DuPont Testamentary Trust v. Commissioner

Alfred duPont built a mansion called Nemours, where he and his wife, Jessie duPont, lived. He subsequently organized Nemours, Inc., and transferred all stock in that organization to himself in exchange for the title to the house and grounds. The duPonts rented the mansion for $1 per year, and still paid taxes and upkeep expenses. In 1929, Alfred transferred $2 million worth of stock to Nemours, Inc., in exchange for which the corporation then assumed payment of taxes and upkeep fees. Alfred died in 1935. His will passed Nemours, Inc., to his executors, who were directed to establish DuPont Testamentary Trust (the trust) (plaintiff) to maintain the property. The stock of the corporation and other securities formed the corpus of the trust, and Jessie was both a trustee and the principal income beneficiary for life. After her death, the trust assets would pass to a charitable foundation. During 1966 and 1967, the trust’s gross income was $13 million. Jessie was paid $11 million. The sums of $255,753 in 1966 and $274,451 in 1967 were paid for general maintenance, with an additional $114,284 paid in 1967 for paving and rehabilitating decaying structures on the property. The trustees for the trust claimed all the expenses as deductions for expenses paid for the production of income or as administrative expenses. The Commissioner of Internal Revenue (the commissioner) (defendant) disallowed all of the deductions, arguing that the property was not held for production of income and that the expenses were not administrative. The trust appealed, and the United States Tax Court upheld the commissioner. The trust again appealed.