This is a petition of the Commissioner of Internal Revenue for rehearing of a decision of this court in Commissioner of Internal Revenue v. William S. Linderman, sole executor of the last will and testament of Mary M. Bindley, deceased, filed December 6, 1934, in which this court affirmed a decision of the Board of Tax Appeals.
Mary M. Bindley, the decedent, was adjudicated mentally incompetent on August 30, 1929. Guardians were appointed, and they served until the death of the testatrix, which occurred November 13, 1929. An administrator pendente lite was appointed, to whom the guardians delivered all of the assets of their ward except $200,000. On December 28, 1929, the decedent's will was admitted to probate and letters testamentary issued to the appellee as executor. Early in 1930 the guardians turned over to the appellee the funds of the decedent still in their possession, retaining, however, $51,137.18 with which to pay their own commissions, their attorney's and accountant's fees, premiums on the bonds of the guardians, and other expenses incurred by them in the guardianship. The books of the guardians disclosed that this sum had been disbursed by them from December 27, 1929, to February 6, 1930. The decedent and the guardians kept their books on the cash receipts and disbursements basis. The appellee filed an income tax return for the period from January 1, 1929, to November 13, 1929, in which he deducted the guardianship expenses of $51,137.18 from the decedent's gross income. The Commissioner disallowed the deduction and assessed a deficiency. In its decision the Board of Tax Appeals held that there was no deficiency.
The Commissioner advances a twofold argument on appeal: First, that the guardianship expenses are not deductible from the gross income of the decedent during the taxable year because they were not in fact paid during that period. Second, that the guardianship expenses are not deductible, without regard to the time of payment, because they were not ordinary and necessary business expenses paid or incurred in carrying on a trade or business as defined in section 23 (a) of the Revenue Act of 1928 (26 U.S.C.A. § 23 (a) and note).
On the first point the opinion of this court and the dissenting opinion set forth the diverse views of the members of the court who heard the argument. No new arguments on this point have been advanced on the rehearing, and the views of the court remain as heretofore. Our rules justify consideration of the second point, even though it was not argued before the Board of Tax Appeals. Upon the second point the opinion of the Supreme Court in Van Wart v. Commissioner, 295 U.S. 112, 55 S. Ct. 660, 661, 79 L. Ed. 1336, is pertinent. It was there held that a fee paid to an attorney by the guardian of a minor for conducting litigation to secure income for the minor is not deductible from gross income of the minor as an ordinary or necessary expense incurred in carrying on a trade or business. The opinion also points out that the ward and not the guardian is the taxpayer. To quote:
"We agree with the conclusion that the ward, not the guardian, was the taxpayer. The return was filed by him in her behalf; the taxable income was hers, not his. The attorney's fee arose out of litigation conducted in the name of the ward. It was paid for her benefit out of her income.
"In Freuler v. Helvering, 291 U.S. 35, 44, 54 S. Ct. 308, 311, 78 L. Ed. 634, we said: 'The whole of a minor's income received by his guardian is taxable to the minor irrespective of its accumulation in the guardian's hands, distribution to the minor or payment for his support or education. * * * Either the minor or his guardian must make the return, but in either case it embraces all the income and is the minor's individual return, not that of the guardian or the trust.'
"The ward was not engaged in any business. So far as appears, the same thing is true of the guardian. See Kornhauser v. United States, 276 U.S. 145, 48 S. Ct. 219, 72 L. Ed. 505; Commissioner v. Field (C.C.A.) 42 F.2d 820; Hutchings v. Burnet, 61 App. D.C. 109, 58 F.2d 514; Walker v. Commissioner (C.C.A.) 63 F.2d 351; Lindley v. Commissioner (C.C.A.) 63 F.2d 807. Moreover, guardianship is not recognized by the statute as a taxable entity."
We think the principle thus laid down in the above-cited case rules the instant case.
The decision of the Board of Tax Appeals is reversed.