This is a suit by the taxpayer, as trustee under the will of Joesph S. Justh (a District of Columbia decedent), to recover fiduciary income taxes paid during the years 1951 through 1960. The claim is that these taxes should not have been collected because they were levied on income permanently set aside for charitable
Since this issue was wholly one "governed by the local laws of the District of Columbia," this court, after an argument directed to that question of local law, ordered (on January 25, 1963) that "further action herein in this court be and the same is suspended to afford the plaintiff an opportunity to file suit in the United States District Court for the District of Columbia for the purpose of securing an interpretation of decedent's will." Such a suit was brought and the District Court determined that the will did not direct that the accumulated surplus income go to the charities; rather, the District Court held, the will did not cover this income and it passed by intestacy to the next of kin. The Riggs National Bank v. Holtman, 221 F.Supp. 599 (1963). This ruling was affirmed by the Court of Appeals for the District of Columbia Circuit. The American National Red Cross et al. v. Holtman, 122 U.S.App.D.C. ___, 351 F.2d 746, decided May 18, 1965. The ruling of the Court of Appeals is now final.
The decisions of the District of Columbia courts, which we of course accept, destroy the taxpayer's claim as it was initially argued to us. The will did not direct that the surplus trust income be set aside for, or paid to, the charities. Accordingly, there is no basis for a charitable deduction on that ground.
Taxpayer now raises, however, a secondary ground which is said to sustain recovery of a portion of the refund claimed.
We consider taxpayer's new contention because it is embraced within the amended petition filed in this court, but we cannot accept the argument.
Taxpayer is not entitled to recover and its petition is dismissed.
JONES, Senior Judge (dissenting in part).
I agree with the first part of the Per Curiam opinion, but the second raises a novel question that apparently has never been specifically decided. It is a matter of great importance and I feel that it
The case of Riggs National Bank v. Holtman, 221 F.Supp. 599 (D.C.1963), which has become final, definitely holds that the surplus income accumulated since 1957 was not disposed of by the will and will definitely go to decedent's daughter rather than to the four charities named. Therefore, since such surplus income was not permanently set aside for charitable purposes, plaintiff is not entitled to recover any fiduciary income taxes paid upon such surplus income accumulated after 1957.
However, that decision does not touch the question of any income between 1951 and 1957. It, by the terms of the will, might be diverted to the payment of any borrowings made necessary in managing the estate. At the time the will was made it was not known that any borrowing would be necessary but if such borrowing became necessary then a portion of the rental income would be applied to the liquidation of such borrowing.
It thus becomes apparent that the diverting of the accumulating income during 1951 to 1957 to the liquidation of the $60,000 actually borrowed enhanced to that amount the net value of that portion of the final estate that will go to charity after payment of the stipulated legacies. In other words, had no borrowing been necessary the $60,000 which was paid out of rental income to liquidate that amount of borrowing would have gone in its entirety under the Riggs National Bank decision to the sole heir and would thus have reduced by that exact sum the amount that will ultimately be applied to the charitable bequests. The net amount that will finally go to the four charities was thus increased by the $60,000 or rather the amount was not decreased by $60,000 by virtue of the fact that that amount was diverted from what would have otherwise been intestate. If the surplus income had not been used to reduce the mortgage indebtedness, then, upon sale of the trust property in 1970, plaintiff would have been required to deduct the amount of the mortgage loan from the amount distributed to the four charities.
It is undisputed that the trustee under the will was required to pay fiduciary income taxes upon the income produced during the years 1951 to 1957, inclusive. It is also very apparent under the Riggs National Bank decision that the $60,000 actually borrowed for the preservation and management of the estate was the only part of the accumulated income, except the specific annuities, that was disposed of by the will and that only on a contingent basis; that is to liquidate any borrowing necessary for the preservation and management of the estate.
There seems little doubt that the ultimate value of that part of the estate going to charity was increased by $60,000. It was not and could not have been known at the time what amount, if any, would be thus diverted.
Section 162 of the Internal Revenue Code of 1939, as amended, reads as follows:
The income of the estate during the years 1951 to 1957 was subject to a fiduciary income tax which was paid during each of those years. Plaintiff insists that it is entitled to a charitable deduction on the fiduciary income taxes paid upon the surplus income of the trust during the years 1951 through 1957, inclusive, which was paid to reduce the indebtedness of the trust estate since all of the income of the trust during those years, except the annuities, was to be set aside for charitable purposes pursuant to the terms of the Justh will.
Practically no briefing has been done by the defendant on the particular issue now before the court. A number of cases have been cited by the plaintiff in a brief comment. The facts in the case of J. B. Whitehead's Estate, 3 T.C. 40 (1944) (affirmed Commissioner of Internal Revenue v. Citizens & Southern National Bank, 147 F.2d 977 (5th Cir. 1945)), are very similar to those in the pending case. The plaintiff was permitted to recover in that case. Cited also are Rockland Oil Co., 22 T.C. 1307 (1954); Arthur Jordan Foundation v. Commissioner, 210 F.2d 885 (7th Cir. 1954); also Leon A. Beeghly Fund, 35 T.C. 490 (1960); United States v. Bank of America National Trust & Savings Ass'n, 326 F.2d 51 (9th Cir. 1963). See also Commissioner of Internal Revenue v. Burrow Trust, 333 F.2d 66 (10th Cir. 1964).
As was stated in Helvering v. Bliss, 293 U.S. 144, 150-151, 55 S.Ct. 17, 20, 79 L.Ed. 246 (1934):
In these circumstances I think that both parties should be requested to thoroughly brief the new issue before the court reaches a final conclusion.
Since the court has now decided not to request the parties to file detailed briefs, I respectfully dissent from the second part of the Per Curiam opinion.
"In the event said rest, residue and remainder shall be insufficient to pay such charges, then I authorize my said Trustee to borrow such sum as may be necessary to pay the same and to secure its repayment by a deed of trust or mortgage upon the real estate hereinbefore described and to repay the same as rapidly as possible from the net rents derived therefrom over and above the annuities hereinbefore set out."