DocketNumber： Docket No. 8146.
Citation Numbers： 9 B.T.A. 1184, 1928 BTA LEXIS 4273
Judges： Teammell, Green
Filed Date： 1/12/1928
Status： Precedential
Modified Date： 10/19/2024
*4273 Income
*1184 This is a proceeding for the redetermination of deficiencies in income tax for the years 1918, 1919, 1920, and 1921 in the amounts *1185 of $726.94, $2,320.69, $1,940.76, and $3,478.17, respectively, or an aggregate deficiency of $8,466.56. The sole issue is whether the amounts of the net income, agreed upon for the years involved, are taxable to the trustee or the beneficiaries.
FINDINGS OF FACT.
The petitioner is an individual, residing at Pittsburgh, Pa.
In 1898 Charles Reizenstein, father of the petitioner herein, died leaving a last will and testament, dated the 26th day of April 1892, which, insofar as material here, reads as follows:
Second, I give, devise and bequeath unto my beloved wife Rosa, for and during the term of her natural life, all my estate real, personal ane mixed, wheresoever situate, and whatsoever character, excepting the sum of Eight Thousand Dollars which shall be paid in Cash to my daughter Carrie Vogel out of the proceeds*4274 of my estate, as soon as can conveniently be done after my death.
Third. Subject to the life estate therein above given to my wife, and subject also to the Eight Thousand Dollars legacy above given to my daughter ject also to the Eight Thousand Dollars legacy above given to my daughter Carrie Vogel, I give, devise and bequeath all my Estate real, prsonal and mixed of whatsoever character and wheresoever situate to my children Samuel
Fourth. I request my wife to continue the business now carried on by me, after my death, as long as she desires, and to give such interest in said business to my sons Louis, Isadore and Samuel as she may decide upon, and on such terms as she may consider right and proper.
* * *
Sixth. I hereby appoint my sons Louis and Isadore and my wife Rosa*4275 to be the Executors and Executrix of this my last Will and Testament.
The will was duly filed for probate and thereafter nothing further was done by way of administration or settlement of the estate.
For many years prior to his death, Charles Reizenstein had conducted a china and glassware business in Allegheny City, now a part of the City of Pittsburgh, Pa. His son, Louis Reizenstein, petitioner herein, assisted him in carrying on the business, and after the death of the elder Reizenstein, said business constituted the principal asset of the estate. The decedent died possessed of no real estate; his estate consisted entirely of personal property, which substantially consisted only of the stock of merchandise.
Rosa Reizenstein, at the date of her husband's death, was an elderly woman, unable to take any active part in the management of the business. Louis Reizenstein took sole possession of the business and continued to conduct and manage same from and after his father's death. Rosa Reizenstein died intestate in 1902 at the age of 75 years *1186 without having made any disposition of the business, or of any interest therein, under the fourth paragraph of her husband's*4276 will. She made no effort to have the estate formally administered, nor to take possession thereof as a life tenant, but received her support and maintenance from the income of the business up to the date of her death. Also, Louis Reizenstein took out of the business as a salary only the amount necessary to cover his living expenses, for many years after his father's death, leaving any profits to remain in the business.
During the years from 1898 to about 1908 Isadore Reizenstein worked in the store from time to time as a clerk, receiving a salary for the services rendered, but took no part in the management of the business. During this period, Louis made annual trips to Europe to purchase merchandise, and in his absence authorized Isadore to sign checks on the bank account of the business to pay bills. After 1908, Isadore had no connection with the business.
In or about the year 1900, Charles Reizenstein, the son of Louis and the grandson of the elder Charles Reizenstein, came into the business, which was thereafter operated by Louis and Charles as a partnership. The business was at first conducted under the name of Charles Reizenstein; the name was later changed to Charles*4277 Reizenstein Co. and then to Charles Reizenstein Sons.
When the elder Charles Reizenstein died in 1898, the business was not prosperous; it was in poor condiction financially, the amount of the liabilities being about equal to or possibly in excess of the value of the assets. The creditors of the business were old friends of the first Charles Reizenstein, and after his death did not press for an administration of the estate, but permitted Louis Reizenstein to continue the business and extended to him additional credit from time to time as needed.
During the intervening period up to about the year 1914, at the beginning of the World War, Louis Reizenstein and his son Charles had so conducted the business as to pay off its debts and begin to accumulate a small surplus. During the war, the business prospered so that by 1921 a substantial surplus had been accumulated.
Prior to the year 1922, two of the legatees of the elder Charles Reizenstein had died. Mrs. Carrie Vogel died, leaving no issue, and Isadore Reizenstein died, leaving a daughter, Belrose Newman, also referred to as Mrs. Belle Newman.
Prior to 1922, none of the children of the elder Charles Reizenstein had claimed*4278 any interest in the business or a right to any of the profits therefrom, under their father's will, but in the early part of that year, the surviving children asserted that the business was a *1187 part of their father's estate and claimed their respective shares therein. Thereafter, under date of March 16, 1922, Louis Reizenstein and his son, Charles, as parties of the first part, entered into a contract with four of the surviving legatees and Belrose Newman, who claimed the interest of her deceased father, Isadore Reizenstein, whereby said first parties agreed to pay for the interests of said other parties the sum of $55,000, or the sum of $11,000 for the interest of each. Louis Reizenstein and his son Charles thereby acquired the interests of all of the surviving legatees, except that of Samuel Reizenstein. Under date of April 6, 1922, Louis Reizenstein and his son Charles entered into a contract with Samuel Reizenstein whereby they purchased his interest for the sum of $11,000.
The amounts of the net income for the years involved herein are as follows: For the year 1918, $8,512,94; for the year 1919, $21,474.65; for 1920, $19,192.31; and for 1921, $27,640.85.
OPINION.
*4279 TRAMMELL: The petitioner, both in his pleadings and at the hearing, contended that there was no such estate as the Rosa Reizenstein Trust Estate, and that he was not trustee of such an estate. An examination of the record before us discloses that there can be no doubt as to the identity of the taxpayer against whom the respondent has determined the deficiencies involved. Hence, we regard as unimportant the question of whether a more accurate or appropriate designation of the taxpayer might have been used.
The petitioner's further contentions, briefly summarized, are that Louis Reizenstein, as executor under his father's will, took possession of and the legal title to the estate, which consisted solely of personal property; that sometime thereafter the administration was abandoned and no final settlement of the estate was had; that upon abandonment of the administration, the legatees took title to the property of the estate under and by virtue of the will, and that thereafter their possession should be regarded as analogous to that of tenants in common; that petitioner continued in actual possession and administered the estate as the agent of the legatees, and that the income*4280 should accordingly be taxed to the respective owners according to their distributive shares.
The respondent has determined that the income in question was received by Louis Reizenstein as trustee of what he calls the Rosa Reizenstein Trust Estate, and that the income is taxable to the said trustee.
There is no dispute with respect to the facts. It is not controverted that the income involved here was received by Louis Reizenstein, *1188 and that it was not his income in the sense that he had the legal title thereto and the beneficial interest therein.
In our view of the case, it is not necessary to decide whether the petitioner was a trustee for the benefit of the legatees, or was acting as agent for them. If he was their agent it is clear that the income received was taxable to the legatees and not to him as contended by the petitioner. .
It is conceded that the petitioner during the years involved was not acting in the capacity of executor, as administration of the estate had been abandoned prior to the taxable years involved. If it be conceded for the sake of argument that he was acting*4281 in the capacity of trustee, as contended by the respondent he was acting for those whose interests were definitely fixed by the terms of the will. The legatees had the right to their respective shares. There were no contingent interests. The income was neither to be accumulated nor held for future distribution under the terms of the will but each of the legatees was entitled to his share of the income.
The assets and income therefrom belonged to the petitioner and the beneficiaries. The petitioner received the income for and in behalf of himself and the beneficiaries; and in the absence of any agreement that it should be accumulated or held for future distribution, the legatees were entitled to it as it came in. In 1922, the brothers and sisters of Louis Reizenstein claimed their interests in the estate and their rights were not questioned by anyone. Louis at that time purchased the interest of each for the sum of $11,000, which obviously represented compensation for their respective shares or interests in the corpus ans also the accumulated profits to which each was entitled.
Under section 219 of the Revenue Acts of 1918 and 1921, the beneficiaries are taxable on their*4282 distributive shares of the income, whether distributed or not. ; . Cf. ; .
It is our opinion that the income involved in this proceeding is not taxable to the petitioner as trustee. Accordingly, the determination of the respondent is disapproved.
Reviewed by the Board.
GREEN concurns in the result.