Morrissey v. Commissioner of Internal Revenue, 7364.

• Decision Date: 07 January 1935
• Docket Number: No. 7364.,7364.
• Citation: 74 F.2d 803
• Parties: MORRISSEY et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

74 F.2d 803 (1935)

MORRISSEY et al. v. COMMISSIONER OF INTERNAL REVENUE.^*

No. 7364.

Circuit Court of Appeals, Ninth Circuit.

January 7, 1935.

Theodore B. Benson, of Washington, D. C., for petitioner.

Frank J. Wideman, Asst. Atty. Gen., Sewall Key and Carlton Fox, Sp. Assts. to the Atty. Gen., for respondent.

Before WILBUR and GARRECHT, Circuit Judges.

GARRECHT, Circuit Judge.

This petition for review involves deficiencies for income taxes in the sum of $1,890.55 for the year 1924, $1,623.49 for the year 1925, and $1,036.90 for the year 1926, and is taken from a decision of the Board of Tax Appeals. The question presented is whether or not the trust operated by the trustee petitioners was an "association" within the meaning of section 2 (a) (2) of the Revenue Acts of 1924 and 1926, 26 USCA § 1262 (a) (2).

Briefly stated, the facts are that on October 4, 1921, T. A. Morrissey and James M. O'Brien executed a declaration of trust to certain real estate in the city of Los Angeles, consisting of 155 acres of land, about one-third of which was subdivided into lots in 1921 and 1922, and which were all sold during said years. Such sales were apparently made on the installment basis, and were so treated by the Commissioner in determining the petitioners' income for the years 1923 to 1926, inclusive. On that portion of the tract not subdivided into lots the petitioner in 1922 constructed a golf course, which it thereafter operated until January 12, 1924. In the meantime, however, in July, 1923, petitioner sold the club to a corporation in exchange for all its capital stock, and thereafter petitioners operated the same under a lease from said corporation. During 1924, 1925, and 1926 the petitioners received the sums of $53,560.65, $21,973.60, and $21,973.60, respectively, as dividends upon the said stock, all of which were returned as income by petitioners for the years in which they were received. Respondent, in his determination of the tax liability of petitioners, eliminated said dividends from the taxable income of petitioners, for the years in which said dividends were so received, treating such dividends as nontaxable against petitioners as an association. The Board determined the petitioners to be an association for the years 1924, 1925, and 1926, and assessed taxes as above stated.

The trust instrument, among other things, authorized the trustees to take and hold, not only the property in question, but any and all other property, real, personal, or mixed, which might thereafter be conveyed or transferred to or acquired by them, and in separate paragraphs from a to z the trust instrument authorized the trustees to engage in all manner of business activities. The instrument further provides that during the continuation of the trust the beneficial interest therein shall be solely evidenced by certificates or shares; that certificates for several thousand shares, at the par value of $100, were issued; that between 1922 and 1926 the number of interest holders varied from 275 to 920. Exclusive management was vested in the trustees; the shareholders' interest being to receive dividends as declared.

The activities of the petitioners, according to the stipulation of facts, during the years 1924, 1925, and 1926 were confined to "* * * (1) Operation of said golf course for the first 12 days of 1924 as aforesaid; (2) Receipt from collection agent bank of principal and interest so collected by said bank in behalf of petitioner; (3) Receipt of credit of interest earned on bank balances; (4) Receipt of assignment fees in assignment of lot-purchase contracts by holders thereof; (5) Conveyance of lots to purchasers thereof; (6) Receipt of dividends from Western Avenue Golf Club, Inc., upon shares thereof owned by petitioner; (7) Distribution of moneys to holders of beneficial interests in petitioner trust by way of dividends and, in some cases, by way of redemption and retirement of their beneficial interests. * * *"

Section 2 (a) (2) of the Revenue Act of 1924, which is applicable to the tax for the year 1924, and the same numbered section of the Revenue Act of 1926, which is applicable for tax for the years 1925 and 1926, are identical, and each act reads as follows: "The term `corporation' includes associations, joint-stock companies, and insurance companies." The question for this court...