dissenting: I am impelled to express my dissent from the Court’s opinion on issue 2 herein, under which it has allowed the petitioner (a trust which it held under issue 1 was not exempt from income tax and was being operated principally for the benefit of the settlor and other private individuals) a deduction for charitable contributions and gifts, of an unspecified and indefinite amount stated to be “at least equal to its [entire] net income” of approximately 5½ million dollars.
The Court approved the deduction for such amount notwithstanding that, concededly, the trust actually paid only $66,300 in gifts to charitable organizations during the taxable year involved (all of which the respondent allowed for deduction); that, concededly, no other or greater amount for charitable gifts was “permanently set aside” during the taxable year, either by the trustee or on the trust accounts; and that, except for those charitable organizations which actually received said $66,300, there was no particular charitable organization named, selected, or designated as a donee, either in the trust agreement or elsewhere, to which or for whose benefit any gift of any amount was either to be paid or to be “permanently set aside” during the taxable year.
Such action of the Court is, in my view, not warranted or authorized by the controlling statute, section 162(a) of the 1939 Code1 and the other Code section therein mentioned, for the following reasons:
1. Petitioner made no charitable contributions or gifts during the taxable year here involved, except the $66,300 of such gifts above mentioned, which were all allowed for deduction by the respondent.
The terms “contributions” and “gifts” are synonymous except that the term “contribution” connotes a gift made for a common purpose, and usually in common with others — irrespective of whether such others may be individuals, estates, trusts, or corporations. An essential characteristic of both a contribution and a gift is that there be a donee to whom or for whose benefit a transfer of money or property is made without legal consideration. There can be no gift, as such, merely to a desired purpose or an altruistic idea — for this would effect no transfer, either with or without legal consideration.
The above principle is recognized in section 162(a), by the provision that the gift must be made not only for the purpose but also in the manner specified in section 23 (o). The manner provided by this latter section, embraces the following requirements: (a) The contribution or gift must be made to or for the use of a particular governmental unit, or particular charitable organization of the type therein specified. This requirement is reenforced by the wording of section 23 (o) which indicates that the donor’s several separate gifts are then combined, in order to determine that portion of the aggregate which will be allowed as a deduction, (b) As further specified in section 23 (o), such contributions or gifts will be allowed as deductions “only if verified under rules and regulations” prescribed by the Commissioner. And Regulations 111 (applicable to the taxable year here involved) provide specifically in section 29.23(o)-l thereof:
In connection with, claims for deductions under section 23(o), there shall be stated in returns of income the name and address of each organization to which a contribution or gift was made * * *. Claims for deductions under section 23(o) must be substantiated, when required by the Commissioner, by a statement from the organization to which the contribution or gift was made, showing whether the organization is a domestic organization * * * and by such other information as the Commissioner may deem necessary.
The obvious purpose of such requirement is to enable the administrative authorities to verify not only that the particular donee is a qualified charity, but also that there are no terms or conditions at-taehed to the gift which might prevent the amount of the gift from actually vesting in such donee for exclusively charitable purposes.
In the instant case, the only particular donees which were designated or identified were those which received the above-mentioned $66,300. And as to any other donees in respect of whom the Court has allowed a deduction of approximately $5 million, there is no identification on the trustee’s fiduciary income tax return, or in its books and records, or otherwise, which is susceptible of verification.
2. Also, except for the above-mentioned gifts totaling $66,300, no gifts were “paid or permanently set aside” either by the trustee, or on the trust’s books and records, or either by or pursuant to the terms of the trust agreement.
As heretofore stated, it is conceded that no gifts for charitable purposes, other than those included in said $66,300, actually were paid during the taxable year; and it also is conceded that no other such gifts were “permanently set aside” or otherwise provided for, either by the trustee or in the trust accounts. The Court relied, however, on a theory that such other gifts were made by operation of the terms of the trust agreement. But an examination of said trust agreement reveals that such theory is unsound.
The trust agreement, in its preamble, expressed the “desire” of the settlor-donor, that the income of the trust should be used exclusively for charitable purposes; but it also stated that—
the Donor realizes the impossibility of anticipating at this time how * * * such proceeds should be divided among such purposes and further believes, as do others, that funds so to be devoted can be made to accomplish broader and more useful purposes if the terms of the devotion of such funds to such purposes shall permit of change from time to time in the particular objects or enterprises to be assisted, and in the channels through which such funds are applied; * * * [Emphasis supplied.]
Accordingly, the settlor-donor did not name or designate in the trust agreement any particular organization as a donee; but rather, he caused to be incorporated in the terms and conditions of the trust, which the trustee agreed to observe, a provision for the creation of an “Appointing Committee” which was charged with the duty of selecting, annually, the particular charitable organizations to or for whose benefit all the net income for each year was to be disbursed.
For a period of approximately 4 years prior to 1945, the trust operated as a passive trust, and actually did pay out all its net income to particular charitable organizations, in the manner and in accordance with the methods prescribed in the trust agreement. But during the taxable year 1949 which is here involved, the trust was (as found by the Court under issue 1) being used as a “vehicle” for the primary benefit of the settlor and other private individuals, with “charities running a poor second”; and during said year, none of the above-mentioned procedures for designating charitable donees and gifts, were observed except as to the above-mentioned $66,300.
The case of Bowers v. Slocum, 20 F. 2d 350 (C.A. 2), upon which the Court relied, is distinguishable on its facts. There, a decedent had by will given her residuary estate to 35 specifically named and identified charitable organizations. The executors had been unable to pay the income from such residue to said donee-charities during the taxable year involved, while the estate was in the process of being administered. The Second Circuit held, however, that deductions for the gifts of such income were deductible in said taxable year, without any payment or any credit having been entered on the accounts of the executors — because “the income, when received by the executors, was by the will permanently set aside for the [specifically identified] residuary legatees.” In the instant case, on the other hand, the trust agreement itself did not designate any particular donees or make any particular gifts. Bather, it merely expressed the settlor’s “desire” that charitable gifts should be made from time to time; and it then created an “Appointing Committee” to make such gifts annually. This Committee, however, took no action to carry out the settlor’s mandate within the taxable year, except as to the $66,300 of charitable gifts for which the respondent has allowed deductions.
3. The Court has suggested in its opinion herein, that the petitioner was prevented from making additional gifts during the taxable year, because of tax claims made against it by the Government. This suggestion, however, is without merit, and immaterial. This Court recognized in Rockland Oil Co., 22 T.C. 1307, that where a gift had been made to an identifiable donee, deduction therefor would not be defeated by the fact that all or some portion thereof might have to be applied in satisfaction of creditors’ claims, rather than being paid to the designated donee.
Moreover, the mere fact that a donor (whether such donor be an individual, an estate or trust, or a corporation) is unable for any reason to make an intended gift during a particular year, does not give such donor any right under the controlling statutes to a deduction for the intended but unmade gift. Many good intentions are frustrated. But in the case of income taxes, donors must wait until any intended charitable gift is actually made in the prescribed manner before it can give rise to a deduction therefor.
4. Finally, in the instant case there is no certainty that any portion of the $5 million for which the Court has allowed deduction, will ever find its way as a gift to any charitable organization.
In John Danz, 18 T.C. 454, 463-464, affd. 231 F. 2d 673 (C.A. 9), certiorari denied 352 U.S. 828, this Court said:
An annual deduction is not allowed by section 162(a) merely because tbe property of tbe trust must eventually go to charities. * * * Tbe record does not show that any other amounts [except the amounts of specific contributions actually made during the taxable year] were ever paid or permanently set aside for the purposes and in the manner specified in section 23 (o) but it shows that large portions of the gross income for the taxable years were used for other purposes such as to repay loans, to pay interest on loans, and to make new investments. The income of a particular year used for such purposes might never go to any charity. Thus, the trust has not shown that it is entitled to deduct all of its otherwise taxable net income under section 162(a), despite the fact that the ultimate distribution of its properties must be for purposes and in the manner specified in section 23(o). Not only does the petitioner fail to qualify under the plain wording of section 162(a) but it also seems unlikely that Congress intended to grant a deduction from current income where the income could be put to uses of the trust in its effort to create more income or profits for charities and might never reach any charity as income or principal, for example, it might be lost in the business venture.
I would have decided issue 2 for the respondent.
TtoneR, OppeR, and Atkins, JJ., agree with this dissent.Section 162 (as it existed prior to the 1950 Amendment) provides, so far as here relevant:
The net income of the estate or trust shall be computed in the same manner and on the same basis as in the case of an individual, except that—
(a) There shall be allowed as ai deduction (in lieu of the deduction for charitable, etc., contributions authorized by section 23 (o)) any part of the gross income, without limitation, which pursuant to the terms of the will or deed creating the trust, is during the taxable year paid or permanently set aside for the purposes and in the manner specified in section 23 (o), * * * [Emphasis supplied.]
The final clause, omitted above, Is not here relevant. This clause originated In section 219(b) (1) of the Revenue Act of 1924, as an addition to the provisions of section 219(b) of the Revenue Acts of 1918 and 1921, which are cognate to those provisions of section 162(a) of the 1939 Code that are above quoted. Its history and the judicial authorities indicate that the purpose of such clause was merely to broaden the class of permissible donees, so as to include certain types of charitable organizations, such for example as foreign charities, which would not qualify under section 23 (o). See S. Rept. No. 398, 68th Cong., 1st Sess., p. 25; Estate of J. B. Whitehead, 3 T.C. 40, 49-50, affd. 147 F. 2d 977 (C.A. 5); Estate of Emily St. A. Tait, 11 T.C. 731, 736-737, remanded on another issue (C.A. 4) ; S.M. 2620, III-2 C.B. 221, 223. In the instant case however, the terms of the trust agreement under which petitioner was created, limit the class of charitable organizations to which gifts may be made thereunder, to organizations which would qualify under section 23 (o) ; and accordingly said final clause is not here applicable.
Section 23(o)., mentioned in the above-quoted provisions of section 162(a), pertains to deductions for charitable contributions by an individual; and it is in pari materia with section 23 (q), pertaining to charitable contributions by a corporation. Under each of these sections, unlite section 162(a), the aggregate deduction allowable for all charitable gifts is limited in amount, and payment of such gifts must be made within the taxable year; but otherwise the method for mating such gifts under sections 23(0)⅜ 23(q)„ and 162(a) is the same.