Plunkett v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 29 March 1940 |
| Docket Number | Docket No. 94017. |
| Parties | THEODORE R. PLUNKETT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Bennett Sanderson, Esq., for the petitioner.
Charles P. Reilly, Esq., and Davis Haskin, Esq., for the respondent
This proceeding is for the redetermination of a deficiency in income tax for 1934 of $17,040.74, together with a 25 percent delinquency penalty of $4,260.19.
The principal question in issue is whether the petitioner is liable to income tax upon $70,000 which the trustee of a testamentary trust was, by court decree entered in 1934, ordered to transfer from the principal account to the income account and to pay "forthwith" to the petitioner, the life income beneficiary of the trust. Subsidiary questions presented are whether the petitioner is entitled to deduct from gross income (a) a contribution of $25 to the American Red Cross; (b) gasoline taxes, $90, and automobile excise taxes, $61.61; and (c) interest paid of $7,636.66; and whether the petitioner is liable to a 25 percent delinquency penalty for failure to make a return to the collector on or before March 15, 1935.
FINDINGS OF FACT.
The petitioner is a resident of Adams, Berkshire County, Massachusetts.
The petitioner's father, William B. Plunkett, died on October 25, 1917, leaving a will and two codicils by which he created a testamentary trust. The will directed the trustee:
* * * to keep the shares of stock in the Berkshire Cotton Manufacturing Company and the Greylock Mills as a permanent investment, but if at any time it becomes necessary, I authorize my said trustee from time to time to invest and reinvest the trust estate hereinafter bequeathed to it, if in its judgment it is deemed advisable, always purchasing sound securities which pay a low rate of interest, or other reliable property, * * * The will further provided:
3. I give and bequeath to my said trustee, * * * twelve hundred fifty (1250) shares of the capital stock of the Berkshire Cotton Manufacturing Company, of Adams, six hundred (600) shares of the capital stock of the Greylock Mills, of North Adams, and twenty-five (25) shares of the capital stock of the Greylock National Bank, of said Adams, in trust, however, to invest the same as above directed, and after deducting an amount sufficient to meet all contingent expenses, to pay over the balance of the income once every quarter, or oftener if they shall deem it advisable, to my son Theodore Robinson Plunkett during his natural life. * * *
The income of the trust fund upon the death of the petitioner was to be paid to the petitioner's wife, with remainder over to the children of the petitioner.
By codicils attached to the will the number of shares of Greylock Mills to be turned over to the trustee was increased to 1,150 shares.
The value of the 1,250 shares of Berkshire Cotton Manufacturing Co. and 1,150 shares of Greylock Mills, as reported by the executors of the estate on the Federal estate tax return of William B. Plunkett, and as determined by the Treasury Department for Federal estate tax purposes, was as follows:
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| As reported | As determined
| in return | by Commissioner
--------------------------------------------------|---------------|-----------------
1,250 shares Berkshire Cotton Mfg. Co ___________ | $200,000 | $237,500
1,150 shares Greylock Mills _____________________ | 138,000 | 155,250
| _____________ | ________________
Total ____________________________________ | 338,000 | 392,750
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A Federal estate tax was paid by the estate on or before August 28, 1923, computed on the basis of the Commissioner's valuation of $392,750.
Old Colony Trust Co. of Boston, Massachusetts, the trustee named in the will, qualified as trustee of the trust for the benefit of the petitioner by filing bond on January 2, 1918. From the date of appointment to December 20, 1920, the trustee received the dividends paid by the Berkshire Cotton Manufacturing Co. and Greylock Mills from the executors and distributed such dividends to the petitioner or used them for expenses chargeable to the trust income.
On December 20, 1920, the trustee received the above mentioned shares of the capital stock of Berkshire Cotton Manufacturing Co. and Greylock Mills, which, pursuant to appraisal by independent brokers appointed as appraisers by the Probate Court, it recorded on its books as of that date at appraised values as follows:
1,250 shares Berkshire Cotton Manufacturing Co. at $185 __________ $231,250
1,150 shares Greylock Mills at $275 ______________________________ 316,250
________
Total ________________________________________________________ 547,500
During the year 1922 the trustee received stock dividends of 100 percent on each of these stocks and thereafter held 2,500 shares of the capital stock of Berkshire Cotton Manufacturing Co. and 2,300 shares of the capital stock of Greylock Mills, which it carried on its books at $547,500.
On March 8, 1929, in a nontaxable reorganization, the trustee exchanged the above shares of stock for shares of stock of Berkshire Fine Spinning Associates, Inc., as follows:
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| Common stock | Preferred stock
----------------------------------------------------------|--------------|------------------
2,500 shares Berkshire Cotton Manufacturing Co __________ | 4,950 | 1,756¼
2,300 shares Greylock Mills _____________________________ | 5,175 | 1,932
| ____________ | _________________
Total _____________________________________________ | 10,125 | 3,688¼
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The trustee duly filed its ninth, tenth, and eleventh accounts with the Probate Court for Berkshire County for the period October 1, 1928, to September 30, 1931. In January 1932 the petitioner objected to the allowance of those accounts, particularly with respect to the investment in shares of stock of Berkshire Fine Spinning Associates, Inc. After hearing, the Probate Court for Berkshire County, on May 31, 1933, entered the following decree with respect to each of the three accounts rendered:
IT IS DECREED that items 2 and 3 in "Schedule C" to wit: Berkshire Fine Spinning Associates 3688 2500/10,000ths shares conv. pfd. stock and Berkshire Fine Spinning Associates 10,125 shares common stock be and the same hereby are disallowed and in place thereof the accountant is ordered to insert the following item: Cash $547,500.00, and as so amended the account is hereby allowed.
An appeal from such decree to the Supreme Judicial Court was taken by Old Colony Trust Co., trustee. No appeal was taken by the petitioner.
On September 24, 1934, the appeal and objections to the account were settled by an agreement filed in the Supreme Judicial Court where the appeal was pending. Thereupon the case was returned to the Probate Court for Berkshire County under a rescript from the Supreme Judicial Court. Under the terms of the agreement the Old Colony Trust Co. replaced $500,000 cash in the trust and kept for its own account the preferred and common stock of Berkshire Fine Spinning Associates, Inc., as shown by its twelfth account. Pursuant to a further term of the agreement the Old Colony Trust Co. resigned as trustee.
Thereafter, on October 9, 1934, the Agricultural National Bank of Pittsfield, Massachusetts, was appointed successor trustee and received from the Old Colony Trust Co. the assets of the trust, including the $500,000 cash above referred to.
On October 9, 1934, the petitioner filed a petition with the Probate Court for Berkshire County and on the same day the Probate Court entered a decree thereon. In his petition the petitioner made reference to the $500,000 which had been received from the Old Colony Trust Co., stating:
* * * which amount has been listed in said trustee's last account as principal, but in fact, said moneys so included in said account are principal in part only and also include income or money in lieu of income.
Wherefore, your petitioner prays that this Court decree that the Agricultural National Bank, the present trustee of said trust, withdraw from said principal sum of money thus heretofore accounted for a portion thereof, being the amount which would have accrued as income during the four years and seven months last past, and by decree allocate said sum to income in order that it may be paid forthwith to your petitioner as life tenant of said trust fund.
The court found the allegations of the petitioner to be true and ordered:
* * * that the Agricultural National Bank of Pittsfield, of said Pittsfield, succeeding trustee, be and it is hereby ordered to allocate the sum of seventy thousand (70,000) dollars to income from principal of said fund, and to pay said seventy thousand (70,000) dollars forthwith to said Theodore R. Plunkett.
The allocation and payment as directed are in the first account of the Agricultural National Bank approved by the court.
Although by the decree the Agricultural National Bank was ordered to pay "forthwith" $70,000 to the petitioner, it paid him only $66,000 in 1934. The balance of $4,000 was paid in 1935.
Pursuant to decrees of the Probate Court for Berkshire County, the Old Colony Trust Co., as trustee, paid in 1934 $52,451.01 as...
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Spangler v. Commissioner, Docket No. 72720 and 84075.
...to interest before any part is applied to the principal. Cf. George S. Groves Dec. 10,448, 38 B. T. A. 727; Theodore R. Plunkett Dec. 11,045, 41 B. T. A. 700; affd. 41-1 USTC ¶ 9373 118 Fed. (2d) 644. However, we do not think this doctrine is applicable here, where the payment was not a par......
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