*4030 Certain expenditures made by the executors of an estate during the taxable year allowed as a deduction from gross income of the estate as ordinary and necessary expenses.
*840 This is a proceeding for the redetermination of a deficiency in income tax for the calendar year 1921 in the amount of $4,095.92. It is alleged that the Commissioner erred in disallowing from gross income certain claimed deductions which are set forth in the findings of fact.
FINDINGS OF FACT.
The case was submitted upon a stipulation of facts, substantially as follows:
(1) The taxpayer is the Estate of Isaac N. Seligman, deceased, who died September 30, 1917, and filed a return for the calendar year 1921. In 1921 the Estate was still in process of administration under the will of the decedent, but all debts, legacies and other liabilities of the Estate had been paid prior to 1921 except the Federal Estate Tax, the New York Transfer Tax and income taxes for prior years which had not yet been finally audited and determined.
(2) The property of the Estate during the*4031 year 1921 consisted of corporate stocks and bonds, a few outstanding notes and claims, a country estate at Tarrytown-on-Hudson, New York, known as "Willowbrook" and a residence at Pensacola, Florida, known as "Harbourview", all of which property constituted *841 the residuary estate under the will. The principal activities of the Executors in 1921 consisted of the collection of income from said stocks and bonds, changing the investments thereof by sale and purchase under powers given to them by the will, the adjustment of the various tax liabilities of the Estate, and the care of, and attempts by advertising to either rent or sell, "Willowbrook." No trade or business other than the above activities was conducted by the Executors.
(3) The gross taxable income of the Estate for the year 1921 was derived from -
| (a) Interest on bank deposits, notes, mortgages and corporation bonds in the amount of | $29,806.12 |
| (b) Profits from sale of stocks, bonds, etc., in the amount of | 8,214.29 |
| (c) Dividends on stocks of domestic corporations in the amount of | 22,283.00 |
| (d) Dividends on stocks of foreign corporations in the amount of | 202.09 |
| Making the total amount of | 60,505.50 |
*4032 The deductions allowed from said income by the Commissioner were as follows:
| (a) Taxes paid | $2,183.95 |
| (b) Bad debts | 3,046.62 |
| (c) Interest paid | 792.80 |
| Total | 6,023.37 |
The net income as determined by the Commissioner was $54,482.13.
(4) The Commissioner has disallowed as deductions the following payments made by the Estate during said year and claimed as deductions from taxable income:
| (a) Annual salary of caretakers at Willowbrook | $1,200.00 |
| (b) Annual salaries of two workmen caring for grounds at Willowbrook at $24 per week each | 2,496.00 |
| (c) Services of superintendent for said workmen | 187.50 |
| (d) Cost of advertising Willowbrook for lease or sale | 1,431.14 |
Willowbrook is twenty-three acres in extent and was the country residence of the decedent during his life but has not been occupied by decedent's family since his death. It passed on decedent's death to his Executors as a part of the decedent's residuary Estate. No income was received by the Estate from "Willowbrook" during 1921 but it was leased on March 8, 1922, for a term of three years at an annual rental of $6,000 per year which lease was obtained as a result of the advertising*4033 above mentioned.
(5) The Commissioner has also disallowed as deductions the following payments made by the Estate during said year and claimed as deductions from taxable income:
| (a) Annual salary of Stanley G. Ranger as "agent" for the Estate | $2,400 |
| (b) One-half of a payment to Seligman & Seligman as Attorneys for the Estate for general services during the year of $10,000 apportioned by the Executors to services in connection with income | 5,000 |
The services of said Stanley G. Ranger consisted of checking and paying current bills, including taxes on Willowbrook and Harbourview properties, and attending to employment of labor at Willowbrook, seeing that necessary *842 current repairs were made and insurance maintained on buildings. He performed no services during 1921 in any way connected with the payment of debts or legacies of the decedent or the sale or liquidation of assets of the Estate.
The general nature of the services performed by Seligman & Seligman as attorneys for the Estate for which they were paid an annual fee of $10,000 in 1921 consisted of the following:
Checking of monthly income statements received from banks; collection and depositing*4034 of numerous items of income; making out of Federal and State income tax returns of the income of the estate; attending to payment of an annuity given by the will; payments to life beneficiaries on account of income and conferences and computations with respect to amounts to be paid; payment of annual premiums and loan interest on policies held by the estate as collateral security; various conferences with the executors as to the above matters and conferences as to the leasing of Willowbrook with the executors and with real estate brokers and prospective tenants; attending to audits of Federal and State income tax returns made by the Estate for prior years, and furnishing information with respect thereto; examination of New York Tax records for personal assessment for 1921 against executors; attending to reinvestment of moneys of the Estate so as to produce income.
Collection and attempts to collect various notes and claims due to the estate. Sales and exchanges of securities of the estate. Conferences and examination of law as to Estate Tax liability of the estate. Preparation and attending to execution of deeds clearing title to Harbourview property. Conferences re claim of*4035 David W. Seligman of Paris against decedent. Conferences, examination of law and agreements re settlement of Seligman Freres, Paris. Computation of estimated New York Transfer Tax on the estate and making Temporary payment to avoid penalty. Conferences with brokers, executors and prospective purchasers re sale of Willowbrook property.
No deduction has been claimed for executors' commissions on either principal or income.
The value of the net estate of Isaac N. Seligman, as of the date of his death on September 30, 1917, was appraised on final audit for Federal Estate Tax purposes to be $2,829,537.45, and during the year 1921, approximately $1,320,000.00 of said estate was invested in Federal and State bonds from which $43,270.24, nontaxable interest was received during 1921.
By the decedent's will, a copy of which was attached to the stipulation of facts, a relatively small portion of the estate was disposed of outright. Far the greater portion was given to the executors in trust during the lifetime of the testator's wife, his daughter, and one other named beneficiary. The executors were given the power to sell or lease any part of the estate and to change investments*4036 in their discretion in order to carry out the purposes of the will and the same persons were appointed both executors and trustees.
OPINION.
MURDOCK: The respondent has made no argument nor has he filed a brief outlining his position but judging from the answer and the deficiency notice he has evidently denied the deductions claimed by *843 the petitioner on the ground that they did not represent ordinary operating expenses but were expenditures from the corpus of the estate necessary only for its preservation and administration and, therefore, were not in his opinion deductible from yearly income.
We had occasion to consider somewhat similar expenses in the case of , and the opinion in that case reads in part as follows:
We agree with the respondent that ordinarily executor's fees and commissions should be applied against the gross estate in determining the net estate * * *. A distinction, however, should be drawn between administration expenses paid or incurred in settling up an estate and those expenses paid or incurred in preserving the estate over a period of years, making sales, collections and*4037 doing other things which were necessary in maintaining the properties and producing income * * *.
In our opinion expenses which were necessary to be paid out over a number of years in preserving the estate, selling the property and collecting interest or deferred payments on sales, are deductible from the gross income of the estate. Such expenses come under the classification of ordinary and necessary expenses in carrying on a trade or business.
The decedent's estate was a large one, consisting of assets worth more than $2,000,000, and from the provisions of his will it is apparent that its distribution could normally not be accomplished in a short period. Indeed it is seen from the findings of fact that the estate was still in process of administration four years after the testator's death. During such period the executors, of necessity, took certain steps to preserve the assets, maintain the properties and attempt to produce income therefrom.
The services performed by caretakers, workmen and the superintendent during the taxable year were undoubtedly for the purpose of preserving the property and not for settling up the estate. The property itself was part of the residuary*4038 estate which could be sold by the executors in the exercise of their discretion, or could be preserved as income-bearing property and held by the trustees with other property of the decedent in the exercise of the duties of the trust. Its preservation from year to year for use as either income-bearing property or for sale and conversion to some other type of property bearing income extended over a long period of time, while the estate was still in the process of administration and constituted a trade or business of the estate, the annual expenses of which are deductible.
The amount paid during the year as advertising costs of the Willowbrook property should also be considered as an expense deductible from gross income. Possibly the executors might have done nothing with this property except turn it over to themselves as trustees when the administration was completed, but instead they chose to attempt to convert it into income-bearing property or to realize an income from it as it existed, and to accomplish either of *844 these purposes incurred the advertising costs in question. Furthermore more it was shown that in the following year a 3-year lease carrying an annual*4039 rental of $6,000 was obtained as a result of this advertising.
The attorneys for the estate were paid an unitemized fee of $10,000 during the year 1921, of which amount the petitioner claims $5,000 should be allowed as a deduction from gross income. The parties have agreed upon the services performed by the attorneys during the year, as incorporated in the stipulation of facts. From a careful consideration of the nature of the services rendered we are of the opinion that the allocation of $5,000 from the total sum paid is reasonable for those services performed in connection with the preservation and management of the estate, as distinguished from those performed purely for administrative purposes and we are, therefore, of the opinion that the deduction of this sum should be allowed.
The same considerations constrain us to permit the deduction of the salary paid during the year to Stanley G. Ranger as "agent" for the estate in that the agreed statement of facts shows that all of his services performed during the year for which he received a salary were in connection with the operation, preservation and general management of the Willowbrook and Harbourview properties.
*4040 Judgment will be entered for the petitioner on 15 days' notice, under Rule 50.