Strickland v. Commissioner

• Decision Date: 27 July 1948
• Docket Number: Docket No. 12343.
• Citation: 7 TCM (CCH) 529
• Parties: Minnie A. Strickland v. Commissioner.
• Court: U.S. Tax Court

7 TCM (CCH) 529

Minnie A. Strickland v. Commissioner.

Docket No. 12343.

United States Tax Court.

Entered July 27, 1948.

Wilton Wallace, Esq., and H. H. Hunt, C. P. A., First National Bank Bldg., Atlanta, Ga., for the petitioner. Bernard D. Hathcock, Esq., for the respondent.

Memorandum Opinion

ARNOLD, Judge:

This proceeding involves deficiencies as follows:

                      Year    Deficiency
                  Income tax ..............    1941    $ 1,926.22
                  Income and Victory tax ..    1943      8,907.90
                  Income tax ..............    1944     11,649.20
                

The issue is whether the income of the Estate of A. J. Strickland is taxable to the petitioner in its entirety or only that portion thereof actually credited and paid to the petitioner in the respective years.

The Facts

The facts were stipulated and as stipulated are adopted as our findings of fact. The pertinent facts are hereinafter summarized.

The petitioner is an individual residing at Valdosta, Georgia. Her income tax returns for the years involved were filed with the collector of internal revenue at Atlanta, Georgia.

A. J. Strickland, petitioner's husband, provided by Item 3 and Item 4 of his will as follows:

"ITEM 3. All the rest, residue and remainder of my estate, real and personal and wherever situated, I give, devise and bequeath to my Executor (my son) A. J. Strickland, Jr., being hereinafter named as Executor, as Trustee, the legal title to same to vest in him as said Executor but nevertheless in trust for the length of time hereinafter named, and upon the following terms, conditions, uses and purposes, that is to say:

"(a) To receive, hold, manage and control said property.

"(b) To invest, reinvest and keep the same invested in such property, real or personal, as he may deem advisable.

"(c) To collect the income therefrom.

"(d) To have and exercise full powers to sell, exchange, lease or otherwise dispose of any portion of the Trust estate in manner and upon such terms as he may deem most beneficial to the Trust Estate.

"He is empowered to sell or exchange for cash, or upon terms and to give good and sufficient deeds of conveyance or other papers to carry out the powers herein granted and may do any of these things without order of any court either at public or private sale, and no purchaser shall be obligated to look to the application of the purchase money.

"(c) It is my desire and direction that my said son, as Executor shall have the authority during the existence of the trust herein created, to manage my said estate with power and freedom as full as possessed by me during my lifetime.

"ITEM 4. After paying the expenses incident to the care, operation and maintenance of this Trust estate, I direct that my said Executor pay to my wife, Minnie Adams Strickland, as much of the net income that may be derived from said Trust estate during the existence of the Trust herein created, as she may in her discretion wish paid to her, said income to be paid monthly as far as it is practicable to pay same monthly. If my wife desires to draw for her own use from said estate more than the net income, I direct my said Executor to pay to her whatever amount she may desire to draw at such time as she may desire same, and for that purpose I hereby authorize my said Executor to encroach upon the corpus of the estate if necessary, and no person shall have the right to question payments made to my wife by my said Executor.

"On the first of January of each year if it is found that after paying my wife the money requested by her during the year for her own use there remains any portion of said net income unexpended, my Executor in his discretion is authorized to divide said remaining portion of the net income in two equal shares, one share to be paid to himself and the other share to my daughter, Natalie Strickland, or to their issue respectively, if either be dead."

The trust was to continue until the death of the wife and if she died prior to 15 years from the date of the execution of the will, the trust was to continue for a period of 15 years from the date of the will, namely, February 29, 1936. The fiduciary had the same powers and duties after the death of the wife except that trust net income could, in the discretion of the fiduciary after consultation with testator's daughter, be reinvested for the benefit of the estate, or if desired by fiduciary and his sister, the net income could be paid annually on January 1 of each year, equally to the son and daughter, the share of any deceased child to be paid to the issue thereof, share and share alike, per stirpes. Upon termination of the trust the corpus was to be divided equally between the son and daughter, the issue of any deceased child to take share and share alike, per stirpes. If either child died without issue prior to termination of the trust the survivor or his or her issue was to take.

The net income of the trust estate for the years 1941, 1942, 1943 and 1944, the amounts requested and paid or credited to petitioner and reported by her as taxable income and tax paid thereon for the aforesaid years, and the balance of said net income which was reported by the estate as taxable income and the tax paid thereon, were as follows:

                                                              Taxable
                                               paid or        income
                  Year          Estate net     credited      reported by
                                  income     to petitioner   the estate
                  1941 .....    $17,296.01    $ 9,216.77    $ 8,079.24
                  1942 .....     24,002.54     12,896.72     11,105.82
                  1943 .....     28,179.89     14,232.86     13,947.03
                  1944 .....     35,936.16     16,539.86     19,396.30
                

The account of the petitioner on the books of the trust estate for the aforesaid years reflect the total credits, withdrawals and accumulated credit balance as of December 31 each year as follows:

                                                             Accumulated
                                                           credited balance
                                              Withdrawn       on trust
                                Credited to   drawn by       books as of
                  Year          petitioner    petitioner     December 31
                  1941 .....    $ 9,216.77    $ 9,216.77    
                  1942 .....     12,896.72     11,896.72    $ 1,000.00
                  1943 .....     14,232.86      8,232.86      7,000.00
                  1944 .....     16,539.86     13,077.94     10,461.92
                

On or about January 8, 1947 the fiduciary filed a petition in Lowndes Superior Court against his mother and sister, seeking a declaratory judgment as to the rights of the parties with respect to the remainder of the trust net income, which the fiduciary had treated as income of the estate and added to corpus. The court was asked to decide and determine whether the remainder of the trust income was petitioner's as determined by the officials of the Federal government, or becomes trust corpus when not divided between decedent's son and daughter. The other parties waived process, admitted the facts alleged, and agreed to the issuance of a declaratory judgment by the court.

On January 29, 1947, the Superior Court decided that the fiduciary had broad authority to manage the trust estate with no substantial limitation on his authority other than the direction in Item 4 of the will that he pay annually to the widow "as much of the net income of the estate as she may request for her support and her own use." The court thought the testator did not intend that any of the trust income should become the property of the widow unless she needed it and requested it for...