached the age of twenty-three years.

During the trust period - including the years in issue - the trustees were authorized and empowered to handle and deal with all the trust property as fully and with the same power, "according to their own sole judgment and discretion," as the testator might have done, if living.

The will provided:

During the trust period, the trustees are hereby empowered and directed out of the trust property and its income, from time to time and as often as they deem reasonable, to pay and provide such care, attention, support, comfort, education and advantages for my wife Gertrude R. Taylor, and all my children, as they may severally appeal to the trustees reasonably to request * * *.

Provided the amounts should not -

exceed the limits of the judgment of the trustees so as to impair, threaten or diminish the safety of the trust estate * * *.

Payments were to be made periodically by the trustees to the testator's wife and children "for their living expenses." The rents were distributed to them monthly and dividends annually.

During 1922 and 1923 the net income of the trust estate was calculated by including all of the interest, dividends, and rentals received and deducting therefrom the expenses and the sum of $21,200 (the sums originally deducted for depreciation being $33,500 and $37,500, respectively, but $21,200 being now agreed as correct) for depreciation on buildings owned by said estate. This net income determined as indicated was equally divided among the six beneficiaries named in the will of John Taylor, deceased, the petitioners herein, for each of the years in question and said sum included in their individual returns and taxes paid thereon by them.

All the interest, dividends and rentals when received by the estate, less taxes and expenses, were paid to said beneficiaries during the years in question.

OPINION.

SEAWELL: The decision in this appeal involves the correct interpretation and proper application of the pertinent provisions of the Revenue Act of 1921. Section 219(a) of the Act provides that the tax imposed by sections 210 and 211 shall apply to the income of any kind of property held in trust, including (4) income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals. Subsection (b) of section 219 of the Act provides that the fiduciary shall be responsible for making the return of the income of the estate or trust for which he acts, and that the net income of the estate or trust shall be computed in the same manner and on the same basis as provided in section 212, with certain exceptions not material here. In cases in which there is any income of the class described in paragraph (4) of subdivision (a) of said section 219, the fiduciary is required to include in the return a statement of the income of the estate or trust which, pursuant to the instrument or order governing the distribution, is distributable to each beneficiary, whether or not distributed before the close of the taxable year for which the return is made. Section 212(a) provides that the term "net income" means the gross income as defined in section 213, less the deductions allowed by section 214. Section 214(a) provides that in computing net income there shall be allowed as a deduction (8) a reasonable allowance for the exhaustion, wear and tear of property used in the trade or business. Subsection (c) of section 219 provides that in cases under paragraphs (1), (2), or (3) of subdivision (a) or in any other case within subdivision (a) of this section except paragraph (4) thereof, the tax shall be imposed upon the net income of the estate or trust and shall be paid by the fiduciary, except * * *. Subsection (d) of section 219 provides that in cases where the income of the trust is to be distributed to the beneficiaries periodically, which is the situation in this proceeding, the tax shall not be paid by the fiduciary, but there shall be included in computing the net income of each beneficiary that part of the income of the estate or trust for its taxable year which, pursuant to the instrument or order governing the distribution, is distributable to such beneficiary, whether distributed or not. In such cases the beneficiary shall, for the purpose of normal tax, be allowed as credits, in addition to the credits allowed to him under section 216, his proportionate share of such amounts specified in subdivisions (a) and (b) of section 216 as are received by the estate or trust.

The petitioners cited in argument before the Board and relied on the case of , to sustain the contention that they, as beneficiaries of the trust under consideration, are entitled, as such, to take in their tax returns, as a deduction, the benefit of depreciation of the trust estate. But with commendable frankness they admit that later decisions of this Board and the decision in , are against this contention.

In our opinion the Commissioner did not err in disallowing the depreciation claimed by the petitioners. See ; certiorari denied, ; ; certiorari denied, ; ; .

On authority of decisions cited we approve the action of the Commissioner.

Judgment will be entered under Rule 50.