Pardee v. Commissioner

FRANK PARDEE, ARIO PARDEE, AND GIRARD TRUST COMPANY, TRUSTEES, UNDER THE WILL OF CALVIN PARDEE, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Pardee v. Commissioner

Docket No. 44362.

United States Board of Tax Appeals

23 B.T.A. 846; 1931 BTA LEXIS 1817;

June 23, 1931, Promulgated

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Payments made by trustee to decedent's widow, she having elected to take under the will in lieu of dower, are not deductible in computing trust income. Julia Butterworth et al., Trustees,23 B.TA. 838, followed.

Charles Myers, Esq., for the petitioners.

M. E. McDowell, Esq., for the respondent.

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ARUNDELL

The respondent in this case asserted deficiencies in income tax for the calendar years 1924 and 1925 in the respective amounts of $6,540 and $5,480. The parties have stipulated that in the event the case is decided in favor of the respondent the correct deficiencies are $1,532.94 and $3,617.64.

FINDINGS OF FACT.

The petitioners herein are executors and trustees of the estate of Calvin Pardee, who died testate on March 18, 1923, while a resident of Pennsylvania. The will, dated November 3, 1920, and duly admitted to probate, after making provisions for the disposal of certain personal belongings and a life estate for his wife in the deceased's residence, provided in part as follows:

Third: I also give unto my said wife an annuity of * * * $50,000, to be computed from the date of my decease and to be paid in advance in quarterly payments.

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Ninth: All the rest, residue and remainder of my property, real and personal, * * * I give, devise and bequeath absolutely and in fee simple unto the Girard Trust Company and its successors, to my brother * * * and son * * *, IN TRUST NEVERTHELESS, to collect the rents, income, profits and dividends thereof, and after payment of the expenses of the trust, to my said wife the annuity of * * * $50,000, which I have hereinbefore given to her.

Provision was made for the disposition of the corpus following the death of the deceased's widow. By writing, signed, acknowledged, delivered to the executors of the decedent, and duly filed and recorded as required by the statutes of Pennsylvania, Marcy C. Pardee, the widow elected to take under the will in lieu of the interest she would have been entitled to in the decedent's estate had he died intestate. During 1924 and 1925, the trustees made payments to the widow as provided for under the will, which amounts, added to payments of prior years, did not aggregate a sum equal to that which would have been apportionable to her as of the date of deceased's death under the Pennsylvania statutory provisions had she not elected to take under the will.

In filing returns for the years 1924 and 1925 the petitioners as trustees, when computing taxable net income, deducted from gross income the amounts distributed to the widow in the same manner as they deducted amounts similarly distributed to other beneficiaries under the testamentary trust.

OPINION.

ARUNDELL: This case is ruled by that of , and we accordingly hold that the trustees are not entitled to deduct the payments made to the widow in the taxable years.

The only distinction between the Butterworth case and this one is that in that case the payments to the widow were limited to the income from the trust property, whereas here the widow is given the annual sum of $50,000, which though payable primarily out of income, was payable at all events and if the income proved insufficient the trustees might invade the corpus of the trust to make up the deficiency. See ; affd., ; and . This distinction, if it makes any difference, presents a stronger case for the respondent than the Butterworth case, in view of the holding in the Whitehouse case that annuities are not income and the recipient of an annuity does not receive a distributive share of the trust income.

Reviewed by the Board.

Decision will be entered redetermining the deficiencies in the amounts stipulated.