*1541 An organization created in the form of a trust to hold and operate property for convenience in the management thereof held to be an association taxable as a corporation.
*1114 These proceedings, which were duly consolidated for hearing, are for a redetermination of deficiencies in income taxes for the year 1924 in the amount of $3,854.80, for the year 1925 in the amount of $784.91, and for the year 1926 in the amount of $769.30.
The only assignment of error is that the respondent held that the Fiske & Hammond Trust, of which the petitioners are trustees, was an association taxable as a corporation and not a trust.
FINDINGS OF FACT.
The petitioners are the trustees of the Fiske & Hammond Trust under deed of trust dated January 30, 1920.
Prior to the creation of the trust the petitioner, Esther Fiske Hammond, and her brother, George S. Fiske, owned in common or through *1115 trustees for their joint benefit three parcels of land and the buildings thereon in the city of Boston, Mass. One of these buildings was known as*1542 the Fiske Building, situated at 89 State Street; one was known as the Fiske Building Annex, at 99 State Street; and the other as the Corner Building, at 41-45 Essex Street and 1-3 Harrison Avenue. Esther Fiske Hammond also owned a building at 9 Harrison Avenue.
The legal advisors of Esther Fiske Hammond and her brother were the firm of Dunbar, Nutter & McClellan. They were also in charge of renting the properties above referred to. Upon the advice of this firm a declaration of trust was executed on January 30, 1920, by which the petitioners declared themselves trustees of the four premises above described for the benefit of Esther Fiske Hammond and her brother. The trust was to continue for twenty years after certain lives in being. The trustees were to issue 10,000 shares which were transferable. The declaration of trust provided in the fourth and fifth paragraphs as follows:
FOURTH: The shares under this trust shall be personal property entitling the holders thereof to a division of profits and to an ultimate interest in the division of the proceeds of said property according to the terms of this instrument. Said shareholders shall have no other interest in the trust*1543 property itself, whether real or personal, and no right to call for any partition thereof or to exercise any control thereover. The death of any shareholder during the continuance of this trust shall not terminate the trust.
FIFTH: The shareholders shall be trust beneficiaries only without partnership, associate, or any other relationship whatever inter sese.
In paragraph eight the powers of the trustees were set forth. These powers were, in brief, as follows:
1. To receive and collect all interest, rentals, dividends, and other income of the property held by them.
2. To incur liability and expenses and pay for the management and care of the property.
3. To lease from time to time on such terms as they saw fit, all or any part of the real estate.
4. To exchange, sell and convey all or any part of the trust property upon such terms as they saw fit.
5. To buy and pay for from trust property in their hands, or with money raised, any property, real or personal, wherever situated, including shares in the trust.
6. To borrow money to improve any part of the trust estate, or purchase property and to mortgage and pledge any of the trust property.
7. To*1544 make dividends from time to time from the income of the trust property held by them at such dates as they should think fit, reserving such part of the income as they deemed proper, and to make division of or dividends from the principal, whenever they should think fit.
*1116 They were also given general powers as to management of the estate, the appointment of agents, bringing suits, etc. They had the power to terminate the trust at any time in their discretion.
Section 10 of the trust instrument provided that upon there bring a vacancy in the office of trustee one J. Butler Studler was to become trustee and that as to any succeeding vacancies the surviving trustees should appoint a successor, with the assent in writing of the holders of a majority or all of the shares.
Deeds conveying the properties to the trustees were executed on February 25 and 26, and March 10, 1920, and were duly recorded on March 19, 1920.
The shares were issued as follows:
| Esther Fiske Hammond | 2,054 |
| Esther Fiske Hammond (separate certificate) | 600 |
| William H. Dunbar and Esther F. Hammond, Trustees for George S. Fiske under declaration of trust dated July 6, 1903 | 4,400 |
| George S. Fiske personally | 676 |
*1545 These were the only shares ever issued. In later years George S. Fiske purchased some of the shares from Esther Fiske Hammond.
At the time of the creation of the Trust the Fiske Building and Annex were under the management of the real estate firm of T. Dennie Boardman. These agents were instructed to sell the property if possible and had charge of renting it and making minor repairs. The gross rental, less amount spent by the agents for repairs, was paid to the owners of the property through the attorneys' office. The property was under lease at the time of the execution of the trust. After its execution Boardman's office continued to collect the rents and turn them over to the trustees. The trustees paid insurance on the properties. On April 7, 1920, the property was sold by the trustees and these agents to one Dexter Boles. Twenty-five thousand dollars in cash was paid upon the execution of the contract and $125,000 was paid on July 3, 1920, and a mortgage of $500,000 assumed. The trustees distributed the cash received to the shareholders immediately. Interest and payments on the mortgage notes were paid when due to the trustees, the total amount due being paid on*1546 or before November 4, 1924. Distribution of these amounts was made to the shareholders quarterly.
The premises at 9 Harrison Avenue and a portion of the Corner Building were under lease to the Holland Syndicate, Inc. The lease was dated June 1, 1919, and ran for a period of eight years and seven months. The remaining portion of the Corner Building was leased to Maurice J. Hamilburg under a lease dated May 6, 1919, which was to run for eight years and seven months. Under the terms of *1117 these leases the lessees were to make repairs and to furnish their own heat and janitor service. During the taxable years 1924, 1925 and 1926 the trustees made expenditures in an inconsiderable amount for repairs and did not furnish any heat or janitor service to the tenants. The trustees' only duties during these years in connection with these properties were the collection of rentals and the payment of taxes and insurance on the properties.
Aside from these four properties conveyed to the trustees in 1920, the only other investment made by them was $2,000 in U.S. Certificates of Indebtedness, made in February, 1921.
Ida G. Reynolds, who was employed by the firm of Dunbar, Nutter*1547 & McClellan as cashier and bookkeeper, attended to the collection of the rentals for the trustees and kept the accounts for the trust. She also made out the income-tax returns for the trust.
The returns for the Fiske & Hammond Trust from the time of its creation were made out on fiduciary forms. On April 14, 1923, the collector of internal revenue for the district of Massachusetts wrote the following letter to the petitioners:
SIRS:
Re: Fiske & Hammond Trust.
Reference is made to the question of liability for capital stock tax of the above-named organization.
You are informed that under date of April 10, 1923 this office received a ruling from the Commissioner to the effect that the Fiske & Hammond Trust is not an association within the meaning of the Revenue Act, and is consequently not liable for capital stock tax nor for the filing of capital stock tax returns.
This office desires to express its appreciation of your cooperation in adjusting the matter on the records here.
Respectfully,
[Signed] M. E. NICHOLS,
Collector.
OPINION.
MATTHEWS: The sole question presented for our consideration is whether the Fiske & Hammond Trust is a trust or an*1548 association taxable as a corporation. The years involved are 1924, 1925 and 1926. Since there is no evidence as to when the return for 1924 was filed, we need not consider the provisions of section 704(a) of the Revenue Act of 1928, and it is clear that we are not concerned with the provisions of section 704(b) thereof.
There have been numerous cases decided by this Board and the courts upon the question here involved in which the general principles have been discussed at length. As we pointed out in the case of Morriss Realty Co.,23 B.T.A. 1076, there are three tests: (1) business purpose; (2) business operations; and (3) quasi-corporate *1118 structure. The Supreme Court of the United States in the case of Hecht v. Malley,265 U.S. 114, emphasized the test of business purpose and operation rather than that of structure; that is, the control or lack of control exercised by the beneficiaries. One of the organizations in that case, the Hecht Real Estate Trust, was established by the members of the Hecht family upon real estate in Boston, used for offices and business purposes, which they owned as tenants in common. The shares thereof*1549 were transferable. The court, in holding that the organizations involved therein were associations, said:
The trustees of the Hecht and Haymarket Trusts earnestly rely, however, upon the decision in Crocker v. Malley, supra, as conclusively determining that they cannot be held to be "associations" unless the trust agreements vest the shareholders with such control over the trustees as to constitute them more than strict trusts within the Massachusetts rule. * * *
* * *
It results that Crocker v. Malley is not an authority for the broad proposition that under an Act imposing an excise tax upon the privilege of carrying on a business, a Massachusetts Trust engaged in the carrying on of business in a quasi-corporate form, in which the trustees have similar or greater powers than the directors in a corporation, is not an "association" within the meaning of its provisions.
We conclude, therefore, that when the nature of the three trusts here involved is considered, as the petitioners are not merely trustees for collecting funds and paying them over, but are associated together in much the same manner as the directors in a corporation for the purpose of carrying*1550 on business enterprises, the trusts are to be deemed associations within the meaning of the Act of 1918; this being true independently of the large measure of control exercised by the beneficiaries in the Hecht and Haymarket Cases, which much exceeds that exercised by the beneficiaries under the Wachusett Trust. We do not believe that it was intended that organizations of this character - described as "associations" by the Massachusetts statutes, and subject to duties and liabilities as such - should be exempt from the excise tax on the privilege of carrying on their business merely because such a slight measure of control may be vested in the beneficiaries that they might be deemed strict trusts within the rule established by the Massachusetts courts.
[5] That the Crocker Association is engaged in carrying on business within the meaning of the Act, is obvious. And so of the Hecht and Haymarket Trusts. A corporation owning and renting an office building is engaged in business within the meaning of an excise statute. Flint v. Stone-Tracy Co., supra, page 171 (31 Sup.Ct. 342); Zonne v. Western Syndicate, supra, at page 190 (31 Sup.Ct. 361.)
We do not see any*1551 distinction between the Fiske & Hammond Trust and the trust involved in the Hecht case. In the instant proceeding the property, with the exception of the building at 9 Harrison Avenue which was owned by Mrs. Hammond, was held by Mrs. Hammond and her brother, or by trustees in their behalf, as tenants in common. The building that was not owned by the parties as tenants in common was rented to the same tenant as one of the other *1119 buildings. For convenience in the management of this property and in order to unify the title, the property was conveyed to trustees. The trustees were given very broad powers to purchase additional property, etc., although, as a matter of fact, their activities during the taxable years were confined to the collection of rentals, payment of taxes and insurance, collection of amounts due on the mortgage notes, the recording of receipts and disbursements, and the distribution to the beneficiaries. The leases on the properties had been entered into prior to the taxable years; in fact, prior to the execution of the trust agreement, and did not expire until 1928. The tenants made repairs under the leases and furnished their own heat and janitor*1552 service. Two of the buildings were sold soon after the execution of the trust and the only duties of the trustees in connection therewith were the collection of interest and payments due on the deferred purchase money notes. The only control exercised by the beneficiaries was the right to select a trustee in case of a vacancy, and the right to assent to any change in the trust instrument.
It is true that in some of the decided cases, organizations, the activities of which were similar to those of the Fiske & Hammond Trust, have been held to be trusts and not associations. However, a study of those cases shows that they involved situations where the trust was created primarily for the liquidation of property, some by an ancestor for his heirs, and some by heirs themselves. In the case of C. W. Cowell Co.,21 B.T.A. 1274, we said:
In Wilson Trust,20 B.T.A. 549, we endeavored to point out the distinction between a trust such as is created when an ancestor conveys property to trustees for the equitable benefit of designated beneficiaries and such a trust as the Hecht Real Estate Trust described in *1553 Hecht v. Malley, supra, and the trust described in the instant case, where persons who own property as tenants in common associate themselves together for their own convenience and profit for the purpose of holding title to property, collecting rents thereon, preserving the property, selling certain of the assets and reinvesting the proceeds, distributing the income and ultimately disposing of and distributing the property. In endeavoring to point out this distinction we quoted from Blair v. Wilson Syndicate Trust, 39 Fed.(2d) 43, wherein the court said:
* * * A distinction is to be made between an agreement between individuals in the form of a trust and an express trust created by an ancestor, although they may have some features in common. The controlling distinction is that one is a voluntary association of individuals for convenience and profit, the other a method of equitably distributing a legacy of donation. Congress has recognized this distinction, classing the former as associations, to be taxed as corporations, and at the same time providing for a separate and distinct method of taxing the income of estates and trusts created*1554 by will or deed, classing them together for that purpose. Section 219, Revenue Act of 1921 (42 Stat. 246).
We do not think the trust involved in the instant case can be classed as one falling within the classification involved in the Wilson Syndicate Trust, supra,*1120 and Wilson Trust, supra, but is rather one where persons, members of the same family, owning property as tenants in common, have associated themselves together, under the designation of "C. W. Cowell Company," for purposes of convenience and profit, and although under the laws of Colorado such an association is classed as a partnership, it is, under the Revenue Act of 1924, an association taxable as a corporation.
And in Wilson Trust, supra, we said:
It will be conceded that if the beneficiaries of the Wilson Trust, petitioner in this proceeding, had been the owners of the several tracts of real estate conveyed to the trustees and had organized themselves together in such a voluntary association for the purpose of renting and leasing the property, collecting and disbursing the rents, keeping up the improvements, selling some tracts and buying others, *1555 paying the expenses and distributing the profits, it would be an association carrying on a business and would be taxable as a corporation, regardless of the form of its organization or whether it was recognized as a partnership or trust in some States. Lansdowne Realty Trust,20 B.T.A. 119; Hecht v. Malley,265 U.S. 144; Burke-Waggoner Oil Association v. Hopkins,269 U.S. 110. But where the facts show, as they do in this case, that the beneficiaries, save the grantor Walter H. Wilson, had no legal or equitable title to the property conveyed to the trustees, but were only the beneficiaries of an interest which their father was setting up in their behalf as a gift, and that the trust was created to hold and administer this interest, we think a different rule would apply. * * *
We do not believe that the recent cases of Commissioner v. Atherton, 50 Fed.(2d) 740; Lansdowne Realty Trust Co. v. Commissioner, 50 Fed.(2d) 56; and Gardiner v. United States, 49 Fed.(2d) 992, are controlling in this proceeding. In the Atherton case the trust was created for the sole*1556 purpose of selling property owned by a public utility corporation. The market for such real estate was not in a good condition at that time, but the property was sold by the trustees as rapidly as possible. In the Lansdowne case the trust was created to succeed another trust. The property was conveyed to the trust "in trust to convert the same into money," and to manage it, "pending final conversion and distribution of the property." The other provisions of the trust instrument were very similar to the one in this proceeding and the activities of the trustees were practically the same. In the Gardiner case the trust was created under a decree of a probate court in order to wind up an estate. In both of these latter cases the court, in holding the organizations to be trusts, emphasized the fact that the trustees were merely collecting the rents and paying them over and were not engaged in business. Such is the situation here, but we have this difference, that the Fiske & Hammond Trust was created to hold property in a common title for convenience and not primarily for liquidation. The trustees had the power to sell but it does not appear that this was the primary purpose*1557 of its creation; thus, the situation is similar to that in the Cowell case, supra.
*1121 We are, therefore, of the opinion that the Fiske & Hammond Trust is an association taxable as a corporation.
The fact that the respondent for purposes of the capital-stock tax held that this organization was not an association is not material. The letter so holding was written on April 14, 1923, prior to the time the return for 1924 was due, and the regulations of the Commissioner in force at that time were later changed. Moreover, we have held that the Commissioner may change his position on a question of law and make a redetermination of the amount of tax due at any time prior to the expiration of the statutory period of limitations. See Frances P. McIllhenny et al., Executors,13 B.T.A. 288, affd., 39 Fed.(2d) 365; Stein-Bloch Co.,23 B.T.A. 1161.
Reviewed by the Board.
Judgment will be entered for the respondent.
TRAMMELL dissents.