Wheeling Dollar Savings & Trust Co. v. Yoke

• Decision Date: 27 May 1953
• Docket Number: No. 6553.,6553.
• Citation: 204 F.2d 410
• Parties: WHEELING DOLLAR SAVINGS & TRUST CO. v. YOKE.
• Court: U.S. Court of Appeals — Fourth Circuit

204 F.2d 410 (1953)

WHEELING DOLLAR SAVINGS & TRUST CO. v. YOKE.

No. 6553.

United States Court of Appeals Fourth Circuit.

Argued April 7, 1953.

Decided May 27, 1953.

Ralph L. Miller, Wheeling, W. Va., for appellant.

L. W. Post, Sp. Asst. to Atty. Gen. (H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Sp. Asst. to Atty. Gen., and Howard Caplan, U. S. Atty., on brief), Clarksburg, W. Va., for appellee.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

SOPER, Circuit Judge.

This is an appeal from a judgment for the defendant in a suit by the Wheeling Dollar Savings & Trust Company, as Executor of the Estate of Charles J. Wolf, deceased, against F. Roy Yoke, Collector of Internal Revenue, for the recovery of income taxes paid for the calendar years 1937-1940, inclusive, and for the fiscal years ended March 31, 1942 to March 31, 1946, inclusive, and for the short period covered by the final return of taxpayer's decedent ending with the date of his death, September 1, 1946.

The facts are largely stipulated and may be summarized as follows:

Charles J. Wolf created five substantially identical irrevocable trusts on November 3, 1937, in favor of four nephews, Robert Emmett Levi, Harry Levi, Jr., Marc J. Wolf and Charles H. Wells, and a sister, Ruth Levi. Decedent named himself as trustee, placed in each trust $5,000 in cash for use by the trustee to purchase securities, and paid federal gift taxes accruing from the transactions. During the years in question Wolf was unmarried, and resided in a single room in a hotel in Wheeling, West Virginia. His sole heirs and beneficiaries under his will were the five trust beneficiaries named above, and a brother, Leo Wolf. The trust beneficiaries were never members of decedent's household, and all were domiciled in Massachusetts, except Marc J. Wolf, who resided in Indiana.

When he executed the trusts Wolf was 63 years of age, the nephews were aged 23, 26, 28 and 36, and the sister, Ruth Levi, was 59. All survived the decedent. None of the beneficiaries was in need of financial assistance from decedent. Before setting up the trusts Wolf, who was tax conscious, consulted tax counsel, and a business associate who had executed similar trusts.

During his lifetime Wolf, as trustee, filed fiduciary income tax returns for each trust and paid the requisite taxes. The respective beneficiaries, to whom payments of income were made at intervals, paid income tax upon such receipts. Neither Wolf nor his estate received any of the trust income or principal, or compensation for services as trustee; and separate bank accounts and records and books of accounts of receipts and disbursements were kept for each trust.

Wolf and one V. U. Young were associates and controlling stockholders in certain theatrical corporations. On November 3, 1937, the same day on which Wolf created the trusts considered in this case, Young created four trusts for members of his family substantially similar to the Wolf trusts. The Tax Court held in 1945 in Young v. Commissioner, 5 T.C. 1251, that Young was taxable on the income from the trusts created by him, and no review of this decision was sought. It has been stipulated that Wolf is the person of that name referred to in the Young decision, and the facts recited therein are referred to for a better understanding of the facts in the pending case.

On November 9, 1937 Gary Theatre Company, whose stock was owned by the Young-Wolf Corporation, a personal holding company controlled by Wolf and Young, transferred 100 shares of the stock of Theatrical Managers, Inc., owned by Gary, to each of the five trusts created by Wolf, and 125 shares to each of the four trusts created by Young. The trustees of the nine trusts paid $15,828 for the total 1,000 shares of Theatrical Managers, Inc., transferred to them. This was the amount which Gary Theatre Company had paid for the stock but the value thereof at the time of the transfer was in excess of $100,000. In Young v. Commissioner it was held that the effect of these sales was to distribute the accumulated profits of Gary Theatre Company to the nominees of its controlling stockholders, that is, the nine trusts which had just been created; and that the sales must be treated as a distribution of a dividend by the Gary Theatre Company to Young and Wolf, the controlling stockholders of the Young-Wolf Corporation.

Wolf died September 1, 1946 and a deficiency was assessed against his estate on the theory that the income of the trusts was taxable to Wolf. Certificates of over-assessment were issued and income tax paid by the beneficiaries on trust income distributed to them was refunded.¹

The executor of the estate paid the assessed deficiency, and filed a timely claim for refund, but the Collector disallowed the claim; and the pending suit was brought. The parties agreed in the District Court that if the court should determine that the income of the trusts was erroneously taxed to Wolf, the parties would compute the amount of the judgment to be entered and in doing so would give full credit, with interest adjustments, for refunds to the beneficiaries, above referred to, all of which would be subject to the approval of the court. The sole question for decision by this court is whether the District Court was right in holding that the trust income was properly taxable to Wolf rather than to the beneficiaries.

The five trust deeds were identical in terms except for a minor variation in the trust for the grantor's sister with respect to the time in which the property should vest in the beneficiary. Each deed declared that the settlor held in trust for the beneficiary the sum of $5,000 with the following powers, purposes and uses:

"1: I am to have the power at any time, and from time to time, to sell any of the trust property or estate for such price or prices as I may determine. Any money coming into my hands as the proceeds of any such sale or otherwise and forming a part of the principal of said trust estate, shall as soon as practical, be reinvested by me. In making such investments, I am to have full power to purchase any property, real or personal, (including notes and/or securities) which I may think desirable to acquire or hold as a part of the said trust estate, and I am not to be restricted to the purchase of such property as is ordinarily deemed advisable for trust property. I am likewise to have the power to rent or lease any and all real estate which may be included in said trust property for terms of any duration, whether such terms shall extend to a time beyond the termination of this trust or not. I am likewise to have full power and authority at my discretion to borrow money and secure the sums so borrowed by pledge or mortgage of any and all portions of said trust estate and I may, out of the corpus or income of said trust estate, or out of both such corpus and/or income repay the sums so borrowed. I am to have full authority to invest or re-invest any sums so borrowed; and to collect and receive the rents, income and profits arising from the trust estate therein created. It being my intention to retain as Trustee, such rights, power and authority in respect to the management, control and distribution of said trust estate for the use and benefit of the beneficiary, as I have with respect to property absolutely owned by me.

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