UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA
November 12, 1957
Gustave T. SWOBODA and Emily L. Swoboda, his wife, plaintiffs,
UNITED STATES of America, Defendant
The opinion of the court was delivered by: WATSON
This action arises out of a claim for refund of income taxes for the year 1950 which was disallowed by the Director of Internal Revenue for the First District of Pennsylvania. Counsel have filed a Stipulation of Facts which, by reference, the Court adopts as its Findings of Fact. The case was tried by the Court without a jury.
Plaintiffs in this action are husband and wife who, for the calendar year 1950, filed a joint federal income tax return in the First District of Pennsylvania. The return was audited and, as a result of this audit, an additional assessment was made against the taxpayers resulting, in part, from the disallowance of a deduction for a net operating loss incurred by the H. J. Llewellyn Company and a claimed capital loss resulting from the sale of that company.
Henry J. Llewellyn died testate on March 19, 1940, a resident of Pennsylvania and survived by three children, one of whom is the wife-plaintiff in this action. The principal assets in the estate were a baker's supply business, known as the H. J. Llewellyn Company, and a dwelling at 37 Johnson Street, Philadelphia, Pennsylvania.
By his will the baker's supply business was left in trust for the benefit of his three children. The pertinent portions of this will are as follows:
'Third: All the rest, residue and remainder of my estate * * * I give * * * to my trustees * * * In Trust * * * to manage * * * my said estate * * * for a period of ten years from the date of my death. * * *'
'Fourth: At the expiration of ten years from the date of my death, I direct my trustees to pay over to * * * Emily Swoboda, one third of the principal or corpus of my estate, absolutely, and in fee simple. * * *'
'Sixth: I order and direct that the business which I operate as H. J. Llewellyn Co. * * * which forms a part of my residuary estate, shall be continued by my son, Clinton F. Llewellyn, for a period of ten years after my decease. * * * If my business shall have been operated during the ten years subsequent to my decease, I order and direct that its further continuance or disposition shall be determined by the decision of any two of my three children. * * *'
The will contained a direction that the three surviving children and the Corn Exchange National Bank and Trust Company of Philadelphia be appointed as trustees.
The ten year period from Decedent's death expired on March 19, 1950 and the trustees then filed an accounting of the annual net profit and loss of the estate to the end of 1949, and annual distributions to the beneficiaries.
On June 1, 1950, the H. J. Llewellyn Company was sold for $ 40,000 and on June 1, 1950 the trustees filed with the Orphans Court a statement of proposed distribution which included a proposal which would give effect to the sale of the business. The account was confirmed by the Orphans Court on June 16, 1950 and the schedule of distribution was approved by the Court on June 5, 1952.
During the period from March 20, 195o through May 31, 1950, the H. J. Llewellyn Company had a net operating loss of $ 14,208.52. The capital loss of the business was as follows:
Book value at March
19,1950 $ 99,051.63
Selling price 40,000.00
Capital Loss $ 59,051.63
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