69 F.2d 299 | 5th Cir. | 1934
Catherine L. Van Wart, a minor, was the beneficiary of a trust created by the will of her grandfather, Jenkins Jones, deceased. Dr. Roy M. Van Wart, Catherine’s father, with whom she resided in Orleans parish, La., after being confirmed by order of the district court for that parish in accordance with the laws of Louisiana as her natural tutor or guardian, and after duly qualifying as such, demanded of the trustees under the will that they pay over to him the accrued income of the trust created in favor of Ms ward. The trustees, claiming, among other things, the right to keep possession of the accumulations of such income until Catherine should become of age, when they conceded she would be entitled to the corpus as well as all accumulated income, declined to comply with that demand. Thereupon suit was brought in the name of the minor, by her father as next friend, in the federal court for the district in West Virginia in which the testator was residing at the time of his death, against the trustees to compel distribution of the income involved in accordance with the guardian’s previous demand. That suit finally was decided in favor of the plaintiff, it being held that the guardian was entitled to receive from the trustees his ward’s accumulated income and future income as it annually accrued. Van Wart v. Jones (C. C. A.) 295 P. 287. Accordingly, in 1924 the trustees paid over to Dr. Van Wart as guardian the accumulated income of $-160,000 and current income of $80,069; and Dr. Van Wart, acting as guardian and by authority of the court of his appointment, paid out of the funds so received by him a fee of $30,000 to the attorneys who brought the suit for their services in the litigation. In the income tax return for 19-24, which was filed by the guardian on behalf of his ward, a deduction of the attorneys’ fee was claimed. The deduction, though disallowed by the Commissioner of Internal Revenue, was allowed by the Board of Tax Appeals. And the Commissioner filed a petition for review.
The Board held that the attorneys’ fee paid by the guardian was deductible as an ordinary and necessary expense incurred in carrying on a trade or business within the meaning of section 214 (a) (1), Revenue Act of 1924, 26 USCA § 955 (a) (1). Its opinion, which is unreported but appears in the record, is based on its decision in Wurts-Dundas v. Commissioner, 17 B. T. A. 881, and on several of its other decisions therein cited to the same effect. The Wurts-Dundas Case was affirmed by the Circuit Court of Appeals for the Second Circuit. 54 F. (2d) 515. It is the contention of the Commissioner that the attorneys’ fee was a personal expense of the minor taxpayer, and was not deductible because, in computing net income, deduction of the taxpayer’s personal expenses is prohibited by section 215 (a) (1) of the same Revenue Act. 26 USCA § 956 (a) (1).
But it is said the guardian was engaged in business, the business of being a guardian; and that the fee incurred and paid to the attorneys in the litigation with the trustees was a necessary expense not of the guardian but of the guardianship, which is spoken of as a separate entity. Whether or not being a guardian is doing business, it is unnecessary to decide. The fee was not an expense of the guardian or guardianship; it was paid out of the ward’s income. That income was taxable not to him but to her. Busch v. Commissioner (C. C. A.) 50 F.(2d) 800. We are not here concerned with the case of a trust -estate of such character that the income derived therefrom is taxable to the fiduciary. This is not that kind of a case.
The petition for review is granted, and the cause remanded for further proceedings not inconsistent with this opinion.