*81 Decisions will be entered for the petitioners.
Held, income earned by decedent's estate during 1938-1944 was, pursuant to the terms of decedent's will, permanently set aside for charitable or related purposes within the meaning of section 162 (a), Internal Revenue Code of 1939.
*1308 The Commissioner determined deficiencies in the income tax of the Estate of John Ringling as follows:
| Year | Deficiency |
| 1938 | $ 6,892.13 |
| 1939 | 5,774.31 |
| 1940 | 5,834.81 |
| 1941 | 8,475.90 |
| 1942 | $ 1,047.37 |
| 1943 | 35,209.29 |
| 1944 | 7,384.88 |
He also determined that John Ringling North and the Estate of Ida Ringling North were liable as fiduciaries, *82 and that the Rockland Oil Company was liable, as transferee, for the above mentioned deficiencies. The parties have stipulated the fiduciary and transferee liability with respect to any deficiency determined herein. Accordingly, the basic deficiencies alone are in controversy.
The sole issue is whether, in computing the net income of the Estate of John Ringling during the taxable years 1938 through 1944, the respondent should have allowed as a deduction for each year, under the provisions of section 162 (a) of the Internal Revenue Code of 1939, an amount equal to the net income of the estate for each year (computed without such deduction).
FINDINGS OF FACT.
The stipulated facts are adopted as part of our findings.
John Ringling died on December 2, 1936. His last will and testament and the codicil thereto were duly admitted to probate in the Court of the County Judge, Sarasota County, Florida. Ida Ringling North (now deceased) and John Ringling North duly qualified as executors. They filed fiduciary income tax returns for the taxable years for the Estate of John Ringling (hereinafter referred to as the estate) with the collector of internal revenue for the district of Florida.
*83 In his will, as amended by a codicil duly executed, the decedent gave $ 1 to his wife, and an annuity to his sister, Ida Ringling North, of $ 5,000 per annum during her lifetime. In paragraph two he left to the State of Florida his art museum known as The John and Mabel Ringling Museum of Art and his residence known as Cad D'a'Zan, together with all paintings, pictures, works of art, tapestries, antiques, sculptures, library of art books, and other items therein as well as the objects of art held in the name of a corporation under his control.
In paragraph four of his will, as amended by the codicil, the decedent left the entire residue of his estate in trust with directions to the trustees to pay over the net annual income therefrom to the State of Florida for the purpose of adding to, embellishing, or increasing the contents of the museum. The trustees were also given uncontrolled discretion to invade the corpus of the trust for these same purposes. *1309 The trustees named in paragraph seven of the will were John North, Henry North, and Randolph Wadsworth.
In the amended estate tax return of the decedent filed on September 27, 1938, the assets included in the gross estate*84 were valued at $ 22,651,818.30. 2 The valuation placed on these assets was excessive. Cash on hand at the time of the decedent's death amounted to approximately $ 300. Claims against the estate for funeral expenses, executors' commissions, attorney's fees, and other debts amounted to approximately $ 7,596,193.27. In addition, there existed a claim by the United States for deficiencies in income taxes for the years 1936 and 1937 in the amounts of $ 226,427.41 and $ 8,709.86, respectively, and a deficiency in estate tax of $ 6,670,955.87.
The entire United States income and estate tax liability was satisfied through an offer in compromise of $ 850,000 which was submitted on May 7, 1942, and accepted*85 by the Commissioner of Internal Revenue about June 19, 1942.
Of the total amount of $ 850,000 paid by the executors of the will of John Ringling in compromise of the tax liabilities, $ 325,000 represented cash on hand, and the balance of $ 525,000 was borrowed from the Manufacturers Trust Company of New York. Substantially all of the assets of the estate, except the residence and the museum building, were pledged as collateral security for the above mentioned loan.
The devise and bequest made to the State of Florida under the will of the decedent was accepted by chapter 18131 of the General Laws of Florida of 1937, approved by the Governor of that State on June 10, 1937. By this act the Board of Commissioners of State Institutions of the State of Florida was authorized and directed to "require of and receive from the Executors such conveyances as will vest in the State of Florida a valid title to the property, subject to the terms and conditions of the gift, but free and clear of all debts, claims and obligations."
Pursuant to an order of the County Court of Sarasota County dated February 7, 1946, based on a petition by the executors of the same date, the executors on or about February*86 9, 1946, transferred to the State of Florida the real property of the John and Mabel Ringling Museum of Art, the residence, and the paintings and other works of art held by the estate. 3
*1310 On January 2, 1947, the Circuit Court for the Twelfth Judicial Circuit of Florida entered its final decree settling the estate, and, among other things, found:
V.That after the payment of all debts, administration expenses, executors' commissions and allowances, attorneys' fees, and the aforesaid legacies, all of the rest, residue and remainder of the Estate of JOHN RINGLING, deceased, shall pass to and shall be vested in the Trustees of the charitable trust named and appointed in and by Paragraph "SEVENTH" *87 of the Last Will and Testament of JOHN RINGLING, deceased, in trust, nevertheless, for the uses and purposes set forth in Paragraph "FOURTH" thereof.
This decree was affirmed by the Supreme Court of the State of Florida on July 22, 1947.
On October 7, 1947, the Board of Commissioners of State Institutions of the State of Florida, the executors of the estate, Ringling Enterprises, Inc., and Sydney R. Newman and Leonard G. Bisco, attorneys, entered into an agreement with reference to the assets of the estate remaining in the hands of the executors after the February 9, 1946, transfer to the State. Therein the board and the executors of the estate sold these remaining assets to Ringling Enterprises, Inc., for $ 1,250,000, partly payable in installments, and partly by the assumption by the purchasing corporation of all liabilities of the estate. This transaction was consummated on October 8, 1947, and the board received $ 300,000 on that date and the remainder as provided in the agreement.
By order dated October 8, 1947, the County Court of Sarasota County released the executors from any further accounting, discharged their bond, and authorized them to apply for discharge. By another*88 order bearing the same date this court permitted the resignation of the trustees named in the will and appointed in their stead the Board of Commissioners of State Institutions of the State of Florida.
No bequests, legacies, or devises were paid by the estate, except (a) to the State of Florida, (b) a bequest of $ 1 to Emily Hague Ringling, and (c) 2 annuity payments of $ 5,000 each paid to Ida Ringling North on August 23, 1946, and June 30, 1947, respectively. On October 8, 1947, upon the transfer of assets from the estate to Ringling Enterprises, Inc., there were 9 annuity payments unpaid and due to Ida Ringling North for prior years. The payment of these unpaid annuities was assumed by Ringling Enterprises, Inc., along with the assumption of the payment of annuities for all subsequent years to Ida Ringling North until her death.
For the years 1938 to 1944, inclusive, timely income tax returns were filed by the estate on the cash receipts and disbursements basis.
*1311 Adjustments to income of the estate were made by the Commissioner for each of the years 1938 to 1944, inclusive, which resulted in the proposed deficiencies. No exceptions to these adjustments have been made*89 by the estate.
Amounts distributed by the estate, for which deductions have been allowed in computing its net income, were as follows:
| Year | Amount |
| 1938 | None |
| 1939 | None |
| 1940 | $ 4,144.75 |
| 1941 | 4,347.54 |
| 1942 | $ 3,935.26 |
| 1943 | 7,389.56 |
| 1944 | 17,510.71 |
The respondent determined that the taxable net income of the estate for the years involved is as follows:
| Year | Amount |
| 1938 | $ 41,985.72 |
| 1939 | 37,457.22 |
| 1940 | 29,224.62 |
| 1941 | 27,447.86 |
| 1942 | $ 5,374.49 |
| 1943 | 59,561.61 |
| 1944 | 19,651.57 |
The John and Mabel Ringling Museum of Art was exempt during the years 1938 to 1944, inclusive, from Federal income tax under the provisions of section 101 (6) of the Internal Revenue Code of 1939.
OPINION.
The sole question is whether, in accordance with section 162 (a) of the Internal Revenue Code of 1939, the income of the Estate of John Ringling was "* * * pursuant to the terms of the will * * * during the taxable [years] paid or permanently set aside * * *" for so-called charitable or related purposes. Under Ringling's will and codicil his art museum, home, and the residue of the estate, after a bequest of $ 1 to his wife and a $ 5,000 annuity to Ida Ringling North, were left to the State*90 of Florida. And the will, as amended by the codicil, directed the trustees to pay over the net annual income from the residue of the estate to the State of Florida for the purpose of adding to, embellishing, or increasing the contents of the museum. There is no dispute that these qualify as charitable or related purposes within the meaning of section 162 (a). The income was not in fact paid out to the State during the tax years involved, and the question therefore is whether such income was "* * * pursuant to the terms of the will * * * set aside * * *."
The Commissioner does not argue that the income was not required to be "set aside" in accordance with the terms of the will. His sole contention is that at Ringling's death the claims against the estate were of such magnitude that the ultimate charitable destination of the income was too uncertain to be considered as being dedicated to *1312 charity. As matters were finally worked out, however, the State not only received the home and museum, but also a substantial amount of money, considerably in excess of the income in controversy. The Commissioner's position is that such ultimate disposition of the assets and income *91 was too problematical during the tax years to justify the deduction.
We cannot agree with the Commissioner. Pursuant to the will and codicil of John Ringling the income in question was in fact required to be set aside for charitable purposes. There is nothing in section 162 (a) suggesting that its provisions are inapplicable if the estate or trust is threatened by creditors' claims which might defeat the donor's intentions. This case is unlike Merchant's National Bank of Boston v. Commissioner, 320 U.S. 256">320 U.S. 256, Henslee v. Union Planters National Bank & Trust Co., 335 U.S. 595">335 U.S. 595, and other similar cases relied upon by the Commissioner, where provisions in the will itself rendered uncertain whether the charitable donees would actually take and therefore it could not be said that the amounts or property in question were irrevocably set aside for charitable purposes by the decedent. Although the facts here are unusual, we think that section 162 (a) is, by its terms, applicable, and we so hold.
Decisions will be entered for the petitioners.
Footnotes
1. Proceedings of the following petitioners are consolidated herewith: John Ringling North, Fiduciary under Section 3467 of the United States Revised Statutes, as amended, of the Estate of John Ringling, Deceased, Docket No. 35785; Estate of Ida Ringling North, Deceased, Fiduciary under Section 3467 of the United States Revised Statutes, as amended, John Ringling North, Executor, Docket No. 35786; Estate of John Ringling, Deceased, John Ringling North, Executor, Docket No. 35787.↩
2. Included in this amount was real estate valued at $ 1,370,906.17, consisting of 4 parcels of land in Florida, 6,239 acres of land in Oklahoma, and 280 acres of land in Nebraska; stocks and bonds valued at $ 20,059,859.79; mortgages, notes, and cash, $ 137,681.34; and other miscellaneous property valued at $ 1,083,371.↩
3. These items were valued for estate tax purposes as follows:
↩
The residence $ 865,000 Stock of Rembrandt Corporation (which held the paintings, sculptures, and works of art) 11,245,305 3 pictures pledged to Manufacturers Trust Company 111,000 2 pictures pledged to Emily Buck Ringling 70,000 $ 12,291,305