Landau v. Comm'r of Internal Revenue (In re Estate of Landau)
| Decision Date | 18 February 1954 |
| Docket Number | Docket No. 40824. |
| Citation | 21 T.C. 727 |
| Parties | ESTATE OF PHILIP LANDAU, DECEASED, HERBERT LANDAU AND SIDNEY LANDAU, EXECUTORS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Sidney B. Gambill, Esq., and Robert F. Banks, Esq., for the petitioner.
Philip O. North, Esq., for the respondent.
DEDUCTION— LOSS— MORTGAGE POOL— PARTNERSHIP, CORPORATION, OR TRUST.— The petitioner has not shown that the mortgage pool was a trust rather than a partnership, as determined by the Commissioner, or rather than an association taxable as a corporation, or that it sustained a loss on the investment in the mortgage pool which was deductible in 1948 in an amount greater than that allowed by the Commissioner.
The Commissioner determined a deficiency of $218.39 in the income tax of Philip Landau for 1948. The only assignment of error is the action of the Commissioner in failing ‘to allow a deduction for an ordinary loss, allowable in full, for the year 1948 in the amount of $9,550, rather than a net capital loss in the amount of $288.10, allowed in the statutory notice of deficiency for said year.‘
Philip Landau filed his Federal income tax return for 1948 with the collector of internal revenue for the twenty-third district of Pennsylvania. Philip died in 1952 and Carrie, his wife, predeceased him in 1942.
The Pennsylvania Legislature in 1925 authorized banks to assign, to their various trust estates, participation in a general trust fund of mortgages upon real estate securing bonds evidencing loans, but provided that no participant would have any individual ownership in any of the mortgages or bonds. The Bank F Pittsburgh National Association, hereafter called the bank, had such a pool of mortgages in 1930. The record does not show any agreement, document, rule, or regulation pertaining to its creation or operation except a copy of a certificate attached to each mortgage to show that it was held by the trust department of the bank for those ‘customers who have purchased participations therein‘ and a certificate showing the participation of the holder in the pool of mortgages. The participation certificates were transferable. The law authorizing the pools was repealed in 1933 except as to existing pools.
Philip and Carrie created a revocable trust on November 15, 1930, hereafter called the Landau trust, of which the bank was made trustee. Philip transferred $25,000 to the trust at that time and on April 17, 1931, transferred an additional $25,000 to it. The trustee was to invest the corpus in first mortgages upon real estate and pay the net income semiannually to the grantors, who reserved the right to withdraw any or all of the corpus upon notice. The bank used the entire corpus to acquire, for the trust, participating interests in its mortgage pool. The record shows no change of any kind in the trust after that time.
A receiver was appointed for the bank in the latter part of 1931, and the Orphans' Court of Allegheny County, upon petition of a participant, appointed the Commonwealth Trust Company of Pittsburgh, hereafter called Commonwealth, successor trustee of the mortgage pool of the bank. Commonwealth took over all of the assets, files, and accounts of that pool on January 19, 1932. The assets consisted of first mortgages at that time, some of which were past due. $5,347,585.57 had been invested by the bank in about 450 mortgages upon behalf of about 400 participants in the pool.
Commonwealth accepted no new investments in the pool by participants and made no new investments of pool funds but proceeded to liquidate the pool by distributing pro rata to the participants all money received by it in excess of expenses and other expenditures. No participant could withdraw anything from the pool except as distributions were made by Commonwealth. Liquidation of the pool was completed on April 9, 1948.
Commonwealth never filed any income tax return for the pool. It filed accounts with the Orphans' Court showing all receipts and disbursements. Receipts of interest and rent on properties acquired by foreclosure were accounted for as income and the excess over expenses charged against income was distributed as income. Receipts of principal and net proceeds from sales of real estate were accounted for as principal, and the excess thereof over expenses and expenditures charged against principal was distributed as principal. The accounts of Commonwealth were approved by the Orphans' Court. Five were filed. The foreclosures and distributions were authorized by the Orphans' Court.
The bank never distributed any principal to the Landau trust. The record does not show whether or not the bank ever filed an income tax return for the pool. Commonwealth made 50 distributions designated income and 34 designated principal during its trusteeship. It did not include gains from sales in the income distributions, deduct losses from income, or take depreciation into account in any way. Properties acquired by foreclosure were entered on its books at the amount due on the mortgage, plus foreclosure costs. No distribution was made in 1947 but it was known that a further distribution of an amount then unascertainable would be made later. The final distribution was made on April 9, 1948. It consisted of amounts designated as 1.445 . per cent of the original principal of each participant and amounts designated 1/2 per cent income.
The total distributions from Commonwealth on the Landau trust participations were $40,472.58 designated principal and $14,928.82 designated income, or a total of $55,401.40, of which $773.84 was distributed in 1948.
The record does not show how or whether Philip reported any of the distributions on his income tax returns or what information, if any, was available to him from Commonwealth in addition to that shown by the distributions and the accounts filed on behalf of the pool. His 1948 return is not in evidence.
The Commissioner, in determining the deficiency for 1948, added $711.90 to income as ‘Loss from capital assets adjusted.‘ He explained that adjustment as follows:
(b) It is determined that your capital net loss was $288.10, which amount has required a reduction of $711.90 from the loss of $1,000,00 reported in your income tax return, said adjustment of $711.90, being explained in detail below.
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¦(1) Amount invested in mortgage pool ¦$50,000.00 ¦ ¦
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¦(2) Total investments of all partners in mortgage ¦ ¦ ¦
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¦pool ¦5,347,585.00¦[sic] ¦
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¦(3) Liquidation of the Bank of Pittsburgh mortgage¦ ¦ ¦
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¦pool ¦9,550.00 ¦$9,550.00¦
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¦(4) Expenses in 1948, $31,190.93 ¦ ¦ ¦
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¦(5) $50,000.00 multiplied by $31,190.93 divided by¦ ¦ ¦
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¦5,347,585.57 equals ¦291.64 ¦291.64 ¦
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¦(6) Unallowable loss ¦ ¦$9,258.36¦
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¦(7) Capital loss carry-over eliminated ¦ ¦8,546.46 ¦
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¦(8) Adjustment for 1948 as stated above ¦ ¦$711.90 ¦
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The record contains no further explanation of items (3), (4), (6), or (7) of the above computation.
All facts stipulated are incorporated herein by this reference.
The Commissioner, as shown by the notice of deficiency,...
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Landau's Estate v. COMMISSIONER OF INTERNAL REVENUE, 11335.
...the Tax Court, which upheld the Commissioner's determination of a deficiency in decedent-taxpayer's income tax for the calendar year 1948. 21 T.C. 727. The question presented is whether the petitioners, the executors of the decedent-taxpayer's estate, have established that an ordinary loss ......
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Abrams v. Commissioner
...at least she can be said to have made an informed acquiescence in the work of the more active managing partners. See Estate of Philip Landau Dec. 20,162, 21 T. C. 727, affd. 55-1 USTC ¶ 9219 219 F. 2d 278 (C. A. Upon a consideration of all the circumstances we conclude that the real intent ......