Willits v. Comm'r of Internal Revenue

• Citation: 50 T.C. 602
• Decision Date: 24 July 1968
• Docket Number: Docket No. 1715-66.
• Parties: OLIVER G. WILLITS AND MARGARET F. WILLITS, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: United States Tax Court

50 T.C. 602

OLIVER G. WILLITS AND MARGARET F. WILLITS, PETITIONERS
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 1715-66.

Tax Court of the United States.

Filed July 24, 1968.

[50 T.C. 603]

Joseph W. Price 3d, for the petitioners.

Max J. Hamburger and Peter J. Picotte II, for the respondent.

1. T was one of several trustees of a trust which terminated in 1960, and which in fact paid $920,000 in terminal corpus commissions to the trustees during that year. By prearrangement with the other trustees, T's share of those commissions was retained by one of the other trustees, a bank, and paid out to him in five annual installments beginning in 1961. Held, T is chargeable with receipt of his entire share of the commissions in 1960.

2. T was also a trustee of four other trusts. As a result of an intermediate accounting in respect thereof, the State court entered a decree in 1961 awarding corpus commissions in the aggregate amount of $674,273.37 to the trustees. However, at the request of T's attorney, the court decree provided that T's share of those commissions was payable to him ratably over a 4-year period beginning in 1962. The trusts in fact made no payment of any portion of T's share of these commissions in 1961. Held, T's share of these commissions may not be charged to him in 1961.

The Commissioner determined deficiencies in petitioners' income tax for 1960 and 1961 in the amounts of $156,917.26 and $80,523.33, respectively. The only adjustments in controversy are those relating to the Commissioner's determination that petitioner Oliver G. Willits actually or constructively received certain trustee's commissions in the amounts of $178,887.88 in 1960 and $131,107.95 in 1961.

FINDINGS OF FACT

The stipulation of facts, along with accompanying exhibits, is incorporated herein by this reference.

Petitioners Oliver G. Willits and Margaret F. Willits are husband and wife, residing in Haverford, Pa. They timely filed their 1960 and 1961 joint income tax returns with the district director of internal revenue, Philadelphia, Pa., on the basis of a calendar year, using the cash receipts and disbursements method of accounting. Margaret F. Willits is a party herein solely by reason of the joint returns, and Oliver G. Willits will hereinafter sometimes be referred to as petitioner.

Petitioner had been associated for many years with the Campbell Soup Co., a large diversified food manufacturer. He finally became chairman of its board of directors, and served in that capacity from March 1, 1956, to February 28, 1962, on which date he retired from the company. He reported income from wages paid by the Campbell Soup Co. of approximately $110,000 in each of the years 1960 and 1961, and reported adjusted gross income of $202,945.04 and $143,643.66 in 1960 and 1961, respectively. Since December 10, 1951, and including the years 1960 and 1961, petitioner also served as one of several trustees of a certain trust and trusts created under the will of John T. Dorrance, Deceased, as will be more fully explained hereinafter.

John T. Dorrance, a resident of the township of Cinnaminson, N.J., died testate on September 21, 1930, at which time he owned all the outstanding stock of the Campbell Soup Co. His will, which was probated in the Burlington County (Mt. Holly, N.J.) Common Pleas Court, Orphans' Court Division, in 1930, provided for a testamentary trust (hereinafter sometimes referred to as the Dorrance Trust) for the benefit of his wife and children. Item Fourteenth of his will, which set out the terms and conditions of this trust, provided in part as follows:

the principal of the said rest, residue and remainder of my estate, including all reimbursements made to the said principal of my estate from the income

[50 T.C. 604]

as aforesaid shall be divided into equal parts or shares as follows, viz:— Two shares representing my wife, Ethel M. Dorrance, two shares representing my oldest son if he be then living, and if he be not then living, two shares representing his issue if he have issue then living, one share representing each child of mine then living, other than my oldest son, and one share representing each child of mine, other than my oldest son, who shall be then deceased leaving issue who shall be then living, * * * and my said Trustees shall from the time of such division pay the net income from two of said equal parts or shares of the said rest, residue and remainder of my estate to my wife, Ethel M. Dorrance, if she be then living, each and every year, in monthly payments as nearly equal as may be, for and during the term of her natural life or until she shall re-marry, * * * and my said Trustees shall pay the net income of two of said equal parts or shares of the said rest, residue and remainder of my estate to my oldest son if he be then living, in monthly payments as nearly equal as may be, each and every year for and during the term of his natural life * * *

And I do hereby order and direct that my said Trustees shall pay the net income of one (of) the remaining equal parts or shares of the said rest, residue and remainder of my estate of each to my children, other than my said oldest son, in monthly payments as nearly as may be, for and during the term of their respective natural lives; and from and after the decease of each of my said children, respectively, other than my said oldest son, I order and direct that my said Trustees shall pay the net income of one of said remaining equal parts or shares to his or her child or children, in monthly payments as nearly equal as may be, the child or children of any deceased child of mine, other than my said oldest son, to take and receive the same share thereof to which his, her or their parent would have been entitled if living, until the youngest child of such child of mine so dying, other than my said oldest son, shall arrive at the age of twenty-one years, at which time I hereby order and direct that the principal of said one of said remaining equal parts or shares of the said rest, residue and remainder of my estate shall be paid, transferred and conveyed unto the child or children of such child of mine so dying * * *

Surviving John T. Dorrance were his wife, Ethel, and five children, John T., Jr., Elinor, Ethel, Charlotte, and Margaret. Ethel Dorrance, the testator's wife, died on March 10, 1953. Margaret Dorrance Strawbridge, one of the daughters of John T. Dorrance, died on July 31, 1953, survived by two minor children, George Strawbridge, Jr., and Diana Dorrance Strawbridge. Under the terms of the will, the children of Margaret Dorrance Strawbridge succeeded to her interest in the Dorrance Trust. Thus, the beneficiaries of the Dorrance Trust during the years in issue, and their relationship to the testator, were as follows:

+-----------------------------------------+
                ¦ ¦Relationship ¦
                +--------------------------+--------------¦
                ¦Beneficiary ¦to testator ¦
                +--------------------------+--------------¦
                ¦John T. Dorrance, Jr ¦Son ¦
                +--------------------------+--------------¦
                ¦Elinor Dorrance Hill ¦Daughter ¦
                +--------------------------+--------------¦
                ¦Charlotte Dorrance Wright ¦Daughter ¦
                +--------------------------+--------------¦
                ¦Ethel Dorrance Colket ¦Daughter ¦
                +--------------------------+--------------¦
                ¦Diana Dorrance Strawbridge¦Grandchild ¦
                +--------------------------+--------------¦
                ¦George Strawbridge, Jr ¦Grandchild ¦
                +-----------------------------------------+
                

[50 T.C. 605]

The Burlington County Orphans' Court retained jurisdiction over the administration of the Estate of John T. Dorrance until the administration terminated in 1935, at which time the Dorrance Trust was set up and the court issued appropriate letters of trusteeship to the trustees named in the will. The trustees of the Dorrance Trust as originally established in 1935 consisted of the Camden Trust Co. and three individuals, the testator's wife and two brothers. Although the Camden Trust Co. has continued to serve as a trustee throughout the years, various substitutions have been made in respect of the individual trustees. On December 10, 1951, petitioner became one of the trustees.

Under New Jersey practice the court made lump-sum commission allowances for the services performed by all the trustees as reflected by the particular account filed. Under the terms of the will of John T. Dorrance, such commissions could not exceed 1 1/2 percent on the principal and 1 1/2 percent on the income which passed through the hands of the trustees. The trustees were authorized to divide the commissions by agreement among themselves based upon the extent of services performed by each trustee. It was the practice of the trustees to hold a meeting after the court had adjudicated a lump-sum allowance of commissions in which they agreed among themselves as to the amount of commissions allocable to each trustee. In the event of disagreement, application could be made to the court for allocation of commissions among the trustees.

From the inception of the trust through August 25, 1959, the trustees rendered seven accounts. Apart from any rights to commissions in respect of the income of the Dorrance Trust over the years, the trustees were entitled to receive commissions in respect of principal. Such principal or corpus commissions were in fact allowed in connection with each of the foregoing seven accounts. The dates of the allowance of these accounts, the lump-sum principal commissions approved by the court, and the amounts thereof distributed to the corporate and individual trustees are shown in the following table:

+------------------------------------------------------------+
                ¦ ¦ ¦Division of commission ¦
                +-----------------+------------+-----------------------------¦
                ¦ ¦Gross ¦between corporate trustee and¦
                +-----------------+------------+-----------------------------¦
                ¦Date of allowance¦principal ¦individual trustees ¦
                +-----------------+------------+-----------------------------¦
                ¦ ¦commission ¦_ ¦

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