Greenwald's Estate
| Decision Date | 30 October 1962 |
| Citation | 17 Wis.2d 533,117 N.W.2d 609 |
| Parties | ESTATE of Edith C. GREENWALD, deceased. FIRST WIS. TRUST CO., Ex'r and Trustee, Respondent, v. WISCONSIN DEPARTMENT OF TAXATION, Appellant. |
| Court | Wisconsin Supreme Court |
John W. Reynolds, Atty. Gen., Harold H. Persons and E. Weston Wood, Asst. Attys. Gen., Madison, for appellant.
George P. Ettenheim, Milwaukee, Ralph M. Hoyt, Milwaukee, of counsel, for respondent.
Testatrix Edith C. Greenwald died August 30, 1953, leaving an estate consisting entirely of personal property, primarily intangible personalty, appraised at $1,536,364.44. In September, 1953, a document which later was admitted in the county court as her will was offered for probate. Objections to the admission of the document to probate as her will were filed in October, 1953, by her nephew and subsequently by others.
Under the provisions of this document specific bequests included $127,000 in cash, a few items of personalty and an additional $150,000 in trust for the benefit of William Podewils and his family. The residue was to be distributed as follows: one-fourth to the Milwaukee Foundation and three-fourths to the First Wisconsin Trust Company in trust for Mt. Sinai Hospital. Both the Milwaukee Foundation and the Mt. Sinai Hospital, Inc. are charitable corporations. The document also named the First Wisconsin Trust Company as executor and as trustee of the Podewils and Mt. Sinai trusts. It also provided that capital gains realized by the estate or the trusts should be treated as principal.
On October 7, 1953, the First Wisconsin Trust Company was appointed special administrator of the estate, and Letters of Special Administration were issued on that date. While the admission of the will to probate was still in litigation, on January 31, 1955, the county court ordered the special administrator to convert the majority portion of the securities into cash. Sales made pursuant to such order resulted in very substantial gains, which were realized prior to the admission of the will to probate and the setting up of individual accounts for each beneficiary.
The will contest was finally concluded on December 29, 1955, by the county court's approval of a written stipulation. On that date the court entered judgment on claims and the document was admitted to probate as the will of Mrs. Greenwald. On the same day the court issued Letters Testamentary and Letters of Trust to the First Wisconsin Trust Company.
First Wisconsin Trust Company, as special administrator, seasonably filed Wisconsin income tax returns for the estate for the years 1953, 1954 and 1955. The tax return for 1955 was made by the special administrator April 16, 1956. No income or capital gains were listed as distributable to any beneficiary. Subsequently the Department made a small additional assessment for the year 1953 which was also paid. Upon these returns the tax was computed upon all income in the estate, including capital gains. The total Wisconsin taxes paid were $3,764.82 for 1953, $4,873.74 for 1954, and $50,564.88 for 1955. A large percentage of the tax paid for 1955 was on the capital gains realized during that year.
In January, 1956, the trust company, as executor, distributed $150,000 to itself as trustee of the Podewils trust, and it satisfied the specific legacies. On February 1, 1956, the executor transferred $900,000 to itself as trustee of the Mt. Sinai Hospital and delivered $300,000 to the Milwaukee Foundation. This is the first entry in the accounts of either the special administrator or the executor that funds were transferred in trust or otherwise to the accounts of the charitable beneficiaries. Thereafter the trustee maintained a separate record concerning the corpus of the Mt. Sinai Hospital trust. In 1958 a final judgment was entered in the probate proceedings and a further distribution of $32,500 was made to the Milwaukee Foundation. The executor made a further distribution of $97,500 to itself as trustee of the Mt. Sinai Hospital trust.
On January 25, 1957, the executor-trustee filed a claim for refund of income taxes paid for the years 1953, 1954 and 1955 in the amounts of $1,723.28, $4,738.47 and $50,548.13 respectively. Its theory was that the only income which was taxable was income attributable to the Podewils trusts which would not include any income derived from capital gains. The taxpayer relies on sec. 71.08(9), Stats., which provides:
The Department of Taxation denied the claim for refund of taxes paid for both the ordinary income and capital gains attributable to the Milwaukee Foundation bequest and the Mt. Sinai Hospital trust. The Board of Tax Appeals affirmed the denial on the ground that no income was permanently set aside or paid over during any of the taxable years to the use of the two charities and therefore such income during that period did not come within the exemption of sec. 71.08(9), Stats.
Upon review brought by the executor-trustee, the circuit court for Milwaukee county reversed, in part, the decision of the board and held that the capital gains realized were the result of sales made pursuant to an order of the county court and to tax such income would be to penalize the charitable beneficiaries, and that the capital gains for the two charitable corporations were not taxable because there was insufficient evidence to support the board's holding that the capital gains were not permanently set aside for the two charities during the years 1953, 1954 and 1955. However, the court held that the ordinary income of the estate during the years 1953 through 1955 was still taxable. A refund of $50,102.07, which included interest, was ordered by the circuit court for the taxes imposed upon the capital gains. It is from the judgment incorporating this order the appeals are taken.
The issue is whether sec. 71.08(9), Stats. exempts any of the income received or capital gains realized by the special administrator during a will contest lasting from 1953 through 1955, if under the terms of the will the residue of the estate would be distributed to a trustee for exclusive charitable purposes if, without more, the will is admitted to probate and Letters of Trust were issued near the end of 1955.
Ch. 71, Stats., is the Income Tax Act, and by sec. 71.08(1), an estate is considered a tax entity since every administrator is required to file an income tax return for all of the income received by the decedent during that portion of the year covered by the return preceding the demise of the decedent, and for all receipts by him from the estate of the deceased during the year covered by the return if such receipts would have been taxable as income to the decedent had he survived. Thus, the special administrator is liable in tax for all the income received by it unless the income is clearly within the express language of an exemption provision. Comet Co. v. Wisconsin Department of Taxation (1943), 243 Wis. 117, 123, 9 N.W.2d 620; Fall River Canning Co. v. Wisconsin Department of Taxation (1958), 3 Wis.2d 632, 637, 89 N.W.2d 203. This rule of strict construction against the taxpayer likewise applies to provisions creating exemptions favoring charities. Will of Chafin (1933), 210 Wis. 675, 680, 247 N.W. 325; Evangelical Lutheran Church v. Shawano County (1949), 256 Wis. 196, 200, 40 N.W.2d 590.
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