Alan Nesmer

[Editor’s Note: This case can also be found under the title “Nesmer v. Commissioner.”] Alan Nesmer (plaintiff) was an attorney who enjoyed financial speculation. He purchased an interest in a trust established by Silas Llewellyn. Under that trust, Silas’s granddaughter, Mary Isabelle Llewellyn, had a remainder interest. The extent of that interest was contingent on Mary’s aunt, Gertrude, dying without issue and Mary’s father, Paul, also dying without any other surviving issue than Mary herself. In 1946, Mary sold, assigned, and transferred her full interest to a trio of investors, one of whom was Richard Kadish, who bought four-ninths of Mary’s interest. Later that year, Kadish sold three-fourteenths of that interest (so about 9.52% of Mary’s total interest) to Nesmer for $3,000. Ultimately, in 1968, an Illinois court found that the Alan Nesmer was entitled to his share of the remainder interest, which, after fees and expenses, ended up being $55,788.16. The trustee indicated that in 1968, the final year of the trust, deductible expenses exceeded income for the trust estate. From that overage amount, Nesmer claimed $14,394.12 as a deduction on his 1968 income tax return. The basis for Nesmer’s claimed deduction was a statute that allowed beneficiaries in the year of termination of a trust who succeeded to the property of an estate or trust to claim any overage of expenses above trust income as a personal deduction for any distributee whose share was diminished by the expenses. The Commissioner of Internal Revenue (the commissioner) (defendant) disagreed with this assessment, arguing that a purchaser was not a beneficiary and thus was not included in those who could use such a deduction and disallowing the deduction. Nesmer filed suit.