Peter J. Maresca Trust v. Commissioner

Peter Maresca died in December 1974. His will provided that the residuary estate would pass to the Peter Maresca Trust (plaintiff), which was to distribute income annually to five tax-exempt organizations until 2000, at which time the remainder would be divided among those organizations. Bruce Murphy served as both executor of Maresca’s estate and trustee of his trust. Murphy filed an estate-tax return in 1975, which was approved in September 1976. Murphy qualified as trustee of the trust on January 3, 1977. He filed a final accounting—another term for a final settlement—with the local court on January 18, 1977, which was posted on the door of the courthouse on the first Monday in February and was not finalized until 10 days afterward. The accounting was approved on February 24, 1977, and was recorded on March 14, 1977. This timeline was pivotal because on February 2 and 3, 1977, Murphy sold almost all the stocks previously owned by Maresca. The securities were still in Maresca’s name, and Murphy endorsed the stock certificates as executor of Maresca’s estate. Similarly, the checks he received were payable to Murphy as executor of Maresca’s estate. The distinction was significant because on April 24, 1978, Murphy filed a fiduciary income-tax return for 1977. He reported a $60,606.48 of capital-gain income from the sales of securities, claiming a deduction for a larger amount set aside for the five charitable organizations, thus resulting in no taxable income. Murphy also filed a trust accounting indicating the securities to have been sold by the trust. The government (defendant) audited the fiduciary income-tax return and found that the trust, which had sold the securities, could not deduct from income amounts permanently set aside for charitable organizations. The government based its belief on Murphy having filed his final settlement on January 18—before the sales on February 2 and 3—and on Murphy having filed the 1978 trust accounting indicating that the trust had sold the stocks. Ultimately, the trust argued that the estate, not the trust, was the seller of the securities, and that the estate had then distributed the proceeds to the trust. The estate, of course, could claim such a deduction. The trust based its argument on the fact that the final settlement had not been approved on February 2 and 3 and that the estate had not yet had authority to distribute assets to the trust. The trust ultimately filed suit seeking a finding that it was not liable for the additional taxes the government sought.