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The possibilities of a tax-free yield of 6 per cent to foreign corporations and nonresident aliens, which the decision in the Stockholms Bank case opens up, will not be overlooked, particularly by resident foreign corporations. Under our system of self-assessment, there is nothing to prevent such corporations from including in the return of income and paying income tax on items of foreign income or, even for that matter, tax-exempt income from United States sources, such as interest on Liberty Bonds and municipal bonds, knowing full well that a claim for refund filed within the statutory period, two years, based on the erroneous inclusion in gross income of items of income from sources without the United States and items of tax-exempt income, will be allowed and that the amount of such refund will draw interest at the rate of 6 per cent from the date the tax was paid to the date of the allowance. The statute does not now require that the tax be paid under protest in order to obtain a refund.

In the instant case the parties stipulated that the petitioner, a resident foreign corporation, received in 1925 a refund of Federal income and profits taxes for 1917, and at the same time interest on such refund in the amount of $132,407.17; and that in 1926 the petitioner received a refund of income and profits taxes for 1918 and 1919 and interest upon such refund in the amount of $1,394,357.64.

If the above amounts had been paid to a citizen, resident, or domestic corporation, they would have been taxed. There is no reason of public policy why they should not be taxed when paid to a nonresident alien or a foreign corporation. They are from a source in the United States—the Government itself. The statute does not expressly exempt such interest from tax. I think, therefore, the decision in the Stockholms Enskilda Bank case should be overruled, and judgment found for the respondent in this case.

ACACIA PARK CEMETERY AssociATION, INC., PETITIONER, v. Com

MISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 30210. Promulgated December 7, 1932.

A corporation sold cemetery lots under purchase agreements that The purchase price hereof shall include perpetual care.” Purchasers were advised that 10 per cent of the sale price of lots would be placed in a perpetual care fund, the income from which would be devoted to perpetual care of the cemetery. In 1924 the petitioner deposited $6,500 in a trust fund, and agreed that additional amounts should be deposited in the fund; that the income should be used for perpetual care; and that any excess income should be turned over to the corporation for corporate

purposes. No further amount was deposited by the petitioner to
the credit of the fund until 1929, when $1,000 additional was
deposited. Held, that the petitioner may not, in determining
profits on the sales of the lots, add to the cost of lots sold $200,000
representing the amount intended to be set aside for perpetual

care.

Leonard L. Cowan, Esq., for the petitioner.
Arthur Carnduff, Esq., for the respondent.

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This is a proceeding for the redetermination of deficiencies in income tax as follows: 1922, $6,147.09; 1923, $19,398.61; 1924, $10,552.98; and 1925, $10,859.25.

Certain allegations of error in the petition have been disposed of by stipulation of the parties. Those not disposed of are:

(1) The refusal of the Commissioner to allow petitioner to include the sum of $100,000 for perpetual care fund liability on the first section of petitioner's cemetery as part of the cost of the cemetery lots in the first section and to include a portion of perpetual care fund liability in determining the profit and loss on cemetery lots sold.

(2) The refusal of the Commissioner to allow petitioner to include the sum of $100,000 for perpetual care fund liability on the second section of petitioner's cemetery as part of the cost of the cemetery lots in the second section and to include a portion of the perpetual care fund liability in determining the profit and loss on cemetery lots sold.

FINDINGS OF FACT.

The petitioner was organized under the laws of Illinois in 1922, and in July of that year began to construct its cemetery located on West Irving Park Boulevard, near the City of Chicago. The first section of the cemetery comprised approximately 251/2 acres and was divided into 5,896 four-grave lots. Lots were sold by the petitioner under contracts which provided that “ The purchase price hereof shall include perpetual care.” Salesmen were instructed to represent to purchasers of lots that a fund of $100,000 was being established and that 10 per cent of all sales would be put into that fund with respect to the first 2512 acres, and that the income of the fund would be used for perpetual care of lots in that section. They made such representations to prospective purchasers. The amount of $100,000 was arrived at by considering that the total sale price of the lots in the first section would be $975,000 and that 10 per cent thereof would be approximately $100,000.

The same thing was done with respect to the second tract of land developed in 1924, which consisted of approximately 46 acres and was divided into approximately 9,564 four-grave lots. The officers of the company contemplated setting up a perpetual care fund of approximately $100,000 for the perpetual care of this section of the cemetery and the salesmen represented to prospective purchasers that 10 per cent of the sale price of lots would be placed in such fund.

Certain literature given prospective purchasers contained the following:

All modern cemeteries have a perpetual care fund, the income of which is expended for cutting and sprinkling the lawns, in trimming the trees and shrubbery, and planting flowers to beautify the grounds. Acacia Park Cemetery will have a perpetual care fund of $100,000. This fund is now rapidly accumulating and before the cemetery is completed that entire amount will have been realized.

This fund is placed in the hands of trustees whose duty it is to invest and reinvest the principal in high grade safe securities and to expend the income on the care of lots and graves.

The general care and upkeep of the driveways, pathways, structures and such portions of the cemetery as are not used for burial purposes, will not be charged to the perpetual care fund, but will be paid for by the association out of the general income from all sources. This is also true as to the cost of operating the sprinkling system and the making of improvements.

Another circular distributed to prospective purchasers contained the following:

All property in Acacia Park is under perpetual care. From each sale of property, a percentage is set aside in the perpetual care fund. Only the income from this fund can be used, and this income is entirely administered for upkeep.

On February 1, 1924, the petitioner executed an agreement with the Citizens State Bank of Chicago, under the provisions of which the petitioner made a deposit of $2,500 and agreed to make further deposits from time to time, but in any event, within one year from the date thereof, would increase such trust fund until the principal fund, as distinguished from accrued interest and income therefrom, should amount in market value to at least $52,000. Such sums were to be invested by the bank in interest-bearing securities, which were to be held by the bank as a trust fund so long as the cemetery remained a place for the burial of the dead.

The seventh paragraph of the agreement provided in part as follows:

It is understood and agreed by the parties hereto that the said Company is, and is at all times hereafter to remain, the absolute owner of the Trust Fund hereby created and of all of said Securities and the written evidences thereof forming a part of the same, subject, however, to the trust hereby created and the provisions hereof; that it is intended by this instrument to provide a principal Trust Fund, which is to remain in existence as such as long as said Acacia Park Cemetery Association, Inc., shall be operated as a cemetery and as a place for the burial and keeping of the dead, the income only of which is to be devoted so far as may be necessary to the care and maintenance of said cemetery, and the remainder of such income to such other purposes as may be, from time to time, determined upon by said Company, through its Board of Directors and proper officers * *. (Italics supplied.]

Payments aggregating $6,500 were deposited with the bank in accordance with the terms of the agreement in 1924. The accumulated interest on the fund for the years 1924, 1925, and 1926 was $198.72, $301, and $330.01, respectively. The accumulated interest on the fund was never withdrawn by the petitioner.

On March 26, 1926, a new agreement was executed, with the Lake View State Bank. This agreement was similar in form to the one executed by the Citizens State Bank of Chicago in 1924, and provided that the cemetery association would create and maintain a fund for perpetual care of Acacia Park Cemetery and that it would deposit in said fund within one year from March 1, 1926, the sum of $100,000. It further provided that this fund, like the fund deposited in the Citizens State Bank of Chicago, would be invested in interest-bearing securities and would remain with the depositary as trustee so long as the Acacia Park Cemetery remained a place for the burial of the dead. The income from the fund was to be withdrawn by the petitioner in the same manner and in the same circumstances as in the case of the other fund above mentioned. Upon the execution of the agreement with the Lake View State Bank the amount of $6,500 plus accumulated interest thereon on deposit with the Citizens State Bank of Chicago was transferred to the Lake View State Bank and held under the terms of the agreement executed with the latter bank. The accumulated interest on the fund deposited in the Lake View State Bank was as follows: 1927, $354.41; 1928, $380.27; 1929, $503.67; 1930, $335.83; and 1931, $407.75. The petitioner added $1,000 to the account of the principal in 1929. The total standing to the credit of the fund on January 1, 1932, was $10,317.66.

No part of this fund or income therefrom has been withdrawn by the petitioner.

Amounts paid in by purchasers of lots were not deposited to the credit of the perpetual care fund except with respect to the amounts above mentioned, because the company required the monies for construction. At the time the cemetery began its construction and sale of lots approximately 725 lots were set aside or reserved, it being the intention of the officers of the corporation that the entire sales receipts from such lots would be placed in the perpetual care fund when those lots were sold. Such lots are still intact and their retail value is approximately $400,000.

Sales of lots in the tax years involved were:

Year

Second secFirst section

tion

1922.. 1933. 1934. 1925.

$150, 035.00
455, 113.50
235, 365.00
53, 425.00

$211, 585 403, 245

In the computation of profits on the sales of the lots in each of the sections for its income tax returns the petitioner added to the cost $100,000 for a perpetual care fund. In the computation of the deficiencies the respondent has excluded the $100,000 in computing the profits on the sales of lots in each section.

OPINION.

SMITH: In this proceeding the petitioner contends that the cost of the lots in each of the two sections to its cemetery was $100,000 greater than the amount allowed by the respondent in the determination of profits upon the sales. If this contention be denied, the petitioner contends that 10 per cent of the amount received from sales was received by it in trust and hence was no part of petitioner's net income.

We are of the opinion that there is no merit in the petitioner's contention that the cost of the lots sold was inclusive of an amount to be paid in by lot purchasers to provide for perpetual care. The cost of the land and improvements was not enhanced by the fact that the petitioner was to provide perpetual care. While we have held, under certain conditions, that the cost of improvements and additions legally bound to be made by contract when lots in a real estate

velopment are sold may be added to the cost of the lots (Milton A. Mackay, 11 B. T. A. 569; Birdneck Realty Corp., 25 B. T. A. 1084), it does not follow that future ordinary expenses and upkeep may be so treated. Expenses are deductible when paid or incurred. Even when it is known that expenses will be incurred in a subsequent year, it is not a ground for allowing a deduction in a previous year. The petitioner's contention upon this point is not sustained.

It is necessary to consider the petitioner's alternative contention that a portion of the sale price was received by the petitioner in trust and accordingly that a portion of it did not represent taxable income.

The Board has held in a number of cases that, where lots in a cemetery are sold with the provision that a portion of the sale price is to be set aside in a separate fund and the income used for perpetual care, the amount thus set aside is not taxable income. Los

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