Petition for A Writ of Certiorari — National Memorial Park, Inc. v. Commissioner

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In THE

Supreme Court of the United States

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October Term, 1944.

Nationa Memoriau Park, Inc., Petitioner,

vs.

CoMMISSIONER OF INTERNAL REVENUE.

a

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES CIRCUIT COURT OF APPEALS

FOR THE FOURTH CIRCUIT AND BRIEF IN SUP.

PORT THEREOF.

LiEweLtyn A. Luce,

937 Munsey Bldg.,

Washington, D. C.,

Counsel for Petitioner.

WILSON PRINTING Co., WASHINGTON 1, D. C..—Brancu P. EPES, MANAGER

)

et BBG tines = STEN DRI ene INNS

INDEX

Subject Index

Petition for writ Of COTEROPETI............0cccc<cccccccseccsocnceccsssnaosss

II TO ik her raecnnctiinsnceitetene arcrsenbe ano ohnmelenatenstc

REHEAT ERC ee I ree SOE ekeateee

Statutes involved (See appendix) -................0.200....eeeeeee

pp

PI GE II ick cocci ors ncshicechousesnamminalioes

aD ETON ICI

Specification of errors to be urged..............-..-.--..--.--+-

Reasons relied on for the allowance of the writ..........

Poriet ith WOOT WE WORN icici esis Seen

TI. If a prescribed part of the sales price of the

‘rights of sepulture’’ was received in trust,

such part has been properly excluded by peti-

CHOMOT THOM, MTOUS TONG oan cccnccenisncenessseeinccs

If. An express trust was created, established and

I GS ih i iia a nies

TIT. The decision of the Cireuit Court of Appeals

is in direct conflict with the decision of the

United States Cireuit Court of Appeals for the

Ninth Cireuit in Portland Cremation Associ-

ation v. Commissioner, 31 F. (2d) 848_......0........

IV. The sales of ‘‘rights of sepulture’’ involved

herein constituted sales of personal property......

Appendix—Statutes involved ....................-.-:--c--ceeceeeeeeeees

PAGE

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INDEX (continued)

PAGE

Table of Cases Cited

American Cemetery Co. v. U.S. (D. C.)

DS FB. (2d) QS .......-..--c-cecececeececseennnesensere sf sascivessinsccnnnantons 12

10 American Juris, Section 22, Page , ~~ ieee 12, 23

Bessemer Land Co. v. Jenkins, 111 Ala. 135,

18 South. 565, 56 Am. St. Rep. 26...........------------ 12, 23

Burke-Waggoner Oil Assn. v. Hopkins,

BE WY. BR. 90 nnn .nannn.-n-ncneeeennnennenensenssonsensnenenseneenesooes 11, 23

Burnet v. Hormal, 287 U.S. 108 .......------------sereeereees 11, 23

14 C. J. S., Cemeteries, Section 25, page SRE: 12,28

Clarke v. Keating, 170 N. Y. S. 187,

193 App. Div. 212 .......---.-.------ccetern 12, 21, 22, 23

Duff v. Keaton, 124 Pacifie 293, 33 Okla. 485,

16 Okla. 485, 184 Pacific 786............ bt encaeisiainaboncten 23

Evergreen Cemetery Assn. of Chicago, 21 B. T. A. 1194.. 18

¥oldman v. Mollen, 168 Va. 345, 191 S. a. Sees 11, 21

Grinnan and Others v. Fredericksburg Lodge No. 4,

Ancient, Free and Accepted Masons and Others,

118 Va. 588, 88 S. BE. 79.....------------e-eeeeeeees 11, 19, 21, 22

Holloway et al. v. Thompson et al.,

4D N. BE. 2d 421 ..........-.----cssenceecencncsneenereseeees 11, 21, 22, 2

Inglewood Park Cemetery Assn., 6 B. T. A. 386..........-- 13

Kineaid’s Appeal, 66 Pa. St. 411, 5 Am. Rep. 377.... 12, 238

Los Angeles Cemetery Assn., fe 2S ae 13

Metairie Cemetery Assn., 4 B. T. A. 903 ee

Partridge v. The First Independent Church of

Baltimore, 39 Md. 631..........----------------+ 12, 23

INDEX (continued)

PAGE

Paul v. Walkerton ete. Cemetery Assn., 1933,

904 Ind. 693, 184 N. BE. 537...........----...---c-ceseeeeeeeess 12, 23

Portland Cremation Association v. Commissioner,

BA: |e. SaRenarnuenT nearness nnmes nonrn 16, 17

Roanoke Cemetery v. Goodwin, 101 Va. 605,

<i: BRERA San ceiecienceeeceetite ee nee 11

Rosenberger v. McCaughn (C. C. A. 3) 25 F. (2d)

699, certiorari denied 278 U. 8. 604..............------ 11, 23

Stanton v. Baltic Mining Co., 240 U.S. 108_......---....--. ii, Ze

Stratton’s Independence v. Howbert, 231 U.S. 399... 11, 2:

Troost Avenue Cemetery v. U. S. (D. C.)

oa pcdiciucicnrpnanedhciiessinwmpolinioen 12

Troost Avenue Cemetery Assn., 4 B. T. A. 1169_........... 13

Von Baumbach v. Sargent Land Co., 242 U. 8. 508... 11, 28

Statutes Involved

Revenue Act of 1934, See. 44 (a) and (b), ¢. 277,

as aipiiddaenebstimuniann tabaiesaboaediebtoen 25

Revenue Act of 1936, See. 44 (a) and (b), ¢. 690,

hs eacusntnnninipebe saubaucibapiebepiantbes ai

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FRA TRIPE OE, IT ONE, AES OE

In THE

Supreme Court of the Gnited States

October Term, 1944.

NationaL Memoria Park, INxc., Petitioner,

Us.

COMMISSIONER OF INTERNAL REVENUE.

es

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES CIRCUIT COURT OF APPEALS

FOR THE FOURTH CIRCUIT AND BRIEF IN SUP-

PORT THEREOF.

To the Honorable the Supreme Court of the United States:

National Memorial Park, Inc., a corporation, by its

attorney prays that a writ of certiorari issue to review

the judgment of the United States Cireuit Court of Ap-

peals for the Fourth Cireuit, entered in the above en-

titled cause on November 13, 1944, affirming a decision

of the Tax Court of the United States.

OPINIONS BELOW

The memorandum opinion of the Tax Court of the

United States is unreported but is contained in the tran-

seript of record, pages 36 to 55, inclusive.

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The opinion of the Cireuit Court of Appeals is un-

reported but may be found at Paragraph 62,801, Volume

4, 1944 Edition, Prentice-Hall Tax Service. (See also R

64-77).

JURISDICTION

The judgment of the Cireuit Court of Appeals was

entered on November 13, 1944 (R 77). The jurisdiction

of this Court is invoked under Section 240(a) of the

Judicial Code, as amended by the Act of February 13,

1925 (28 U.S.C.A. § 347).

STATUTES INVOLVED

The statutes involved are set out in the Appendix,

infra, (pp. 25-27).

STATEMENT OF FACTS

The action below was an appeal by the taxpayer from

the decision of the Tax Court of the United States in

which a judgment was rendered in favor of the Commis-

sioner (R. 55).

The facts, as found by the Cireuit Court of Appeals,

are as follows (R. 64-77):

Petitioner is a Delaware corporation, organized Sep-

tember 7, 1933, engaged during the years in question in

the business of operating a cemetery, known as ‘*National

Memorial Park’’, located in Fairfax County, Virginia.

Sometime during 1933, at a cost of $32,202.32, peti-

tioner acquired 92,986 acres of land in Virginia. This

acreage was plotted into 24,429 salable four-grave ceme-

tery lots. The balance was unsalable property, such as

roads and paths.

On June 22, 1934, pursuant to a resolution adopted by

petitioner’s board of directors on June 12, 1934, peti-

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tioner entered into a trust agreement with the City Na-

tional Bank of Philadelphia. Under the terms of this

agreement, the City National Bank was to act as trustee,

and all moneys received from the sale of burial lots were

to be deposited with the Trustee as Depository.

Certain provisions of the trust agreement which are

particularly germane to the questions on appeal are herein

set forth ipsisstaisx rerbis:

ve * * No sections of lots in the Memorial Park shall

he sold unless au initial cash payment of at least 20%

of the purchase price is made by the purchaser at the

time of the execution of the contract of sale. Upon

receipt of such puviment of 20% the trustee shall credit

the same to the General Fund.

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ach subseuent payment made by the pur-

chaser of a seetion o¢ let in the Memorial Park when

received by the trustee shall be credited by it to the

General Fund, until one-half of the purchase price is

paid when the halunee of payments shall be apportioned

as follows:

(a) Perpetusl Maintenanee Fund... 20%

COO) RUMMBVIO tana i cscs cnet estes tad 40%

ye Beg RAR nN NEEL cee 40%

RE ii) sk nh nian taal 100%

so that when payinent is made in full by the purchasers

of a section or lot in the Memorial Park the Trustee

shall have eredited the same as follows:

(a) Perpetual Maintenance Fund... 10°

CU): “Wemmpprrerrernnst Pa asics hess escent 20

(ja. (gS ROR ee ere ene ee TOC

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‘“* * * The Memorial Park covenants and agrees that

each purchaser of a section or lot will receive a good

and sufficient deed of right of sepulchre to such section

or lot in the Memorial Park when payment of all install-

ments of purchase price and interest have been made in

full.

“* * * \ cum equal to 10% of the gross proceeds

of funds arising from the sale of sections or lots in the

Memorial Park shall as above provided be set apart and

shall constitute a Perpetual Maintenance Fund, for the

perpetual care and preservation of the grounds and the

repair and renewal of the Memorial Park. A total of

10% of the total purchase price of all sections of lots

shall be deducted from the payments on account of the

purchase price of said sections or lots in the respective

percentages hereinbefore enumerated. The principal of

<uch fund shall be held intact by the trustee and shall he

invested in the manner hereinafter stated, and the net

income from the principal of such fund shall be paid by

the trustee to the Memorial Park. The Memorial Park

covenants and agrees to use the income so received from

the Perpetual Maintenance Fund for the perpetual care

and preservation of the grounds, and the repair and

renewal of the buildings and property of the Memorial

Park.

“The principal of such Perpetual Maintenance Fund

shall be invested and re-invested from time to time by

the trustee in such securities as from time to time shall

constitute a legal investment for trustees under the laws

of the State of Pennsylvania.

* * *

““* * * 90% of the total selling price of all sections

or lots in the Memorial Park shall be set aside and

shall constitute an Improvement Fund. The moneys so

set apart for the Improvement Fund shall be expended

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for the purpose of developing, enlarging, improving and

beautifying the Memorial Park, including the landscap-

ing of the grounds, construction of roads, entrances, walls

and a memorial chapel, the purchase or (sic.) equipment,

and for any other charges which, in the judgment of the

Board of Directors of the Memorial Park, shall be neces-

sary or proper for the establishment of a Memorial Park

or burial ground to he known as National Memorial Park.

‘*Payments from sueh Improvement Fund shall be

made by trustee upon the following terms and conditions:

‘*(a) Upon presentation of a certificate of the arehi-

tects or engineers having supervision of the particular

work or improvement, certifying that the amount. or

amounts specified are due for labor and material fur-

nished, or expenses incurred in the improvement of the

Memorial Park provided, however, that such certificate

shall be accompanied by the written approval of the of-

ficers of the Memorial Park who shall be authorized to

approve the same.

‘*(b) Upon presentation of bills or statements of archi-

tects, engineers, attorneys or any other persons who have

performed services or incurred expenses in connection

with the improvement of the Memorial Perk, under the

direction of the proper officers of the Memorial Park,

where such services are not performed under the super-

vision of any architect or engineer, and where such bills

or statements are accompanied by the written approval

of the officers of the Memorial Park who shall be author-

ized to approve the same.

‘“*(e) Upon presentation by the officers of the Memorial

Park of cancelled checks or other evidence satisfactory

to the trustee showing amounts expended in purchasing

and acquiring title to real estate for the purpose of the

Memorial Park, together with a certified copy of a resolu-

tion of the Board of Directors of the Memorial Park

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certifying that the amounts specified have been expended

for such purpose, and requesting the trustee to reimburse

the Memorial Park out of the Improvement Fund for such

expenditures.

‘*(d) Payments not in excess of the sum of $1 50.00 shall

he made upon receipt of a written requisition, signed by

the President and Comptroller.”’

The moneys deposited in the General Fund were sub-

ject to the disposition of petitioner with no supervision

or control by the trustee. Nor was the trustee under any

obligation to see to the application of any of the money

so paid to petitioner. A further provision of the agree-

ment provided:

‘Tt is agreed by and between the parties hereto, how-

ever, that in order that lots may be properly conveyed

as sold that the said Memorial Park will immediately

upon the execution hereof and from time to time there-

after as the same may become necessary, convey to the

‘trustee by good and sufficient deed of conveyance title

in fee to the ground upon which are located no less than

three thousand (3,000) lots free of mortgage lien, and

does hereby covenant and agree to and with the said

trustee not to sell or dispose of the right of sepulchre

to any section or lot other than those lots to which title

has been conveyed to the trustee as aforesaid, and the

trustee for its part agrees that it will hold title to such

ground as’may be conveyed to it in accordance with the

terms hereof as trustee for the said Memorial Park and

its assigns, and that it will upon receipt of the purchase

price from individual purchasers convey by approved deed

sections or lots and the right of sepulchre therein to the

purchasers thereof, and that it will not in any manner

or form alien or encumber the said ground, but will hold

it solely for the uses and purposes herein specified.’’

On December 10, 1934, in compliance with the terms

of the trust agreement, petitioner conveyed 3,004 lots to

the nominee of City National Bank, and on December 6,

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1937, the entire property of the cemetery was conveyed

to the bank’s nominee.

By the terms of the sales contracts used by petitioner

during the years in question, petitioner agreed, upon full

payment being made by the purchaser, to deliver ‘*good

and sufficient deed*’ to the allotted section, and further

to set aside and build up a maintenance and an improve-

ment fund. The contracts of sale were received in peti-

tioner’s office, together with the down payments.

When, and only when, 20 percent or more of the sales

price had been paid, petitioner deposited the money col-

lected in the Hamilton National Bank for the account of

City National Bank, at which time a statement called

a ‘collection advice,"’ listing the amounts received from

each customer and the allocation of these amounts to the

various funds, was prepared and sent to City National

Bank. If the purchaser did not complete payments up to

20 percent of the purchase price, the money was retained

by petitioner.

When the final payment was made by the purchaser,

petitioner delivered a deed, executed by the bank or its

nominee, to the purchaser. These deeds provided in part

as follows:

‘That the said Grantor for and in consideration of

the sum of $10.00... * * * and other good and valuable

considerations * * * has granted, bargained, sold, re-

leased.conveyed and confirmed, and by these presents does

grant, bargain, sell, release, convey and confirm unto the

said Grantee his heirs and assigns, subject to the eondi-

tions and restrictions hereinafter set forth, the right of

sepulehre and the right to the exelusive use, occupation

and possession for that purpose only in the lot of ground

in the said National Memorial Park. * * *

“The said Grantor as aforesaid, hereby covenants to

and with the said party of the second part, his heirs and

assigns, that of the purchase price of all cemetery lots in

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this said Park there will be set aside thirty (30%) per-

cent, of which fund the City National Bank of Philadel-

phia shall be trustee; one third of this said fund shall

be capitalized and held intact and the income therefrom

shall be used solely and perpetually for the purpose of

maintenance and preservation of the said Memorial Park

and for the proper upkeep thereof and the other two-

thirds thereof shall be used to erect buildings and make

improvements.”’

When petitioner expended money for improvements it

forwarded to the City National Bank a statement called

‘‘improvement certificate’? which showed the amount ex-

pended for each improvement and certified that such

amounts had been so spent. These certificates were either

approved or disapproved by the bank and then, as money

accumulated in the improvement fund, the bank made reim-

bursement to petitioner and applied the reimbursement

against the sum which had been certified to the bank by

petitioner.

The amounts of the improvement certificates certified

by petitioner, and the amounts paid thereon by City Na-

tional Bank during the taxable years, are as follows:

Improvement Certificate Amount Paid

i ictiincinsnincsinsisitetnondl $31,625.05 $13,794.82

erie ensieminsnenssicivens 46,603.15 57,761.85

Fe scotanssintcismeincnnsenn 52,425.69 51,887.52

During the same period petitioner spent the following

amounts for improvements:

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PRT CRE A € 39,582.57

pet RES I

In filing its returns for the taxable years, petitioner

took the position that it was regularly engaged ‘in selling

9

personal property. In its returns petitioner answered the

question as to the basis of the return by writing in the

word “‘installment’’. Petitioner’s books were kept on the

accrual basis. In computing its gross income for these

years petitioner excluded 30.64 percent of its cash collec-

tions for each year. The figure, 30.64 percent, was com-

puted in this manner: maintenance fund, 10 percent; im-

provement fund, 20 percent; and land cost, .64 percent.

Petitioner's returns for the years 1935 and 1937 were not

filed within the time preseribed by law.

It was the Commissioner’s contention that petitioner

was engaged in selling realty, not personalty, and thus

ix brought within the ambit of section 44(b) of the Reve-

nue Acts of 1934, 1936 and 1938, and Articles 44-2 and

44-3 of Regulations 86, 94 and 101; that petitioner was

not permitted to use the installment basis for reporting

profit from lot sales. The Commissioner further con-

tended that the amounts representing 20 percent of the

sales price of lots sold in the taxable vears were not im-

pressed with a trust in the ‘‘Improvement Fund”’,

The Tax Court sustained the position of the Commis-

sioner in every instance except one, (with which we are

not here concerned) and from this decision the petitioner

has duly appealed.

The Cireuit Court of Appeals affirmed the decision of

the Tax Court of the United States and held:

1. That the improvement fund of 20% of the annual

collections from the sales of ‘rights of sepulture’* could

not be exeluded from the petitioner's gross income because

the improvement fund was not a trust fund or for the

henefit of the owners of ‘‘rights of sepulture”’.

2. That petitioner could not report its income as a deal-

ex in personal property because the petitioner’s sales of

“rights of sepulture’’ constituted sales of real property

rather than sales of personai property.

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QUESTIONS PRESENTED

The case presents the following questions:

1. Whether the Improvement Fund was a trust fund for

the benefit of the owners of ‘‘rights of sepulture’’ and

thus properly excluded by petitioner from its gross in-

come. .

2, Whether the sales by petitioner of ‘‘rights of sepul-

ture’? constituted sales of personal property or sales of

real estate.

SPECIFICATION OF ERRORS TO BE URGED

The Cireuit Court of Appeals erred:

1. In deciding that the Improvement Fund was not a

trust fund for the benefit of the owners of ‘‘rights of

sepulture’’ and thus properly excluded by petitioner from

its gross income for the years here involved.

2. In deciding that petitioner was not a dealer in per-

sonal property within the meaning of Section 44(a) of

the Revenue Acts of 1934 and 1936.

3. In deciding that the sales by petitioner of ‘‘rights of

sepulture’’ constituted sales of real property rather than

sales of personal property.

4. In failing to follow for Federal tax purposes the

weight of modern authority throughout the United States

that sales of certificates of ‘‘rights of sepulture’’ consti-

tute sales of securities and thus sales of personal property

rather than sales of real estate.

5. In affirming the decision of the Tax Court of the

United States.

SRE ATM, TON A PS REE eth tri

11

REASONS RELIED ON FOR THE ALLOWANCE

OF THE WRIT

1. The decision of the Circuit Court of Appeals herein

is in direct conflict with the decision of the United States

Cireuit Court of Appeals for the Ninth Cireuit in Port-

land Cremation Association vy. Commissioner, 31 F. (2d)

843.

2. Under the law of the State of Virginia (where the

cemetery here involved is located) sales of ‘‘rights of

sepulture’’ do not convey ‘tan estate in Jand’’, but the

law is not settled as to whether such sales constitute sales

of personal property or sales of real estate. Grinnan v.

Fredericksburg Lodge, No. 4 A. F. & A. M., 118 Va. 588,

88S. KE. 79; Roanoke Cemetery v. Goodwin, 101 Va. 605,

44.8. E. 796; Goldman vy. Mollen, 168 Va. 345, 191 S. E.

627.

However in the construction of a taxing statute of the

United States, the law of the state in which the land in-

volved is situated does not necessarily govern and need

not be followed with respect to interests transferred by

sale. Rosenberger v. McCaughn (C. C. A. 3) 25 F. (2d)

699, certiorari denied, 278 U. S. 604.

The Federal law or the weight of authority throughout

the United States rather than State law should be fol-

lowed in construing sales contracts such as those here

involved for Federal tax purposes. Burnet v. Harmal,

287 U.S. 103; Burke-Waqgoner Oil Assn. v. Hopkins, 269

U.S. 110. Please see also Von Baumbach vy. Sargent Land

Co., 242 U.S. 508; Stratton’s Independence v. Howbert,

231 U.S. 399; and Stanton v. Baltic Mining Co., 240 U.

S. 103.

4. Under the weight of authority throughout the United

States, sales of ‘‘rights of sepulture’’ constitute sales of

personal property. Holloway et al. v. Thompson et al.,

decided by the Appellate Court of Indiana on June 16,

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1944 and reported in 42 N. E. (2d) 421; Paul v. Walkerton,

etc. Cemetery Assn., 1933 204 Ind. 693, 184 N. E. 537;

Clarke v. Keating, 170 N. Y. S. 187, 193 App. Div. 212.

In re Waldstein, 160 Mise. 763, 291 N. Y. 8. 697; 10 Ameri-

can Juris, Section 22, page 503; 14 C. J. S., Cemeteries,

Section 25, page 84+. Please see also the following earlier

authorities: Kincaid’s Appeal, 66 Pa. St. 411, 5 Am. Rep.

377: Partridge v. The First Independent Church of Balti-

more, 29 Md. 631; Bessemer Land Co. v. Jenkins, 111 Ala.

35. 18 South. 565, 56 Am. St. Rep. 26.

5. The Cirenit Court of Appeals has decided two im-

portant questions of Federal tax law which have not heen

but should be settled by this Court. The questions in-

volved are important to all cemeteries and _ sellers of

‘rights of sepulture”’.

BRIEF IN SUPPORT OF PETITION

I.

IF A PRESCRIBED PART OF THE SALES PRICE

OF THE ‘RIGHTS OF SEPULTURE”’ WAS RE-

CEIVED IN TRUST, SUCH PART HAS BEEN

PROPERLY EXCLUDED BY PETITIONER FROM

GROSS INCOME.

The following appears well settled by the decisions of

the courts: where a trust, recognized by law, whether

express or implied, is created or exists, and a prescribed

portion of the contract price received for a cemetery lot

or ‘‘right of sepulture’’ is received under or in trust for

the maintenance or improvement of the cemetery or lots,

such portion of the contract price is excluded from the

gross income of the cemetery company. If no portion of

the contract price is received in trust, but a part thereof

is immediately turned over to an established trust, such

portion is deductible. American Cemetery Co. v. U. &.

(D. C.) 28 F. (2d) 918; Troost Ave. Cemetery Co. v. U.

13

S., (D. C.) 21 F. (2d) 194; Los Angeles Cemetery Assn.

2 B. T. A. 495, Dee. 713 (Aeq.) ; Greenwood Cemetery Assn.,

2 B. T. A. 910, Dee. 869 (Aeq.) ; Metairie Cemetery Assn.,

+ B. T. A. 903, Dee. 1634 (Aeq.); Troost Ave. Cemetery

Assn., 4 B. T. A. 1169, Dee. 1732 (Acq.); Inglewood Park

Cemetery Assn., 6 B. 'T. A. 386, Dee. 2213 (Non-aeq.).

Evergreen Cemetery Assn. of Chicago, 21 B. T. A. 1194;

G.C.M. 8446, Cumulative Bulletin 1X-2, pages 370, 371.

In G.C.M. 8446, supra, the General Counsel of the

Bureau of Internal Revenue concluded: ‘‘that a trust fund

was created in which the purchaser of a lot had such an

equitable interest as might be enforced upon application

to a court-of equity by petition asking for specifie per-

formance, \and that such trust fund was irrevocable, both

as to principal and income therefrom’’.

The General Counsel then held that monies from the

sale of lots passing into the trust fund did not constitute

part of the taxpayer’s gross taxable income.

II.

AN EXPRESS TRUST WAS CREATED, ESTABLISHED

AND CARRIED OUT IN THIS CASE.

It is respectfully submitted that the Findings of Fact

made by the Tax Court demonstrates that an express

trust was created and carried out in this case and that

the improvement funds here involved were both received

in trust and turned over to the trustee of the trust which

had been created. (R. 23-36).

City National Bank of Philadelphia was designated by

petitioner’s Board of Directors as trustee.

A trust agreement was made and entered into by peti-

tioner with City National Bank of Philadelphia on June

22, 1934. The City National Bank of Philadelphia was

designated in this trust agreement as trustee.

14

The petitioner operated under this trust agreement dur-

ing the years 1935, 1936 and 1937 and under the trust

agreement as amended in the month of December, 1937.

The trust agreement of June 22, 1934 was ratified by

a special meeting of petitioner’s Board of Directors.

On December 10, 1934 the petitioner, pursuant to the

provisions of the trust agreement, conveyed 3004 lots to

the nominee of the City National Bank.

On December 6, 1937, pursuant to the provisions of the

trust agreement as amended, petitioner deeded to the

nominee of the City National Bank the balance of the

tracts or parcels of land in the cemetery.

The indentures or deeds to the purchaser of ‘‘rights of

sepulture’’ were executed by the City National Bank or

by its nominee as grantor and delivered by the petitioner

to the purchaser.

The petitioner’s collections on contract sales were de-

posited to the account of City National Bank.

A collection advice was prepared by petitioner’s officers

and sent to the trustee bank, showing the amounts received

from each customer and allocation of the collections and

the funds to which they were applicable was made by peti-

tioner in accordance with the trust agreement.

When the final payment was made on a contract, the

indenture to the purchaser was forwarded to the trustee

bank for execution and then was delivered by petitioner

to the purchaser.

When the collections were received by the bank from

the petitioner, the bank then notified the petitioner that

the same had been received and that the monies had heen

allotted to the various funds provided for by the trust

agreement.

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The City National Bank, Trustee, maintained an account

with the Pennsylvania Company, in which the trust funds

were deposited and upon which the checks to petitioner for

improvements were drawn.

The petitioner maintained a separate and distinct bank

account for its own purposes, entitled National Memorial

Park Operating Account.

It became necessary for the petitioner to spend its own

funds and make advances for improvements prior to the

time when there were sufficient accumulations in the im-

provement fund. However, the petitioner prepared and

sent to the trustee certificates for these monies spent for

improvements certifying that the monies had been spent.

The certificates for improvements were checked and

verified by the bank’s representatives and adjustments

were, in certain instances, as required by the bank.

When the certificates for improvements had been ap-

proved by the bank, funds were remitted to the petitioner

from the improvement fund by the bank to cover the

advance made by petitioner. Such funds were remitted

by the bank when the accumulations in the improvement

fund reached a sufficient amount to reimburse the peti-

tioner and when the expenditures by petitioner for im-

provements as shown by the certificates were approved

by the bank.

The Tax Court also found that the bank, as trustee,

actually executed the deed or indenture to the purchaser

(R. 31), and that the said deed itself referred to the fund

of which the bank was trustee which the grantor actually

covenanted would be set aside for maintenance and im-

provements (R. 32).

16

IIl.

THE DECISION OF THE CIRCUIT COURT OF AP-

PEALS IS IN DIRECT CONFLICT WITH THE

DECISION OF THE UNITED STATES CIRCUIT

COURT OF APPEALS FOR THE NINTH CIRCUIT

IN PORTLAND CREMATION ASSOCIATION v.

COMMISSIONER, 31 F. (2d) 843.

The Cireuit Court of Appeals held that the Improve-

ment Fund here involved was not received upon trust or

impressed with a trust substantially because of the dis-

cretion and eontrol lodged in petitioner with respect to

the Improvement Fund (R. 74). We think that the deci-

sion of the court below is in direct conflict with the decision

of the United States Cireuit Court of Appeals for the

Ninth Cireuit in Portland Cremation Association v. Com-

missioner, supra (31 F. (2d) 848).

In the Portland Cremation Association case it was held

that a covenant, in the Cremation Association’s deed to

the purchaser of sepulture rights, providing that a portion

of the purchase price would be placed in a maintenance

fund, without indicating any specific portion to be used,

was sufficient to impress the fund to be set aside with a

trust. The provisions with respect to creating the fund

or trust were contained in the resolutions of the company’s

Board of Directors and in the deed to the purchaser.

In the ease at bar the trust was express. <A trust agree-

ment was actually entered into and the deed from the

trustee to the purchaser contained the following provi-

sion (R. 31-32):

* * *

“The said Grantor as aforesaid, hereby covenants

to and with the said party of the second part, his

heirs and assigns, that of the purchase price of all

cemetery lots in this said Park there will be set aside

thirty (30%) percent, of which fund the City National

17

Bank of Philadelphia shall be trustee; one third of this

said fund shall be capitalized and held intact and the

income therefrom shall be used solely and perpetually

for the purpose of maintenance and preservation of

the said Memorial Park and for the proper upkeep

thereof and the other two-thirds thereof shall be used

to erect buildings and make improvements.’’ (Ttalies

supplied )

* * *

Thus, there was a covenant between the trustee and the

purchaser providing that twenty percent of the purchase

price would be used to erect buildings and make lnprove-

ments. The case at bar is a mueh stronger case than

Portland Cremation Association vy. Commissioner, supra,

because in the instant case there was not only a covenant

in the deed providing for the improvement fund but a

trust agreement was actually executed and the trustee or

its nominee conveyed the property to each purehaser.

In Portland Cremation Association v. Commissioner the

Cireuit Court of Appeals for the Ninth Cireuit regarded

the element of control as immaterial and in its opinion

stated in part as follows:

* * *

‘‘We cannot agree that the fund so set aside by the

petitioner here is not essentially a trust fund.

* * *

“While the petitioner here may be said to have

had control of the money which it had placed in the

maintenance fund, diversion of that fund for cor.

poration purposes or any purpose other than that

designated by its promise to maintain the same, and

the specific resolution of its board of directors to

devote to that purpose 20 per centum of its receipts

from sales might be enjoined by a suit in equity as a

violation of the trust agreement. The crucial question

is, Did the petitioner’s patrons possess the right to

proteg@® themselves and demand the preservation of

APRA ERAS

1S

the fund which the petitioner had covenanted with

them to maintain and by its resolution had set apart

for maintenance? That question is by the authorities

answered in the affirmative, 26 R. C. 4. 1359; Rodney

v. Shankland, 1 Del. Chi. 35, 12 Am. Dee. 70; Linne-

mann v. Moross, 98 Mich. 178, 57 N. W. 108, 39 Am.

St. Rep. 528.’’

* * *

In the instant case, as in the Cremation Association case,

the purchasers had the right to rely on the covenant in

the deed transferring the property to them and could

protect themselves by demanding the preservation of the

Improvement Fund and the use of the same for the

erection of buildings and improvements and, as pointed

out in the case of the Cremation Association, supra, they

could have enforced these rights in a court of equity.

IV.

THE SALES OF ‘‘RIGHTS OF SEPULTURE’’ IN-

VOLVED HEREIN CONSTITUTED SAL=S OF

PERSONAL PROPERTY.

In filing its income tax returns for the vears here in-

volved the petitioner treated its sales as sales of personal

property and filed its returns on the installment basis

under Section 44(a) of the Internal Revenue Code. In this

connection it is important to note just what was sold to

purchasers. This is shown by the first paragraph of the

indentures executed by City National Bank of Philadelphia

or its nominee and delivered by the petitioner’s repre-

sentatives to the purchaser. The first paragraph of the

indenture provides as follows:

19

receipt whereof is hereby acknowledged, has granted,

bargained, sold, released, conveyed and confirmed,

and by these presents does grant, bargain, sell, re-

lease, convey and confirm unto the said Grantee heirs

and assigns, subject to the conditions and restrictions

hereinafter set forth, the right of sepulture and the

right to the exclusive use, occupation and possession

for that purpose only in the lot of ground in the said

National Memorial Park situate in Fairfax County,

Virginia, and designated as .”’ (Ttalies

supplied)

From the above it appears that what the customer

received was a certificate of the “right of sepulture.”* In

urging that the sale of a ‘tright of sepulture’’ is a sale

of personal property, the petitioner relies on the Virginia

case of Grinnan and Others vy. Fredricksburg Lodge No. 4,

Ancient, Free and Accepted Masons and Others, 118 Va.

O88, 88.8. K. 79. This case involved the right of the order

of Masons to remove certain bodies from a portion of a

Masonic cemetery and inter them in other portions of the

cemetery, the land from which said bodies were to he

removed being used for the purpose of erecting a Masonic

temple. Relatives of the deceased persons filed a chancery

suit to enjoin the removal of the bodies. In the lower

court a temporary injunction was awarded, which was

dissolved on final hearing and the final decree of the lower

court was affirmed on appeal.

In affirming the lower court Judge Harrison said the

following at page 592-593 of the opinion:

“There is nothing in our statute law applicable to

the facts here presented, nor is there anything in such

statutes showing that the policy of this Commonwealth

is averse to the removal of graves in a reverent and

proper manner under all cireumstances. Code 1904,

see. 1416-a. There can, however, be no question of the

power of a court of equity to deal with a situation

like the present, notwithstanding the absence of legis-

lation on the subject, and authorize, in its sound judi-

SUAS MET DF. cas |

20

cial diseretion, the removal of graves or cemeteries

in a proper case, after the consideration of all facts

and with due regard to the rights and feeling of all

concerned.

“The courts are much divided as to the character

of the estate one may have in a burial lot in a ceme-

tery. It is certain that it is not a fee. The weight

of authority is, and we think the better view, that it

is a mere privilege or license to make interments in

the lot exclusively of other's as long as the burying

eround or cemetery remains as such. Kineaid’s Ap-

peal, 66 Pa. St. 411, 5 Am. Rep. 377; Partridge v. The

First Independent Church of Baltimore, 39 Md. 631;

Bessemer Land Co. v. Jenkins, 111 Ala. 135, 18 South.

565, 56 Am. St. Rep. 26.

‘In Kineaid’s Appeal, supra, the court held that

‘The lot holder purchased a license—nothing more—

irrevocable as long as the place continued a burying

cround, but giving no title to the soil—But if in the

course of time it should become necessary to vacate

the ground as a burying ground, all that he eould

claim, in law or equity would be that he should have

due notice and the opportunity afforded him of re-

moving the bodies and monuments to some place of

his own selection, or that, on his failing to do so,

such removal should be made by others. He accepted

the grant or license subject to this necessary con-

dition!’

‘In Roanoke Cemetery Co. v. Goodwin, 101 Va.

610, 44S. FB. 770, this court says ‘that a purchaser of

a lot in a cemetery does not acquire absolute right in,

or dominion over, such lot, but merely a qualified and

unsufruetuary right for the purposes to which the

lots are devoted.” ”’

It is respectfully noted that the Court pointed out in

the Grinnan ease that the character of an interest in a

burial lot of a cemetery is a mere privilege or license.

Also. the Court made it clear that the weight of authority

ix to the effect that such an interest is a mere privilege

or license.

21

In Virginia, title to cemetery lots is not ordinarily

absolute and a deed is not necessary. Goldman et al. v.

Mullen et al., 168 Va. 345, 191 S. EE. 627.

The statment of the Court in the Virginia ease of Grin-

nan and Others v. Fredricksburg Lodge No. 4, Ancient,

Free and Accepted Masons and Others, supra, to the effect

that the sale of a cemetery lot transfers a mere privilege

or license is strengthened by the decisons of the New York

Courts.

In Clarke v. Keating, WON. Y.S. 187, 193 App. Div. 212,

the court held that the holder of a deed to a cemetery lot,

however strong may be the wording of grant, even with

the habendum using terms of inheritance, acquires only

a privilege or license, exclusive of others to make inter-

ments in a lot purchased, so long as the lot remains a

part of a cemetery.

While it appears that under the earlier decisions there

Was a division of sgh Bi on the proposition whether

the purchaser of a cemetery lot or ‘‘right of seputure”’

acquires personal or real property, the recent decisions

appear conclusive that the purchaser acquires personal

property rather than real property.

The latest decision which counsel has been able to find

is the case of Holloway et al. v. Thompson et al. decided

by the Appellate Court of Indiana on June 16, 1942 and

reported in 42 N. EF. (2d) 421. In that ease the Court

held that the relation of an owner of a cemetery lot to the

corporation having supervision over the cemetery is in

many respects that of a corporation and a ‘‘stockholder,’

the interest of the stockholder being represented by lots

instead of stock. The Court further held in that ease that

the sale of cemetery lots constituted sales of securities

under the Indiana Securities Acts and that the seller was

liable under the penalties, ete, preseribed by said Acts.

At page 425 of 42 N. FE. (2d) the Court declared:

OAS eS ENS

99

“The owner of a cemetery lot is in a somewhat

different position than the owner of an ordinary

parcel of real estate. As our Supreme Court said in

the case of Paul v. Walkerton, ete. Cemetery Assn.,

1933, 204 Ind. 693, 184 N. K. 537, his relation to the

corporation having supervision over the cemetery is

in many respects that of a corporation and stock-

holder, the interest of the stockholder being repre-

sented by lots instead of stock. See also Certia v.

University of Notre Dame Du Lae, 1925, 82 Ind. App.

542, 141 N. EK. 381; and 10 American Juris, Section

22, page 503; 14 C. J. S., Cemeteries, Section 25,

page S4.

“In the case of In re Waldstein, 1935, 160 Mise.

763, 291 N. Y. S. 697, the Supreme Court of New

York examined a situation quite similar to the one

here presented. The sale scheme was practically the

same, The document issued to the purchaser was a

certificate or deed gratiting rights of burial. Because

the circumstances clearly disclosed that the sales were

for investment and promotion that court held that

securities were being issued under a New York Statute

giving the Attorney General the right to investigate

sales of securities within that state.”’

We think that under the haw of Virginia, as well as the

weight of modern authority throughout the United States,

the sales in this case did not convey ‘tan estate in land.”

Grinnan and Others v. Fredricksburg Lodge No. 4, Ancient,

Free and Accepted Masons and Others, supra, and cases

cited therein: Clarke v. Keating, supra; Holloway et al.

vy. Thompson et al., supra; In re Waldstein, 160 Mise. 765,

991 N. Y. 8. 697, (Supreme Court of New York, 1935).

The document issued to the purchaser was a certificate

granting the “‘right of sepulture’* and the transaction

between the petitioner and the purchaser constituted a

sale of personal property. Holloway ef al. v. Thompson

et al., supra: In re Waldstein, supra. We believe that

regardless of whether “the right of sepulture™’ is a mere

5

3

'

eee eee

————

eran Ne

23

license or privilege that nevertheless the sales of the eerti-

ficates constitute sales of securities and thus ‘tsales of

personal property’’ under the decisions of the Courts

cited hereinabove construing the meaning of the term

**securities’’ under the various State statutes enacted for

the protection of investors. The salesmen of the peti-

tioner were **security’*’ salesmen; the petitioner regularly

sold and disposed of **seeurities’’ on the installment plan;

and accordingly the petitioner was a ‘*Dealer in Personal

Property’* within the meaning of Section 44(a) of the

Internal Revenue Code. The salesmen certainly did not

sell an interest in land.

We think that the Federal law or the weight of authority

throughout the United States rather than State law should

he followed in construing sales contracts for Federal tax

purposes. Burnet v. Harmal, 287 U.S. 103; Burke-Wagq-

goner Oil Assn. Vv. Hopkins, 269 U.S. 110. Please see also

Von Baumbach vy. Sargent Land Co., 242 U. S. 503:

Stratton’s Independence v. Howbert, 231 U.S. 399: and

Stanton vy. Baltic Mining Co., 240 U.S. 103; Rosenberger

v. MeCanghn, 25 F. (2d) 699, certiorari denied, 278 U. S.

604.

We also believe that under the weight of authority

throughout the United States sales of ‘‘rights of sepul-

ture’ constitute sales of personal property. Holloway et

al. v. Thompson et al., supra, Paul vy. Walkerton, ete.

Cemetery Assn., 1933, 204 Ind. 693, 184 N. KE. 537: Clarke

v. Keating, supra; In re Waldstein, supra; 10 American

Juris, Section 22, page 503; 14 C. J. S., Cemeteries, See-

tion 25, page 84; Kineaid’s Appeal, 66 Pa. St. 411, 5 Am.

Rep. 877; Partridge v. The First Independent Church of

Baltimore, 39 Md. 631: Bessemer Land Co. v. Jenkins, 111

Ala. 135, 18 South. 565, 56 Am. St. Rep. 26; Words and

Phrases, Vol. 14, Page 54 et seq.: Duff v. Keaton, 124

Pacifie 295, 33 Okla. 485, 16 Okla. 485: 184 Pacifie 786.

24

Counsel for petitioner certifies that in his opinion this

petition is well founded and is not interposed for delay.

It is respectfully submitted that this petition should be

granted.

LurweLttyn A. Luce,

937 Munsey Bldg.,

Washington, D. C.,

Counsel for Petitioner.