United States v. Pyne

• Decision Date: 28 April 1941
• Docket Number: No. 683,683
• Citation: 61 S.Ct. 893,85 L.Ed. 1231,313 U.S. 127
• Parties: UNITED STATES v. PYNE et al
• Court: U.S. Supreme Court

313 U.S. 127

61 S.Ct. 893

85 L.Ed. 1231

UNITED STATES

v PYNE et al.

No. 683.

Argued April 2, 1941.

Decided April 28, 1941.

Messrs. Robert H. Jackson, Atty. Gen., and Arnold Raum, of Washington, D.C., for petitioner.

Mr. Allen G. Gartner, of Washington, D.C., for respondents.

Mr. Justice BLACK delivered the opinion of the Court.

The question presented is whether upon this record the Court of Claims¹ committed error in concluding that respondents, as executors, were, in computing their federal income tax, entitled to deduct expenses properly incurred in the administration of an estate, Congress having provided that such a deduction could be taken only by individuals, estates, or trusts engaged in 'carrying on * * * business.' Revenue Act of 1934, §§ 23(a), 161, 162, 26 U.S.C.A. Int.Rev.Code, §§ 23(a)(1), 161, 162. Compare City Bank Farmers Trust Co. v. Helvering, just announced, 313 U.S. 121, 61 S.Ct. 896, 85 L.Ed. —-.

In computing the 1934 net income of the estate, respondents claimed a deduction of $40,000 for fees paid to the estate's attorney during the taxable year. The Com- missioner of Internal Revenue disallowed the deduction; the respondents paid under protest, and filed suit for refund in the Court of Claims. Their complaint alleged that 'The payment of attorney's fees and the claim for allowance thereof as a deduction from gross income is predicated upon the contention that the tremendous size of the corpus of the estate and the proper administration thereof constituted the operation of a business and the employment of an attorney as counsel to guide the executors in the handling of the affairs of the estate was just as much a necessary expense of the estate as is incurred in the operation of any commercial business engaged in the manufacturing or selling of commodities.' The court made detailed findings of fact, and as its single conclusion of law stated that the respondents should recover.

We recently stated in Higgins v. Commissioner, 312 U.S. 212, 61 S.Ct. 475, 85 L.Ed. —-, that determination of what amounts to carrying on business requires examination of the facts in each case. In this case, the record before us contains the findings of the Court of Claims, a conclusion of law, and an opinion summarizing the findings of fact and indicating the reasons which prompted the court to reach its conclusion of law. The most that can be said of the findings of fact is that the court was of the opinion that the facts found showed that the activities of the executors were such as to meet certain criteria set out in the opinion as determinative of what constituted carrying on business. For what the court found as a fact was that the decedent, prior to his death 'was engaged in business as a financier and investor, maintaining an office where he employed an office manager and an average of six clerks. * * * In general the operations of the estate continued in substantially the same manner after the decedent's death as before * * *.' (35 F.Supp. 83.) In addition the court found that the attorney employed by the executors 'was called upon to advise them with reference to mat- ters both legal and economic that arose in the business activities of the estate, with reference to federal estate and state inheritance taxes, and also in regard to the acquisition and disposal of the estate's securities and in regard to various matters pertaining to companies in which the estate held investments.' But the executors might do all the things that the court found that they did and still not be engaged in 'carrying on * * * business' within the meaning of the Revenue Act. For as we said in the Higgins case, 'All expenses of every business transaction are not deductible. Only those are deductible which relate to carrying on a business.' Also, we there sustained a holding that an individual who was engaged in financial and investing activities in all ways similar to those of the decedent and his executors in this case was not entitled to a deduction such as that sought by respondents. Therefore, the finding of the Court of Claims that the executors continued to conserve the decedent's estate as he had when he was himself 'a financier and investor' falls far short of a finding that the executors were entitled to a deduction accorded by Congress only to those 'carrying on * * * business.' Failure of the Court of Claims to make a specific finding on this ultimate and determinative issue deprives that court's judgment of support. Under such circumstances w...