author: Black:

text:
    C. C. Albright, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 47193.
    Promulgated May 11, 1933.

      George M. Thompson, C.P.A., for the petitioner.

      Albert C. Baird, Esq., and R. W. Wilson, Esq., for the respondent.
   OPINION.

Black:

Section 704 (b) of the Revenue Act of 1928, which is involved in this proceeding, is printed in the margin.

The Commissioner in his determination of the deficiencies has determined the net income of the two trusts for each of the taxable years and has also determined the beneficiaries to whom it was distributable and in what amounts it was distributable to each. Petitioner does not contest the determination which the Commissioner has made of the net income of the trusts, but he does contest respondent’s determination of the amount of such income which was distributable to petitioner in each of the taxable years.

We think it will make for clarity if we discuss the trusts separately.

Trust No. $ — 1569.

The Commissioner has determined the net income of this trust for the taxable years to be: 1924, $23,035.99; 1925, $146,932.11. Of the above amounts he has allocated, for the year 1924, to the petitioner the sum of $2,879.50 as his share of the profits distributable to the beneficiaries, and $7,678.66 designated as residuary profit. For the year 1925 the Commissioner has allocated to petitioner $16,074.64 as his share of the profits distributable to the beneficiaries, and $46,200.71 designated as residuary profit.

Petitioner does not contest respondent’s allocation to him of his distributable share of the income for each of the respective taxable years on account of his being one of the beneficiaries of the trust. It has been stipulated, however, that this part of petitioner’s share for each of the taxable years was somewhat smaller than that which respondent determined and effect will be given to this stipulation in a recomputation under Rule 50.

Petitioner does, however, contest the action of respondent in adding $7,678.66 to his income for 1924, and $46,200.71 to his income for 1925, under the designation of residuary profits from Trust No. 2 — 1569. Petitioner’s assignment of error in this respect is stated in his petition as follows:

Petitioner, in addition to owning a 26.425/150tbs interest in Trust 2 — 1569, is also entitled, in the nature of a commission or bonus under the terms of said trust to the sum of $75,000. This sum is not received on account of his beneficial interest and is therefore not taxable in accordance with section 704 (b), Revenue Act of 1928, whether distributed or not, but is taxable in the year received.

We do not agree with this contention. Section 704 (b) provides that the income of a trust coming within its provisions shall be taxable (whether distributed or not) to the beneficiaries.

As we view it, the question we have to decide is not whether the two amounts in question, $7,678.66 for 1924 and $46,200.71 for 1925, were actually distributed to petitioner during the taxable years, but whether such amounts were distributable income to him as a beneficiary of the trust in those years. If such profits were distributable income to him as a beneficiary of the trust, they are taxable income to him whether actually distributed or not.

H. R. 1, when it first passed the House of Representatives in 1928, did not contain any section 704 (b). An amendment was added in the Senate as section 704 (a) and (b). Section 704 (b), as added by the Senate, gave these real estate trusts the option to file their election to be taxed as a trust and not as an association, but did not make clear that tbe income of the trust was to be taxed to the beneficiaries whether distributed or not. The bill was amended in conference as follows: “ On page 41 of the Senate engrossed amendments, line 21, after 'taxable ’ insert ' whether distributed or not In the statement accompanying the conference report to the House of Representatives, the managers on the part of the House had the following to say regarding section 704 (b) as amended by the conference report:

Under existing law there is considerable confusion as to the proper distinction to be drawn between a trust and an association, particularly certain ■ so-called real estate trusts. While it is not deemed advisable at this time to write into the statutes a more explicit definition of a trust and an association, it was desired by the Senate to make specific provision retroactively to make definite and certain the tax liability in the past of these organizations.
The House recedes with a clarifying amendment making it certain that the amounts mil he taxable to the beneficiaries whether or not such amounts are actually distributed,. [Italics supplied.]

Cf. Lucian S. Moore, Jr., Trustee, 21 B. T. A. 1362; Mamie R. Oakman, 24 B. T. A. 84.

An examination of the agreement entered into November 1, 1923, will show that the profits designated as general profits were to be divided (a) 40 percent to the syndicate holders until they should receive $300,000; (b) 20 percent to Albright (petitioner) until he should receive $75,000; (c) 40 percent to Culver.

There was no agreement that the syndicate holders should receive their 40 percent of the profits to a limit of $300,000 ahead of petitioner’s 20 percent of the profits to a limit of $75,000. It was Culver’s profits which were to be postponed and the agreement specifically provided that, when the profits were insufficient to make distribution of profits to Culver, the division of the profits should be made on the basis of one third to Albright and two thirds to syndicate holders.

This is what the respondent has done in his determination of the distributable income of the trust for the years 1924 and 1925, and we think it is in accordance with the agreement of the parties.

It is true that in the agreement of November 1, 1923, petitioner was designated as agent for the sale of the property when subdivided into lots and of course any commissions which were paid for the sale of lots were deductions from the gross income of the trust and do not constitute a part of the net income of the trust which the Commissioner has determined for the two taxable years. There is no contention that the Commissioner has refused to allow, as a deduction in determining the net income of the trust, any of the commissions paid for the sale of lots.

In addition to the 20 percent commissions which were to be paid for the sale of each lot, Albright was to receive a division of what were designated general profits. This amount, as we have already stated, was to be 20 percent of said general profits not to exceed $75,000. These general profits were not deductible as a part of the expense of selling the lots.

It seems to us that this part of the agreement constituted Albright a beneficiary of the trust within the meaning of section 704 (b), Revenue Act of 1928, and the amounts of these general profits which were his distributable share during the two taxable years in question were taxable to him, although he did not receive them until a later date and although he filed his income tax return on the cash receipts and disbursements basis. Respondent’s action in this respect is approved.

Trust No. S — 5985.

Respondent in his determination of the deficiencies increased the petitioner’s distributable share of the trust income as one of the first beneficiaries for the year 1924, from $7,876, as reported by petitioner in his return, to $11,319.86. Respondent added nothing to petitioner’s income for the year 1924 on account of his being one of the second beneficiaries of the trust.

For 1925 respondent decreased petitioner’s distributable share of income as one of the first beneficiaries of the trust from $6,999.16 to $3,680.15 and added to petitioner’s income $59,828.54 as petitioner’s share of the distributable income of the trust due the second beneficiaries. This latter item petitioner contests in his brief on the following ground: “ Petitioner is not taxable upon any sums purporting to represent 'second beneficiary ’ profits from Title Insurance and Trust No. S — 5925, Cahuena Park, until such sums are actually received by the petitioner.” An examination of the petition does not disclose any assignment of error corresponding to the above quotation from petitioner’s brief.

The Board has held that unless an issue is raised by the pleadings, it is too late to raise it for the first time in the brief. However, even if it be conceded that petitioner’s allegations in the petition are sufficient to raise the question as presented by his brief, we think he must fail.

As we have already pointed out in our discussion under Trust No. 2 — 1569, section 704 (b) requires that the income of the trust described therein shall be taxable to the beneficiaries whether distributed or not. All that is required is to ascertain the beneficiaries to whom such income is distributable and what share each is entitled to receive. Upon the ascertainment of these facts, the income which each beneficiary is entitled to receive is taxable to him whether distributed or not and whether he files his income tax return on an accrual basis or on the cash receipts and disbursements basis.

An examination of the revenue agent’s report, which was approved by the Commissioner in his determination of the deficiencies, discloses that the revenue agent determined that the distributable net income of Trust No. S — 5925 for 1924 was $95,086.79, and for 1925, $150,570.31. The petition filed herein assailed this determination upon several grounds, but evidently these assignments of error have all been abandoned, because the stipulation contains no facts with reference to them and nothing is said about them in petitioner’s brief. The only reason which petitioner urges as to why the $59,828.54, determined by respondent to be petitioner’s distributable share for the year 1925 as one of the second beneficiaries of the trust, should not be added to his taxable income for that year, is that he did not receive that amount in 1925 and under the terms of the trust agreement could not possibly have received it in'that year.

It must be remembered that we are dealing here with income and not the corpus of the trust estate. It is true that section 3 of the trust agreement, quoted in full in our findings of fact, provided that the first beneficiaries should first recover their full principal; viz, $126,000, and interest thereon at 6 percent, and then the first $126,000 of profits should be distributed to them, after which all their interest in the trust should cease. Then the second beneficiaries, of whom petitioner is one, were entitled to receive the balance of earnings. It is plain that the above agreement, under the facts stipulated, postponed the actual receipt of petitioner’s share in these surplus earnings beyond the taxable year 1925, but that fact does not affect petitioner’s right to their ultimate distribution.

The total profits of the trust in question for the years 1924 and 1925, as determined by respondent, were $245,657.10. Manifestly only $126,000 of this income belonged to the first beneficiaries under the terms of the agreement, and the balance was ultimately distributable to the two second beneficiaries, of whom petitioner was one. Because he was a second beneficiary of the trust makes him none the less a beneficiary. It is true that the payment to these second beneficiaries of their share of the profits had to be postponed until the first beneficiaries had not only received $126,000 in profits, but a return of their capital of $126,000, but this capital payment lias nothing to do with the taxability of income — it simply affects the time of payment to the second beneficiaries of their share of the profits'. The respondent has so treated it.

The first $126,000 of the $245,657.10 income of the trust for 1924 and 1925 respondent has held to be distributable to the first beneficiaries. This resulted in none of the distributable income of the trust for 1924 being allocated to the second beneficiaries, but resulted in $119,657.07 of 1925 income being allocated to second beneficiaries. Of this, petitioner was held to be entitled to one-half, or $59,828.54, and it is this amount which respondent has added to petitioner’s income for 1925 as income of second beneficiary. We think respondent’s action in this ^respect is in accord with the contract agreement between the parties and the law which is applicable to the case. Cf. Trust No. 5522 and Trust No. 5654, Bellehurst Syndicate, 27 B.T.A. 1250, allegation (d) therein.

Respondent’s determination in this respect is approved.

Reviewed by the Board.

Decision will be entered under Bule 50.

       (b) Por the purpose of the Revenue Act of 1926 and prior Revenue Acts, a trust shall, at the option of the trustee exercised within one year after the enactment of this Act, be considered as a trust the income of which is taxable (whether distributed or not) to the beneficiaries, and not as an association, if such trust (1) had a single trustee, and (2) was created and operated for the sole purpose of liquidating real property as a single venture (with such powers of administration as are incidental thereto, including the acquisition, improvement, conservation, division, and sale of such property), distributing the proceeds therefrom in due course to or for the benefit of the beneficiaries, and discharging indebtedness secured by the trust property, and (S) has not made a return for the taxable year as an association.


source: Caselaw Access Project

author: Goodrich:

license: Public Domain

text:
    Frank Turner, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 55190.
    Promulgated May 11, 1933.

      Jefferson Armstrong, Esg., and W. D. Zirkle, C. P. A., for the petitioner.

      Philip A. Bayer, Esg., for the respondent.
   OPINION.

Goodrich:

The sole issue here is, Who was the taxable recipient upon by Turner under the separation agreement, or, in other words, who was the owner of the stock? Petitioner contends that the stock belonged to the trust, in fact, was the corpus of the trust, and, consequently, that the dividends thereon, at least that part of them paid to Mary Turner, should be taxed to the trust. Respondent determined and maintains that the stock was Turner’s, and the dividends likewise. Since the parties agree that everything concerning the deposit of the stock was done "in accordance with the agreement and that the ownership of the stock will be disclosed by and must be determined under the provisions of the agreement, we need not look beyond it to discover their intentions respecting the stock, the effect of their acts, and the determination of the issue herein.

After a careful analysis of the instrument it is our opinion that the stock was Turner’s. The agreement clearly indicates that it was not intended that ownership of the stock should be transferred to the trustees or that the corpus of the trust, so far as Turner was concerned, should be anything other than $400,000 in cash. The provisions relating to deposit of the stock, and the acts done in accordance therewith, were no more than the usual posting of collateral to assure the performance of the obligations assumed by one of the contracting parties, and neither evidenced the intention nor accomplished the result of irrevocably divesting Turner of title to his property. Moreover, we doubt whether Turner would have been permitted to accomplish that result had he so desired, for at that time the stock was covered by an irrevocable option of purchase previously given by Turner to the General Motors Corporation and perhaps he was not free to alienate it. But, aside from that, the instrument, by frequent reiteration, makes indisputable the fact that its main purpose, from the standpoint of Mary Turner, was to insure to her a stated annual income for life, derived from a fund of $400,000 to be set up by cash for that purpose, and hers to dispose of upon her death. The promise on the part of Turner to accomplish that purpose furnished the consideration for the relinquishment by his wife of her marital property rights.

The corpus of the trust in the first instance was to be the money, not the stock, as is shown by the following language of the contract:

As and when received by them from (Turner) the trustees shall control and possess said fund of $400,000.00 for and during the life of (Mary Turner) But upon Tbust Nevertheless, and wholly as the corpus of the trust hereby created. [Italics supplied.]

As we see it, the deposit of the stock was required only as collateral to secure the supplying of the fund and the payment of the annual income to Mrs. Turner until such time as it might be derived from the invested corpus of the trust — a view which is borne out by the provisions relating to the deposit of further securities “ as additional collateral" in event of a shrinkage in value of the stock. There was nothing unusual in supplying the trustees with power of attorney to transfer the stock (whether they used it is not disclosed) and with a dividend order. Those things, in view of the provisions relating to redemption and recovery of the stock, do not evidence an irrevocable transfer of ownership. We conclude that the stock remained Turner’s and the dividends paid thereon belong to him. Cf. Frank P. 'Welch, 12 B.T.A. 800. Nor can he escape tax on that part of the dividends paid by the trustees to Mary Turner. He was personally obligated to supply her with an income each year, and it is immaterial whether that obligation was discharged by payment directly by him or by the trustees on his behalf. Old Colony Trust Co. v. Commissioner, 279 U.S. 716.

Reviewed by the Board.

Judgment will be entered for the respondent.

Smith, dissenting: I believe that the majority opinion reaches an erroneous result, largely through its failure to give a proper construction to the trust agreement. In substance, the opinion holds that the agreement was nothing more than a promise on the part of the petitioner to provide an annual income of $20,000 for his wife and, at some future time, to create a trust fund of $400,000 for this purpose and immediately to post collateral in the form of certain shares of stock as security for such promises.

By its express terms, however, the agreement is declared to be a final and definite settlement of all property matters between the petitioner and his wife. It declares primarily for the establishment of an irrevocable trust fund of $400,000 out of which the income to the extent of $20,000 annually was to be paid to the petitioner’s wife and the balance, if any, paid to the petitioner. The principal sum was to be disposed of ultimately by the petitioner’s wife and on no condition was any part of it ever to revert to the petitioner. If, under this agreement, the petitioner had deposited the $400,000 cash with the trustees, clearly he could not be held taxable upon the income thereof except as to such part of the income as was payable to him as a beneficiary of the trust. Section 161 of the Revenue Act of 1928; S. A. Lynch, 28 B.T.A. 435. However, in accordance with a further express provision of the agreement, the petitioner, instead of putting up the $400,000 in cash, deposited with the trustees “ in lieu thereof ” certain securities of a value in excess of that amount, which securities were to be returned to him upon his payment of $400,000 in cash to the trustees and which, in the meantime, were to be held “ In Teust, NeveRtheless,” for the same “uses and purposes ” and subject to the same “ conditions and restrictions ” as would have been the $400,000 in cash. Can it be said that the provision of the trust instrument giving the petitioner the right, or his exercise of the right, to substitute securities of equal or greater value for cash ■ as the trust corpus, rendered the trust invalid, or, as stated in the majority opinion, can it be said that “ the provisions relating to deposit of the stock, and the acts done in accordance therewith, were no more than the usual posting of collateral to assure the performance of the obligations assumed by one of the contracting parties, and neither evidenced the intention nor accomplished the result of irrevocably divesting Turner of title to his property ” ?

It seems to me that these securities were clearly impressed with the trust and were no longer the property of the petitioner. At most, the petitioner merely possessed the right to reacquire them upon payment of $400,000 in cash to the trustees. I think it error to hold that the petitioner is taxable upon the income of such property as the owner thereof.


author: Lansdon:

text:
    Ohio Central Telephone Company, Petitioner, v. Commissioner of Internal Revenue, Respondent
    Docket No. 52723.
    Promulgated May 16, 1933.

      Laurence Graves, Esq., for the petitioner.

      J. M. Leinenkugel, Esq., for the respondent.
   OPINION.

Lansdon:

The facts material to the proceeding have been stipulated. The only question is whether petitioner realized a profit of $168,090.86 when it sold the bonds and stock of its subsidiary corporation, the Ohio Central Telephone Corporation, in the taxable year. Petitioner contends that the result of the transaction is nontaxable, since the property sold consisted entirely of the securities of an affiliated corporation and was in effect the sale of its own bonds and stock. In support of its position it relies on our decisions in Simmons & Hammond Mfg. Co., 1 B.T.A. 803; Farmers Deposit Nat. Bank, 5 B.T.A. 520; H. 8. Crocker Co., 5 B.T.A. 537; Interurban Construction Co., 5 B.T.A. 529; John Scowcroft & Sons Co., 18 B.T.A. 532; and Van Camp Packing Co., 26 B.T.A. 256; and that of the Circuit Court of Appeals in Swift & Co. v. United States, 38 Fed. (2d) 365. In each of the cases above cited the controversy arose over the sale of the stock of one affiliated corporation by another member of the same group. In our opinion all support the contention of the petitioner as to that part of the income in question which it realized from the sale of the stock of its affiliate. This rule is also applicable to transactions in preferred stock, as we decided in Van Camp Packing Co., supra, where the income which respondent attempted to tax resulted from the sale of shares of preferred stock and it was not disclosed whether such stock had voting rights.

Notwithstanding our conclusion that the settled law sustains the claim of the petitioner as to sales of preferred stock, the stipulated facts provide no basis upon which we can compute and determine what proportion of the cost of the stocks and bonds should be regarded as the cost of the stock. It follows, therefore, that unless profit resulting from the sale of the bonds is nontaxable, the amount as a whole must be included in taxable income for the year in question.

While it is well established that a taxpayer realizes no taxable gain or deductible loss from the sales of its own stock or that of an affiliate, it does not necessarily follow that the same rule is applicable to gains resulting from the sale of bonds of an affiliate. There is, of course, a fundamental distinction between the two classes of securities. Stock evidences the amount of capital invested by shareholders in and at risk in the business. Bonds represent money borrowed. It is now well settled that a corporation may realize gain or sustain loss from transactions in its own bonds. This rule is embodied in Regulations 69, article 545, and is conclusively sustained in United States v. Kirby Lumber Co., 284 U.S. 1, and Old Colony R.R. Co. v. Commissioner, 284 U.S. 552. If a corporation can realize taxable income in the purchase of its own bonds at a discount it would seem to follow that the profits resulting from a sale are likewise taxable, and if this rule is sound in transactions in which a corporation buys and sells its own bonds, then for even stronger reasons it should apply to the sale of the bonds of an affiliate. On this question the determination of the respondent is affirmed.

Decision will be entered for the respondent.


author: Sternhagen :

text:
    Mendol Bandes, Petitioner, v. Commissioner of Internal Revenue, Respondent. Louis Bandes, Petitioner, v. Commissioner of Internal Revenue Respondent.
    Docket Nos. 58882, 58883.
    Promulgated May 16, 1933.

      Allen G. Gartner, Esq., for the petitioners.

      C. A. Ray, Esq., for the respondent.
   OPINION.

Sternhagen :

For the calendar year 1928, the Commissioner determined a deficiency in the income tax of Mendol Bandes of $4,331.92, and of Louis Bandes of $4,241.85. The Commissioner determined that the gain in that year resulting from the condemnation of land was taxable, and that the circumstances were not within section 112 (f), Revenue Act of 1928, providing for the nonrecognition of gain or loss.

The petitioners, in August 1926, being engaged generally in such business, purchased, with one Ratner, in three equal shares, a parcel of land facing on one side on Nagle Avenue and on the opposite side on Hillside Avenue, in New York City, intending to erect an apartment building. Of the total cost, the combined shares of the two petitioners was $35,228.86.

They learned sometime in December that the property was to be taken by the city for a school site. The condemnation proceeding was begun January 20, 1927, and title was taken February 24, 1927. The total award to petitioners and Ratner was $166,910, of which $111,273.97 was the petitioners’ share. This award was confirmed June 18, 1928, to which was added interest from February 24, 1927, of $8,998.96, and this total amount of $120,267.93 was received by petitioners on July 6, 1928. Of this amount, $115,000 or more was advanced to the Naside Construction Co., of which the two petitioners owned the entire outstanding 90 shares in equal proportions of 45 shares each. This corporation was the holder of mortgages, and the petitioners were continually engaged in advancing money to the corporation and being repaid out of the moneys received by the corporation on account of its mortgages.

After the petitioners learned of the prospective condemnation, they looked for other lots upon which to build an apartment house, but they were unable to find a parcel of equivalent size. By three contracts made in January and February 1927, before the condemnation award, they agreed to buy three adjoining pieces of land located at 165th Street and Walton Avenue, deeds to which were recorded respectively in February and April 1927. The aggregate cost of the combined parcel was $58,000. This property was transferred to the Naside Construction Co. by a deed recorded May 19, 1927. By two other contracts made in February and May 1927, they agreed to buy two adjoining pieces of land at Jerome and Anderson Avenues, deeds to which were recorded respectively in March and May 1927. The aggregate cost of this combined parcel was $60,000. This, too, was transferred to the Naside Construction Co. by deed recorded May 19, 1927. These two groups were not contiguous but were separately situated, and their area added together was slightly greater than the area of the Nagle and Hillside property. An apartment was built on the Jerome Avenue property, but it does not appear what use was actually made of the Walton Avenue property.

The petitioners contend that no gain may be recognized for tax purposes in the receipt of the condemnation award and interest, because the Jerome property and the Walton property were similar or related in service or use to the condemned property. Section 112 (f), Revenue Act of 1928, upon which they rely, and article 579, Regulations 74, appear in the margin. That they are not literally within the terms of either the statute or the regulations which the statute expressly sanctions, seems plain and is tacitly recognized by the petitioners in their argument that the distinction between them and the Naside Construction Co. should be disregarded. When it is noted that the Walton Avenue property was all contracted for and two parts of it actually acquired before the application for condemnation of the Nagle Avenue property had been approved and title passed, and also that all of the Walton property and the Jerome property had been fully acquired and turned over to the Naside corporation more than a year before the condemnation award was paid to the petitioners, it is clear that the Nagle Avenue property was not itself converted into such other property, and also that the money received for the Nagle property was not itself expended for such other property.

But there may be room for doubt whether the statute is to be so strictly read as to preclude its application to a case where the taxpayer has been forehanded enough to provide for the replacement without waiting for the ultimate and complete consummation of the condemnation and payment. How important the precise sequence of events alone may be under this statutory provision, need not be decided in this proceeding. These petitioners were not in the position where, to put themselves where they would have been but for the condemnation, they used the proceeds of the award to buy similar property or to pay for such property which they had already bought. So far as this record shows, the two latter parcels were bought and paid for with separate and free funds and sold to the Naside corporation, a transaction like others in which the petitioners were customarily engaged. The condemnation compensation was not used either to buy or to pay for similar property, but was invested in a loan to the Naside corporation, a separate entity, Burnet v. Clark, 287 U.S. 410. Nothing in such circumstances indicates the enforced transaction or the hardship which this provision of the statute was designed to alleviate. Peul Haberland, 25 B.T.A. 1370. The petitioners were fortunate enough to profit by the condemnation of their property, and we see no reason to believe that by section 112 (f) Congress intended to relieve them of the normal resulting tax.

As to the amount of $8,993.96 called interest on the award, there is no reason for a different answer. If the amount is not strictly interest but, as it seems to be, a part of the award, Mary Lincoln Isham, 26 B.T.A. 1040, it is properly included in the measure of taxable gain. If, however, it be interest, it is taxable as such and not within the category of tax-exempt interest on state or municipal obligations, Kansas City Southern Ry. Co. v. Commissioner, 52 Fed. (2d) 372.

Judgment will he entered for the resyondent.

       SEC. 112. RECOGNITION OF GAIN OR LOSS.
      *******
      (f) Involuntary conversions. — If property (as a result of its destruction in whole or in part, theft, or seizure, or an exercise of the power of requisition or condemnation, or the threat or imminence thereof) is compulsorily or involuntarily converted into property similar or related in service or use to the property so converted, or into money which is forthwith in good faith, under regulations prescribed by the Commissioner with the approyal of the Secretary, expended in the acquisition of other property similar or related in service or use to the property so converted, or in the acquisition of control of a corporation owning such other property, or in the establishment of a replacement fund, no gain or loss shall be recognized. If any part of the money is not so expended, the gain, if any, shall be recognized, but in an amount not in excess of the money which is not so expended.
      Aet. 579. Involuntary conversion of property. — Section 112 (f) deals with cases in which property is compulsorily or involuntarily converted into similar property, or into money, as a result of fire, shipwreck, theft, condemnation, or similar causes enumerated in the Act. If the property so destroyed, stolen, seized, or condemned is replaced in kind by similar property or property related in service or use, no gain or loss is recognized. If, however, the original property is compulsorily or involuntarily converted into money, gain or loss will be recognized unless the money is forthwith, under regulations prescribed by the Commissioner with the approval of the Secretary, expended—
      (1) In the acquisition of other property similar or related in service or use to the property so converted,
      (2) In the acquisition of control of a corporation owning such other property, or
      (3) In the establishment of a replacement fund.
      If any part of the money is not so expended, the gain, if any, shall be recognized, but in an amount not in excess of the money which is not so expended. See article 601 for the basis for determining gain or loss from the sale or other disposition of the property so acquired.


author: Arundell :

text:
    The Cem Securities Corporation, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 65650.
    Promulgated May 16, 1933.

      J. Marvin Haynes, Esq., for the petitioner.

      F. L. Van Haaften, Esq., for the respondent.
   OPINION.

Arundell :

This proceeding, when initiated, involved deficiencies in income tax for the period February 21 to the calendar year 1929 in the respective amounts of $209,505.54 and $270,273.05. The parties, however, have stipulated the correct deficiency for the year 1929, and, pursuant to the stipulation, decision for that year has been entered.

For 1928 the parties have stipulated the correct deficiency to be $31,752.31, “ if the Board determines from the facts to be presented herein, that the statutory period for assessing and/or collecting the said deficiency for 1928 has not expired.” As indicated by this agreement of the parties, the only question is whether the statute of limitations has run against the respondent. The solution of this depends entirely on whether a certain return complied with the statutory requirements concerning tbe filing of returns. Tbe facts were stipulated, and we adopt tbe stipulation as our findings of fact, giving here only a brief summary.

Tbe Cem Securities Corporation (not tbe petitioner here) was organized under the laws of New York sometime prior to the year 1928. On February 21, 1928, the Cem Securities Corporation (the petitioner) was organized under the laws of Delaware, and on the same day acquired all the assets, except a designated amount of cash, and assumed all the liabilities of the New York corporation of the same name.

On March 13, 1929, petitioner filed an income tax return on Form 1120, Avhich was stated in the printed portion of the caption to be “For Calendar Year 1928.” In the space therefor on the return the name and address of the taxpayer were given as: “ The Cem Securities Corporation (A Delaware Corporation), 4425 Eastern Ave., Baltimore, Md.” The affidavit was executed before a notary public by Charles E. McManus, president, and J. J. Nagle, assistant treasurer. The return was transmitted to the collector at Baltimore with a letter dated March 12, 1929, in which the return was stated to be that of “ the Cem Securities Corporation (a Delaware Corporation) for the year 1928.”

The return filed by petitioner showed a loss of $38,428.27. In computing this amount the petitioner used as a deduction a net loss sustained by the New York corporation in the period January 1 to February 20, 1928, in the amount — according to its figures — of $73,-715.18. Among the schedules attached to the return was one showing the assets and liabilities of the New York corporation at January 1, 1928, and those of the petitioner at December 31, 1928. Other schedules attached show compensation paid, general and administrative expenses, profit on sale of stocks and bonds, and dividends received.

In the space provided on the face of the return for the auditor’s stamp the following stamped legend appears:

REVIEWED
Preliminary Audit Section
By_A R_
Date Jul 12, 1929

On March 29,1930, petitioner received a letter from the then Commissioner of Internal Revenue, Robert H. Lucas, addressed to it at the address given on the return, reading as follows:

The Bureau of Internal Revenue is pleased to inform you that your income lax return for the year 3928 has been examined and is considered to be correct as submitted.
I am sure you will appreciate that should subsequent information be received which would materially change the amount reported, the Bureau is obliged under existing laws to redetermine your tax liability.

No return for 1928 or any portion of that year, other than that above described, has been filed by either the petitioner or the New York corporation, nor has any return for that year been filed for either corporation by the respondent or the collector. The petitioner and the New York corporation have not at any time refused' to furnish any data or information requested by the respondent or his agents concerning any return filed, and the books and records of both corporations have always been available for examination and audit.

The deficiency notice upon which this proceeding is based is dated March 7, 1932, and was received by petitioner on March 8, 1932.

The question here is whether the return filed on March 13, 1929, complies with the requirements of section 52 (a) of the Revenue Act of 1928 as follows:

Every corporation subject to taxation under this title shall make a return, stating specifically the items of its gross income and the deductions and credits allowed by this title. The return shall be sworn to by the president, vice president, or other principal officer and by the treasurer or assistant treasurer. * * *

If the return filed meets the requirements of the statute just quoted, then the two-year statute of limitations became operative on the date of filing and the deficiency notice, mailed more than two years thereafter, was too late to permit assessment and collection. If not, the proceeding becomes a “ no return ” case and the respondent may now assess and collect the stipulated deficiency.

There is no question as to the return having been properly executed by its corporate officers. The respondent’s objection to treating it as a proper return is based on the failure to show specifically the items of * * * gross income and the deductions and credits allowed.”

There are a number of decided cases dealing with the question of the adequacy of returns for the purpose of starting the period of limitation, some of which mark at least partially the outer boundaries of the question. Thus, it is settled that a tentative return is insufficient, Florsheim Bros. Dry Goods Co. v. United States, 280 U.S. 445, and the same is true of a return not verified, Lucas v. Pilliod Lumber Co., 281 U.S. 245. On the other hand, where a return should have been made on the calendar year basis but was made on the basis of a fiscal year, it is not for that reason a nullity if there was an honest effort to comply with the statute and if it contains a report of income for the period involved. Mabel Elevator Oo., 2

B.T.A. 517; 17 Fed. (2d) 109; Bastrop Mercantile Co., Ltd., 7 B.T.A. 529. A return on the wrong form may be sufficient. J. R. Brewer, Administrator, 17 B.T.A. 704. A return in which there is a “ mere inaccuracy ” — -the claiming of a credit larger than allowed by the statute — is sufficient to put the statute of limitations in motion. Valentine-Clark Co. v. Commissioner, 52 Fed. (2d) 346. In Stetson & Ellison, 11 B.T.A. 397; affd., 43 Fed. (2d) 553, the consolidated return filed did not set forth specifically the details of income and deductions with respect to each member of the group, but the return was held sufficient on the ground that the statute relating to consolidated returns did not require the filing for each company of a separate return containing such details for each of the group. We there said that the rule in such cases is that there must be a “ substantial compliance ” with the requirements of the statute. Further, “ what constitutes a substantial compliance must necessarily vary according to the circumstances' in each individual case.”

In American Vineyard Co., 15 B.T.A. 452, the property and business of that company were acquired on May 1, 1917, by a newly organized corporation, the American Seedless Raisin Co. On March 30, 1918, joint income and profits tax returns were filed reflecting the operations of both companies for the portion of the calendar year 1917 that each was in business. The returns bore the names of both companies. They did not show separately for each company the items of income or deductions for those portions of the year in which they were in business. In holding the returns insufficient we said:

The two corporations were not affiliated, and it is not contended that they were. They did not file a consolidated return, and it is not contended that they were entitled to file such a return. The return simply included the income of one corporation for one portion of the calendar year 1917 and of the other corporation for the remainder of the year, but made no segregation or separation of the income, gains, profits or deductions of the two corporations. This return did not specify nor give any information by which the income of either of the companies could be determined. There was no specification as to what proportion of the income was received by one or the other. * * * With respect to the inclusion by the American Vineyard Company of its income during 1917 in the joint return, the statute does not provide for or warrant the filing of joint returns by two corporations for a taxable year when one retires from business at some time during the period. This is not a case of consolidated returns and is not covered by the principles of law applicable to such returns. In our opinion the joint return was not the return required by law with respect to either company and the inclusion by the American Vineyard Company of its income in this return did not start the running of the period of limitations. * * * Since the return filed for the calendar year 1917 was not a return with respect to either company as required by law, the inclusion by the American Seedless Raisin Company of its income from May 1, 1917, to December 31, 1917, in such return did not start the period of limitations running against the assessment and collection of the deficiency determined against that company for the period from May 1, 1917, to December 31, 1917.

The only difference between that case and the one before us is that there the return bore the names of both corporations. That, in our opinion, is not an effective distinction. The substance of the matter in both cases is that the return includes the operations of two companies without a segregation of items as required by statute and hence is not the statutory return of the company filing it. The conclusion reached in American Vineyard, case is in line with the Supreme Court’s holding as to the duty of taxpayers to file proper returns. In Florsheim Bros. Drygoods Co., supra, after describing the duties of the Commissioner in regard to making determinations and. assessments, the court said:

* * * The^ burden of supplying by the return the information on which assessments were to be based was thus imposed upon the taxpayer. And, in providing that the period of limitation should begin on the date when the return was filed, rather than when it was due, the statute plainly manifested a purpose that the period was to commence only when the taxpayer had supplied this information in the prescribed manner. Form 1120 provided for furnishing the data which would enable the Commissioner to make a determination, assessment, and recomputation. * * *
* * * The word “ return ” is not a technical word of art. It may be true that the filing of a return which is defective or incomplete under section 239 is sufficient to start the running of the period of limitation; and that the filing of an amended return does not toll the period. But the defective or incomplete return purports to be a specific statement of the items of income, deductions, and credits in compliance with section 239. * * *

In Warner Collieries Co. of Delaware, 26 B.T.A. 1047, it appears that the Crawford Hill Coal Co. was taken over by the Warner Collieries Co. as of April 1, 1919, and the entire income of the Crawford Hill Co. after that date was included in the return of the Warner Co. for the fiscal year ended March 31, 1920. In holding that the return so filed did not start the operation of the limitation period we said:

Every return must show facts upon which an assessment for the taxable period can be made. Florsheim Brothers Co. v. United States, 280 U.S. 453; Willingham Loan & Trust Co. v. Commissioner, 36 Fed. (2d) 49; Myles Salt Co. v. Commissioner, 49 Fed. (2d) 232. Where such information is given the statute begins to run. In the case of consolidated returns we have held that they must be filed in good faith and must make a substantial revelation of the gross income and deductions separately for the constituent members of the affiliated group. F. A. Hall Co., 3 B.T.A. 1172; Stetson & Ellison, 11 B.T.A. 397; affd., 43 Fed. (2d) 553; Continental Oil Co., 23 B.T.A. 311; New England Power Co., 25 B.T.A. 195. If they do not do so they are not the returns contemplated by the statute of limitations. United Slates v. National Tank & Export Co., 45 Fed. (2d) 1005; Lucas v. Colmer-Green Lumber Co., 49 Fed. (2d) 234, reversing 12 B.T.A. 256.
The return in question sets forth only the income, deductions, and credits of both corporations combined. Only the balance sheets reflecting the assets and liabilities of each corporation as of March 31, 1919, were included in the return. Such information is not sufficient basis for the assessment of tax. Therefore, the statute of limitations does not bar the assessment of the tax against the Crawford Hill Ooal Company.

In accordance with the holdings in the several cases last discussed, we are of the opinion that the return filed by petitioner, in failing to show separately the items of its income, deductions, and credits, did not meet the requirements of the statute and was inadequate to start the running of the limitations period.

We do not see that the stamps put on the return by the respondent’s office or the letter received by petitioner from respondent on March 29, 1930, have anything to do with the question involved here. If the purported return was not such as a matter of law, stamping it or mailing letters in regard to it could not make it a valid return.

Decision will he entered redetermining the de-fieiency for 1928 to Toe $81,752.31.


author: Smith:

text:
    St. Louis Union Trust Company, as Successor Trustee to Liberty Central Trust Company, as Sole Residuary Legatee and Distributee of the American Estate of William J. Orthwein, Deceased; Joined by Mercantile Commerce Bank & Trust Company, Successor Trustee to Mercantile Trust Company, of the Trust Created by Trust Indenture of William J. Orthwein, Dated January 1, 1920, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 47633.
    Promulgated May 16, 1933.

      Daniel N. Kirby, Esq., for the petitioners.

      Ralph F. Staubly, Esq., for the respondent.
   OPINION.

Smith:

The first question for the determination of the Board is the propriety of including in the gross estate the value of the rever-sionary interest of the decedent in the trust estate. There is no contention on the part of the respondent that the value of this reversion-ary interest of $34,544.06 should be included in the gross estate upon the ground that the trust was created in contemplation of death. It is contended, however, that the amount should be included in the gross estate under section 302 of the Revenue Act of 1924, which, so far as pertinent, reads as follows:

Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated—
(a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate;
**•>**»*
(e) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in case of a bona fide sale for a fair consideration in money or money’s worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such a consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of Part I of this title.

The trust indenture expressly declared the intention of the decedent grantor to make “ an absolute and irrevocable gift and a settlement of the property hereinafter described, so that the grantor shall, during the life of his said daughter, have no further individual or beneficial interest therein.” The grantor retained unto himself no power of revocation or alteration. The only power to end the trust during the life of the grantor rested in the trustee alone. The decedent could do nothing to alter the fact that he had parted irrevocably with the trust estate. The only possibility of his ever reacquiring an interest in the trust property depended upon the happening of certain contingencies which in fact never happened; viz., (1) a termination of the trust by the trustee during decedent’s life; or (2) the death of his daughter, the life tenant, before his death plus the then existence of the trust.

His daughter survived him and the trust is still alive, so the contingencies upon which he might have reacquired the property never happened. At his death, his daughter still being alive, the decedent “ had no further individual or beneficial interest ” in the trust estate which would or could pass by his death.

The power of termination given to the trustee alone did not render the remainder subject to the tax. The decedent of his own volition had no power to terminate the trust and the power of the trustee gave him no control over the termination thereof. White v. Erskine, 47 Fed. (2d) 1014; McCormick v. Burnet, 283 U.S. 784; Lillian M. Wheeler, Executrix, 20 B.T.A. 695; Colonial Trust Co. et al., Executors, 22 B.T.A. 1377.

The provision of the trust instrument that upon the prior death of the daughter, the life tenant, the trust estate should revert to the grantor, the decedent herein, did not render the value of the rever-sionary interest a part of the decedent’s gross estate. The situation here is parallel to that which obtained in May v. Heiner, 281 U.S. 238, in which the court said:

The transfer of October 1st, 1917, was not made in contemplation of death within the legal significance of those words. It was not testamentary in character and was beyond recall by the decedent. At the death of Mrs. May no interest in the property held under the trust deed passed from her to the living; title thereto had been definitely fixed by the trust deed. The interest therein which she possessed immediately prior to her death was obliterated by that event.

To the same effect is Cyrus H. McCormick et al., Executors, 13 B.T.A. 423; affd., McCormick v. Burnet, 283 U.S. 784; Nanaline H. Duke et al., Executors, 23 B.T.A. 1104; affd., 62 Fed. (2d) 1057. Cf. H. Seldon Taylor, Jr., et al., Executors, 27 B.T.A. 220; Elizabeth B. Wallace, Executrix, 27 B.T.A. 902. The contention of the petitioners upon this point is sustained.

The second point for determination of the Board is the inclusion in the gross estate of the value of bonds, certificates for shares of stock, etc., physically located in the United States but belonging at the date of death of the decedent to a nonresident alien. The contention of the petitioners upon this point is not sustained. The decision of the Supreme Court in Burnet v. Brooks, 288 U.S. 378, is dispositive of this issue.

[Reviewed by the Board.

Judgment will be entered wider Bule 50.


author: Van Fossan:

text:
    William S. Linderman, Executor Estate of Mary M. Bindley, Deceased, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 58871.
    Promulgated May 16, 1933.

      Maynard Teall, Esq., for the petitioner.

      John H. Pigg, Esq., for the respondent.
   OPINION.

Van Fossan:

There is but one issue in this proceeding; i.e., whether or not certain, expenses incurred during the lifetime of decedent and aggregating $51,137.18 are deductible from the gross income of Mary M. Bindley for the period from January 1 to November 13, 1929, inclusive. The deduction was disallowed because the expenses “ were not paid during the (decedent’s) lifetime ” and because “ each guardian’s share of the commissions ” was not “ set aside on the records and charged to the decedent’s account prior to her death.”

In our opinion the respondent has failed to distinguish between the two capacities in which the guardians functioned; first, as Mary Bindley’s guardians during her lifetime, her representatives, charged with the duty of conserving her estate and collecting the income thereof; and, second, as statutory guardians rendering an account of their stewardship.

A guardian or committee of an incompetent person is not a taxable person under the statute. He merely acts for and on behalf of his ward. The tax return is made in the ward’s name. The title to the property in the possession of the guardian is in the ward. The guardian transacts all business in the ward’s name and manages the estate for the ward’s benefit.

On August 30, 1929, Mary Bindley was adjudicated a mentally incompetent person and by duly constituted authority her guardians took possession of her estate. She died on November 13,1929, within the calendar year and hence the taxable period for computing the income tax on income received by her or by her guardians for her was January 1, 1929, to November 13,1929.

When Mary Bindley died the relationship of guardian and ward was terminated. Stobert v. Smith, 184 Pa. 34; Simpson v. Holmes, 106 Ohio St. 437; Norton v. Strong, 1 Conn. 65; State Fair Assn. v. Terry, 74 Ark. 149; In re Livermore's Estate, 132 Cal. 99. Thereupon the guardians became merely custodians of the ward’s property for the purpose of making a final accounting and settlement. Whittemore v. Coleman, 239 Ill. 450; City of Anadarko v. McKee, 89 Okla. 166. Thereafter the guardians could perform no affirmative acts as her representatives. Whatever books were kept by them reflecting their business transactions for the ward were theoretically closed at the date of her death. Subsequent entries were only memoranda indicating the nature and amount of the items entering into the preparation of the guardians’ account to be rendered to the court. Furthermore, at her death the guardians immediately became debtors to the estate for the net balance of funds returnable to the estate and all book entries subsequently made were made in such capacity. Bull v. Towson, 4 Watts & Sargent, 557; Crowell's Appeal, 2 Watts (Pa.) 295. The amount of the ward’s estate, passing to her executor, was the net amount in the hands of the guardians after deducting all proper expenses paid or incurred during the guardianship. It is not questioned in this case that the items in question, consisting principally of guardians’ and attorneys’ fees, were proper expenses.

The books kept by the guardians would seem to show that these expenses were paid subsequent to the ward’s death. But under the reasoning of the above cases we deem this fact of book entry immaterial. It is stipulated by the parties that the expenses were incurred during the lifetime of the decedent. The payment related to the guardianship and the guardian fees accrued automatically as the guardianship progressed. They were a proper charge against the funds in the hands of the guardians. The funds that came into the

hands oí the guardians were obviously more than sufficient to pay these items of expense. The amounts due on account of such items were determinable as of November IS, 1929, the date of the death of the ward and of the automatic termination of the active guardianship. By their very nature they attached to the income of the estate. By the same token they bore no relation to the estate in the hands of the executor, they were incurred prior to the death of the ward and the creation of the executorship. They never passed out of the hands of the guardians. The final accounting of the guardianship was as of the date of the death of the ward. Thereafter they could not encumber the estate. Such items belonged to the guardianship and in no sense were debts of the estate. Appeal of Freeman, 22 Weekly Notes of Cases 173. A priori, they could not be deducted by the estate as expenses and if not deducted from the income of the ward to which they adhered, deduction would never be permitted. Thus it may very properly be said that although the books bore entries of later date, so far as the ward was concerned these expenses were paid as of November 13, 1929, the date of her death. The assets of the ward which were charged with their payment were in the hands of the guardians on that date. Though we do not rest our decision solely on that ground, the least that can be said is that in the legal posture of the parties the expenses were constructively paid on or before November 13, 1929.

Section 41 of the Revenue Act of 1928 provides:

The net income shall be computed upon the basis of the taxpayer’s annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; * * » or if the method employed does not clearly reflect the income, the computation shall be in accordance with such method as in the opinion of the Commissioner does clearly reflect the income. * * *

while section 43 of the same act provides:

The deductions and credits provided for in this title shall be taken for the taxable year in which “ paid or accrued ” or “ paid or incurred ”, dependent upon the method of accounting upon the basis of which the net income is computed, unless in order to clearly reflect the income the deductions or credits should be taken as of a different period.

Only by the treatment of the expenses of the guardianship as deductible from the gross income of the decedent during the guardianship can her net income be clearly or properly reflected. Such a treatment is expressly authorized by the statute and is correct in principle.

Reviewed by the Board.

Decision will he entered for the petitioner.

Sternhagen, Arundell, Murdock, and Leech dissent.


text:
    The Globe, Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 46791.
    Promulgated May 17, 1933.

      David E. Coffman, Esq., for the petitioner.

      J. M. Leinenkugel, Esq., and R. B. Cannon, Esq., for the respondent.
   OPINION.

Lansdon:

The respondent has alleged fraud and has submitted evidence sufficient in our opinion to prove it. The facts clearly show that the amounts in question were not paid or credited to the petitioner’s officers during the taxable years and that no charges for such amounts were made on the books of the corporation. It is also clear that such amounts were deducted from income on the income tax returns filed by the petitioner for each of the taxable years. The petitioner’s president and treasurer have sworn to returns which were false, for the purpose of evading income taxes. The deductions must be disallowed and the penalties approved. Cf. Tanner Oil Co., 20 B.T.A. 794; Estate of E. A. Wickham, 22 B.T.A. 1393; and L. ¡Schepp Co., 25 B.T.A. 419.

Decision will he entered under Rule 50.


author: Marquette:

text:
    Fifth Avenue Uniform Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 41297.
    Promulgated May 17, 1933.

      Ferdinand Tannenbaum, Esq., for the petitioner.

      Prew Savoy, Esq., for the respondent.
   OPINION.

Marquette:

As extended by waivers, the period fixed by the statute of limitations for taxing petitioner’s income for the years here involved expired about a year and one half before the date of the deficiency notice here appealed from. Respondent contends that the limitation statute is inoperative. His position is that prior to his deficiency letter of September 19, 1928, there had been only a tentative deduction for amortization allowance for the fiscal year 1918, within the meaning of section 278 (b) of the Revenue Act of 1926, reading as follows:

* * * Any deficiency attributable to a change in deduction tentatively allowed under paragraph (9) of subdivision (a) of section 214, or paragraph (8) of subdivision (a) of section 234, of the Revenue Act of 1918 or the Revenue Act of 1921, may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.

The sections of the Eevenue Acts of 1918 and 1921 referred to deal with deductions for the amortization of war facilities.

A “ tentative deduction ” is one which is allowed provisionally, experimentally. It lacks finality, and is to be replaced later by a permanent allowance.

In this proceeding, the first mention of allowance for amortization is contained in respondent’s letter of August 4, 1928. For several years thereafter the deficiency proposed in that letter and computed upon the amortization allowance of that date was the subject of numerous communications between petitioner and respondent. In none of them does it appear that any permanent, final deduction for amortization allowance was made.

In 1926 petitioner appealed from a determination of deficiency for the fiscal year 1919. That appeal was based upon the ground that the allocation of the allowance for amortization entirely to the fiscal year 1918, the one now before us, was incorrect because a part of the allowance should have been allocated to the taxable year 1919. The outcome of that appeal was favorable to petitioner. It was based upon a reallocation of the amortization allowance, and was stipulated by the parties. As a result, the amortization deduction for petitioner’s fiscal year 1918 was reduced by more than 50 percent of the amount originally allowed by the respondent. The present deficiency is computed upon the basis of such reduced amortization.

Petitioner does not dispute the accuracy of respondent’s computation, nor that the deficiency asserted is unjust or excessive, but insists that the statute above cited does not apply here, and relies upon Ohio Falls Dye & Finishing Works, 16 B.T.A. 1038; affd., 50 Fed. (2d) 660, and upon Norton v. Commissioner, 50 Fed. (2d) 664. In each of those cases the taxpayer acquiesced in the net income determination, based upon an amortization allowance, for special assessment purposes. It was held that after such acquiescence the allowance could no longer be considered tentative. But in the present case petitioner never acquiesced in the tentative amortization allowance.

In W. G. Duncan Coal Co., 13 B.T.A. 672, also cited by petitioner, the taxpayer had claimed amortization allowance in its return. In the 30-day letter it was stated that the amortization claimed was disallowed, subject to review by the Department, and we held that such disallowance was not a tentative allowance under the statute above cited. We do not consider that decision controlling. The statute removes the bar of limitation with respect to tentative allowances only. Obviously, if an amortization deduction is disallowed it cannot be said to have been allowed at the same time and by the same determination. But that is not our present case by any means.

In this proceeding a deduction for amortization was tentatively allowed, and upon that basis a deficiency was proposed for the fiscal year 1918. Thereafter for several years the parties were in dispute over the whole matter. While that dispute was going on the petitioner appealed from a deficiency determination for the fiscal year 1919. The sole issue raised in that appeal was whether the amortization allowance for the fiscal year 1918 was correct, petitioner insisting that it was too great and that a part of it should be allocated to the fiscal year 1919. Up to that time, and until the appeal was determined, there was no agreement between the parties respecting the amortization allowance for the fiscal year 1918.

Petitioner lays stress upon the fact that it never appealed from respondent’s earlier determination of deficiency for the fiscal year 1918. Technically, the statement is true. Actually, it is incorrect, for the appeal respecting the year 1919 necessarily involved the year 1918 in respect of amortization allowances, and upon those allowances petitioner’s tax liability in large part depended. Thus the tax liability for the fiscal year 1918 was in effect brought into question just as certainly as it would have been under a separate appeal. The appeal respecting the year 1919 challenged respondent’s amortization allowances for the fiscal.year 1918, and effectually kept alive the controversy respecting that year.

In the light of the entire record it cannot justly be said that respondent’s deduction for amortization allowance was other than tentative, prior to his letter of September 10, 1928. By protests and waivers, and by its appeal respecting its 1919 taxable year, petitioner kept open and alive the question of amortization deduction for the fiscal year 1918. As a result of petitioner’s own acts the amortization deduction allocable to the year before us was finally settled. Petitioner benefited by that determination with respect to one year, but now seeks to escape the resultant effect upon its tax for the other year involved in the determination.

The situation here is not unlike that in Naumkeag Steam Cotton Co. v. United States (Ct. Cls.), 2 Fed. Supp. 126. In that case the taxpayer was deficient in tax for the years 1917 and 1918, but had overpaid its tax for the years 1919, 1920 and 1921. The taxpayer filed a claim for credit, requesting that the overpayments be applied against the deficiencies for the earlier years. By this means the Commissioner was induced to refrain from collecting the deficiency when he might have done so. He made thorough investigation of the claim for credit before acting upon it. After expiration of the period oí limitations for collecting the deficiencies the taxpayer brought suit to recover the amount of its overpayment, which meanwhile had been credited against the deficiencies. The court held the taxpayer bound by the doctrine of equitable estoppel and denied the recovery sought. That doctrine is equally applicable here. We see no essential difference between the case cited and the present proceeding. In each the taxpayer sought and obtained an advantage in respect of one taxable year or group of years, meanwhile keeping open the matter in respect of an earlier taxable year or group of years. In each the taxpayer did not dispute the justness nor the amount of the deficiency asserted, but, once having obtained the desired benefit, endeavored to turn that benefit and the means of its accomplishment into a vehicle of escape from proper taxation.

We think the respondent’s contention should be sustained.

Decision will Toe entered for the respondent.


text:
    J. C. Wynne and J. E. Hall, Trustees of the Estates of Richard C. Staley, Joseph H. Staley and James I. Staley, Jr., Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 43451.
    Promulgated May 17, 1933.

      Harry C. Weeks, Esq., for the petitioners.

      S. S. Faulkner, Esq., for the respondent.
   OPINION.

Lansdon:

At tbe hearing the petitioners abandoned issue No. 3 and the respondent admitted as to issue No. 2 that he had erroneously overstated the income of the trust estate in 1926 in the amount of $4,829.44. The effect of this admission will be included in the re-computation of tax liability for such year under Hule 50.

The only issue now remaining for consideration is the proper method of taxing the income of the trust estate in each of the taxable years under review. Originally the trustees reported such income as if it were annually distributable to the beneficiaries under the terms of the trust instrument. Since it is obvious that such instrument contains no provisions for the distribution of any part of the income of the trust annually, that position has been abandoned and the petitioners now contend that the intention of the trustors and the effect of the trust instrument were to create three separate trusts to be administered by a single body of trustees. Counsel argues at length that one third of the corpus of the trust vested in each of the beneficiaries upon the execution of the deed and that as a necessary consequence the income from each one third was taxable to the beneficiary in whom one third of the corpus was so vested or taxable separately to the trust.

It may be true, as argued by the petitioner, that several trust estates in which each of the beneficiaries has a vested interest can be created by a single instrument and administered by a single body of trustees, but in any event the terms of the instrument must be construed to determine its effect and the intention of the trustors. In the instant proceeding the instrument purports to create only a single trust and the language thereof is so clear and specific that neither analytical construal nor discussion and application of rules of law are required in order to decide what we think is a plain question of fact. There is nothing in the instrument to indicate that any present title to any part of the corpus vested in any of the petitioners at the date of execution. On the contrary it does expressly provide that:

Upon the arrival of each beneficiary at the age of twenty-one years, the trustees shall then turn over to such beneficiary his portion of the said estate and from that time such 'beneficiar'!/ shall own said property and be free to dispose of the same as he shall see fit. [Italics supplied.]

It is obvious that this language is contrary to the theory that title to one third of the corpus vested in each beneficiary at the date of the execution of the trust. If the beneficiaries had a vested interest in their several parts of the corpus from the first it was not necessary to provide that ownership should date from the twenty-first birthday.

The instrument further provides that any children born to the trustors during the life of the trust shall share alike with the children named therein. Also there is a further provision that if either of the named beneficiaries should die during the trust period, his interest shall pass to the survivors. These provisions certainly indicate that the trustors did not intend to vest any definite share of the corpus in any one of the beneficiaries as of the date of the execution of the trust, but did intend to create a single trust to be re-formed and continued in the event of certain contingencies which were particularly specified. In our opinion only one trust estate was created by the instrument in question. On this issue the determination of the respondent is affirmed.

Decision will ie entered wider Rule 50.


text:
    The Manhattan Life Insurance Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 60827.
    Promulgated May 17, 1933.

      John F. McCabe, Esq., for the petitioner.

      James K. Polk, Esq., and Harold F. Noneman, Esq., for the respondent.
   OPINION.

Arundell :

This proceeding involves the redetermination of a deficiency of $879.19 in income tax for 1928.

In its income tax return for 1928 the petitioner, a New York corporation engaged in the life insurance business, claimed a deduction for exhaustion on furniture and fixtures used in both the investment and underwriting departments of its business. In his audit of the return the respondent allowed the sum of $1,169.08 as a deduction for exhaustion on the portion of the assets used in the investment department, and disallowed the remainder on the ground that the statute made no provision for deducting depreciation on property employed in the production of income in the underwriting department. The refusal of the respondent to allow exhaustion on assets used in both departments, which the parties have stipulated amounted to $4,143.44, is claimed by the petitioner to be error.

We had the identical question in Lafayette Life Ins. Co., 26 B.T.A. 946. We there held, based upon the lack of any indication of legislative intent to the contrary, that life insurance companies were entitled to take depreciation on assets used in the underwriting as well as the investment departments of their business. The respondent recognizes that this case is opposed to his contention and asks us to reconsider the question. We think the Lafayette case was properly decided and we adhere to the rule announced therein. Following that decision, exhaustion of the assets will be allowed in the amount of $4,143.44.

In 1926 the petitioner acquired title to a building subject to a lease expiring August 1, 1928. A cancellation of the lease was obtained, effective October 1, 1927, by a payment of $25,000 to the lessee. On the same day the property was leased to a new tenant at a higher rental for a term of 10 years from October 1, 1927. The petitioner paid a commission of $2,490 for services rendered by a broker in connection with the cancellation of the old lease and fees aggregating $9,990 to brokers for obtaining the new lease. The new lessee defaulted in the payment of rent, with the result that the lease was terminated on June 28,1928, by court order.

Of the total of $37,480 paid by petitioner in 1927 in connection with the cancellation of the old lease and the acquisition of a new tenant, it appears that the respondent has allowed $1,561.67 as a deduction in that year. The remainder, $35,918.33, petitioner claims as a deduction in 1928 as “ real estate expenses ” under section 203 (a) (6) of the Revenue Act of 1928. Such expenses, where allowable, are those “ paid during the taxable year,” and so, assuming for the moment that the expenditures are of this kind, it is clear that the petitioner may not have the deduction in 1928, inasmuch as they were paid in 1927.

In the alternative petitioner asks that it be allowed exhaustion deductions for that part of the cost of canceling the old lease that is allocable to the period from January 1,1928, to the date of expiration of that lease, August 1, 1928, and for that portion of the cost of securing the new lease which is allocable to the period from January 1, 1928, to the termination of the lease on June 28, 1928.

Counsel for the respondent now concedes that under the decision in Henry B. Miller, 10 B.T.A. 383, petitioner is entitled to deduct in 1928 seven tenths of $27,490, which represents the cost of canceling the old lease. The lease when canceled, effective October 1, 1927, had 10 months to run, and 7 months of that period fell within the year 1928.

The remaining question is whether the cost of securing the new lease, $9,990, is deductible in 1928. Counsel for respondent concedes that the portion allocable to the period January 1 to June 28, 1928, based on the expected 10-year life of the lease, is allowable as a deduction in 1928. In the leading cases that have dealt with the question of deducting costs incurred in connection with acquiring tenants under long-term leases the courts have allowed such costs to be spread over the life of the lease without definitely characterizing them as either capital items or expenses. In Bonwit Teller & Co. v. Commissioner, 53 Fed. (2d) 381, it was said that whether the broker’s fee was regarded as cost of an exhaustible capital asset or a business expense, “ it would seem that truly to reflect annual income such a fee should be spread over the term of the lease rather than charged against the first year’s income.” In Central Bank Block

Assn. v. Commissioner, 57 Fed. (2d) 5, the court said that the sum paid an agent in 1924 for negotiating a 50-year lease may be regarded either as an investment in an exhaustible asset “ or as the payment in 1924 of business expenses which are attributable to the subsequent years covered by the lease,” and in either event “ a spreading or prorating of the amount of the outlay over the term of the lease would be required truly to reflect annual income during that term.” In William Penn Hotel Co., 23 B.T.A. 566, the lessee under a 10-year lease, obtained a 10-year extension, at a cost of $1,000, when the original lease still had 7 years to run. We held that the unexhausted portion of the original cost plus the additional $1,000 should be spread over the 17-year life of the two leases. The rule to be gathered from these cases is that in order truly to reflect taxable income there should be a correlation between income and the cost of producing it. See United States v. Anderson, 269 U.S. 422; American National Co. v. United States, 274 U.S. 99. Where there is a change in any of the elements taken into consideration in determining net income, changes in others may be necessary in order that income may be truly reflected. The necessity of maintaining somewhat of a balance in this respect is recognized in William Penn Hotel Co., supra. This principle is carried into the statute governing this case in section 43, Revenue Act of 1928, which provides that deductions and credits shall be taken for the year in Avhich “ paid or incurred ” or “ paid or accrued ” dependent on the method of accounting, “ unless in order to clearly reflect the income the deductions or credits should be taken as of a different period.” If, in the present case the lease had existed for its full 10-year period, undoubtedly the cost to the petitioner would properly be spread over that period. But within the first year the property which it was expected would produce income for 10 years was completely exhausted. As early as February 1928, the tenant was in arrears. When this change took place in the element of time over which income was expected to be received — and was known to have occurred — it seems to us only proper in order accurately to reflect income that a corresponding change should be recognized in the period over which the cost should be spread. The lease was to run 10 years from October 1, 1927. In 1927 it was not known that termination would take place the following year and so only an aliquot part of the cost, based on the 10-year term, should be allowed as a deduction in that year. The remainder of the cost of $9,990 should, in our opinion, be allowed as a deduction for the year 1928.

Reviewed by the Board.

Decision will be entered under Bule 50.

Sternhagen dissents.


text:
    Helen Beatrice (Duveen) Crocker, Frederick Clifton and Archibald Edward Churcher, Executors of the Estate of Louis Joel Duveen, Deceased, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 31573.
    Promulgated May 17, 1933.

      George E. Cleary, Esq., for the petitioners.

      Frank T. Horner, Esq., for the respondent.
   OPINION.

Black:

Petitioners’ assignments of error upon which they rely may be summarized as follows:

1. The Commissioner is barred from assessing or collecting any additional tax, interest, or penalty in this case because of the running of the statute of limitations.

2. The maxim “ sequuntur mobilia personam ” applies to the shares

of stock in domestic corporations owned by decedent, Louis Joel Duveen, at the time of his death and the situs of said shares of stock was at the domicile of decedent in England and not in the United States, and that that part of section 403 (b) (3) of the Revenue Act of 1918 which provides that “ For the purpose of this title stock in a domestic corporation owned and held by nonresident decedent, * * * shall be deemed propertjr within the United States ” is

unconstitutional because in violation of the Fifth Amendment to the Constitution of the United States. Petitioners also contend that none of said shares of stock had a business situs in the United States and that for the reasons above stated it was error on the part of the Commissioner to include the value of any of said shares of stock as a part of decedent’s gross estate.

3. That even if section 403 (b) (3) is constitutional and it is proper to include the value of the shares of stock which decedent owned in domestic corporations in his gross estate, nevertheless as to the stock in Duveen Brothers, Inc., which decedent had contracted to purchase from the executors of the estate of Henry J. Duveen, under the terms of the contract dated February 19, 1919, the extent of the interest of the decedent therein which was subject to the payment of charges against his estate and subject to the payment of expense of its administration and subject to distribution was not in excess of $269,963.70 and that no greater amount than $269,963.70 can in any event be included in the gross estate on account of said interest. In this computation of $269,963.70 is included $157,110.39 which represents the value of the shares which decedent had actually paid for at the time of his death and $112,853.31 which represents the value of his right to purchase the remainder of the stock contracted for but not paid at the time of death. As to this latter item petitioner contends it was intangible personal property which under the doctrine announced by the Board in Ernest Brooks et al., Executors, 22 B.T.A. 71, had its situs at decedent’s domicile in England and was therefore not properly included as a part of his gross estate in the United States.

4. If it be held that the entire value of all the shares sold to decedent under the terms of the contract mentioned above should be included as a part of his gross estate in the United States, and that the deduction for the unpaid portion of the purchase price contracted to be paid for said stock, amounting to $552,534.54, and other deductions are limited to 10 per centum of the gross estate in the United States so determined, then section 403 (b) (1) which reads:

In the ease of a nonresident, by deducting from the value of that part of his gross estate which at the time of his death is situated in the United States—
(1) That proportion of the deductions specified in paragraph (1) of subdivision (a) of this section, which the value of such part bears to the value of his entire gross estate, wherever situated, but in no case shall the amount so deducted exceed 10 per centum of the value of that part of his gross estate which at the time of his death is situated in the United States;

as thus construed is unconstitutional because such construction and application of the statute result in an arbitrary, capricious and confiscatory measure of tax and deprive persons of property without due process of law, contrary to the provisions of the Fifth Amendment of the Constitution of the United States.

We will first consider petitioners’ plea of the statute of limitations. The tax in question was imposed under the terms of the Revenue Act of 1918. The decedent, a nonresident alien, died on March 4, 1920. TIis will was not admitted to probate until June 17, 1924, at which time the executors qualified. The estate tax return was filed June 29,1925, and the deficiency notice mailed on August 10,1927. Prior to the enactment of the 1921 Act, the period of limitation applicable to the assessment of an estate tax was 15 months from the time of the delivery of the assessment list to the collector, as prescribed in section 3182 of the Revised Statutes. Assessment of the tax was not barred at the time of the enactment of the 1921 Act and, under the provisions of section 1322 of that act, the period was limited to four years after the tax became due. The due date was one year after death, which in the instant case was March 4, 1921. Therefore, under the 1921 Act assessment of the tax in the instant case would have been barred March 4, 1925.

Prior to the expiration of such 4-year period the 1924 Act was enacted. Section 316 of the Revenue Act of 1924 made applicable the period of limitation prescribed in section 1009 in lieu of the period prescribed in subdivision (a) of section 310 of the 1924 Act. The period prescribed in subdivision (a) of section 1009 was the same as that prescribed in section 1322 of the Revenue Act of 1921, viz., four years after the tax became due, but was made subject to the exception provided in subdivision (b), which reads as follows:

(b) In case of a false or fraudulent return witli intent to evade tax, of a failure to file a required, return, or of a willful attempt in any manner to defeat or evade tax, tbe tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. [Italics supplied.]

The return in question was filed on June 29, 1925, although it was due March 4, 1921 (see sections 404 and 406 of the Revenue Act of 1918, and article 11 of Regulations 37, revised in January 1921). On June 2, 1924, the date of the passage of the 1924 Act, there was no return on file and, according to the provisions of section 1009 of that act, the tax could have been assessed at any time. Petitioners contend that the expression “ required return ” as used in section 1009 (b) of the 1924 Act does not mean that the return must have been filed within the time required by the Commissioner’s regulations under the 1918 Act. It is petitioners’ contention that the return which they filed on June 25, 1925, was the “ required return ” mentioned in the exception contained in section 1009 (b) of the 1924 Act and that, although it was filed late, as tested by the Commissioner’s regulations, the statute of limitations began to run from the due date of the tax, March 4,1921, just as if the required return had been then on file, and was therefore barred when the deficiency notice was mailed, August 10,1927. We do not agree with this contention. To say that the phrase “ required return ” meant anything other than a timely return under the law and the Commissioner’s regulations, would, to all intents and purposes, strike the term “ required ” from the act. It therefore follows that the assessment was not barred at the time of the passage of the 1926 Act, which in section 1109 (a)

(2) provides that in case of a failure to file a return within the time required by law the tax may be assessed at any time. Accordingly, petitioners’ plea of the statute of limitations is denied.

We will next take up petitioners’ contention that section 403 (b)

(3) of the Revenue Act of 1918, in so far as it provides that “ For

the purpose of this title stock in a domestic corporation owned and held by a nonresident decedent, * * * shall be deemed property

within the United States,” is unconstitutional because in violation of the due process clause contained in the Fifth Amendment to the Constitution of the United States. On authority of Estate of John Joseph Garvan, 25 B.T.A. 612; First Nat. Bank of Boston v. Commissioner, 63 Fed. (2d) 685; and Burnet v. Brooks, 288 U.S. 378, this contention must be denied. Oil the authority of those cases we hold that the value of the shares of stock in Duveen Brothers, Inc., and in Atchison, Topeka and Santa Fe Railway Co., to the extent of the interest owned therein by decedent at the date of his death, should be included as a part of his gross estate. In view of the above cited cases, it becomes unnecessary to consider whether such shares of stock had a business situs in the United States. The shares of stock were actually physically present in the United States and that is sufficient to justify their inclusion as a part of decedent’s gross estate situated in the United States.

We will next discuss the contention made by petitioner in assignment of error No. 3.

Prior to the date of his death, the decedent had entered into contracts for the purchase of 2,565 shares of preferred and 1,000 shares of common stock of Duveen Brothers, Inc. The total purchase price to be paid by the decedent was $682,997.84. He had paid prior to the date of his death, $130,468.30, or less than one fifth of the entire purchase price. The respondent in computing the tax included in the gross estate the value of the entire amount of stock to be purchased by the decedent. The respondent applied the limitation on deductions prescribed in section 403 (b) (1). The deductions for administration expenses and debts other than the balance to be paid under the contracts exceeded the amount prescribed by this section. The result is that the respondent’s determination includes in the estate upon which the tax was computed the entire value of the stock to be purchased, without deduction for the unpaid purchase price, although the decedent had paid for less than one fifth of the stock in question at the time of his death. Petitioners contend that respondent should have taxed only the interest of the decedent in the stock and not the entire value of the stock covered by the purchase contract.

Title to the property which a vendor has contracted to sell but withholds pending satisfaction of some condition precedent, such as payment, does not pass to the purchaser until the condition is performed. Van Tassel v. Burger, 119 App.Div.N.Y. 509. Cf. Charles W. Dahlinger, 20 B.T.A. 176; Newaygo Portland Cement Co., 27 B.T.A. 1097; Lucas v. North Texas Lumber Co., 281 U.S. 11; Anthony Schneider, 3 B.T.A. 920; Roscoe H. Aldrich, 3 B.T.A. 911.

The contract relating to the purchase of stock involved in this proceeding contained provisions which appear inconsistent. The contract for example recites that the vendors “ hereby sell, transfer and assign ” and that the vendees “ hereby purchase ” certain shares of stock.

Later, the same contract provides, howe/ver, that ownership in the shares of stock shall be vested in the purchaser in proportion to his payments made. The contract in this respect reads:

Fifth: (b) Upon payment of each installment, the Executors shall do all things necessary or proper for vesting against each such payment a proportionate amount of said Preferred Stock and said Common Stock in such names and such divisions as may be directed by the parties of the second part; and upon payment of all of the said installments with interest, as hereinbefore provided, the Executors shall vest any and all of said stock then not transferred in the parties of the second part, as they may direct.

Considering the contract as a whole, we are of the opinion that the intention of the parties was to convey to the vendees no absolute right of ownership in the stock greater than the installments of purchase price as paid. As fast as one of the ten installments of the purchase price was paid under the terms of the agreement, the ownership in a corresponding amount of the stock became vested in the vendees.

In the light of the contract under which the stock was purchased by decedent, and under authority of the above cited cases, we hold that of this particular block of stock in Duveen Brothers, Inc., all that should be included in decedent’s gross estate is $157,110.39, which represents the value of the shares of stock purchased under the terms of the contract and which had actually been paid for at the time of his death. As to decedent’s right to purchase the remainder of the stock contracted for but not paid for at the time of his death, which contractual right is conceded to have had a value of $112,853.31, petitioners contend that such right was intangible personal property, which under the doctrine announced by the Board in Ernest Brooks et al., Executors, supra, had its situs at decedent’s domicile in England and therefore was not properly included as a part of his gross estate in the United States.

Petitioner contends that this is true, even though it be held that stocks of a domestic corporation owned by a nonresident decedent do have a situs in the United States. Section 402, Eevenue Act of 1918, provides:

That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated—
(a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate * * *.

This provision is applicable to nonresidents to the extent of property situated in the United States under section 403 (b), Revenue Act of 1918. The contractual right to purchase the stock at a price less than its market value at decedent’s death was intangible personal property. All the physical evidences of such intangible personal property were situated in the United States. The contract to purchase the shares of stock, together with the certificates of stock themselves, were on deposit with the Guaranty Trust Company of New York City. We think that under the doctrine of the Supreme Court announced in the case of Burnet v. Brooks, supra, the value of the decedent’s contractual right to purchase the remaining shares not paid for at the time of his death should be included as a part of his gross estate. The inclusion of this amount, as well as the value of the shares actually paid for at time of decedent’s death, makes a total of $269,963.70 to be included as a part of decedent’s gross estate on account of his interest in the shares of stock in Duveen Brothers, Inc., covered by the terms of the contract February 19, 1919. This is the maximum amount which petitioners contend should be included and with this part' of their contention we agree.

In view of the above holding, it becomes unnecessary to pass upon the question of the constitutional validity of the language of section 403 (b) (1), cited in paragraph (4) of the statement of alleged errors, because petitioners only urge that particular ground in the event that we should hold that the entire value of the shares of stock purchased by Louis Joel Duveen from the estate of his brother, Henry J. Duveen, including that which had not been paid for as well as that which had been paid for, should be included as a part of his gross estate.

Reviewed by the Board.

Decision will be entered under Bule SO.

Smith and Murdock dissent.