United States v. First Nat. Bank of Birmingham

• Decision Date: 18 December 1934
• Docket Number: No. 7411.,7411.
• Citation: 74 F.2d 360
• Parties: UNITED STATES v. FIRST NAT. BANK OF BIRMINGHAM.
• Court: U.S. Court of Appeals — Fifth Circuit

74 F.2d 360 (1934)

UNITED STATES v. FIRST NAT. BANK OF BIRMINGHAM.

No. 7411.

Circuit Court of Appeals, Fifth Circuit.

December 18, 1934.

Lucius A. Buck and Sewall Key, Sp. Assts. to the Atty. Gen., Frank J. Wideman, Asst. Atty. Gen., and Jim C. Smith, U. S. Atty., of Birmingham, Ala.

Borden Burr and William S. Pritchard, both of Birmingham, Ala., for appellee.

Before BRYAN, HUTCHESON, and WALKER, Circuit Judges.

WALKER, Circuit Judge.

This was an action by the appellee, suing as executor of the will of H. G. Woodward, deceased (who died on November 30, 1930), to recover the amount, $43,996.40, with interest thereon, of a deficiency assessment made against the estate of the testator, which amount, including interest thereon to the date of payment, was paid by the appellee under protest. The action was brought after the disallowance of a duly filed claim for a refund of the amount so paid. The deficiency assessment was a result of adding to the gross income shown in the taxpayer's return for the year 1929 the amount, $212,868.10, of net income from rents of certain real estate for the period beginning January 1, 1929, and ending September 30, 1929, and deducting from the taxpayer's reported gross income for 1929 an amount for depreciation of buildings for the period beginning January 1, 1929, and ending September 30, 1929. The judgment or decree rendered, after adjudging that the rents from said real estate during the above-mentioned period were not received by the taxpayer, and that he was not entitled to the above-mentioned deduction from his gross income for the year 1929, awarded to the appellee the sum of $41,268.05, with interest thereon from the date of the above-mentioned payment by the appellee, and the costs.

By an instrument executed by the taxpayer on May 5, 1928, he contributed, gave, and granted to the Alabama Educational Foundation, an educational corporation organized and existing under the laws of the state of Alabama, "for the term of one year, beginning with the first day of October, 1928, and ending with the 30th day of September, 1929," the above referred to real estate. The habendum clause of that instrument follows:

"To Have and To Hold unto the said Alabama Educational Foundation, its successors and assigns, in trust for the uses and purposes hereinafter represented, for the term of one year, until and including the 30th day of September, 1929, when the estate in said real property hereby given and granted ends and determines; but this gift and grant is made, and said estate for said years in said real property is hereby created to be held in trust upon the following conditions:

"First: The net income, rents and returns thereof and therefrom shall be used exclusively for educational purposes in the State of Alabama, other than for schools owned or controlled by any religious sect or denomination; and

"Second: No part of such net income and earnings shall enure to the benefit of any private stockholder or individual."

By similar instruments, respectively, executed in May, 1925, in September, 1927, and in December, 1927, the testator had conveyed to the same grantee described real estate for periods specified in those instruments, respectively. By a similar instrument executed on June 7, 1929, the testator conveyed described real estate to the same grantee for a term of three years beginning with the 1st day of October, 1929, and ending with the 30th day of September, 1932. Findings of fact made by the court included findings to the effect that the grantee in the first and last above mentioned instruments took possession of the property described therein, and remained in possession and control of said property, enjoying the use and occupation thereof continuously during the periods of time mentioned in said two instruments, and that the testator did not use, occupy, or enjoy any of the fruits or benefits of said property during any of the periods described in said two instruments. The Alabama Educational Foundation was incorporated under the laws of Alabama in May, 1925, "as an educational corporation organized and to be operated exclusively for educational purposes, no part of the net earnings of which shall enure to the benefit of any private stockholder or individual." The charter of the corporation provided that the duration of it shall be perpetual, and contained the following: "Object and Purposes. The corporation is organized and shall be operated exclusively for educational purposes, no part of the net earnings of which shall enure to the benefit of any private stockholder or individual; and, for such educational purposes, may acquire, hold and invest any kind of property, fund or/and estate in trust; or/and may, in trust, acquire, hold and invest any kind of property, fund or/and estate, which is to be used exclusively for educational purposes."

A principal contention urged in behalf of the appellant is that the provision of section 166 of the Revenue Act of 1928 (45 Stat. 840, 26 USCA § 2166) required the income during the period from January 1, 1929, to September 30, 1929, from the real estate described in the above first mentioned instrument to be included in the taxpayer's gross income for the year 1929. That provision reads as follows: "Where the grantor of a trust has, at any time during the taxable year, either alone or in conjunction with any person not a beneficiary of the trust, the power to revest in himself title to any part of the corpus...