*1 926 adjudication proceeding in
Court below. reversed below is
The order Court with directions cause remanded
and the is corpus and habeas discharge the writ the cus- petitioner therein to
remand Immigration Charge, tody the Officer Service, port of at the Naturalization
Miami. and remanded.
Reversed Crampton, Washington, Scott P. D. C. C., (Geo. Goodner, Washington, E. H. D. petitioners. brief),
on Graney, Washington, M. Melva C. D. IN- v. OF BROWN COMMISSIONER (two cases). (Theron Caudle, Lamar Assistant Attorne> TERNAL REVENUE General, Slack, Special Ellis N. Assistant 10051, Nos. Attorney General, brief), States Court United respondent. Third Circuit BIGGS, Judge, Before Chief MARIS Argued January 4, 1950. KALODNER, Judges. Circuit 28, 1950. Feb. Decided MARIS, Judge. Circuit
These cases involve the
deductibility
expenses in computing
the net
taxable income of the
of certain
royalties paid by
rents and
them to the
trustee of two trusts created
them for
They
grow
benefit of their children.
following
out of the
facts:
wife,
Taxpayers are
residing
husband and
Clearfield, Pennsylvania.
Their
indi-
vidual
returns
year
tax
the calendar
receipts
1944 were filed on the cash
disbursements basis.
concerning deportation
1022,
persons
1016,
713,
conclusive.
92T 3, 1944, engaged partners January formally On Taxpayers coal-mining contracting executed two general agreements, and irrevocable trust grow- under each they conveyed In 1943 the business was of which to Har- business. equip- equity Boulton, trustee, old They large ing. owned a an one- undivided J. seve- half $150,000 and owned interest in worth about the tracts of ment for the benefit being taxpayers’ which were then properties agreements two sons. The ral coal trust they mining operations except are identical operated. In their as to the of names siding loading contained, a railroad beneficiaries. Each made use of trust alia, Bigler, coal, provisions: H. F. inter then owned following Jr. single track of a siding consisted railroad During “1. the continuance of which ramp tipple from coal or with a Trust, The Trustee shall have absolute into railroad trucks loaded from could be. right, discretion, in his operate, sole to man- the Balti- siding with connected cars. The age, sell, convey, transfer, lease, assign capable was Railroad more & Ohio and convey any all, part and and any or of coal cars. approximately 30 holding of Estate, make, Trust said and to exe- charge paid wheelage Taxpayers $2.50 cute and deliver deeds, and sufficient of coal amount car, regardless indentures or other written to instruments held one of coal loaded. The amount purchaser or lessee price at whatever 70 tons. ranges 50 to from coal car may whatever terms to him seem wise; and the Trustee shall right have the 1943, taxpayers, deed dated By June to assignments by to consent lessees and H. F. wife, acquired from as husband and modify or cancel any lease contracts for wife, consideration for a Jr., and Bigler, part estate, power trust if and occa- located $4,500, acres of land 8.9 title to sion should be reserved or arise under Clear- borough limits just outside terms agreement lease agree- or railroad field, Pennsylvania. The ments. land. improvements on this was one ton, January Harry Brown, Murray Testings payers or were about to commence mining oper- ations on this tract. curity coal evidences Clearfield By Sometime land located about three miles deed Boulton acquired for born discussed 3, 1944, taxpayers matter of the future Brown, had and known as the of coal dated prior been August and his born two September 29, 1943, $3,000 discovered. January 3, son, July 2, sons, their had commenced Harold Boul- payment 35-acre Kephart Robert Earl financial se- part and Allan attorneys, tract Prior north J. tract of tract. thorized then than support, exceeding tee of the beneficiaries out sums as and education of maintenance of the survivor of shall be “3. The income shall have all of the for the duration of the Trust [******] of the income at of the Trust Estate as terminated, and held minority of the he may twenty-one and accumulated the Trustee income, deem right at all entitled to who years after the death it is grantors or of at the time of such necessary beneficiaries; the Trust Estate discretion such specifically though receive all times invest nor the Trus- principal but not it were longer any pay au- or cash, suggested. plan trust was creation of a A if converted into in additional real upon whereby agreed the title the estate or leases additional real was estate. income, after the dates for ac- fixed tract 8.9-acre railroad cumulation thereof shall be from time and to located siding was 35-acre coal though to time to those entitled as to be transferred to a was land payments had the date understanding properties been that the terminated. taxpayers, were, be leased to always intended, oper- beneficiary to continue to “4. first as was the Trust hereby partnership agree- them Estate Murray ate created Allan Brown, a minor child of ment. the Grantors consent, certain gave lessor’s lessor stated subject hereinafter herein, Trust; but redress case of default. terms conditions should Murray if Brown the said Allan 4, 1944, January Under the same date *3 twenty-five age of attaining die before the taxpayers entered into another written first children in the years, surviving his Boulton, agreement Harold as trus- J. Brown Murray Allan place, or if the said tee, whereby taxpayers for granted, were him, then to survive shall not children period years, of right a five the to mine the in surviving brothers and sisters and take for own benefit all their use and named, sub place, are the order second in clay upon the coal and 35-acre tract fire the as beneficiaries. stituted September 29, acquired taxpayers on 1943, upon payment for of a ton the Estate shall terminate The “5. Trust 250 clay produced coal mined and a ton for beneficiary arriving at the the first 100 premises. the The agreement from also first bene- twenty-five years; if the age of provided payment for a the of minimum fixed prior to date ficiary shall die the month, rental of a for which credit Trust, $50 duration of the termination the the paid; nevertheless, royalty shall, was to be so the Estate of the Trust prohibited assignment subletting of without principal Trust the of the far as concerns consent; gave the lessor’s and the lessor of the Estate, youngest until the continue in certain redress case of default. beneficiaries shall respective substituted twenty-one years, and age the of arrive at paid by taxpayers a ton to the 250 substi- continue for Trust shall the on coal mined 35-acre tract trustee powers herein as the same term with tuted by taxpayers paid trustee and to the 70 of the Upon the termination forth. set rail- for each ton of coal loaded over the execute Estate, shall the Trustee Trust royal- road constituted reasonable in conveyances assignments and sufficient and rentals for the facili- ties use of the absolutely simple and real estate fee as to leased. ties beneficiary bene- or personalty, as to acreage and transfers coal corpus Trust all ficiaries taxpayers siding by railroad trustee may have- Estate, including income taxpayers’ trust for children accumulated.” steps integrated in one transaction. after the day January On paid taxpayers In Harold Boul- J. executed, taxpayers agreement was ton, trusts, as trustee of the two sum agreement a written into entered $10,278.90, representing royalties' on coal Boulton, whe'reby Harold J. tract, on the 35-acre sum mined right and exclusive granted the payers were representing $10,203.38, rentals for the use occupy railroad and use the privilege siding. Taxpayers the railroad claimed years upon the period a siding for part- amounts as deductions on their these each per ton for a rental payment nership The Commission- return loaded, upon clay or every coal ton of disallowed deductions. er shipped cars and in railroad premises, only taxpayers person other than addition, lessees In siding. over siding during who made use railroad keep railroad sid- (taxpayers) Bigler, H. F. For such 1944 was use Jr. repair and were equipment ing This amount was $26. indemnify the lessor harmless and save by taxpayers to the trustee. paid over Tax- any loss, or damage railroad from report partnership it payers did injury persons or expense reason income for 1944. return of The Commis- occupation use arising or from property this amount as sioner has income included ap- including any premises, described computing income driveways. The or sidewalks purtenant taxpayers. taxable payment of a provided for the also lease facts, above month, the Tax Court in prohibited On rental of .$25 minimum banc, held that judges dissenting, six assignment subletting or without Code, gift (1) (A) of the Internal Revenue intended and amounts of follows: income “ those royalties and that and. the rents (a) Expenses.— not, not deductible and were amounts were “(1) expenses. Trade or business ordinary or neces- as, royalties or or rents “(A) general. In All ordinary business within taxpayers’ sary expenses of necessary expenses paid during or incurred 23(a) (1) (A) of provisions of Section year the taxable in carrying trade Code, U.S.C.A. § Revenue the Internal * * * business, including or rentals also held (A). Tax Court 23(a) (1) payments required other to be made as taxpayers for use of *4 paid to that the $26 condition posses- to the continued use or by paid siding over the railroad sion, purposes business, for of the trade or taxpayers. to income the was to property taxpayer which the to has not thereupon taxpayers 1095. T.C. The taking taken or is not title in which he for review. brought here the cases equity.” no has with the in accord We ourselves find significant A case all respects in identical by Judge in expressed Arundell views the one now before us was before Tax There dissenting opinion in the Court. the Court of for Cir- the Seventh ques- trusts in the two suggestion nois that Skemp Commissioner, 1948, in cuit nor in faith not tion were created Judge Minton, speaking F.2d the and irrevocable. not valid that they case, court in that used the following lan- taxpayers irre- By the agreements the trust guage equally which is applicable to this independent trus- vocably conveyed to an one, 168 pages 599, F.2d at “The 600: siding the land title to the tee argues payments Commissioner that as The trustee coal land. located and the was required rent were not because the tax- taxpayers back to the then them leased payer voluntarily had entered into the by Tax Court to found what were taxpayer While transaction. volun- royalties. It is true rents and be reasonable tarily required created the situation which prior pursuant to a this was done that payments rent, the fact remains that taxpayers and understanding between require the situation created did pay- re- we do not prospective but trustee In valid, ments. this we case ir- point significant. gard What is con- this trust, wholly divesting revocable picture trolling is that there came into the payer in property, interest the trust owner, independent new agreement by taxpayer and an pay position require to to was in a and did trustee a reasonable rental royalties under a valid as a payment of rents and con- lease. income the property is possession the continued use dition to not proceeding claimed this taxpayers pur- to be that of the lands taxpayer. We business, only have here poses wholly without question of regard operations deduction of rental from gross whether their re- income. can question sulted taxable income. There be no but required rent properly what to be is Under circumstances the conclu- these duty deductible. trustee was bound Court that the rents and sion of the Tax taxpayer exact rent and the tax- taxpayers royalties paid to the trus- it, payer legally was pay just bound to gifts of their tee were taxpayer much as if the had moved across clearly wrong. taxpayers property into the street of a third legally obligated pay the rents and party. No one doubts would have royalties use and the pay then, and had rent have been opera- though even of the coal mining though to deduct it even entitled he had loss. resulted in a The deduction tions had voluntarily created that situation. We are royalties authorized rents and was of these impressed argument with the not 23(a) express language of Section by the voluntarily In taxpayer majority’s connection with the
Government that factual pointed conclusions it present created the situation.” be out that one testified that the lease will be Tax Court decision of the back from the trustee was a five made for remanded reversed and cause will be year term because that “was a reasonable proceedings further not inconsistent figure time exhausting” the coal opinion’. the leased tract and that the latter would “anything worth to amount to” KALODNER, Judge. Circuit thereafter. I dissent. The dissent in the Tax Court discloses (cid:127)The issue here is the effect to be real the existence conflicting of an area in- 52(a), appellate given by an court Rule respect ferences with in- transaction Procedure, 28 Federal Rules Civil volved. only On that score it need be said C.A., applicable the review case, as we did the Penn Athletic Club Tax Court Section decisions of the “ * * * supra, page 176 F.2d 944: Code, 1141(a) the Internal Revenue the finding *5 sup- Tax Court was 1141(a), 26 U.S.C.A. and to the con- § ported by permitted evidence which at most 52(a) by the Su- struction Rule. conflicting (as was inferences evidenced preme Court of the United States finding minority the contra fact Gypsum v. United United States States of the Tax Court) and is therefore con- 1948, 364, 394-395, Co., 333 U.S. S.Ct. clusive here.” also, 746. See 92 L.Ed. United States (cid:127)For I stated affirm reasons Co., 1949, v. Yellow Cab the decision of the Tax Court. 177. S.Ct. Revenue In Commissioner of Internal Cir., Bldg., Club
Penn Athletic F. held, page
2d 939 that under Rule we
52(a) “It is our function to deter
mine Tax whether the Court erred finding
matter its fact of law whether
wag (Emphasis sup ‘clearly erroneous’.” plied.) COMMISSIONER OF INTERNAL REVE- majority In the instant cases the NUE v. ESTATE OF HINDS. Court, Tax after consideration the evi- No. 12852. dence, the factual came to conclusions United States Court of “royalties” paid by the “rents” and Fifth Circuit. reality “gifts” taxpayers were in of their March partnership income and as such were not ordinary necessary ex- deductible as business;
penses taxpayers’ that the “ * * * purposes of the trusts were
provide security peti- financial and, time, children same
tioners’ partnership coal
leave the business and properties used therein undisturbed management continued and con- partnership consisting pe- trol of ”; (taxpayers) and that the tax-
titioners benefit, any; intend that “did not
advantage or consideration should result received
to or its arrangement under scru-
tiny.”