HUTCHESON, Circuit Judge.
The taxpayer, executor under a will leaving all of testator's property, subject to special bequests
As a result of these disallowances, taxpayer and commissioner, like the lion and the unicorn fighting for the crown, have, since March, 1941, when the deficiency letter, disallowing the claimed deductions, was mailed, been contending over quite sizeable sums, $290,028.13, $286,319.77, $246,698.07, $253,083.49, claimed as income taxes for 1936, 1937, 1938 and 1939. In the Tax Court, the taxpayer beating the commissioner, as the lion had "beat the unicorn, all around the town", came off fully victor. In an opinion
The commissioner, here with a long brief and much argument, insists that: claimed deductions, being matter of grace, must be precisely and clearly brought within the statutes allowing them; that those claimed here, if brought within the statute at all, were so brought only by a strained and unnatural construction; and that the Tax Court was, therefore, wrong.
The taxpayer sees the matter more simply and, we think, more as it is. He insists that it would be difficult to imagine a charitable corporation more clearly within Section 23(o). He urges upon us that the fact that the will charged a very small part of the very large income with the payment of bequests can not deprive it of that character, and particularly of the exemption extended by Sec. 162(a).
We agree with the taxpayer. The Tax Court in its opinion has fully set the facts out, and has elaborately treated the questions of law here raised, and that opinion has our approval. We will not, therefore, further labor the points there discussed. We find it sufficient to say that the terms of the will, the facts surrounding its execution and administration, and the condition of the estate at testator's death, leave us in no doubt that his purpose to create a charitable trust, to devise to it, subject only to the payment of his known debts for which he had ample cash on hand, all of his property, and, subject to the payment out of it of certain small bequests, to dedicate and devote the entire income therefrom to charitable uses, has been sufficiently indicated and must be given effect. Neither are we in any doubt that in creating the foundation and in protecting the corpus against the unforeseen contingencies which arose after death, the executor, by defraying corpus charges out of income, has not deprived the charity of the exemption the will and statute conferred whether the view is taken that the use of the income to pay corpus charges was a charitable use or the view that it was not, but, being unauthorized by the will, it was a diversionary act of the executor without effect. The fact that the very large income was charged with the payment of very small bequests does not in any way alter the controlling fact that the will devised the whole corpus and, except for the bequests, the whole income to charity, and that the Foundation was therefore such a corporation as is described in Sec. 23(o). Neither
It further provided: "Said trustees or directors of the Foundation shall use the income from the property turned over to it by my executors, as herein set forth", One-fourth of it for disbursement to deserving orphans' homes. "The balance of the income from my property held by said Foundation, after the payment of the special bequests hereinafter made, I direct to be used for charity purposes and in the relief of pain and suffering and poverty". Then follow some general suggestions as to organizations which were proper subjects of help, and, "The Foundation * * may, in its discretion, disburse funds to individuals who are deserving and to other deserving institutions such as schools, whether the same be public or private, and, in fact, any worthy and deserving individual, association or institution that said Trustees may deem worthy and in need of the funds herein provided for without regard to race, color or creed."
"(a) There shall be allowed as a deduction (in lieu of the deduction for charitable, etc., contributions authorized by section 23(o)) any part of the gross income, without limitation, which pursuant to the terms of the will or deed creating the trust, is during the taxable year paid or permanently set aside for the purposes and in the manner specified in section 23(o), or is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, or for the establishment, acquisition, maintenance or operation of a public cemetery not operated for profit."
(1) That beyond a shadow of question the Foundation was intended to be, and was, a charitable trust and, subject to the special bequests, the will devised all the property to the Foundation and devoted all of the income from the property to charitable uses.
(2) That the situation of his estate, as to cash on hand and obligations against it, was such at the time of his death as that, taken in connection with the terms of the will set out hereinabove in Note 2, it is entirely clear that the testator expected his cash assets to be sufficient to discharge all obligations and the estate to be almost immediately closed, and that he never intended, nor directed, that the income should be used to defray corpus or capital charges.
(3) The change in the situation which resulted in the creation of heavy capital charges against his estate beyond the cash to pay them came from a suit of his estranged wife and the settlement with her by paying her $500,000.00 in cash. The use by the executors of income to pay these charges was not authorized by the will, indeed was forbidden by it because the will had apportioned all of the income, except that to pay the bequests, to charitable uses.
(4) The payments by the executors direct to Miss Champion and Mrs. Marlowe, instead of first paying it over to the Foundation and having the Foundation pay it was not a substantial departure from the terms of the will, and the moneys so paid were properly deductible.