1927 BTA LEXIS 3389 | B.T.A. | 1927
Lead Opinion
The only question herein is whether or not the estate of Hans C. Hansen, in computing its net income for the fiscal year ended January 31, 1923, is entitled to deduct the amounts of $27,-713.25 and $10,000, paid to the executor and attorneys for the estate, respectively, under the circumstances set forth in the findings of fact. The Commissioner contends that the services rendered by the executor were those expressly required of him by the last will and testament of Hans C. Hansen, and that the amounts paid for such services are a part of the usual expense of administration and are not deductible from gross income. The petitioner contends that under the circumstances they are deductible, even though they are administrative expenses, but urges that they are in fact ordinary and necessary expenses of carrying on a trade of business.
This appeal is in many respects strikingly similar to the Appeal of Grace M. Knox et al., Executors, 3 B. T. A. 143. The facts in that appeal were that S. H. Knox died testate in May, 1915. In his will he named certain persons who acted as executors in the necessary proceedings for the settlement and distribution of his estate, and provided further that the same executors should become trustees of certain trusts specifically provided for and set forth in the will. The decedent knowing that the estate would continue and produce a large income annually and that the execution of the trusts provided for would extend over a period of years much longer than the period ordinarily required for the administration and settlement of an estate, provided in his will that his executors and trustees should during the period of their services in such capacity, receive as compensation a fixed annual salary in lieu of statutory fees and commissions. The trusts provided by the will were not created until the year 1921. During the year 1919 the estate of S. H. Knox had a large income, from which the executors in the income-tax return of the estate sought to deduct their compensation for that year. The Commis
There appears to be no provision in the statutes of the State of New York, or in the Federal tax laws, which can be urged as in any way preventing or defeating the carrying out of the testator’s purpose set forth in his will. This is not a case of a will or of an estate which is to be administered, settled, and distributed within the short time ordinarily required for such purposes. On the other hand, it is a case of the creation of long-time trusts, the execution of which must extend over such a period of years as to constitute a continuing business of handling large trust properties, collecting and receiving large incomes, and disposing of the same in accordance with the terms of the trusts. In such a case it appears to be eminently wise and proper that.the executors’ and trustees’ compensation should be determined on the basis of annual salaries, and that such salaries should be paid out of the income of the estate and trust properties.
Section 219 of the Revenue Act of 1918 laid upon the executor and trustees in this case the duty of making an income-tax return for the estate and properties under their charge, and it further provided that the gross and net income of such estate should be ascertained and computed in substantially the same manner as required of living persons. The executors and trustees are essentially employees of the estate. Their compensation is one of the ordinary and necessary expenses of the estate and properly deductible from the income thereof without regard to the fact that a portion of the estate’s income is exempt from taxation.
See also William W. Mead et al., Executors, v. Commissioner, 6 B. T. A. 752.
This is not the case of a will or an estate which is to be administered or distributed within the time usually required for such purpose. On the contrary the decedent’s will contemplated that the estate might be kept intact for at least eight years and that during that time the type foundry business would be conducted in the same manner as it had been during his lifetime. The business was in fact so conducted for more than six years and the estate, after a period of more than ten years from the date of Hans 0. Hansen’s death, is still undistributed. The executor managed and conducted the business and engaged in a continuous course of purchase, manufacture and sale, and the inventory which was sold in 1922 consisted almost entirely of merchandise which had been acquired subsequent to the death of Hans C. Hansen. A large profit was realized on the sale, and this profit which accrued to the estate was the direct result of the executor’s activities. Since the income which is sought to be taxed herein was to a large extent realized from the sale by the executor of the inventory belonging to the type foundry business, we see no reason why the compensation paid to him and the attorneys for making such sale should not be taken into consideration in determining the profit therefrom. We are therefore of the opinion that under the circumstances herein, the amounts paid to the executor and the attorneys for the estate of Hans C. Hansen are not the ordi
Judgment will be entered for the petitioner on 15 days’ notice, under Rule 50.
