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Demmon v. United States

August 7, 1963

ROY C. DEMMON AND MARY SCOFIELD DEMMON (HUSBAND AND WIFE) AND MARY SCOFIELD DEMMON, TRUSTEE U 19-1-48, PLAINTIFFS-APPELLANTS,
v.
THE UNITED STATES OF AMERICA, DEFENDANT-APPELLEE



Author: Grant

Before SCHNACKENBERG and KNOCH, Circuit Judges, and GRANT, District Judge.

GRANT, District Judge.

This is an appeal from a judgment of the District Court dismissing the taxpayers' suits for refund of income taxes for the years 1949 through 1955.

Schofield Land Trust owned and operated a Cleveland, Ohio, office building. The Land Trust Agreement required the Trustee to keep certain records and to distribute to the beneficiaries the annual income remaining, after setting aside, each year, reserves required for depreciation, mortgage amortization and income taxes. Both monthly and annual statements were made to Land Trust Certificate Holders, including the plaintiffs, showing receipts, billings, disbursements and accrual data. Required reserves were also set forth, the reserve for federal income taxes being computed at trust rates.

Land Trust timely filed 1948 to 1954 fiduciary returns, Form 1041, and paid tax accordingly. However, in 1951 deficiencies were asserted, and on January 19, 1956, the Tax Court held that Land Trust was an association taxable at corporate rates and its distribution deductions were disallowed. See Estate of Scofield v. Commr., 25 T.C. 774, affirmed on this issue, 266 F.2d 154 (6th Cir., 1959). As a result of this holding Land Trust was required to pay substantial additional taxes for the years 1949 to 1955. Schofield Building was mortgaged for $420,000.00 to make these 1956 payments.

During the years in question Land Trust made distributions to its certificate holders in the following amounts:

Year Total Land

Trust Distribution

1949 $147,000

1950 120,000

1951 120,000

1952 138,000

1953 132 ,000

1954 ...


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