Rosenwald v. COMMISSIONER OF INTERNAL REVENUE

• Decision Date: 04 June 1928
• Docket Number: Docket No. 7351,12388.
• Parties: JULIUS ROSENWALD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

12 B.T.A. 350 (1928)

JULIUS ROSENWALD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 7351, 12388.

Board of Tax Appeals.

Promulgated June 4, 1928.

Robert N. Miller, Esq., Ward Loveless, Esq., and Sidney Adler, Esq., for the petitioner.

J. W. Fisher, Esq., for the respondent.

This is a proceeding for the redetermination of deficiencies in income taxes for the calendar years 1919, 1920, and 1921 amounting to $165,038.44, $181,531.95, and $115,222.60, respectively.

The proceeding for the year 1919, upon motion of counsel, was consolidated with the one for 1920 and 1921 for hearing and consideration.

The issues presented for consideration are:

(1) Whether the respondent erred in holding that certain dividends, interest, rent, and miscellaneous income which under and by virtue of certain assignments made by petitioner to the trustees of The Julius Rosenwald Fund, a charitable corporation, were paid during 1919, 1920, and 1921 directly to the trustees of said fund, are income to the petitioner and should be reported by him in his individual income-tax returns for those years; and

(2) Whether the respondent erred in holding that the amount of loss sustained by the petitioner in the sale of a certain house and lot was not a loss resulting from a transaction entered into for profit, and, therefore, not deductible in his individual income-tax return for the calendar year 1921.

FINDINGS OF FACT.

The petitioner is an individual residing at 4901 Ellis Avenue, Chicago, Ill. In October, 1917, a corporation known as The Julius Rosenwald Fund was organized exclusively for charitable, scientific, educational, and religious purposes. The officers or trustees of this corporation are Julius Rosenwald, the petitioner herein, president and treasurer, Augusta N. Rosenwald, his wife, Lessing J. Rosenwald, his son, secretary and assistant treasurer, and Armand S. Deutsch, his son-in-law, vice president.

On October 31, 1917, Julius Rosenwald made the original gift of 20,000 shares of capital stock of Sears, Roebuck & Co., then having a par value of $100 per share, to The Julius Rosenwald Fund, a corporation, expressed in the following words:

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 & 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 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 may 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 the 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 the 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 to 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.

On December 31, 1917, the board of trustees of The Julius Rosenwald Fund, after calling attention to the aforementioned gift by Julius Rosenwald, accepted the same, in words as follows:

RESOLVED, that the gift to the Corporation of twenty thousand (20,000) shares of the Common Capital Stock of Sears, Roebuck and Co., made by Julius Rosenwald to this Corporation, be and the same is hereby accepted, as of October 31, 1917, on the part of the Corporation, upon the terms expressed in the letter or gift of Julius Rosenwald, a copy of which is transcribed upon pages four and five of this record book.

On March 1, 1918, Julius Rosenwald made an additional gift to The Julius Rosenwald Fund, expressed in the following words, to wit:

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.

The loan of $1,000,000 to I. Gimbel and other stockholders of Gimbel Brothers, New York, bore interest at 6 per cent, and the interest thereon was made payable by the note in the following terms and words, to wit:

NEW YORK, N. Y., April 30, 1914.

FOR VALUE RECEIVED, we promise to pay to Julius Rosenwald, or order, at his office in the City of Chicago, Illinois, the principal sum of One Million ($1,000,000) Dollars, in five installments of Two Hundred Thousand ($200,000) Dollars each, payable respectively in five (5), six (6), seven (7), eight (8) and nine (9) years after date, without grace, or sooner, as in the following collateral agreement provided on failure to comply with the terms hereof or the terms of said agreement following, together with interest at the rate of six (6%) per cent per annum, payable semi-annually on the thirtieth day of October and April in each year until the full payment of this note. * * *

On April 23, 1918, Julius Rosenwald made a gift to The Juluis Rosenwald Fund, expressed in words as follows, to wit:

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 Independent Pneumatic Tool Company Ederheimer, Stein Co. F. W. Woolworth Company Brown Shoe Company Columbia Graphophone Manufacturing National Cloak & Suit Co. Co. Kabo Corset Company American Graphophone Company Consumers Company Greenebaum Sons Bank & Trust Co. National Union Fire Insurance Co. Hermann, Aukan & Co. Westinghouse Air Brake Company 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 New Illinois Athletic Club City Club South Side Tennis Club Lake Shore Country Club Alabama Penny Prudential Trust &amp Union League Club Savings Bank Co. Ravislow Country Club Chicago Tennis Club. Idlewild Country 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.

The rents under the lease to the Troy Laundry Machinery Co. were made due and payable by the lease to that company dated the 14th day of February, 1907, by terms and words as follows, to wit:

Said Lessee agrees...