Edgar v. Comm'r of Internal Revenue
| Citation | 56 T.C. 717 |
| Decision Date | 08 July 1971 |
| Docket Number | 3341-67,Docket Nos. 3237-67,3340-67,2911-68— 2926-68. |
| Parties | GLENN E. EDGAR AND ELVA EDGAR, ET AL.,1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Stephen H. Anderson and Alonzo W. Watson, Jr., for the petitioners.
Sidney U. Hiken and Leo A. McLaughlin, for the respondent.
1. Neither the individual petitioners who are members of the Strain family nor the trusts which they created in 1963 had recognizable capital gain in 1964 (other than the gain referred to in issue 2) when stock was sold to Brigham Young University; the transaction was not an exchange of stock for annuities, but was a deferred-payment sale by the trusts.
2. Neither William Russell Strain nor Harriet Strain realized taxable income in 1964 on the sale by two trusts of stock which was subject to liens, securing notes previously given by William Russell Strain and Arthur W. Strain; however, the trusts which made the sales of such stock realized income in that year in the amounts of the respective liens.
3. As compensation for the services which he performed in arranging the sale of the stock of the Strain corporations, Glenn E. Edgar realized taxable income measured by the difference between the price paid and the fair market value of the shares his trust was permitted to purchase; the income is taxable in 1964, when the repurchase option retained by William Russell Strain and Arthur W. Strain lapsed.
4. Glenn E. Edgar had no recognizable gain in 1963 or 1964 as the result of his transfer of a duplex residence to a trust and the trust's subsequent sale of the residence, or as a result of the sale of stock and the loan of cash by another trust; his only income from these trusts was the interest paid on the obligations which they held.
5. William Russell Strain and his wife and Harriet Strain, who filed a joint return for herself and her deceased husband, Arthur W. Strain, are entitled to charitable contribution deductions for the value of the remainder interests of trusts created in 1963. Such interests were irrevocably dedicated to charitable use. If the foundations originally named as remaindermen do not meet the requirements of sec. 170(c), I.R.C. 1954, the remainder interests will pass to qualified charities.
6. Glenn E. Edgar is entitled to charitable contribution deductions for the value of the remainder interests in trusts created in 1962, even though the corpus of one consisted of an interest in a business venture and of the other consisted of depreciable real estate.
7. William Russell Strain and his wife and Harriet Strain are not entitled to charitable contribution deductions in 1964 for amounts contributed to two foundations, because it was not shown that the foundations were organized and operated exclusively for charitable purposes.
8. Harriet Strain is not entitled to a charitable contribution deduction in 1964 for the relinquishment of her rights under an agreement whereby a corporation continued her husband's salary after his death.
9. William Russell Strain and his wife Harriet Strain, who filed a joint return for herself and her deceased husband, Arthur W. Strain, realized constructive dividends upon the transfer of the Strain Ranch to two foundations which they controlled.
10. Raymond P. Murphy and Mary Jean Murphy failed to substantiate a capital loss claimed in their return for 1964.
11. Even though Glenn E. Edgar was grantor and life beneficiary of certain trusts which had become members of two partnerships, he was not entitled to deduct the trusts' shares of the operating losses incurred during 1962, 1963, and 1964.
12. The failure of William Russell Strain Trust No. CR-1 and Arthur W. Strain Trust No. CR-1 to file timely income tax returns for 1964 was not due to reasonable cause and, therefore, the sec. 6651(a), I.R.C. 1954, additions to the tax apply. Since none of the other trust petitioners had taxable income in that year, sec. 6651(a), I.R.C. 1954, does not apply to them.
13. Although there were errors in the 1964 income tax return of Glenn E. Edgar and his wife, the underpayment of tax thereon was not due to negligence or intentional disregard of the rules and regulations; therefore, the addition to tax under sec. 6653(a), I.R.C. 1954, does not apply.
Respondent determined deficiencies in petitioners' income tax and additions to tax under sections 6651(a)2 and 6653(a) as follows:
+-------------------------------------------------------+
¦ ¦Taxable¦ ¦Additions to tax ¦
+----------+-------+----------+-------------------------¦
¦Docket No.¦year ¦Amount ¦ ¦
+----------+-------+----------+-------------------------¦
¦ ¦ ¦ ¦Sec. 6651(a)¦Sec. 6653(a)¦
+----------+-------+----------+------------+------------¦
¦ ¦ ¦ ¦ ¦ ¦
+----------+-------+----------+-------------------------¦
¦3237-67 ¦(1962 ¦$23,914.44¦ ¦
+----------+-------+----------+-------------------------¦
¦ ¦(1963 ¦17,153.34 ¦ ¦
+----------+-------+----------+-------------------------¦
¦3340-67 ¦1963 ¦16,484.29 ¦ ¦
+----------+-------+----------+-------------------------¦
¦3341-67 ¦1963 ¦15,176.11 ¦ ¦
+----------+-------+----------+-------------------------¦
¦2911-68 ¦1964 ¦179,042.72¦ ¦
+----------+-------+----------+-------------------------¦
¦2912-68 ¦1964 ¦144,048.91¦ ¦
+----------+-------+----------+-------------------------¦
¦2913-68 ¦1964 ¦40,817.77 ¦ ¦
+----------+-------+----------+-------------------------¦
¦2914-68 ¦1964 ¦58,179.28 ¦ ¦
+----------+-------+----------+-------------------------¦
¦2915-68 ¦1964 ¦57,308.14 ¦ ¦
+----------+-------+----------+-------------------------¦
¦2916-68 ¦1964 ¦95,970.48 ¦$23,992.62 ¦ ¦
+----------+-------+----------+------------+------------¦
¦2917-68 ¦1964 ¦87,267.20 ¦21,816.80 ¦ ¦
+----------+-------+----------+------------+------------¦
¦2918-68 ¦1964 ¦105,971.52¦26,492.88 ¦ ¦
+----------+-------+----------+------------+------------¦
¦2919-68 ¦1964 ¦40,478.31 ¦10,119.57 ¦ ¦
+----------+-------+----------+------------+------------¦
¦2920-68 ¦1964 ¦45,429.16 ¦11,357.29 ¦ ¦
+----------+-------+----------+------------+------------¦
¦2921-68 ¦1964 ¦58,971.44 ¦14,742.86 ¦ ¦
+----------+-------+----------+------------+------------¦
¦2922-68 ¦1964 ¦51,773.91 ¦12,943.47 ¦ ¦
+----------+-------+----------+------------+------------¦
¦2923-68 ¦1964 ¦138,812.74¦ ¦$6,940.64 ¦
+----------+-------+----------+------------+------------¦
¦2924-68 ¦1964 ¦121,002.82¦30,250.70 ¦ ¦
+----------+-------+----------+------------+------------¦
¦2925-68 ¦1964 ¦5,591.70 ¦1,397.92 ¦ ¦
+----------+-------+----------+------------+------------¦
¦2926-68 ¦1964 ¦209.12 ¦52.28 ¦ ¦
+-------------------------------------------------------+
The issues presented for decision are:
(1) Whether members of the Strain family (docket Nos. 2911-68 through 2915-68) or, in the alternative, trusts created by them (docket Nos. 2916-68 through 2922-68) had recognizable capital gain from the sale or exchange of stock in 1964.
(2) Whether William Russell Strain3 and his wife, Frances Strain 4 (docket No. 2911-68), and Harriet Strain (docket No. 2912-68) or, alternatively, the William Russell Strain Trust No. CR-1 (docket No. 2918-68) had recognizable gain in 1964 as the result of the sale of stock subject to certain liens.
(3) Whether Glenn E. Edgar realized taxable income in 1964 as the result of a bargain purchase of stock which G & E Trust No. CR-7007, created by him, was allowed to make on condition that he arrange the sale of the stock of the Strain corporations; if so, whether the amount of such income is to be computed by reference to annuity tables (docket No. 2923-68); alternatively, whether G & E Trust No. CR-7007 realized short-term capital gain on the sale of the stock (docket No. 2924-68).
(4) Whether Glenn E. Edgar realized taxable income which is to be computed by reference to annuity tables as the result of transfers of cash and a duplex residence to Brigham Young University (docket No. 2923-68); alternatively, whether the Glenn E. Edgar Trust No. CR-2002 realized long-term capital gain on the sale of the duplex residence to Brigham Young University (docket No. 2925-68), and whether the Glenn E. Edgar Trust No. CR-3003 realized ordinary income in consideration of services performed by Glenn E. Edgar, the grantor of the trust (docket No. 2926-68).
(5) Whether Russell Strain (docket No. 3340-67) and Harriet Strain, on the joint return of herself and her deceased husband (docket No. 3341-67), are entitled to charitable contribution deductions for the remainder values of the stock in Strain Brothers, Inc., which they transferred to trusts in 1963.
(6) Whether Glenn E. Edgar is entitled to charitable contribution deduction for the remainder values of various items of property and cash which he transferred to trusts during 1962, 1963, and 1964 (docket Nos. 3237-67 and 2923-68).
(7) Whether Russell Strain (docket No. 2911-68) and Harriet Strain (docket No. 2912-68) are entitled to charitable contribution deductions for amounts paid to certain privately controlled foundations during 1964.
(8) Whether Harriet Strain (docket No. 2912-68) is entitled to a charitable contribution deduction for 1964 for the value of a salary continuation agreement which she relinquished in connection with the sale of the stock of the Strain corporations to Brigham Young University.
(9) Whether Russell Strain (docket...
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