City Bank Farmers Trust Co v. Helvering, Nos. 408 and 409

• Court: United States Supreme Court
• Writing for the Court: BLACK
• Citation: 85 L.Ed. 1227,313 U.S. 121,61 S.Ct. 896
• Parties: CITY BANK FARMERS TRUST CO. v. HELVERING, Com'r of Internal Revenue (two cases)
• Docket Number: Nos. 408 and 409
• Decision Date: 28 April 1941

313 U.S. 121 61 S.Ct. 896 85 L.Ed. 1227 CITY BANK FARMERS TRUST CO.

v.

HELVERING, Com'r of Internal Revenue (two cases).

Nos. 408 and 409. Argued April 1, 1941. Decided April 28, 1941.

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Mr. Rollin Browne, of New York City, for petitioner.

[Argument of Counsel from page 122 intentionally omitted]

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Mr. Arnold Raum, of Washington, D.C., for respondent.

Mr. Justice BLACK delivered the opinion of the Court.

The ultimate question here involved is whether two testamentary trusts of which petitioner is trustee were in 1931 'carrying on * * * business' within the meaning of section 23(a) of the Revenue Act of 1928, 26 U.S.C.A. Int.Rev.Code, § 23(a)(1).

Pursuant to the will of Angier B. Duke, two trusts, consisting of stocks and bonds worth approximately $7,600,000, were established in 1923 for the benefit of Duke's two minor sons. Petitioner, as trustee, was charged with the duty of applying a sufficient amount of the income of each trust to the support and education of the beneficiary;

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the surplus income was to be accumulated until the beneficiary's majority; and at that time all accumulated income was to be paid to the beneficiary, while the principal was to be continued in trust for the benefit of the son and his descendants. By 1931, the principal and accumulated income of the two trusts aggregated about $10,000,000. In that year the Surrogate Court of New York County allowed trustees' commissions of about $77,000, ordering that payment be made out of principal. In reporting trust income for 1931, the trustee did not claim any deduction for these commissions. Later, in proceedings before the Board of Tax Appeals, the deduction was claimed but denied. The ground of denial was that during the taxable year the trusts had not been 'carrying on any trade or business', the carrying on of such an activity being a condition precedent to the allowance of the claimed deduction under the controlling Revenue Act.¹ The Circuit Court of Appeals affirmed.² Differing interpretations as to the meaning and scope of 'carrying on any trade or business' prompted us to grant certiorari in this case, 312 U.S. 672, 61 S.Ct. 619, 85 L.Ed. —-, i the case of Pyne v. United States, Ct.Cl., 35 F.Supp. 81, and in the case of Higgins v. Commissioner, 2 Cir., 111 F.2d 795; Id., 312 U.S. 212, 61 S.Ct. 475, 85 L.Ed. —-.

In the Higgins case, decided on February 3, we affirmed the judgment of the same Circuit Court of Appeals that rendered the decision below. Higgins, an individual taxpayer whose activities did not vary materially from the activi-

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ties of the taxpaying trusts in the case at bar,³ was denied the deduction which petitioner here seeks. And sections 161, 162 of the Revenue Act of 1928 provide: 'The taxes imposed by this title (chapter) upon individuals...