ESTATE OF PAINE v. Commissioner

• Decision Date: 07 October 1963
• Docket Number: Docket No. 90015.
• Citation: 22 TCM (CCH) 1383,1963 TC Memo 275
• Parties: Estate of Robert Treat Paine, Deceased, Francis Cummings, Executor v. Commissioner.
• Court: U.S. Tax Court

22 T.C.M. (CCH) 1383 (1963)

T. C. Memo. 1963-275. Estate of Robert Treat Paine, Deceased, Francis Cummings, Executor v. Commissioner.

Docket No. 90015.

United States Tax Court.

Filed October 7, 1963.

Harold Brown, 85 Devonshire St., Boston, Mass. for the petitioner. Albert R. Doyle, for the respondent.

Memorandum Findings of Fact and Opinion

PIERCE, Judge:

Respondent determined deficiencies in the income taxes of the decedent, Robert Treat Paine, for the years 1954 through 1958 as follows:

                  Year                      Deficiency
                  1954 ..................    $1,241.75
                  1955 ..................     2,520.79
                  1956 ..................     9,460.58
                  1957 ..................       447.11
                  1958 ..................       168.84
                

The sole issue for decision is whether, in the taxable year 1954, the decedent sustained a deductible nonbusiness bad debt loss, within the meaning of section 166(d) of the 1954 Code, in respect of certain cash payments which he had made to three individuals during the preceding years 1948 through 1953.

The deficiencies determined for the other years 1955 through 1958 resulted from respondent's disallowance of claimed capital loss carryovers in respect of the alleged 1954 bad debt above mentioned; and the allowability of such carryovers is dependent upon the outcome of the issue above stated.

Findings of Fact

Some of the facts have been stipulated. The stipulation of facts and all exhibits identified therein are incorporated herein by reference.

Robert Treat Paine (herein called the "decedent") died a resident of the State of Massachusetts on August 19, 1961, at the age of 96 years. The petitioner herein, Francis Cummings, is the duly appointed and acting executor of the decedent's last will and testament. The decedent's income tax return for each of the taxable years 1954 through 1958 was filed on a cash and calendar year basis with the district director of internal revenue for the district of Massachusetts.

The decedent, during all years here involved and also for an extended period thereto, maintained an office in Boston where he engaged principally in acting as a trustee and in handling various family and personal matters. His only employee was a secretary, Harriet C. Thompson. He did not maintain any books of account for his personal affairs; but he did have a checkbook out of which he alone issued checks, and he also had files which were kept under his direction by his secretary.

Facts re Earlier Period, 1931-1945

In 1931 (approximately 23 years prior to the first taxable year here involved) a woman named Myra Page Wiren filed a bill of complaint in the United States District Court for the Southern District of New York against Shubert Theater Corporation, United Artists Corporation, Paramount Famous-Lasky Corporation, and certain other corporate and individual defendants. In this complaint¹ she alleged, in substance, that she had written a dramatic work and composition entitled "Most," which was described as a fictitious tragedy of three acts; that the defendants had plagiarized this composition in producing and presenting on the stage and elsewhere, another play entitled "Death Takes a Holiday"; and she sought to enjoin the defendants from producing, presenting, publishing or otherwise exhibiting said last-named play, and also to obtain an accounting from them for profits realized therefrom. Myra Wiren's counsel of record in this suit was her brother, Oscar B. Wiren; and both he and Myra's sister, Frances A. Wiren, had financial interests in the proceeding although they were not named as complainants. The litigation with respect to this particular suit continued, as hereinafter shown, until the year 1945.

During the period that said litigation was in progress, the decedent made cash payments to the three Wirens in an unestablished total amount, for the purpose of assisting them in their financing of the litigation. He had no blood relationship to them. The first indication of these payments shown in the evidence herein, is a promissory note (hereinafter identified as "instrument A") which the decedent received in or about the year 1934, and which read as follows:

$75.00 January 9, 1934

On demand after date I promise to pay to the order of Robert Treat Paine Seventy-five .........xx/100 Dollars at 10 State Street, Boston, Mass. Value received No. ........ Due......

/s/ Oscar B. Wiren

Subsequently, in 1937, decedent received from the Wirens another instrument (hereinafter identified as "instrument B") which read:

THIS INDENTURE, made the twenty-sixth day of September, 1937, between Myra Page Wiren, Frances A. Wiren and Oscar B. Wiren, all of New York City, and Robert Treat Paine of Boston, Massachusetts, WITNESSETH:

WHEREAS the said Myra Page Wiren is the author and copyright-owner of a certain drama entitled "Most", and an action at law is now pending in the Courts of Italy to recover damages for the plagiarism of said drama by a certain play entitled "La Morte In Vacanze", and to recover the profits from said play and the motion-picture made from said play, and to recover the profits from the English adaptation of said play entitled "Death Takes A Holiday" and the motion-picture made from said adaptation, in the various countries where the said play, adaptation and motion-pictures have been and are being produced, and the profits from the publication of the book of said play and other profits, and

WHEREAS the said Robert Treat Paine has rendered valuable legal advice and valuable assistance in connection with said suit and has provided and advanced funds in the sum of Twenty-four thousand ($24,000.00) Dollars for the conduct of said suit,

NOW THEREFORE THIS INDENTURE WITNESSETH: That the said Myra Page Wiren, Frances A. Wiren and Oscar B. Wiren, in consideration of the premises as aforesaid, and in pursuance and furtherance of a similar agreement heretofore made by the said Myra Page Wiren to said Robert Treat Paine, it is hereby agreed that the said Robert Treat Paine shall be and is entitled to receive and shall receive One Quarter of the net amount of all monies obtained by judgment, settlement or otherwise from said suit and from all claims arising therefrom or from said plagiarism, all money advanced by the said Robert Treat Paine to be paid out of the gross amount obtained as aforesaid, and the said Myra Page Wiren has sold and assigned and by these presents does sell, transfer, set over and assign unto the said Robert Treat Paine One Quarter of the said net amount of all monies now due to her or which may become due to her by reason of said plagiarism or said suit or any claims arising therefrom and One Quarter of the net amount of all the right, title and interest which she has in all said monies, and the said Frances A. Wiren and Oscar B. Wiren do hereby join in said assignment to the full extent of the interest that they have or may hereafter have in the said suit or in any monies to be obtained as aforesaid, and the said Myra Page Wiren does hereby duly give the said Robert Treat Paine full power and authority in her name or in his own name to demand, collect and receive the said One Quarter of all said monies.

IN WITNESS WHEREOF, we have hereunto set our hands and seals, this twenty-sixth day of September 1937.

/s/ Myra Page Wiren /s/ Frances A. Wiren /s/ Oscar B. Wiren

And thereafter, in about 1943, decedent received from the Wirens a third instrument (hereinafter identified as "instrument C") which read:

THIS INDENTURE, made the sixteenth day of October, 1943, between Myra Page Wiren, Frances A. Wiren and Oscar B. Wiren, all of New York City, and Robert Treat Paine of Boston, Massachusetts, WITNESSETH:

WHEREAS the said Myra Page Wiren is the author and copyright owner of a certain drama entitled "Most," and an application is being made for the hearing of an action in the United States Court, to recover damages for the plagiarism of said drama by a certain play entitled "La Morte In Vacanze" and "Death Takes a Holiday," and to recover the profits from said play and from the motion picture made from said play and the profits from the publication of the book of said play, and

WHEREAS the said Robert Treat Paine has rendered valuable legal advice and valuable assistance in connection with said suit and has provided and advanced funds for the conduct of said suit,

NOW THEREFORE THIS INDENTURE WITNESSETH: That the said Myra Page Wiren, Frances A. Wiren and Oscar B. Wiren, in consideration of the premises aforesaid and in pursuance and furtherance of an agreement of assignment heretofore made by the said Myra Page Wiren to said Robert Treat Paine, hereby agree that the said Robert Treat Paine is entitled to receive and shall receive, in addition to any amounts stated in any previous agreement, and to be considered and treated as an addition to said previous agreement, the additional sum of Sixty-three hundred Dollars ($6300.00) such sum having been provided and advanced in sundry amounts and at sundry times subsequent to said previous agreement, and to which additional sum the same provisions shall pertain as provided for in said previous assignment.

IN WITNESS WHEREOF, we have hereunto set our hands and seals, this sixteenth day of October, 1943.

/s/ Myra Page Wiren /s/ Frances Wiren /s/ Oscar B. Wiren

The manner in which the above-mentioned payments were made from the decedent to the Wirens during years prior to 1945 was as follows. The decedent would from time to time personally issue a check made payable to Myra Wiren, and have his secretary mail it to one or another of the Wirens; and shortly thereafter he would receive through the mail, two instruments: One of which instruments was a promissory note which would be identical to instrument A, except as to the date and the amount thereof; and the other of which would be identical to either instrument B or instrument C, except as to the date and the amount thereof. The decedent, after receiving these...