No. 293 Pittsburgh, 1981, Appeal from Judgment of the Court of Common Pleas, Orphans' Court Division, of Allegheny County, No. 1419 of 1938
Edward J. Greene, Pittsburgh, for appellant.
W. Rodger Moore, Pittsburgh, for appellee.
Wickersham, Wieand and Beck, JJ.
[ 306 Pa. Super. Page 132]
Where part of a dividend which has been paid by a personal holding company is identified as having been derived from short-term capital gains, is that part of the dividend allocable to principal or income for purposes of trust accounting and distribution? The Orphans' Court of Allegheny County held that it was allocable to principal. We affirm.
Solomon Rosenbloom died November 16, 1925. He had three children: Estelle R. Weinstock, who has three children; Charles J. Rosenbloom, who died April 1, 1973 without children; and Arthur M. Rosenbloom, who died July 21, 1979 survived by one child, Eve Stern Stuart. Mrs. Stuart has no children.
Solomon Rosenbloom, by his last will, bequeathed his residuary estate to the trustees of a trust established by Article VII of his will. By the terms of this will, the income from the residuary trust "shall be paid in equal shares" to the living children of Solomon Rosenbloom "and to the issue of any deceased child or children, such issue to take the share of income which the deceased parent . . . would have taken if living." There is no provision authorizing the trustee to invade the principal. Mellon Bank is the sole surviving trustee. The trust principal includes municipal bonds and short-term investments valued at approximately $1,300,000.00, and shares of the Rosenbloom Securities Corporation valued at $2,426,847.75.
Rosenbloom Securities Corporation is a personal holding company under Section 542 of the Internal Revenue Code. At a meeting of the directors of this corporation on December 19, 1979, the secretary reported that the corporation's accountants had estimated the corporation would have income
[ 306 Pa. Super. Page 133]
of $443,000.00 for the year ending December 31, 1979. This income consisted of dividends of $321,000.00, interest of $46,000.00 and short-term capital gains of approximately $76,000.00. (The actual amount of short-term capital gains was $74,410.88. Of this sum, $33,016.54 represented short-term gains from the sale of options and $41,394.34 represented short-term gains from the sale of securities.) The accountants estimated expenses at $65,000.00, leaving a net income of approximately $380,000.00. The minutes of the corporation disclose that the directors of the Rosenbloom Securities Corporation considered the distribution of short-term capital gains as corporate dividends, for they were concerned lest these short-term capital gains be determined to be income under Internal Revenue Code Section 543. Ultimately, on May 7, 1980, the directors adopted the following resolution:
"RESOLVED, that a dividend of approximately $145 a share if short term capital gains are included as personal holding company income or $96 a share if such gains are not so included be paid to shareholders of record on December 19, 1979, the actual amount of the dividend and the payment date thereof to be determined by the President of the Corporation.
"FURTHER RESOLVED, that the President be authorized to take such action as he may deem necessary or desirable to effectuate ...