COMMISSIONER OF INTERNAL REVENUE v. Kenan, 90.
| Decision Date | 10 November 1944 |
| Docket Number | No. 90.,90. |
| Citation | 145 F.2d 568 |
| Parties | COMMISSIONER OF INTERNAL REVENUE v. KENAN et al. |
| Court | U.S. Court of Appeals — Second Circuit |
Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, J. Louis Monarch, and L. W. Post, Sp. Assts. to the Atty. Gen., for petitioner Commissioner of Internal Revenue.
George E. Cleary, of New York City, for respondents William R. Kenan, Jr., and Lawrence C. Haines.
Before L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit Judges.
The question before us is whether $25,867.31 paid in the year 1940 by the respondents as trustees under the will of Mary Lily (Flagler) Bingham were "ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income" and thus deductible in computing income tax under Section 23 (a) (2) of the Internal Revenue Act of 1942, 26 U.S.C.A.Int.Rev.Code, § 23(a) (2), which amended Section 23(a) by adding subdivision (2), supra. The Tax Court allowed the deduction and the Commissioner of Internal Revenue appeals. In our opinion the Commissioner was right and the decision of the Tax Court must be reversed.
The $25,867.31 objected to by the Commissioner, but allowed by the Tax Court, was part of the sum of $210,741.93 paid by the trustees as expenses all of which were allowed by the Tax Court and all but the $25,867.31 stipulated by the parties to have been "ordinary and necessary expenses paid during the tax year for the production or collection of income or for the management, conservation or maintenance of property held for the production of income."
The items constituting the $25,867.31 were all fees and charges paid to the attorneys for the trustees in the following amounts and relating to the following services:
(1) Items amounting to $16,439.96 represented fees and charges paid by the trustees to their attorneys in connection with the litigation as to income taxes before this court dealt with in our opinion in Kenan Jr., v. Commissioner, 114 F.2d 217. The question there decided against the trustees was whether a distribution by the trustees to a legatee in payment of $5,000,000 upon her reaching forty years of age resulted in a taxable gain to the trust where the securities distributed in payment had appreciated in value during the period during which they were held by the trustees. We there held that the appreciation was taxable as a capital gain.
(2) Items amounting to $780.85 represented fees and charges of the trustees' attorneys for services in connection with the annual payment of $75,000 by the trustees during the continuance of the trust to the University of North Carolina.
(3) The remaining items aggregating $8,646.50 consisted of fees and charges of the trustees' attorneys paid by the trustees for services in respect to the tax and other problems resulting from the expiration of the trust and delivery of the corpus to the legatees in remainder. The amount paid for fees included in (3) was for the following services as set forth in the stipulation of the parties:
"For services in considering the tax problems resulting from the expiration of the trust, advice as to the present status of the Trust for tax purposes, and as to various methods whereby the various properties of the Trust might be continued as a single unit in the future; investigation of various questions of law and preparation for the Trustees of a memorandum in which the recommendation was made that the stocks of certain companies owned by the Trust be placed in one or more Voting Trusts; formation of Voting Trusts; advice relative to indebtedness owed by two of the principal corporations; preparation of documents; and assisting the Trustees in delivery...
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