Cohn v. Commissioner

• Decision Date: 16 April 1968
• Docket Number: Docket No. 3667-62.
• Citation: 27 TCM (CCH) 350,1968 TC Memo 65
• Parties: Roy M. Cohn v. Commissioner.
• Court: U.S. Tax Court

27 T.C.M. (CCH) 350 (1968)

T.C. Memo. 1968-65.

Roy M. Cohn v. Commissioner.

Docket No. 3667-62.

United States Tax Court.

Filed April 16, 1968.

Charles C. Rumsey, Jr., for the petitioner. Leon M. Kerry and Ronald Litowitz, for the respondent.

Memorandum Findings of Fact and Opinion

The Commissioner determined a deficiency of $18,335.70 in petitioner's income tax for 1958. This case involves only that portion of the deficiency resulting from the Commissioner's determination that a certain sum of $27,247.96 received by petitioner was income rather than a gift.

Findings of Fact

The parties have stipulated certain facts, and the stipulation and attached exhibits are incorporated herein by reference.

Petitioner, Roy M. Cohn, filed his income tax return for 1958 with the district director of internal revenue in New York City, Borough of Manhattan. At the time of filing his petition in this case, petitioner resided in New York City.

Petitioner is an attorney practicing in New York City. Petitioner, Dr. Simon Philip Goodhart (hereinafter sometimes referred to as "Dr. Goodhart"), Dr. Goodhart's wife Mrs. Bertha Wolff Goodhart (hereinafter sometimes referred to as "Mrs. Goodhart"), Judge Martin M. Frank (a New York state court Judge), and their respective families were mutual friends of long standing. Dr. Goodhart had one son, Edward, who lived in California and whose way of life and behavior was disturbing to Dr. Goodhart, resulting in a strained relationship between them. In 1950, petitioner was Dr. and Mrs. Goodhart's attorney. In that year the Goodharts spoke to petitioner concerning the preparation of their wills; petitioner referred them to another attorney who was more familiar with estate law and who was not so closely related by friendship to the Goodharts. Both Dr. and Mrs. Goodhart executed last wills and testaments on August 3, 1950.

Dr. Goodhart was named executor under Mrs. Goodhart's will. Mrs. Goodhart was named executrix under Dr. Goodhart's will. Petitioner, Judge Frank, and the Bankers Trust Company were named successor executors under both wills in the event that Dr. Goodhart or Mrs. Goodhart should not act or continue to act as executor or executrix, and were also named trustees of certain trusts created in the wills. Dr. Goodhart was named sole residuary legatee under his wife's will, and was the principal beneficiary thereof.

On August 1, 1950, petitioner and Judge Frank signed the following letter.

August 1, 1950 Mrs. S. P. Goodhart 25 West 81st Street New York, 24, N. Y.

Dear Mrs. Goodhart:

We understand that you are about to execute a will in which you are naming us as alternate executors and as trustees.

We hereby agree that if we both qualify as executors and/or trustees under said will or under any future will which you may execute, our joint compensation shall, during such period as we both continue to act in such capacity, be limited to the compensation payable to a single executor and/or trustee under the laws of the State of New York from time to time in effect.

Sincerely yours ROY M. COHN MARTIN M. FRANK

A week or so before the execution of the above letter petitioner and Judge Frank had a conversation with Dr. Goodhart, at which Judge Frank told Dr. Goodhart that he and petitioner would be willing to serve as executors at one-half a commission each. Dr. Goodhart said that he did not care about the amount of the executors' commissions, but that Mrs. Goodhart might be pleased with the arrangement since she was always very much concerned about money. Shortly after the above meeting, Dr. and Mrs. Goodhart, petitioner, and Judge Frank had a meeting at which petitioner and Judge Frank told Mrs. Goodhart of their intention to split one full executor's commission between them should they become executors of her will. Mrs. Goodhart was very grateful, and the above letter was shortly thereafter prepared by the attorney who prepared Dr. and Mrs. Goodhart's wills.

Mrs. Goodhart died on March 11, 1955. On March 12, 1955, Dr. Goodhart retained John M. Foley (hereinafter referred to as Foley) as attorney for Mrs. Goodhart's estate. Letters testamentary were granted to Dr. Goodhart on April 5, 1955. On April 8, 1955, Bankers Trust Company filed with the Surrogate's Court of New York County a renunciation of its appointment as trustee and successor co-executor under Mrs. Goodhart's will. Subsequent to Mrs. Goodhart's death, Dr. Goodhart spoke with petitioner and Judge Frank, stating that he did not feel capable of carrying on alone in looking after his wife's estate, and asked petitioner and Judge Frank to act as executors either with him or in his place. The parties agreed that if petitioner and Judge Frank were issued letters testamentary, Dr. Goodhart would release them from their agreement with Mrs. Goodhart to accept only one full executor's fee between them and would undertake, with the approval of the Surrogate's Court, to pay them each a full executor's commission. On April 12, 1955, Dr. Goodhart petitioned the Surrogate's Court for the issuance of letters testamentary for petitioner and Judge Frank. Such letters were issued on April 20, 1955. Dr. Goodhart remained as a co-executor, but performed no services of substance.

At some time between April 20 and May 14, 1955, Dr. Goodhart met with Foley. Dr. Goodhart said that he was for the first time becoming aware of the size of Mrs. Goodhart's estate, that she had more assets and money then he had supposed, and that he was very surprised that she had required petitioner and Judge Frank to execute their letter of August 1, 1950, since she did not request Bankers Trust to execute a similar document. Dr. Goodhart said further that he had had long-standing friendships with both petitioner and Judge Frank, that he wanted each to receive a full commission, and that if such payment could not be made as an administrative expense he wanted it paid from his share of his wife's estate. Foley suggested that, in view of Dr. Goodhart's relationship with his son Edward, the above arrangement be reduced to writing.

On May 14, 1955, Dr. Goodhart executed the following document with reference to the payment of executors' fees to petitioner and Judge Frank from Mrs. Goodhart's estate:

AGREEMENT, made this 14th day of May, 1955 by SIMON PHILIP GOODHART, individually and as co-executor of the Last Will and Testament of Bertha Wolff Goodhart, also known as Bertha E. Goodhart, Bertha Wolff and Bertha E. Wolff, herinafter the decedent:

WHEREAS, the decedent died on March 11, 1955 a resident of the City, County and State of New York; and

WHEREAS, the Last Will and Testament of the decedent was duly admitted to probate by the Honorable William T. Collins on the 5th day of April, 1955 and Letters Testamentary were thereupon duly issued to Simon Philip Goodhart who was qualified as executor and has since acted as such and now so acts; and

WHEREAS, by decree of the Honorable William T. Collins entered April 19, 1955, Martin M. Frank and Roy M. Cohn were appointed co-executors to act with Simon Philip Goodhart in the administration of the affairs of the decedent, and

WHEREAS, Letters Testamentary were duly issued to Martin M. Frank and Roy M. Cohn on April 20, 1955; and

WHEREAS, Martin M. Frank and Roy M. Cohn did, by letter dated the first day of August, 1950, agree that in the event that either or both of them qualified as executors of and trustees under the Will of this decedent their joint compensation would be limited to the compensation payable to a single executor or trustee as provided by the Laws of the State of New York; and

WHEREAS, Martin M. Frank and Roy M. Cohn as co-executors are performing the major portion of the work to be performed as executors of the decedent and without whose aid and assistance Simon Philip Goodhart could not undertake to act as one of the executors of the said estate; and

WHEREAS, Simon Philip Goodhart is the sole residuary legatee of the within estate which is believed to have assets in excess of $1,000,000, and which is more than sufficient to pay all claims and to satisfy all bequests contained in the Last Will and Testament of the decedent; and

WHEREAS, Simon Philip Goodhart will receive the major portion of the assets of the within estate under the provisions of the decedent's Last Will and Testament; and

WHEREAS, Simon Philip Goodhart is a practicing physician and is eighty-five years of age and has never extensively participated in the management of the business affairs of the decedent; his wife; and

WHEREAS, Martin M. Frank and Roy M. Cohn are attorneys duly admitted to practice before the courts of the State of New York and are fully familiar with estate administration; and

WHEREAS, Martin M. Frank, now a Justice of the Supreme Court of the State of New York, was for approximately fifteen years the attorney for the decedent as well as the attorney for the decedent as executrix and trustee under the wills of Ricka Wolff and Hattie A. Goodhart, the decedent's mother and sister respectively, and is fully familiar with the assets of both of these estates as well as the affairs of the decedent. That Roy M. Cohn for the past seven years was counsel for the decedent and is fully familiar with many of her legal, financial and family problems; and WHEREAS, the administration of the within estate will be intricate, requiring constant attention on the part of the executors due to its size and the nature of the estate assets, that the administration of this estate will in all probability extend over a period of three years before it is judicially settled and

WHEREAS, it will be in the best interests of the within estate that Martin M. Frank and Roy M. Cohn continue to act as executors of the within estate;

NOW, THEREFORE, in consideration of the premises and in return for the agreement and promises of Martin M. Frank and Roy M. Cohn to continue to act as co-executors of the Last Will and Testament of the decedent,

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