Main-Hammond Land Trust v. Comm'r of Internal Revenue

• Citation: 17 T.C. 942
• Decision Date: 06 December 1951
• Docket Number: Docket Nos. 27157,29936.
• Parties: MAIN-HAMMOND LAND TRUST, THE SOUTHERN OHIO SAVINGS BANK & TRUST CO., TRUSTEE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.ORPHEUM THEATRE LAND TRUST, THE SOUTHERN OHIO SAVINGS BANK & TRUST CO., TRUSTEE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: United States Tax Court

17 T.C. 942

MAIN-HAMMOND LAND TRUST, THE SOUTHERN OHIO SAVINGS BANK & TRUST CO., TRUSTEE, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.ORPHEUM THEATRE LAND TRUST, THE SOUTHERN OHIO SAVINGS BANK & TRUST CO., TRUSTEE, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 27157

29936.

Tax Court of the United States.

Promulgated December 6, 1951.

1. Main-Hammond Land Trust filed its petition with this Court at a time when there was no question about its legal existence and ability to do so. Held: Upon the filing of the petition our jurisdiction attached, and having so attached continues unimpaired until we have decided the controversy.

2. The petition in Docket No. 29936 was filed with this Court after Orpheum Theatre Land Trust had made complete distribution of trust assets to its certificate holders and had notified respondent of its complete termination. The only asset that remained was some cash deposited with the Trustee as indemnity for any liability that might have been incurred. Held: Orpheum was completely terminated prior to the filing of a petition; is not shown to be the proper party to represent its former certificate holders; and, therefore, the petition in Docket No. 29936 is dismissed.

3. Although Main-Hammond's principal activity consisted of collecting rent from trust property and distributing a designated portion thereof to its certificate holders, the trust instrument gave it authority to exercise much broader powers. Held: Main-Hammond was a business trust created and operated in behalf of its beneficiaries for their profit, and was an association taxable as a corporation. Leo Weinberger, Esq., and Jerome Frank, Esq., for the petitioners.

Lyman G. Friedman, Esq., for the respondent.

These cases were consolidated for hearing, and respondent has moved that the petitions be dismissed for the reason that both trusts have previously been terminated and that petitioners are not the proper parties to continue the proceedings.

The Main-Hammond Land Trust case, Docket No. 27157, involves a deficiency in income tax for the fiscal year ended June 30, 1949, in the amount of $1,940.77.

The Orpheum Theatre Land Trust case, Docket No. 29936, involves a deficiency in income tax for the fiscal year ended October 31, 1949, in the amount of $1,917.70.

The question presented in both cases is whether the petitioner, in each instance an Ohio land trust, is taxable as a trust or is an association taxable as a corporation.

FINDINGS OF FACT.

The stipulation of facts filed in each case is hereby adopted and made a part hereof by this reference.

The Main-Hammond Land Trust (hereinafter sometimes called Main-Hammond), and the Orpheum Theatre Land Trust (hereinafter sometimes called Orpheum), the petitioners herein, were two Ohio land trusts formally created by declarations of trust of the Southern Ohio Savings Bank & Trust Co. of Cincinnati, Ohio (hereinafter sometimes called the Trustee). For the period in controversy in both instances, fiduciary income tax returns were filed with the collector of internal revenue for the first collection district of Ohio.

The corpus of each trust consisted of certain real estate located in the city of Cincinnati, which was conveyed to the Trustee by, or at the direction of, one Stanley M. Cooper. Cooper is a resident of Cincinnati, and is president and treasurer of Stanley Cooper Co., Inc. (hereinafter called the Corporation). The Corporation is licensed by the State of Ohio as a dealer and broker in securities. It is also licensed as an investment advisor by the Securities and Exchange Commission.

Cooper has heretofore purchased and sold various parcels of business real estate in Cincinnati, either as an individual or in the names of corporations owned and controlled by him. Main-Hammond was the first land trust to be created and marketed by him. Orpheum was the second such trust. The property involved in both trusts was purchased by Cooper for resale.

I.Facts Especially Applicable to Respondent's Motions to Dismiss.

(a) Docket No. 27157.

In his notice of deficiency dated March 3, 1950, the respondent ruled that Main-Hammond was an association taxable as a corporation within the meaning of section 3797, Internal Revenue Code. The petitioner for redetermination thereof was filed with this Court on March 9, 1950. Subsequently, and as a result of respondent's aforementioned ruling, all of the holders of Main-Hammond Land Trust Certificates requested the Trustee to terminate the trust. In response to this request the Trustee of Main-Hammond, on July 27, 1950, mailed each such holder the following letter:

You and all other registered holders and owners of the Main-Hammond Land Trust Certificates have requested us to terminate the Trust and have surrendered your Land Trust certificate for cancellation.

Paragraph 23 of the Agreement and Declaration of Trust authorities its termination by mutual agreement between the Trustee and all the beneficiaries. All beneficiaries have requested such termination and the Trustee is pleased to abide by their wishes, but in so doing, must make the following reservations for its protection:

1. It must be indemnified against tax liability which may be assessed against the Trustee in the future in relation to this Trust Agreement. The Trustee is holding the Guarantee Fund of $1,650, plus interest paid thereon to date, amounting to $10.33 plus a small balance out of the remaining funds in its hands, said balance being less than $100.00, to indemnify itself not only against tax liability, but against any other liability which may be assessed against it, or any expenses which may be incurred by it, including counsel fees in connection with the contesting of the aforesaid tax liability. Mr. Stanley M. Cooper has met this requirement by a deposit in this bank, and has personally agreed to supplement that deposit if it proves to be inadequate after first exhausting the funds remaining in the hands of the Trustee.

2. The Trustee must reserve the right to decide in its discretion to pay or to protect any tax assessment hereafter made. Since Mr. Cooper will be personally responsible for any such taxes paid, if the funds remaining in the hands of the Trustee are insufficient, the Trustee will, of course, consult with Mr. Cooper before making any decision.

3. The Trustee must receive from Stanley M. Cooper as undertaking to hold harmless and indemnify the Trustee for any expense or liability which the Trustee may incur or which may be asserted against the Trustee in the future, which undertaking has been delivered to the bank.

4. An acknowledgment which is typed on the receipt form attached to the enclose check from each one of the certificate holders, upon payment to them of $2.08 per interest out of the July 1950 rent, that the Trustee has satisfied all obligations to the certificate holders and has returned to them all interest in the Trust, except their proportionate share of what may be left out of the funds aforesaid remaining in the hands of the Trustee after the payment of any tax liability heretofore or hereafter assessed against the Trustee, and after the payment to and indemnity of the Trustees out of said funds of any expenses, including counsel fees, incurred by the Trustee in connection with any tax liability or in any other manner.

We understand from a discussion with Mr. Cooper that all of the foregoing is acceptable to him and will be acceptable to you.

Accordingly, we have executed the accompanying deed for your proportionate interest in the property. We also enclose rental distribution check for your proportionate share of the July 1950 rent at the rate of 1/12 of $25.000, or $2.08 for each interest. Distribution at the rate of $25.00 per year for each interest has been made for the year ending June 30, 1950.

If you are not agreeable to the foregoing, please return the deed and the check.

If you are agreeable, endorse the check and record your deed promptly in the Registered Land Department in the office of the Recorder of Hamilton County, Ohio, at the Court House. We are informed by Mr. Leo Weinberger, attorney for Mr. Cooper, that inasmuch as the deed includes Registered as well as Unregistered land, the deed will be recorded, but the original deed must remain at the Court House, and consequently, when you record your deed in the Registered Land Department you should request and pay for a photostatic copy of the deed to be mailed to you.

Enclosed with the foregoing letter was a deed for the recipient's proportionate interest in the trust estate plus a rental distribution check at the rate of $2.08 for each land trust certificate held. The check so enclosed had the following notation attached thereto:

In the full satisfaction of an obligation to and interest of the undersigned in Main-Hammond Land Trust Agreement, dated as of July 1, 1948 recorded in Mortgage Book 2220, page 50, Hamilton County, Ohio Records, and the Land Trust Certificate issued thereunder to the undersigned, except the undersigned's proportionate share of any amount remaining out of the sum of $1,721.39 retained by the Trustee as indemnity for taxes and expenses, including counsel fees heretofore or hereafter assessed against or incurred by the Trustee.

Respondent received a Form 966 sent him in behalf of Main-Hammond on August 24, 1950. Attached thereto was a typewritten statement reading, in part, as follows:

Pursuant to the foregoing instructions the trustee on July 27, 1950, mailed to each certificate holder a deed for his proportionate interest in the fee to the real estate described in said trust agreement. The trustee, likewise, mailed to each certificate holder his proportionate share of all rentals under said trust agreement then in the hands of the trustee so that the trust was completely terminated on that day except that the trustee retained in his hand $1,721.39 as indemnity for taxes and expenses, including counsel...