# Petition for a Writ of Certiorari — Angelus Funeral Home v. Commissioner > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385604_0793%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for a Writ of Certiorari - **Published:** January 1, 1969 - **Citation:** 396 U.S. 824 ## Text LIBRARY tr UPREMA, COURT. 0, | on . i weit MAY . Statutes pe Internal Revenue Act of 1954, Sec. 61 saci 2 Internal Revenue Act, Sec. 446(b) PSE United States Code, Title 26, Sec. 61 Be Me oN eee y e@ * ; Vv. ree acs oe 7 Page United States Code, Title 26, Sec. 446(b) - een ae United States Code, Title 28, Sec. 1254(1) en tay Dae | | Textbooks = - | 34 American Bar Association Journal- (1968), ee yt ME SU cL pcencedicscsecanitin are oan 35 ‘2 Mertens, Law of Federal Income Taxation, ‘P. : MEE sownieatrivilgpanateinatipliteeminincheltakseninks Sipicebaddpuineseiann 16 * 37 New York University Law Theretee (1962), PP. ae aE |” geecmiennrckiecme se decercimrosnaire atc mI Dens OO 34 25 New York University” Tax Institute (1967 % PP. © SID, SOG, QAO certo pannbop ae 34 19 South Carolina ‘Law Review (1967),. pp. ‘176, ; a ER ecstnneencatailpsdanspiciclacokanaanepeasionnaadiannmnantatieatoas 35 * 24 Tax Baw Review sam pp. 375, 380-381, ~/ | RR ca Ee RaRC AR mee ae 34 | °21 University of mi_ Law Review (1967), pp. : ‘R66, 872, 877,. 884 ..........- ss ssbictsncealon xinesbiduubers 34, 35 - eee niversity of Southern California Tax Institute , (1967), pp. 357, 368-369 . nesssevdncssenessnecenes 34° 24 Wash. & Lee Law Review (1967), pp. 291, ~ 293-295 . dsiasiiasiaioniiancahibbanihsae aba or -11 Wayne Liv Review (1965), PP. 482, 488 .... 34, 35 > P Py x xi ° : ~. IN _. Supreme Court of the United “States . Citable ‘on. 1968 UG. cntianaies ANGELUs F'uNERAL HoME?a corporation, q eo *,* : 68 Petitioner, COMMISSIONER OF INTERNAL REVENUE, cae Respondent. Petition for a Writ of Certiorari to the United States Court of Appeals for the Ninth Circuit. *~#*!.. Petitioner prays jthat a writ of certiorari’ issue to . review the judgment of the United States Court of Appeals for the Ninth Cifcuit, entered‘in the above- entitled case on February 10, 1969. - Opinions Below. The within cause was a petition in the United States Court of Appeals for the Ninth’ Circuit [I T. R. 52 .et seq.*| to review ‘a judgment of the Tax Court ad- werse to the petitioner. [I T. R. 28 et seg.] The opin- ion of the Tax Court .is reported in. 47 T.C. 391, and . a copy thereof is attached hereto as Appendix A. The opinion ef the United States Court of Appeals for the Ninth Circuit, affirming the decision of the Tax Court, is not yet reported; a copy thereof is attached hereto as Appendix B. y . *Signifying Volume I of .the ‘Transcript of Record, pages . 52 et seq. is. y 4 Lelie: Jurisdiction. The judgment of the Court of Appeals for the Ninth Circuit was entered on February 10, 1969 [I T. R. ‘Supp.*] A timely petition for rehearing _ was filed on February 24, 1969, and an order denying the said reti-@ tion for rehearing was made and entered February af, 1969. [I T. R. Supp.] ; : The jurisdiction of this Court is invoked under 28 US.C., Section 1254(1). eA Question Presented. ; The question-presented' in the instant case is whether certain deposited sums deposited with the taxpayer’ under certain pre-need funeral services, agreements (identified herein as the “1961 agreeiment-form’’), where such sums during an interim period until each depccitor’s “death were subject to conditions and con- _ tingencies rendering. unknown and_ indeterminable~ whether thessame would ultimately be income or ~be refundable/ and where during such interim the funds were required to be held under .a written, enforceable trust, permitting only. limited powers of investment in trust as herein described; ‘were taxable to the taxpayer as income at the time of. receipt and while held in such interim trust holdings. . | Statute Involved. The statutory provibion involved in the instant cause is Settion 61 of the Internal Revenue Act of 1954, 26 - U.S.C., Section 61. A copy of said statute is attached hereto as Appendix C. *Signifying the Supplement to Volume I of the nie of Record- incorporating the proceedings in the Court of Ap- peals; petitioner’s copy of this Supplement carries no pagina- tion. aes s - Statement of the Case. a Petitioner is a California corporation located in the City and County of Los Angeles and is and ‘at all time material herein has been engaged there in the business of furnishing funeral and burial’services and, concurrent therewith, selling: caskets. [I T. R. .23 (stipn.); 28 (fdg.)*.] Petitioner reports its income on a calendar year and on an accrual basis. [Il T. R. 28, 30 (fdg.).] The sole question at bar is the taxability as income to petitioner at the time of receipt of deposits paid to it under certain “Pre-Need Funeral Plan Agreements”, and specifically the deposits made under what is herein designated as the “1961 agreement-form.”” eR Many of the members of the community served by petitioner have been persons of small means. [II T. R. 23-25**; I T.R. 28, 30 (fdg.)] As a regular part of its businesssince approximately 1954 Angelus has encouraged such persons toeenter into its “Pre-Need Funeral Plan Agreements” which require only small— even nominal—down payments, and which provide there- after for only voluntary subsequent payments, but which serve at least to record a plan and agreement for the depositor’s funeral and casket. [Jd.] These agreements were in two forms, an original form herein identified as the “pre-1961 agreement- *The facts in the instant case are virtually without contest and as set forth herein are taken almost entirely (except where _ noted) from two concurrent sources: (1) -The Tax Court's “Findings of Fact”, appearing, in Volume I of the: Transcript of Record at pages 28 et seq., and identified herein in citations as: “(fdg.)”, and (2) the “Stipulation of Fgcts” filed by the parties in the Tax Court and appearing in Volume I of the Tran- script of Record at pages 23 et scq., and identified herein as: “(stipn.)”. “Ts Volume II of the Transgript of Record, pages 23-25. —4t- - form”, a truecopy of which appears in the Record as Petitioner’s Exhibit 10 [I T.. R. 59 et seq.] and a.copy of which is also attached hereto as Appendix D, and -.an amended form identified herein as the “1961 agree- ment-form’, a true copy of which appears in the Record as Petitioner’s Exhibit 11- [I T. R63 et seq.] and a copy of which is also attached hereto as Appendix E. In all respects save one, which will be stated hereafter, these agreement-forms were (in stibstance) identical. As stated, the down payments and subsequent volun- tary periodic payments under these deposit _agreements were small. The Tax Court found that the agreements ‘called for .“small down payments” followed thereafter by “small amounts each month.” [I T, R. 28, 30 (fdg.).] The representative sample of such agreements appear- ing as Petitioner’s Exhibit. 10 provided for a down payment of but $2.00 and for a monthly payment there- after of $5.00, upon an agreement projecting a funeral and casket of a total cost of $465.00. | The agreements obligated Angelus to hold the de- posits “in irrevocable trust” until the depositor’s death and then, in the absence of stated ‘contractual and eco- - ‘nomic contingencies hereafter discussed, to apply the deposited” sums to the furnishing of funeral services and a casket “of the reasonable value equal to” the de- posited money at time of death. [Exhibits 10 and 11, supra, pars. 2 and 4.]| After the initial down payrhent, all subsequent-pay- _ ments under the agreements were made expressly volun- tary and unenforceable. The agreements provided in paragraph 3: ; | “3. The parties agree that nothing herein con- tained shall be construed to vest in ANGELUS 2 ee the right to sue for or otherwise demand payment of any sum payable by-Applicant under the terms hereof which is not voluntarily paid by him.” — —Petr’s Ex. 11, par. 2, emphasis added; cf. Petr’s Ex. 10, par. 3. ° As Petitioner’s president, Mr. John +. Hill, testi- fied in uncontradicted testimony, ‘ ‘many of these’ pre- need deposit agreements “are ‘one dollar deposited, resi- due to come at some date, if and when.” [II T. R. 24.] | Although the agreements gave the depositors during their lifetime. no express right to withdraw part or the whole of the moneys deposited, since all of the pay- ments provided’for were voluntary and the. whole pro- gram depended upon voluntariness for its success, it was the uncontradicted testimony of Mr. Hill that re- quests for withdrawals were frequently made because’ of “hardships, illness . . . [or] rent”, and all such re- quests were unvaryingly honored. [II T. R. 25.] The contract terms provided one express contingency requiring refund. Paragraph 7 of the agreements pro- vided that if a_depositor should die oufside of Los Angeles County | and in a place where it would not be geographically “practicable for ANGEI:US to conduct ' funeral services for, the Applicant”, the deposited sum would be pavable at the request of the depositor’s heirs to any other funeral company the heirs might designate. Even apart from this, since the modest deposits and . payments, often left so small a sum paid in at_the time of death that in the absence of willingness by the heirs to add further contributions performance by Angelus rendering a funeral and casket “of the reasonable value” of the deposited amount wouJd profit no one, including a J > 1K re aN — . Angelus, it was the unvarying practice of Angelus to refund the deposited sum to the heirs sMould they pre- fer another funeral director, and request a transfer of the moneys. According to the uncontradicted testi- mony of Mr. Hill this was never “at any time’\ re- fused. [II T. R. 24-25.] The Tax Court found that petitioner “voluntarily refunded” each year under the agreements something approximating 7 to 10 per cent of the amounts. paid in under such agreements. in such year; in 1960, for example,’ it refunded $899.85 under such agreements while receiving deposits thereunder of $8,565.00. [I T. R. 28, 35 (fdg:).] a | Under the pre-1961 agreement-form Angelus. was re- quired during the interim between deposit and. the death of -the depositor to “deposit ‘all sums paid to it” under the deposit agreement “in a bank, trust company, or savings and loan association: and . . . not thereafter [to]. withdraw such sums, or an€\portion thereof” ex- cept’ for either performance or refund under the agree- ment. [Petr’s:‘Ex. 10, supra, par. 5.] Under paragraph 6, the pre-1961 agreements awarded to Angelus all in- terest earned upon such deposits as “compensation” for “the collection, custody and conservation of the sums” so paid to it and held by it in trust. [Petr’s Ex. 10, par. 6.] In September 1961 and thereafter the. pre-need fu-" neral deposit agreements were altered in a single respect. Under the new 1961 agreement-form then established ‘and thereafter followed, afthough all other terms re- mained identical to the pre-1961 agreement-form and although all deposits were still identically required to “aie, 4 $ b] ces 4 bP] be held until the depositor’s death “in irrevocable trust’’, a change was made in the provision requiring the de- \ \ Se CR galt , sect e angen ay posited funds to be held only in bank accounts. That provision .was altered to give Angelus an ‘option to either continue to place the deposit moneys in bank de- posits as before or—still subject to “irrevocable trust” —to invest. the same in “any capital improvement to. then existing mortuary facilities belonging’ to ANGE- LUS ... for] the acquisition and improvement of real property.”e[ Petr’s Ex. 11, supra, par. 5.] To the extent that the foregoing provisign in the . 1961 agreement-form gave Angélus a power for a ‘par- tially selfish use, it was compensated for by a payment by Angelus of a form of interest. Under pargraph 6 of the 1961 agreement-form, in ‘consideration for the foregoing right to place interim moneys in trust iff im- Proven to its mortuary facilities or in reak proper- ty, AngeMs agreed to pay each depositor under stich agreement each year ten per cent of the amounts depos- ited by such depositor in such year. As the Tax Court found, these interest payments by Angelus proved -an. inducement ‘which persuaded. numerous applicants holding deposits under the pre-1961 form °of agree- ments to cancel those agreements and substitute agree- ments under the new 1961 agreement-form. [I T. R. 28, 32 (fdg.) ; 47 T. C. at p. 393.) - One final circumstance remains to be stated. Under both the pre-1961 and the 1961 agreement-forms per-_ formance by Angelus called for the sale of a casket concurrent with the perforfmance of the funeral serv- ices provided for, the whole to be in combination “of ~ the reasonable value equal to” the amount of deposited money at the time of death, or in such greater amount as the relatives might agree upon after death. [ Petr’ S Exs. 10 and 11, par. 2.]- The uncontradicted ” testi- mony of petitioner’s president, Mr. Hills was that one- half of the moneys available was allotted to the casket _ purchase if no specific casket or price was agreed upon. [II T. R. 26-27.] Thus the deposit agreements called | for a future sale of a c¥€ket for a price, and at a cost to Angelus, unknown aud indeterminable until the time of death. aya 3 The Tak Court fourfd that the moneys paid to Angelus undgr the agreements made under the’ original pre- 1961 agreement-form were received by Angelus as “a true trustee’, and that the interest thereunder awarded to Angelus qn the interim funds held in the bank ac- counts was but “the equivalent of a trustee’s fee” (ving in mind the disproportionate amount of book work for the small deposited sums involved), and, in consequence, that the moneys on deposit were not tax- able to Angelus as income so long as" held thus in such interim trust. [I T. R. 28, 36-41; Appendix A, infra.]| The Court of Appeals, as to this ruling, con- curred and affirmed. [I T. R. Supp; Jessperae B, m- fra.] © , As to the deposit agreements deaiwt under the 1961- agreement form, the Tax Court found that although _ the interim moneys held by Angelus thereufder., were ~ still expressly required until the death of an affected - depositor to be held “in irrevocable trust” [Petr’s Ex. 11, par. 4] and although the 1961 @sreements were otherwise in all respects identical to the prior agree- ments in terms and form, the single change under the 1961 agreement-form in the powers granted Angelus _ respecting the interim deposits ‘to add :thereto a power: to invest the deposited trust moneys—although in trust and as a merely interim investment only, not an in- vestment in fee—in mortuary improvements or in the ri * ‘ acquisition of rk seins Oe Ex. 11, par. 5], o “effectively destroy[ed]” the “custodial or trust” nature ef the interim moneys as to give them in’ sub- stance to Angelus subject to “no. restraint nor limita- tion” at all, ‘and, in consequence, such interim moneys became taxable to Angelus as income at the time first received. [f T. R. 28, 41-45; Appendix A, iifra.] -. The Court of Appeals The instant case ‘raists’ anew troublesom# divisions and uncertainties in the income-tax law as to, the “when” and “how” of taxing as income advance mon- eys deposited with a taxpayer in connection with agree- ments for future consideration. —22— taxable income [to the seller | until there [should open} Be a completed sale.”’ (Id. ) : | In thé ‘By emerton-Tacama Stages decision the Naty Department, to insure needed transportation for naval -. personnel and employees in wartime conditions,‘ con- tracted with: a bus company to hold buses available for any transportation needs of-such personnel or em- ployees ~ which might arise during a contract period, and the Navy pre- -purchased large uns of bus tickets .in advance by- paying a large advance deposit. It was agreed that the deposit for any tickets not. ultimately used would be Tetitfnable to the Navy at the end of the contract period. It was held that such payments ‘did not ° constitute income to the bus company at the time & . receipt but only as and when transportation . services should actually be performed under a fickét so secured : by the depositéd — - . (4) -[wo final circumstanees affect the case at bar . of importance emphasizing the: nonincome character of the deposit payments below under the foregoing” Sev eral. a lines of prior precedents. * ; ay Firstly, insofar as those decisions have cde’ their holdings on the parallel between the contingent obliga- ~ tion to account, for and repay the affected deposits there involved and .the absolute obligation to account for and repay which obtains in the cir¢umstances of . loans (Clinton Hotel; Consolidated-Hammer Co.; Ve- - enstra; Summit Coal Co.; and Woodlawn Park Come: tery Co. cases), the’ payment of any form of interest, where presgpt, has been notéd as of importance, , As observed i in the Statement of the Case, just such a form of interest was paid at bar. For the privilege of user *" to £ Pex .* = as a special xleposit, but might use it as a-general deposit, for te was ,to account for $1,000 per year. ~23— ca k ecta of the deposited funds in the limited, rhanner provided.’ sep -in the 1961 agreement-form, Angelus paid the depositor ” each year 10% of the moneys paid in by such depositor during such year. Thus the quality of a loan‘ was evi- : ~ denced. Adverting on the significance of such a pro- vision for interest, the Court of Appeals in the Glinton ~ ” Hotel case involving a aa! deposit under a lease, _ observed at page 970: o _ “Tt was intended that the ice was not to hold it as interest, in a credit against accruing rents. This does not destroy. the. ‘character of the deposits: as. security, bit the lessor’ s accountability for interest as well as for’ the ,principal emphasizes that -char- actér.” ae , Ghai F. 2d 968, 970, ‘cba added.” ae, 5 ie, wiudis 3 as also noted i in the Statement of the Case,. the deposjt agreements ‘under the 1961 agreement-form called for the sale of a casket concurrent with the fun- eral. services to be rendered, the whole to be “of the reasonable value’ equal to” the total deposit moneys paid in at the time .of death, or to such amount plus any further amount the heirs might agree to’ add, if any. _ According to the urtcontradicted testimony, the value of ‘the casket was customarily fixed at one-half of the total moneys. a\ ailable for performance by Angelus. Since this sum c uld never be known. in advance, the deposit agreements under the 1961 agreemént-form actually called for future-sales of caskets for a salés-price, and at a cost to Angelus, neither known nor determinable at any time during the interim holding. In such prem-_ ises an income tax upon the deposits could. not escape \ - Cremation Assn. # Commissioner, 31 Fed. (2d) * 843; Charlton v. Chevr olet Motor Co., supra. “In Broadcast Measurement Bureau, Inc., supra, the -- petitioner engaged in the compilation and distribution of nationwide surveys measuring radio station and net- work audiences according to a ‘uniform standard. ‘Ror _ this purpose it collected subscriptign fees from indbvid- _ ual stations and networks, all of which -were not ex- pended during the year of. receipt. Respondent’s., posi- tion was the same as it had“been in Seven-Up Co..and ~ is in the instant case.’ In sustaining the taxpayer’s po- ° sition we said, page 997: ae is We are convinced that the subscription ‘fees to, ‘Study No. 1 which petitioner* received in the fiscal 8 - year ended June 30, 1946, were impressed with a » trust upon their receipt to expend them solely to meet the. costs of ‘Study No. 1 so that they constituted a trust fund in its hands rather than income...Wheth- i aoe trust existed with regard to the subscription oO fees received by BMB in the fiscal year ended June 30, 1946, depends upon the intent of .the’ ‘parties. _ No express words of trust were used, but none are necessary. Hibbard, Spencer, Bartlett & Co., 5 B.T.A. .- 464. Close analysis of the subscription contracts en- tered into between petitio#fer and: subscribing sta- . tions and networks, the understanding of the .par- ties with regard to these contracts, and the per.form- ance of. petitioner in execution: of these contracts persuades .us that the parties* intended «that BMB - \ : - . &. ~*~ a ie é‘ Be 7 ; A - oO th receive the rh fees in, trust for the: ‘sub-_ scribers to carry 0 tudy No. 1. We find a rea- sonable certainty as to the property,- the objects and the beneficiarie in such situation no particular e beneficiaries, and in su a Dp form of w ords is necessary .to create a trust. Chica gor Mikeaukee & St. Paul Railway Co. v. Des Moines Union Railway Co., 254 U.S. 196. [EmpHasis. sup- . “plied. ] Further, in answer to teepiudents objection that my funds had. never been segregated and that there was . _ therefore no trust res, we said at page 1001: yy Petitioner’s books showed the total amount of ‘such fees it rgceived and the unexpended ‘balance. thereof at all times. Any improper .use of the unexpended _ balance of these fees. by their custodian could have: béen enjoined by the subscribers to Study No. I by a suit in- equity. Portland Cremation Absitiation Vv. Commissioner, 31 F.2d 843. ~The facts of the instant ‘case are more favorable to ml sbetitioner than are the facts. of either Seven- Up Co. ‘or Br oadcast Measurement ‘Bureau, Inc., in that An- of - earlier form, ‘of contract as a custodian. or trustee with . gelus did’ segregate the funds into a special clearing account and four trustee savings _ accounts, and, in the instant fase, express words of trust Jere nei which. circumstance was not present in. Broadcast M os Bureau, Inc. Also, see and compare Mutual Tel. Co.*% United: States, 204 F. 2d 160 (C.A.9, 1953). We conclude from all of the above that petitioner , received the payments as they were made. under ‘the ~~ *—A-12— no rights of use“as to the funds as such* and conse- "quently that’ it was not -in receipt of income as the payments were made. It follows that in the year. 19%9 petitioner’s taxable income was not computed under a thethod of accounting any different from the method * under which its taxable income for the preceding year had been computed and therefore respondent’s deter- mination ender section 481 must also fail. : We turn now to the later form of contract which pe- titioner started using yin September 1961 and_ under which petitioner had the right t0, at its option (a) deposit the amounts paid in as thergtofore, or (b) “at any time before or after such deposit thereof, use all or any portion of such sums as collateral or payment... for (i) the costs of any capital improvemet to then existing mortuary facilities belonging to Angelus, and (ii) thesacquisition arid improvement,of real property.” It seems quite Gear to us that whereas the earlier form of contract created a custodial or-trust -arfange- ment, that the above-quoted language from the later °* form of contract effectivelf destroys any ‘such possibil- ity as to it, for this language imposes no restraint nor limitation upon petitioner’s right to use the funds as they are paid in, the only limitation being upon’ the manner or purpose of such use. We observe further that the permitted purposes (improvement of facilities and acquisition and aeaprovement of land) were both of *Petitioner’s receipts of interest from the trustee savings ac- counts were returned as income and such amounts are not in dispute. z ° —A-13— , - ,Y | sole benefit to the petitioner and of no cenceivable ben- efit to the applicants. 7) It is patent that-'the title. ‘to! such improvements and to such land’ would be in petitioner the same as title _ to any other of. petitioner’s /properties, and that the © values ee thereto wottld be properly carried as -an asset On petitioner’s balance sheets and subject to | claims of petitioner’s géneral creditors. Such funds therefore would have lost all character of trust funds _ and alkethat remained between petitioner and its appli- cant would be a unilateral contractual obligation for " petitioner to perform, or have performed, the funeral at applicant’s death. Nor do we think the situation is altered by the cir- cumstance that petitioner had not in fact acted under the (b) option above at any time during 1961. Peti- tioner had the right to do so “at any time before or fter such deposit, 2 (emphasis supplied) and it is this. Pb to use for: its own benefit at any time which ef- fectively prevents the arrangement from being a trust. * Trust funds must be impressed with the - prescribed duties and obligations when received. It ,is unimportant that a reserve be set up or that a f res be later segregated by the recipient of the funds. The mere statement of such a course of action demonstrates that the recipient received such funds with no fetters upon its use of them, and then volffntarily and unilaterally chose do create the reserve or segregate the trust res. Of ioe. such funds were income to’ such a recipient when the money was received. eee 5 tags Permitted total invasion’ of. corpus or res by a pur- ported trustee, at any time, and for thé sole benefit of @ such purported trustee (even though it be a restricted form of benefit)’ is simply another way of saying that something» of value has passed to the purported trustee -_ now in return for his eieeael promise to act at a * specified time | in - the future. Such an arrangement is not a trust, and the purported trustee is simply a con- tracting party. What had been a segregation of the’ ’ ~ : P , : funds under. the earlier form of contract became mere window-dressing under the later form of contract. A comparable situation was dealt with in Mutual — Tel. Co. v. United States, supra, where the funds were .originally received without any rights of use for that taxpayer’s benefit, and therefore such funds were ‘not ° income to it at that time; but later, under an order of the supervising Commission, the taxpayer was given permission to use the funds for one restricted and spe- cified purpose which was.of benefit to it. Permission for: as use—the establishment of a retirement system for its employees—was properly held to make the“funds taxable-income to the telephone” company at -that—time.- It seems obvious to us that petitioner’s receipts under. the ter form of contract are. subject to. the full force of such ‘decisions as Schlude v. Commissioner,” 372 U.S. 128 (1963) ; American Automobile Assn. v. Uiiited. States, 367 U.S. 687 (1961); Automobile Club v. Com-.' missioner, 353 U.S. 180 (1952), and similar cases, and we so hold. Current receipts ‘from the later ‘form of o —A-15— , contract wer® fully danas to vase’ as they week received. een Since both forms of contract were used by this pe- titioner in 196] it is necessary for us to allocate the . total 1961 receipts ef $11,796.61 between the earlier and the; later forms of contract,. but unfortunately. the” petitioner has made no attempt to. do-so. The- record shows only that the changeover occurred in September 1961 but the allocation cannot’ be made strictly upon the basis of the percentage -of time in that. year that each frm was used because there is io showing of the relative amounts of activity before and after the change- over, and in addition the record does show that during ° and safter September 1961 some undetermined number of the applicants who had already - signed the earlier form of contract, elected to and did sign the later form. , In this situation. ‘We must simply make the best es- timate which we can, bearing heavily against the pe- titioner because the inexactitude of the record is of its _making. Cohan v,. Commissioner, 39 F. 2d 540 (C.A. 2, 1930). Consequently, we conclude and hold that one- half of the 1961 receipts were under the earlier form of contract and one-half under the later form. Decision will, be entered under Rule 50. ” . APPENDIX B. Comm of Appeals Opinion Below.) : "United States Court of Appeals, for the Ninth Cir- cuit. ~ Angelus Funeral Home, Petitioner; vs. Commissioner : of Internal Revenue, Respondent. No. 22, 118- , [February 10, 1969] © : On Petition to. Review a ae ‘ak the ir ax Court -of the United States. 3s ea - Before: DUNIWAY and ELY, — is Judges and TAYLOR,* District Judge. DUNIWAY, Circuit Judge: | _ Taxpayer-Petitioner Angelus Funeral Home seeks re- view of a decision of the ‘Tax Court, 47 T.C. 391 (1967), ‘upholding the Commissioner’s: determination of certain income tax deficiencies against it for the year - 1961. The sole ‘Question. raised is whether. Angelus . must treat as inéome in“the year of receipt payments _ made to it pursyant to a “pre-need funeral plan arranges ment.” The Tax Court held that it must. We affirm. Angelus is a California corporation engaged .in the business of providing funeral and burial services. It ‘files its income tax returns on a calendar year, accrual » baits. As a part of its’ business operations during the years 1954 and continuing’ through 1961, Angelus en- ‘tered-into written -contracts with individuals. Each | agreement, called a “Pre-Need Puneral’, Plan Agree- 3 ‘ the manner provided, Angelus agreed to pay the con- tracting individual, at the end of each year, ten per- © cent of the funds paid by him to Angelus during that year. Some individuals who had signed the older agree- ments converted them to the new type in order to re- ceive the ten percent payment. 3 The Tax Court found that Angelus was a “true trustee” under the older form of agreement, and ‘that it had fio right to use: the ‘money paid by the con- - tracting individuals. It held that Angelus was not tax- Je a ee able in the year of receipt on the payments collected under these agreements. This decision is not now ques- tioned by the Commissioner. The Tax Court, however, found that the form of agreement adopted by Angelus in September of 1961 (gave. Angelus “extensive rights ' to the payments and thereby. ‘destroyed the trust ar- rangement between the parties. It held that these pay- ments were taxable as received by Angelus. Only An-- gelus now appeals. ue : In assessing the 191 deficiency, the Commissioner “did -not rely , and he does not now rely, on the power given to him under 26 U.S.C. §446(b) to require a taxpayer to compute taxable income under a method of accounting that, id the Commissionef’s opinion, truly | reflects income. Nor does Angelus assert that its “meth- od of accounting” (26 U.S.C. § 446(a)) is correct and should therefore be followed. In short, this case is. not an accounting case. - 7 - Angelus makes two claims: (1) that the payments received under the 1961 agreement were received py it in trust, and were therefore not income to it, and (2) that even if>the payments were not received in trust, they were analogous to certain other types of advance paymeats that have been held ‘nog taxable when _re- ceived, and that the payments received should therefore be held nontaxable as being, in substance, borrowed money. rer . | 7 1. -The trust. claim. As a general proposition, payments received by. a trustee expressly and solely for. the benefit of another are not income to the trustee in his individual capacity. Healy v. Commissioner, 1953, 345 U.S. 278, 282. The BS ae Commissioner argues that the’ 1961 pre-need agree- _ ments set up a “triist facade” and questions the effec- tiveness. of the 1961 agreements to constitute a trust. But questions of trust validity are not before us in this _ tax: case. This is not a situation in. which no funds were paid into the “trust” ,-or where the: _ designated _ trust funds were commingled with a trustee’s general ‘ ac®unts.! Rather® our task is to determine whetHer the economic benefit to Angelus as trustee is .such that Angeluy hould be taxable on receipt ‘of the payments; notwit tanding: whatever power the beneficiaries, may have to enforce the trust terms*under state law. Grace- lazen Memorial Park v. United States, 3-.Cir., ‘1958, : 260 F.2d 328, 332) Not every receipt of benefits by a trustee subjects’ _ him to taxation on payments to the trust. Trustees re- ceive fees for-managing trusts without fear of taxation “except as to the fee itself. The interest from the pre- need funds. which Angelus received as a fee for-man- agement and collection services falls-into the latter cate- © gory. Also, a line of cases. involving cemetery -mainte- - | nange or perpetual care trusts recognizes that while the primary beneficiaries are the lot or niche purchasers, ‘the cemetery | also benefits from ‘good maintenance of its. “premises ; névertheless, if. the payinents into the trust fund cannot be used for the corporate Purposes of the trustee cemetery, they are shielded from taxation -de- spite the incidental benefit to the cemetery.” ~ Parkchester Snes Club Corp.” v. sidisiasiioags 2 Cir., 1964, 335 F.2d 478, 480; Acacia Park Cemetery Ass'n v. Commissioner, : 7 Cir., 1933, 67 F.2d 700. 2Commissioner v. Cedar Park Cemetery Assn, 7 Cir., 1950, 183 F.2d 553; Portland Cremation Ass'n. v. Commissioner, 9 Cir., ran J \ ”° —B6— / - But in contrast to the perpetual care trust cases, - cemetery owners seeking exemption from taxation for payments into trusts for future capital improvements have ‘had very tough: sledding indeed. The court~in Mount Vernon Gardens, Inc. v. Commissioner, 6 Tir., ‘ 1962,-298 F.2d 712, summed up the cemetery owner’s problem as follows: - “But the creation of a trust into which a portion . of the purchase price is paid is not in: and of >it-. self sufficient to prevent the trust money from being treated as income. . . . [T]he-decisive fea- ture in each case is the terms and provisions of the particular trust involved. The questions of con- trol by, and inurement to the benefit of, the tax- ‘ payer, -are of prime importance. In [two prior | ‘cases the Court was of the opinion that the trust funds were available under the terms of the trust to promote future capital improvements in the taxpayer’s property, was for the taxpayer’s . benefit, and accordingly, was taxable income. ... "(298 F.2d 716.) The portion of the cemetery lot purchase price in Mount Vernon which was allocablerto the “Development -Trust Fund” on fourld to be a a of the cemetery’s taxable i income.* 1929, 31 F.2d 843; Green Lawn Memorial Park, Inc. v. Mc- Donald, M.D. Pa., 1958, 164 F. Supp. 438, 441, affirmed 3 Cir., 1959, 262 F.2d 588; American Cemetery Co. v. United States, D.Kan., 1928, 28 ‘F.2d 918; Troost Avenue,-Cemetery Co. v. United ’ States, W.D. Mo., 1927, 21 F.2d, 194; cf. Oak Woods Cemetery Ass'n United States, Y Cir., 1965, 345 F.2d 361; Monte Vista Burial Park, Inc. v. “United States, 6 Cir., 1965, 340 F.2d 595. ° s SLike results have been reached on simniler facts in Jefferson Memorial Gardens, Inc. v. Commissioner, 5. Cir., 1968, 390 F.2d: 161; 167; Sherwood Memorial Gardens, Inc. v. Commissioner, 7 Cir., +1965, 350 F.2d 225; Gracelawn Memorial Park, Inc. v. United S tates, 3 Cir., 1958, 260 F.2d 328; National Memorial Park v. Commissioner, 4 Cir., 1944, 145 F.2d 1008. *.” ie —B-7— The capital i improv ement trust, cases are applicable by analogy to the facts at hand. The 1961 form of An- gelus’ pre- -need agreement gave Angelus the power to ‘use the funds whenever it wished, )subject only to limi- éations of purpose, i.e., land acquisition or improvement Pag mortuary facilities. These purposes would benefit - Angelus, on the agreeing individuals who are benefi- Ciaries. under the trusts. Further, all of the trust funds are subject to. Angelus’ power. Thus, even assuming that an equity court would enforce the trust terms, the _ absolute power to benefit itself inhering in Angelus’ ‘position as trustee makes it liable for taxation on re- - ceipt of the- “pre-need payments. The trust permits An- gelus to benefit itself more than incidentally, and there- 4 fore the trust does not operate to shield Angelus from | _taxatibn until Angelus acquires a completely unfettered - control over the pre-need payments. ° Our decision in Portland Cremation Ass’n v. Com- missiones, 9 Citr., 1929, 31 F.2d 843, does not hold otherwise. There a trust was inferred from sale of ceme- tery niches with an accompanying covenant that a per- manent fund would be established that could only a used for maintenance purposes. The court found that could ‘invoke equitable remedies to prevent _ ° ate purposes. In the present case, however, the in- strument creating the trust grants specific powers to ‘ the trustee to use the funds for its own purposes, and in an action to enforce the trust we presume that a > s td —B-8—: court. would enforce these grants as it would any other term of the trust. 2. The “borrowed money” analogy. ¢ Angelus argues that three lines of dees support its claim that the payments in question are not in- -come when received, but are in the nature of borrowings. Whether the lender is the individuals who pay or the trust is not made clear. But in any event we do not find these authorities persuasive. The first line of cases deals with deposits by a ten- ant of money to be held by a landlord as security for the tenant’s performance -of a lease.* The analogy ‘is not persuasive. The prospective, decedents certainly did not pay the money to Angelus to secure their own per- formance of anything, even their obligation to die. That obligation was scarcely owing to “Angelus; - we need not attempt to decide to what power, if any, it was owed. The second line of cases deals with moneys paid to sellers on account of the price of goods to be delivered at a later date. One of them. Consolidated-Hammer Dry Plate & Film Co. v. Commissioner, 7 Cir., 1963, 317 F.2d 829,-held that advance payments by the gov- ernment to a small manufactuer-seller for the manu- | facture and. sale of a large,custom-made camera had the attributes of a financing arrangement in the nature . 4Clinton Hotel Realty Corp. v. Commissioner, 5 Gir., 1942, 128 F.2d 968 is principally relied upon. Also cited are Commissioner . wv. Riss, 8 Cir., 1967, 374 F.2d 161; Zaconick v. McKee, 5 Cir., 1962, 310. F.2d 12 (bankruptcy proceeding) ; ems Service Corp. v. Commissioner, 2 Cir., 1940, 110 F.2d 723. ie —B-9— _ Of a loan. .We do not quarrel with the decision. But we find it so different in its facts as not to be analogous. Summit Coal Co., 1930, 18 B.T.A. 983, ard Bremerton- Tacoma Stages, Inc. v. Squire, W.D. Wash., 1951, 96 F.Supp. 718, are similar. Compare Van Wagoner v. United States, 5 Cir., 1966, 368 F.2d 95: Astor Hold. ing Co. v. Commissioner, 5 Cir, 1943, 135 F.2d 47, which seem to us more closely analogous to the present case. Also relied upon are cases dealing with sales of goods such as Vvenstra & DeHaan Coal Co.,. 1948, 14 T.C. 964, or of cemetery lots in areas not yet ‘developed, Woodlawn Park Cemetery Co., 1951, 16 7A WOG7...’ Here, however, Angelus’ obligation was to furnish fu- neral services at a future fime.> Under these circum- stances, we think that the reasoning of the Supreme Court in Schlude t v. Commissioner, 1963, 372 U.S. 128, is applicable here. See also American Automobile Ass’n v. United States, 1961, 367 U.S. 687, Automobile Club of Michigan v. Commissioner, 1957, 353 U.S. 180. It is true that those cases involved the power of the Com- missioner under 26 U.S.C. § 446(b), while that power is not in issue here. But the reasons there given in sup- , port of the exercise of that power are here persuasive. — Cf. Artnell Co. v. Commissioner, 7 Cir., 1968, 400 F.2d981- ied Angeles refers to. an obligation to sell a casket, but that obli- gation is contingent upon payment of the full cost of the “funeral services,” and the contract refers to Angelus’ obligation to “use,” not to “sell” a casket. ; = = on ee nt ° The third line of cases involves payments by a pro- / spective buyer for an option to be applied to the price if the option be later exercised.° Those cases, however, involve a different problem. If: the option is allowed to lapse, the inoney becomes ordinary income to the Op-- tionor; if the option is exercised, the money is received as part of the price of a capital asset, taxable, if at all, as capital gain. The taxpayer (optioner-seller ) can-, not know which type of income he has when he re- ceives the payments. No such uncertainty as, to the character of thé’money received is here involved. r We hold that the payments here involved were neither loans nor sufficiently analogous to loans to be non- taxable when received. Aifirmed. 8Kitchin v. Commissioner, 4 Cir., 1965, 340 F.2d 895; Com- missioner v. Dill Co., 3 Cir., 1961, 294 F.2d 291; Virginia Iron Coal & Coke Co. v. Commissioner, 4 Cir., 1938, 99 F.2d 919. : é APPENDIX C. (Statute Involved.) Section 61 of the Internal Revenue Act of 1954, as amended, 26 U.S.C. Settion 61, reads as follows: ~ § 61. Gross income defined ~ (a) General definition —Except as otherwise pro- vided in this subtitle, gross income means all income from whatever source derived, including (but not lim- ited to) the following items: (1) Compensation for services, including fees, commissions, and similar items; .(2) Gross income derived from business ; (3) Gains derived from dealings i in property; (4) Interest; (5) Rents; (6) Royalties; (7) Dividends; - (8) Alimony and separate maintenance. payments ; (9; Annuities; - (10) Income from life insurance and. ‘ ttowment cantracts ; (11) Pensions; (12) Income from djectiaége of indebtedness: ; (13) Distributive share of partnership gross in- come; (14) Income in respect of-a decedent ; and - (15) Income from an interest in an estate or trust. (b) Cross references.— For items specifically included in gross income, see part II (sec. 71 and following). For itsm spe- cifically excluded from gross income, see part III (sec. 101 and*following). Aug. 16, 1954, c. 736, 68A Stat. 17. ( Pare ts aig _ APPENDIX D.’ | (Pre-1961 Agreemerit-Form.) - (Petitioner’s Exhibit 10. )y “ ANGELUS PRE-NEED FUNERAL PLAN AGREEMENT. "This is ‘an Agreement between ..............:sssseseseceeeesee: -’ who is called Applicant, and ANGELUS FUNERAL HQME, which is called ANGELUS, and is entered into between the Parties in order to effectuate the terms of ANGELUS PRE-NEED PLAN Funeral and Inter- ment Instructions No. P 161, dated June 12, 1959. FOR AND IN CONSIDERATION of the mutual covenants and promises herein contained, and contained in. Funerai and Interment Instructions No. P 161, the Parties agree as follows: ‘1. The Applicant agrees to pay to ANGELUS the total sum of $465.00, to be paid as follows: $2.00 upon the signing of this Agreement, receipt of which is hereby acknowledged, and the stim of $5.00 or more — _ per month on the 12th day of each month hereafter beginning on July 12th, 1959 until the said sum is paid in full. Applicant agrees that. he will not assign ‘said sum or any portion thereof without the written consént of ANGELUS, and that any attempted as- - signment of said sum or any portion thereof without “such written consent shall be void. ' 2. ANGELUS agrees that upon seont of death of the Applicant, it will apply the sum theretofore: paid by Applicant.toward the Total Cost of Funeral Serv- ices as that term is defined in Funeral and Interment Instructions No. P 161; that it will provide funeral” services of the reasonable value of the sum theretofore paid to it and that it will otherwise fully and faithfully > a a follow all directions ie in said Instructions and do and perform all things therein directed to be done and performed. | 3. The Parties agree that nothing ‘herein iil shall be construed to vest in ANGELUS the right to sue for or otherwise demand payment of any” sum - “agreed to be paid by Applicant hereunder which is un- _ paid at the date of his death, and further that neither ' the heirs nor the personal representatives of the Ap- plicant shall make or assert any demand for funeral services for Applicant of a value in excess of the amount actually paid hereunder by Applicant; provided that nothing herein contained ‘shall be deemed to limit the right of ANGELUS and such heirs or personal representatives to contract for funeral serwites, in any ‘amount in excess of the” Total Cost of Funeral Serv- ices, or the amount paid on account thereof, that may be mutually agreed upon between them. . 4 The Parties agree that all sums paid Sy Appli- cant: to ANGELUS shall be held by ANGELUS in irrevocable trust ‘for the uses and purposes herein set forth and set forth in Funeral and Interment Instruc- tions No. P 161. +s, ANGELUS agrees that it will depontt all sums © paid to it under this Agreement in a bank, trust com- pany.or savings and 4oan association.and that it will not thereafter withdraw such sums, or any portion ‘thereof, except for the uses and purposes herein set . forth; provided that ANGELUS may at its discretion ‘withdraw such sums for the purpose of re-deposit in some other bank, trust eerany or savings and loan association. Y . 8 Pa 6. The Parties agree that in consideration of the services performed and to be performed in the collec- tion, tustody and conservation of the surhs paid to it “by Applicant all ,interest earned on such. sums shall accrue to, and shall’ become the property of, and pay- able to ANGELUS, as and when earned. ._ 7. The Parties agree that in the event Applicant - dies:in any city, county, state or territory in which it is not practicable for ANGELUS to cénduct funeral - services for the Applicant, that ANGELUS will, upon the written request of any heir, executor, administrator, devisee or legatee of the Applicant, pay such sums as _ gnay have come into its hands‘ by virtue of this Agree- ment, to any reputable funeral horhe selected by the per- son making the request for such ‘payment ; provided that such payment shall relieve ANGELUS of all further responsibility under the terms of this Agree- ment and. provided further that ANGELUS. shall be the sole and exclusive judge of whether. or not it is practicable for-it to conduct such funeral services. 8. The Parties agree ‘that ANGELUS may at its discretion assign the benefits of this Agreement. or this Agreement itself, together with Funeral and In- terment Instructions No. P 161, to any person, firm or corporation it may select; provided that such assign- ment shall be conditioned upon a faithful performance of the terms of this Agreement. — | Dated: June 12th, 1959. in —;. Applicant 2. = ANGELUS FUNERAL HOME By: ILLEGIBLE / « “ . ® . . a . “ a PP oven, _» : ’ \ . ‘ ‘ . , FUNERAL & INTERMENT INSTRUCTIONS. .2 A - APPENDIX E. — (196r Agreement-Form.) ‘ (Petitioner’s Exhibit 11.) ‘of. . m Pursuant to. the provisions of. Section 7100 ok the ‘Health and Safety Code of the State of California and -for the purpose of relieving my survivors of the burdens of making such decisions’ and arrangements, I here- ‘neral services : | ‘ . that funeral services for me shall be conducted by, ANG$LUS FUNERAL HOME, or its’ succes- - sors or assigns. : | ns 2... I direct-that my funeral arrangements be* made in accordance with the Pre-Need Funeral Plan Agree- ment hereinafter set forth, and that the amount _ of the “Total .Funeral Cost” as used in said Agree- -_ ment, excluding the cost of a grave, shall be $.......... See | ee clothing and prefer tS inte x color. pee x eae ss . XY 4. My preference -for cemetery arrangements is ‘as TNS a cliwitioncrctobaas See Se eneaniacd - 5. Fraternal oriaiieations to be notified: ......... eaerdatieeee 6 My church affiliation is al caaaci eae < . A I would prefer ‘as clergyman Leiciuaankteincabcibancndsak are 8. I wish’ the following music . Sad cassisicd ibs pinctntepiticindess 9. Other instructions: or remarks: Lesnctalhnnncandiecdeed at Tn DATED: sncaisupsa ened ole aie rc... Tea ) : .- with execute the following instructions regarding my fu- of eh I direct that my remains shall be delivered to, and Applicant * ” ¥ ¢ —E-2— | PRE-MEED FUNERAL PLAN AGREEMENT. | Angelus Funeral Home (“Angelus”) Eo camaioes -+e* j 3. iil seiessesesseseseeeeeesteeee (“Applicant”) agree as follows: Applicant agrees to pay to ANGELUS the amount of the Total Funeral Cost set forth in the fores going Instructions at times and in amounts as. fol- lows: $.........--u... ...--. upon the execution hereof, ‘receipt of which, is * Bien by ANGELUS hetecibiabes day of ‘each month DOM INING 22-2. ak -nnoeeneesees , 19........, until the said Total Funeral x is paid i in full. The total amount paid by Appli in any given’ calendar year on account. of\ the’ Tytal Funeral’Cost will herein be called “Appual: y epee Aeslicah it! will fally any faithfully comply with Appilicant}s ‘foregoing. Instructions and will provide fuingral, services. of the reasonable value eqifal to - the: total pita theretofore paid by Applicant on account _ of. the’ Tetal Funeral Cost. If the full aimiont of the Total ‘Funeral Cost has been paid, ANGELUS agrees to use casket number ............. | TIE iia nmciihenctpesnin ly Wnveappeiies » IIE vcetietiins “ | or equivalent, for yh aserel The Parties ,agree that nothing herein contained ‘shall be coristrued to vest if. ANGELUS the right - to sue for or otherwise dentand paymenrit' of any sum payable by Applicant under the terms hereof which is not volttntarily paid by him, and further that neither the heirs nor the personal representa- tives of the Applicant shall make or assert any d&nand upon ANGELUS to provide funeral serv- ont Bi ices for Applicant of a value in excess of the | _ amount actually paid by Applicant under this Agreement ; provided that nothing herein contained shall be deemed to limit the right of ANGELUS and such heirs or, personal representatives to con- tract for funeral services\of a value in excess of the amount paid hereunder by A his death. / All amounts. paid hergunde by Applicant shall be -held by ANGELUS aes able trust for the ‘uses and purposes hergin provic ided, and in consid- -eration of the services to be ‘performed hereunder ‘by ANGELUS, including the custody and con- servation of the sums ‘paid to it by Applicant, it is agreed that all income earned on the sums so paid shall accrue to and shall become the property of and pay able to ANGELUS, as and when earned. ‘ANGELUS may, at its option (a) deposit all or any portion of the sums paid to’ it under this Agreement in one or moré banks, trust companies or savings and Joan associations, or (b) at any time before or after such deposit thereof, use all or any portion of such sums as collateral. or pay- ment for (i) the costs of ‘any capital improvement to thén existing mortuary facilities belonging to ANGELUS, and ( ii) the acquisition and improve- ment of real property. = \ : In. consideration for its right to use the amounts paid hereunder by Applicant in the manner herein provided, ANGELUS agrees to pay to Applicant on or before the 31st day. of December of each ° year an amount equal to-ten per cent (10%)-of * the Annual Payment (as above defined) made by —_— during such yest, « icant prior t0-— Mae -—E-4— 2 It is agreed that if the Applicant dies in any city, county, state or territory in which it is not prac- ticable for ANGELUS to conduct funeral services for the Applicant, that ANGELUS will, tpon the written. request of the personal representative or . any heir of.the Applicant, pay’such sums as may have come into its hands by virtue of this Agree-- ment to any reputable funeral Home selected by the person making the request for such pa&yment; provided that such payment shall relieve ANGE- LUS of all further responsibility under the terms of this Agreement and provided further that AN- GELUS shall be the sole and: exclusive judge of whether or not it is practicable for it *q@ conduct such funeral services. Applicant agrees not to assign his interest here- under without the written consent of ANGELUS, and any assignment without such consent shall be— void. ANGELUS, however, shall have the right to assign its interest under this Agreement to any person, firm or corporation provided such assign- ment shall be conditioned upon the faithful per- formance of this Agreement and the foregoing Instructions by the assignee. ) --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385604_0793%3A1. Public record. Not legal advice.