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Brentwood Coal & Coke Company. The petitioners owned considerable mining equipment which was then being used in the operation of their business.

On January 1, 1944, the petitioners sold to the trustee an RD-8 bulldozer, and on January 28, 1944, a Diesel-powered shovel, at the prices and on the terms set forth in our Findings of Fact. The prices fixed for the bulldozer and shovel approximated those fixed by the O. P. A.

The respondent contends that the trust and the sale and leaseback arrangements were steps in a device to permit petitioners to assign income of the partnership to the children's trust and that the transactions should not be recognized for tax purposes. He argues that the corporate trustee was not an independent trustee but merely carried out the wishes of the petitioners; that the trustee purchased only equipment suggested by the petitioners; that the equipment was required in the operations of the partnership; that the trustee rented no equipment to others than the petitioners; and that no business purpose was served by the sale and leaseback arrangements. The respondent relies upon such decisions as W. H. Armston Co. v. Commissioner, 188 F. 2d 531, affirming 12 T. C. 539; Ingle Coal Corp. v. Commissioner, 174 F. 2d 569, affirming 10 T. C. 1199; and White v. Fitzpatrick, 193 F. 2d 398, certiorari denied 343 U. S. 928. In the Armston case the deduction of rentals was disallowed on the ground. that the alleged sale was a sham because the corporation had not completely divested itself from the ownership of the property. In Ingle Coal Corporation it was held under the facts presented that the questioned transaction was a mere shifting device, without economic reality and substance. In White v. Fitzpatrick the court found that the taxpayer had in fact remained the real owner of the property. The petitioners rely on the cases of Skemp v. Commissioner, (C. A. 7) 168 F.2d 598, reversing 8 T. C. 415, and Brown v. Commissioner, (C. A. 3) 180 F. 2d 926, reversing 12 T. C. 1095, certiorari denied 340 U. S. 814. In the Skemp case the taxpayer had conveyed to an irrevocable trust, of which his wife was the beneficiary, property he previously owned. The trustee thereupon leased a portion of the property back to the donor for what this Court found to be a reasonable rental. The Court of Appeals for the Seventh Circuit held that the fact that what was done was pursuant to a prior understanding was not significant, but what was controlling was the fact that there was a new independent owner, the trustee, who was in a position to and did require the payment of the rents as a condition to the use of the premises, for the purposes of their business and without regard to whether their operations resulted in taxable income. In the Brown case there was also a conveyance to an irrevocable trust and a leaseback arrangement pursuant to a prior understanding.

This Court, reaffirming its position taken in the Skemp case, refrained from following the reversal by the appellate court in that case. On appeal the Court of Appeals for the Third Circuit, finding the significant facts identical with the Skemp case, adopted the view expressed by the Court of Appeals for the Seventh Circuit and reversed. Cf. Consol. Apparel Co. v. Commissioner, 207 F. 2d 580, and Stearns Magnetic Mfg. Co. v. Commissioner, 208 F. 2d 849.

In the instant proceeding the petitioners, by their trust deed, irrevocably divested themselves of the property transferred to the trust created for the benefit of their children. The trustee was a corporate trustee, and we find substantial evidence to justify the inference that the trustee did act independently and in the best interest of the beneficiaries of the trust. We think the respondent places undue emphasis upon the exculpatory provision of the trust instrument. Such a provision is not uncommon where the trustee is not confined to legal investments but is given broad powers of investment in the administration of the trust. We hold that the trust was valid and is to be recognized as such. The sale and lease arrangements between the trustee and the petitioners appear to have been entered into in good faith. The equipment was sold to the trust and leased back at prices fixed by the O. P. A. and so must be regarded as fair and reasonable. No injury resulted either to the trust estate or the business carried on by the petitioners. Under such circumstances the sale and lease arrangements are to be regarded as bona fide transactions. The rentals paid to the trustee are found to be reasonable in amount. We think the case at bar is not readily distinguishable from the Skemp and Brown cases, supra. Accordingly, we adopt the view expressed by the appellate courts and hold that the rental payments constitute ordinary and necessary business expenses of the respective partnerships and are deductible under the provisions of section 23(a)(1) (A) of the Internal Revenue Code in the taxable years in which paid. Therefore, the respondent erred in taxing to the petitioners as income the rentals paid to the trustee in the taxable years in question.

Issue 3.

FINDINGS OF FACT.

In April 1946 the petitioners incorporated the Brentwood Coal Company, Inc., for the purpose of engaging in coal strip mining in Ohio. The petitioners were the sole stockholders.

On April 15, 1946, the Commonwealth Trust Company, as trustee of the children's trust, purchased 10 army surplus trucks for a total consideration of $38,000, upon the understanding that the corporation would lease the trucks from the trust. On April 20, 1946, the trustee, by written lease, leased to the corporation 10 trucks for a period of

1 year at a monthly rental of $3,200, which was $220 less than the maximum O. P. A. ceiling rate.

During 1946 the corporation also rented from the trust a bulldozer at a monthly rental of $920 per month.

During the calendar year 1946 the corporation paid to the trustee the amount of $25,600 as rental for the use of the trucks and $6,440 for the use of the bulldozer.

In determining the deficiencies against the petitioners the respondent included as taxable income to each petitioner 50 per cent of the amount of $32,040.

The rentals paid to the trustee for the use of the trucks and bulldozer were reasonable in amount and were ordinary and necessary business expenses of the Brentwood Coal Company, Inc.

OPINION.

On brief, the respondent concedes error in taxing equally to the petitioners the rentals paid by the corporation to the trustee in the amount of $25,600 for the use of the trucks. The remaining question presented involves the propriety of including the sum of $6,440 paid by the corporation to the trustee in 1946 as rental for the use of the bulldozer. The respondent takes the position that the trustee made no lease with the corporation covering the use of the bulldozer which had previously been leased to the Brentwood Coal & Coke Company, and that presumably the rent was paid under a sublease from the Brentwood Coal & Coke Company and was constructively received by the petitioners. We find little merit in this contention. There is no evidence to indicate the existence of any sublease. It is not disputed that the $6,440 was paid by the corporation to the trustee. The corporation used the bulldozer and in the absence of a lease it was legally obligated to pay the reasonable rental value for such use. The bulldozer was the property of the trust and the rental paid to the trustee was taxable income of the trust. Assuming, arguendo, that the corporation subleased from the partnership of petitioners, the latter would have been required to pay the rentals to the trustee under its lease, and the partnership would be entitled to deduct the amount as a business expense. The petitioners would not have received additional income from the transaction.

We, therefore, hold that the respondent erred in taxing as income equally to the petitioners in 1946 the amount of $6,440 received by the trustee from the corporation as rental for the use of the bulldozer.

Issue 4.

FINDINGS OF FACT.

In the partnership return of the Brentwood Coal & Coke Company for 1946 there was reported as net long-term capital gains from the

sale of certain capital assets, exclusive of the sale of an Erie 43-B shovel, the total amount of $20,060.70 recognizable to the extent of 50 per cent, or $10,030.35. One-half of this amount, or $5,015.18, was reported by each of the petitioners.

In his deficiency notice the respondent increased the net long-term capital gain by the amount of $8,787.43, representing the gain realized from the sale in 1946 of the Erie 43-B shovel.

The parties have stipulated that the correct amount of net longterm capital gains, exclusive of the gain from the sale of the shovel, is $19,819.90, recognizable to the extent of 50 per cent, or $9,909.95.

On April 29, 1946, the trustee of the children's trust sold to Everett Moses an Erie 43-B shovel, which the trustee had purchased from the Brentwood Coal & Coke Company on January 28, 1944.

The parties have stipulated that the net long-term gain realized from the sale of the Erie 43-B shovel is $9,909.95, rather than the amount of $8,787.43 shown in the deficiency notice.

The gain realized from the sale of the Erie 43-B shovel is taxable to the children's trust.

OPINION.

The question presented is whether the respondent erred in taxing to the petitioners equally 50 per cent of the net long-term capital gain realized from the sale in 1946 of the Erie 43-B shovel.

It is the contention of the respondent that, since the trust established by the petitioners and the sale and leaseback arrangements between the trustee and the petitioners, as partners operating under the name of Brentwood Coal & Coke Company, were not bona fide transactions, the sale of the shovel in question was made by the petitioners and not by the trustee.

The petitioners contend that the shovel was property of the trust and the gain realized from the sale was taxable to it.

Since we have held under Issue 2 that the sale and leaseback agreements between the trustee of the children's trust and the Brentwood Coal & Coke Company were bona fide transactions and entitled to recognition for purposes of taxation, the contention of the petitioners is sustained.

We, therefore, hold that the respondent erred in taxing as income to each petitioner 50 per cent of the net capital long-term gain realized from the sale in 1946 of the Erie 43-B shovel.

In the computations under Rule 50 effect will be given to the stipulations and concessions of the respective parties set forth herein. Reviewed by the Court.

Decisions will be entered under Rule 50.

RAUM, J., dissenting: It is inconceivable to me that Congress ever intended to permit deductions of the type approved herein, notwithstanding the elaborate effort to cast them in the form of business expenses, a mere device without economic reality or substance regardless of whether the transactions may or may not properly be described as "bona fide."

TURNER, OPPER, and RICE, JJ., agree with this dissent.

AVIATION COUNTRY CLUB, INC., PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 47316. Promulgated February 26, 1954.

Held, petitioner, during the fiscal years involved, was an organi-
zation exempt from income tax under section 101 (9), Internal
Revenue Code.

Stanley L. Drexler, Esq., for the petitioner.
Gene W. Reardon, Esq., for the respondent.

The respondent determined deficiencies in income tax of petitioner as follows:

Fiscal year ended
Apr. 30, 1950__

Apr. 30, 1951__.

Amount
$13, 492. 93

8, 061. 06

The question presented is whether or not petitioner qualifies during the years involved for exemption from income tax as a corporation 66*** organized and operated exclusively for pleasure, recreation, and other non-profitable purposes, no part of the net earnings of which inures to the benefit of any private shareholder ***"

FINDINGS OF FACT.

Petitioner is the Aviation Country Club, Inc., a corporation organized on April 15, 1944, under the laws of the State of Colorado. The income tax returns here involved were filed with the collector of internal revenue for the district of Colorado.

Prior to February 1949, there were a number of clubs or groups in the vicinity of Denver, Colorado, interested in aviation. Most of these clubs met regularly. None had a club house or meeting place of its

own.

The Broadmoor Country Club (hereinafter called Broadmoor), a private taxable corporation incorporated in 1925, operated a ballroom, restaurant, and cocktail lounge at Edgewater, Colorado, on the outskirts of the city of Denver. The business enterprise was owned by Nellie Ott and her son, Eddie Ott (hereinafter sometimes respec

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