Wesenberg v. Comm'r of Internal Revenue
| Decision Date | 29 March 1978 |
| Docket Number | Docket No. 561-76. |
| Citation | 69 T.C. 1005 |
| Parties | RICHARD L. WESENBERG and NANCY E. WESENBERG, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
In 1972 petitioners, H and W, created a trust to which H purportedly conveyed his lifetime services and all remuneration earned therefrom. Held:
1. The purported conveyance was merely an assignment of income ineffective to shift the incidence of taxation from petitioners to the trust on amounts paid as compensation for H's services.
2. H, as trustee, held powers sufficient to cause the entire trust to be governed by secs. 671-677, I.R.C., 1954.
3. The amount of allowable deductions incurred by H in writing a book determined.
4. Petitioners are liable for an addition to tax under sec. 6653(a). Pipp M. Boyls, for the petitioners.
Fredrick B. Strothman, for the respondent.
Respondent determined a deficiency in petitioners' Federal income tax for 1972 of $4,222, plus an addition to tax under section 6653(a)1 of $211.
The issues for decision are: (1) Whether the purported conveyance by petitioner Richard L. Wesenberg of his lifetime services to a family trust was effective to shift the incidence of taxation on amounts representing compensation to him but paid to the trust; (2) whether certain income and expense items reported by the trust should have been included instead by petitioners on their Federal income tax return for 1972 under sections 671 through 677; (3) whether petitioners were entitled to deduct certain expenditures incurred by petitioner Richard L. Wesenberg in writing a book; and (4) whether any part of the underpayment (if such underpayment exists) of tax for 1972 was due to “negligence or intentional disregard of rules and regulations” within the meaning of section 6653(a).
Some of the facts have been stipulated and are so found.
At the time of filing the petition herein, Richard L. Wesenberg, M.D., and his wife, Nancy, resided in Denver, Colo. The couple filed a joint Federal income tax return for 1972 with the Internal Revenue Service Center in Ogden, Utah.
On March 23, 1972, Richard executed, as grantor, a trust instrument creating the Richard L. Wesenberg Family Estate (A Trust) (hereinafter referred to as the Trust). The trust instrument provided, in part, as follows:
The above named Trustees, for themselves and their successors in trust, do hereby accept the conveyance in trust and acknowledge delivery of all the property specified, together with all the terms of the Trust herein set forth, agreeing to conserve and improve the Trust, to invest and reinvest the funds of said Trust in such manner as will increase the financial rating of the Trust (estate) during the period of outstanding liabilities of the various properties and enterprises in commerce for gain, exercising their best judgment and discretion, in accordance with the Trust minutes, making distribution of portions of the proceeds and income as in their discretion, and according to the minutes, should be made, making complete periodic reports of business transactions, and upon final liquidation distributing the assets to the beneficiaries as their interest may appear; and in all other respects administering said Trust (estate) in good faith strictly in conformity hereto.
Trustees' powers shall be construed as general powers of citizens of the United States of America, to do anything any citizen may do in any state or country, subject to the restrictions herein noted. They shall continue in business, conserve the property, commercialize the resources, extend any established line of business in industry or investment, as herein specially noted, at their discretion for the benefit of this Trust, * * *
Resolutions of the Board of Trustees authorizing a special thing to be done shall be evidence that such act is within its power. Any one lending or paying money to the Board of Trustees shall not be obliged to see the application thereof, all funds paid into the treasury are and become a part of the CORPUS of the Trust.
The Trustees shall regard this instrument as their sufficient guide, supplemented from time to time by resolutions of their Board (said resolution to be ratified ALWAYS by a MAJORITY of the Board of Trustees then in office and participating in the issuing meeting) covering contingencies as they arise and recorded in the minutes of their meetings, or by by-laws, rules or regulations, as deemed expedient and consistent with the orderly conduct of business. (Bracketed material in original.)
(Emphasis supplied.)
Expenditures The Trustees shall fix and pay compensation of all officers, employees or agents in their discretion, and may pay themselves such reasonable compensation for their services as may be determined by a MAJORITY of the Board of Trustees.
SHALL BE —-to accept the exclusive use of RICHARD LEE WESENBERG's lifetime services to include all of His earned remuneration from any source whatsoever and certain real and personal properties evidenced by affidavit, Deed, and Bill of Sale, in exchange for all of the beneficial interest (100 units) of THIS TRUST so that RICHARD LEE WESENBERG can maximize His lifetime efforts through the utilization of His Constitutional Rights; for the protection of His family in the pursuit of His happiness through His desire to promote the general Welfare, all of which RICHARD LEE WESENBERG feels He (or She) will achieve through the practice of His (or Her) RELIGION.
THE TRUSTEES by their resolution of purpose may perform and function for any purpose on behalf of any individual, group, or combination of any individuals, severally or collectively.
IN SUCH INSTANCES the powers and authority of the Trustees shall be defined and limited to the general purposes set forth by the Declaration of Trust.
This Trust shall continue for a period of twenty-five years from date, unless the Trustees shall unanimously determine upon an earlier date. The Trustees may at their discretion, because of threatened depreciation in values, or other good and sufficient reason, liquidate the assets, distribute and close the Trust at any earlier date determined by them. The Trust shall be proportionately and in a pro rata manner distributed to the beneficiaries.
On April 18, 1972, petitioners executed documents purporting to sell and convey to the Trust their personal residence, numerous items of household furnishings, certain securities, and medical and life insurance policies covering petitioners. As an integral part of this transaction, the Trust assumed Richard's then outstanding debts and liabilities.
On the same date, Richard also executed a document purporting to convey to the Trust the exclusive use of his lifetime services and “all my earned and to be earned remuneration and all my right, title and interest in such earnings from my services rendered or to be rendered” to the University of Colorado Medical School and the Hoeber Medical Division of Harper & Row Publishers, Inc. Shortly thereafter, Richard entered into an employment contract with, 2 and began working for, the University of Colorado Medical Center. At or about the time that he commenced work for the university, Richard notified the school of the purported conveyance and requested that all of his payroll checks thereafter be made payable to the Trust. In accordance with this request, the school issued checks in the amount of $23,895.75 to the Trust as payment for Richard's services during the remainder of 1972. In return, Richard received all 100 units of beneficial interest in the Trust. Such units of beneficial interest conveyed only a right to receive a pro rata share of any “emoluments” distributed at the discretion of a majority of the trustees. Richard, Nancy, and Marvin J. Roesler (Marvin), a colleague of Richard's, were designated as trustees in the trust instrument.3
Shortly after the creation of the Trust, the trustees held several meetings at which various resolutions affecting the administration of the Trust were adopted. At the third such meeting, Richard returned his certificate of ownership of all 100 units of beneficial interest for cancellation and reissuance of 30 units to each of his three minor children.4 The record does not show the distribution of any income or corpus to the beneficiaries in 1972.
Richard and Nancy, at this third meeting, were employed as the executive manager and the executive secretary of the Trust, respectively. In their capacity as trustees, petitioners caused themselves to be furnished with a rent-free residence maintained by the Trust, and to receive a monthly consultant fee of $450.5 Further, the Trust was to bear the cost of their health insurance, vacation expenses which were approved by them as trustees, beauty and barbershop expenses, and such other incidental expenses which, in their opinion, as trustees, were in the “best interests” of the Trust.6
As cotrustee and executive manager, Richard filed a Federal fiduciary income tax return for 1972 for the Trust. In addition to the $23,895.75 received from the University of Colorado, the Trust reported as income a net capital gain of $3,596.92.
The expenses claimed by the Trust totaled $33,134.39 and were listed on the return as follows:
+---------------------------------+
¦Item ¦Amount ¦
+-----------------------+---------¦
¦Interest ¦$3,774.00¦
+-----------------------+---------¦
¦Taxes ¦1,402.65 ¦
+-----------------------+---------¦
¦Charitable deduction ¦786.27 ¦
+-----------------------+---------¦
¦Travel ¦6,210.91 ¦
+-----------------------+---------¦
¦Health care ¦640.63 ¦
+-----------------------+---------¦
¦Insurance ¦2,247.60 ¦
+-----------------------+---------¦
¦Housing provided as a ¦ ¦...To continue reading
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