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21 B.T.A. 1409

Merrill Trust Co. v. Commissioner

United States Board of Tax Appeals

Decided January 29, 1931

United States Board of Tax Appeals · decided 1931-01-29

1. An amount credited by a taxpayer to a pension fund set up by it for the benefit of its employees may not be deducted as an ordinary and necessary business expense in the absence of evidence establishing that an enforceable trust was created. 2. In determining whether such a trust was created, the fact that the taxpayer, experienced in trust matters, deliberately refrained from making a trust agreement or declaration can not be casually regarded. 3.

Relies on Colton v. Colton · Chicago St Ry Co v. Des Moines Union Ry Co Des Moines Union Ry Co · Hibbard, Spencer, Bartlett & Co. v. Commissioner

Good law ✅— No negative treatment on recordhow we know

Decided 1931-01-29

How this case has been cited

Cited by 5 later decisions — most recently February 1974

1 federal appellate ·

2019311940195019601970decided

Later decisions citing this case, by decade. The current decade is in progress, and our corpus holds fewer opinions from the most recent years, so the latest bars are undercounted — not a real decline.

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Smith,

¶1dissenting: The petitioner is a trust company under the laws of the State of Maine and is entitled to receive trust funds in its capacity as such. In 1923 it appropriated out of its banking funds $5,000 to be added to its pension fund, which was a trust fund held by the trust department. Such funds are entirely segregated from the banking funds. The vice president of the petitioner testified in this proceeding that all trust funds handled by the trust department were kept absolutely separate from the banking funds. That such funds did not constitute a part of the capital employed in banking is conclusively shown by Fidelity & Deposit Co. of Maryland v. United States, 259 U. S. 296.

¶2The prevailing opinion holds that “ there is no reason in the present record to say that a trust was created.” The vice president of the petitioner, its principal witness, was asked:

Q. Was it contemplated at the time by the officers [of the petitioner], at the time the fund was established that it should be a permanent and irrevocable trust?
A. It was to be a permanent trust.

¶3It is also stated in the prevailing opinion that “ The petitioner, with all of its experience in trust matters, deliberately refrained from making a trust agreement or declaration.” There is no evi*1412dence in the record to support such a statement. The evidence all goes to show that the petitioner acted in good faith in setting up the trust fund. In my opinion it is immaterial that there was no written declaration of trust. As was stated by the Supreme Court in Chicago, Milwaukee & St. Paul Ry. Co. v. Des Moines Union Ry. Co., 254 U. S. 196, 208:

It needs no particular form of words to create a trust, so there be reasonable certainty as to the property, the objects, and the beneficiaries, Colton v. Colton, 127 U. S. 300, 310. …

¶4No question being raised as to the right of the petitioner to deduct the amount set aside to the trust fund on the ground that it constituted unreasonable compensation for its employees, I am of the opinion that the amount is a legal deduction from gross income under the decisions of the Board in Hibbard, Spencer, Bartlett & Co., 5 B. T. A. 464; Lemuel Scarbrough, 17 B. T. A. 317; and Elgin National Watch Co., 17 B. T. A. 339.

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