Carter v. Comm'r of Internal Revenue (In re Estate of Carter), Docket Nos. 80005-80010
| Decision Date | 25 November 1960 |
| Docket Number | Docket Nos. 80005-80010,80042. |
| Citation | 35 T.C. 326 |
| Parties | ESTATE OF MABEL K. CARTER, DECEASED, GILBERT CARTER, EXECUTOR, ET AL.,1 PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioners received certain sums as distributions from a trust, which sums arose from the settlement of litigation under the antitrust laws. Held, the sums constituted ordinary income and not capital gains. Gilbert Carter, Esq., for the petitioners.
H. Tracy Huston, Esq., for the respondent.
The Commissioner determined the following deficiencies in income tax:
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¦Docket¦Name of petitioner ¦Year ¦Income ¦
¦ ¦ ¦ ¦tax ¦
+------+------------------------------------------------------+-----+---------¦
¦No. ¦ ¦ ¦ ¦
+------+------------------------------------------------------+-----+---------¦
¦80005 ¦Estate of Mabel K. Carter, Deceased, Gilbert Carter, ¦1955 ¦$4,550.77¦
¦ ¦Executor ¦ ¦ ¦
+------+------------------------------------------------------+-----+---------¦
¦80006 ¦Estate of Emma M. Vollrath, Deceased, Gilbert Carter, ¦1955 ¦1,626.05 ¦
¦ ¦Executor ¦ ¦ ¦
+------+------------------------------------------------------+-----+---------¦
¦ ¦ ¦( ¦667.83 ¦
¦ ¦ ¦1955 ¦ ¦
+------+------------------------------------------------------+-----+---------¦
¦80007 ¦Gilbert Carter and Virginia Carter ¦( ¦2,389.34 ¦
¦ ¦ ¦1956 ¦ ¦
+------+------------------------------------------------------+-----+---------¦
¦ ¦ ¦( ¦531.22 ¦
¦ ¦ ¦1955 ¦ ¦
+------+------------------------------------------------------+-----+---------¦
¦80008 ¦Patricia Carter ¦( ¦700.38 ¦
¦ ¦ ¦1956 ¦ ¦
+------+------------------------------------------------------+-----+---------¦
¦ ¦ ¦( ¦539.05 ¦
¦ ¦ ¦1955 ¦ ¦
+------+------------------------------------------------------+-----+---------¦
¦80009 ¦Howard Carter ¦( ¦691.30 ¦
¦ ¦ ¦1956 ¦ ¦
+------+------------------------------------------------------+-----+---------¦
¦ ¦ ¦( ¦526.64 ¦
¦ ¦ ¦1955 ¦ ¦
+------+------------------------------------------------------+-----+---------¦
¦80010 ¦Susan Carter ¦( ¦693.43 ¦
¦ ¦ ¦1956 ¦ ¦
+------+------------------------------------------------------+-----+---------¦
¦ ¦ ¦( ¦1,200.43 ¦
¦ ¦ ¦1955 ¦ ¦
+------+------------------------------------------------------+-----+---------¦
¦80042 ¦David C. Carter and Frances M. Carter ¦( ¦7,339.29 ¦
¦ ¦ ¦1956 ¦ ¦
+-----------------------------------------------------------------------------+
For the year 1955 in Docket Nos. 80005 and 80006 and for the year 1956 in Docket Nos. 80007 and 80042, petitioners claim overpayments in unspecified amounts.
There are two issues to be decided. The first is whether certain sums received by petitioners as distributions from a trust, which sums arose from the settlement of litigation under the antitrust laws, were taxable as ordinary income or long-term capital gains.
The second issue is whether certain of the petitioners are entitled to deduct from gross income included in their returns, the adjusted basis of their beneficial interests in the trust to which interests they succeeded by bequest.
The stipulated facts are so found and are included herein by reference.
Mabel K. Carter, who resided at Nevada, Missouri, Died on May 18, 1954. Emma M. Vollrath, a resident of Nevada, Missouri, died on June 20, 1953. On July 7, 1954, the Probate Court for Vernon County, Missouri, granted letters testamentary in the Estate of Mabel K. Carter, Deceased, and the Estate of Emma M. Vollrath, Deceased, to Gilbert Carter. Fiduciary income tax returns for the taxable year 1955 were filed for these estates with the district director of internal revenue at Kansas City, Missouri.
Gilbert Carter and Virginia Carter, the petitioners in Docket No. 80007, are husband and wife residing at Radio Springs Park, Nevada, Missouri. They filed joint income tax returns for the taxable years 1955 and 1956 with the district director at Kansas City, Missouri.
Patricia Carter, Howard Carter, and Susan Carter, the petitioners in Docket Nos. 80008, 80009, and 80010, respectively, are individuals residing in Radio Springs Park, Nevada, Missouri. They each filed individual income tax returns for the taxable years 1955 and 1956 with the district director at Kansas City, Missouri.
David C. Carter and Frances M. Carter, the petitioners in Docket No. 80042, are husband and wife residing in Radio Springs Park, Nevada, Missouri. They filed joint income tax returns for the taxable years 1955 and 1956. Their return for 1955 was filed with the district director at St. Louis, Missouri, and their return for 1956 with the district director at Kansas City, Missouri.
On September 15, 1940, Mabel K. Carter, the owner of an undivided one-half interest in the Liberty and Sedalia Theatres in Sedalia, Missouri, in partnership with Charles T. and Olga Sears, who owned the other one-half interest in the theaters, commenced the business of exhibiting motion pictures at the Liberty Theatre. On November 7, 1940, the partnership was dissolved, and Charles T. Sears and his wife, Olga, transferred their interest in the two theaters to Mabel K. Carter, who, as sole owner, continued to operate the Liberty Theatre until May 14, 1941. On that date she ceased operation because the business was suffering losses, and leased the Liberty Theatre along with the Sedalia Theatre to Fox Ozark Theatre Corporation.
In a declaration of trust executed on October 21, 1952, Mabel K. Carter irrevocably assigned to herself as trustee the following property:
and any other persons, corporations or entities whatsoever, or against any one or more of them, that are based upon or relate to or have arisen or resulted from any combination or combinations, conspiracy or conspiracies, or act or acts unlawful under, prohibited by or in violation of any provision or provisions of the Anti-Trust laws of the United States or of the State of Missouri or of any other state; including, but not limited to, every claim and every right or cause of action that I have under Chapter 1 of Title 15 United States Code. This trust shall embrace also such funds and other property as I, by deed or act hereafter, shall add to the corpus hereof; likewise such funds and property as any other person or persons hereafter shall give, transfer or convey to the trustee (or any substitute or successor trustee) hereunder for addition to the said trust corpus.
Article VII of the declaration of trust provided as follows:
INCOME— DISTRIBUTION AND ACCUMULATION— As used herein the term ‘distributable income’ shall mean, in general, gross income of the trust less all such costs, expenses, losses and other items (except amounts distributable to beneficiaries) as are deductible from its gross income in arriving at its net income, taxable to the fiduciary, for Federal income tax purposes. All distributable income for each taxable year of the trust shall be distributed currently, by payment or credit within such year, to the persons thereunto entitled, in accordance with the respective beneficial interests set forth in Article VI hereof; but the trustee may withhold such distribution of, and accumulate, all or any part of David Carter's share of such income for each such taxable year of the trust and distribute to the person or persons thereunto entitled under Article VI hereof, on a date subsequent to but not later than two years after the close of such taxable year (and in no event later than the date of termination of the trust and final distribution under Article VIII hereof) such share so accumulated or the part thereof so accumulated, less an amount determined by the trustee to equal income taxes paid or incurred by the trust in respect thereof.
Under the declaration of trust Mabel K. Carter, Emma M. Vollrath, and the petitioners in Docket Nos. 80007 to 80010, inclusive, and 80042 acquired vested beneficial interests in the property, corpus and income of the Mabel K. Carter Trust, as follows:
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¦Name of beneficiary ¦Percentage of interest ¦...To continue reading
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