author: Teammele :

text:
    Ernest DuPont, Petitioner, et al.,
      v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 58717, 58746-58751.
    Promulgated December 5, 1935.

      A. Galder Mackay, Esq., for the petitioners.

      T. F. Gallaban, Esq., for the respondent.

       Proceedings oí the following petitioners are consolidated herewith : Kathryn G. Peir; A. H. Peir; H. J. Barneston; Guy C. Earl, Jr.; Royal Miller; and the Redondo Corporation.

   OPINION.

Teammele :

We will consider first the question of whether the petitioners are liable as transferees for the tax liability of the Oxygen Co., as determined by the respondent. The petitioners admit that they each as stockholders received in dissolution of the company assets and property of a value in excess of the amount proposed for assessment against them by the respondent together with interest thereon. They, however, contend that the tax liability of the Oxygen Co. has been paid by the Air Reduction Co. and, therefore, there remains no unpaid tax liability of the Oxygen Co. that may be asserted against and collected from them as transferees. The respondent contends that the record shows that the Air Reduction Co. paid considerable value for the assets of the Oxygen Co.; that for some time after the exchange the Oxygen Co. had ample assets from which to pay any asserted liability for taxes; that the payment by the Air Reduction Co. was not, and was not intended by it as, a payment of the liability herein sought to be collected. He urges that the payment by the Air Reduction Co., which was made under protest and accompanied by a claim for refund, was made for the purpose of preventing the seizure and sale of its assets and not in discharge of the tax liability of the Oxygen Co.

Ordinarily, where a corporation without providing for the discharge of its tax liability distributes all of its assets to its stockholders, thereby becoming insolvent and then dissolves, each of the stockholders is liable as transferee for the unpaid tax to the extent of the value of the assets received by him. Annie G. Phillips et al., Executors, 15 B. T. A. 1218; affd., 283 U. S. 589; McDonald v. Commissioner, 52 Fed. (2d) 920. The petitioners therefore are liable as transferees for the payment of the tax in controversy unless there is something in the facts presented that relieves them of that liability. They rely on the payment made by Air Reduction Oo. as having extinguished the tax in controversy and likewise as having discharged any liability they may have had to make payment to the Government. If the tax has been paid the liability of the petitioners to make payment thereof has been extinguished. Sara E. Carpenter, 16 B. T. A. 98.

Can it be said on the facts here presented that the payment made by the Air Reduction Co. constituted a payment of the tax by the Oxygen Co? We think the answer must be yes. The record here shows that the respondent, in accordance with section 272 of the Revenue Act of 1928, issued a deficiency notice to the Air Reduction Co. wherein he proposed under section 311 of the Act of 1928 a deficiency in tax of $14,976.55 (the amount here in controversy) against that company as transferee of the Oxygen Co. No timely appeal to this Board was taken by the Air Reduction Co. from the respondent’s determination. Thereafter the respondent made an assessment of the deficiency against the Air Reduction Co. Subsequently the Air Reduction Co. under protest made payment of the amount of the deficiency, together with interest thereon. The payment was accompanied by a claim for refund, which was based on the contention that the Air Reduction Co. was a purchaser for value of the assets and business of the Oxygen Co. and therefore was not liable as a transferee of that company. This claim has never been acted upon by the respondent.

The respondent’s action in proceeding against the Air Reduction Co. is entitled to be considered as proper and correct. Whether the Air Reduction Co. was liable as a transferee is not a question for our determination, and we therefore express no opinion as to its liability. That company is not before us. Inasmuch as the respondent has never refunded to nor taken any steps to refund to the Air Reduction Co. the payment made by it, and as he here does not propose to refund it, he apparently is of the opinion that it was properly collected and therefore is not refundable. The respondent has continued for more than three years to retain the payment, notwithstanding the fact that a claim for the refunding of it has been pending before him throughout the entire period. Such action in our opinion negatives his contention here that the payment was not, and was not intended as, a payment of the liability here sought to be collected. The respondent can collect the deficiency in tax of the Oxygen Co. only once. Woodley Petroleum Co., 16 B. T. A. 253. Having collected the amount of such deficiency from the Air Reduction Co. the liability of the petitioners was extinguished and the respondent can not collect it from them. We therefore sustain the contention of the petitioners and hold that they are not liable as transferees of the Oxygen Co.

Having reached the conclusion that the petitioners are not liable as transferees of the Oxygen Co. it becomes unnecessary to consider the remaining issues, which relate to the correctness of the amount of the deficiency in tax of that company as determined by the respondent.

Decision will l>e entered for the 'petitioners.


source: Caselaw Access Project

author: Tkammell :

license: Public Domain

text:
    Benton Wilson, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 52894.
    Promulgated December 5, 1935.

      Maxwell M. Mahany, Esq., and George H. Abbott, O. P. A., for the petitioner.

      W. B. Lansford, Esq., for the respondent.
   opinion.

Tkammell :

This proceeding is for the redetermination of a deficiency in income tax of $7,303.20 for 1928. The principal issue presented by the pleadings is whether the respondent erred in including in the taxable income of the petitioner any part of an amount of $113,169.43 representing oil and gas royalties, bonus from the granting of leases and interest on bonds and bank deposits impounded in the hands of a Federal court receiver during the period 1915 down to the early part of 1928, which amount, less receiver’s expenses of $TT,648.95 or a net of $95,520.48, was distributed to the petitioner by the receiver in the early part of 1928. Certain alternative issues relating to the respondent’s allowance of deductions for depletion and receiver’s expenses are contingently presented dependent upon our determination of the principal issue.

The proceeding was submitted upon an agreed statement of facts, which is incorporated herein by reference, and upon certain documentary evidence. Pertinent portions of the agreed statement of facts are as follows:

The petitioner is an individual white citizen of no Indian blood. Pursuant to authority contained in the Original and Supplemental Creek Agreements or Treaties of May 25, 1901, and August 8, 1902, entered into between the United States and the Creek Indian Nation, the petitioner on November 29, 1912, in consideration of a cash purchase payment received title by Deed from the Creek Indian Tribe to Lot 9, Sec. 17, Twp. 18 No., R. 7 E. such land being located in Creek County, Oklahoma, and which land borders on the Cimarron River. At all times from date of acquisition up to and including the year 1928, this land was continuously owned by the petitioner.
During the years 1912 and 1913 the Commissioner of the Land Office of the State of Oklahoma, proceeding upon the assumption that the Cimarron River was navigable and that the bed thereof belonged to the State of Oklahoma, granted various oil and gas leases upon “ the bed of the Cimarron River below highwater mark.” * * *
Such leases included the bed of the Cimarron River bordering on the upland belonging to the petitioner theretofore purchased as above stated. Development of these leases was immediately begun by the lessees, oil and gas being secured in large quantities by the original lessees or their assignees.
On December 27, 1913 * * * the United States, “ claiming title and right of possession to be in its ward, the Creek Nation of Indians ”, as guardian and trustee of the tribal property, filed an action * * * in the District Court of the United States for the Eastern District of Oklahoma, contending that (a) these river-bed lands were still the property of the Creek Nation, not having been included in the individual allotments or conveyances, and (b) that the Cimarron River was a non-navigable stream and that the State of Oklahoma, and the lessees claiming under the State, had no valid or legally enforceable right to extract oil therefrom. On the same date, December 27, 1913, the State of Oklahoma intervened in this action by the United States against the lessees.
Recognizing the desirability of proceeding with the development of the riverbed lands before the oil, through adjacent development, might be drained therefrom, and in order to secure “protection of whomsoever may ultimately be decreed by the Court to be the owner of ” the river-bed lands, the United States and the State of Oklahoma entered into a stipulation dated and filed December 27, 1913, pursuant to which the lessees of the Oklahoma Land Office were to continue to operate the wells, the lessees to retain the working interest oil and gas as produced. The stipulation also provided for two agencies, (a) a Supervisory Committee, whose duty it was in substance to supervise in a very general way the development of the leases, and (b) a Receiver whose duties included the collection of all royalties, bonuses and rentals on the riverbed leases, and to preserve them “ subject to be disbursed only under an order of court to whomsoever may ultimately be adjudged the owner of said lands and entitled thereto.”
By Court order dated December 30, 1913, the Court appointed the Committee and the Receiver, one member of the Committee being selected by the United States and one by the State of Oklahoma. By order of July 22, 1916, the Supervisory Committee was superseded by a so-called “Advisory Committee” of two members, the duties of the “ Supervisory Committee ” being thereafter delegated in substance to the Receiver. That is, the Receiver was given complete charge of the river-bed land leases and the development of the riverbed lands for oil and gas purposes. * * *
Production proceeded; the stipulated royalties and bonuses were paid to the Receiver and he held same subject to the orders of the Court.
From time to time the owners of land abutting on the Cimarron river-bed, including this petitioner, intervened in the Federal District Court action, claiming title to the river-bed under their original conveyances from the Creek Nation, whether through allotment or purchase, and asserted their ownership of all royalties accruing from the leases theretofore executed and still being operated under the leases granted by the Oklahoma Land Office.
Following the decision in Brewer E. O. & G. Co. v. U. S., 260 U. S. 77, 43 S. Ct. 60, filed November 13, 1922, holding non-navigable the Cimarron River, the State of Oklahoma on January 29, 1923, filed a stipulation authorizing a decree against it as to title. Thereafter ownership of the river-bed lands was claimed on the one side by the United States on behalf of the Creek Indian Nation, and on the other by the individual allottees or owners of abutting land', including the petitioner.
On January 29, 1923, the river-bed case was referred by the Court to a “ Master ” to make findings as to facts, law, and amounts theretofore impounded, his report being filed on May 21, 1924.
On January 31, 1925, the Court issued its order confirming the Master’s report: in substance finding- the title to the river-bed lands to be in the individual allottees or owners of abutting lands, and that such individual owners were entitled to the funds then impounded with the Receiver. Appeal from this order was taken by the United States on March 5, 1925, and on May 27, 1927, the U. S. Circuit Court of Appeals, 8th Circuit, affirmed the lower Court’s order as to title. (U. S. v. Hayes, et al., 20 F 2d 873; see also Rector v. U. S., 20 F 2d 845.) Certiorari was applied for by the United States but writ therefor was denied in November, 1927, 275 U. S. 555.
❖ * * ‡ * *
During all of the period from date of appointment on December 30, 1913, to date of distribution of impounded funds in 1928, the Receiver originally appointed or his subsequently appointed successors, continued to collect and hold all royalties, bonuses and rentals derived from the river-bed lands. During this period he invested considerable amounts in U. S. Liberty Bonds from which he derived interest, and also received interest from daily bank balances.
As a condition to the distribution of the funds in 1928 to the petitioner and others entitled thereto, the Court required acquiescence by the Distributees in proportional contributions to the receiver’s expenses and salary.
On February 2, 1928, the Federal District Court to whom the Receiver was accountable issued its order directing the Collector of Internal Revenue at Oklahoma City, Oklahoma, to appear and file an intervening petition asserting “ all claims or demands * * * against the money in the hands of the receivers * * * arising from all oil royalties, rentals and bonuses produced from tbe Cimarron river-bed lands * * * for * * * income taxes, or oilier claims or demands of any kind or nature * * * and if no such claims or demands shall be filed within 10 days from date of service of this order * * * all such claims and demands shall thereafter be barred and precluded.”
The Order of February 2, 1028, was duly served on February 7, 1928, upon Aeel C. Alexander, then Collector of Internal Revenue at Oklahoma City, Oklahoma, service being effected by the U. S. Marshal “ by handing a true and correct copy ” of the order to the said Alexander. On February 20, 1928, a 30 days’ extension was granted to the Collector of Internal Revenue, extending the time for intervention and filing of claims for taxes due to March 15, 1928. The Collector of Internal Revenue did not make any demands whatsoever upon the Receiver for taxes on account of the impounded funds.
Early in the year 1928 the Receivers distributed to the petitioner the proceeds of oil and gas royalties and bonus, and interest earned during the period, less Receiver’s expenses, as follows:
(a)Oil and Gas Royalties Produced:
From beginning of production in 1915 to date of District Court decision on January 31, 1925_$05, 817. 90
From 1-31-25 to close of year preceding the taxable year_•_ 13, 670.18
From 1-1-1928 to termination of receivership in 1928_ 461.44
79,949. 52
(b) Bonus from Granting Leases-j_ 3,410.26
(c) Liberty Loan Bond Interest_ 17, 691.94
(d) Interest in Daily Bank Balances- 12,117.71
Total Funds Impounded-113,169.43
(e)Less: Receiver’s expenses deducted by Receiver prior to distribution _$17, 648. 95
Net amount Distributed by Receiver in 1928_$95, 520. 48
The petitioner makes no claim to any exemption from income tax because of the status of this land as having formerly belonged to the Creek Indian Nation or on account of the circumstance that title originated through conveyance by Creek Tribal deed. The petitioner has made his income tax returns, including that for the year 1928, upon the cash receipts and disbursements basis.

In determining the deficiency here involved the respondent increased the petitioner’s gross income by the amount of the total impounded funds, $113,169.43, as shown above. In determining taxable net income he allowed as deductions the amounts of $17,648.95 representing receiver’s expenses and $21,986.12 representing depletion (2Ty2 percent of $79,949.52, the amount of oil and gas royalties impounded in the hands of the receiver from the beginning of production in 1915 to the termination of the receivership in 1928). No depletion, however, was allowed with respect to the bonus from the granting of leases in the amount of $3,410.26.

The petitioner contends that the funds impounded in the hands of the receiver during the period of the receivership were income accumulated in trust for unascertained persons; that the receiver was a fiduciary within the meaning of that term as used in the applicable revenue acts; that as such he (the receiver) should have filed an annual return of the income which came into his hands and paid the tax thereon; and that accordingly when the income here in controversy was distributed to petitioner it was not taxable to him. The respondent contends that the portions of the applicable acts relating to the taxing of income for unascertained persons have no application here, since the identity of the interested parties was known and ascertained from the outset of the litigation. He urges that under these circumstances the receiver was not required to file returns with respect to the income coming into his hands and therefore the income distributed to the petitioner upon the termination of the receivership in 1928 was taxable to petitioner in that year.

The sftit begun in December 1913 was to determine whether the river bed lands were the property of the Creek Indian Nation or of the State of Oklahoma.. After January 29, 1923, when the State of Oklahoma consented to take judgment against it as to title, the suit was to determine whether the lands were the property of the Creek Indian Nation or of the individual owners of the abutting upland, of which petitioner was one. As we view the situation the suit was always one to try title, or, in other words, for the purpose of determining the ownership of the property as between ascertained, known, and identified parties. It was not a suit to ascertain or determine the identity of some person or persons whose identity was not known or had not been ascertained. At no time did it involve a determination of the question as to who the Creek Nation was, or who the State of Oklahoma was or who the individual owners of the abutting upland were. These parties were already known and identified. The suit was to determine which of these known and identified parties was the owner of the title to the property. See discussion in R. S. Goforth, 32 B. T. A. 1206, and Commissioner v. Owens, 78 Fed. (2d) 786, affirming in part O. O. Owens, 26 B. T. A. 1147, as to the distinction between the terms “ ascertained persons ” and “ unascertained persons.” Since the litigation did not involve unascertained persons, the receiver in whose hands the royalties, bonuses, and rentals were impounded was not a receiver for unascer-tained persons and the portions of the applicable acts relating to receivers for that class of persons are not applicable to the question presented here.

The Act of 1913 (Sec. II) provides as follows:

D. The said tax shall be computed upon the remainder of said net income of each person subject thereto, accruing during each preceding calendar year ending December thirty-first: * * *. On or before the first day of March, nineteen hundred and fourteen, and the first day of March in each year thereafter, a true and accurate return, under oath or affirmation, shall be made by each person of lawful age, except as hereinafter provided, subject to the tax .imposed by this section, and having a net income of $3,000 or over for the taxable year * * *; guardians, trustees, executors, administrators, agents, receivers, conservators, and all persons, * * * or associations acting in any fiduciary capacity, shall make and render a return of the net income of the person for whom they act, subject to this tax, coming into their custody or control and management, and be subject to all the provisions of this section which apply to individuals; * * * and also all persons, * * * or associations, * * * in whatever capacity acting, having the control, receipt, disposal, or payment of fixed or determinable annual or periodical gains, profits, and income of another person subject to tax, shall in behalf of such person deduct and withhold from the payment an amount equivalent to the normal income tax upon the same and make and render a return, as aforesaid, but separate and distinct, of the portion of the income of each person from which the normal tax has been thus withheld, and containing also the name and address of such person or stating that the name and address or the address, as the case may be, are unknown: * * * Provided further, that in either case above mentioned no return of income not exceeding $3,000 shall be required : * * *. Any person for whom return lias been made and the tax paid, or to be paid as aforesaid, shall not be required to make a return unless such person has other not income, but only one deduction of $3,000 shall be made in the case of any such person.
*******
E. All persons, * * * in whatever capacity acting, including * * * trustees acting in any trust capacity, * * * receivers * * * having the control, receipt, custody, disposal, or payment of interest, rent, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual gains, profits, and income of another person, exceeding $3,000 for any taxable year, other than dividends on capital stock, or from the net earnings of corporations and joint-stock companies or associations subject to like tax, who are required to make and render a return in behalf of another, as provided herein, * * * are hereby authorized and required to deduct and withhold from such annual gains, profits, and income such sum as will be sufficient to pay the normal tax imposed thereon by this section, and shall pay to the officer of the United States Government authorized to receive the same; and they are each hereby made xiersonally liable for such tax. * * *
:!:***** sic
The tax herein imposed upon annual gains, profits, and income not falling under the foregoing and not returned and paid by virtue of the foregoing shall be assessed by personal return under rules and regulations to be prescribed by the Commissioner of Internal Revenue and approved by the Secretary of the Treasury.

Regulations 33, relating to the Act of 1913, provide as follows:

Art. 71. Fiduciaries shall, on or before March 1 of each year, make and render a return of the income coming into their custody or control and management from each trust or estate when the annual interest of any beneficiary in said trust or estate is in excess of $3,000. This return (Form 1041) must be filed with the collector for the district in which the fiduciary resides or has his principal place of business, and shall contain an itemized statement of tile gross income and deductions claimed.
*******
When the share of any beneficiary, therefore, in the amount stated on line 3 of the first page of said return is in excess of $3,000, return must be made.
Art. 72. As each such fiduciary acts solely in behalf of the beneficiaries of the trust, the annual return required in such cases has reference only to the income accruing and payable through said fiduciary, and not to the income of the beneficiary derived from other sources. If, however, such fiduciary is legally authorized to act for such beneficiary as agent or attorney in fact, he may in such case also make for the beneficiary the personal annual return (Form 1040) required by law.
Art. 74. Fiduciaries having control of any portion of an annual income accruing during the year, but' not distributed or paid to the beneficiaries during the year, shall, in rendering their annual return (Form 1041), give the name and address of each of said beneficiaries having a distributive interest in said income, and shall furnish all information called for in such returns. The fiduciary shall in all such cases withhold and pay to the collector, as provided by law, the normal tax of 1 per cent upon the distributive interest of each of said beneficiaries when in excess of $3,000, the same as if said income was actually distributed and paid. * * *
Art. 75. When the normal tax on undivided annual net income has been so withheld, such tax shall not be again withheld when such portion of the income is actually distributed and paid to said beneficiary.

In Smietanka v. First Trust & Savings Bank, 257 U. S. 602, the Supreme Court, after quoting certain of the above quoted provisions of the Act of 1913 and summarizing certain other provisions of the act, stated:

It is obvious from a reading of the statute, the relevant provisions of which we have summarized, that Congress was seeking to require fiduciaries lo make return and pay the normal tax due from persons subject to the tax on such income as the fiduciaries were receiving for such persons. There was nowhere in the act a payment required of the fiduciary of a tax upon the income of the estate or trust property, the income from which he collects, except as it is to inure to the benefit of a person or an individual from whose income he is authorized and required to deduct the normal tax thereon. There must have been a taxable person for whom the fiduciary was acting to make the provisions relied upon by the government applicable. There was no provision for the payment “ at the source ” by the fiduciary of anything but the normal tax. It was intended that the additional or surtax should be paid by the cestui que trust. * * *
* * * There was indicated in the taxing paragraph A the congressional intention to tax citizens everywhere, and noncitizens, resident in the United States, including persons, natural and corporate, on income from every source less allowed deductions.

From the foregoing it is clear that, although fiduciaries including receivers were not taxable persons under the act, nevertheless they were required to make a return for and pay the normal tax due from persons subject to the tax on such income as the fiduciaries were receiving for such persons. The act contemplated the payment of surtax by the cestui gue trust. Under paragraph D any person for whom a return had been made and the tax paid as provided in that paragraph was not required to make a return unless he had other net income. In event he had other net income paragraph E provided for the filing of a return by him upon which the tax due on such income would be assessed. In this situation only one personal exemption of $3,000 was allowable with respect to the income reportable by the fiduciary and that reportable by the individual. We find nothing in the act or in the respondent’s regulations relating thereto that relieved the fiduciary of the duty imposed on him of filing a return and paying the normal tax with respect to the income coming into his hands in event he was in possession of a part only of the property of the cestui que trust. His duty and obligation with respect to income coming into his hands for the cestui que trust were .the same as if the cestui que trust had no other property or income. So far as the normal tax was concerned, the receiver was required to file a return of and pay the tax on the income received by him from property belonging to the petitioner.

Under the 1913 Act surtax was imposed only on net incomes in excess of $20,000. According to the. agreed statement of facts submitted by the parties, production began in 1915 on the petitioner’s river bed lands and that year therefore was the only one governed by the Act of 1913. Whether the amount received by the receiver in 1915 was more or less than $20,000 is not indicated by the agreed statement of facts, since the parties have not stipulated the amounts separately for each year, but only the totals for specified periods of years. In the petitioner’s original petition there is a segregation by years of the stipulated totals of oil and gas royalties and the bonuses from the granting of leases. The total there shown as having been received by the receiver from oil and gas royalties and from bonuses is $10,531.95. Since Liberty bonds had not been issued during that year, the only other income received by the receiver with respect to petitioner’s property was interest on daily bank balances. Under the circumstances of the case this item could not have been very great and certainly when combined with income from royalties and bonuses was less by far than $20,000, the amount beyond which surtax was applicable.

Since for the year 1915 the receiver was required to make return of and pay the normal tax on the income received by him from the property of the petitioner in his hands, and there being nothing in the record to indicate that such income was subject to surtax, we are unable to find that the income received by the receiver for this year was taxable again when it was paid over to the petitioner in 1928. Elnora C. Haag, 19 B. T. A. 982; Commissioner v. Owens, supra.

The Revenue Act of 1916 provides as follows:

Sec. 2. (b) Income received by estates of deceased persons during the period of administration or settlement of the estate, shall be subject to the normal and additional tax and taxed to their estates, and also such income of * * * any kind of property held in trust, including such income * * * held for future distribution under the terms of the * * * trust shall be likewise taxed, the tax in each instance, except when the income is returned for the purpose of the tax by the beneficiary to be assessed to the executor, administrator, or trustee, as the case may be: Provided, that where the income is to be distributed annually or regularly between existing heirs or legatees, or beneficiaries the rate of tax and method of computing the same shall be based in each case upon the amount of the individual share to be distributed.
Such trustees, executors, administrators, and other fiduciaries are hereby indemnified against the claims or demands of every beneficiary for all payments of taxes which they shall be required to make under the provisions of this title, and they shall have credit for the amount of such payments against the beneficiary or principal in any accounting which they make as such trustees or other fiduciaries. * * *
Sec. 8. (c) Guardians, trustees, executors, administrators, receivers, conservators, and all persons, * * * or associations acting in any fiduciary capacity, shall make and render a return of the income of the person, trust, or estate for whom or which they act, and be subject to all the provisions of this title which apply to individuals. Such fiduciary shall make oath that he has sufficient knowledge of the affairs of such person, trust, or estate to enable him to make such return and that the same is, to the best of his knowledge and belief, true and correct, and be subject to all the provisions of this title which apply to individuals.

While section 8 (c) of the Act of 1916 was amended in certain particulars by section 1204 (1) of the Act of 1917, no change was made in the provisions set forth above and they were reenacted as they appeared in the 1916 Act. A further provision was added to the effect that “ no return of income not exceeding $3,000 shall be required except as in this title otherwise provided.”

Regulations 33 (revised), relating to the Acts of 1916 and 1917, provide as .follows:

Akt. 26, par. 181. Beceivers who, as officers of a court, stand in the stead of some principal are required to account for income tax as the principal would have been required to account.
Akt. 29, par. 207. Income accumulated in trust for unascertained persons or persons with contingent interests is held to be income accruing to the estate and is taxable to the estate.
Income held for future distribution under the terms of the will or trust shall be likewise taxed except when returned by the beneficiary for the purpose of the tax.
* * * * * * *
* * * The beneficiary will be required in the case of trust estates to account for the actual amounts distributed or credited to him.

As was held in Merchants’ Loan & Trust Co. v. Smietanka, 255 U. S. 509, and restated in Smietanka v. First Trust & Savings Bank, supra, Congress by the Act of 1917 made trustees taxable persons and required them to render a return of income for the person, trust or estate for whom or which they acted. This constituted a chango from the Act of 1913, which did not make fiduciaries taxable persons, but required them nevertheless to make a return for and pay the normal tax due from persons subject to the tax on such income as the fiduciaries received for such persons. Article 26 of the respondent’s Regulations 33 (Revised), relating to the Acts of 1916 and 1917, provides that receivers are required to account for income tax as the principal would have been required to account. Article 29 provides that income held for future distribution under a trust is held to be income accruing to the trust and is taxable to the trust except when returned by the beneficiary for the purpose of the tax. The article further provides that the beneficiary will be required in the case of trust estates to account for the actual amounts distributed or credited to him.

In the light of the provisions of the Acts of 1916 and 1917, of the Supreme Court’s construction of them and of the requirements of the respondent’s regulations, we think it is to be concluded that a receiver situated as was the receiver in the instant case was required to file returns of income and pay tax on the income coming into his hands from the property held by him as a receiver. Here no income received by the trustee appears to have been credited or paid to the petitioner during the years 1916 or 1917 and therefore petitioner was not required in those years to make return or pay tax on any amounts coming into the hands of the receiver. We therefore hold that the income received by the receiver for 1916 and 1917 was taxable to him and not to the petitioner and that it is not taxable again when it was paid over to the petitioner in 1928.

The respondent urges that the decision in North American Oil Consolidated v. Burnet, 286 U. S. 417, is determinative of the controversy here. That case arose under section 13 (c) of the Revenue Act of 1916, which section appears in the portion of the act dealing with corporations. Under section 13 (c) receivers “ operating the property or business of corporations ” were required to “ make returns of net income as and for such corporations * * * in the same manner and form as such organizations * * * and any income tax due “ was to be ” assessed and collected in the same manner as if assessed directly against the organization of whose business or properties they have custody and control.” The taxpayer corporation in that case contended that certain income received in 1916 by a receiver appointed for a part of its property and paid over to the taxpayer in 1917 was under the Act of 1916 taxable to the receiver for 1916 and not again subject to tax when received by the taxpayer in 1917. In denying the taxpayer’s contention and holding that tíre income was taxable to the corporation in 1917 the Court held that the language of section 13 (c) of the Act of 1916 contemplated a substitution of the receiver for the corporation ami that there could be such substitution only when the receiver was in charge of the entire property and business of the corporation. The Court pointed out that there was no provision in the act for the consolidation of the return of a receiver of part of a corporation’s property or business with the return of the corporation itself and that it is not to be assumed that Congress intended to require the filing of two separate returns for the same year as covering only a part of the corporate income, without making provision for consolidation so (hat the tax could be based upon the income as a whole. The Court stated that the regulations of the Treasury Department (arts. 26 and 209, Regulations 38) had construed the statute as applying only to receivers in charge of the entire property of a corporation and that in all other cases required the corporations themselves to report their income. The Court further stated that such construction was correct. Article 26 of Regulations 33, so far as it relates to receivers, is set out above. Article 209 reads as follows:

Receivers to make returns.- — Section 13, paragraph 0, of this title requires receivers, trustees in bankruptcy, or assignees who are in charge of and are operating the property and business of corporations, to make returns of annual net income and pay any income tax thereby shown to be due, regardless of what disposition, subject to the orders of the court, may be made of such income.
Notwithstanding the fact that the powers and functions of the corporation are suspended and that the property and business are for the time in control and custody of the receiver, trustee, or assignee, subject to the orders of the court, such receiver, trustee, or assignee stands in the place of the corporate officers and is required for the purpose of this title to perform all the duties and assume all the liabilities which would devolve upon the officers of the corporation were they in control. The income which he receives on account of the business transacted is the income of the corporation and, no matter how such income is applied, it is subject to the tax imposed by this title in so far as it exceeds the deductions or allowances authorized by law.
The receiver, trustee, or assignee acting for the corporation, is required to make a true and accurate return of annual net income covering each year or part of each year during which he is in custody and control of the business or properties and will be liable to all the penalties imposed by this title for failure to meet any of its requirements.

The Supreme Court also pointed out that in section 239 of the Act of 1918, relating to receivers for corporations, Congress had adopted the same phraseology as was used by it in section 13 (c) of the Act of 1916.

We do not construe the decision in North American Oil Consolidated v. Burnet, supra, as being controlling here. That case and the instant case are governed by different provisions of the act, the North American Oil Consolidated case being governed by the provisions of section 13 (c) specifically relating to receivers for corporations, and the instant case being controlled by the sections relating to receivers and other fiduciaries for individuals. Section 13 (c) provides for the receiver for a corporation making a return “ as and for the ” corporation for which he acted and for the assessment and collection of the tax “ in the same manner as if assessed directly against ” the corporation. Under that section the receiver was substituted for the corporation. As heretofore indicated, the provisions relating to receivers and other fiduciaries for individuals (secs. 2 (b) and 8 (c) of the Act of 1916, sec. 1204 (1) of the Act of 1917) made them taxable persons and required them as such to file a return and pay any tax due on income coming into their hands and held for future distribution except where the income was returned by the beneficiary. Under the respondent’s regulations the beneficiary was required to make return of and pay tax on only the amounts of such income that were actually distributed or credited to him. We think that Congress, in sections 2 (b) and 8 (c) of the Revenue Act of 1916 and section 1204 (1) of the Act of 1917, expressed an intention to tax to the fiduciary income coming into his hands and held for future distribution, and we think the respondent’s regulations relating to these sections of the acts contemplate the same. The portions of the 1913 Act relating to receivers had application only to receivers for individuals. It was not until the Act of 1916 that provision was made for the filing of returns and the payment of tax by receivers for corporations. Scott v. Western Pac. R. Co., 246 Fed. 545; United States v. Chicago & E. I. Ry. Co., 298 Fed. 779.

While the phraseology of section 13 (c) of the Revenue Act of 1916 relating to receivers for corporations filing returns was adopted in section 239 of the 1918 Act without substantial change, we find in section 225 of the Act of 1918 for the first time in any of the revenue acts a provision specifically excepting receivers in possession of part only of the property of an individual from filing returns. This provision reads as follows: “ That every fiduciary (except receivers appointed by authority of law in possession of part only of the property of an individual) shall make under oath a return for the individual, estate or trust for which he acts * * Respecting this provision of the act, Regulations 45 provide as follows:

Art. 424. Returns by receivers. — A receiver who stands in the stead of an individual or corporation must render a return of income, and pay the tax for his trust, but a receiver of only part of the property of an individual or corporation need not. * * * When acting for a corporation a receiver is not treated as a fiduciary, and in such a case the return shall be made as if by the corporation itself. See section 239 of the statute and article 622. * * *. A receiver of the rents and profits appointed to hold and operate a mortgaged parcel of real estate, but not in control of all the property or business of the mortgagor, and a receiver in partition proceedings, are not required to render returns of income. In general, statutory receivers and common law receivers of all the property or business of an individual or corporation must make returns.

The legislative history of section 225 of the 1918 Act does not disclose the reason for the insertion of the exception there made with respect to the filing of returns by receivers in possession of part only , of the property of an individual. None of the prior acts contained this provision, but all the acts subsequent to 1918 throughout the period in controversy (sec. 225 of the Acts of 1921, 1924, and 1926, and section 145 of the Act of 1928) contain the provision. If under the Acts of 1913, 1916, and 1917 receivers in possession of part only of the property of an individual were excepted from filing returns as receivers generally were required to do, we think that Congress in the Act of 1918 and subsequent acts would have adopted the same or substantially the same provisions as it had used in prior acts, as was done with respect to receivers for corporations, where it adopted in the 1918 Act the phraseology used in the 1916 Act. Clearly the provision in section 225 of the Act of 1918 with respect to returns by receivers in possession of a part only of the property of individuals constituted something entirely new and different from what was contained in the prior acts. If the provision was intended as a clarification of what the law was under the prior acts with respect to receivers in possession of a part only of the property of an individual, it would seem that a similar provision would have been inserted in the section relating to receivers for corporations. It is our opinion that Congress intended in the Act of 1918 and subsequent acts to provide differently with respect to returns by receivers in possession of a part only of the property of individuals from what it had provided in the acts prior to that of 1918. The provision in the Act of 1918 constituted a change and not a clarification or interpretation.

Inasmuch as the provisions of the acts beginning with that of 1918 and including that of 1928 specifically excused receivers in possession of a part only of the property of an individual from making returns of the income coming into their hands, the receiver for the property of the petitioner was not required to file a return and pay tax on the income from the property coming into his hands after January 1, 1918, the effective date of the 1918 Act. Such income was taxable to the petitioner in 1928, the year in which it was paid over to him. Commissioner v. Owens, supra, North American Oil Consolidated, supra.

The fact that immediately prior to distribution of the impounded funds by the receiver in 1928 the collector of internal revenue made no demand upon the receiver for taxes with respect to such funds, although he had been notified to file claim for any taxes due or his claim would be barred, does not alter the foregoing conclusion. So far as the record discloses the receiver long prior to 1928 might have filed all returns that he was required to file and paid all the tax that was due thereon. In the absence of a contrary showing, it is to be assumed that the receiver returned and paid the tax on all income coming into his hands that was taxable to him. Commissioner v. Owens, supra. Likewise we think it may be assumed that the collector’s failure to file any claim was due to the fact that no taxes were due and outstanding against the receiver on account of the funds in his hands.

As an alternative issue to be decided in the event we should hold that the respondent’s inclusion in the petitioner’s gross income of $3,410.26 representing bonus from the granting of leases impounded in the hands of the receiver was proper, the petitioner alleged that the respondent erred in not allowing a deduction for depletion in the amount of $937.82 with respect to such bonus. In his answer the respondent admits the correctness of this allegation of error. In a redetermination of the deficiency the amount therefore will be allowed as a deduction.

In his petition the petitioner raises certain other alternative issues to be considered in event we should hold that no part of the amount received in 1928 was taxable to him in that year. Since we have held that the portion of the amount received in 1928 which came into the hands of the receiver after the beginning of 1918 constituted taxable income to the petitioner, it becomes unnecessary to consider these issues.

Reviewed by the Board.

Decision will he entered under Rule 50.

MuRdock dissents.


author: Muedock:

text:
    Charles B. Van Dusen, Minnie B. Van Dusen, David L. Van Dusen, and William D. Van Dusen, as Trustees of the Van Dusen Trust Fund, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 77596.
    Promulgated December 5, 1935.

      Raymond H. Berry, Esq., for the petitioners.

      Paul A. Sebastian, Esq., for the respondent.
   OPINION.

Muedock:

The Commissioner determined a deficiency of $275.96 for the year 1931. The assignments of error raise the question of whether the declaration of trust executed by Charles B. Van Dusen and his wife, Minnie B. Van Dusen, on February 11, 1929, created one trust or five trusts. The Commissioner allocated all of the taxable income to the petitioner, whereas the petitioner claims that this income was not taxable to it, but to four separate trusts created by the trust instrument. There is no dispute as to the facts. They have been introduced in the record solely in the form of documentary evidence.

The trust instrument recites that Charles B. Yan Dusen and his wife, being desirous of devoting a certain portion of their personal property for religious, educational, charitable and benevolent purposes, have deposited with the trustees 50,000 shares of the common capital stock of S. S. Ivresge Co. having an aggregate value of at least $1,000,000. The instrument then provides how the trustees shall hold and dispose of the corpus and income of the trust. The trust instrument provides: “ This trust shall be known and designated as ‘ The Van Dusen Trust Fund ’ ”.

The grantors desired but did not absolutely require that the trustees beep the- corpus invested in the common stock of S. S. Kresge Co. The trustees are to collect all of the income and divide it into two parts. One part, consisting of 75 percent of the income collected for each year, is to be held and used by the trustees for religious, charitable, benevolent and educational purposes.

Paragraph 8 of the trust instrument is in part as follows:

The other or remaining part, or twenty-five per cent (25%), of the net income of said trust shall be collected by the Trustees and retained in a separate fund, to be known and referred to as the “ Redemption Account of the Van Dusen Trust Fund ”, hereinafter referred to as the “ Redemption Account ”, which “Redemption Account” shall be administered by the Trustees as part of, and under the same general terms and conditions of, this Declaration of Trust and shall be considered and treated as part and parcel of this trust for the following uses and purposes.

The trustees are to hold the income thus set aside and paid into the redemption account and to invest and reinvest it. Paragraph 8 further provides:

The income from this portion of said trust shall accumulate in the “ Redemption Account ” as corpus until said “ Redemption Account ” shall terminate as hereinafter provided.

Paragraph 9 is as follows:

The corpus of this “ Redemption Account ” shall bo divided into four (4) equal parts,—
(a) One of which equal parts shall be held by the Trustees for David L. Van Dusen;
(b) One of which equal parts shall be held by the Trustees for 0. Theron Van Dusen;
(c) One of which equal parts shall be held by the Trustees for Bruce B. Van Dusen;
(d) One of which equal parts shall be held by the Trustees for Wiixiam D. Van Dusen.

The four persons above mentioned are sons of the grantors. The portion of the income allocable to the redemption account is to “ be allocated equally to the several accounts of the Grantors’ sons in said Redemption Account The income paid into the redemption account and the accrual and receipt of income upon the moneys belonging to that account is not to “ become payable, nor available to said sons, but shall immediately become corpus or principal of said ‘ Redemption Account ’, and distributed to said sons only and at such time as herein provided.” The sons are permitted to deposit funds with the trustees to be credited to their respective accounts in the redemption account. Such deposits are subject to all of the provisions and conditions of the trust instrument.

Paragraph 13 of the trust instrument is as follows:

When the share or account in the “ Redemption Account ” of any son shall equal Two Hundred Fifty Thousand Dollars ($250,000.00) the Trustees shall forthwith turn over and deliver unto him one-fourth (%) of the shares of stock or other securities of the S. S. Kresge Company, or its successor, forming the initial or original corpus of “The Van Dusen Trust Fund.” As soon as the separate account of each son shall equal Two Hundred Fifty Thousand Dollars ($250,000.00) and his proportionate part of the stock or securities of the S. S. Kresge Company, or its successor, shall be delivered to him, his account and interest in the “ Redemption Account ” shall be closed out, and thus eventually the entire “ Redemption Account ” will be closed out, and there remain only the one fund, that beiDg for the religious, charitable and benevolent, and educational purposes hereinbefore provided for.
As soon as the account of any son in the “Redemption Account” shall equal Two Hundred Fifty Thousand Dollars ($250,000.00) and one-fourth (%) of the stock or other securities of S. S. Kresge Company, or of its successor, has been turned over and delivered to said son, the Two Hundred Fifty Thousand Dollars ($250,000.00) thus accumulated in the “Redemption Account” shall be transferred to the major account of the Trustees, and by them invested and reinvested in income-producing property, the income from which shall be used for the purposes and in'connection with the objects as hereinbefore mentioned for the furtherance of religious, charitable and benevolent, and educational purposes.

Paragraph 15 provides as follows:

If at any time any one or more of Grantors’ sons desire to withdraw from participation in the “ Redemption Account ” and before his account otherwise terminates, and so request the Trustees in writing, the Trustees may, but Nevertheless within their discretion, distribute to said son the property accumulated in the “ Redemption Account ” for said son, or retain said property in the son’s account, in the “ Redemption Account ” and distribute to him his pro rata share of his interest in the stock or other securities of S. S. Kresge Company, or its successor.

The trust instrument provides that if a son takes less than his pro rata share of the S. S. Kresge Co. stock, the remainder of his share of the stock shall be held by the trustees and allocated ratably to the accounts of the remaining participants in the redemption account and the redemption account and the separate accounts therein shall continue until they equal respectively an amount correspondingly greater than $250,000. The amount in the redemption account allocable to any son who retires, is to “ be transferred to the major account of the Trustees.” The accounts are to go on without interruption in case the trustees decide against permitting a withdrawal. The sons are permitted to contract with each other with reference to their separate interests in the redemption account and the trustees are to recognize their contracts to the extent only that they refer and apply to the sons.

The estate of any deceased son is to have all the rights, privileges, and benefits that the deceased would have had under the trust instrument but for his demise, and the redemption account is not to be terminated by the death of a son. Stock dividends and the like are to become corpus of the trust.

The trustees are to have the right to borrow money in anticipation of the receipt of income from the corpus and to pledge the assets of the trust as collateral for the loan, provided that total loans shall not exceed 70 percent of the net income of the trust for the last preceding year.

Paragraph 23 provides as follows:

The affairs of this trust shall be conducted on a calendar year basis and the Trustees shall prepare, or cause to be prepared, an annual financial statement reflecting therein the corpus of the trust, receipts and disbursements of income and designating sources of said receipts and the disposition of the income.

Paragraph 24 is as follows:

This trust shall be irrevocable from and after February 11, 1929, and terminate only in the manner following:
(a) The Grantors, or the survivor, may elect to terminate this trust provided said election shall not be exercised prior to February 11, 1934.
If at the time of said election the accounts of the several sons in the “ Redemption Account” shall not have terminated and the property therein distributed, as hereinbefore provided, this trust shall nevertheless continue irrevocably and shall terminate only when each and every account of Grantors’ sons in the “ Redemption Account ” has terminated as hereinbefore provided.
(b) If neither the Grantors nor the survivor shall elect to terminate the trust as provided above, this trust shall terminate at the expiration of six (6) years from the death of the surviving Grantor, provided, however, that if at that time the accounts of the Grantors’ sons in the “ Redemption Account ” shall not have terminated and the property therein distributed as hereinbefore provided, then this trust shall continue irrevocably until each and every account of the Grantors’ sons in the “Redemption Account” has terminated and the property therein distributed, as hereinbefore provided.
(c) Upon the termination of this trust, the Trustees shall distribute the property then in their hands, which it is expected will then consist of One Million Dollars ($1,000,000.00) in cash or liquid securities, to the general types and classes of religious, charitable and benevolent, and educational beneficiaries enumerated and set forth herein for the distribution of “the income from the seventy-five per cent (75%) of the trust to religious, charitable and benevolent, and educational purposes.

The trustees named were the two grantors and two of their four sons. Vacancies are to be filled by the other two sons. Throughout the trust instrument the trust is referred to in the singular and the redemption account is referred to in the singular.

The dividend account maintained by the trustees shows a debit of 75 percent o,f the dividends to receipts and disbursements account and 25 percent to redemption account. In an account captioned “ Redemption Account Corpus (general)” the dividends are credited and one fourth of the amount is then debited in this account and credited to “ Redemption Account for David L. Van Dusen — Van Dusen Trust Fund.” One fourth is credited to each of three similar accounts bearing the name of one of the other three sons. These four accounts show no debits whatever. The trustees also maintained income accounts to record the receipt of income from the investment of the corpus of the redemption account. This income is periodically credited to the general redemption account and from there credited to the four separate accounts under the name of the sons.

The trustees for the calendar year 1931 filed a fiduciary return on form 1041 reflecting the income from the S. S. Kresge stock and securities held in the redemption account. This return segregates the general income and the income of the redemption account and carries the following statement:

Inasmuch as the income allocable to the four (4) separate accounts of the “Redemption Account” is “dividend income” and in each account is less than $10,000, and “ other income ” is less than $1,500.00 for each account, therefore no individual returns are filed for said accounts.

The petitioner contends that it is not subject to any income tax for the reason that the trust indenture creates not one trust, but five, and all of the income of the petitioner which is not distributed to charity is paid or credited to the trustees of the other four trusts. The Commissioner has held that the trust indenture created but one trust and all of the income except the 75 percent which went to charities is taxable to the petitioner. The intention of the grantors must be determined from the trust instrument and the answer to the question of whether one trust or five trusts were created depends upon a proper interpretation of the trust instrument. General rules of interpretation are helpful, but the interpretation placed upon other trust instruments in other cases may not be very helpful.

The grantors executed only one deed and named but one group of trustees. Several trusts can be created in one instrument and several trusts may be administered by the same persons acting as trustees. The grantors throughout the instrument here in question have referred to the trust in the singular, but neither that fact nor any other single fact need be regarded as controlling. The grantors never referred to the redemption account as a separate trust. They mentioned it simply as an account. They have stated in paragraph 8 that it “ shall be administered by the Trustees as part of, and under the same general terms and conditions of, this Declaration of Trust and shall be considered and treated as part and parcel of this trust for the following uses and purposes.” Other parts of the trust instrument would have to very definitely indicate that five separate trusts were created in order to offset the clear language of paragraph 8 just quoted.

However, when the trust is looked at in its entirety it shows that the grantors intended to create and actually created but one trust. They had a single plan which involved the keeping of different accounts, but none of the separate accounts could be separated from the main trust so as to constitute a separate trust. The original trust property consisted of 50,000 shares of S. S. Kresge Co. stock. None of that stock was ever to be separated from the main trust by being placed in a separate trust. When it went out of the main trust it went not in trust, but absolutely to the beneficiaries.. Seventy-five percent of the dividends from the stock while it remained in the trust was given to charity. The other 25 percent of the income from that stock was not placed in any separate trust, but was to be retained by the single trust and eventually was to form the sole remaining corpus of that trust. That income was to be accounted for separately in the redemption account and was there to be divided into four parts and each part tagged with the name of one of the sons. But the funds thus accounted for were not to be received by the sons under the normal application of the trust. The four sons took no vested interest in any funds accounted for in the redemption account. These separate accounts were necessary under the grantors’ plan for the purpose of determining the time when each son should receive his part of the original corpus of this single trust and for the purpose of providing assets at that time to substitute for the S. S. Kresge Co. stock. The keeping of separate accounts was necessary, but the property was not actually divided. Charity was to receive 15 percent of certain income and, later, about $1,000,000 which was to be derived from accumulation of the other 25 percent. The sons were to receive the S. S. Kresge stock. No transfers from one trust to another were contemplated. The grantors clearly indicated that their entire purpose was to be accomplished by holding all of the property in one trust. The Commissioner did not err.

Decision will be entered for the respondent.


author: Smith :

text:
    Mr. and Mrs. Francis M. Cronan, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 78185.
    Promulgated December 10, 1935.

      Llewellyn A. Luce, Esq., for the petitioners.

      James E. Teatman, Esq., for the respondent.
   OPINION.

Smith :

This proceeding involves a deficiency in the income tax of the petitioners for the calendar year 1932 in the amount of $42.60, and a penalty for delinquency in filing their return of $11.65.

Francis M. Cronan, hereinafter referred to as the petitioner, is turf writer for the Washington Herald, a daily newspaper printed at Washington, D. C. In the performance of his regular duties he is required to attend the various race tracks in Maryland during their respective racing seasons. He was so employed during the calendar year 1932.

During the month of October 1932 the petitioner, while attending the races held at Laurel, Maryland, made a number of bets through the pari mutuel betting system, which is operated at that and other tracks in the State of Maryland. This form of betting is legal under the state laws. The petitioner made all of his bets, usually two or three a day, with the idea of profit. The bets ranged in amount from $20 to $100 each. At the end of October the petitioner’s gross losses for the month stood at $2,705 against gross winnings of $1,955, or a net loss of $890. A detailed list of these transactions prepared from records kept by the petitioner was submitted in evidence. The petitioner’s funds then being exhausted, he stopped betting and has not since “ played the races ” as a business proposition.

During the taxable year 1982 the petitioner also attended the whippet races which were held at Riviera Beach, Chesapeake Beach, and Brooklynville, Maryland. The petitioner and his wife owned several dogs which they entered in the various races. The petitioner placed small bets on those races also, some of which were made through the pari mutuel system. The petitioner kept no record of these bets, but estimated that the betting and the cost of caring for the dogs resulted in a loss of at least $175.

In his income tax return for 1932 the petitioner claimed the deduction of both of the above items of $890 and $175 as losses of that year. In auditing the return the respondent requested the petitioner by letter to furnish full details of the racing bets, and on failure of the petitioner to comply with this request the respondent disallowed the deductions and determined the deficiency herein.

Section 23 (e) of the Revenue Act of 1932 authorizes the deduction by individuals of:

* * * losses sustained during the taxable year and not compensated for by insurance or otherwise—
(1) if incurred in trade or business; or
(2) if incurred in any transaction entered into for profit, though not connected with the trade or business. * * *

The Commissioner’s regulations do not contain any provision with respect to the deduction of gambling losses, but in his published rulings the Commissioner has made a distinction between gambling losses incurred in jurisdictions where gambling is legal and those incurred in jurisdictions where it is illegal. In S. M. 2680, III-2 C. B. 110, it was held that losses incurred in betting on horse racing in the State of Arkansas, where such betting is illegal, are not deductible and that losses incurred in certain forms of betting on horse racing in the States of Kentucky and Louisiana, where such betting is legal, are deductible. See discussion in Louis D. Beaumont, 25 B. T. A. 474; affd., 73 Fed. (2d) 110; certiorari denied, 294 U. S. 715.

We held in the Beaumont case, relied upon by the respondent in this proceeding, that gambling losses incurred at Monte Carlo, where gambling is legal, were not deductible for the reason that the evidence in that case did not show whether the transactions resulting in the losses were entered into for profit, as required by the statute. After the decision in that case the Commissioner published General Counsel Memorandum 10873, XI-2 C. B. 85, in which he allowed the deduction of gambling losses incurred at Monte Carlo upon a showing by the taxpayer that the gambling transactions were entered into for the purpose and with the hope and expectation of profit. This ruling reads in part as follows:

Consideration must also be given to the fact that the question whether such gambling losses are properly deductible within the meaning of the statutes is not fully an open question. Although losses in illegal transactions are disallowed as deductions to the extent that they exceed the gains during the taxable year from similar transactions (Appeal of Mitchell M. Frey, Jr., et al., 1 B. T. A., 338, C. B. X-2, 25; Appeal of James P. McKenna, 1 B. T. A., 326, C. B. X-2, 46; and I. T. 1854, C. B. II-2, 125), losses on election bets where legal have been held to be allowable deductions as losses sustained in transactions entered into for profit (I. T. 1865, C. B. II-2, 125), and losses incurred in betting on horse races where legal have likewise been held so deductible (S. M. 2680, C. B. III-2, 110). It is the opinion of this office that no logical distinction can be made between losses at legalized foreign gambling casinos and losses sustained through betting on horse races and elections where such transactions are legal, nor would the fact that the transactions took place in a foreign country be material in the case of a citizen of the United States.
In view, therefore, of the Bureau’s position with respect to losses sustained through betting on horse races and elections, it is concluded that gambling losses incurred in legalized foreign gambling casinos should be treated as allowable deductions from gross income if (a) the transactions producing those losses were entered into for profit, and (b) the taxpayer submits sufficient evidence that the gambling transactions were entered into for profit to warrant the Bureau’s allowance of the losses. As the taxpayer in the instant case has submitted evidence substantiating the fact that her gambling transactions were entered into for profit, the losses should be allowed as deductions.

The above ruling seems to reflect the policy of the Commissioner towards the deduction of gambling losses incurred prior to the effective date of the Revenue Act of 1934. Section 23 (g) of the 1934 Act contains the provision, which is new to that act, that “losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.” In the report of the Ways and Means Committee this new provision of the act was explained as follows:

Existing law [1932 Act] does not limit the deduction of losses from gambling transactions where such transactions are legal. Under the interpretation of the courts, illegal gambling losses can only be taken to the extent of the gains on such transactions. A similar limitation on losses from legalized gambling is provided for in the bill. Under the present law [1932 Act] many taxpayers take deductions for gambling losses but fail to report gambling gains. This limitation will force taxpayers to report their gambling gains if they desire to deduct their gambling losses.

Betting on horse racing is legal in the State of Maryland, where the petitioner’s losses were incurred. The petitioner testified, and his testimony is substantiated by other evidence, that all of the bets made by him during the month of October 1932 were for profit. He made all of his selections in strict adherence to a “ system ” of some sort, -which is not described in the evidence adduced. Whatever it was, however, we are assured that in this instance, at least, the system did not work. For, at the end of the trial period, the petitioner stood with losses of $2,705 against winnings of $1,955.

The petitioner is not a wealthy man and could not well afford heavy betting losses. The only income reported in his and his wife’s joint return for 1932 is “ Combined salary received from Washington Times Co. $4,161.00.” The petitioner testified that he did not bet merely for sport or amusement and that he derived no particular pleasure from watching the horses run.

The instant case is readily distinguishable from those in which it has been held that gambling losses in jurisdictions where gambling is illegal are not “ incurred ” and do not result from “ transactions ” as those terms are used in the above quoted provisions of the statute. See Mitchell M. Frey, Jr., et al., Executors, 1 B. T. A. 338; M. L. Heide, 2 B. T. A. 451; and E. F. Simms, 28 B. T. A. 988. The evidence adduced in the instant case also distinguishes it from Louis D. Beaumont, supra. In our opinion the losses claimed by the petitioner on his betting on horse racing are deductible.

The loss claimed on the betting on dog races and the expense of caring for his dogs, we think, is not allowable. The petitioner apparently made no segregation of the expenses of caring for his dogs and the losses on bets on the races. He testified that the amount of $175 was an estimate of both of these items. The evidence does not show that the ownership and racing of the dogs was required of the petitioner in the conduct of his regular business. It not being shown what portion of the amount claimed as a loss resulted from betting, the deduction of the entire amount is disallowed.

. The petitioner’s income tax return for the calendar year 1932 bears the filing stamp of April 3, 1933, the return being due March 15, 1933. In the absence of a showing of any reasonable excuse for the delinquency, a penalty of 25 percent is proper.

Reviewed by the Board.

Judgment will Toe entered under Rule 50.


author: SteRNhageN :

text:
    Robert A. Taft, Executor of the Estate of Anna S. Taft, Deceased, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 77923.
    Promulgated December 10, 1935.

      Charles P. Taft, 2nd, Esq., Robert A. Taft, Esq., and John H. More, Esq., for tbe petitioner.

      E. C. Algire, Esq., and Lloyd B. Harrison, Esq., for tbe respondent.
   SteRNhageN :

Respondent determined a deficiency of $1,627,585.28 in estate tax. He included in gross estate tbe value of property in a trust created by decedent for tbe benefit of her children, and be disallowed tbe deduction of several amounts paid by her executor because of promises made by decedent during her life.

I.

Findings of Fact. — Anna Sinton Taft died suddenly on January 31,1931, aged seventy-nine. On March 13,1924, she created an irrevocable trust, naming a New York bank as trustee, to which she transferred securities. At the time of her death the value of the trust property was $5,542,552.20. The transfer of the aforesaid property in trust wag not made in contemplation of death. It was made solely to avoid or reduce her Ohio taxes. By the terms of the trust instrument, the income was to be paid by the trustee to the settlor for life, then to her husband for life, if he survived her. On the death of the survivor, the trust property was to go in equal shares to her two daughters. If either daughter predeceased the settlor, the settlor might appoint someone other than herself to receive such share, upon failure of such appointment, such share to go to the issue of such deceased daughter.

On April 25, 1924, by deed of gift, the decedent settlor and her husband transferred to their two daughters all their interest in a certain note held by the trustee and directed the trustee to pay the income therefrom to the two daughters. The value of this note at the time of decedent’s death was $141,500.

Decedent’s husband died in 1929. Her two daughters survived her.

Opinion. — The respondent has determined, under Revenue Act of 1926, section 302 (c), (d) that the transfer in trust was in contemplation of or intended to take effect in possession or enjoyment at or after her death or that the enjoyment thereof was subject at the date of her death to change by the exercise of a power to alter, amend or revoke.

Since the question whether the transfer was in contemplation of death is purely a fact question, the evidence has been considered and weighed to determine whether there is sufficient to outweigh the Commissioner’s determination that it was. This consideration has been guided principally by United States v. Wells, 283 U. S. 102. Neither the prospect of death nor of Federal estate tax was a moving cause of the transfer. They were not in the decedent’s mind. She was moved by the thought that if she continued to hold the securities in Ohio she was faced with problems of Ohio property taxes which impinged annually during her life. So, upon her counsel’s advice, she moved this property to New York and placed it in trust there. If there were any evidence that death or death duties or a testamentary transfer was a concomitant thought or consideration, this would perhaps support the finding that the Government seeks, notwithstanding the thought of Ohio taxes, Farmers Loan & Trust Co. v. Bowers, 68 Fed. (2d) 916. But Ohio taxes were the only consideration, and this disproves the Commissioner’s determination. Cf. Becker v. St. Louis Union Trust Co., 296 U. S. 48.

Whether the transfer was to take effect in possession or enjoyment at or after death, as the Commissioner has determined, is a question which in varying circumstances has been so frequently and fully considered that there is little more to be said by way of exposition. The question in this case comes down to whether the settlor’s right to the income for her life and the contingent right to appoint as to corpus in the event of the death of a daughter is enough to bring the transfer within the tax act. The decisions support the petitioner’s view that the transfer was not one to take effect in possession or enjoyment at or after death. Reinecke v. Northern Trust Co., 278 U. S. 339; May v. Heiner, 281 U. S. 238; Morsman v. Burnet, 283 U. S. 783; McCormick v. Burnet, 283 U. S. 784; Helvering v. Duke, 290 U. S. 591; Helvering v. Helmholz, 296 U. S. 93; Helvering v. St. Louis Union Trust Co., 296 U. S. 39; Becker v. St. Louis Union Trust Co., 296 U. S. 48. These decisions also take the case out of section 302 (d), since the only power which the settlor reserved to alter or amend was contingent upon her survival of one of the daughters, and the contingency had not occurred, Helvering v. St. Louis Union Trust Co., 296 U. S. 39.

The decision as to the trust includes the property which was covered by the deed of gift of April 25, 1924, but since by that gift the income as well as the principal of the note was irrevocably transferred, it is a fortiori not within the gross estate.

The respondent’s determination is reversed as to the $5,542,552.20, and the trust property should not be included in the decedent’s gross estate.

II.

Findings of Fact. — -In May 1930 the decedent made an offer, which the University of Cincinnati immediately accepted, to establish the Charles Phelps Taft Memorial Fund for use in teaching the humanities, to which she expected “ ultimately ” to transfer $2,000,000, and meanwhile amounts equivalent to the income of such a fund. The trust was formed, and $50,000 was given to it in October 1930, of which $33,800 was appropriated in December 1930 by the trustees to specific uses by the university, $11,753.83 being actually spent by the university before decedent’s death. Thereafter the present petitioner, decedent’s executor, paid amounts from time to time to the trust fund calculated as interest at prevailing rates upon the $2,000,-000.

Opinion. — The petitioner, on his return, deducted $2,000,000, and the Commissioner disallowed the deduction. There is no dispute of the proposition that the University of Cincinnati is a charitable and educational corporation, a direct bequest to which would be a deduction under the Revenue Act of 1926, section 303 (a) (3). But this was not a bequest found in decedent’s will, but a payment to be made by the executor in fulfillment of her contractual promise.

Petitioner argues that the $2,000,000 fund is deductible on two grounds, (a) it is a “claim against the estate * * * incurred or contracted bona fide, and for an adequate and full consideration in money or money’s worth” (sec. 303 (a) (1)); and (b) it is “the amount of a transfer * * * for the use of ” a charitable, etc., corporation (sec. 303 (a) (3)).

(a) There is no suggestion that the $2,000,000 was not a valid claim against the estate or that it was not incurred or contracted bona fide. The controversy turns upon whether it was “ for an adequate and full consideration in money or money’s worth.” It may be assumed that the intendment of the statute was a liberal encouragement of charitable benefactions. When made during life they have always served to reduce individual income tax, and when made as testamentary transfers they have been permitted without limit to reduce estate tax. Whenever there is ambiguity or otherwise room for construction of the statute, such construction should be shaped to protect and promote this clear liberal purpose. Trinidad v. Sagrada Orden de Predicadores, 263 U. S. 578. But as Congress has the power to be liberal in enacting such deductions, it has also the power to state their limits. When such limits are stated clearly, they command; and no one may disregard them to make the liberality greater than its terms and clear implications justify. These precepts are well known and there has never been cause to question them. Taxpayers and tax administrators must be assumed to have long since adjusted their affairs consistently with them.

We find it impossible to hold that the decedent’s obligation of $2,000,000 was for a consideration in money or money’s worth. Certainly it was not if we give the statutory language a plain and simple meaning. And there are no circumstances surrounding its enactment or its administration or effect to require a different or “technical” meaning.

It has been held that a money pledge supported by similar pledges of others was deductible within the statute, Jeptha H. Wade, Jr., et al., Executors, 21 B. T. A. 339; Frances Plumer McIlhenny et al., Executors, 22 B. T. A. 1093, 1105; David A. Reed et al., Executors, 24 B. T. A. 166, 172. This is not such a case, for here neither the donee nor anyone else was giving to decedent or to anyone else anything of monetary value as a consideration for her promise. See James Turner et al., Executors, 31 B. T. A. 446. Its acceptance and the donee’s act in reliance upon it may be consideration and may thus serve to bind her and her estate. Cf. Porter v. Commissioner, 60 Fed. (2d) 673, 675. But this is not all the statute requires; it is not money or money’s worth.

The Wade case must be held within narrow scope. In the Sixth Circuit, the limitation of money or money’s worth has been strictly adhered to as to a noncharitable claim, Latty v. Commissioner, 62 Fed. (2d) 952; see also Central Union Trust Co. of New York et al., Executors, 24 B. T. A. 296; and the Second and Eighth Circuits have held that the limitation is applicable no less to charitable claims, Porter v. Commissioner, supra; Glaser v. Commissioner, 69 Fed. (2d) 254; see also Charles B. Bretzfelder et al., Executors, 32 B. T. A. 146; cf. United States v. Mitchell, 74 Fed. (2d) 571.

(b) We are also of opinion that there was no transfer of the $2,000,-000 within the meaning of subdivision (3). So far as this record shows, there has never been a transfer of the amount, but only a promise to “ ultimately arrange to transfer ” it to the trustees. Such promise is not a transfer, and we continue to doubt (cf. Charles B. Bretzfelder et al., Executors, supra) that when the transfer is made by the executor it can be called testamentary by relating it back to the death rather than inter vivos by relating it to the earlier promise. Generally speaking, the intendment of the statute in placing the word “ transfer ” with bequests, legacies and devises is that since life transfers made, say, in contemplation of death, etc., are included in gross estate though not strictly bequests, legacies or devises, so such transfers made to the described charities shall be no less deductible than similar bequests, legacies and devises. Thus property actually transferred by a decedent a year before death to a charity and held to be transferred in contemplation of death would be within the gross estate and at the same time among the permitted deductions. Whether this indicates the limits of the application of the word in subdivision (3) needs not to be answered now. Cf. Fourth National Bank v. United States (U. S. Dist. Ct., Kansas), C. C. H., vol. III-A, 1934, p. 10161. Sufficient it is that no convincing reason is given for expanding it to embrace an antecedent promise such as this, and we may not permit ourselves to be moved by our approval of the decedent’s philanthropy.

The respondent’s disallowance of the deduction of $2,000,000 is sustained.

III.

Findings of Fact. — On June 21,1930, decedent promised, in consideration of the subscriptions of others, to pay $5,000 a year for five years to the Cincinnati Museum Association for its current expenses, contingent upon subscriptions of $40,000 a year from others. The $40,000 was subscribed. Decedent, before her death, paid $2,500, and her executor has since paid the rest. The association is a corporation organized and operated exclusively for educational purposes.

Opinion. — The petitioner deducted $22,500 as a claim deductible under section 303 (a) (1), and the respondent disallowed the deduction. The facts bring it squarely within Jeptha H. Wade, Jr., et al., Executors, supra, in which the claim of a charity based upon monetary pledges of others was held to be for an adequate and full consideration in money or money’s worth. Within these limits the opinion has been since adhered to, Frances Plumer McIlhenny et al., Executors, supra; David A. Reed et al., Executors, supra; cf. James Turner et al., Executors, supra.

The deduction is proper and the respondent’s disallowance is reversed.

IV.

Findings of Fact. — During her life, the decedent, to some extent modifying the terms of an arrangement made in 1927 by her and her husband for a substantial gift to the Cincinnati Institute of Fine Arts, promised an additional $50,000 a year for five years for the support of the Cincinnati Symphony Orchestra if $2,500,000 were subscribed by others. The campaign for such subscriptions succeeded, and in fulfillment of her promise the decedent during her lifetime paid $125,000 to the Institute for the support of the orchestra. The remaining $125,000 has since her death been paid by petitioner, as her executor, in periodic payments.

Opinion. — This claim against the estate for the remaining $125,000 is in all respects similar to the foregoing claim of the Museum Association, and its deductibility is also sustained by Jeptha H. Wade, Jr., et al., Executors, supra.

The Commissioner’s disallowance is reversed.

Y.

Findings of Fact. — Before her death, decedent had promised to contribute to the Cincinnati Institute of Fine Arts $3,920 each year for two years, to be used to pay the compensation of two musicians in the Symphony Orchestra who would otherwise have been dropped from the orchestra for want of sufficient funds to pay them. She paid the first $3,920 before her death, and the petitioner, as her executor, paid the second $3,920 after her death.

Opinion. — This claim, although its validity and enforceability are not questioned, is not based on money or money’s worth. Nor is it based on the money promises of others within the rule of Jeptha H. Wade, Jr., et al., Executors, supra.

The Commissioner’s disallowance is sustained.

VI.

Findings of Fad. — During her life the decedent pledged $5,500 to Christ Church, her pledge being one of several hundred. Before her death decedent paid $1,375, and after her death petitioner, as her executor, paid the remaining $4,125.

Opinion. — This $4,125 claim against the estate is deductible within the rule of Jeptha H. Wade, Jr., et al., Executors, supra.

The Commissioner’s disallowance is reversed.

VIL

Findings of Fact. — Before her death decedent, on several pledges made in consideration of the pledges of others, had promised the Community Chest for the support of Cincinnati charitable organizations $31,500 for 1930 and $44,000 for 1931. Before her death she had paid all but $7,875 of the 1930 pledge, leaving unpaid also the $44,000 for 1931. This $51,875 was paid after her death by petitioner, as her executor.

Opinion. — This $51,875 is deductible as a claim against the estate within the rule of Jeptha H. Wade, Jr., et al., Executors, supra, and the Commissioner’s disallowance is reversed.

VIII.

Findings of Fact. — In July 1930, by contemporaneous writings of Bertha Baur, the Cincinnati Institute of Fine Arts, and the decedent, Bertha Baur agreed to transfer to the Institute her shares in the Cincinnati Conservatory of Music, a business corporation, and to advise as to the conservatory’s future management, the decedent promised to make available to the Institute $10,000 a year to be paid to Bertha Baur and $3,000 a year to be paid to her cousin, and promised also that she would transfer sufficient funds to the Institute each year to assure the conservatory’s quick assets being equal to its liabilities; and the Institute accepted these offers and thereupon reorganized the conservatory as a charitable corporation. Pursuant to this obligation the decedent made certain payments before her death, and since her death the petitioner, as her executor, has made periodic payments. Bertha Baur was at the time of decedent’s death seventy years of age, and her cousin was sixty-eight. Calculated by the use of experience tables, the value at the time of decedent’s death of the promised payments to Bertha Baur was $63,171.60, and to her cousin $20,738.94. Decedent’s agreement to see that the conservatory’s liabilities did not exceed its quick assets when taken over by the institute amounted at the time of her death to $54,106.69.

Opinion. — So far as prior decisions indicate, this is an unique situation. The writings constitute an integration which may be regarded as a tripartite contract, the considerations operating equally upon all. Although the decedent did not actually receive in hand any money or money’s worth, it seems clear that the consideration which bound her to her promise was an adequate and full consideration in money or money’s worth. Bertha Baur, acting largely upon the decedent’s promise to provide the funds with which the annuities of herself and her cousin should be paid, promised to and immediately did convey the conservatory property which had theretofore been her only source of livelihood. It consisted of shares of stock in a business corporation which owned the conservatory buildings and 10 acres of land, all of which had been conducted as a successful business. That this property was money’s worth is not denied. It is, however, argued that, because no property came into decedent’s hands and because decedent’s promise was for the purpose of a charitable benefaction, it is not to be characterized as a “ business transaction ”, and therefore not within the intendment of the statute. Cf. Glaser v. Commissioner, supra. Were this actuated by a strictly business motive, it would be deductible under United States v. Mitchell, supra, despite the fact that no money or property consideration came into the decedent’s hands. The statute, however, omits a requirement that the consideration must enlarge the decedent’s possessions, and requires only that the consideration for the claim against the decedent shall be adequate and full in money or money’s worth. While this clearly includes an enlargement of the decedent’s estate, a granting of a right or privilege, and a discharge of a contractual or tort claim, Latty v. Commissioner, supra, we think it might also include such unusual considerations as this. Indeed, it is probable that the contract gave to decedent a new right against Bertha Baur that she had not theretofore had, and thus the claim is brought within the second of Judge Hickenlooper’s enumerated classes.

The Commissioner’s disallowance of this item as a deduction is reversed.

IX.

Findings of Fad. — By a written agreement of February 27, 1930, the decedent, the Patristic Commission of the Prussian Academy of Sciences and two professors agreed to prepare, print and publish an edition of Athanasius, and to make the necessary expeditions abroad for that purpose. Decedent was to pay the cost of the expeditions, not to exceed $5,000, and was to bear two thirds of the cost of printing, not to exceed $10,000. The academy was to have the book printed and to pay one third of the cost of printing, not to exceed $5,000. The professors were to do the work. Before her death decedent paid $2,000, and since her death the petitioner, as her executor, has paid $3,537.34, and is advised that the remainder of decedent’s $15,000 obligation will be required.

Opinion. — The only question as to this item is whether the consideration for the claim is in money or money’s worth. In our opinion, it is. Although the contract in evidence does not provide that decedent should receive anything tangible by way of consideration for her promise, it is, nevertheless, so far as this record shows, for her benefit that the services were to be performed and the book prepared and published. There is nothing to indicate that this was a benefaction to either the Prussian Academy or the two professors. In law there was simply a binding contract for services and payment. There is no evidence upon which it could be said that the services were not valuable to decedent or were less than an adequate and full consideration in money’s worth. On the other hand, it is clear that they were.

The respondent’s disallowance of the deduction is reversed.

X.

Findings of Fact. — In a letter of June 3, 1929, to the president of the Cincinnati Institute of Fine Arts, the decedent promised to contribute $10,000 per annum toward the salary of a man to be employed by the institute as director of art. Thereupon the institute engaged such a man. Before her death the decedent paid $10,000 which was used for the payment of such salary in 1980, and $5,000 in 1931. After her death the petitioner, as her executor, paid $5,000 in 1931 as the remainder of what he regarded as the obligation for 1931, and in March 1932 paid $5,000 more.

Opinion. — This item is like that in regard to the amount paid to the symphony orchestra and used for compensation to the two musicians, considered in item Y. It is, so far as the record shows, merely a beneficent promise by the decedent to the institute and can not be regarded as based upon an adequate and full consideration in money or money’s worth.

The respondent correctly disallowed the deduction.

XI.

Findings of Fact. — In 1930 the decedent promised the University of Cincinnati to pay $3,000, the amount of his salary, if the university would employ Professor Kelly to give a course in musical appreciation, a course which the university was not otherwise financially able to support. Kelly was employed and the decedent made five periodic payments of $300 to the university on this account during her lifetime, and the petitioner, as her executor, paid $1,500 on this account after her death.

Opinion. — So far as the record shows, this is governed by the same considerations as the preceding item, and the Commissioner’s disal-lowance of the deduction is therefore sustained. It does not appear that any contract was made between Kelly and the decedent or that Kelly’s employment was in consideration of the decedent’s promise. There was merely a beneficent promise by the decedent to make additional donations to the university which the university undertook to use in the prescribed way. However binding the decedent’s promise, it cannot, upon this record, be said to have been based on an adequate and full consideration in money or money’s worth.

XII.

Findings of Fact. — The decedent had for several years been contributing $1,900 to the University of Cincinnati, which was used by the university to augment the salary of Professor More. At the time of her death she had not paid this amount for the year 1930-1931, and the petitioner, as her executor, regarding it as an obligation, paid it to the university.

Opinion. — Without more evidence then is in the record regarding this item, it can not be said that the amount was paid as a claim based upon an adequate and full consideration in money or money’s worth, and the respondent’s disallowance of the deduction is therefore sustained.

Reviewed by the Board.

Judgment will be entered under Rule 50.

       Sec. 302. The value of the gross estate of the decedent shall he determined by Including the-value at the time of his death of all property, real or personal, tangible or intangible, wherever situated—
      * * * * ‘ * * *
      (c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in ease of a bona fide sale for an adequate and full consideration in money or money’s worth, where within two years prior to his death but after the enactment of this Act and without such a consideration the decedent has made a transfer or transfers, by trust or otherwise, of any of his property, or an interest therein, not admitted or shown to have been made in contemplation of or intended to take effect in possession or enjoyment at or after his death, and the value or aggregate value, at the time of such death, of the properly or interest so transferred to any one person is in excess of $5,000, then, to the extent of such excess, such transfer or transfers shall be deemed and held to have been made in contemplation of death within the meaning of this title. 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 but prior to the enactment of this act, without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title;
      (d) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where the decedent relinquished any such power in contemplation of his death, except in case of á bona fide sale for an adequate and full consideration in money or money’s worth. The relinquishment of any such power, not admitted or shown to have been in contemplation of the decedent’s death, made within two years prior to his death but after the enactment of this Act without such a consideration and affecting the interest or interests (whether arising from one or more transfers or the creation of one or more trusts) of any one beneficiary of a value or aggregate value, at the time of such death, in excess of $5,000, then, to the extent of such excess, such relinquishment or relinquishments shall be deemed -and held to have been made in contemplation of death within the meaning oj this title.

       Sec. 303. For tiie purpose of tiie tax tiie value of the net estate shall be determined—
      (a) In tiie case of a resident, by deducting from the value of the gross estate—
      **!(<****
      (3) The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. The amount of the deduction under this paragraph for any transfer shall not exceed th.e value of the transferred property required to be included in the gross estate; * * *