Appeal from District Court of the United States for the Western District of Pennsylvania; Nelson McVicar, Judge.
Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.
This is an appeal from a judgment of the District Court denying the plaintiff's claim for refund for alleged overpayments of income taxes.
The plaintiff, Lyde R. Arrott, paid deficiency assessments on her income for the years 1924, 1925, and 1926. She contends that there were no deficiencies in her tax returns and she, therefore, brought suit in the District Court to recover them. These deficiencies resulted from the disallowance of certain deductions for depreciation and capital losses to the plaintiff on the ground that the legal title of the real estate here involved was held in trust and the trustees were entitled to these deductions for the benefit of the trust. The property involved is known as the Arrott Power Building and the Arrott Office Building. The plaintiff denies the existence of a trust and contends that she is the owner in fee of an undivided one-twelfth interest in the property. The District Court sustained the contention of the defendant, and the plaintiff appealed to this court.
The question in issue is whether or not the legal title to this property was held in trust during the taxable years. If it was, then the deficiency was properly assessed and collected, but, if it was not, the plaintiff as the owner in fee of one-twelfth of the real estate, and not the trustees, is entitled to these deductions and should recover, for the allowance of the deductions is not in question. The only question is the person to whom they should be allowed.
On December 29, 1902, James W. Arrott, a citizen of Pennsylvania, died testate. In his will, after making certain specific bequests, he divided the residue of his estate into six equal shares. Two of these shares he separately devised and bequeathed to his executors in trust for his two daughters. Each of the remaining four shares, with one of which we are here concerned, he separately devised and bequeathed to each of his four sons. The language of these bequests, except for the amount of the deduction to be taken from each share, is identical and reads as follows: "One other of said shares less the sum of (amount of deduction) I give, devise and bequeath to my son (son's name)."
Further along in his will he made the following provision: "I direct, however, that the general settlement and division of my residuary estate shall not be made before January first, nineteen hundred and ten (1910). During the interval which may occur between my death and the general settlement and division of my residuary estate, my executors hereinafter named, the survivor and successor of them, shall have full management and control of said estate, in trust, to pay over the income * * * in equal shares to my said children. * * *"
He thereafter provided that the executors, should they think proper, could divide the personal property in specie and "may in like manner divide or apportion the rentals of real estate until the time arrives, when in their judgment, the real estate should be sold or disposed of."
In the eighth paragraph he appointed his wife and four sons "executors and trustees" under the will "with the power to sell and convey the real estate." He also provided as follows: "* * * while I do not positively direct, I most strongly urge and advise my said executors not to sell or dispose of the property * * * on which the Arrott Building is erected for (blank) years after my decease, unless for the most urgent and important reasons. * * *"
All of his debts, funeral and administration expenses, and legacies were paid prior to 1910, and substantially all of the residuary property was distributed prior to 1924, with the exception of the Arrott Power Building and the Arrott Office Building. The office building was sold in 1925 and the power building was sold in 1926.
The petitioner, as widow of William Arrott, one of the testator's four sons, and as mother of the deceased Willam Arrott, Jr., became the owner of a one-twelfth interest in the residuary property. The deductions, which she claims, amount to one-twelfth of the depreciation in 1924 upon these buildings and one-twelfth of the capital losses sustained, when they were sold by the executors, in 1925 and 1926.
Was the Iegal fee of the power and office buildings, in 1924, 1925, and 1926, held by the executors in a trust created by the will?
Since the testator was a citizen of Pennsylvania, and the property in question is situated therein, both the validity and the legal effect of the will is to ...