Clark v. Commissioner of Internal Revenue, Docket No. 20103
| Decision Date | 10 May 1929 |
| Docket Number | 36901.,Docket No. 20103 |
| Citation | 16 BTA 453 |
| Parties | GRACE SCRIPPS CLARK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Byron C. Hanna, Esq., for the petitioner.
F. R. Shearer, Esq., for the respondent.
These proceedings, consolidated for hearing and decision, involve deficiencies in income tax for the years 1918, 1922, and 1923, as follows:
1918____________________________________ $4,978.08
1922____________________________________ 76,794.14
1923____________________________________ 44,235.83
The only point involved with respect to the year 1918 is the running of the statute of limitations. At the hearing of these proceedings counsel for the petitioner admitted that the statute of limitations had not run upon the assessment of the deficiency for 1918 by reason of the filing by petitioner of a consent in 1924, knowledge of which he did not have at the time the appeal to the Board was prepared. The question presented for the years 1922 and 1923 is whether the petitioner is liable to income tax in respect of all of the income payable to her under the terms of a certain trust instrument, in view of the fact that she had assigned to her husband, Rex B. Clark, on December 24, 1919, one-half of her interest in the trust fund. The petitioner admits liability to income tax upon only one-half of the income payable to her. The petitioner admits certain errors with respect to the amount of income returned by her for the years 1922 and 1923.
FINDINGS OF FACT.
The petitioner is a daughter of James E. Scripps, who died in Detroit, Mich., on May 29, 1906. On May 4, 1906, he executed an instrument, hereinafter referred to as the trust instrument, by which he purported to transfer to William E. Scripps, George G. Booth, and Edgar B. Whitcomb as trustees certain shares of stock therein described. Contemporaneously with the execution of this instrument James E. Scripps delivered and transferred to the above-named trustees the shares of stock referred to in said trust instrument. The said trustees ever since have claimed to hold such stock and the proceeds thereof pursuant to the trust instrument.
The petitioner is and for many years has been a resident of California. Prior to December 24, 1919, she became the wife of Rex B. Clark. As a beneficiary of the trust fund created by her father she received each year sums of money representing her portion of the distributions of the trust fund. On December 24, 1919, she executed the following instrument:
This indenture, made the twenty-fourth day of December, in the year nineteen nineteen, between Grace Scripps Clark, of the City of Pasadena, County of Los Angeles, State of California, the party of the first part, and Rex B. Clark, her husband, of said City, the party of the second part, witnesseth:
That the said party of the first part, for and in consideration of the love and affection which the said party of the first part has and bears unto the said party of the second part, does by these presents give, grant, alien, and confirm unto the said second party, and to his heirs and assigns forever, one half interest in all income, rents, interest, reversion, remainder and remainders which may from time to time be payable to me or to which I may be hereafter entitled, under a certain trust agreement executed and delivered by my father James E. Scripps, now deceased, to William E. Scripps, George G. Booth and Edgar B. Whitcomb as trustees, dated May fourth, A. D., 1906, a copy of which is hereto annexed, and made a part hereof, marked Exhibit A, also under the will of my said father, dated May fourteenth, A. D., 1906, a copy of which is also hereto annexed, made a part hereof and marked Exhibit B.
In witness whereof, the said first party has hereunto set her hand and seal, the day and year first above written.
GRACE SCRIPPS CLARK. In the presence of — REX S. CLARK E. H. BAGBY
On February 19, 1920, petitioner duly acknowledged the execution of the above recited instrument, hereinafter referred to as the assigning instrument, before a notary public in and for the County of Los Angeles, State of California. At all times subsequent to December 24, 1919, all sums distributed as income by the trustees of the above-mentioned trust, which under the terms of the trust instrument were distributable to petitioner, have been deposited in the joint bank account of petitioner and her husband, Rex B. Clark, in the First National Bank of Detroit, in the City of Detroit, State of Michigan, and said funds so deposited from time to time have been withdrawn from said bank and until June 15, 1921, deposited in a joint bank account of petitioner and her husband, Rex B. Clark, in the First National Bank of Los Angeles, in the City of Los Angeles, State of California, and after June 15, 1921, in a joint bank account of petitioner and her said husband, in the Farmers & Merchants National Bank of Los Angeles, in the City of Los Angeles, State of California.
Petitioner's husband, Rex B. Clark, has caused accounts to be kept of the sums so received, including a cash book and a ledger, and in those accounts the funds so received at all times since December 24, 1919, have been credited one-half to petitioner and one-half to her husband, Rex B. Clark.
The trustees were not immediately notified of the assignment, the petitioner being advised that such notification was not necessary in order to create a valid assignment. The trustees were, however, notified of the assignment on April 30, 1924, since which date separate checks have been drawn by the trustees of the portion of the income distributable to the petitioner and the portion distributable to her husband, Rex B. Clark.
Commencing with the calendar year 1920, and for each calendar year thereafter, petitioner and her husband, Rex B. Clark, have each made income-tax returns to the collector at Los Angeles, showing the receipt by each of one-half of the total income distributed from said trust fund accruing to the petitioner and to the petitioner's assignee, Rex B. Clark.
The respondent has amended petitioner's income-tax returns for 1922 and 1923 by adding to the reported income the amount returned by her husband as received from the trust fund by virtue of the assignment.
The asserted deficiency for the year 1922, in the sum of $76,794.14, is predicated upon the hypothesis that all of the income of the said trust which the petitioner was or which petitioner and petitioner's husband were entitled to receive in the year 1922, in the total amount of $311,423.66, should properly be charged to petitioner as her income. In her income-tax return for 1922, petitioner showed net income in the amount of $104,116.51, which included $155,000 as income received from the above trust. The petitioner admits that the latter amount should have been $155,711.83 and that the total net income should have been $104,828.34, instead of $104,116.51, the amount returned. If the petitioner is chargeable upon the entire income of the trust fund distributable to her under the terms of the trust instrument in the amount of $311,423.66, the petitioner should be charged with additional income for the year 1922, in which event the total net income of the petitioner for the year 1922 would be $260,540.17.
Petitioner filed an income-tax return for 1923 showing net income in the amount of $43,387.33, and including as income received from the above trust $63,110.70. It is admitted by the petitioner that the latter amount should have been $121,306.89 and that the total net income should have been $101,583.52. It is further admitted that if the assigning instrument of December 24, 1919, is to be ignored and the petitioner is chargeable with all of the income distributable to her under the trust instrument as contended by the respondent, the corrected net income of petitioner for 1923 is $222,890.41.
The question presented in these proceedings is whether the legal effect of the assignment made by the petitioner December 24, 1919, was to vest in her husband one-half of her interest in the trust fund of which she was a beneficiary and to relieve her from liability to income tax in respect of one-half of the income distributable to her under the trust instrument during the taxable years 1922 and 1923. In accordance with the petitioner's and her husband's understanding of the assigning instrument each returned one-half of income of the trust fund for the years 1922 and 1923 in their individual income-tax returns for those years. It is the contention of the respondent that the...
To continue reading
Request your trial