Anderson v. Wilson, 289 U.S. 20 (1933)

289 U.S.
20
53 S.Ct. 417
77 L.Ed. 1004
ANDERSON, Collector of Internal Revenue,

v.
WILSON et al. WILSON et al. v. ANDERSON, Collector of
Internal Revenue.
Nos. 460, 461.
Argued Feb. 89, 1933.
Decided March 13, 1933.
The Attorney General and Mr. Charles B. Rugg, Asst. Atty. Gen., for
Anderson, Collector of Internal Revenue.
Mr. George E. Cleary, of New York City, for Wilson and others.
Mr. Justice CARDOZO delivered the opinion of the Court.
The question to be decided is whether the difference between the value of real
estate at the death of a testator and the proceeds realized thereafter upon a sale
by the trustees may be deducted as a loss by the taxpayer, the beneficial owner
of the proceeds, upon his return to the collector for the income of the year.
Richard T. Wilson, Sr., a resident of New York, died in November, 1910, the
owner of a large estate. By the Fourth article of his will he directed his
executors to sell and convert into personalty his entire residuary estate, and to
divide the proceeds thereof into five equal parts. Out of the fifth part set aside
for the use of his son, Richard T. Wilson, Jr., the sum of $500,000 was to be
held for the use of the son during life with remainder to lineal descendants, and
in default of such descendants to others. 'The balance of such part I give to my
said son, Richard T. Wilson, Jr., to be his absolutely.'
This gift, if it had stood alone, might have seemed to allow to the executors no
discretion as to the time of sale, and might have bred uncertainty as to their
powers and duties before the time for distribution. The next or fifth article
clarifies the meaning. The testator there recalls the fact that, after setting up the
trust for $500,000 and other special funds, a large part of his residuary estate
will consist of real estate in New York and other states, and shares of
manufacturing and business corporations, 'which should not be sold excepting
under favorable conditions.' Accordingly he lays upon his executors the
following command: 'To hold and manage such remaining portion of my
residuary estate until in their judgment it can from time to time be
advantageously sold and disposed of, not exceeding, however, a period longer
than the lives of my sons Marshall Orme Wilson and Richard T. Wilson, Jr.,
and the survivor of them, and I hereby authorize and empower my said
executors within said period to sell, convey, assign and transfer the same, or
any part thereof, at such time or times as they may deem for the best interests
of my estate, and upon such terms and conditions as they may deem proper,
including the terms and mode of payment thereof.' Nor is this all. The executors
are authorized in their discretion to organize a corporation, to convey to it the
whole or any part of the residuary estate in return for the capital stock, and to
hold the stock 'until it can in their judgment be advantageously disposed of.'
Finally there is a provision that upon the making of a sale, the executors in their
discretion may distribute the proceeds, 'or retain the same, or any part thereof
for further conversion before distribution, not, however, beyond the period of
the lives of my said sons and the survivor of them.' Until the time of
distribution, the net income is to be paid semiannually to those entitled to
receive it.
4
Included in the real estate at the death of the testator was a building in the city
of New York known as the 'Commercial Building,' of a value at that time of
$290,000. This building the executors held till 1922, when they sold it for
$165,000. After allowance for depreciation, the loss to the estate by reason of
this sale was $113,300. The executors were at liberty to distribute the entire
proceeds ($165,000) among the residuary legatees if their judgment moved
them to that course. They did not do so. They distributed only $50,000, and
held the balance in the trust. One-fifth of the part distributed belonged and was
paid to Richard T. Wilson, Jr. One-fifth of the part retained was held for his use
as it had been before the sale.
The present controversy grows out of a tax return of income for 1922. From the
gross income of that year the taxpayer, Richard T. Wilson, Jr., deducted
$25,001.17, one-fifth, according to his computation, of the loss resulting from
the sale. It was afterwards agreed that one-fifth of the loss was not more than
$22,660, and that the amount of the claimed deduction should be corrected
accordingly. The Commissioner disallowed the loss altogether, and assessed an
additional tax. The taxpayer upon payment of the tax filed a claim for refund
which the Commissioner rejected. This suit was then brought to recover the
amount paid upon the additional assessment. During the pendency of the suit,
the taxpayer died, and his executors were substituted. The District Court gave
judgment in their favor, holding that one-fifth of the loss upon the sale of the
Commercial Building was a loss suffered by the taxpayer, the beneficiary of the
trust, and was a proper deduction from his income for the year of sale. 51 F.
(2d) 268. Upon an appeal by the government, the Court of Appeals for the
Second Circuit sustained the representatives of the taxpayer in their claim for a
deduction, but reduced the amount. In the view of that court, the loss allowable
to the beneficiary was not one-fifth of the entire loss that had been suffered by
the trust estate, but only that part of one-fifth of the total loss represented by the
ratio between the part of the proceeds presently distributed (not more than
$50,000), and $165,000, the entire proceeds of the sale. The record left room
for some uncertainty whether the payment of $50,000 had been derived
altogether from a sale of the Commercial Building, or in part from other
sources. To the end that this uncertainty might be removed, the judgment of the
District Court was reversed, and the cause remanded for retrial in accordance
with the opinion. 60 F.(2d) 52. Cross-petitions for certiorari, allowed by this
court, have brought the controversy here, 287 U.S. 592, 53 S.Ct. 123, 77 L.Ed.
-. In No. 460, the government complains that there was error in the refusal to
disallow the deduction altogether. In No. 461, the representatives of the
taxpayer complain that there was error to their prejudice in restricting the
amount.
6
To determine whether the loss was one suffered by the trust estate, or one
suffered by the taxpayer to whom the proceeds of the sale were payable, there
is need at the outset to determine the meaning of the will. The government
contends, and so the courts below have held, that title to the realty was given to
the executors upon a valid trust to sell and to apply the rents and profits in the
interval. The representatives of the taxpayer contend that the executors had no
title, but only a power in trust, and that, subject to the execution of that power,
the taxpayer was owner. If that be so, the loss was his and no one else's. A
mere donee of a power is not the owner of an estate, nor to be classed as a
juristic entity to which a loss can be attributed. We think, however, that what
passed to the executors was ownership or title. True the will does not say in so
many words that the residuary estate is given or devised to them, but the
absence of such words is of no controlling significance when a gift or devise is
the appropriate and normal medium for the attainment of purposes explicitly
declared. Robert v. Corning, 89 N.Y. 225, 237; Vernon v. Vernon, 53 N.Y. 351,
359; Tobias v. Ketchum, 32 N.Y. 319; Brewster v. Striker, 2 N.Y. 19. Nothing
less than ownership will supply that medium here. The executors are charged
with active and continuing duties not susceptible of fulfillment without
possession and dominion. They are to collect the income and pay it over in
semiannual installments after deducting the expenses. They are to 'hold and
manage' the estate with full discretionary powers. They are even at liberty to
convey it to a corporation if they believe that efficient administration will
thereby be promoted. Under reiterated judgments of the highest court of New
York, they are more than the donees of a power. They are the repositories of
title. Morse v. Morse, 85 N.Y. 53; Robert v. Corning, N.E. 373; Mee v. Gordon,
187 N.Y. 400, 80 N.E. 373; Mee v. Gordon, 187 N.Y. 400, ,0 N.E. 353, 116
Am.St.Rep. 613, 10 Ann.Cas. 172; Putnam v. Lincoln Safe Deposit Co., 191
N.Y. 166, 182, 83 N.E. 789; Striker v. Daly, 223 N.Y. 468, 472, 119 N.E. 882.
7
Another question of construction has yet to be considered. We have seen that

the effect of the will was to clothe the executors with title to the land. We have
yet to determine whether the title that came to them was the fee or something
less. If it was the fee, the whole estate was in them, and no one else had any
ownership or interest in the land as distinguished from ownership or interest in
the proceeds of a sale. Delafield v. Barlow, 107 N.Y. 535, 14 N.E. 498;
Salisbury v. Slade, 160 N.Y. 278, 290, 54 N.E. 741; Weintraub v. Siegel, 133
App.Div. 677, 681, 118 N.Y.S. 261. If it was less than the fee, there may have
vested in others upon the death of the testator a future estate in remainder,
which would take effect in possession on the termination of the trust. Losey v.
Stanley, 147 N.Y. 560, 568, 42 N.E. 8; Stevenson v. Lesley, 70 N.Y. 512;
Matter of Easterly, 202 N.Y. 466, 474, 96 N.E. 122. Under the law of New
York, what passed to these executors was the title to the fee. By the will of this
testator all his property, real and personal (with exceptions not now material),
was to be converted into money. The five sons and daughters among whom the
money was to be divided had no interest in the land, aside from a right in equity
to compel the performance of the trust. Real Property Law of New York
(Consol. Laws c. 50) 100; Schenck v. Barnes, 156 N.Y. 316, 321, 50 N.E.
967, 41 L.R.A. 395; Melenky v. Melen, 233 N.Y. 19, 23, 134 N.E. 822. What
was given to them was the money forthcoming from a sale. Delafield v.
Barlow, Salisbury v. Slade, Weintraub v. Siegel, supra. Their interest in the
corpus was that and nothing more.
Our answer to the inquiry as to the meaning of the will comes close to being an
answer to the inquiry as to the incidence of the loss. The taxpayer has received
the only legacy bequeathed to him, and received it as it was given without the
abatement of a dollar. What was bequeathed was an interest in a fund to be
made up when the trustees were of opinion that it would be advisable to sell.
This alone was given, and this has been received. There has been no loss by the
taxpayer of anything that belonged to him before the hour of the sale, for
nothing was ever his until the sale had been made and the fund thereby created.
A shrinkage of values between the creation of the power of sale and its
discretionary exercise is a loss to the trust, which may be allowable as a
deduction upon a return by the trustees. It is not a loss to a legatee who has
received his legacy in full. One might as well say that a legatee of shares of
stock to be bought by executors out of the moneys of the estate would have an
allowance of a loss upon a showing that the value would have been greater if
the executors in the exercise of their discretion had bought sooner than they did.
The legatee must take the legacy as the testator has bequeathed it.
9
We hold that the trust, and not the taxpayer, has suffered the loss resulting from
the sale of the Commercial Building, and it follows that, where loss has not
been suffered, there is none to be allowed. Whether the result would be the
same if the beneficiaries had been the owner of future estates in remainder, we
are not required to determine. Cf. Francis v. Commissioner, 15 B.T.A. 1332,
1340. Our ruling will be kept within the limits o f the case before us. In so
ruling, we do not forget that the trust is an abstraction, and that the economic
pinch is felt by men of flesh and blood. Even so, the law has seen fit to deal
with this abstraction for income tax purposes as a separate existence, making its
own return under the hand of the fiduciary and claiming and receiving its own
appropriate deductions. The Revenue Act of 1921 under which the tax in
question was imposed defines the word 'taxpayer' as including a trust or an
estate. Revenue Act of 1921, c. 136, 42 Stat. 227, 2(9). The definition is
pursued to its logical conclusion in a long series of decisions. Baltzell v.
Mitchell (C.C.A.) 3 F.(2d) 428; Whitcomb v. Blair, 58 App.D.C. 104, 25 F.(2d)
528; Abell v. Tait (C.C.A.) 30 F.(2d) 54; Busch v. Commissioner (C.C.A.) 50
F.(2d) 800, 801; Roxburghe v. Burnet, 61 App.D.C. 141, 58 F.(2d) 693. Cf.
Merchants' Loan & Trust Co. v. Smietanka, 255 U.S. 509, 41 S.Ct. 386, 65
L.Ed. 751, 15 A.L.R. 1305. These and other cases bear witness to the rule that
an equitable life tenant may not receive a deduction for the loss of capital assets
of the trust, though the result of such a loss is a reduction of his income. The
argument will not hold that what was lost to this taxpayer was not the capital of
the trust, but rather his own capital, withdrawn from his possession, but held for
his account by the executors as custodians or bailiffs. His capital was in the
proceeds, to the extent that they were distributed, and never in the land. We do
not pause to consider whether a statute differently conceived and framed would
yield results more consonant with fairness and reason. We take the statute as
we find it.
10
The Circuit Court of Appeals did not err in reversing the judgment of the
District Court. It did err in its instructions as to the relief upon a second trial.
11
The judgment of reversal is accordingly affirmed, and the cause remanded to
the District Court, with instructions that a judgment should be entered

dismissing the complaint.

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289 U.S.

ANDERSON, Collector of Internal Revenue,

Another question of construction has yet to be considered. We have seen that

The judgment of reversal is accordingly affirmed, and the cause remanded to

the District Court, with instructions that a judgment should be entered

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