Field v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 06 March 1929 |
| Docket Number | Docket No. 11840. |
| Citation | 15 BTA 718 |
| Parties | MARSHALL FIELD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Beverly R. Robinson, Esq., Daniel B. Priest, Esq., and Edward N. Perkins, Esq., for the petitioner.
John D. Foley, Esq., for the respondent.
In this proceeding the petitioner seeks a redetermination of his income tax for the calendar year 1922, for which year the respondent has determined a deficiency in the amount of $369,649.92.
The following issues are raised by the pleadings:
First, whether certain income from a trust fund, received by the petitioner's wife pursuant to an assignment to her of his interest therein, is nevertheless taxable to the petitioner.
Second, whether an amount of money paid attorneys pursuant to a contingent-fee contract, for obtaining for the petitioner a court decree resulting in the receipt by him of income which otherwise he could not have received, may be deducted from the taxable income so obtained.
A third issue relative to excessive deductions from trust-estate income for depreciation has been by stipulation disposed of as to the amount of the excessive deductions, leaving for determination by this Board only the question as to whether the petitioner's income should be increased by the whole or only a part of such deductions.
FINDINGS OF FACT.
This proceeding involves the income received by this petitioner or his wife from the estate of the late Marshall Field of Chicago. All the income involved is from a residuary trust created pursuant to article "Twentieth" of his will.
The petitioner, Marshall Field, a grandson of said testator, is, since the death of his only brother, Henry Field, sole beneficiary of the trusts. As to three-fifths of the corpus of the residuary trusts the petitioner was beneficiary from the beginning, and as to two-fifths he became beneficiary, under the terms of the "Twentieth" article of the will, as successor to his brother, Henry Field, upon the latter's death. It is exclusively with income of this latter interest that this case is concerned.
The testator died on January 16, 1906, a resident of and domiciled in Cook County, Illinois, leaving his residuary estate to trustees, all domiciled in Cook County, Illinois. At that time the petitioner was twelve years old, and his brother, Henry, younger. The will was admitted to probate in Cook County on February 21, 1906. The trustees qualified in due course and the trusts have ever since been administered in Cook County, Illinois.
The trust here in question was created by article "Twentieth" of the will. As regards Henry Field, the material provisions of the trust instrument may be summarized as follows: two-fifths of the residuary estate was given to the trustees to be held in trust for him. It was provided that such two-fifths of the residuary estate should be divided into halves and that all of the income of one-half should be accumulated and added to principal until the beneficiary should be 45 years of age; that the income of the other half should likewise be accumulated and added until the beneficiary should reach the age of 30 years; that thenceforth two-thirds of it should be accumulated and added until the beneficiary reached the age of 35 years; and thenceforth one-third should be accumulated and added until the beneficiary reached the age of 40. In other words, the beneficiary received no income until he reached the age of 30 years, a sixth of the income between the ages of 30 and 35, one-third of the income between the ages of 35 and 40, and one-half of the income between the ages of 40 and 45. After he reached the age of 45 he was to receive all of the income. It was further provided that at specific times named in the trust instrument the beneficiary was to receive outright a payment of principal. It was further provided that on the death of such beneficiary without issue, all of the property in trust for such decedent should thenceforth be held in trust for Marshall Field III, the petitioner herein, upon the same trusts and subject to the same directions. A similar provision was made for Marshall Field.
Henry Field died without issue on July 8, 1917, at which time the petitioner was nearly 24 years of age, and the provisions above stated, securing succession to the survivor, became operative, giving Henry Field's share to the petitioner, but in the language of the will, "upon the same trusts and subject to the same directions."
In 1915 the petitioner had married his present wife, Evelyn, to whom he made later the assignment here in question. Prior to that assignment two children were born, and subsequent thereto, one child.
Following Henry Field's death came litigation involving accounts and the construction of the will. In that litigation the petitioner filed a cross-bill which resulted in a decree construing the will. Pursuant to the terms of that decree, the entire income of the two-fifths trust from the date of Henry Field's death has been paid currently to the petitioner or his assignees free of all the trust provisions as to accumulations. The decree established conclusively that at least from and after Henry Field's death the "spendthrift" provisions of article "Twentieth" of the will had no application to the two-fifths trust. The pertinent provisions of this decree follow:
(1) That the death of Henry Field without issue in nowise affected the trusts upon which Marshall Field III's original share (or three-fifths) of the residuary estate is held under the will of Marshall Field, deceased, and in nowise affected the powers or duties of the Trustees over or in relation to said Marshall's original share of the residuary estate;
(2) That upon the death of Henry Field without issue, the entire accumulated income of his share (or two-fifths) of the residuary estate became an addition to the capital or principal of his share of the trust estate, and that said last mentioned share, with the accumulated income so added thereto, became a trust estate to be held upon the same trusts as said Marshall Field III's original share of the residuary estate is held under the said will, except that the net income therefrom as received by the Trustees under said will shall be paid to Marshall Field III, and that the amount to be paid to Marshall Field III, out of the capital or principal of Henry Field's share of said trust estate when Marshall Field III attains the ages of thirty, thirty-five and forty years, respectively, is Three Hundred Thousand Dollars ($300,000) instead of Four Hundred Fifty Thousand Dollars ($450,000) which said Four Hundred and Fifty Thousand Dollars ($450,000) is to be paid out of the capital or principal of Marshall's original share (or three-fifths) of said trust estate at the same times; and said Trustees are by said will given all the powers, rights, discretion and authority with respect to the capital or principal of Henry Field's share (or two-fifths) of the residuary estate that said Trustees are given by the said will with respect to said Marshall's original share of the residuary estate, unaffected by the death of Henry Field without issue.
(3) That said Henry Field having died without issue, said Trustees are by said will directed to pay to Marshall Field III out of the capital or principal of Henry Field's share of the trust estate, the sum of Three Hundred Thousand Dollars ($300,000) when Marshall Field III attains the age of twenty-five years, to-wit: On September 28th, 1918; and also the like sum of Three Hundred Thousand Dollars ($300,000) when said Marshall Field III shall attain respectively the ages of thirty years, thirty-five years and forty years;
(4) That the trusts for accumulation of income from Henry Field's share (or two-fifths) of the said trust estate ceased upon the death of said Henry Field, and that thereupon Marshall Field III became entitled (absolutely with all the incidents of absolute ownership, including the right of testamentary disposition and transmission by him to his heirs and next of kin by inheritance from him) to all of the net income thenceforward accruing and to accrue from Henry Field's share (or two-fifths) of said residuary estate during the whole of the period during which said Trustees may hold the principal or corpus of said trust estate under the provisions of said will.
This decree was entered on July 13, 1920. On February 1, 1922, by written assignment delivered on that date, the petitioner assigned to his wife a portion of the income to which he became entitled under the decree. Thenceforth all the income thus assigned has been credited to and paid by the trustees to Evelyn Field and the petitioner has had none of it. Evelyn Field returned it as her income and paid tax thereon. The amount of 1922 taxable income, exclusive of tax-exempt income so credited and paid, being the amount here in dispute, is composed of $332,790.33 in dividends and $128,006.67 in other taxable income. The following excerpt from the assignment gives the gist of it, the petitioner being the party of the first part, and his wife, Evelyn, the party of the second part:
That the said party of the first part, in consideration of love and affection, and of one dollar to him in hand paid * * * does hereby sell, assign, transfer and set over unto the said party of the second part an undivided two-thirds (2/3rds) interest in all the net income of the two-fifths (2/5ths) of the residuary estate of Marshall Field, deceased, * * * intending hereby to convey to and vest in the said party of the second part an undivided two-thirds (2/3rds) interest in all the net income adjudicated to belong to the said party of the first part * * * which shall accrue after the date of this indenture.
The provision of the decree that the income from Henry Field's two-fifths share should be distributed currently to the petitioner was directly attributable to the endeavors of the late John B....
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