Canal National Bank v. United States
Decision Date | 25 July 1966 |
Docket Number | Civ. No. 8-144. |
Parties | CANAL NATIONAL BANK, surviving Executor and Trustee under the Will of Frank B. Emery, Plaintiff, v. UNITED STATES of America, Defendant. |
Court | U.S. District Court — District of Maine |
Raymond E. Jensen, George J. Mitchell, Donald G. Lowry, Portland, Me., for plaintiff.
Lloyd P. LaFountain, U. S. Atty., Portland, Me., Rufus E. Stetson, Jr., Tax Division, Dept. of Justice, Jack S. Levin, Washington, D. C., for defendant.
Plaintiff is the surviving executor and trustee of the estate of Frank B. Emery. It brought this action for refund of $6,157.86 federal income taxes, and assessed interest in the amount of $929.84, paid under protest for the fiscal years ended March 31, 1961, 1962 and 1963.1 The question presented is whether plaintiff is entitled to charitable deductions for undistributed capital gains in the years involved as income permanently set aside for charitable purposes within the meaning of Section 642(c) of the Internal Revenue Code of 1954, 26 U.S.C. § 642(c).2
Mr. Emery was survived by his wife, Catherine F. Emery, who died on September 2, 1962. He and Mrs. Emery had no children or other dependents. At the time of Mr. Emery's death, Mrs. Emery was 59 years of age, with a life expectancy of 22.4 years, and the ages of the other named beneficiaries with possible life interests in the residuary trust created by Clause Fourth of Mr. Emery's will were as follows:
Name Age Clarence L. Emery Deceased Helen W. Emery 59 Ruth E. Emery 40 Eleanor J. Emery 38 Susan E. Rodick Deceased Ralph W. Emery 77 Philip Benjamin 58 Sumner S. Clark 42 Clarence Fitzpatrick 65 Aline B. Warren 56 Laura W. Schonemann 51
When Mr. Emery died, the principal of the residuary trust amounted to approximately $140,000. On March 31, 1961, the principal amounted to $145,037.75; on March 31, 1962, it was $182,901.00; and on March 31, 1963, it was $180,865.41. The gross income of the residuary trust in the fiscal year 1961 was $7,443.40 and in the fiscal year 1962 was $9,818.93. The entire net income for both of these years was distributed to Mrs. Emery. The gross income of the residuary trust in the fiscal year 1963 was $5,502.05. Of this amount $2,814.73 was paid over to Mrs. Emery or to her estate, and payments aggregating $2,000 were made to the six surviving life beneficiaries named in Clause Fourth A, C, D and E of the will.5 No payment was made to any charitable organization during the three years involved in this proceeding.
During each of the fiscal years 1961, 1962 and 1963, the residuary trust realized long-term capital gains from the sale of securities, which were added to the corpus of the trust.6 In its federal income tax returns for these years, plaintiff claimed as deductions from gross income the amounts of these capital gains as income permanently set aside for charitable purposes under Section 642(c) of the 1954 Code. The Commissioner of Internal Revenue disallowed the claimed deductions. Plaintiff paid the resulting deficiencies, with assessed interest, and after its claim for refund was disallowed, commenced this action.7
The case presents two questions, the first of which is whether the charitable purposes of the trust qualify as such under Section 642(c). This question must be answered in the affirmative. It does not require extended discussion. The government's attack is directed to the provision in Clause Fourth H of the will in which Mr. Emery expressed his "wish" that in carrying out the charitable purposes of the trust "preference be given, whenever possible, to the aid of needy or distressed and worthy relatives of myself or my wife." But this language is clearly precatory and in no way binding upon the trustee. Cf. Grigson v. Harding, 154 Me. 146, 157-158, 144 A.2d 870 (1958); Pierce v. Pierce, 114 Me. 311, 96 A. 143 (1915). Furthermore, it is well settled that a charitable deduction will not be defeated because a preference is to be given in the selection of beneficiaries to relatives of the testator who otherwise qualify as objects of legitimate charitable purposes. Common-wealth Trust Co. of Pittsburgh v. Granger, 57 F.Supp. 502 (W.D.Pa.1944); Estate of Annie Sells, 10 T.C. 692 (1948); Estate of Agnes Robinson, 1 T.C. 19 (1942); ...
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