*675 1. Trust beneficiary, being beneficial owner of property at the time of accrual of property taxes in the States of Illinois, Indiana, and Florida, held, entitled to deduct the taxes when paid by her after termination of the trust. Estate of John Edgerly Morrell,43 B.T.A. 651">43 B.T.A. 651; Hord v. Commissioner (C.C.A., 6th Cir.), 95 Fed.(2d) 179.
2. Petitioner may not deduct interest paid on the obligation of another nor attorney's fees not shown to have been incurred in a trade or business.
*561 Petitioners challenge the determination of an income tax deficiency of $227.88 for the year 1939 in so far as it results from the disallowance of expenses incurred during the term of a trust but paid during the tax year and claimed as deductions by one of the petitioners after its termination. The issue is whether such expenses, comprising taxes, interest, attorney fees, and sundry other expenses, incurred and accrued but not paid during the term of the trust, may thereafter be deducted when paid by a trust beneficiary.
FINDINGS*676 OF FACT.
The stipulated facts are hereby found. Petitioners are husband and wife, residing in River Forest, Illinois. They filed a joint income tax return for 1939 on the cash basis with the collector for the first district of Illinois. For convenience, Helen Mills O'Brien will be referred to hereinafter as petitioner.
Petitioner's father died testate on February 3, 1929. His will, which was duly probated, provided for the payment of debts, funeral and administration expenses, and a specific legacy to his wife. The residue of his estate was left to trustees with broad powers of management. One-third of the net income of the trust was to be paid in convenient installments to the wife during her life and the other two-thirds and, after the wife's death, all of the income were to be paid to decedent's eight children, share and share alike. The trust was to terminate ten years after the testator's death if, as occurred, the wife had died prior to that time, and the entire trust estate was to be divided and distributed in equal shares in cash or in kind among the children. Provision was made for advancements from corpus to any child during the term of the trust, such advancements*677 to be deducted from his or her share on final distribution. The wife and one son were appointed *562 in the will as executors and trustees, with two other sons designated as successor executors and/or trustees in case either of those first appointed should fail for any reason to act. At the time of his death petitioner's father was the owner of certain real estate situated in Florida, Illinois, and Indiana.
The wife and son managed and operated the real estate as trustees of the trust from February 3, 1929, to June 28, 1930, when the wife died. Thereafter, until February 3, 1939, the real estate was managed and operated by three sons as trustees of the trust, as designated in the will. The records of the trust were maintained and its income tax returns filed on the cash basis.
From February 3 to December 31, 1939, inclusive, the three sons continued to manage and operate the real estate. On December 31, 1939, no partition of the real estate had been effected, and petitioner and her seven brothers and sisters each remained the owner of an undivided one-eighth interest in the real estate from February 3 to December 31, 1939. During that period the managers of the real*678 estate paid from a common fund belonging to the owners of the real estate the following items of expense relating to the real estate, all of which had been incurred during the term of the trust but none of which had been paid by the trustees during the term of the trust:
| General real estate taxes: | |
| Florida, 1937 | $5,530.37 |
| Florida, 1938 | 5,143.74 |
| Illinois, 1932 | 97.55 |
| Illinois, 1938 | 878.52 |
| Indiana, 1938 | 1,610.64 |
| Total general real estate taxes | 13,260.82 |
| Personal property taxes for 1938, Illinois | 36.21 |
| Attorney fees incurred for settlement of | |
| 1934 and 1935 income tax matters | 1,550.00 |
| Interest paid upon a loan procured by the | |
| trustees, which loan was unpaid on February 3, 1939 | 178.00 |
| Sundry expenses for water, electricity, wages, | |
| and elevator maintenance incurred prior to February 3, 1939 | 121.30 |
| ------------------------------------------------------------------------------- | |
| Total disbursements | 15,146.33 |
During the same period, February 3 to December 31, 1939, the managers received into the common fund rentals accrued prior to February 3, 1939, of $367.45.
On the joint return filed by petitioner and her husband a deduction of $2,903.72*679 was claimed as loss, estate of H. S. Mills, which included the sum of $1,847.36, representing petitioner's one-eighth share of the total expenses of $15,146.33 after deducting the rentals *563 of $367.45. Respondent disallowed the deduction of $1,847.36, with the following explanation in the notice of deficiency:
It is held that the taxes which accrued upon the trust property prior to the termination of the trust, and which were paid by you after the trust terminated, were chargeable against the trust for the years in which the taxes accrued, and not having been paid by the trust which was on a cash basis they are not allowable as a personal deduction. The payment of these taxes constitutes a capital expenditure which increases the unadjusted cost base for determining gain and loss upon the future sale of the property.
OPINION.
OPPER: It advances us little in determining the extent to which petitioner can sustain her claim to deduct real and personal property taxes to resort to the principle that such deductions are permissible only if the taxes were levied against petitioner. *680 ; affd. (C.C.A., 2d Cir.), 121 Fed.:2d) 935. For certainly a personal liability to pay the taxes is not a prerequisite to a deduction. It is sufficient if they are assessed as taxes against property which the taxpayer then owns, and could be collected out of it. . Nor is there any satisfaction to be drawn from the rule that where property changes hands, taxes which are already a lien become additions to the purchase price rather than income deductions if paid by the vendee. Lifson v. Commissioner (C.C.A., 8th Cir.), 98 Fed.:2d) 508; certiorari denied, . For here the change in ownership which intervened between the time of lien and that of payment was in the legal title only. Petitioner was the beneficial owner when the lien arose, as she was when the payment was made.
We conclude that under these circumstances the principle of , and *681 , is applicable. "It seems clear enough that in the event the taxes were not otherwise paid the beneficiaries were required to pay or suffer the sale of the property exactly as much as in the Hord case. The principle of that decision has been stated by the same court to be that it of taxes on a trust estate by the beneficiary, who was at the time of the incidence of the tax the beneficial owner of the estate." .
If while the trust continued to exist and under threat of a foreclosure of the tax lien petitioner had paid these taxes to save property of which she held the equitable title, we think there would be little plausibility to any suggestion that the beneficiary thereby became a pure volunteer. How much more that is true where in the year when the taxes were paid the beneficiary had become the legal as well as the equitable owner.
*564 It is true that in the Hord case the court was at some pains to note its conclusion that the laws of Ohio impose upon the beneficiaries a secondary liability because of the requirement*682 that trust property be listed separately together with * * * to which it belongs. liability for taxes is in any event a nonessential consideration and since in all trust cases the beneficiary must property", this hardly seems a satisfactory test or distinction. Furthermore, the language upon which the court relied refers to the "person" to whom "the property belongs." Once we can satisfy ourselves that this property actually belonged to this petitioner, we think it follows by hypothesis that taxes levied upon the property were her taxes.
Be that as it may, we find that in the states concerned the provisions are sufficiently similiar to the Ohio and Iowa statutes relied upon in the Hord and Morrell cases to eliminate any reasonable ground for distinction. For example, in Indiana (11 Burns Indiana Stats. Ann. 1933, par. 64-412), the provision is:
Persons required to list property on behalf of others shall list it separately from their own, specifying in such case the name of the person, estate, company or corporation to whom it belongs.
In Illinois :24 Jones Illinois Stats. Ann., Rev. 1940, par. 119.555), the following is called for, at least with respect to personal*683 property:
Persons required to list property on behalf of others * * * shall list it separately from their own, specifying in each case the name of the person, estate, company or corporation to whom it belongs.
And in Florida, as respondent concedes, the statute :ch. 4322, Acts of Florida 1895, sec. 17; ch. 5596, Acts of Florida 1907, sec. 14) is comparable if not identical:
Assessment as trustee, guardian, executor, etc. - When a person is assessed as a trustee, guardian, executor, or administrator, a designation of his representative character shall be added to his name, and such assessment shall be entered upon a separate line from the individual assessment.
We are consequently of the opinion that the taxes in question were properly deductible.
The interest paid, however, is another matter. There is no showing that petitioner or her property was responsible directly or indirectly for the debt upon which the interest accrued or for the interest itself. For all that appears, therefore, this was a voluntary payment of interest owed by another. No deduction on its account is therefore permissible. *684 ; .
A similar conclusion appears appropriate with respect to the deduction for attorney's fees. These apparently involved income tax *565 liability, though the details are not before us. Payments to attorneys for services connected with income tax claims are ordinarily personal and not business expenses unless the claims arise out of a trade or business carried on by the taxpayer. ; . Even if we could say that petitioner was carrying on the trust's activities, there is no showing that the trust was engaged in a trade or business. ; affd. :C.C.A., 9th Cir.), 126 Fed.:2d) 48. We do not think the deduction should be permitted. As to the sundry operating expenses, the amount is apparently conceded in respondent's brief by inference from the deficiency notice.
Reviewed by the Board.
Decision will be entered under Rule 50.