*2592 Beneficiaries under a trust who were also the remaindermen held not entitled to a deduction from gross income for depletion of mining property which formed the corpus of the trust estate where the royalties from such trust estate were paid over to the beneficiaries undiminished by depletion sustained. Detroit Trust Co. et al., Executors,16 B.T.A. 207">16 B.T.A. 207.
*403 These proceedings, which were consolidated, involve deficiencies in income tax as follows: Estate of Mabel J. Denno, 1921, $887.37; 1922, $962.16; and 1923, $548.68; and Caroline R. Pierson, 1921, $910.54; 1922, $927.67; and 1923, $304.92.
The sole question at issue is whether the petitioners, beneficiaries under a certain trust, are entitled to take, as deductions from the royalties which they received from the trust, an allowance for depletion on the property held by the trust which produced the income and of which property they were entitled to a share upon the termination of the trust at the death of the trustee. The facts were stipulated, from which we make the following*2593 findings.
FINDINGS OF FACT.
The petitioner, Willard J. Denno, is the executor of the estate of Mabel R. Denno, deceased, with offices at 26 Broadway, New York City. The petitioner, Caroline R. Pierson, resides at 350 Park Avenue, New York City.
On May 1, 1913, George O. Robinson of Detroit, Mich., the father of Mabel R. Denno and Carolina R. Pierson, conveyed by deed to his sons, Fred A. Robinson and George A. Robinson, as joint tenants with right of survivorship, all his right, title and interest to certain lands and mineral rights in lands situate in the County of St. Louis, State of Minnesota, and contemporaneously therewith, said Fred A. Robinson and George A. Robinson executed a declaration of trust in favor of George O. Robinson, their father, and the wife and children of said George O. Robinson, including said Mabel R. Denno and Caroline *404 R. Pierson, respectively. The declaration of trust reads as follows:
WHEREAS, George O. Robinson, of the City of Detroit, Wayne County, Michigan, is the owner of certain undivided interests in lands and mineral rights in lands situate in the County of St. Louis in the State of Minnesota;
AND WHEREAS, The said George*2594 O. Robinson is desirous of freeing and relieving himself from the burden and care of the charge and management of the said lands and his other business affairs;
AND WHEREAS, To the end that he may so free and relieve himself from the care of, and application to, his business, it has been arranged between said George O. Robinson and his son Fred A. Robinson and his son George A. Robinson that in consideration of certain agreements and undertakings by the said Fred A. Robinson and George A. Robinson, as hereinafter specified, and certain trusts, as hereinafter acknowledged and declared by the said Fred A. Robinson and George A. Robinson, the said George O. Robinson is to convey and warrant to the said Fred A. Robinson and George A. Robinson his said interests in the lands in the County of St. Louis in the State of Minnesota;
AND WHEREAS, According to the tenor and effect of said arrangement, and in consummation and fulfillment thereof, the said George O. Robinson and Jane B. Robinson, his wife, have contemporaneously with the execution and delivery of this instrument, executed and delivered their warranty deed, conveying to the said Fred A. Robinson and George A. Robinson, as joint*2595 tenants with right of survivorship, all and singular the rights and interests of the said George O. Robinson in and to said lands and mineral rights situate in the County of St. Louis in the State of Minnesota;
Now, THEREFORE, We, the undersigned, Fred A. Robinson and George A. Robinson, in order to give effect to the arrangement and agreement hereinabove referred to, in consideration of which the said conveyance by the said George O. Robinson and Jane B. Robinson, his wife, is made contemporaneously herewith, do hereby acknowledge, agree and declare, that the said rights and interests in lands in the County of St. Louis, State of Minnesota, described in said warranty deed, have been so conveyed to us, and are to be held by us IN TRUST for the uses and purposes hereinafter declared, to-wit: -
1st. During the joint lives of us, the undersigned, Fred A. Robinson and George A. Robinson, and the life of the survivor of us, to hold, possess, care for, manage and control the said interests in lands and mineral rights so as aforesaid conveyed to us by the said George O. Robinson and Jane B. Robinson, his wife, and in such management and control to use and exercise our best judgment, *2596 skill and ability to conserve and promote the interests of those beneficially concerned therein, and to faithfully devote thereto so much of our time, thought, attention and effort as shall be requisite or desirable for such care, control and management, making the business connected with the management and care of said property the first and paramount claim upon our time, attention and endeavor. In the management of said property full power and authority is hereby conferred upon us as trustees, or the survivor of us, to sell and convey, in combination with the co-tenants of said lands or mineral rights in lands, either by one joint instrument or by separate instrument concurrently with said co-tenants, the undivided interests so as aforesaid conveyed to us by said George O. Robinson and Jane B. Robinson, his wife, or any part thereof, whenever it becomes necessary in connection with Village Lots, tax titles, rights-of-way, or other cases deemed important by us, or the survivor of us, *405 and the co-tenants of the other undivided interests, and in case of any such sales, the proceeds realized therefrom shall become a part of the principal or body of the trust property, and*2597 shall be invested or reinvested as shall be deemed by us, or the survivor of us, to be for the best interests of the trust estate, and full power and authority is also conferred upon us as such Trustees, or the survivor of us, to lease said undivided interests in lands and in said mineral rights, or any of them, in combination with the co-tenants of the other undivided interests therein, either by one joint instrument with our said cotenants, or by separate instrument concurrently with said co-tenants.
2nd. To receive the rents, royalties, issues, profits, income and proceeds of the said property, and out of the same to pay and discharge all taxes, salaries, wages and office expenses accruing in Minnesota, and all salaries, rents and office expenses at Detroit, Michigan, and all other expenses or charges of every kind and character whatsoever, accruing or incurred in connection with, or incident to, the management and administration of said property.
3rd. During the life of said George O. Robinson, after the payment of all expenses and charges of management and administration as aforesaid, to pay out of the rents, royalties, issues, profits and income of said property to said*2598 George O. Robinson the sum of Twenty-six Thousand Dollars ($26,000.00) each year, payable in quarterly instalments of Sixty-five Hundred Dollars ($6,500.00) each on or before the first day of August, November, February and May, and the annual sum of Eight Thousand Dollars ($8,000.00) to each of his two daughters, Caroline R. Chesebrough and Mabel E. Robinson, and to Jane B. Robinson, wife of said George O. Robinson, so long during the life of said George O. Robinson as she may live, the annual sum of Eight Thousand Dollars ($8,000.00), the same being all payable in quarterly installments, and on the dates, as above specified for the payments to said George O. Robinson, and to retain to ourselves as our full and sole and only compensation for our services rendered in connection with said trust during the life of said George O. Robinson, the surplus of said rents, royalties, issues and income of said property after the payment of the charges and expenses of management and administration of said property and the sums hereinabove provided to be paid to said George O. Robinson, Jane B. Robinson, Caroline R. Chesebrough and Mabel E. Robinson, respectively.
4th. In case the said Jane*2599 B. Robinson, wife of said George O. Robinson, shall survive him, then and in that case, during the life of said Jane B. Robinson, to pay the net annual rents, royalties, issues, profits and income arising or derived from said trust estate after the payment of all expenses and disbursements connected with the management and administration thereof, in manner following, to wit: One-third (1/3) thereof to said Jane B. Robinson, one-sixth (1/6) thereof to said Caroline R. Chesebrough, one-sixth (1/6) thereof to said Mabel E. Robinson, one-sixth (1/6) thereof to said Trustee, Fred A. Robinson, and one-sixth (1/6) thereof to said Trustee, George A. Robinson; it being expressly provided that in the expense of administration and management of said trust estate after the decease of said George O. Robinson, there shall be included as a part thereof an annual salary of Eight Thousand Dollars ($8,000.00), to said Trustee, Fred A. Robinson, payable quarterly, and an annual salary of Six Thousand Dollars ($6,000.00) to said Trustee, George A. Robinson, payable quarterly. The payments hereinabove in this paragraph provided to be made to said Jane B. Robinson, wife of said George O. Robinson, and*2600 the said children of said George O. Robinson, are to be made quarterly on or before the first days of August, November, February and May of each and every year.
*406 5th. Upon the death of both the said Trustees, Fred A. Robinson and George A. Robinson, the trust hereby declared shall cease and terminate, and the property then embraced in said trust shall vest, share and share alike, in the children of said George O. Robinson, to-wit, - said Fred A. Robinson, George A. Robinson, Caroline R. Chesebrough and Mabel E. Robinson, or in the survivors or survivor of them, the issue of any of said children who may have died prior to the termination of said trust to represent and take such deceased child's share; and said property and estate shall so vest without any further or other conveyance, assignment or transfer, the same to all intents and purposes as if such vesting had, in terms legally apt and effective therefor, been prescribed and provided for in the deed by the said George O. Robinson and wife to the said Fred A. Robinson and George A. Robinson hereinabove recited.
6th. The trust hereby declared is made subject to the following provisions and conditions, to-wit;
*2601 (a) In case of the death of one of said Trustees hereinabove named during the existence of the trust hereby declared, the survivor of them shall become the sole Trustee hereunder and vested with the entire estate vested hereby in both of said Trustees, and clothed with all the powers and authorities in connection with such trust estate hereinabove conferred upon them both, and shall be charged with all the duties, liabilities and obligations hereby imposed upon both of them; and if the said George O. Robinson shall then be living, then thereafter, so long as he shall live, the said survivor shall be entitled to, and shall pay to himself, as his full, sole and only compensation for his services as Trustee hereunder, one-half (1/2) of the annual surplus arising or derived from the management of the trust estate, as such surplus is defined in subdivision 3rd of this instrument, and the other half of such surplus shall accrue to, and be paid to, the wife and children of the Trustee so dying in the same proportions, as between them, as they would take and share therein under the laws of Michigan then in force and effect, if the same were paid to them as a part of the distributive*2602 residue of the personal property of the estate of the Trustee so dying.
(b) In case of the death of any of said children of said George O. Robinson during the existence of the trust hereby created, leaving issue, then and in that case any distributive payment accruing under the terms of this trust to such child so dying, shall belong to, and be paid to, such issue.
(c) Said Trustees shall keep full, true and accurate accounts of all their transactions and dealings, receipts and disbursements, connected with the said trust, and shall keep the moneys of said trust in a bank account separate and distinct from all other funds, and shall, with the quarterly payments specified and directed by the terms of said trust, render quarterly statements of their transactions as Trustees and their receipts and disbursements in connection with the trust.
7th. As collateral only to the trust hereby declared, and as strictly personal to us, the undersigned, Fred A. Robinson and George A. Robinson, or the survivor of us, but as part of the consideration for the creation of the trust hereby declared and of the conveyance to us, the undersigned, Fred A. Robinson and George A. Robinson, *2603 of the trust estate hereinabove specified, we jointly and severally undertake, promise and agree to and with the said George O. Robinson During the term of his life to render and perform, without any further compensation therefor than the compensation in this Declaration of Trust provided, such services in connection with his business affairs, interests and *407 property other than the property in this trust specified as we, or either of us, have heretofore rendered and performed.
IN WITNESS WHEREOF, we have hereunto set our hands and seals (in quadruplicate) this First day of May, in the year of our Lord one thousand nine hundred and thirteen.
Signed, Sealed & Delivered in Presence of
(Signed) JAMES H. FLINN (SEAL)
FRED A. ROBINSON (SEAL)
W. FRANK MAXWELL (SEAL) GEO. A. ROBINSON (SEAL)In the foregoing declaration of trust, Mabel R. Denno is referred to as Mabel E. Robinson and Caroline R. Pierson as Caroline R. Chesebrough.
The income received by the trust and distributed by the trust to the petitioners under and by virtue of the trust agreement dated May 1, 1913, was derived principally from the royalties paid by various lesses to the trust in the operation*2604 and development of the mineral lands referred to in said trust agreement.
The settlor of the trust, George O. Robinson, died on or about January 1, 1916. The trustee, Fred A. Robinson, died on December 30, 1913, and the trustee, George A. Robinson, died on April 15, 1925.
The deficiencies in tax involved herein result entirely from the disallowance of the deductions for depletion as shown in the fiduciary information returns filed on behalf of the George O. Robinson trust, which deductions for depletion are reflected in the amount reported by petitioners as gross income from said trust, since the beneficiary petitioners returned only net receipts after the deductions for depletion shown on said fiduciary returns.
During the taxable years here involved the George O. Robinson trust, so-called, was the lessor of the mineral lands referred to in said trust agreement, being the holder of the legal title thereto under the declaration of trust quoted above. There is not involved herein any question of discovery valuation under section 214(a)(10) of the Revenue Act of 1921, or any question of the equitable apportionment of a deduction for depletion between the lessors and lessees, *2605 the deduction claimed being entirely that of a lessor interest.
The parties have stipulated further that in the event the Board should hold, as a matter of law, that the petitioners are entitled to a deduction for depletion, the basis for such allowance is as set forth in a valuation memorandum prepared by the Commissioner under date of June 27, 1928, and made a part of the stipulation.
*408 OPINION.
LITTLETON: The identical question here presented was considered by the Board on account of other beneficiaries of the same trust which is now before us in , and the conclusion there reached makes necessary a denial of the petitioners' contentions. While the theory advanced by the petitioners in the instant proceedings was somewhat different from that presented in the Detroit Trust Co. case, we fail to see wherein the contentions here advanced have not been fully answered by court and Board cases heretofore decided. (See authorities cited in )
Judgment will be entered for the respondent.