*775 Certain individuals, owning as tenants in common, a large tract of land especially adapted for industrial sites, created successive trusts for the management and disposition of the land. Held, that under the facts and circumstances herein, liquidating trusts were created, and not taxable associations.
*82 These proceedings, consolidated for hearing and decision, involve deficiencies and penalties in amounts and for the periods following:
| Year | Deficiency | Penalty |
| 1922 | $24,295.00 | $6,073.75 |
| 1926 | 1.621.39 | 405.35 |
| 1928 | 315.71 | 78.93 |
| 1929 | 1,371.65 | 342.91 |
| 1930 | 34,791.29 | 8,697.82 |
The penalties result from petitioners' failure to make and file timely returns.
Each petition alleges the same errors by respondent, viz.:
(1) In determining that each petitioner is an association taxable as a corporation;
(2) In determining that petitioners derived a profit from lands sold in the years in question; and
(3) In determining that petitioners should pay penalties for failure to file returns*776 on time.
FINDINGS OF FACT.
The petitioners are the trustees named in two certain indentures dated May 22, 1918, and December 26, 1928. For convenience only, the first indenture in point of time will be sometimes referred to herein as the Pitzman-Methudy trust, while the second indenture will be referred to as the Cahokia trust, being part of the caption appearing on the instrument. The circumstances leading up to the execution of these indentures are as follows:
Between 1870 and 1890 Julius Pitzman and Edward C. Kehr acquired land in Saint Clair County, Illinois, having a frontage on the east bank of the Mississippi River, acress from Saint Louis, Misouri, of approximately three and one-half miles, and irregular depth from the river bank of a half of one mile and containing, roughly, 2,400 acres. The land so acquired was an alluvial sandy soil, part of which was subject to overflow. Juliun Pitzman and Kehr owned the land equally as tenants in common.
From time to time sales of rights of way and of acreage were made by Julius Pitzman and Kehr from their holdings. The first sale of acreage, 26.34 acres, was made on June 11, 1898, but sales of rights of way had been made*777 to the Mobile & Ohio Railroad and to Venice and Corondelet Railroad many years prior thereto. On March 9, 1913, Julius Pitzman and Kehr sold 100 acres with a frontage on the river to the Alton & Southern Railroad. On October 1, 1917, Julius Pitzman and Kehr made their last sale as individuals, selling 75 acres to the Monsanto Chemical Works.
*83 On January 19, 1918, Julius Pitzman and Edward C. Kehr were each about 81 years of age. On or about that date Pitzman wrote to Kehr as follows:
ST. LOUIS, January 19, 1918.
DEAR ED:
The management of our Cahokia Lands has been moderately successful because it was in the hands of two persons who had a sufficient interest to consider carefully every step to be taken and I cannot understand why that system should not be continued after our death.
These lands represent in value a very large part of the earnings of our lifes [sic] and it seems to me to be our duty to arrange the management thereof after our departure in such a manner so that no one of our numerous heirs can at any time can [sic] force a partition thereof, and reduce its value thereby from 25 to 35%.
I know positively that neither I nor any*778 of my heirs would think of taking an active part in its management, if half a dozen heirs or their respective wifes [sic] or husbands would have to be consulted befor an option for sale or a lease for land is granted.
I would therefore suggest that we convey all the lands to Edward C. Kehr and Julius Pitzman as Trustees with power to sell, improve or lease the property and make a provision in said declaration of trust that if I should die, my heirs should select my successor and your heirs to select your successor in same manner.
I regret to trouble you with this matter at the present time, but in consequence of an arrangement made for the benefit of Edwin, I have to change my will and cannot postpone the matter for any length of time.
Sincerely yours,
[Signed] JULIUS PITZMAN
Edward C. Kehr died April 20, 1918, before any arrangement or declaration of trust could be entered into regarding the Cahokia lands. The ownership to his half thereof passed to his nieces and nephews, Josephine E. Methudy, Lucy E. I. Richardson, Eugene R. Methudy, and Edward J. Methudy.
Under date of May 22, 1918, the heirs of Edward C. Kehr and Julius Pitzman conveyed and quitclaimed*779 their respective interests in certain therein described property referred to in the letter of January 19, 1918, as Cahokia lands, to Julius Pitzman, and Josephine E. Methudy in trust for a period of 10 years with provisions permitting an extension of the trust for a like period. The owners of the property upon creation of the trust were the beneficiaries of the trust in the same proportion as their interests. The pertinent provisions of the trust are as follows, the paragraphs of the instrument being rearranged for our convenience:
The main purpose of this trust is to dispose of the realty in such times and in such manner as the trustees deem to be to the best interest of the beneficiaries. As cash is received by the trustees under the trust, the trustees are to divide the same among the beneficiaries according to their respective interests; but it is the right and duty of the trustees to reserve from distribution such sums as in their opinion should be kept on hand to meet existing *84 obligations and anticipated contingencies, not exceeding, however, the sum of ten thousand dollars over and above known liabilities, without the written consent of at least one half of the*780 Kehr and also at least one half of the Pitzman interest.
The said trustees shall have all the powers of dealing with the property and of making arrangements with third persons looking to the enhancement of the value and the ultimate disposition of the same that they would have as owners in their own right, not subject to any trust. Thus they have absolute power to alienate the property or any part thereof or any interest therein, which includes the power of making leaseholds and creating easements running beyond the duration of the trust, on any terms they see fit. They can make improvements of any character which in their opinion are calculated to increase the value of the property, and whenever they deem it advisable may loan funds of the trust estate to others for the purpose of creating and maintaining such improvements. They may also make arrangements with such as have or may acquire interest in the trust property or any part thereof, or in property adjoining it, and with such others as may have interest in the matter, for the establishment of easements over the trust property or over the property of others and for the creation of reciprocal rights and obligations with third*781 parties whenever the trustees deem such action to the advantage of the trust. These special recitals are not limitations on the powers measured by those of beneficial owners, given above, but merely illustrations. As a limitation upon this power of improvement and incurring expenditures, it is provided that the trustees shall in no one year spend more than $10,000 in improvement, save with the written approval of the owners of at least one-half of the beneficial interest derived through Edward C. Kehr, as above set forth, and of the owners of at least one-half of the beneficial interest derived through Julius Pitzman.
The title and powers of the trustees hereunder are joint as distinguished from joint and several. But power is given the trustees to appoint by an instrument in writing an agent or agents in their behalf, which agent or agents shall, within the scope of the authority given them and while the agency remains unrevoked, have power as fully as the trustees; and the trustees may confer such power on one of their own number.
The trustees shall render annually to the beneficiaries a report of their administration. In that report they shall take credit for all expenditures*782 incurred in the administration of the trust including compensation in full for services rendered to them, which shall include actual services rendered by any of the trustees for which a third person rendering such service would be entitled to charge, provided that all expenditures to any individual involving $250.000 or more be authorized by said trustees by instrument in writing. But the trustees shall not receive further compensation merely as trustees.
No assignment of any beneficial interest under this agreement shall be valid unless notice in writing of such assignment be given to each of the Trustees as hereinafter provided, and until a recital of such assignment signed by both Trustees is endorsed on the copy of the declaration of trust held by the assignor, and said declaration of trust is by said assignor surrendered to the Trustees, and thereupon the Trustees shall issue to the assignee of said interest a copy of this declaration with the endorsement thereon, and the assignee of such certificate shall become a party to this instrument whether in fact executed by him or not, and so on whenever a transfer or assignment of a beneficial interest is made: provided however, *783 that the person so desirous of selling an interest shall first serve each of the Trustees with notice in writing of the intention to sell, and such notice must set forth the name of *85 such person to whom it is desired to sell, setting forth the actual net cash amount which is offered in good faith, and for which net cash amount it is proposed to sell, and the Trustees upon the receipt of such notice shall immediately give notice thereof to each interested party by letter deposited in the mails addressed to the last residence known to the Trustees, whereupon the said interested parties, or any of them, or any one or more of them as desire, shall have the privilege of purchasing the said interest at such actual bona fide net cash amount as the party so offering to sell is able to obtain in good faith from any person designated in said notice. The offer of the party so desiring to sell shall be open for acceptance for a period of ten days from the serving of the notice upon the Trustees, and if not accepted within ten days after serving of such notice, the party so desiring to sell shall be at liberty to sell to such person set forth in such notice not a party to this agreement. *784 In the event that two or more interested parties are desirous of purchasing said interest, the said interest so purchased by them shall be prorated among them according to their interests in the trust and payment made accordingly.
The other paragraphs of the instrument provided that Julius Pitzman and his successors as trustee represented the beneficial interest of himself and those claiming by, through, or under him, and that Josephine Methudy represented the Kehr interests. Each group of interests was authorized to fill any vacancy occurring as to their representative trustee, and provision was made to fill the vacancy in case the beneficiaries of one group could not agree on a trustee to represent them. Provision was made for revoking the trust by the owners of three-fourths of the entire beneficial interest, and the partition of the trust estate after revocation. Provision was made for partition of the "realty remaining undisposed of" at the expiration of the trust, and upon failure to agree as to the partition the remaining property was to vest in the beneficiaries according to their respective interests. Provision was made for guardians or legal representatives to act*785 for minors or persons under disability should one or more of the "present beneficial owners" die. Each beneficiary with the others and with the trustees covenanted and agreed not to institute proceedings for partition of the trust property during the continuance of the trust. It was further provided that the trust agreement might be extended for an additional 10-year period by instrument in writing executed, not less than three months before the expiration of the original term by the parties then representing more than one-half of the value of the interest under either Pitzman or Kehr and also parties then representing at least one-half of the value of the remaining interest (Kehr or Pitzman interest). The trust was not extended as therein provided.
Less than two years after the creation of the first trust, and on or about March 1, 1920, Julius Pitzman conveyed all of his interest therein to his four children, Frederick Pitzman, Marsh Pitzman, Louise P. Lucas, and Florence P. Herman. Julius Pitzman died *86 during August 1923, and shortly thereafter Frederick Pitzman was selected successor trustee for the Pitzman interests.
During the existence of the first trust, *786 sales of acreages were made from the trust corpus as follows:
On January 6, 1919, a sale of a little over six acres to Monsanto Chemical Works for $7,000, the sale being made pursuant to an option granted in October, 1917;
On February 7, 1920, a sale of 19.2 acres to Darling & Co. for $24,000;
On March 18, 1922, a sale of 51.6 acres to Union Electric Light & Power Co. for $215,000, the sale being made pursuant to an option granted in 1921;
On December 24, 1926, a sale of 17,7 acres to Lewin Metals Co. for $15,000;
On March 27, 1928, a sale of 20.8 acres for $25,000 to R. Vernon Clark, who was acting for Midwest Rubber Reclaiming Co.
In addition to sales the trustees of the first trust entered into two long term leases, the lessee paying the taxes in each instance. These two leases were briefly as follows:
On December 22, 1920, a 10-year lease of 145 acres to Robert W. Crawford for $11,600 a year. Crawford was an executive of a car repair plant.
On November 29, 1924, a 94-year lease or easement over 24.75 acres to Union Electric Light & Power Co. of Illinois for $2,040 per year. The property leased was used by the lessee for high tension transmission lines from*787 its Cahokia plant, the trustees retaining the right to use the ground except where transmission line towers were located.
The trustees rented some of the trust lands to farmers for agricultural purposes. The land lying west of the great levee, which ran through the tract 1,500 to 3,000 feet back from the Mississippi River, was generally unfit for agricultural purposes because it was subject to flooding. The trustees permitted occupancy of two or three acres per tenant in this area without rental, possession being given under a lease, in consideration of clearing and keeping property cleared. On portions of the trust holdings where land had to be cleared before using for farm purposes, the tenant was given the use of the land free for three years and after that the trustees charged a flat rental per acre.
During the existence of the first trust the trustees had occasion to purchase three parcels of land totaling approximately four acres. Upon being advised that the trust was a liquidating trust and that they had no authority to purchase property except such property as was necessary to consummate an immediate sale, the trustees procured written authorizations from the several*788 beneficiaries under date of October 22, 1920, and of March 29, 1928. The first authorization in point of time permitted the purchase of two lots containing about an acre each. The lots were acquired for the purpose of donating a large part thereof to the State of Illinois for a reverse curve on a state highway. After the land was acquired it was so dedicated by the trustees and now forms a part of Illinois State Highway No. 3.
*87 The second authorization permitted the purchase of a two-acre tract generally referred to as the "Red House." This parcel had an old saloon on it which was operating as a roadhouse and gambling resort. The trustees purchased the property in order to abate this nuisance, which was bringing its entire property into disrepute. This parcel and the two lots aforementioned were the only parcels of land purchased by the trustees.
The instrument of May 22, 1918, expired by its terms on May 22, 1928. At that time the legal title vested in the beneficiaries according to their respective interests. Thereafter, under date of December 26, 1928, the Pitzman heirs and the Kehr heirs, together with the spouses of those married, executed an instrument*789 entitled "Cahokia Trust Agreement." This agreement was not recorded until March 12, 1929, due to the fact, that one of the beneficiaries had on September 17, 1927, mortgaged an undivided one-eighth interest in the real estate belonging to the Pitzman-Methudy trust, and arrangements satisfactory to the mortgagee were not completed prior to March 12, 1929.
The provisions of the Cahokia trust agreement are substantially similar to the provisions of the trust deed of May 22, 1918. The owners and beneficiaries, as grantors, conveyed and quitclaimed the tracts of land therein described to Frederick Pitzman and Josephine E. Methudy in trust, together with all cash, bonds, notes, stocks, leases, and other assets in their hands as trustees under the agreement dated May 22, 1918. The Cahokia agreement stated the purpose thereof in the following language:
The trustees are given as absolute control of the trust estate for the purpose of alienating the same, or any portion thereof, or any interest therein, and making arrangements with others looking to the improvement or enhancement in value of the trust estate with a view to further alienation of the whole or any part thereof, or any interest*790 therein, as they would have if they owned the estate in their own right, not subject to any trust.
The trustees were given absolute power to sell and exchange, mortgage and renew mortgages, and in any other manner alienate all or any part of the trust estate; to make leaseholds and create easements; to adjust, compromise and settle controversies; to make certain improvements; to loan funds of the trust estate for the purpose of erecting and maintaining improvements; to make arrangements with others for establishment of easements and creation of reciprocal rights; to make dedications for streets, alleys, and sewers; to execute and deliver contracts, deeds, or other instruments in writing in their own names; to accumulate a reserve fund not to exceed $100,000, the object of which was to protect the trust estate against contingencies and to develop it; to invest such part of the reserve fund as may be on hand for which there may be no immediate need in certain securities; and as far as the reserve fund permitted the trustees were *88 empowered to erect guildings, build and maintain levees, bridges, dikes, drainage, and water systems, reilroads, roads and any and all other improvements*791 to fully develop the real estate, and to purchase additional land necessary to properly develop the trust real estate. Not more than 25 percent of the cash received from any sale could be placed in the reserve fund unless there were known outstanding claims at that time against the trust estate.
New provisions appearing in the Cahokia agreement which did not appear in the agreement of May 22, 1918, were those relieving the trustees from responsibility for any acts except "willful misconduct"; the express ratification of all sales, exchanges, improvements, dedications, rights of way, and other easements made or created, and all acts done by the trustees "under the trust created by the deed dated" May 22, 1918; the transfer of "any and all rights, title and interest * * * to any and all the property" which the trustees held under the Pitzman-Methudy trust to themselves as trustees under the Cahokia trust agreement.
Provision was made for extending the trust for a further period of 10 years and at the expiration of the first 10-year extension a further period 10 years provided the extensions were made within the time and under procedure similar to that provided in the Pitzman-Methudy*792 trust, but in no event beyond 20 years after the death of the last surviving individual beneficiary executing the trust agreement.
The provisions of the Cahokia trust relative to filling a vacancy as to a trustee, the annual report to beneficiaries, the term of the trust, revocation of the trust, partition of the trust property remaining at end of trust period or extension thereof, vesting of title in beneficiaries at termination of trust, the assignment of beneficial interests, and the covenant against partition during life of the trust, are to the same effect and purpose as the provisions in the Pitzman-Methudy trust.
The trustees of the Cahokia trust made the following sales of trust acreage:
On March 16, 1929, a sale of 9.92 acres to Mobile & Ohio Railroad for $20,000;
On September 23, 1930, a sale of 299.177 acres to Phillips Pipe Line Co. for $375,000, which included three separate parcels of land and rights of way totaling 15 acres. This was the last sale made by the trustees of trust property.
Prior to the death of Julius Pitzman the transactions of the Pitzman-Methudy trust were recorded in his individual books of account. On or about September 1, 1923, this*793 trust opened its own books of account. The Cahokia trust continued to use the same bank account and the same set of books used by the Pitzman-Methudy trust. Pitzman Co., Surveyors & Engineers, received $50 a month for keeping *89 the books, maps, files, and deeds, and arranging about incidental mapping for both trusts. During his lifetime Julius Pitzman received $50 a month from the trustees for managing the trust and after his death Frederick Pitzman received a like amount for his services. The principal expenditures for both trusts were taxes, repairs to tenant homes and road and levee repairs.
The trustees kept no minute books, issued no stock certificates or certificates of beneficial interest, and had no seal. The only evidence of beneficial interest that the beneficiaries had was the two agreements, and when Julius Pitzman conveyed his half interest in the Pitzman-Methudy trust in 1920, it was deeded like any other piece of real estate, his declaration of trust was canceled, and new declarations of trust issued to each of his children.
The only meetings the beneficiaries ever held were in connection with authorizing the purchase of lots later donated to the*794 State of Illinois for highway purposes, and for the selection of successor trustee by the Kehr interests. At neither of these meetings were all the beneficiaries present. No notice of a meeting of beneficiaries was ever issued.
At May 22, 1918, the Kehr-Pitzman holdings were admirably situated with respect to railroad transportation facilities. The main line of the Mobile & Ohio Railroad ran approximately parallel to the river through their holdings, being on top of the levee of the East Side Levee and Sanitary District. The Southern Railway yards and the Illinois Central Railroad right of way were between their holdings and the Municipal Bridge. All three of the belt line or terminal railroads serving East Saint Louis traversed the Kehr-Pitzman holdings. The terminal railroads afforded switching facilities to all trunk line railroads, the switching charges being absorbed by the trunk lines. In addition, the Alton & Southern Railroad, one of the belt lines, had erected a large railroad dock, with a direct vertical lift for loading and unloading trains or barges, on the property sold to them by Kehr and Pitzman in 1913, as hereinbefore mentioned.
Location along the river*795 front gave this property the advantages of water transportation, unlimited quantities of water for industrial or other use, cheaper railroad rates due to water competition, and a cheap way of disposing of waste. The Kehr-Pitzman holdings fronted on the outside of a long sweeping curve so that their river harbor had the main channel of the Mississippi River with deep water and quite abrupt banks. The river harbor above their holdings was a confined area with four bridges. Practically all of the river frontage along the east bank, north of the Municipal Bridge and up to the Merchants Bridge was owned by railroad or ferry companies.
*90 The city limits of East Saint Louis were within a quarter of a mile of the northern boundary of the Kehr-Pitzman holdings, while the Municipal Bridge, a toll-free bridge, was approximately seventenths of a mile north. Proximity to East Saint Louis enabled purchasers from Kehr and Pitzman to secure electric power, telephone and water from that city's public utilities. The Municipal Bridge placed the Kehr-Pitzman holdings within a 15-minute drive of the Saint Louis business district. Despite its proximity to East Saint Louis there had been*796 no residential development on any of the Kehr-Pitzman tracts.
The principal roads through the Kehr-Pitzman holdings at May 22, 1918, were Mississippi Avenue, which later became Illinois State Highway No. 3, and the road from the village of Cahokia to the Sidney Street Ferry, from which a road branched off to the Fox Terminal. Another road ran from the ferry across the Kehr-Pitzman holdings to what was known as Walnut Grove, approximately through the center of the tracts east and west. A portion of the north boundary of the Kehr-Pitzman holdings was a road leading east and intersecting Mississippi Avenue, now known as Monsanto Avenue. These roads were in use in all seasons of the year; Mississippi Avenue being macadam and the others cinder, as were some of the less important roads.
Industries located on the east bank of the Mississippi have the advantage of zoning facilities, preventing close-by residential properties and permitting unhampered operations. Large acreage was available in this tract at a very much more reasonable price than on the west bank. Coal was 25 to 35 cents a ton cheaper because of the bridge charge of transporting coal over the terminal system and across*797 the bridge.
The elevation of the Kehr-Pitzman holdings varied between 26 feet and 38 feet above the river gauge at Saint Louis. By May 1918 the levee hereinbefore mentioned was completed. This levee divided the Kehr-Pitzman tracts about equally and protected the property on the east from flooding. It was designed to care for flood conditions of 45 feet, which is seven feet higher than the highest flood recorded in the past 75 years. Land west of the levee, while subject to overflow under flood conditions, can be protected by rim levees. The Kehr-Pitzman property east of Mississippi Avenue lies in Dead Creek Bottom, which was very low, but is protected from overflow by the levee.
All sales made by Kehr and Pitzman prior to May 22, 1918, were made to industrial concerns, and all sales made by trustees, subsequent thereto, were to or for industrial concerns.
*91 Prior to 1933 no Federal income tax returns were filed by the trustees of either trust. On March 31, 1933, fiduciary returns of income on form 1041, were filed for the years 1922 and 1926, the period January 1 to May 22, 1928, the period March 9 to December 31, 1929, and for the year 1930. The fiduciary*798 return for 1926 is the only year or period in which a net income was reported.
On November 3, 1934, corporation returns on form 1120 for the same years and periods were filed under protest. Each return was executed by Frederick Pitzman, trustee, and only the return for 1926 reported a net income. Each return states that the business conducted was "real estate liquidating."
OPINION.
ARNOLD: The first issue is whether the trusts now before us are, as a matter of law, associations taxable as corporations, since the several revenue acts define the term "corporation" as including associations, joint-stock companies, and insurance companies. Sec. 2(2), Revenue Act of 1921; secs. 2(a)(2), Revenue Acts of 1924 and 1926; sec. 701(a)(2), Revenue Act of 1928.
Recently, the Supreme Court has had occasion to restate the fundamentals to be considered in determining whether certain trust indentures created trusts or associations taxable as corporations. ; ; *799 ; . In each of these cases the trust indenture used language purporting to create an ordinary trust, but the Court held that actually there was created, in each instance, an organization for profit having many of the attributes of a corporation.
The salient features of a trust created and maintained as a medium for the carrying on of a business and sharing in its gains were fully discussed in the Morrissey opinion. These features may be briefly stated as: (1) trustees, as a continuing body with provision for succession, holding title to property; (2) centralized management; (3) security from termination or interruption by death of owners of beneficial interests; (4) transfer of beneficial interests without affecting continuity of enterprise; and (5) limitation of personal liability to property embarked in the undertaking.
Speaking specifically regarding these features the Court states, p. 296:
It is no answer to say that these advantages flow from the very nature of trusts. For the question has arisen because of the use and adaption of the trust mechanism. The*800 suggestion ignores the postulate that we are considering *92 those trusts which have the distinctive feature of being created to enable the participants to carry on a business and divide the gains which accrue from their common undertaking, trusts that thus satisfy the primary conception of association and have the attributes to which we have referred, distinguishing them from partnerships. In such a case, we think that these attributes make the trust sufficiently analogous to corporate organization to justify the conclusion that Congress intended that the income of the enterprise should be taxed in the same manner as that of corporations.
Since the Supreme Court's decision in foregoing cases the Board has decided at least two cases where similar questions were raised, , and . In each proceeding we held that the trust was taxable as a trust, because each trust was created for liquidation purposes and not to enter into a business enterprise.
Turning to the facts of these proceedings it must be conceded that elements of a trust and an association*801 are present as to each, but in our opinion, the paramount purpose of each trust was liquidation. These beneficiaries pooled their interests for the orderly and equitable distribution of the proceeds from a large tract of land, then owned by them as tenants in common, the nature of which made partition impractical. Their efforts were directed toward the conservation of their resources pending disposition, which is quite different from conducting a business for profit. While it is quite true that these trusts had certain salient features of trust organized to carry on a business for profit, such as, (1) property held by trustees, (2) centralized management, (3) security from interruption or termination of the trust by death of holders of beneficial interest, and (4) transferability of beneficial interests within strict limitations, yet these salient features have been found in ordinary trusts without making them associations taxable as corporations. And it should be noted that one of the salient features stressed by the Supreme Court, in the Morrissey and Swanson cases, supra, namely limitation of*802 personal liability to the property embarked in the undertaking, is missing in these proceedings, since there is no provision with respect thereto in either of the trust deeds before us.
The very essence of the issue, therefore, is whether there was an associating together by the beneficiaries and owners in a joint enterprise for profit. Several factors point to the answer. In the first place the original owners, Kehr and Pitzman, were very advanced in age at the time an organization to handle their real estate holdings was being considered. Kehr died before an organization could be perfected, leaving Pitzman and Kehr's four heirs as the joint owners of the property. The Kehr heirs and Pitzman recognized the need of some organization that could conveniently handle and dispose *93 of the property without the necessity of consulting and securing the signature of each individual owner and spouse, where married; that, should any of the interested parties die leaving minors or otherwise become incapacitated, sales and conveyances would be delayed and complicated through necessary court proceedings. It was recognized that partition was not possible without loss to all, and*803 the testimony is unrefuted that the object of creating the trust was to enable the liquidation of the property as rapidly as possible and to the best interest of all concerned.
In the second place the character of the trust deed of May 22, 1918, and the declared purpose thereof are in accordance with the testimony that the trust was created for liquidation. The declared purpose was "to dispose of the realty in such times and such manner as the trustees deem to be to the best interest of the beneficiaries." By the terms of the trust deed of December 1928, "the trustees are given absolute control of the trust estate for the purpose of alienating the same." The provision for division of the cash as received among the beneficiaries is clearly in accord with the declared purpose of liquidation. The powers and duties of the trustees as prescribed by the trust deeds were means for carrying out the declared purpose of the trusts, and we are unable to find therein any requirement or provision which is foreign to good business practice or conduct on the part of any fiduciary with a like purpose in view.
Thirdly, the activities of the trustees were in keeping with the declared purpose*804 of the trust. The record shows that the trustees were disposing of the property by sale and lease upon terms which they considered to the best interests of the beneficiaries. It may well be that the sale of this property could have been accelerated by a radical reduction in the sale price, but the law does not require the trustees to sacrifice property in order to hurriedly complete liquidation. In the Girard Trust Co., Trustee, case supra, the Board stated that under the circumstances in that proceeding a tract of 54 acres was too large for the market, and that subdivision was the only effective way to dispose of it. Here, we have a tract of over 1,600 acres, part of which was, on May 22, 1918, being used for industrial purposes. The price at which the trustees were willing to sell was a matter within their discretion, and while their prices were exorbitant for farming purposes, subsequent sales of about 400 acres for industrial purposes would indicate that purchasers desiring industrial sites could and would pay the prices asked by the trustees. Respondent contends that this was nothing but a long*805 range speculative venture, which may have been true as to the original purchasers. It does not follow, however, that the intention of the original cotenants was retained by their heirs. The situation facing them *94 was that each year taxes, repairs to roads, levees, and tenant houses, and other expenses had to be met to preserve the property. In the meantime the trustees sought to reduce their carrying charges as much as possible by any available use of the property which would yield a return until it could be sold. In our opinion this was nothing more than the exercise of good business judgment by the trustees.
The principal value of the property is essentially for industrial uses. It is not desirable for development and sale as residential subdivisions on account of its location and low elevation. It has some value for farming purposes but that is very small compared with its value for industrial purposes. It is true the demand for industrial sites in this vicinity has been slow but the property by reason of its location and surroundings is perhaps the most desirable in the Saint Louis-East Saint Louis area. Doubtless the reason for providing term extensions in*806 the trust agreements was the knowledge that on account of its particular adaptability purchasers would be limited, sales would be slow, and it would require a long period of time to liquidate without undue sacrifice in price. The primary purpose in the beginning was to sell and dispose of the property and divide the proceeds. That purpose was manifest throughout both trusts and the handling of the property by the trustees was consistent to that end. They were not only awaiting an opportunity to sell, but were active in soliciting purchasers. Under these circumstances we do not think the time element in the trust agreements and the delay in making sales have the effect of stamping these trusts as business rather than liquidating trusts.
While respondent lays no particular stress on the development and improvement of the trust acreage by the trustees, he does stress language found in the Supreme Court decisions, supra, relating to the business of holding, improving, and selling real estate, and stating that trusts were convenient methods by which persons become associated for dealings in real estate, the development of tracts of land, and the sales of properties. We must*807 and do recognize the weight and authority of the language appearing in these decisions. But each of these is grounded upon the facts in the case decided. The Court makes no attempt to draw a line of demarcation between trusts and associations, so that organizations of one type are clearly trusts while organizations of another are clearly associations. These proceedings must, therefore, be determined by applying the principles announced by the Supreme Court to our own facts.
The facts respecting the development, improvement, and purchases by the trustees are simple and clear. The development included repairs to roads, levees, and tenant houses. No single new *95 improvement, new building, or new structure of any kind on the entire acreage is disclosed by the testimony nor by the large number of documentary exhibits. Purchases of approximately four acres of land were testified to and reasons amply justifying each purchase were given, one for dedication of land to the Illinois State highway system, and the other to close a local roadhouse and gambling resort which was considered harmful to the trust property. We are unable to find in any activity of the trustees an indication*808 that they were conduction a business for profit. Every activity testified to or otherwise shown by the record squares with the purpose of conserving and protecting the trust corpus until such time as it could be sold or disposed of. See .
Respondent points to 96 shares of stock of the Saint Clair Ferry & Transfer Co. referred to in the trust deed of May 22, 1918, as showing that the activities of the trustees included the holding of securities as well as the holding of real estate. It does not appear what disposition was made of these shares, but it is plain that they constituted a part of the original trust corpus. No dividends were reported therefrom during any of the taxable years or periods of either trust. No reference thereto appears in the assets taken over by the Cahokia trust, and we can find no authority in the first trust deed permitting the trustees to deal in stocks, bonds, and other securities. The Cahokia trust agreement permitted the trustees to invest the reserve fund in Government securities, municipal bonds, or a conservative security recommended by one of the five largest banks in Saint Louis. *809 As the reserve fund was created for the purpose of taking care of expenditures that might become necessary for the preservation of the trust corpus and making the property more attractive to those seeking industrial sites, we do not think this limited authority to invest in income-producing securities, pending the use of the money for the purpose intended, has the effect of making an otherwise liquidating trust one for business purposes. No power was granted the trustees to deal in securities other than as mentioned.
The respondent, as we understand his contentions, treats the Cahokia trust as a mere continuation of the Pitzman-Methudy trust. Petitioners make no objection thereto because under their theory either or both trusts existed only for liquidation purposes, and neither is an association taxable as a corporation. But in our opinion the two trusts were separate and distinct from each other. The first trust definitely terminated its existence on May 22, 1928, and by the terms thereof the title to the property immediately vested in the beneficiaries in proportion to their interest in the trust. These coowners, *96 who had been the beneficiaries of the Pitzman-Methudy*810 trust, were the grantors and beneficiaries of the Cahokia trust. however, such enlargements of the trustees' powers, as appears from an examination of the trust instruments, did not change a liquidating endeavor into a joint business venture.
In , three brothers, owners of improved business property, as tenants in common, erected a new building, obligating themselves on the mortgage indebtedness, and created a trust to facilitate management operation and preservation of the property in which they each retained an equal beneficial interest. The court there held the operation of the trust as a business enterprise was merely incidental to the broader purpose of preservation and convenience in handling and therefore was a pure trust not taxable as an association. The court said:
Every trust of the present type necessarily has attributes of a business organization. Its very existence depends on such. That characteristic alone cannot brand it as an "association." If the father of the three Myers brothers had by his will set up a trust estate for their benefit in the precise manner here indicated*811 it would have been almost typical of a traditional type of family trust. We think it none the less so that its creation has been by the three brothers.
In many respects the situation in these proceedings is comparable to that presented in ; , and . In each of these proceedings we held that the trusts attempted to be created by the owners of property were not actually taxable entities, but were in the nature of agencies created for the more convenient management of property. . See also, ; ; ; . It might well be argued in these proceedings that the trusts here were more in the nature of agencies for convenient handling and disposition of the property than true trusts in a restricted legal sense. However, petitioners have preferred to rest their case upon the principle that*812 these trusts were liquidating trusts, distributing their proceeds to beneficiaries, who were taxable upon any income resulting from sales and lease rentals. In either view the respondent has erred in determining the trusts were associations taxable as corporations.
Our decision on the legal question makes it unnecessary to go into the question of fact as to values or the question of penalties.
Reviewed by the Board.
Decision will be entered for the petitioners.