Joseph E. Widener Trust v. Commissioner

The Peter A.B. Widener Trust was established in 1915 and divided into four separate trusts, one of which, referred to as the PW Trust, was at issue in this case. Ella Widener Weatherill was the sole income beneficiary of the PW Trust during the time in question. The PW Trust was set to terminate on December 8, 1992, and would then be paid to Ella or her issue. The Joseph E. Widener Trust (plaintiff), referred to as the JW Trust, was established in 1938. Ella was the income beneficiary, but the trust was to end 21 years after the death of the last of Ella and P.A.B. Widener III, Ella’s brother. On Ella’s death, her income interest would pass to Ella’s children, three of whom were alive at all relevant times. Ella preferred to receive tax-exempt income from the trusts, and the PW Trust generally tried to assist. The JW Trust, however, put more emphasis on increasing the corpus in consideration for future beneficiaries. Ella had no direction in any trust decisions, and independent trustees controlled the trusts. In January 1975, the PW Trust and JW Trust trustees met and noted the large capital gains each had experienced. In both cases, each trust owned stocks that could be sold at a loss to realize losses and minimize taxes. The trusts agreed to purchase stocks sold by the other. The sales of stocks were at market price—either the last listed price or halfway between the most recent bid and asked prices for the stocks. The PW Trust claimed a loss of $38,259 and the JW Trust claimed a loss of $66,244 on the sales. The Commissioner of Internal Revenue (defendant) argued that these deductions must not be allowed due to the connection between the trusts, because the trusts had the same beneficiary, and because the sales were not bona fide. The trusts argued that the beneficiaries were, in fact, not the same (Ella had no control and was not the ultimate beneficiary of the JW Trust), that the stock sales were bona fide, and that the deductions must be allowed.