Commissioner of Internal Revenue v. F. G. Bonfils Trust

REVE- OF INTERNAL COMMISSIONER TRUST NUE BONFILS v. F. G. et al. al. v. COMMIS- TRUST et BONFILS

F. G. REVENUE. INTERNAL SIONER OF 2135, 2136.

Nos. Appeals, Tenth Circuit.

Circuit Court of 6, 1940.

Nov. Judge, dissenting. Asst, Wattles, Sp. Atty. Warren F. to the Clark, Jr., (Samuel Atty. O. Gen. Gen., Asst. Asst, Key, Sp. and Sewall

Atty. Gen., briefs), for Commis- of Internal Revenue. sioner McEvers, City, H. of Kansas Mo. John Plart, Stephen (James B.‘Grant and H. both 789 annuitants, Gardner, last survivor of the Denver, Colo., A. Reece and paid over should for re- estate City, Mo., briefs), of Kansas Foundation, expended by and which spondents cross-petitioners. and mean- a charitable within the and PHILLIPS, Before 23(c) (2) MURRAH, Judges. Circuit 48 26 Int.Rev. U.S.C.A. Acts, page 674. PHILLIPS, Judge. Bonfils, widow, rejected Belle elected her hus- and to take one-half of petitions to review a These are having band’s estate. It consisted of assets Appeals. Board of Tax February'2, a fair market as of value The Facts. $14,300,326.01, were against which there charges, including the costs of debts and Denver, Bonfils, resident of G. F. administration, $822,517.81, aggregating testate, February Colorado, died $13,477,808.20. leaving a net estate of Bonfils, his surviving him Belle leaving Bon During specific be executors By his. will he made widow. 2,500 fils distributed to the trustees his estate remainder of quests left the stock Investment shares of of the Boma Bank and The National The Denver Bank, immediately Company, City, Mis surren Kansas National First souri, Company. in dered the Investment ex were direct The trustees trustees. change having fair trust es for assets market from the collect the income ed to pay, in value of On November the net income to tate out 1937, the trustees received from the exec discretion, the education their absolute $10,000, utors a further shares children, up distribution 727 minor two Company, and specified of stock of the Investment 1933, certain March beginning re in the on December' the trustees The will directed annuities.1 ceived, as of a series of distributions insufficient to should event the full, complete liquidation Investment there balance the annuities Company, having fair market assets paid out of should that, $447,000. approximately On December be directed It further estate. tru.st trustees in final received April trustees ginningi Company, liquidation of the Investment Frederick G. Bonfils pay over $519,- of the fair market value of of the net assets remainder all of the Foundation anticipated that the least semi trustees trust estate in at 389.53. income of installments; additional assets from the es will receive annual fair market having and retained value of less tate be added estate; that, $679,000. average years inclusive, 1934 to the five within ten age, expectancy annuitant and annual amount of birth, and life of each each 1 date of name, follows; annuity are as Age Expec- at tancy Date of at Date of Testator’s Testator's Death Death 2/2/33 Annuity Name Annuitant Date of Birth 2/2/33 75,000(a) 26.7 42 Helen G. Bonfils 1890 November ? 25,000 Berryman 50 20.9 May April 30, Bonfils 1883 2,400 15.4 A. 58 Charles Bonfils March 1875 1,200 14.1 60 Gertrude Yard June 2,400 11.7 April Barber Nellie 2,400 9.5 July 22, Etta B. Walker 8.5 Donnelly February Catherine 1,200 6.3 September 29, Thomas L. Bonfils (b) 1,200 4.4 Bryant June Emma (cid:127) — Hoggatt (c) 1,200 Volney T. June ' $112,600 Maximum annual amount (a) during Belle died June 1935. $75,000 thereafter. Bonfils $25,000 Bonfils, the life of Belle (b) Bryant May 1, Emma died Hoggatt (c) Volney July 12, T. died 1935 the During years 1934 and trust es trastees received $793,284.- trustees derived $529,414.85. tate was $70,995.23, respectively, 59 and payable and The amounts of to the terms inclu- $62,035.48 $90,150, respectively. $110,600, sive, $90,150, $62,035.48, of the trus- auditing income returns tax $110,200 respectively. of such The amount the Com- tees $110,200, payable in 1938 was capital gains, missioner determined more of annuitants died unless not deductible annuity payments were trustees before December accordingly. deficiencies and determined kept and filed their in- books their primary stipulated facts as On the tax returns come calendar receipts a' fact basis. Board as “that disbursements found cash expenses property by oth- incomes, them less received from distributed to and held 2 The trustees capital follows: gains, and exclusive as er than taxes $168,747.22 380,573.55 377,504.52 345,669.92 they ultimately Property produced (exclusive net additional receive gains) as follows: $398,847.00 172,766.62 139,455.40 142.834.21 lows: Property held trustees, both directly indirectly, produced $567,594.22 488,504.13 553,340.17 516,959.92 recurrent as fol- (cid:127) ordinary income therefrom estate fair market the assets The current value substantially as are follows: Current Current Pair Value Market Income Cash 163,912.20 $ States Government , Bonds and Notes (a) 59,021.25 $2,550,300.58 $ 125,155.63 3,729.37 (b) 334,357.50 3,009,813.71 6,948.75 (c) Municipal Bonds 597,169.37 (a) 25,660.00 35.00 1,006.20 698,175.57 (b) Corporate S87,590.00 13,150.00 Bonds Corporate Stocks & Co.* Printing (a) Publishing Post (1) 718,451 1,977,740.00 shares 273,011.00 87.61766 (2) 240,948.56 33,294.71 shares 344,850.00 (3) 2,563,538.56 47,652.00 shares 125.4 Other Stocks

(b) and Miscellaneous (D 1,147,330.59 57,781.88 n 391.85 (2) 6,292.76 1,152,623.35

$7,875,653.39 $520,675.81 Company & Printing Publishing are on the basis of Post being *These values the stock of The stipulated figure. $2,750 a stock had a share. value of not less th'at worth Commissioner Internal had $3,000 determined a share. value of June If presumptively correct, and it that value is increase assets making $232,867.16, total assets of by a ing on received whether income was pay annuities corpus” to of the invasion of relig operated negligible.” so remote “is ious, charitable, scientific, or educational capital gains were Board decided that technical payments annuity refused to deductible and that trust, saying, formal were not deductible. formality “To allow the technical No. 2135. trust, prevent which does not petition by This is a the Commissioner income, Hospital really enjoying holding to review that would be to defeat the beneficent deductible. Colony Com Congress.” Co. v. In Old 1934, 48 162 of Sec. the Revenue missioner, supra, Supreme Court re 162, 728, 26 Int.Rev.Code Stat. U.S.C.A. § the narrowly fused to construe § de- provides that there shall be as 1928, 45 Revenue Act Stat. any part a trust duction from the Int.Rev.Acts, is sub page which C.A. income, .pursuant to gross which stantially Revenue like 162 of the § trust, is will the the terms the chari for held year set during the deductible, although it purposes was table be purposes, or aside for charitable is to technically the was to exclusively purposes. charitable will, actualities giving heed to terms of the laid will. It will observed that the test rather than letter the be the strict Co., whether, pursuant by Provident Trust the In United States v. down statute terms 54 S.Ct. the U.S. to the determining the fact, permanently charitable that in in set aside for the court held charities, year. In other to actualities in the taxable value of a devise applica- arbitrary presumption words, question an should whether rather than an prevail. will to the exist- tion the terms of the does, fact, permanently aside ing in set facts States, 279 In Trust v. United Ithaca Co. purposes. gains U.S. 49 S.Ct. 73 L.Ed. question this turns The determination of gave will es- the residue of the testator’s blindly we on whether should life, authority to tate to his wife for with provide for re- of the will which terms may principal use from “that sum to in the event course necessary suitably in be to her maintain whether we insufficient to or enjoys.” as much comfort she now Sec. the effect realistic and determine should be 403(a) of the Act light in the terms of the will 1098; provides that the value the income there- amount of by deducting estate shall determined from, In of the annuities. and the amount estate the words, give whether re- other we devises, bequests, legacies, of all amount actuality. to gard or to mere corpora- gifts, or for the use of or Congress in enact operated organized tion was charitable, scientific, literary, Revenue Act of 1934 religious, pro gifts. Like encourage pre- charitable judicially been construed so provision visions have main- sented was whether hinder their to further and not beneficent gifts of the wife made the tenance Stockton, Lederer v. U.S. purpose. charity so uncertain as to render them 99; Colony 67 L.Ed. Old 379, 384, v. Co. S.Ct. court concluded that nondeductible. The Commissioner, 301 U.S. S.Ct. payable wife was since 1169; by States v. 81 L.Ed. a fixed down conditioned standard laid Co., Trust U.S. capable Provident will which was definite ascertainment, 78 L.Ed. 793. In Lederer v. income was since the Court, Stockton, supra, Supreme pass- her that stan- sufficient to maintain under opinion, And, view, the court said: In the in that we well L.Ed. 564. simply Congress may for consideration have could not “We assume that exempting statutory provision by from a its aim to diverted meant leave bequests, presumption, which, prescribed arbitrary purely the value of all tax etc., applicable for the use of made or not to sustain an- whether akin, organizations deny policy, and those which are would or different other evincing legislative policy plainly policy par- and subvert of this truth bequests. encourage legislation.” Edwards such v. ticular Slocum, S.Ct. U.S. dard, uncertainty apprecia- rely “There was no Counsel for the Commissioner on

bly greater uncertainty general Deposit Boston Safe & T. Co. Commis- v. affairs,” sioner, human attends 66 F.2d 179. It be noted gifts were deductible. that the Board decision in that case and in the instant case written In Trust Co. Hartford-Connecticut v.. member, Board determining and that Eaton, Cir., the testator left whether the bequeathed his he es approach aside his tate of over one million dollars ato trus problem to the solution of the in both cases. was identical tee to income to wife his Deposit the Boston Safe life, her and the remainder to certain chari case, however, he found that there was a ties. The will authorized the trustee existing facts under pay over to or for the benefit of the wife invaded. See B.T. any part principal of the trust fund ; Whereas, page A. in 493 66 F.2d might which it necessary deem or advisable prob- found that the instant case he sup her comfortable maintenance ability so re- port. invasion question presented was whether negligible. as to be the court mote in While trustee, computing the income from Deposit indicated the Boston Safe case estate for the was en fully agree that it did not Hartford- with titled of part to deduct realized the sale Eaton, supra, Connecticut Trust v. it Co. securities, constituted by say- distinguished that case on facts residuary 184], Court F.2d “The District estate, [66 under 219(b) of the Revenue Act of § * * * found fact there was as a 1926, 32, Int.Rev.Acts, 44 Stat. 26 U.S.C.A. possibility, considering no reasonable 174, page provisions of which are sub fund, of liv- income of the trust her mode stantially the as 162 of Revenue § estate, personal ing, her own that she applied princi States, Act of 1934. The court require, war- ever or the trustee be ple of Ithaca Trust Co. v. United her, any part ranted in of paying ov$r supra, if and held that suf was principal her mainte- for comfortable support ficient to the widow accordance support, prin- and that all nance and with her in life that it station was rea was -certain to be cipal fund sonably certain no resort would had to for used poses,” charitable income derived from the Boston Board in the that the of sale securities was set aside 4 pos- that the Deposit had found case Safe might principal sibility part of the that a Hartford-Connecticut Trust v.Co. remote. be used too was Eaton, 16, supra, was decided December Congress therefore, We, 1929. Since that decision the conclude re-enacted, change, corpus, including without substantial question capital has whether the 219(b) of of the Reve been gains, has § de purposes nue of 1926 in the Revenue Act of Act aside for 162, 220, pro 1932, 47 Stat. in the Revenue a consideration termined § 1934, 162, 728, actual light of the Act of 48 Stat. in the the will in the visions § 162, 1706, corpus set the amount of respecting Revenue Act of 49 Stat. facts § Act 52 of which annuities in the Revenue aside out § therefrom, derived paid, the income Stat. in the Revenue Act annuities, degree and the 53 Stat. 26 U.S.C.A. Int.Rev. amount § corpus will be resorted probability Code, re-enactment of a 162. The statute § .finding of the annuity payments. The substantially persuasive unchanged indi the invasion adoption by Congress Board that cation of the 5 negligible remote as to be so prior judicial thereof. was construction Routzahn, D.C.Ohio, 4 292 also, See, F. Hartford-Connecticut Trust Co. v. C.C.Or., Devonshire, 1011; D.C.Conn., F. Eaton, 13 The 41 F.2d de- Co. v. D.C.Tex., F.Supp 42; Pfaeffle, 1930; April 11, 5 In re Lucas Mercan- cided v. Ryan, 708; Cir., Co., v. 284 U.S. States F.2d Trust 8 43 39. tile 224; 167, 175, Corp. 76 L.Ed. 52 S.Ct. National & v. Aniline Bakelite Malley, 176, 177; Co., Cir., 265 U.S. S. v. F.2d Hecht Chem. 949; Snelling, Cir., District Heald v. Ct. Electric Co. v. Carroll Columbia, 416; Sanger Lukens, 41 S.Ct. 254 U.S. v. 62 F.2d 856; Cir., 65 L.Ed. 106. Trumbull Steel 26 F.2d 79?. annuity payments or to were used amply supported the evidence. meaning for charitable of within the assets current fair market Act 162(a) of the Revenue that amount the trust is Of affirmed. decision of $3,607,989.46 government The the Board is is invested municipal bonds. gift bution to a or made fund, chest, foundation, community ganized or or- No. 2136. operated exclusively relig- and petition This is of re- trustees to the ious, charitable, scientific, literary, edu- or part view that of the the holding part cational 'no of the net earn- annuity payments not to be deductible. any ings of to which inures the benefit of individual, private or no The of that shareholder the trustees is provided part since substantial the cor of activities of which the for resort to pus necessary pay annuities, carrying propaganda, if or to is otherwise the an legislation; to upon attempting nuities pus influence charge constituted a the cor sec- provides 162(a) of that of go to tion the income estate which to Foundation, computed an or trust payment the of shall be that on the same basis as corpus the annuities freed the charge, manner and from that individual, and, except in of the therefore, an that lieu the annuities were purposes. (o), used deduction authorized section there If our con correct, part of clusion in No. 2135 shall be as a deduction this conten tion fail. the income which must The the assertion that upon or the annuities constitute pus cor terms of the will deed charge the year paid or theoretical, during the practical trust is taxable real. It ly permanently set aside for the certain that no resort will ever to be had corpus pay specified 23(o) or pay in the manner in section to such annuities. Their exclusively religious, only be char- ment effects of a is to theoretical release itable, literary, upon corpus. scientific, or charge clearly the It was the The Bonfils Foundation is a "purposes. intent of the testator to set the aside from meaning within the corpus, to charitable the sufficient thereof plain private language the pay to It of the statute. But the annuities individuals. part it that order that the makes clear in was never intended that the statute go charity. of the trust to be deductible pay income should to the income charity, it must be ments contribution to 1934 and 1935 were to car as a made express paid of the will to ry pur by effectuate intent out and that the terms during will, aside pose opinion and we the the are of the or corporation organized oper- yeár that where there a mere theoretical for a corpus discharge of the the from burden ated otherwise, the in- it be said deductible such cannot that such Stated it was that full'—that must make it clear death last strument after the of the the survivor intention of creator the annuitants. cannot be actually that paid said that capital be either of the will the terms gains charity during part corpus to the taxable became year. during such set aside it trust to aside estate were set and 1935 for exclusive provides this will of decedent use of the Foundation. Boston Safe De- profits any part resulting from sale of posit & Trust Co. In- v. Commissioner of principal, of the estate shall to be credited Revenue, ternal certio- income; shall it not be also deemed denied, rari provides the net event Up present ordinary, to pay to from the trust estate is insufficient the trust estate far has full, all annuities in such additional pay more than sufficedto the current annui- may required be from time to amounts ties, reasonably and it seems it certain that corpus time be shall out Still, will continue to do so in the future. estate; provides and it trust further it cannot be foretold with cer- absolute the death of the last survivor tainty that always such condition will ex- annuitants, the authorized trustees are ist to the death last survivor of directed, upon written demand of the foun- the annuitants. The decedent had dation, to from time the foundation factors, right and perhaps many did take corpus time all or such into that providing consideration in in the will reasonably may the trust estate as be re- capital gains be added to the project quired financing foundation, for the that the payment be liable for the projects undertaken of the balance annuities after cur- and that suant of the terms of the exhausted, rent had been and deliv- over such shall entire contingently subject the that use and ten ered to the foundation within until after after the death of the last survivor of the last survivor of the annuitants. These must be con- annuitants. any event, right he had the to make the together. in that man- sidered Considered manner, and for dedication reasons ner, they plain make that the decedent satisfactory to himself he so. did intended that added estate; that in majority state that blindly the event the income should be insufficient “whether we should time to time in full the annui- provide terms will which re- ties, enough corpus corpus of the used course to in the event income is deficiency; and that the cor- whether insufficient pus should be disbursed the foundation we should be realistic determine of the survivor after the death last light effect of the terms of the will annuitants, By the terms corpus, before. not of the amount of the therefrom, become a and the annui- subject words, is the entire ties. In other whether we charge whenever give regard actuality.” or- mere is dinary current insufficient for not commit But the statute to the real- does purpose, and the is be and istic views the court the wheth- charge subject to until equitable kindred remain or other considera- er last survivor of the annuitants. a.deduction in a case tions shall be'allowed purpose payment Instead, primary provides in full this kind. clear of and annuities. To that the cor- unmistakable terms the deduction ordinary pus only whenever the in- when dedicated terms of shall be True, enough. the dedication or deed the trust the sum come is the is contingent, is dedicated to but the taxable either to or secondary purpose purpose. aside for a permanently set foundation, give The court should effect to payment pose. of the annuities have been in congressional mandate. notes bonds and (dissenting). Judge es- average inclusive, depend years tate Deductions from upon rest $529,414.85. They amount of annuities do not legislative grace. Thus, taxpay it $110,200. upon A equitable payable in 1938 was considerations. his almost seeking er found that the income must will be seen deduction annuity required upon bring himself five the amount claim statute times payments. Co. v. of the annuitants within New Colonial Two its terms. died, past years three age, Helvering, U.S. past 1348; Pont, past years age, two are Deputy are L.Ed. 488, v. Du accepted 416; age. Under tables Commo S.Ct. 84 L.Ed. there In expectancy life it is certain that Mining Co. v. Commissioner dore 131; annuity Revenue, will be a ternal decrease payments Sparkman in the near future. v. of Internal Commissioner Revenue, Cir., as F.2d 774. The opinion We the evidence are of the taxpayer serted claim of this is not sus beyond established reasonable doubt its genesis tainable unless finds in stat -a he never will there corpus recourse ute. 23(o) (2) of Section was, fact, permanently set aside in 680, provides that in com- purposes. Ac- the net income of an individual a puting deduction cordingly, we conclude that the decision of contri- shall be allowed the Board was correct and it affirmed. trust, corporation,

Case Details

Case Name: Commissioner of Internal Revenue v. F. G. Bonfils Trust

Court Name: Court of Appeals for the Tenth Circuit

Date Published: Nov 6, 1940

Citation: 115 F.2d 788

Docket Number: 2135, 2136

Court Abbreviation: 10th Cir.