Trust of Bingham v. Commissioner - 325 U.S. 365 (1945)
U.S. Supreme Court
Trust of Bingham v. Commissioner, 325 U.S. 365 (1945)
Trust under the Will of Bingham v. Commissioner of Internal Revenue
Argued April 27, 1945
Decided June 4, 1945
325 U.S. 365
1. The questions whether, on the facts found by the Tax Court, expenses incurred by trustees in contesting an income tax deficiency assessment and in winding up the trust after its expiration are deductible under § 23(a)(2) of the Internal Revenue Code as expenses for the "management . . . of property held for the production of income," are clear-cut questions of law, the decision of which by the Tax Court does not foreclose their decision by the Circuit Court of Appeals or this Court, although their decision by the Tax Court is entitled to great weight. P. 325 U. S. 371.
2. There was no error of law in the Tax Court's determination, upon the facts found, that expenses incurred by trustees in contesting an income tax deficiency assessment and in winding up the trust after its expiration were deductible under § 23(a)(2) of the Internal
Revenue Code as expenses for the "management . . . of property held for the production of income," and reversal by the Circuit Court of Appeals on the ground that such expenses were not "for the production of income" and not for the management of "property held for the production of income" within the meaning of that section was unwarranted. Pp. 325 U. S. 373, 325 U. S. 376.
3. The trust properties did not cease to be "held for the production of income" even though, as the trust term reached its expiry date, the trustees were under a duty to distribute the property among the remaindermen. P. 325 U. S. 373.
4. Section 23(a)(2) is comparable and in pari materia with § 23(a)(1), authorizing the deduction of business or trade expenses. P. 325 U. S. 373.
5. The costs of distribution of the corpus of the trust were expenses of a function of "management" of the trust property quite as much as were expenses incurred in producing the trust income. P. 325 U. S. 375.
6. References in the House Committee Report accompanying the bill which became the Revenue Act of 1942, and in Treasury Regulations 103, § 19.23(a)-15, to the nondeductibility of administrators' and executors' expenses incurred in the administration of the estate of the decedent, including those of distributing assets to the beneficiaries, do not require by analogy that the trustees' distribution expenses here in question be deemed nondeductible. P. 325 U. S. 375.
7. Section 23(a)(2) does not restrict deductions to those litigation expenses which alone produce income; on the contrary, by its terms, and in analogy with the rule under § 23(a)(1), the trust may deduct litigation expenses when they are directly connected with or proximately result from the enterprise -- the management of property held for production of income. Kornhauser v. United States, 276 U. S. 145. P. 325 U. S. 376.
8. To the extent that Treasury Regulations 103, § 19.23(a)-15 purports to deny deduction of litigation expense unless it is to produce income, and to the extent that it departs from the rule of Kornhauser v. United States, it conflicts with the meaning and purpose of § 23(a)(2), and is unauthorized. P. 325 U. S. 377.
145 F.2d 56 reversed.
Certiorari, 324 U.S. 835, to review the reversal of a decision of the Tax Court, 2 T.C. 853, which set aside the Commissioner's determination of a deficiency in income tax.