Rosenwald v. Commissioner of Internal Revenue

• Decision Date: 07 June 1929
• Docket Number: No. 4116.,4116.
• Citation: 33 F.2d 423
• Parties: ROSENWALD v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Seventh Circuit

33 F.2d 423 (1929)

ROSENWALD v. COMMISSIONER OF INTERNAL REVENUE.

No. 4116.

Circuit Court of Appeals, Seventh Circuit.

June 7, 1929.

Stuart Chevalier, of New York City, for appellant.

John Vaughan Groner, of Washington, D. C., for appellee.

Before EVANS and PAGE, Circuit Judges, and WHAM, District Judge.

PAGE, Circuit Judge.

This is an appeal from the Board of Tax Appeals sustaining the tax deficiency found against petitioner on his income tax returns for the years 1919, 1920, and 1921.

The question here is whether the dividends on stocks, interest upon a note, rents from real property, and coupons from Third Liberty Loan bonds, under the circumstances of this case, are taxable as income in the hands of petitioner.

In 1917 petitioner, with his wife, son, and son-in-law organized under the corporation laws of Illinois the Julius Rosenwald Fund (here called fund) for charitable, scientific, educational, and religious purposes, to be managed by four trustees, elected annually. The four incorporators have always been the trustees. Petitioner was elected president and treasurer. The by-laws required and empowered the treasurer to keep a bank account, and also provided that, with the consent of the petitioner, the treasurer "may keep a bank account and make disbursements therefrom under the name and style of `Julius Rosenwald.'" It is asserted, and not denied, that all funds were deposited in, and paid from, petitioner's personal account. It does not appear that otherwise than in the name of "Julius Rosenwald" the fund ever received or paid out any money.

In October, 1917, a gift that is not here in question was made to the fund by a letter that is important and is here set out:

"To the Board of Trustees of the Julius Rosenwald Fund:

"I hereby give you twenty thousand (20,000) shares of the common capital stock of Sears, Roebuck and Co., which I have transferred to and caused to be issued in your name. This gift is made for the general corporate purposes of The Julius Rosenwald Fund, and the principal as well as the income may be used in your discretion for any of the corporate purposes of the Fund.

"In case at the time of my death any part of said gift or any future gift which I may make to the Fund remains undistributed, or should the Fund receive any share of my estate, then and in any such event such undistributed part of any gift or gifts from me or share of my estate shall be used primarily to the extent, prorata, to which it may reach toward the payment of yearly contributions for five (5) years after my death to the donees of regular annual subscriptions in accordance with the following plan to wit:

"The Fund shall at all times maintain a book which shall be known as `List of Julius Rosenwald's Regular Annual Subscriptions', in which at my direction shall be entered a list of regular annual subscriptions which I desire to make or have made for charitable uses. Said list shall contain the names of various donees and the respective amounts of the annual subscriptions. Such list may be modified or varied at my discretion during my life. It shall not be obligatory upon the Fund to donate or pay the amounts shown by said list during my lifetime. After my death the Fund shall, however, donate to such donees appearing upon said list, the following sums:

"Any subscription shown by said list, or any part thereof remaining unpaid for the then current fiscal year of the donee; also the following further sums: during the first fiscal year of each donee after my death, one hundred (100%) per cent, during the second such fiscal year after my death, eighty (80%) per cent, during the third such fiscal year after my death, sixty (60%) per cent, during the fourth such fiscal year after my death, forty (40%) per cent, and during the fifth such fiscal year after my death, twenty (20%) per cent, of the respective amounts of regular annual subscriptions to said respective donees as shown by said list.

"For the purpose of guarding against loss any of the intended beneficiaries of said plan whose names, through inadvertence or neglect, may not appear upon such list, the Fund may also make like payments to any corporations, associations or bodies, organized for charitable purposes, to which I or the Fund, at my request, have been a regular annual subscriber or contributor for at least two (2) consecutive years, including the then current fiscal year, immediately prior to my death, based upon the last regular annual subscription to such other corporation, association or body. The Trustees of the Fund shall be the sole judges as to what other corporations, associations, or bodies shall receive such like payments and the proper respective amounts thereof.

The above provisions are made so that the said respective donees may not be suddenly deprived, by reason of my death, of the regular annual contributions which I have been making or may hereafter make or cause to be made to them, and are not intended to set a maximum upon the amounts which the Trustees, after my death, may, in their discretion, give to any of said donees.

"Dated October 31, 1917." "Yours truly, Julius Rosenwald."

The following gifts were also made by petitioner:

"To the Board of Trustees of the Julius Rosenwald Fund:

"I hereby assign to you all dividends to which I may become entitled as the owner of any and all shares, preferred and common, of the capital stock of Gimbel Brothers, New York, a corporation of New York, for a period of five (5) years from this date; also to all interest payable within five (5) years from this date on a certain loan of one million ($1,000,000) dollars made to I. Gimbel and other stockholders of Gimbel Brothers, New York, secured by a certain note for one million ($1,000,000) dollars, payable to my order, dated April 30, 1914, and signed by said I. Gimbel and others.

"This assignment is a gift to The Julius Rosenwald Fund, for the same purposes and uses as set forth in my original letter of gift to said Fund dated October 31, 1917.

"Dated March 1, 1918."

"To the Board of Trustees of The Julius Rosenwald Fund:

"I hereby assign to you all dividends to which I may become entitled, payable henceforth and to and including April 30th, 1923, on all shares of capital stock, preferred and common, of the following named corporations:

Continental Can Company Ederheiner, Stein Co. Brown Shoe Company National Cloak & Suit Co. Kabo Corset Company Consumers Company National Union Fire Insurance Co. Westinghouse Air Brake Company Independent Pneumatic Tool Company F. W. Woolworth Company Columbia Graphophone Manufacturing Co. American Graphophone Company Greenebaum Sons Bank & Trust Co. Hermann, Aukan & Co. Liberty Trust & Savings Bank.

"Also all rents henceforth and to and including April 30th, 1923, payable to me under lease to Troy Laundry Machinery Company for premises leased by me to said Company in Chicago, Illinois; also all interest payments payable to me henceforth and to and including April 30th, 1923, on bonds or notes secured by mortgages or trust deeds in nature of mortgages executed by the following:

North Chicago Hebrew Congregation City Club Lake Shore Country Club Union League Club Ravislow Country Club Idlewild Country Club New Illinois Athletic Club Alabama Penny Prudential Trust &amp Savings Bank Co. Chicago Tennis Club

"This assignment is a gift to The Julius Rosenwald Fund, for the same purposes and uses as set forth in my original letter of gift to said Fund dated October 31st, 1917.

"Dated, April 23rd, 1918."

There is evidence that petitioner clipped and delivered to the fund, before their maturity, interest coupons from Third Liberty Loan bonds.

The gifts were accepted. Petitioner immediately notified the...