DETROIT TRUST COMPANY v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 70415.
| Citation | 34 BTA 586 |
| Decision Date | 19 May 1936 |
| Docket Number | Docket No. 70415. |
| Parties | DETROIT TRUST COMPANY, JEANIE M. LOW AND FRANK C. PAINE, EXECUTORS OF THE WILL OF ALFRED M. LOW, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Raymond H. Berry, Esq., and Arthur L. Evely, Esq., for the petitioners.
Harold D. Thomas, Esq., for the respondent.
The Commissioner determined a deficiency of $8,356.32 in income tax of petitioners' decedent for the period January 1, 1930, to the date of his death, October 11, 1930. The only issue remaining for decision is whether, as the Commissioner held, installment obligations on land contracts were owned by decedent and transmitted by death, involving taxable gain under section 44 (d), Revenue Act of 1928.
FINDINGS OF FACT.
The petitioners are executors of the will of Alfred M. Low, deceased, who died October 11, 1930.
On November 10, 1923, June 30, 1924, and December 19, 1924, decedent entered into agreements with several individuals which recited that he had purchased certain described lands in Detroit acting for and on behalf of the contracting parties; that each had contributed a specified part of the down payment made. It was provided that title to the lands was vested in him "in trust" for all the parties, each of whom was the owner of a stated undivided fractional interest in the lands and entitled to receive the same fraction of the net profits thereafter accruing from their sale. It was agreed that each would pay specified amounts to make up the remainder due on the purchase price and that the lands should be improved, subdivided and offered for sale in lots on installment contracts under the direction of a corporate agent which was to receive a commission for its services. In the event that sales proceeds were insufficient to cover cost of improvements and expenses, each party agreed to pay a proportion of the deficiency.
Decedent was given charge of all collections on land contracts and was required to keep proper books of account. He was to receive a commission of 5 percent of the sale price of all lots sold, for his services in making collections, drawing deeds, delivering abstracts, keeping accounts and making all disbursements.
On May 29 and June 12, 1925, Leroy L. Maxam entered into two agreements with decedent and others, which recited that Maxam had purchased for and on behalf of all the parties certain lands in Detroit, and had made an initial payment contributed in stated amounts by the parties; that title to the land was held by Maxam "in trust" for them. It was provided that Maxam hold the lands "in trust" for the parties in accordance with specified undivided fractional interests; that each party was entitled to profits from the sale of the lands in proportion to his interest, and was liable to the same extent for the mortgage indebtedness. It was agreed that Maxam, "the trustee herein", should have power and authority to improve and subdivide the tracts into lots, to enter into sale contracts and convey title "in his own name freed from the said trust the same as if he held title thereto absolutely, and not as trustee." A corporate real estate agent was given the supervision and direction of sales, and lots were to be sold:
* * * at such prices and upon such terms as may be mutually agreed upon by all the parties hereto in accordance with the sales contract entered into by and between Maxam and the agent.
"The trustee" was charged with the payment of "such obligations as may arise" from sales proceeds and with an accounting for receipts and disbursements. He also agreed:
* * * whenever requested by the parties hereto to surrender the said trust and to account to the parties according to their respective interests. It was further provided that if the parties desired to terminate the trust or if Maxam became unable to continue to act as trustee, the lands should be conveyed to a specified corporation as successor trustee.
During his lifetime decedent received cash distributions of profits from the sales of land pursuant to the first three instruments. Each year the sales profits made during the year were computed and each interest holder was informed of the amount of his share. After decedent's death, a successor trustee of each of the three trusts was appointed by separate orders of the Wayne County Circuit Court, dated April 17, 1931. In each instance the court ordered, adjudged, and decreed:
* * * that Alfred M. Low, now deceased, held title to the property described in the Bill of Complaint, and was Trustee thereof for and on behalf of * * * in the proportions and under the terms and conditions, as set forth in a certain Trust Agreement, copy of which is annexed to the Bill of Complaint, filed herein.
* * * * * * * The decrees recognize the trustee's authority to give conveyances of the trust property, to enter into contracts for the purchase and sale thereof, to make collections on land contracts, to sue therefor or for the forfeiture of purchasers' interest, to compromise and settle claims and disputes, to deliver abstracts, to make necessary disbursements for expenses incurred in the course of such duties, to pay taxes and assessments, and, after the deduction of expenses and retention of sufficient reserve, to distribute the net proceeds...
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Devan v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 56182.
... ... complaint, provided, however, that if by defendant's will, or by a trust created by him, ample provision 34 BTA 583 in not less than the foregoing ... ...