SPALDING TRUST (ENTITY) BY THE SPALDING COMPANY v. Commissioner of Internal Revenue, Docket No. 57127.
| Decision Date | 08 July 1936 |
| Docket Number | Docket No. 57127. |
| Citation | 34 BTA 762 |
| Court | U.S. Board of Tax Appeals |
| Parties | SPALDING TRUST (ENTITY) BY THE SPALDING COMPANY, TRUSTEE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
Arthur McGregor, Esq., for the petitioner.
Arthur L. Murray, Esq., for the respondent.
In this proceeding petitioner appeals from the determination by respondent of a deficiency in income tax for the calendar year 1928 in the amount of $3,502.17, and assigns as error the action of the respondent (1) in failing to allow as a deduction from income for 1928 depreciation sustained in the amount of $17,056.50, and (2) in refusing to allow as a deduction from income for 1928 a net loss alleged to have been sustained by petitioner during the calendar year 1927.
The facts were stipulated by the parties substantially as follows:
Petitioner is a trust estate created and existing under and by virtue of a Declaration of Trust dated October 5, 1909, * * * The Spalding Company has acted as trustee ever since the date of Declaration of Trust and is now the duly appointed, qualified and acting Trustee of said trust estate.
During the calendar year 1929 The Spalding Company acting as trustee for the Spalding Trust made two returns of income for the calendar year 1928, one a fiduciary return on form 1041, * * * wherein it disclosed a net income of $75,259.79 distributable under the provisions of said Declaration of Trust, and the other return on form 1040, * * * wherein there was reported profit from the sale of stocks, bonds, etc. in the sum of $75,808.02. On this return there was deducted an item purporting to be an operating loss carried forward from the calendar year 1927 in the sum of $15,253.63. Respondent in his notice of determination has disallowed this item of $15,253.63 as a deduction from 1928 income.
During the year 1928 Petitioner owned the following depreciable assets which it held in said trust during the entire calendar year. A reasonable allowance for exhaustion, wear and tear on these assets is shown in the following tabulation:
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| | | Depreciation
Description | Cost | Rate | sustained
------------------------------------|--------------|----------------------|--------------
Spalding Building _________________ | $601,253.94 | 1½% _______________ | $9,018.81
Perkins Hotel _____________________ | 147,976.16 | 3% ________________ | 4,439.28
2nd & Adler Sts. Bldg _____________ | 26,526.61 | 4% ________________ | 1,061.14
2nd & Front Sts. Bldg _____________ | 23,300.76 | 4% ________________ | 932.03
6th & 8th & Front St. Bldg ________ | 15,131.10 | 4% ________________ | 605.24
Furniture and Fixtures ____________ | 10,000.00 | 10% _______________ | 1,000.00
| | |______________
Total depreciation sustained ____ | ____________ | ____________________ | 17,056.50
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In determining the taxable income to this trust estate taxable to this Petitioner as trustee, Respondent has not allowed any of this depreciation.
During the year 1928 Petitioner made two returns of income for the calendar year 1927, one a fiduciary return on form 1041, * * * wherein it disclosed an income of $156,679.74 as distributable under the provisions of the Declaration of Trust, * * * and the other return on form 1040, * * * wherein it reported the income from the sale of a portion of the trust assets in the sum of $1,802.87 and took as a deduction depreciation on the above referred to trust assets in the sum of $17,056.50, which showed a loss for the calendar year 1927 to the trust estate of $15,253.63. As indicated above this loss was carried forward and taken as a deduction on Petitioner's 1928 return form 1040, on line 16 thereof, all of which the Respondent has disallowed as a deduction from income for said year.
The trust instrument provided in part as follows:
First: Said trustee shall receive the rents and profits of said property, both real and personal, and pay them to the persona hereinafter named as hereinafter provided; and in order that good rents and profits may be derived from said property at all times during the continuance of this trust, and in order to facilitate the handling of this trust by said trustee, it shall have full and absolute power; to contract in respect thereto, to sell, convert, lease, let, improve, exchange, invest or re-invest in any kind of property; * * * in other words, said trustee shall have full power subject only to the obligations to pay the rents and profits as hereinafter provided, to manage and control said property, both real and personal to all intents and purposes as it could do if said property belonged to it in fee simple absolute. * * * Said trustee shall always keep and maintain said property hereby conveyed to it, both real and personal, together with the rents and profits therefrom as a separate and distinct fund, and upon any sale or exchange the new property so acquired of whatever kind it may be, shall become and constitute a part of such fund.
Second: During the lifetime of said trustor, said trustee shall pay to said trustor and upon his demand, not exceeding fifty per cent (50%) of the entire annual rents and profits of said property, both real and personal, after deducting all expenses incident to the management and maintenance of said property, and all sums paid or required for taxes, assessments or other charges imposed upon such property and the expense of administering the trust created hereby as hereinafter provided.
During the lifetime of said trustor, said trustee shall pay to each of the five children of said trustor, to-wit: Rufus P. Spalding, James M. Spalding, Julia M. Senni, Catherine L. Bodrero and Alice M. Bonzi, or their lawful issue by representation, if issue there be, five per cent (5%) of the said entire annual rents and profits of all of said property, both real and personal; but should the directors of said trustee deem it necessary, or to the best interests of any of one or more of said five children that he or she, or his or her issue, should receive a sum greater than five per cent (5%) of said rents and profits, then the directors of said trustee may authorize the payment by said trustee to such child, or children, or issue, of any additional sums of money out of said rents and profits which said directors may deem advisable. But the total payments to said children, or their issue as hereinabove provided, shall in no event, during the lifetime of said trustor exceed the sum of fifty per cent (50%) of said entire rents and profits.
Should the said trustor not demand, during any year, from January first to December 31st, from said trustee the said entire fifty per cent (50%) of said rents and profits or should any of the remaining fifty per cent of the rents and profits not be paid to the children of said trustor, or their issue, as hereinabove provided, either on account of the death of any one of said children without issue, or because the directors of said trustee shall not have deemed it advisable to pay all of said remaining fifty per cent to said children, or their issue during any such year, then any such rents and profits so remaining unpaid shall accumulate and become a part of the principal of the trust estate hereby conveyed.
Third: After the death of said trustor, said trustee shall pay to the said five children of said trustor, or their issue, as hereinafter provided, in equal shares, and in lieu of the sums hereinbefore provided to be paid, the entire rents and profits of all the said property, both real and personal....
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