*1480 Petitioner, executor and testamentary trustee of an estate of substantial size, claimed deduction from the estate's income for the years 1935 and 1936 of attorney's fees and other ordinary and necessary expenses incidental to the conduct of law actions to have himself appointed voting trustee of stock of a company publishing two newspapers and owned in large part by the estate; to remove his coexecutors; to cancel a sale of stock belonging to the estate; to reduce the amount of counsel's fees claimed; and to settle a claim against the estate arising out of certain acts of decedent. Held, that expenses arising out of actions brought to retain control or management of the estate as a going concern are deductible, but those incurred in mere passive conservation of assets are not; held, further, that it is immaterial here whether deductions in respect of the same expenses have been allowed from the gross estate in computing the Federal estate tax: following Robert J. kleberg et al., Executors,31 B.T.A. 95">31 B.T.A. 95.
*599 This case involves deficiencies*1481 in income tax for the calendar years 1935 and 1936 in the amounts, respectively, of $63.36 and $4,312.71, arising largely by reason of respondent's disallowance of deductions claimed by petitioner in both years for attorneys' fees and certain miscellaneous expenses. The petitioner claims an overpayment for 1936 of $62.74.
FINDINGS OF FACT.
Virgil L. Highland died August 9, 1930, leaving a will with three codicils, under the last of which two new executors and testamentary trustees, Cecil B. Highland and Melvin G. Sperry, were joined with the Empire National Bank of Clarksburg, West Virginia, the executor originally appointed. These three persons qualified as executors and testamentary trustees under the will. Shortly thereafter disagreements developed between Highland and the two other executors which resulted in a suit by Cecil B. Highland, as executor, together with decedent's widow and his four children, for the removal of the two other executors, which ended in their removal in December 1933. Highland since that time has acted as sole executor and testamentary trustee of the estate and was acting in that capacity in the years 1935 and 1936.
The property of the estate*1482 to the value of $973,185.62 consisted of the following:
| (a) Real estate of the value of | $113,625.00 |
| (b) Stocks and bonds of the value of | 573,375.00 |
| (c) Life insurance totaling | 274,830.83 |
| (d) Mortgages, notes, and cash totaling | 8,274.79 |
| (e) Miscellaneous property of the value of | 3,080.00 |
After certain specific bequests and devises the decedent by his will created a trust of the residue of the estate for his widow and four children, in the following language:
All the rest and residue of my estate and property of whatever kind or nature, and wherever situated, I give, devise and bequeath unto my executor hereinafter named, in trust for the uses and purposes following to-wit: IN TRUST, to hold, manage, and control the same, and every part thereof, collecting the rents, incomes, dividends and profits arising therefrom, and paying out of said rents, incomes, dividends and profits, all proper taxes, assessments, charges and expenses incident to the management thereof, including such fire insurance as may be deemed reasonable.
I hereby authorize and direct my said executor and trustee to carry on any business or financial affairs in which I may be interested, *1483 individually, or with others, at the time of my death, as fully, and to the same extent, as I could or might do if still living; and to so handle and manage my estate as not to unnecessarily jeopardize the interests of any person or persons with whom I may be associated in any business undertaking at the time of my death, and to that end my said executor and trustee, and its successors in office, are hereby authorized to make, sign, accept, or endorse notes, bonds, acceptances, or commercial paper of any character or description, which may be required to carry on such *600 business, or renew paper which I am on, individually or jointly, with others, for debts which I owe, or for which I am surety, and such bonds, notes or commercial paper shall bind and be obligatory on my estate with the like effect, in all respects, as if I, in my lifetime, had made, signed, accepted, or endorsed the same; and my said executor and trustee, and its successors in office, shall have charge of, and control and manage the said trust estate, with the right and authority to sell or dispose of the same, both real and personal, or any part thereof, at private or public sale; to change, from time to*1484 time, the form or character of any of the investments thereof; to invest the same from time to time in mortgages on real estate, or any such other safe, interest bearing securities as to them shall seem best; with full power, at all times, and from time to time, to alter, change and vary the investments thereof, whether existing at the time of my death, or made thereafter: Provided, that they shall not sell or dispose of my shares of the capital stock of the Clarksburg Telegram Company, and that they shall not sell or dispose of any other property, real or personal, of which I may die seized, unless they are satisfied that such sale or disposition will be for the benefit of my estate, and for the best interests of those entitled thereto.
The will provides for a monthly payment of $1,000 for the support and maintenance of decedent's widow and children, and for such additional sums as are necessary to give his children a collegiate education. The trust continues until January 19, 1951. The original will provided that as each child should arrive at the age of twenty-five years, the trustee should deliver to it its portion. By the first codicil the age for distribution was raised*1485 to thirty-five years. The oldest child attained that age on April 30, 1940, but the youngest child will not reach it until January 19, 1951. The will also provides:
* * * Upon the delivery to any child of the portion to which he or she is entitled hereunder, my executor and trustee shall continue to control and manage the residue of my estate until the time of disbursement in the manner hereinbefore provided. * * *
During the years 1935 and 1936 the estate was still in the process of administration. The holdings of the estate were substantial and various and among the real estate holdings of the estate were five storerooms located on Fourth Street in Clarksburg, West Virginia, and a garage back of Fourth Street, from which rentals were received by the estate amounting to $13,674.61 in 1935 and $12,005 in 1936. The estate also owned all the capital stock of three land companies in or near Clarksburg, the Colonial Building & Realty Co., the Duncan Land Co., and the Union Land Co.; and a majority stock interest in the West Chevy Chase Land Co. The Colonial Building & Realty Co. owns an apartment building on West Main Street in Clarksburg and received rentals from it of $8,398.03*1486 in 1935 and $8,143.25 in 1936. The Union Land Co.'s assets consist of about three hundred and fifty acres of land, several hundred lots laid out a good many years ago, and two or three gas wells. The Duncan Land Co.'s assets consist of about one hundred and seventy-five lots within the corporate *601 limits of Clarksburg, one dwelling house, and a gas well. The West Chevy Chase Land Co. owns lots near Washington, D.C. Petitioner is president of all these land corporations, and as part of his duties as executor and testamentary trustee has sole charge of the renting and repair of the buildings and the active supervision and management of the assets of the land companies, which he has been actively trying to sell. The three companies are in debt, and petitioner has been engaged in liquidating these debts and in paying delinquent taxes by sale of assets.
The estate owns 1,656 shares of class A common stock and 480 shares of preferred stock of the Clarksburg Publishing Co., whose total stock issue consists of 3,000 shares of common stock, divided into 1,800 shares of class A and 1,200 shares of class B stock, and 2,000 shares of nonvoting preferred stock. The Clarksburg*1487 Publishing Co. publishes a morning newspaper known as the Clarksburg Exponent, which is Democratic, an evening paper known as the Clarksburg Telegram, which is Republican, and the Sunday Exponent-Telegram, the last being nonpartisan and edited by the editors in chief of the two others. Class A stock represents the Clarksburg Telegram interests and class B stock the Clarksburg Exponent. The Clarksburg Publishing Co. is operated under a voting trust agreement which became effective June 30, 1927, and expires on January 1, 1943, when control of the company will vest in the owner of a majority of the common stock without regard to class A and class B stock. During the continuance of the voting trust agreement there are three directors representing class A stock and three directors representing class B stock, and no corporate act can be taken without four votes, regardless of the number present. In addition to the directors, there is one voting trustee for the class A stock and one voting trustee for the class B stock.
Petitioner has been president of the Clarksburg Publishing Co. since June 1934 and a director since January or February 1934, and in addition has directed the policies*1488 of the Clarksburg Telegram since he became sole executor and testamentary trustee of the estate in January 1934. As president he has about one hundred and sixty-two employees of the company under his general supervision and direction, including the editorial force and all departments. Petitioner devotes substantially all of his time to the management, control, and repair of the real estate items mentioned above and in supervising the Clarksburg Publishing Co. and directing the affairs and policies of the Clarksburg Telegram, being at the plant by 6:30 or 6:45 each morning, examining every editorial, visiting the plant two or three times a day, conferring with the editor, and keeping in touch with the paper's affairs at all times throughout the day. *602 Virgil L. Highland for many years had directed the policies of the Clarksburg Telegram and was president of the Clarksburg Publishing Co. from its organization in 1927 until his death.
The Clarksburg Publishing Co. did a gross business of $531,390.25 in 1935 and $603,804.97 in 1936. The estate received as dividends from the Clarksburg Publishing Co. $11,051.48 in 1935 and $54,000 in 1936, which constituted a substantial*1489 part of the total income of the estate.
In addition, the estate owns 472 shares out of a total of 2,500 shares of common stock of the Empire National Bank of Clarksburg. It was organized in 1903 by Virgil L. Highland, who was its president from 1903 until his death. With the exception of the year 1933, petitioner has been director of that bank since.
In 1935 and 1936 the estate paid attorneys' fees in the respective amounts of $3,522 and $7,068.03 for the prosecution of a suit to remove the Empire National Bank and Melvin G. Sperry as executors of the estate; for the prosecution of a suit to restrain Melvin G. Sperry and the Empire National Bank from voting class A common stock of the Clarksburg Publishing Co. owned by the estate, Sperry having been appointed by the bank voting trustee of this stock; for the resistance of creditors' suits instituted for the immediate liquidation of the estate; and for the resistance of actions at law against certain land companies, in all but one of which the estate owned all the stock. In this last company the estate owned nearly 50 percent of the stock. The first of these suits was for the purpose of appointing a voting trustee for the*1490 1,800 shares of class A common stock of the Clarksburg Publishing Co., of which decedent owned 1,656 shares. After decedent's death the three coexecutors disagreed as to who should be named voting trustee, and as a result there was no trustee representing this stock from 1930 to 1932, and no directors or officers were elected. Decedent's heirs and all the owners of class A stock petitioned to have petitioner appointed trustee. While this suit was pending, Sperry and the president of the Empire National Bank, Sperry and the bank being coexecutors, appointed Sperry voting trustee. Petitioner then obtained an injunction restraining Sperry from acting, and eventually another trustee friendly to the petitioner's interests was appointed and confirmed by the State Supreme Court of Appeals.
The second suit, similarly styled, and nearly contemporaneous with the first, was to remove Sperry and the bank as coexecutors. Petitioner had objected to an attempted sale by one of his coexecutors of the Clarksburg Publishing Co. stock to an outsider. The bank's president was so involved with Sperry in business matters that these two executors acted together, and against petitioner. Petitioner's*1491 *603 two coexecutors were removed in a suit which reached the State Supreme Court of Appeals. During the pendency of this suit, the two coexecutors had advertised for sale on September 23, 1933, at the court house door nearly all the assets of the estate, including the Clarksburg Publishing Co. stock and Empire National Bank stock. Petitioner sought and obtained an injunction pending the outcome of the ouster suit. At that time the general economic depression had affected the values of all stocks. At the same time the coexecutors had obtained consent of certain creditors of decedent's wholly owned or controlled land companies to bring creditors' suits in their names in the West Virginia county courts against the real estate companies the stock of which was owned by the estate and defense of these suits became necessary as well as of the others mentioned. Petitioner retained counsel and paid counsels' fees.
Petitioner paid $1,000 and $105 in 1935 and $4,750 in 1936 as attorneys' fees and advanced attorneys' expenses in a suit against J. Hornor Davis in which the petitioner sought to set aside a purported sale in February 1935 of 568 shares of the class A common stock*1492 of the Clarksburg Publishing Co. pledged by Virgil L. Highland to secure a note which was renewed by his executors in the principal amount of $45,000 and to redeem the pledged stock of the estate. Davis, the voting trustee of class B stock of the Clarksburg Publishing Co., had bought the note for its principal amount plus interest then accrued, $45,360, and met with the board of directors of the Exponent Co., which voted to take over the stock pledged for this note. Petitioner, until then unaware of the sale, instituted suit to redeem the stock, alleging that the stock had a much higher market value. Ownership of this stock will determine ownership of the Clarksburg Publishing Co. after the trust agreement determines. The county court granted petitioner's petition for an injunction against the stock transfer and impounded the stock dividends. The suit was pending at the time of the hearing in this proceeding.
Attorneys' fees in the amount of $300 for 1935 and $303.75 for 1936 were paid by the estate in a suit by E. A. Bowers against Cecil B. Highland, in which suit Highland resisted Bowers' claim for attorneys' fees for legal services in connection with the two suits mentioned*1493 above, to remove the two coexecutors, and to appoint another voting trustee. In 1936 petitioner paid $251.25 as attorneys' fees in settling the claim of Lillie Denham against the estate. Her claim against the estate, based on improper acts of decedent as executor of her husband's estate, was for about $17,000 and was compromised for about $10,000.
In 1935 the estate also paid $1,160.79 as miscellaneous expenses in the cases of Highland et al. v.Empire National Bank et al. ($674.74) *604 and Highland v. Davis ($486.05), and in 1936, $203.50 as expenses in the latter suit. The petitioner in 1935 paid $776.10 and in 1936 $849.62 as office expenses, amounting to two-thirds of petitioner's total office expenses, which he allocated to estate "management expenses."
The estate made reimbursement payments of $117.13 to Cecil B. Highland in 1936 for expenses incurred in administering the estate.
On the return for Federal estate tax, the petitioner deducted as administration expenses:
| Executors' commissions | $20,000 |
| Attorneys' fees | 20,000 |
| Miscellaneous | 1,219 |
OPINION.
KERN: The petitioner claims the expenses here in question as deductible*1494 from the estate's gross income under section 23(a) of the Revenue Acts of 1934 and 1936, as applied to estates under section 162 of the same acts. The respondent has denied them on the ground that they are properly expenses of administering the estate and, therefore, capital in nature, and are not necessary and ordinary expenses incurred in the conduct of a trade or business. The respondent makes six points any one of which, it is said, would prove fatal to petitioner's contention. They are, (1) that the expenditures were administration expenses; (2) that they were purely an expenditure for the benefit of the legatees; (3) that the estate was not in trade or business during the years in question; (4) that the services for which the fees were paid were given in part for retaining voting control of a business; (5) that they have already been deducted from the gross estate as capital expenditures; and (6) that if any of the payments is not deductible, all must be held so, because no allocation has been made between them.
At the outset of the determination of these various claims for deduction it should be said that the line between expenses chargeable against the estate and deductible*1495 from the gross estate in computing the estate tax and those chargeable against income of the estate is, like most of such lines in the law, one which can not be drawn without difficulty and which, therefore, makes difficult generalization of the criteria applicable. In George W. Oldham et al., Executors,36 B.T.A. 523">36 B.T.A. 523, this Board had occasion to review many of our earlier decisions and to deduce from them the tests to be applied. Omitting the cases there cited, we quote what we there said, at page 529:
Ordinarily the fees and commissions of executors, administrators, attorneys, and other representatives of estates are regarded as administration expenses and are applied against the gross estate in determining the estate tax. Ordinarily such fees and commissions are not allowable as deductions in determining the net income of the estate. * * *
*605 Where, however, such fees or commissions are paid for services rendered exclusively in carrying on the affairs of the estate as a business, rather than in preparing it for settlement and distribution, such payments constitute ordinary and necessary expenses and may be deducted for income tax purposes. * *1496 * *
Frequently, the facts of particular cases do not lend themselves to easy determination of the character of such expenses. Most solvent estates, such as the one in the instant case, are going concerns, producing income; though it be no more than interest from a savings account, a bond or a promissory note, or rent from a farm or dwelling house. The normal and usual activities of the representative of the estate include the collection of such income, the paying of debts and taxes, the making of repairs, the execution of leases, the placing of insurance, in order to prepare the estate for distribution. The fact that such activities also constitute the ordinary incidents of carrying on business does not constitute the expenses thereof expenses which may be charged against income if they are a part of a normal and usual process of administration.
The test most frequently used to distinguish between the two types of expenses is whether the estate has been or is required to be kept intact beyond the period usually necessary for administration. If the process of administration goes forward in normal course, and distribution and settlement are completed within a usual and reasonable*1497 time, the expenses of the representatives of the estate are regarded as administration expenses. * * * On the other hand, in cases where, according to the provisions of the will or testamentary trust, it is necessary to continue the estate intact over a period of years, and to carry on its affairs as a business in the interim, the fees and commissions paid to representatives of the estate for such services constitute expenses, deductible for income tax purposes. * * * And where the will went further and, in addition to providing for the creation of a trust to run for a long period of time, provided for the payment to the executors of annual salaries out of the income of the estate, in lieu of fees, commissions, and compensations provided by law, it was held to be apparent that such payments were intended to be applied to the carrying on of a business and were properly chargeable against income. * * *
In distinguishing between the two types of expense, one of the text writers draws the line between "initial expenses" and "current expenses." Montgomery & Magill, Federal Taxes on Estates, Trusts, Gifts, 1936-1937, p. 39. This suggestion is supported by the decision in Estate of*1498 William G. Peckham, supra, where the will required that the estate be kept intact for six years, and the action of the Commissioner in allowing as deductions for estate purposes only those executors' commissions paid during the first three years of administration was held to be reasonable and proper. * * *
It is apparent, upon the facts of the Peckham case, that the services performed by the executors were no more for one purpose than the other during the two periods of three years each. In fact, the final services of the executors, in distributing the estate, come within the second period. But the apportionment made by the Commissioner, although more or less arbitrary, was equitable in its result and consistent with the principle frequently enunciated by the Board concerning expenses of estates kept intact beyond the ordinary administration period.
* * *
Another suggested basis for distinguishing between administration expense and income-producing expense, is that of the temporary character of the agent representing the estate and the limited duties which he has to perform. Thus, in Thomas H. Franklin et al., Executors and Trustees, supra, the Board held that*1499 a fee paid to a temporary administrator was for services rendered in producing *606 income from the estate during the taxable year, and hence, was deductible for income tax purposes. Where, as in the Franklin case, the services of a temporary representative are clearly identifiable as income-producing, rather than as preparing the estate for distribution in normal course, then the expenses of such services should be charged against income. But the mere fact of temporary representation of the estate, without more, is of no importance. In several cases the expenses of temporary representatives have been held to be administration expenses. James D. Bronson et al., Trustees,7 B.T.A. 127">7 B.T.A. 127; affd., 32 Fed.(2d) 112; Estate of Caroline R. Rowland,31 B.T.A. 194">31 B.T.A. 194, 196.
With this statement of general principles, we now come to a consideration of the particular deduction first claimed here. The fact of the expenditures in these suits is not disputed. There were four suits here involved in respect of which attorneys' fees were claimed, and some narration here of their scope and purpose may be helpful in an understanding of our opinion, *1500 even at the risk of needlessly repeating matters set out fully in our findings.
(a) Petitioner paid $3,522 in 1935 and $7,068.03 in 1936 as attorneys' fees in two suits, similarly styled as Highland et al. v.Empire National Bank of Clarksburg et al., and in contemporaneous creditors' suits and other proceedings. The first of these suits was decided by the State Supreme Court of Appeals on December 16, 1933, and is reported at 114 W. Va. 473">114 W.Va. 473; 172 S.E. 544">172 S.E. 544; the second was decided on December 21, 1933, and is reported at 114 W. Va. 498">114 W.Va. 498; 172 S.E. 551">172 S.E. 551. While the facts involved in these suits are related in detail in our findings, they are set out sufficiently fully for our purposes here in the state court's opinions, which we shall therefore quote from or summarize.
In the first of these suits the purpose was to achieve the appointment of the petitioner, Cecil Highland, as one of the two voting trustees of the common stock of the Clarksburg Publishing Co., a very large proportion of which the estate owned; and later to enjoin the acts of Sperry, who was appointed voting trustee by his coexecutor, the Empire National Bank. *1501 This suit was successful. The precise point before the state court and the light which its decision throws on our problem justifies quotation from its opinion (pp. 547, 548):
* * * However, an examination of these cases, along with the cases that are presently to be discussed, will disclose that the principle that each of several coexecutors has the power to bind all in so far as the business of the estate is concerned, is confined to functions arising in the ordinary course of administration. Where the act under examination exceeds the powers of a personal representative acting in the ordinary course of administration and is not within the powers that could be exercised by such personal representative by reason of his status as such, but, to the contrary, involves an exercise of judgment and discretion causing it to partake of the nature of the act of a trustee, the courts have almost uniformly held that the power is to be exercised jointly and not severally. * * *
* * *
*607 We believe that it is unmistakably established by the reading of the will of Virgil L. Highland that the powers conferred by him upon his executors far transcended the ordinary powers required*1502 in the administration of an estate. It would serve no real purpose to here specify in detail what they were, but it suffices to say that they were managerial in the highest degree. This will gives the executors the right to carry on the business of testator in all respects "as I could or might do if still living."
As to the specific power of nominating a voting trustee of Clarksburg Publishing Company, we think, too, that that power partakes more of the function of trustee than it does of executors exercising powers essential to the administration of an estate. * * * So that it would be hard to think of a matter further removed from the ordinary duties of executors in the administration of an estate, than the duty to nominate a voting trustee for the Clarksburg Publishing Company.
So much for what can be gathered of the testator's intention as inferred from the duties conferred upon his executors. * * *
In the second suit the purpose was to remove Sperry and the Empire National Bank as coexecutors. The petitioner, Cecil Highland, had many difficulties in administration of the estate with his coexecutors, which it is unnecessary to relate here, but among other things the*1503 coexecutors induced certain creditors of the estate to bring suit, in the defense of which by petitioner further attorneys' fees were paid. In the second case before it the State Supreme Court of Appeals recited the extensive interest of the decedent in the Clarksburg Publishing Co., which published two daily newspapers; and the provisions of decedent's will which directed his "executor and trustee to carry on any business or financial affairs in which I may be interested, individually, or with others, at the time of my death, as fully, and to the same extent, as I could or might do if still living * * *"; and the further direction respecting payments to his widow and children; and the court upheld petitioner's petition to appoint new trustees, stating its conclusion in part as follows (at page 553):
The powers thus conferred being in the nature of a trust, as we have held in the companion case similarly styled, must be exercised jointly. 11 R.C.L. 491.
(b) The third suit in question was brought by petitioner as executor against J. Hornor Davis (*1504 Highland v. Davis (W. Va.), 6 S.E.(2d) 922) and involved the expenditure by petitioner in 1935 of $1,000 and in 1936 of $4,750 in attorneys' fees. In that case the Supreme Court of Appeals of West Virginia reaffirmed its decision in Highland v. Davis,119 W. Va. 501">119 W.Va. 501; 195 S.E. 604">195 S.E. 604, and reversed and remanded the case again to the trial court. The proceeding before the trial court was apparently still pending at the time briefs were filed in the instant tax proceeding. It appears that the purpose of this suit was the cancellation of a sale by Davis in 1935 of a block of *608 common stock of the Clarksburg Publishing Co. Which had been pledged by decedent to secure a note and had been repledged by his executors to secure a balance unpaid at his death. See the second Davis case at page 922. The ground alleged was fraud in the valuation and price paid by Davis for the note and pledged stock, which was bought without notice to petitioner. The appellate court "ascertained that there was no fraud independent of price", and remanded, as already stated, the case to the trial court for determination of this question.
(c) *1505 The petitioner paid out of the income of the estate $300 in 1935 and $303.75 in 1936 as attorneys' fees in the suit of E. A. Bowers against petitioner. Bowers sued for $8,500, but got only about $6,000 as counsels' fees in prosecution for petitioner of the two cases discussed, supra, under (a). The attorneys' fees here involved were incurred by petitioner, therefore, in attempting to reduce the cost of litigation.
(d) One more expenditure for attorneys' fees falls under this heading - petitioner's payment of $251.25 in 1936 in settling for about $10,000 the claim of Lillie Denham against the estate for about $17,000. The suit arose out of certain payments made by decedent as administrator of Denham's estate which it was held should have been paid to the widow. The widow thereupon brought suit.
This concludes this group of deductions. It will be observed that since they differ materially in nature the same rule will not cover each of them.
(a) In the first of the two suits subsumed under this head, the purpose of the suit was to have a voting trustee appointed for certain stock of the Clarksburg Publishing Co., in which the decedent was heavily interested. This was*1506 obviously a matter connected with the carrying on of the business of the estate and not with its liquidation. The Publishing Co. published two daily newspapers, and the terms of decedent's will on this point, fully set out in our findings, obviously contemplate the carrying on of this business by his executors, who were also made testamentary trustees for the purpose. The second suit, we think, falls in the same category. There the petitioner sued to have his coexecutors removed in order to protect and maintain the business enterprises of the estate, including the Publishing Co. The expense of defending creditors' suits arose out of the same difficulties between the executors. We think that in both these cases, as the State Supreme Court of Appeals thought, the questions involved in the suits were the management of the estate's assets as a business, and that the executors-trustees were, therefore, acting with full discretion as trustees rather than as executors. It follows, therefore, under the *609 principles which we laid down at the beginning of this opinion, that attorneys' fees incurred in those suits were incurred in carrying on a business, and are, therefore, deductible*1507 from gross income.
The cases of Higgins v. Commissioner, 111 Fed.(2d) 795; Miller v. Commissioner, 102 Fed.(2d) 476; City Bank Farmers Trust Co., Trustee v. Commissioner, 112 Fed.(2d) 457; and George Vanderbilt Trust,36 B.T.A. 967">36 B.T.A. 967, cited and relied upon by respondent, may easily be distinguished on their facts from the instant proceeding. Here the petitioner was directed by decedent's will to carry on his business and financial affairs, and the evidence shows that petitioner was actively engaged during the taxable years in carrying on the business enterprises in which the estate was interested. Clearly the petitioner was not in the role of a passive investor or mere conservator of property. See Pyne v. United States (Ct. Cls.) 35 Fed.Supp. 81; Marjorie Fleming Lloyd-Smith,40 B.T.A. 214">40 B.T.A. 214.
(b) The suit of Highland v. Davis, brought by petitioner, related also to the stock of the Clarksburg Publishing Co. It was twice brought before the Supreme Court of Appeals for West Virginia, and is still pending, apparently, after reversal and remanding, in that*1508 court. Here the suit had nothing to do with management of the Publishing Co., however, but was solely to set aside a sale of the stock held by the estate which had been pledged and sold under the pledge for a price considerably below what petitioner as an executor claimed to be the fair market value and without prior notice to him of the sale. The purpose of the suit or suits, in other words, would seem to have been to conserve assets of the estate, which is the duty of an executor in the administration and liquidation of the estate. Such a purpose has nothing to do with managerial administration of the estate as a going concern. We think, therefore, that the attorneys' fees so incurred should have been charged to the estate and not to its income, and are not properly deductible from its gross income.
(c) The suit against petitioner brought by one Bowers, who had acted as petitioner's counsel in the two suits covered under (a) above, had as its object the recovery of larger counsels' fees in those cases than petitioner thought reasonable. Do petitioner's attorneys' fees paid in order to reduce attorneys' fees in those two suits, which were instituted to protect business enterprises*1509 forming a part of decedent's testamentary trust, fall into a different category from the fees there involved? Had Bowers' claimed fee been paid, all of it would have been deductible under our holding above. Do fees paid to reduce that fee retain the character of a testamentary trust carrying on business, or are they simply expenses to conserve assets of the estate and as such chargeable against the estate? The question is a close one, but we are of the opinion that these fees are deductible from *610 gross income. The purpose of the litigation and its effect was to conserve the estate's assets, or, put another way, to save the estate a greater expense than was thought necessary, but the estate became involved in the litigation in the first place only because it was trying to manage certain voting stock of the publishing company in order to carry out the trustee's intentions, and not through the process of administering the estate for liquidation or distribution. We think the business character of the primary suits, in other words, affects the character of this suit, and that the latter's cost, therefore, is deductible from gross income.
(d) The cause of action in Denham's*1510 suit arose out of acts done by the decedent in his lifetime. The claim was compromised, and the attorneys' fees were paid in the suit which resulted in this compromise. The claimant's right was against the decedent for his acts as executor of her husband and her claim on decedent's death was, therefore, against his estate. We think that clearly in these circumstances the expense was chargeable against the estate and was not deductible from its gross income in the taxable year.
Petitioner paid $1,160.79 in 1935 and $203.50 in 1936 as miscellaneous expenses such as stenographic work in the two suits already discussed of Highland v.Empire National Bank and Highland v. Davis. In accordance with our holdings above on attorneys' fees in these suits, we allow only such expenses as were incurred in the Empire National Bank suit, which were $674.74 for 1935, none being claimed for 1936. The rest we disallow.
Petitioner paid $1,164.15 in 1935 and $1,274.44 in 1936 as office expenses such as collecting rents, bookkeeping, correspondence, and general supervision of the estate's property. He claims two-thirds of this sum, or $776.10 and $849.62 for the respective years, *1511 as a fair share attributable to the business of the estate. With the estate's large interests there would seem to be no reason why such expenses would not constitute reasonable deductions, and although the respondent does challenge the allocation here made, it is obvious that precise allocation would be impossible, and the allocation made, although a rough approximation, seems on the testimony reasonable. We, therefore, allow the deductions claimed.
Finally, petitioner as executor paid to himself in his private capacity $117.13 in 1936 as reimbursement of certain small expenses incurred in the course of the litigation. No segregation is made of them and they must, therefore, be disallowed.
It may be added that all the disbursements in issue were duly reported by petitioner as executor in 1935 and 1936 to the commissioner of accounts of the state having jurisdiction and were duly confirmed by the commissioner and by the county court. Their payment is not, *611 therefore, questioned, but only the effect in tax law of the purpose for which the suits in question were instituted or defended.
One or two questions raised by the respondent of minor import remain to be disposed*1512 of. We need add nothing to what has already been said in discussing the state court's opinion in petitioner's suit to remove his coexecutors in answer to the respondent's contention that such a suit had no relation to the income of the trust beyond pointing out that a business trust was contemplated by the will to manage decedent's "going concern" property as well as to distribute it in due course to his beneficiaries, and that conservation of the trust's assets was as much the duty of the trustees as producing income. See our discussion of a similar objection in Florence Grandin,16 B.T.A. 515">16 B.T.A. 515, 517. Nor do we think, for reasons already given, that the circumstances involved here are comparable to those in Crowley v. Commissioner, 89 Fed.(2d) 715 (6th Cir.), on which respondent relies. Furthermore, respondent's contention that the suits for the removal of the two other executors and testamentary trustees were brought by the widow and children of decedent for their own benefit, and that petitioner was a party plaintiff merely pro forma and only in his personal capacity, is not borne out by the record. The facts are that petitioner as executor*1513 brought the suits in which the decedent's widow and children were joined with him as parties plaintiff, and as such executor he paid the fees of the attorneys employed in regard thereto. The payment of such fees by him as executor was approved by the state court under whose jurisdiction the estate and testamentary trust were being administered.
Finally, it is suggested by respondent that the deductions claimed from 1935 and 1936 income here had already been claimed and allowed to the executors as deductions from the estate tax. Petitioner does not deny this, but points out that under our decision in Robert J. Kleberg et al., Executors,31 B.T.A. 95">31 B.T.A. 95, that fact is immaterial, if the deductions now claimed would have been otherwise properly deductible from the estate's gross income. The Commissioner acquiesced in our decision in that case, in which we said at page 100:
* * * If an item is properly deductible under some provision of the estate tax law in determining the net estate subject to the tax, and the same item is also deductible under a provision of the income tax law in determining the net income of the estate subject to income tax, that fact does not*1514 militate against the allowance in either levy.
This case is concerned with deductions, as was the Kleberg case, and we know of no authorities to the effect that with regard to deductions the income tax and the estate tax must be read in pari materia.
No facts have been presented here which would support the doctrine of equitable recoupment, nor is that doctrine argued or even referred to by respondent.
*612 Since no equitable ground such as equitable recoupment or the statutory impossibility of correction of the estate tax is shown to exist, we decide this issue in favor of petitioner on the authority of Kleberg's case.
Decision will be entered under Rule 50.