*757 One who regularly engages in the business of serving for pay as a trustee and as an executor and incurs and pays a liability growing out of the conduct of such business is entitled to a deduction for the amount so paid. Stuart v. Commissioner, 84 Fed.(2d) 368, distinguished.
*1290 The Commissioner determined a deficiency of $1,413.07 in petitioner's income tax for 1935 by disallowing the deduction of an *1291 amount paid in settlement of litigation charging petitioner with the improper investment of funds of a trust of which he was a cotrustee. Petitioner contends that he was engaged in the business of acting as a fiduciary and is entitled to deduct the amount paid either as a loss or a business expense.
FINDINGS OF FACT.
Petitioner, a resident of Winchester, Massachusetts, has been engaged in the general practice of law at Boston since 1894. For many years he has acted as executor of estates and as trustee, devoting about one-half of his time to this branch of his business. During each year of the period*758 1930-1936 he handled the administration of from nine to eighteen estates or trusts, involving property of an aggregate value in excess of four million dollars, and derived over half of his income for the period from commissions for these services.
Among these trusts was one created by the will of John Brewster, who died in 1885. Petitioner was appointed a cotrustee under Brewster's will on November 24, 1925, and continued to act as such until his resignation on December 31, 1937. He received an annual compensation of from $900 to $1,500. In April 1935 petitioner and another, as surviving trustees under Brewster's will, filed their accounts with the Probate Court of Middlesex County, Massachusetts, showing loans of trust funds, secured by mortgages on Boston real estate. Some of these loans had been made prior to 1925 and others had been made thereafter by the other cotrustee with petitioner's acquiescence. Item Two of Brewster's will directed the trustees to invest one-third of the trust funds:
* * * in first mortgages on productive real estate in Boston, said mortgages not to be for more than two-thirds of the assessed value of such real estate; * * *
While the aggregate*759 amount of the loans did not exceed two-thirds of the aggregate assessed values of the mortgaged properties securing them, there was a substantial number each of which did exceed the prescribed limit. Trust beneficiaries filed specific objections to the allowance of numerous items in the trustees' accounts, charging breaches of trust in that the value of mortgaged property was inadequate security or that the loan was greater than two-thirds of the mortgaged property's assessed value, and praying that the trustees be charged individually and allowed no compensation. An audit of the trust and of the trustees' individual financial responsibility was demanded.
Protracted and extensive litigation seemed imminent, and since the other cotrustee was aged, in ill health, and much disturbed by the proceedings, and petitioner wished to be rid of the matter, a settlement *1292 was agreed upon between them and the beneficiaries in April 1935 whereby the trustees paid $17,500 and the accounts as filed were allowed. Of this petitioner paid $10,000.
OPINION.
STERNHAGEN: From the findings, which are substantially a narrative of the evidence, it is beyond doubt that the petitioner's*760 regular business included serving for pay as a trustee and as an executor. In the course of this business and as an incident thereof he was required to pay $10,000 as a liability growing out of the conduct of the business. Clearly such circumstances of the payment support its deduction, and it should have been allowed. . Respondent cites , and , to support the disallowance; but in both, the ground of the disallowance was that the particular occasion for the taxpayer's payment was liability in an isolated fiduciary activity which was not itself or incidental to a trade or business regularly carried on. They are, therefore, unlike this case and distinguishable from it in crucial facts.
Since this item of deduction is the only adjustment upon which the deficiency rests, the determination is reversed.
Decision will be entered for the petitioner.