Donner v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 60235-60237.
| Decision Date | 16 April 1935 |
| Docket Number | Docket No. 60235-60237. |
| Citation | 32 BTA 364 |
| Parties | CARROLL E. DONNER AND THE MARINE TRUST COMPANY OF BUFFALO, GUARDIANS OF THE PROPERTY OF JOSEPH W. DONNER, JR., PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. CARROLL E. DONNER AND THE MARINE TRUST COMPANY OF BUFFALO, EXECUTORS OF THE ESTATE OF JOSEPH W. DONNER, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. CARROLL E. DONNER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Ralph M. Andrews, Esq., for the petitioners.
W. Frank Gibbs, Esq., and Frank M. Thompson, Jr., Esq., for the respondent.
These duly consolidated proceedings are for the redetermination of the following deficiencies in income tax.
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Name | Docket | Year or period | Amount
| No. | |
-------------------------------------------------------|--------|--------------------------------|----------
Carroll E. Donner and the Marine Trust Co. of Buffalo, | | |
Guardians __________________________________________ | 60235 | 1929 _________________________ | $676.23
Carroll E. Donner and the Marine Trust Co. of Buffalo, | | |
Executors __________________________________________ | 60236 | Jan. 1 to Nov. 9, 1929 ______ | 22,256.20
Carroll E. Donner ____________________________________ | 60237 | 1929 _________________________ | 4,235.81
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The issue common to all three proceedings pertains to the respondent's erroneous inclusion of the following amounts in the taxable incomes of the several petitioners:
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Docket No. | Year or period | Amount
-----------------------------|-----------------------------------|-----------
60235 ______________________ | 1929 ____________________________ | $18,872.50
60236 ______________________ | Jan. 1 to Nov. 9, 1929 __________ | 107,746.69
60237 ______________________ | 1929 ____________________________ | 56,152.50
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being the difference between the costs of certain securities contributed to Rennod Co., a limited partnership, and the market values of said securities at the time of such contributions.
Another issue, found only in Docket No. 60236, pertains to the respondent's allegedly erroneous inclusion of $3,614.13 in taxable income, representing the decedent's distributive share of the net income of the Rennod Co. for the taxable year 1929.
The respondent moved at the hearing for an increased deficiency and reiterated his claim thereto in amended answers filed by him.
The respondent expressly abandons the averment in Docket No. 60236 that the petitioner had the power to revest in himself title to the entire corpus of the trust set up for the benefit of Joseph W. Donner, Jr., and concedes that the income of that trust was not taxable to the decedent. He also abandons his averment that there was no bona fide partnership. He adheres to his position that the partnership income attributable to the interest of Joseph W. Donner, which Donner relinquished by his assignment of such interest in trust for his wife, is taxable to his estate.
FINDINGS OF FACT.
Joseph W. Donner, the decedent in Docket No. 60236, prior to his death, was a resident of the city of Buffalo, New York. He died on November 9, 1929, leaving a will appointing his wife, Carroll E. Donner, and the Marine Trust Co. of Buffalo, a trust company organized under the laws of the State of New York, with its offices and places of business in the city of Buffalo, New York, his executors. Letters testamentary were issued by the Surrogate of Erie County, New York, to said executors on November 25, 1929, and at all times thereafter they have been and now are the duly qualified and acting executors of the estate of Joseph W. Donner, and are the petitioners in said proceeding.
Joseph W. Donner left surviving him a son, Joseph W. Donner, Jr., who was and now is a minor. On May 15, 1931, letters of guardianship of the property and estate of Joseph W. Donner, Jr., were issued by the Surrogate of Erie County, New York, to Carroll E. Donner, his mother, and the Marine Trust Co. of Buffalo, above referred to. Said guardians at all times thereafter have been and now are the duly qualified and acting guardians of the property and estate of Joseph W. Donner, Jr., and are the petitioners in Docket No. 60235.
Carroll E. Donner, individually, is the petitioner in Docket No. 60237.
On January 31, 1929, and for some time prior thereto (but subsequent to January 1, 1927) Joseph W. Donner was and had been the owner of numerous securities including certain shares of Columbia Graphophone Co., Ltd. On said date by an instrument in writing Joseph W. Donner assigned, transferred, and delivered absolutely to his wife, Carroll E. Donner, without consideration and by way of gift, 1,200 of his shares in that company. Joseph W. Donner's cost in the 1,200 shares was $33,847.50, and their value on January 31, 1929, was $90,000.
On February 11, 1929, by declaration of trust, dated February 1, 1929, the decedent, Joseph W. Donner, constituted himself trustee of 500 shares of stock of said company for the benefit of his minor son, Joseph. Joseph W. Donner's cost in the 500 shares was $18,627.50. On February 11, 1929, the date of the creation of the trust for Joseph W. Donner, Jr., said shares had an aggregate value of $37,500.
Said declaration of trust provided, among other things, in paragraph 3 thereof, as follows:
All dividends, income, increment and rights in respect of said property shall be received and paid over to or used by me for the benefit of said infant during minority, and all proceeds of any sale, exchange or other disposition of such property above named shall be held by me for the benefit of said infant, provided, however, that I shall have the right to reinvest any of such income, increment or proceeds during the minority of said infant, and after such infant arrives at the age of twenty-one years any of the proceeds thereof, and any increment or appreciation thereof, or the proceeds thereof during the existence of this trust, for the benefit and use of said infant in any property whatsoever, including the right to invest the same in any partnership becoming a member thereof as such trustee, and I shall not be accountable for any loss sustained in the exercise of my unrestricted discretion in respect of such reinvestment.
It also provided in article 7 that the trust should be revocable by the donor subject to the following conditions:
(a) That at least two years' written notice of his intention to revoke is given by the donor.
(b) That the donor be living on the date of the expiration of said two years.
(c) That the donor at the date of such expiration shall deliver to the trustee an instrument in writing revoking the trust pursuant to the notice.
No notice of revocation under article 7 of said trust indenture was given.
On February 11, 1929, Joseph W. Donner, Carroll E. Donner, and Joseph W. Donner, as trustee for Joseph W. Donner, Jr., under declaration of trust dated February 1, 1929, above referred to, entered into a written agreement, by the terms of which it was agreed that the parties thereto should enter into a limited partnership, pursuant to the Limited Partnership Act of the State of New York, under the name of "Rennod Company", for the purpose of dealing in stocks, bonds, and other securities. The general partners and the value of securities each agreed to contribute were as follows:
Joseph W. Donner __________________________________ $60,011.80
Carroll E. Donner _________________________________ 20,000.00
The limited partners and the value of securities each agreed to contribute were as follows:
Carroll E. Donner _____________________________________ $70,000
Joseph W. Donner ______________________________________ 120,000
Joseph W. Donner, as trustee for Joseph W. Donner, Jr _ 37,500
The limited partners were to receive annually from the partnership income amounts equal to the following percentages of their capital contributions:
Carroll E. Donner _____________________________________ 7 percent
Joseph W. Donner, as trustee for Joseph W. Donner, Jr _ 7 percent
Joseph W. Donner ______________________________________ 10 percent
The general partners were to receive the balance of the profits of the partnership and to absorb its losses in proportion to the amount of their respective contributions.
Carroll E. Donner and Joseph W. Donner, as trustee for Joseph W. Donner, Jr., were to have priority as limited partners over Joseph W. Donner as a limited partner, both in the matter of sharing in the partnership profits and in the return of their contributions on liquidation. In the same manner Joseph W. Donner, as a limited partner, was to have priority over the general partners.
On February 11, 1929, a "Certificate of Formation of Limited Partnership of `Rennod Company'" was filed pursuant to the Limited Partnership Act of the State of New York, in the office of the Clerk of Erie County, New York.
On February 11, 1929, Joseph W. Donner, by an instrument in writing, duly assigned, transferred, and delivered to Rennod Co., as his limited partnership contribution to the capital of Rennod Co., 1,600 shares of the common capital stock of Columbia Graphophone Co., Ltd., which he acquired during the calendar year 1928 at an aggregate cost of $64,742.50, and which had a fair...
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