*1014 1. In Commissioner v. Blair, 60 Fed.(2d) 340, the United States Circuit Court of Appeals for the Seventh Circuit reversed the decision of this Board in Edward T. Blair,18 B.T.A. 69">18 B.T.A. 69, a proceeding between the same parties as are involved in the instant proceedings but which involved the redetermination of the petitioner's income tax liability for the year 1923, and held that a certain trust created by the will of the petitioner's father was a spendthrift trust and hence certain assignments made by the petitioner in 1923, of portions of the income to which he was entitled for life under the testamentary trust, were invalid under the law of Illinois and did not operate to relieve the petitioner of tax liability upon the amounts of income covered by the assignments. Subsequent to the decision of the United States Circuit Court of Appeals for the Seventh Circuit, the Appellate Court of Illinois, First District, a court of competent jurisdiction whose decision is binding upon the petitioner and his assignees, held, and pursuant to its holding the court of original jurisdiction of the state decreed, that the trust is not a spendthrift trust and that*1015 all the assignments made by the petitioner are valid. Held that in the instant proceedings, which involve the redetermination of the petitioner's tax liability for the years 1924, 1925, 1926, and 1929, the holding of the Appellate Court of Illinois and the resulting decree of the court of original jurisdiction that the trust in question is not a spendthrift trust and that all the assignments made by the petitioner are valid, are conclusive. Freuler v. Helvering,291 U.S. 35">291 U.S. 35. Held, further, that such assignments operated to transfer to the assignees the petitioner's right to receive income, and hence the petitioner is relieved of liability to pay tax upon the income received by the assignees under the assignments. Edward T. Blair, supra.
2. Held that, in computing the net income of the trust distributable to the petitioner, amounts expended by the trustees as commissions and legal fees in leasing certain properties belonging to the trust are not deductible in their entirety in the years in which expended, but are deductible pro rato over the terms of the leases.
*1193 These are proceedings, duly consolidated for hearing and opinion, for the redetermination of deficiencies in income taxes as follows:
| Docket | Year | |
| No. | involved | Deficiency |
| 42313 | 1924 | $7,642.52 |
| 42313 | 1925 | 10,399.94 |
| 42313 | 1926 | 12,876.36 |
| 63741 | 1929 | 14,533.58 |
In Docket No. 42313 it is alleged that the respondent erred (1) in including in the income of the petitioner in the years 1924, 1925, and 1926 the respective amounts of $30,000, $65,356.89, and $58,434.96, which, it is alleged, were never received by petitioner or credited to him, but were in fact income of the trust estate created under the will of William Blair, father of this petitioner, which income was properly distributed by the trustees of the estate of William Blair to Edith Blair, Edward Seymour Blair, Lucy Blair Linn, and William McCormick Blair; and (2) in increasing the petitioner's income in the amount of $16,856.89 as a result of the disallowance of deductions by the trustees of the estate of Edward T. Blair [William Blair] for commissions and legal expenses paid in connection with two*1017 leases on real estate which constituted a part of the assets of the estate.
In docket No. 63741 it is alleged that the respondent erred (1) in including as additional income of the petitioner from the William Blair trust the sum of $57,000 which was paid in 1929 by the trustees of the trust to children of the petitioner pursuant to assignments to such children of part of the petitioner's interest in the trust estate; (2) in increasing the net income of the William Blair trust and increasing the income of the petitioner as the life beneficiary of such trust in the amount of $14,541.34 on account of the disallowance *1194 of certain deductions claimed as necessary expense in the operation of a certain building belonging to the trust located at 608 South Wabash Avenue, Chicago, Illinois, such expenditures being $5,580 paid as commission on April 30, 1929, to a real estate broker for services in connection with the consummation of a 10-year lease on the premises, and $10,000 paid for expenditures for repairing such building, a total of $15,580, of which the respondent allowed only $1,038.66, being the portion allocable to the eight months of the year 1929 during which the tenant*1018 occupied the premises; and (3) in not allowing the petitioner a deduction of an amount of $762.57, being a part of the sum of $17,619.46 paid out by the trustees in 1925 as commissions to real estate brokers for leases on trust property and legal fees in connection therewith, which amount was claimed by the trustees as a deduction on their return for the year 1925, the respondent holding that the amount should be spread over the period of the lease. This assignment of error is in the alternative; that is, in the event that the respondent's holding that the amount of $17,619.46 should be spread over the period of the lease is sustained by the Board in Docket No. 42313.
These proceedings were submitted upon a stipulation of facts and certain exhibits, all of which we incorporate herein by reference.
FINDINGS OF FACT.
The petitioner is a resident of Chicago, Illinois. His father, William Blair, was also a resident of Chicago, Illinois. The latter died May 10, 1899, leaving a last will and testament, which was duly admitted to probate in the Probate Court of Cook County, Illinois. Such will provided, inter alia, for the transfer of all the deceased's real estate subject*1019 to a life estate of his wife in the homestead, and also al stocks and bonds of the deceased to the deceased's nephew, Chauncy J. Blair, and the deceased's son, Edward Tyler Blair (the petitioner herein) in trust. It was provided that the trustees should keep the property in good condition and pay all charges against it. The trustees were directed to pay the deceased's wife one half of the net income from the trust property as it arose or accrued during her lifetime, and to pay the other half to the petitioner during his lifetime. It was provided that upon the death of the wife of the deceased the petitioner should receive the whole of the net income from the trust property as it arose or accrued during his lifetime. It was further provided that after the death of the petitioner the net income should be paid to the wife of the deceased or to the daughter-in-law of the deceased (wife of the petitioner) or the surviving children, under certain circumstances, until the youngest child of the petitioner reached the age of 21 years, whereupon the trustees were to transfer *1195 the trust property to such children of the petitioner. The will contained the following provision:
*1020 Twenty: I do hereby declare and direct that the income from said trust fund and estate which is herein ordered to be, from time to time as the same shall be received paid to my said wife and to my said son and to his said wife and to their children and descendants of children in the cases aforesaid shall be paid to them directly upon their separate order and receipt therefor, for their sole and separate use respectively, and that the same shall not be nor be made nor held in any manner nor by any proceedings whether in law or equity while yet in the hands of said trustees liable for or subject to the payment of any of the debts or obligations of either of the persons entitled to the same as above herein set forth.
The wife of the deceased died on or about March 13, 1923.
On or about April 2, 1923, the petitioner made, executed, and delivered a certain indenture in which he is the party of the first part and Lucy Blair Linn, his daughter, is the party of the second part. Such indenture provided as follows:
That the said party of the first part, in consideration of love and affection and One Dollar ( $1) in hand paid by the party of the second part, the receipt whereof*1021 is hereby acknowledged, does hereby sell, assign, transfer and set over unto said party of the second part an interest amounting to Six Thousand Dollars ($6,000) for the remainder of the current calendar year, and Nine Thousand Dollars ($9,000) in each calendar year thereafter in the net income which the said party of the first part now is, or may hereafter be, entitled to receive during his life from the Trustees under the Will of William Blair, deceased, late of the said City of Chicago; and the said party of the first part hereby authorizes and empowers said party of the second part, either in her own name or in the name of the said party of the first part, to receive and receipt to the Trustees under the Will of William Blair, deceased, for Six Thousand Dollars ($6,000) for the remainder of the current calendar year and for Nine Thousand Dollars ($9,000) in each year thereafter of the income and moneys which shall at any time become payable to said party of the first part under or by virtue of the terms and provisions of the said Will of William Blair, deceased.
All payments hereunder shall be made in person to said party of the second part and not upon any written or verbal*1022 order nor upon any assignment, nor upon any transfer by operation of law, and shall cease upon the death of either party hereto.
On or about April 2, 1923, the petitioner made, executed, and delivered another indenture, in which he is party of the first part and Edith Blair, his daughter, is the party of the second part. Such indenture is in all material respects identical with the above quoted indenture except that the interest transferred amounted to $9,000 in each and every calendar year.
On or about April 2, 1923, the petitioner made, executed, and delivered a certain indenture in which he is the party of the first part and Edward Seymour Blair, his son, is the party of the second part. Such indenture is identical with that between the petitioner and Edith Blair.
*1196 On September 1, 1924, by an indenture entered into between the petitioner and Lucy Blair Linn, his daughter, the petitioner in consideration of love and affection and one dollar, sold, assigned, transferred, and set over to Lucy Blair Linn "an interest amounting to Two Hundred Fifty Dollars ( $250) in each month in addition to the assignment made under date of April 2, 1923, in the net income which*1023 the said party of the first part, petitioner, now is or may hereafter be, entitled to receive during his life from the Trustees under the Will of William Blair, Deceased." Therein the petitioner empowered Lucy Blair Linn to receive and receipt to the trustees for the money in her own name or in his name. This indenture also provided that payments should cease upon the death of either of the parties thereto.
On December 1, 1925, the petitioner and Lucy Blair Linn entered into another indenture similar in all material respects to the one executed between them on September 1, 1924, whereby the petitioner transferred to her an interest amounting to $500 per month in addition to the assignments already made, in the net income which the petitioner was entitled to receive during his life from the trustees under the will of William Blair, deceased.
By indentures similar in all respects to those entered into between the petitioner and Lucy Blair Linn, the petitioner on each of the dates of September 1, 1924, and May 1, 1925, transferred to Edith Blair, an interest of $250 per month, in addition to the assignments already made, in the net income which the petitioner was entitled to receive*1024 during his life from the trustees under the will of William Blair, deceased.
By indentures, otherwise similar to corresponding indentures referred to just above, the petitioner on September 1, 1924, and January 2, 1925, transferred to Edward Seymour Blair interests in the respective amounts of $250 per month and $500 per month, in addition to the assignments already made, in the net income which he was entitled to receive under the will of William Blair, deceased.
By indentures entered into between the petitioner and William McCormick Blair, his son, under dates of January 2, 1925, and January 2, 1926, which indentures are otherwise similar to the indenture entered into between the petitioner and Lucy Blair Linn on September 2, 1923, the petitioner transferred to William McCormick Blair the respective interests of $4,000 and $2,000 in each calendar year in the net income which petitioner was entitled to receive during his life from the trustees under the will of William Blair, deceased.
The petitioner and his son, William McCormick Blair, were during the years 1923 and 1929, inclusive, and still are, the duly authorized and acting trustees of the trust created by the will*1025 of William Blair.
*1197 On the respective dates of each of the indentures referred to above the petitioner notified the trustees in writing of the assignments contained therein and directed the trustees to make payment directly to the assignees. The trustees accepted such assignments and noted their acceptance on the face of such notices.
During the years 1924, 1925, 1926, and 1929 the trustees of the William Blair trust distributed directly to Lucy Blair Linn, Edith Blair, Edward Seymour Blair, and William McCormick Blair the following amounts out of the income of the William Blair trust:
| 1924 | 1925 | 1926 | 1929 | |
| Lucy Blair Linn | $10,000 | $12,500 | $18,000 | $18,000 |
| Edith Blair | 10,000 | 14,000 | 15,000 | 15,000 |
| Edward Seymour Blair | 10,000 | 18,000 | 18,000 | 18,000 |
| Wm. McCormick Blair | 4,000 | 6,000 | 6,000 |
Lucy Blair Linn, Edith Blair, Edward Seymour Blair, and William McCormick Blair each filed income tax returns for each of such years in which they reported the amounts thus distributed to them by the trustees of the William Blair trust, and each paid to the collector of internal revenue in Chicago the taxes due thereon. Since the ruling of*1026 the respondent referred to hereinafter they have filed claims for the refund of the taxes on such income. No refunds will be made before these cases are finally determined.
The respondent, in auditing the fiduciary returns of the trustees of the William Blair trust and in auditing the returns of Edward T. Blair (petitioner), Lucy Blair Linn, Edith Blair, Edward Seymour Blair, and William McCormick Blair, adjusted such returns to show that all of the net income of such trust was distributed or distributable to the petitioner, and the respondent has ruled that the petitioner should pay an income tax on all of such income and that no tax was due from Lucy Blair Linn, Edith Blair, Edward Seymour Blair, and William McCormick Blair on account of the part of the trust income distributed to them.
On or about March 24, 1933, the trustees of the William Blair trust filed a bill of complaint in the superior Court of Cook County, Illinois, in Chancery, General Number 576471, praying that the court construe the will of William Blair and advise the trustees whether the assignments from the petitioner to Lucy Blair Linn, Edith Blair, Edward Seymour Blair, and William McCormick Blair were valid*1027 and advise the trustees whether they should pay to the assignees part of the net income of the trust estate pursuant to the assignments. The defendants in this proceeding were Lucy Blair Linn, Edith Blair Edward Seymour Blair, William McCormick Blair, and Edward Tyler Blair (petitioner), individually.
*1198 In such bill of complaint it was recited that the Commissioner of Internal Revenue, in auditing the reports of the trustees and the income tax returns of Edward Tyler Blair (petitioner), ruled that all of the income of the trust was distributable to Edward Tyler Blair notwithstanding the assignments and that Edward Tyler Blair should have paid an income tax on the full amount of the income of the trust; that Edward Tyler Blair appealed to the United States Board of Tax Appeals, which reversed the ruling of the Commissioner; that the United States Circuit Court of Appeals for the Seventh Circuit reversed the United States Board of Tax Appeals and held that the interest of Edward Tyler Blair under the will of William Blair could not be assigned in whole or in part by Edward Tyler Blair, since the trust was a spendthrift trust, and therefore all the income of the trust was*1028 distributable to Edward Tyler Blair notwithstanding the assignments; that a writ of certiorari to review such decision of the United States Circuit Court of Appeals for the Seventh Circuit was denied by the supreme Court of the United States; that the trustees were then advised by counsel that the decision of the United States Circuit Court of Appeals raised a serious doubt as to the validity of the assignments and that such trustees might be personally liable if they distributed the income of the trust to persons other than Edward Tyler Blair; that the assignees under the assignments in question contended that neither the trustees nor themselves nor any of them was a party to the proceeding before the United States Circuit Court of Appeals for the Seventh Circuit and that they are not bound by its decision; and that the trustees were informed and believed that if they followed the decision of the United States Circuit Court of Appeals for the Seventh Circuit and refused to distribute to the assignees they would be subjected to a multiplicity of suits by such assignees.
The Superior Court of Cook County held that all the assignments in question were invalid. Thereafter an appeal*1029 was taken to the Appellate Court of Illinois, First District, and the decision of the Superior Court was reversed. In its opinion the Appellate Court stated in part:
As a general proposition, restraints on alienation are looked upon with disfavor by the Illinois courts. ; . * * *
* * *
While our supreme Court has decided that restraints on the rights of creditors will be given effect, and also, that an expressed restraint on alienation will be enforced, in no case has it been held that an implied restraint will be enforced.
* * *
William Blair had complete confidence in the business ability of his son, as he named him as one of the executors and one of the trustees. All the circumstances *1199 indicate that William Blair did not intend to create a spendthrift trust but only to protect the trust property from involuntary transfers.
* * *
The words said to prohibit the assignments are, that the income should be paid to the testator's wife and to his son "directly upon their separate order and receipt therefor, for their sole and separate*1030 uses." There is force in the suggestion that the word "order" means something other than a payment into the hands of the testator's wife and son. The word "order" means a writing "requiring the part to whom it is addressed to deliver property of the person making the order to some one therein described." 3 Bouvier's Law Dictionary, Rawle's Third Revision, 2423. The trustees were required to pay the income to the life beneficiaries without any order from them. That mandate was in the will itself. To pay the income to someone other than a beneficiary would require an order on the trustees signed by the beneficiary. The language of the will implies the very thing that has been done by the assignments.
* * *
If the testator had intended to restrict voluntary alienation by his son, this could have been readily accomplished by the use of a very few words. That he did not use such words is strong evidence that he did not so intend. * * *
For the reasons indicated, we hold that the questioned assignments are valid, and the decree of the lower court is reversed and the cause remanded, with directions to enter a decree consistent with what is said in this opinion.
After the*1031 cause was remanded to the Superior Court of Cook County, such Superior Court entered its decree on March 31, 1934, which provided in part as follows:
FIRST: Paragraph Twenty of the will of William Blair, when properly construed, is not a restraint on the right of said Edward Tyler Blair to voluntarily assign his interest in said trust estate or any part thereof.
SECOND: The assignments by Edward Tyler Blair to Lucy Blair Linn, dated April 2, 1923, September 1, 1924 and December 1, 1925, to Edith Blair dated April 2, 1923, September 1, 1924, May 1, 1925 and December 20, 1925, to Edward Seymour Blair dated April 2, 1923, September 1, 1924, and January 2, 1925, and to William McCormick Blair dated January 2, 1925 and January 2, 1926, are all valid.
In their brief before the Appellate Court of Illinois the assignees, who were the appellants in that court, took the position that the assignments were valid. Before such court the trustees, who were the appellees, took the position that the trust was a spendthrift trust and that the assignments were invalid, relying among other authorities, upon the decision of the United States Circuit Court of Appeals for the Seventh Circuit, heretofore*1032 mentioned, which is .
During the year 1925 the William Blair trust owned five pieces of real estate in or about Chicago, Illinois, including those located at 180 West Randolph Street, 729 South Wabash Avenue, and 608 South Michigan Avenue. The trust still owns these five pieces of real estate in Chicago.
*1200 During the year 1925 the trustees of the trust leased the piece of real estate located at 180 West Randolph Street for a term of 25 years. Incident to the making of this lease they paid $11,640 as a commission to a real estate broker and $200 for legal services.
During the year 1925 the trustees also executed and delivered a lease for a term of 20 years on the property at 729 South Wabash Avenue. Incident to the making of this lease they paid $5,479.46 as a commission to a real estate broker and $300 for legal services.
In the year 1929 the trustees executed and delivered a lease for a period of 10 years on the property at 608 South Michigan Avenue. Incident to the making of such lease they paid $5,580 as a commission to a real estate broker.
Prior to the execution of the lease in 1929, the property*1033 at 608 South Michigan Avenue had been vacant for several months and was in need of extensive repairs. The lessors agreed that in lieu of making repairs on the premises they would allow to the lessee an aggregate amount of $10,000 for repairs, improvements, and additions to the premises on the condition that not less than that amount should be expended, exclusive of trade fixtures and fittings. During 1929 the trustees paid such $10,000 to the contractor employed to do the work. The parties to the instant proceeding have stipulated that $5,000 thereof was for improvements to the building having a probable useful life equal to the term of the 10-year lease and $5,000 was payment for ordinary repairs to the building. They further stipulated that $5,000 thereof is deductible in 1929 and the other $5,000 should be spread over the remaining period of the lease.
The trustees of the William Blair trust charged the commissions and legal fees incurred in connection with the three leases and the $10,000 paid to the contractor for the work at 608 South Michigan Avenue against the income of the trust, so that the net income to be distributed to the petitioner was actually reduced by the*1034 amount of these expenditures.
In the deficiency notice for the year 1929 the respondent sustained the revenue agent in his determination of the amount of income of the trust estate of William Blair. The revenue agent's report contains the following:
On April 30, 1929 a ten year lease was negotiated and a commission of $5,580.00 paid. $10,000 was paid by the Estate to the tenant, Irwin & Company for expenditures made by them for new elevators and other changes required by them. * * * $1,038.66, or 1/10 of $15,580. for 8 months has been allowed in this report.
OPINION.
MCMAHON: The principal question presented is whether the amounts of $30,000, $48,500, $57,000, and $57,000 paid by the trustees of the William Blair trust to the four children of the petitioner in *1201 the respective years 1924, 1925, 1926, and 1929, under the assignments referred to in our findings of fact, constituted taxable income to the petitioner in those years. The respondent held that the full amount of the net income of the trust was taxable to the petitioner in each year, since, under the terms of the will of William Blair, the petitioner's father, the petitioner was entitled to the same*1035 as it arose or accrued. It is the position of the respondent that the assignments do not relieve petitioner of his liability for the tax.
In , we were concerned with the tax liability of the same petitioner as is here involved for the year 1923 and had under consideration the three assignments made by the petitioner on April 2, 1923, to Lucy Blair Linn, Edith Blair, and Edward Seymour Blair. We there held that such assignments were valid and effected conveyances of the petitioner's interest in the trust to the extent indicated in each assignment and that the income accruing to such portion assigned was not taxable to the petitioner.
In ; certiorari denied, , the United States Circuit Court of Appeals for the Seventh Circuit reversed the decision of this Board in , its holding being based upon its conclusion that under the law of Illinois the testamentary trust in question was a spendthrift trust and hence the petitioner could not make a valid assignment of his interest in the income from the trust prior to the*1036 time it was received by him. The Circuit Court there stated in part:
The only question presented for our determination is whether the law will permit the trust income devised to respondent by his father's will to be assigned by him prior to his actual receipt of it. If this question be answered in the affirmative, the ruling of the Board is correct; if it be answered in the negative, respondent is properly chargeable with the taxes assessed, and the cause must be reversed.
[1] The citizenship of respondent and testator, the location of the trust property, and the creation and administration of the trust all being in Illinois, we are required to be guided by the laws of that state in determining the question presented. .
* * *
* * * however, we are concerned only with the law as the Illinois courts have interpreted it, and whether that interpretation be right or wrong is beside the question. [Emphasis supplied.]
At the time the Circuit Court of Appeals rendered its opinion quoted above the courts of Illinois had not, so far as we know, construed the will of the petitioner's*1037 father or passed upon the validity of the particular assignments in question. However, subsequent thereto, the Appellate Court of Illinois, First District, held that the testamentary trust was not a spendthrift trust and further held that all the assignments made by the petitioner were valid.
*1202 A somewhat similar situation was presented in , decided by the United States Circuit Court of Appeals for the Eighth Circuit. There the question presented was whether amounts retained by trustees from the gross receipts of a trust estate for the years 1924, 1925, 1926, and 1928 to maintain a reserve for depreciation of trust assets and to offset the undepreciated cost of obsolete buildings constituted distributable and taxable income to the beneficiaries of the trust. That court, in a prior proceeding, involving the same question and taxpayer for the years 1922 and 1923, had held that the trust instrument did not require or provide for such depreciation and obsolescence charges and that the amounts set aside therefor were distributable and taxable to the beneficiaries. *1038 , affirming ; certiorari denied, . However, after such prior decision of the Circuit Court of Appeals for the Eighth Circuit, a court of competent original jurisdiction of the State of Iowa, the District Court of Polk County, announced a contrary construction of the trust, and thereafter the Eighth Circuit held that despite its own prior decision it was required, under the decision of the Supreme Court in Freuler v. Helvering, infra, to follow the holding of the state court. The Circuit Court of Appeals for the Eighth Circuit stated in part:
If it were open to us in this case to construe this trust agreement, we would see no reason to change the views and conclusions stated in the earlier case. Petitioner contends that we have no such freedom, but are bound to accept a contrary construction announced by the District Court of the state of lowa in and for Polk County, entered July 10, 1931 (since our opinion in the above case). We think this contention ruled in favor of petitioner by the above case of John Freuler, Adm., v. Guy T. Helvering,*1039 Commissioner, decided by the Supreme Court, since submission of this case. In respondent's brief in this case is the statement: "This identical question is now before the Supreme Court in John Freuler, Administrator of the Estate of Louise P. V. Whitcome, v. Guy T. Helvering, * * *" We are not able to distinguish the two cases.
In , the Circuit Court of Appeals for the Eighth Circuit reversed the decision of the Board in , upon this very issue. The Board's decision was based upon the case of , which was reversed by the Supreme Court in Freuler v. Helvering, infra, prior to this decision of the Circuit Court of Appeals for the Eighth Circuit.
In , the Supreme Court held that, in determining the amount of the income taxable to beneficiaries of a trust under the provisions of section 219 of the Revenue Act of 1921, the decision of a court of the State of California having jurisdiction of the trust in an action brought by the trustee for approval of his account*1040 is binding. While the Supreme Court held that the holding of the California court constituted an "order governing the *1203 distribution" of the income within the meaning of section 219 of the Revenue Act of 1921, it also held that it constituted an adjudication of the property rights of the beneficiaries which must be considered in determining the Federal income tax liability of the beneficiaries. The Supreme Court stated in part:
Moreover, the decision of that court, until reversed or overruled, establishes the law of California respecting distribution of the trust estate. It is none the less a declaration of the law of the state because not based on a statute, or earlier decisions. The rights of the beneficiaries are property rights and the court has adjudicated them. What the law as announced by that court adjudges distributable is, we think, to be so considered in applying section 219 of the Revenue Act of 1921.
It is well settled that the decision of a state court of competent jurisdiction upon property rights, as between the parties to the proceeding in the state court, is conclusive upon the Federal courts until it is reversed or overruled, *1041 ;; ; and , affirming , and in accordance with the above authorities, which are here closely in point, we hold that the decree of the Superior Court of Cook County, Illinois, entered pursuant to the decision of the Appellate Court of Illinois, First District, adjudicating that the testamentary trust in question herein is not a spendthrift trust and that the assignments in question are valid, is binding upon us.
As in the case of , there is no showing in the instant proceeding that the proceedings in the state courts were collusive or that the decision or decree of the state courts was entered by consent.
Our holding is not inconsistent with the holding of the Seventh Circuit in , for the reason, as stated above, that the situation is different here, there having been a subsequent decision of the Appellate court of Illinois construing*1042 the subject matter involved.
Our attention has been called to the following provision of the statutes of Illinois:
Opinions. Sec. 17. All opinions or decisions of said court [Appellate Court] upon the final hearing of any cause, shall be reduced to writing by the court, briefly giving therein the reasons for such opinion or decision, and be filed in the cause in which rendered: Provided, that such opinion shall not be of binding authority in any cause or proceeding, other than in that in which they may be filed. (Cahill's Revised Statutes of Illinois, 1933, Ch. 37, P49.) [Emphasis supplied.]
As we interpret this statute it means that any opinion or decision of an Appellate Court of Illinois shall not be binding as a precedent in any other proceeding, but it does not mean that it shall not be binding upon the parties to the particular proceeding. It expressly *1204 contemplates that such opinion or decision shall be binding on such parties. See ; *1043 , decided February 15, 1926. This Illinois statute has been in effect since as early as 1885.
In passing, we observe that, under the decision of the Illinois Appellate Court and resultant decree of the Superior Court, the petitioner can never recover the amounts paid under the assignment in question and the trustees must continue to pay the assignees; and, as will be hereinafter pointed out, the amounts paid were never income to the petitioner.
We have not overlooked the decision of the District Court for the Eastern District of Illinois in , wherein it was stated by way of dictum that since the statutes of Illinois provide that the decisions of the Appellate Court shall not be accepted as binding precedents they can not be accepted by the Federal courts as determinative of the law of the state. , grew out of a bankruptcy proceeding and it was properly held by the United States District Court that the decision of an Appellate Court of Illinois with respect to the sale of some of the assets of the bankrupt was not binding upon the bankruptcy court, since the trustee*1044 in bankruptcy was not a party to that proceeding. , was affirmed by the United States Circuit Court of Appeals for the Seventh Circuit in , and such was the reason given by the Circuit Court for holding that the Illinois Appellate Court decision did not affect the determination of the bankruptcy court. The Circuit Court pointed out that the bankruptcy court had jurisdiction to pass on the question decided by the Appellate Court. It may be added that the Board's jurisdiction is limited here to redetermining the correct deficiency in tax and does not embrace the authority to try or decide upon the title to property. This case is clearly distinguishable from the instant proceedings.
We turn then to a consideration of the question of whether the petitioner, by the assignments in question, assigned future income or a present interest in property. This question was not passed upon by the Seventh Circuit in The court there specifically stated:
Inasmuch as we hold that respondent had no power to alienate the property in controversy, it becomes*1045 unnecessary to decide whether the income attempted to be alienated is future income or a present interest in property.
In , we held that the petitioner, by virtue of the three original assignments involved herein, assigned portions of his trust estate and held that the petitioner was not taxable upon the income accruing thereafter to the assignees. The remainder of the assignments involved in the instant proceedings are either merely *1205 supplemental to or substantially the same as those three. The Board has thus passed upon this very phase of the question involved in the instant proceedings and we adhere to our holding therein that the assignments relieved the petitioner of tax liability upon the income accruing to the assignees under all of the assignments. As pointed out the Circuit Court of Appeals for the Seventh Circuit in , did not pass upon or reverse the Board on this phase of the question which was involved in ; it expressly left it open. The instant proceedings, in so far as this phase of our question is concerned, are quite similar*1046 to , followed by the Board in , and affirmed by the United States Circuit Court of Appeals for the Second Circuit in The following cases, involving circumstances more or less similar, also sustain our conclusion herein in this respect. ; petition to review dismissed by the United States Circuit Court of Appeals for the Sixth Circuit on October 6, 1931; ; ; certiorari denied, ; ; ; certiorari denied, ; and ; certiorari denied, .
It is contended by the petitioner that the respondent erred in computing the 1925 income of the trust distributable to the petitioner in not allowing to the trust a deduction in the amount of $17,619.46, being*1047 the total of the amounts paid in 1925 as commissions and legal fees in leasing certain properties belonging to the trust. It is alleged in the petition that the respondent allowed only $762.57 of this as a deduction in the year 1925. This action of the respondent was correct. It is well settled that such expenditures are capital expenditures, which are not deductible in their entirety in the year in which paid out but are deductible pro rata over the term of the lease. ; petition to review dismissed by the ; 950 ; ; affd., ; certiorari denied, ; and ; affd., ; certiorari denied, . The petitioner does not allege that the respondent failed to allow the proper deduction in this respect in the year 1926. The respondent's determination in these respects as*1048 to the years 1925 and 1926 is approved. The petitioner does allege, however, that the respondent erred in failing to allow as a deduction from the amount distributable to him in 1929 from the trust an amount of $762.57, being a part of the sum of $17,619.46 paid out *1206 by the trustees in 1925 as commissions and legal fees incident to the execution of the leases. From the record we can not determine that the respondent did not allow a proper deduction as to this in 1929. However, if such a proper deduction has not been allowed, adjustment will be made under Rule 50.
In computing the net income distributable to the petitioner from the trust in 1929 the respondent allowed as a deduction only a pro rata portion of the amount of $5,580 which was paid in that year as commissions to a real estate broker for the execution of a lease on property belonging to the trust. This the petitioner alleges was error. However, for the reason stated above, we sustain this holding of the respondent.
The parties have stipulated that of the amount of $10,000 paid by the trustees in 1929 upon the property at 608 South Michigan Avenue, the amount of $5,000 was for improvements to the building*1049 having a probable useful life equal to the term of the 10-year lease, that such amount should be spread over the remaining period of the lease, and that the remaining $5,000 was payment for ordinary repairs to the building, which amount is deductible in 1929. Adjustment will be made accordingly under Rule 50.
Reviewed by the Board.
Decision will be entered under Rule 50.
SEAWELL dissents.