Opinion
No. L-69.
November 2, 1931.
Suit by Edith R. Porter against the United States.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following special findings of fact:
The plaintiff was formerly the wife of William M. Wood, Jr., a citizen of Massachusetts, who died leaving a will which was admitted to probate October 16, 1922, and William M. Wood, Sr., and Cornelius A. Wood, mentioned in said will, qualified and served as executors and trustees under it. Under this will the residue of the estate of said William M. Wood, Jr., was devised to the other two parties above named in trust by virtue of which "the entire net income of this trust fund or estate * * * shall be paid to my beloved wife, Edith R. Wood, for and during the term of her natural life."
At the time of the death of William M. Wood, Jr., there was in his estate certain shares of stock of Edington Co., Inc., and the said trustees received said shares of stock as a part of the residue of the estate of the said William M. Wood, Jr. Edington Co., Inc., conducted a business in the purchase and sale of wool and carried on a commission business in wool.
On November 29, 1922, the plaintiff (then Edith R. Wood) executed a certain agreement wherein she agreed to execute two indentures of trust, and further agreed, among other things, "to pay and transfer to the trustees therein named * * * one-half of any and all sums of money or other income, in whatever form paid to or received by me from the estate of William M. Wood, Jr., which is in any way derived from said Edington Co., Inc." A copy of this agreement is attached to the petition marked "Exhibit B," and is by reference made part of this finding. This agreement contained a further provision as follows: "The intent and meaning of this agreement is that as fast as any income is payable to me by the trustees under the will of William M. Wood, Jr., which is derived from the investment of said Wood, Jr., in Edington Co., Inc., said trustees may retain one-half thereof and pay the same forthwith in equal shares to the trustees mentioned in said annexed indentures of trust. * * *"
The dividends paid in 1925 to the trustees under the will on the shares of stock of Edington Co., Inc., held by them were in the amount of $63,152. The plaintiff duly filed her income tax return for the year 1925 and included therein as income the amount of the dividends paid by Edington Co., Inc., to the trustees, as above stated. This income tax return showed a tax of $8,548.04, which was paid in four installments, as follows: March 15, 1926, $2,150; June 23, 1926, $2,124.02; September 15, 1926, $2,137.01; December 15, 1926, $2,137.01.
Subsequently plaintiff filed an amended income tax return for the year 1925, omitting one-half the amount of the dividends so paid by Edington Co., Inc., and showing the amount of the tax to be $3,236.10.
Thereafter and in due time plaintiff filed a claim for refund of the amount of the tax paid over and above the sum shown to be due by her amended return. This claim was disallowed by the Commissioner of Internal Revenue.
James A. Tillinghast, of Providence, R.I., and J. Robert Sherrod, of Washington, D.C. (Robert N. Miller and Miller Chevalier, all of Washington, D.C., and Tillinghast Collins, of Providence, R.I., on the brief), for plaintiff.
J.H. Sheppard, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen. (Percia E. Miller, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
The plaintiff, under her husband's will, was entitled to receive during her lifetime the income from certain stock, which, by the will, had been devised to trustees for that purpose. For reasons not material to the decision of the case, she made an agreement which applied to one-half of the income derived by the trustees from this stock which was payable to her under the will. In other trust indentures executed by her trustees were named to receive and dispose of the income to which the agreement applied. The question to be determined is whether by virtue of this agreement she parted entirely with the title to this income to which the agreement applied, or whether, on the other hand, she merely agreed to pay over this income to trustees when she acquired title thereto. We think the latter construction is the one which should be adopted.
The fundamental agreement of plaintiff, as expressed in the instrument under consideration, was "to pay and transfer to the trustees therein named * * * one-half of any and all sums of money or other income, in whatever form paid to or received by me from the estate of William M. Wood, Jr., which is in any way derived from said Edington Co., Inc." Obviously, this provision, standing by itself, is merely to pay to the trustees the income whenever it was paid to or received by the plaintiff. It is contended, however, that a different construction should be placed thereon by reason of a further provision, as follows: "The intent and meaning of this agreement is that as fast as any income is payable to me by the trustees under the will of William M. Wood, Jr., which is derived from the investment of said Wood, Jr., in Edington Co., Inc., said trustees may retain one-half thereof and pay the same forthwith in equal shares to the trustees mentioned in said annexed indentures of trust. * * *"
We do not think this alters the situation. It gave the trustees under the will no right to make any disposition of the income until it became in the first instance payable to the plaintiff, or, as expressed in the agreement, "as fast as any income is payable to me by the trustees." In neither of these provisions, as we view them, is there any expression or statement which could be construed to be an assignment or a transfer by the plaintiff of the property right which produced the income.
Where the original owner merely transfers or agrees to transfer, by assignment or otherwise, income as it is received, the authorities are uniform in holding that the person to whom the income was payable in the first instance is liable for taxes thereon. See Rosenwald v. Commissioner of Internal Revenue (C.C.A.) 33 F.2d 423, and Bing v. Bowers (D.C.) 22 F.2d 450, affirmed (C.C.A.) 26 F.2d 1017.
What we have said above makes it unnecessary to pass upon the other objections that are made in the argument of counsel for defendant against the claim set up by plaintiff.
It follows that the petition of plaintiff must be dismissed, and it is so ordered.