it still owned undistributed assets which had a book value substantially in excess of liabilities other than stock. On the assessment list of July, 1926, the respondent assessed income and profit taxes for 1921 against the taxpayer in the amount of $1,513.45. On April 27, 1927, he mailed a notice of liability for such tax under section 280 of the Revenue Act of 1926 to Ella J. Williams and Olive R. Pope and on October 27, 1927, he mailed a similar notice to Charles Havard. This proceeding is an appeal as provided by law from such determination of liability. OPINION. LANSDON: The question of the statute of limitation raised in the original petition has already been decided in favor of the respondent. Charles Havard, 19 B. T. A. 1270. The petitioners concede the deficiency assessed against the taxpayer for 1921 is correct in amount, but deny that they have ever received any of the assets thereof in circumstances that bring them within the provisions of section 280 of the Revenue Act of 1926. Upon the record it is perfectly clear that the petitioners surrendered their stock and received payment therefor in the checks of the taxpayer about June 1, 1924, in the amounts set forth in our findings of fact. The record does not support a finding of fact that the taxpayer was liquidating its business at June 1, 1924. The only corporate action relating in any way thereto was the resolution of the stockholders on December 31, 1924, authorizing the sale of the corporate assets, but that resolution is silent as to the disposition to be made of the proceeds of such sale. The certificates for which the petitioners were paid were not canceled, but were taken into the accounts of the taxpayer as treasury stock and later reissued to W. E. Corn. After the petitioners and several other stockholders had turned in their certificates and received payment therefor, the taxpayer continued in the business of manufacturing ice and selling coal for more than a year. The first corporate action looking to the closing out of the business was a resolution adopted on October 28, 1925, and the application for dissolution which was filed on June 28, 1926. Even then there is no statement to show whether the assets of the corporation had been distributed prior to the resolution authorizing dissolution or were to be distributed by the statutory trustees thereafter. The payments to the petitioners were relatively small, were made when the taxpayer was solvent, and did not create insolvency. The books of the taxpayer disclose corporate surplus on December 31, 1923, in an amount in excess of $16,000 and that its business was prosperous from that date until June 1, 1924. The payment of $6,510 to the petitioners at about the latter date was not sufficient to absorb the corporate surplus and left the taxpayer in sound financial condition to proceed with the business of manufacturing and selling ice, and its balance sheet included in its income-tax return for 1924 indicates solvency at December 31 of that year. In Samuel Keller, 21 B. T. A. 84, relying on McDonald v. Williams, 274 U. S. 397, we said: If a corporation transfers a part of its assets to stockholders while it is solvent and is not made insolvent by the transfer, there is no liability either at law or in equity on the part of the stockholders who receive such distribution, even though the corporation subsequently becomes insolvent and is no longer able to pay its debts. The Keller decision, supra, is consistent with the well settled rule that a distribution to the stockholders of a corporation does not impress the funds so paid with a trust in favor of creditors or remaining stockholders unless the corporation was insolvent at the date of payment or insolvency was thereby created. United States v. Updike, 1 Fed. (2d) 550; 8 Fed. (2d) 913; United States v. Armstrong, 26 Fed. (2d) 227; Kinnett-Odom Co., 19 B. T. A. 1124. Decision will be entered for each of the petitioners. ETHEL FISHER DIXON, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. KATHERINE FISHER DIXON, PETITIONER, D. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. ALICE FISHER FOSTER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket Nos. 44302, 47067, 47068, 47069. Promulgated April 15, 1932. Charles L. Brown, Esq., for the petitioners. R. N. McMillan, Esq., and W. H. Payne, Esq., for the respondent. OPINION. LANSDON: The respondent has asserted deficiencies as follows: The principal issue is whether each petitioner's share of the income of a testamentary trust under which all are beneficiaries shall be ratably decreased for Federal income-tax purposes by deducting therefrom a ratable part of the depreciation sustained by the physical property included in the corpus of the trust. The several proceedings have been consolidated for hearing. Each of the petitioners is a resident of Chicago, Illinois. All are surviving daughters of Lucius G. Fisher, who died testate on March 20, 1916. Under the terms of the decedent's will the petitioners and their brothers were designated as life beneficiaries of a trust, the corpus of which included certain office buildings in Chicago. The provisions of the will material here are as follows: Fifth I give, devise and bequeath all of my real estate to Charles B. Osborne as trustee for the purposes and with the powers following, to-wit: Said trustee is also authorized to insure, to improve, and to do all other acts in his judgment needful or desirable to the proper and advantageous management of said trust estate so as to protect the same and make the same productive * Out of the net income derived from said trust estate I direct that the following payments to be made by said trustee : 1st. To each of my children the sum of Five Thousand Dollars ($5,000.00) per annum in equal quarterly installments commencing from the date of my death. * 4th. To pay over the residue of the net income of said trust estate in each year in quarterly payments to my children in equal shares. The will of the decedent is the only evidence before the Board. From its terms we must determine whether the beneficiaries of the trust are entitled ratably to decrease their respective incomes by deducting therefrom certain amounts representing depreciation sustained by the depreciable assets included in the corpus of the trust. This identical question has heretofore been considered, exhaustively discussed, and decided by the Board. We have uniformly held that the terms of the trust instrument must determine whether trustees are authorized to set up a reserve for depreciation and to deduct ratable parts thereof each year from the income distributable to the beneficiaries. At bar there is nothing in the instrument that authorizes such a reserve and there is a provision that the net income shall be distributed. In this situation we affirm the determination of the respondent. Baltzel v. Mitchell, 3 Fed. (2d) 428; Estate of Virginia I. Stern, 7 B. T. A. 853; Frederick M. Hubbell et al., 14 B. T. A. 1040; affd., Hubbell v. Commissioner, 46 Fed. (2d) 446. The petitioners also allege that they are entitled to have their several incomes for each of the taxable years ratably decreased on account of the payment of certain municipal and other taxes in such years by the trustees. No evidence to sustain this allegation was adduced and, as it is denied by the respondent, his determination thereto must be affirmed. Decision will be entered for the respondent in each of the proceedings for each of the years involved. CHAPMAN & DEWEY LUMBER COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. CHAPMAN & DEWEY LAND COMPANY, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. KANSAS CITY & MEMPHIS FARMS COMPANY, PETITIONER, v. COмMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket Nos. 33466, 37402, 37403, 47130, 50196, 51058, 51059, 51060. Promulgated April 15, 1932. Included in the improvement taxes which petitioners paid in the Fred R. Angevine, Esq., for the petitioners. OPINION. LANSDON: At Docket Nos. 33466, 37402, 47130, 50196 and 51058 the respondent has determined deficiencies in income tax against the Chapman & Dewey Lumber Company for the years 1922, 1923, 1924, 1925, 1926 and 1927 in the respective amounts of $14,692.73, $3,981.17, $12,421.54, $12,654.20, $12,239.08 and $10,105.58; at Docket Nos. 37403 and 51059, against Chapman & Dewey Land Company for the years 1923 and 1927 in the respective amounts of $8,864.81 and $168.24; and, at Docket No. 51060, against the Kansas City & Memphis Farms Company for the year 1927 in the amount of $4,186.70. The several petitioners constitute an affiliated group for which the Chapman & Dewey Lumber Company as the parent corporation made consolidated income-tax returns in each of the taxable years. The consolidated group will be referred to hereinafter as the petitioner. The several proceedings were duly consolidated for hearing. All the evidence material to the issues in controversy has been embodied in a series of stipulations which are hereby incorporated in this report by reference. An allegation of error in respect of insufficient depletion of timber for the year 1924 has been settled by a stipulation that for the year 1924 the petitioner is entitled to additional depletion in the amount of $5,353.69 and adjustment in conformity therewith will be made under Rule 50. Two questions are submitted for our decision: (1) Is the petitioner entitled to deduct from gross income for each of the taxable years a pro rata amount of taxes levied against and paid by it and used by certain improvement districts in the State of Arkansas for the payment of their current interest obligations? (2) Is the petitioner entitled to deduct from its gross income in each of the taxable years that part of its taxes paid in such years and used by improvement districts in the State of Arkansas for maintenance and repairs? The petitioner owns extensive tracts of land within the boundaries of improvement districts, all duly and legally constituted under and by virtue of the laws of Arkansas, for the purpose of constructing and maintaining public highways, drainage ditches and levees. Such districts make annual assessments of taxes against the owners of lands within their boundaries which are always a certain percentage of the total benefits allocated to the several tracts of land taxed under the law for the construction and maintenance of the improvements. This annual assessment is based upon an estimate of the funds necessary to pay installments due on the principal cost of the improvements, interest on any outstanding district bonds and costs of maintenance and repairs. Requirements for such several purposes are not segregated on the books of the districts or on the tax statements and receipts. The respondent, on brief, concedes, however, that if the petitioner prevails the stipulation contains all the data necessary to the redetermination of all the deficiencies under Rule 50. It is stipulated that the improvement taxes paid by the petitioner in the taxable years were used as follows: On the books of the petitioner that part of taxes paid for retirement of bonds was capitalized and that for interest and maintenance was charged to profit and loss and deducted as paid from gross 128445°-33- -79 |