Prather v. Commissioner

OPINION.

The first allegation of error relates to the inclusion in the petitioner’s income of the sum of $2,800 paid by the trustee to the wife of the petitioner. In his answer the Commissioner concedes that of this amount $2,000 was the separate income of the wife and that it should not have been included in the income of the husband. As to the remaining $800, there is neither evidence nor admission, and we therefore hold that the petitioner’s net income should be reduced by the sum of $2,000.

*625The second allegation of error relates to the depreciation disallowed. No evidence having been introduced, and there being no admissions in the pleadings as to this allegation of error, we must approve the action of the Commissioner in this regard.

There remain only the questions presented by the third allegation of error. The petitioner, by certain conveyances, created a trust. Among the properties conveyed to the trustee was his life estate in certain lands. After the creation of the trust and the conveyance above referred to, the petitioner expended the sum of $3,865.96 in the construction of a levee upon the lands in which he had held a life estate. The petitioner on his tax return for 1918 deducted as an expense the amount expended by him in the construction of the levee. This deduction was disallowed by the Commissioner upon the theory that the total expenditure should be amortized over the petitioner’s expectancy as a life tenant. In his answer the Commissioner concedes that his action in this regard was in error and contends that the petitioner is entitled to no deduction whatever by reason of the expenditure.

If we are correct in our understanding of the facts in this proceeding, both parties have misconceived the situation, for both are apparently proceeding upon the theory that the expenditure was made by the petitioner upon properties in which he held a life estate. It seems to us that the petitioner made the expenditure as a gift to the trust. He had prior thereto definitely parted with any interest which he had as a life tenant and his only interest in the property was that of cestui que trust. We conclude that the expenditure was by way of enlargement of the trust res or an additional contribution to the trust, and that therefore the petitioner is entitled to no deduction by reason thereof.

Judgment will be entered after 15 days' notice, under Rule 50.