given to the executors or trustees to invade the principal or corpus of said estate was not sufficient to create an annuity or absolute requirement to make payment of the amounts referred to since the trustees might in their discretion not care to distribute any portion of the principal.
It is next necessary to consider the Seventh Paragraph of the will and the codicil, which refer directly to the question at issue.
'Seventh: I direct that after payment of all estate, inheritance and transfer taxes upon my estate, and every portion thereof, and the payment of debts, expenses of administration, including Executor's commissions and Attorneys' fees, and the payment in full of all the sums hereinbefore in paragraph 'Fourth' recited (italics ours), and setting up the trusts hereinbefore created, my Executors shall divide the rest, residue and remainder of my estate remaining in their hands into Eight (8) equal shares or parts. * * * '
The codicil provided: 'Item: I hereby revoke, cancel and make void, subsection (b) of Paragraph 'Fourth' of my said Will, wherein and whereby my Executors and Trustees are directed to pay Miss Elsie Craig Simpson Four Thousand ($ 4,000.00) Dollars annually during the full term of her natural life and in lieu, place and stead thereof I will and direct that my Executors and Trustees pay to the said Miss Elsie Craig Simpson each and every year during the full term of her natural life in quarter-yearly installments the sum of Two Thousand ($ 2,000.00) Dollars and in addition thereto that they pay to her the lump sum of Twelve thousand five hundred ($ 12,500.00) Dollars, such payment to be made as soon after my death as conveniently practical.'
It is a well settled principle of law that if the various legacies and bequests together with the annuity to Elsie Craig Simpson were to be paid to the respective parties in all events, said payments would be a charge upon the principal and corpus of said estate. In other words, if said payments are to be made to any of the beneficiaries in any event and are not conditioned upon the existence of sufficient trust income, they are not deductible in computing the taxable net income of the trust estate. Helvering v. Pardee, 290 U.S. 365, 54 S. Ct. 221, 78 L. Ed. 365; Bishop Trust Co. v. Commissioner of Internal Revenue, 9 Cir., 92 F.2d 877; Burnet v. Whitehouse, 283 U.S. 148, 51 S. Ct. 374, 75 L. Ed. 916, 73 A.L.R. 1534; Bush et al. v. Commissioner of Internal Revenue, 9 Cir., 89 F.2d 596.
At the time the will and the codicil were executed in March of 1933 and August of 1934, the economic conditions in the country were somewhat stagnate, employment was irregular and industrialists were being confined to a very limited scale as far as earnings were concerned. The decedent appreciated this fact and although he owned large blocks of stocks, bonds and investments in various corporate interests from which income or dividends would amount to a substantial amount of money in the event that conditions were normal, those same investments made available only a limited income during the years of depression in which the country was involved. The testator, in realization of these conditions, in the Fifth Paragraph of his will set forth that he contemplated that the rents, incomes and profits of his estate would not be sufficient to make payment of the various bequests and legacies within the first few years subsequent to his death. As a result thereof, it was directed that said payments were to bear interest at the rate of 5% per annum beginning one year after his death. In the Seventh Paragraph of his will, he apparently intended to make positive that said bequests and legacies were to be paid in all events since he stated that after the payment of all estate, inheritance and transfer taxes upon his estate, every portion thereof and the payment of debts, expenses of administration, including executors' commissions and attorneys' fees, and the payment in full of all the sums hereinbefore in Paragraph Fourth recited, and setting up the trust hereinbefore created, that said executors were to divide the rest, residue and remainder of said estate remaining in their hands into eight equal shares or parts.
The Court does not believe that the testator intended that the residue clause of his will was to become inoperative, and if the economic conditions in this country had not improved, it would have not been possible for the executors to distribute the holdings of the deceased referred to in the residue clause for many, many years.
It, therefore, seems to the Court that there is no escape from the conclusion that said legacies and bequests were a charge on the corpus of said estate, and that the recipients or beneficiaries of the bequests referred to could have compelled the executors to resort to the corpus of the estate if the circumstances had not made possible the payment thereof from the income. Since the Court has found that the intention of the testator was that the payments were to be made in any event, they are not deductible in computing the taxable net income of the trust estate, and the facts, therefore, fall within the decisions of the Supreme Court in the cases of Helvering v. Pardee, 290 U.S. 365, 54 S. Ct. 221, 78 L. Ed. 365; Burnet v. Whitehouse, 283 U.S. 148, 51 S. Ct. 374, 75 L. Ed. 916, 73 A.L.R. 1534.
The fact that the payments were made out of income is immaterial. Bush et al. v. Commissioner of Internal Revenue, 9 Cir., 89 F.2d 596; Bishop Trust Co. v. Commissioner of Internal Revenue, 9 Cir., 92 F.2d 877.
The Court, therefore, concludes that all of the legacies, bequests and annuities involved in the proceeding were charges upon the principal or corpus of said estate, and that the determination of the Commissioner was correct that said payments were taxable to the estate.
Conclusions of Law
1. All of the legacies contained in the Fourth Paragraph of the last will and testament of Pressly T. Craig, deceased, and the legacies to Elsie Craig Simpson contained in the codicil thereto were charges upon the corpus of his estate and were to be paid in any event without regard to the existence or nonexistence of income from the corpus of said estate.
2. The determination of the Commissioner of Internal Revenue that none of said legacies were deductible from gross income in determining the income tax liability of plaintiffs as executors for the year 1936 was in all respects correct.
3. That the deficiency in income taxes assessed by the Commissioner of Internal Revenue against the plaintiffs for the year 1936 was in all respects correct and lawful.
4. That the defendant, United States of America, is entitled to judgment dismissing the complaint.
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