1942 BTA LEXIS 768 | B.T.A. | 1942
Lead Opinion
1. The question in both cases is whether the Crellin trust is within the provisions of sections 1004 (a) (2) (B) and 101 (6), Internal Revenue Code.
There is no doubt that the trust was created for a beneficent purpose, which is expressed in the opening paragraph of eighth. But this alone is not determinative, since it affects equally both divergent subdivisions. Clearly if the opening paragraph of eighth were followed only by a list of three persons who were the children of the settlor, it would not serve to give a charitable character to the trust.
The fact is that two separate and dissimilar groups of beneficiaries are set forth in subdivisions A and B. Those in subdivision A are fourteen named persons, and no descriptions or common attributes are set forth. Evidence dehors the instrument shows that these persons are among the seventeen grandnephews and grandnieces of the settlor, that they are not members of the First Methodist Church of Pasadena and are not residents of that vicinity. Subdivision B designates an entirely different class of beneficiaries, namely, young people who are members of the First Methodist Church. The fourteen relatives named in subdivision A are not within a general class of beneficiaries, and do not present an instance within the doctrine that a trust for a general class is none the less a charitable trust if it provides for a preference to certain members of the class. Cf. Schoellkopf v. United States, 124 Fed. (2d) 982.
Instead of being favored beneficiaries of a more general class, the nominees in group A are the particular persons for whom the trust was primarily created. In the instrument itself they are the first
For this reason, it can not be said that the trust is a public charitable trust; the exemption is defeated by the specific enumeration of the settlor’s grandnephews and grandnieces as the individual beneficiaries. Cap Andrew Tilles, 38 B. T. A. 545; affirmed other point, 113 Fed. (2d) 907, certiorari denied, 311 U. S. 703. For the same reason, it does not help petitioner that the purpose of the trust is entirely educational.
But if the question be approached from the opposite view, and the trust be regarded as predominantly one for the benefit .of young people of the First Methodist Church, it would still be necessary to hold that this was not the exclusive purpose for which it was organized and operated. The private beneficence to the enumerated fourteen relatives was not a mere incident of a larger public charity. Subdivision A and its operation are a major part of the trust. While this may be essentially a question of degree, a trust for the benefit, of thousands of persons in a class not perhaps losing its character if it also benefited fourteen of the settlor’s relatives, the degree in the present case is relatively too great to be ignored.
This is a commendable trust, actuated by the highest motives. It was not impelled by any thought of reducing taxes through, a factitious deduction. If it had been, the instrument would have been drawn quite differently. The instrument was obviously drawn to effectuate the settlor’s purpose primarily to provide her grandnephews and grandnieces with the means of a college education which otherwise they might not be able to procure. This purpose, no matter how commendable, is not the charitable purpose which permits a deduction for gift tax or an exemption to the trust.
2. Mrs. Crellin, believing herself entitled to a deduction under section 1004 (a) (2) (B), Internal Revenue Code, took no deduction
In Docket 106839 it is held that, although petitioner is not entitled to a deduction under section 1004 (a) (2) (B), Internal Revenue Code, she is entitled to a deduction under the specific exemption, and there is no deficiency. In Docket 109669, it is held that petitioner is not within section 101 (6), Internal Revenue Code, and is therefore not exempt. Decision will be entered under Rule 50.
SEC. 1004. DEDUCTIONS.
In computing net gifts for the calendar year 1039 and preceding calendar years, there shall be allowed (except as otherwise provided in paragraph (1) of subsection (a)) such deductions as are provided for under the gift tax laws applicable to the years in which the gifts were made.
Sec. 505. (a) (2) (B), Revenue Act of 1932, as amended by sec. 517 (a), Revenue Act of 1934:
In computing net gifts for any calendar year there shall be allowed as deductions:
(a) Residents. — In the case of a citizen or resident—
* * * * * * *
(2) Charitable, etc., guts. — The amount of all gifts made during such year to or for the use of—
* * * * * * *
(B) A corporation, or trust, or community chest, fund or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals; no part of the net earnings of which inures to the benefit of any private shareholder or individual and no substantial part of the activities of which is carrying on propaganda, or otherwise, attempting, to influence legislation ;
The following organizations shall be exempt from taxation nnder this chapter—
* ******
(6) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals,' no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation.
Restatement of the Law, Trusts, eh. 11; Scott on Trusts, ch. 11; Paul, Federal Estate and Gift Taxation, ch. 12.
SEC. 505. DEDUCTIONS.
In computing net gifts for any calendar year there shall be allowed as deductions:
(a) Residents. — In the case of a citizen or resident—
(1) Specific exemption. — An exemption of $40,000 less the aggregate of the amounts claimed and allowed as specific exemption for preceding calendar years.