Klein v. Commissioner

EDWIN M. KLEIN (THE FOREMAN TRUST & SAVINGS BANK, CONSERVATOR), PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. IRVING N. KLEIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Klein v. Commissioner Docket Nos. 49498, 49499. United States Board of Tax Appeals 31 B.T.A. 910; 1934 BTA LEXIS 1017; December 18, 1934, Promulgated *1017 1. Held that payments made by the petitioners to their sisters pursuant to an annuity contract made subsequent to their father's death did not constitute distributions, through the petitioners, of the estate of the father of the petitioners. Held, further, that the payments were capital expenditures and are not deductible from gross income of the petitioners in the years paid. Held, further, that no portion of each payment constituted interest which is deductible under section 214(a)(2), Acts of 1924 and 1926. 2. One of the petitioners, in order to obtain a loan, procured insurance upon his own life and placed the policies in trust as security for the loan. The policies were payable to the creditor and the petitioner did not reserve the right to change the beneficiary. Held that under section 215(a) of the Revenue Act of 1926 the premiums paid by the petitioner upon these policies are not deductible from his gross income. 3. Held, as to one of the petitioners, that he has failed to show that either he, or a certain trust of which he was one of the beneficiaries, is entitled to take a deduction for depreciation upon assets held by the trust, there being*1018 no proof of the amount of the depreciation. L. A. Luce, Esq., for the petitioners. Isadore Graff, Esq., for the respondent. MCMAHON *910 These are proceedings duly consolidated for hearing and opinion, for the redetermination of deficiencies in income taxes as follows: Year Amount involved of deficiency Docket No. 49498 [1924] $1,824.23 Do [1925] 946.55 Docket No. 49499 [1924] 2,585.15 Do [1925] 583.14 Do [1926] 4,733.80 Do [1927] 2,740.20 Docket No. 49498 contains the following assignments of error: (a) Failure of the Commissioner of Internal Revenue to allow the sums of $7,500 and $7,500 paid respectively in 1924 and 1925 to sisters of taxpayer under contract dated April 19, 1913. (b) Failure of the Commissioner to allow as a deduction in computing net income for 1924 and 1925 so much of the aforesaid payments of $7,500 and $7,500 as represented interest paid under said contract of April 19, 1913. *911 Docket No. 49499 contains the following assignments of error: (a) Failure of the Commissioner of Internal Revenue to allow the sums of $7,500.00 and $3,750.00 paid respectively in 1924 and 1925*1019 to sisters of taxpayer under contract dated April 19, 1913. (b) Failure of the Commissioner to allow as a deduction in computing net income for 1924 and 1925 so much of the aforesaid payments of $7,500.00 and $3,750.00 as represented interest paid under said contract of April 19, 1913. (c) Failure of the Commissioner to allow as a deduction in computing net income for 1926 and 1927 the sums of $22,957 and $13,718 respectively paid as insurance premiums upon life insurance taken out and carried as a condition precedent to obtaining a loan for business purposes and of which the lender was the beneficiary. (d) Failure of the Commissioner to decrease taxable income by $1,175.43, representing the petitioner's proportion of depreciation sustained upon assets of the Rosalinda Klein Trust. By amendment to the petition in each proceeding it is alleged, in the alternative, that the sums paid during the years 1924 and 1925 by the petitioners to their sisters pursuant to the agreement executed on April 19, 1913, were, in fact, distributions from the estate of the decedent Leon Klein, and should be excluded from the gross income of the petitioners, since the petitioners became trustees*1020 for the sisters in connection with the distribution of these amounts. FINDINGS OF FACT. The petitioner, Edwin M. Klein, is an individual, with residence at Chicago, Illinois, and files his petition by the Foreman Trust & Savings Bank, the duly appointed, qualified, and acting conservator of his estate. The petitioner, Irving N. Klein, is an individual, with residence at Chicago, Illinois. The parties entered into the following stipulation of facts: 1. The Appeal of Irving N. Klein involves the years 1924, 1925, 1926 and 1927. The Appeal of Edwin M. Klein involves the years 1924 and 1925. 2. The petitioners' father died testate on December 28, 1912. By his will, among other provisions, he left $75,000 to each of his daughters, Florence L. Klein, Minna K. Weissenbach and Cora K. Ullman. He left to his two sons, Edwin M. and Irving N. Klein, and his widow, Rosalinda Klein, all his stock in a corporation known as "L. Klein," one-third to each. The will was proved and admitted to record in open court in the Probate Court of Cook County, Illinois, on January 2, 1913. The net estate amounted to $2,868,442.39, and included among the assets was stock of L. Klein, the corporation, *1021 valued at $1,500,000. 3. The sisters were not satisfied with the distribution provided by the will. On April 19, 1913, the following agreement was made by them with Irving N. Klein and Edwin M. Klein: Memorandum of Agreement, Made at Chicago, Illinois, this 19th day of April, 1913, by and between Irving N. Klein and Edwin M. Klein, both of Chicago, Illinois (hereinafter designated "First Parties"), and Minna K. Weissenbach, Cora K. Ullman, and Florence L. Klein, also of the City of Chicago, State of Illinois, (hereinafter designated "Second Parties"), Witnesseth: *912 Whereas, Leon Klein, of the City of Chicago, in the State of Illinois, departed this life on the 28th day of December, 1912, and left a Last Will and Testament, which Last Will and Testament has been duly admitted to probate, in the Probate Court of Cook County, in the State of Illinois; and Whereas, all of the parties of this agreement, together with the widow of said Leon Klein, were named as beneficiaries under the Last Will and Testament of said Leon Klein, deceased and, Whereas, the parties hereto are desirous of making a division of that certain portion of the assets of the Estate devised to*1022 them under said Last Will and Testament, in a manner more equitable than is by the provisions of said Last Will provided; and, Whereas, it is the desire of all of the parties to this agreement, that the said Second Parties do not attempt to enforce any rights which they may claim to have to any part or portion of said Estate of Leon Klein, not devised to them; Now, Therefore, in consideration of One Dollar ($1.00) each to the other in hand paid, and in further consideration of the mutual love and affection of each of the parties hereto for the others, and in further consideration of the covenants and contracts hereinafter set out, said Parties hereto agree as follows: That all that portion of the estate of Leon Klein, deceased, devised under and by virtue of the terms of his Last Will and Testament to all of the parties of this agreement, notwithstanding any of the provisions of said Last Will and Testament, and without reference to the division so attempted to be made under and by virtue of said Last Will and Testament, shall be divided and distributed by the Executors of said Last Will and Testament of said Leon Klein, deceased, as follows: 1. Irving N. Klein, Four Hundred*1023 Ninety-nine (499) shares of the capital stock of L. Klein, a corporation; also, One Hundred (100) shares of the capital stock of The 12th Street Store, a corporation. 2. Edwin M. Klein, Four Hundred Ninety-nine (499) shares of capital stock of L. Klein, a corporation; also, One Hundred (100) shares of the capital stock of The 12th Street Store, a corporation. 3. All cash on hand, stocks, bonds, mortgages and other evidences of indebtedness belonging to said estate and specifically set out in a Schedule hereto attached, marked Exhibit "A", and by specific reference thereto made a part hereof, with the same force and effect as if the same were specifically incorporated herein, together with all the increments by virtue of dividends and other earnings thereon computed from the day of the death of said Leon Klein, up to and including the date of the distribution as contemplated herein, shall be divided between Minna K. Weissenbach, Cora K. Ullman and Florence L. Klein, second parties hereto, share and share alike, and in addition thereto, the said First Parties, jointly and severally agree to pay to each of said Second Parties the sum of Five Thousand Dollars ($5000.) per annum, *1024 in semi-annual installments, during the term of the natural life of Rosalinda Klein, widow of said Leon Klein, deceased, and Mother of the parties to this agreement. In the event of the death of any of said Second Parties prior to the death of said Rosalinda Klein, then the sum which said deceased person would have received under and by virtue of the terms hereof, shall be paid to her respective heirs, administrators, executors, legal representatives or assigns, for and during the same period. *913 4. Said First Parties further agree that notwithstanding the distribution and setting apart to each of them of the One Hundred (100) shares of the capital stock of The Twelfth Street Store, a corporation, and which said stock is held by Rosalinda Klein, Irving N. Klein and Joseph Weissenbach, as Trustees under and by virtue of a certain Trust Agreement made and entered into of even date herewith, a copy of which said Trust Agreement being hereto attached, marked "Exhibit B" and made a part hereof, they will, contemporaneously with the execution of this Agreement, direct the said Trustees in writing to pay to each of said Second Parties, out of the dividends which they receive*1025 as such Trustees, which may be hereafter declared and paid on the said Two Hundred (200) shares of the said stock of said The 12th Street Store, a corporation, the sum of Three Thousand Dollars ($3,000.00) per year, during the term of the natural life of said Rosalinda Klein, and that on and after the death of said Rosalinda Klein, said Trustees shall pay to said Second Parties, share and share alike, all dividends which may thereafter be declared and paid on the said Two Hundred (200) shares of the capital stock of said The 12th Street Store, a corporation, up to and including March 3, 1929. In the event of the death of any of the said Second Parties prior to said March 3rd, 1929, then the dividends which such deceased person would have received under the terms hereof, shall be paid to her heirs, executors, administrators or legal representatives. 5. Said first parties further agree, that they and each of them will sell to said Second Parties, in equal proportions all of the said capital stock of said The 12th Street Store which they will receive as their distributive shares under and by virtue of the terms of this agreement, at the election of said Second Parties, or any or*1026 either of them, at any time between the date hereof and the Third day of March, 1929, and if any of said parties exercise her or their option to purchase her or their proportionate share or shares of said capital stock, then, the price to be paid therefor by said party or parties exercising her or their option, shall be the book value of said capital stock, to be computed from the books of said The 12th Street Store, a corporation, at the date of the exercise of the option to purchase as herein given. 6. It is further understood and agreed, that nothing herein contained shall be construed to mean that the entire Two Hundred (200) shares of stock must be purchased hereunder, but any one of said Second Parties hereto may purchase one-third of said Two Hundred Shares within the time and at the price hereinabove specified. 7. All of the parties hereto agree, that they will upon reasonable request by the Executors of the Estate of Leon Klein, deceased, sign all necessary receipts and vouchers for their distributive shares of the Estate of Leon Klein, deceased, pursuant to the terms of the Will of said Leon Klein, deceased, notwithstanding the distribution as herein agreed upon, *1027 and notwithstanding the agreement, herein, that the executors of said estate shall distribute said estate in accordance with the provisions of this agreement. 8. And all the parties hereto, in consideration of the covenants herein contained, do hereby mutually release each other from any and all claims of any kind or character which they or any of them may have by reason of any matter or thing whatsoever, and upon the distribution of the portion of the estate of Leon Klein, deceased, devised to the parties hereto, that the said Estate of Leon Klein, deceased, and the Executors thereof, shall be released from all claims and demands of whatsoever nature. *914 This agreement shall inure to and be binding upon the respective heirs, executors, administrators and assigns of the parties hereto. 4. During the year 1924 the petitioners, Irving N. Klein and Edwin M. Klein, paid to Minna K. Weissenbach, Cora K. Ullman and Florence L. Klein, the sum of $5000.00 each, under the aforementioned agreement executed the 19th day of April, 1913. The total amount paid to the three sisters was $15,000.00 during the year 1924 and of this sum Irving N. Klein paid the sum of $7,500.00 and*1028 Edwin M. Klein the sum of $7,500.00. During every year after the execution of the agreement of April 19, 1913, petitioners had, as in 1924, paid to the three sisters the aggregate sum of $15,000.00, $5,000.00 to each sister, under the aforesaid agreement. 5. Rosalinda Klein, the Mother of the petitioners, died on February 2, 1925. Therefore there was paid during the year 1925 to the three sisters by the Klein brothers only one semi-annual installment of the payments due under the agreement of April, 19, 1913. That is, the brothers paid to each of the sisters $2,500.00 during the month of January, 1925. Each brother paid his proportionate share of the $7,500.00 so paid; that is, Irving N. Klein paid $3,750.00 and Edwin M. Klein paid $3,750.00. No further payments were made by the brothers Klein to their sisters during the year 1925, for the reason that the semi-annual payments due under the contract of April 19, 1913 were to cease upon the death of the mother, Rosalinda Klein. 6. The expectancy of life of Rosalinda Klein was, on April 19, 1913, fifteen years, one month and nine days, and on the theory that an annuity was created in favor of the sisters under said agreement, *1029 the value on April 19, 1913, of each sister's right under the agreement to receive $5,000.00 a year in semi-annual installments during the life of Rosalinda Klein was $57,754.77, and the principal value and discount applicable to each semi-annual payment is shown in the table attached hereto, marked Exhibit A-1, and made a part hereof. Exhibit A-1, referred to in the stipulation above, is incorporated herein by reference, but in the interest of brevity is not set forth. It shows that the present worth on April 19, 1913, of each payment of $2,500 to be paid for the first half of the year 1924 was $1,697.24, the so-called discount being $802.76; that the present worth at that time of each payment of $2,500 to be paid for the second half of the year 1924 was $1,667.62, the so-called discount being $832.38; and that the present worth at that time of each payment of $2,500 to be paid for the first half of the year 1925 was $1,609.92, the so-called discount being $890.08. During 1924, 1925, 1926, and 1927 the petitioner, Irving N. Klein, was president of L. Klein, an Illinois corporation, which was engaged in the general merchandise business. He was generally managing the business. *1030 Prior to the death of his mother, he, his brother, and his mother owned the stock in this corporation equally. At the time of his mother's death, his brother was incapacitated and there was discord in the family. The petitioner considered it essential for the continuance of the business that he acquire control of the corporation in order to conduct it without interference which might prove detrimental. He therefore entered into negotiations and effected an agreement with his sisters and the representative of his *915 brother for the purchase of their interests in this corporation. For that purpose he required a sum of money in excess of $800,000. He did not have available such amount, so he borrowed a sum in excess of $800,000 from the Foreman National Bank of Chicago. In addition to other security required by the bank, the bank required him to take out insurance upon his life in the amount of $500,000 as additional protection for the loan. Accordingly he took out $500,000 of insurance upon his life in two life insurance companies. He obtained five policies from each company, each policy in the amount of $50,000. In each policy the beneficiary was the Foreman Trust*1031 & Savings Bank, as trustee. Petitioner specifically did not reserve the right to change the beneficiary. He executed a trust agreement with the Foreman Trust & Savings Bank, which bank held the policies as security for the loan made by the Foreman National Bank. Such trust agreement provided that if the petitioner defaulted, the trustee had the right to surrender the policies and hold the cash surrender value thereof in trust. Such trust agreement contained, among other provisions, the following provision: SIXTH: The said first party reserves the right of modifying or changing this agreement at any time, or in any manner, and the right to revoke the same and to withdraw from the Trustee any or all of the life insurance policies deposited hereunder and to substitute in his discretion any other policy or policies of insurance; reserves the right to increase or decrease the amount of insurance and/or the Trust Estate; and to change, alter, amend or cancel this agreement without the consent of any of the beneficiaries or of the said Trustee, excepting, however, and it is expressly agreed, that said first party shall and will at all times, anything hereinbefore in this paragraph stated*1032 to the contrary notwithstanding, as long as he shall remain indebted to said The Foreman National Bank, keep in force and in the possession of said second party insurance policies issued by first-class responsible life insurance companies insuring his life in favor of said second party as trustee for an amount at least equal to the amount of the indebtedness at any time owing from said first party to The Foreman National Bank; provided, however, that said first party shall at no time be under any duty or obligation to maintain and keep insurance on his life hereunder in an amount in excess of $500,000. During 1926 and 1927 the approximate amount of the loan still owing from the petitioner, Irving N. Klein, to the Foreman National Bank was $500,000. In 1926 and 1927 he paid premiums upon all these life insurance policies in the respective amounts of $15,881 and $13,718. Rosalinda Klein, mother of the petitioners, in her will, after making certain specific bequests, gave all the rest, residue, and remainder of her estate to a trustee in trust, and directed the trustee as soon after her death as convenient and safe, but in any event within five years of her death, to divide the*1033 estate into five equal parts and to deliver one of such shares to the petitioner, Irving N. *916 Klein, absolutely, and the income from this share was to be paid to him during the time it was held by the trustee. In his returns for the years 1924 and 1925, the petitioner, Irving N. Klein, claimed as deductions the respective amounts of $7,500 and $3,750 which he had paid to his sisters under the agreement of April 19, 1913. The petitioner, Edwin M. Klein, in each of his returns for the years 1924 and 1925, claimed as a deduction the amount of $7,500 purporting to represent the amounts he had paid to his sisters under such agreement. The respondent disallowed these claimed deductions. In his returns for the years 1926 and 1927, the petitioner, Irving N. Klein, claimed as deductions for insurance premiums paid, the respective amounts of $22,957 and $13,718, which were disallowed by the respondent. In the notice of deficiency the respondent, in determining the income of the petitioner, Irving N. Klein, for the year 1926, increased the income reported by the petitioner from the Rosalinda Klein trust from $12,719.85 to $15,203.30. The respondent stated, "In determining*1034 the income distributable by the trust, the depreciation on assets to the date of distribution to the heirs has been disallowed." OPINION. MCMAHON: The first contention of the petitioners is that the amounts of $15,000 and $7,500 paid in the years 1924 and 1925, respectively, by them to their sisters pursuant to the provisions of the agreement of April 19, 1913, set forth in our findings of fact, should be excluded from their net taxable income for those years. Each petitioner paid one half of such amount in each year. The petitioners contend that these payments constituted distributions of the estate of their father and that under the contract of April 19, 1913, they became, in equity, the trustees for their sisters in connection with the distribution of these payments. They rely upon , as authority for this contention. In the first place we do not know that the respondent included these amounts in the income of the petitioners. All we know is that he refused to allow the deduction of those amounts. We are not advised as to the source of the moneys used by the petitioners to make these payments. Presumably the money was taken*1035 from the general funds of the petitioners. , was a proceeding brought by the sisters of the petitioners for the purpose of determining the taxability to them of payments made to them in the years 1916 to 1922 under the agreement of April 19, 1913. We there held that this agreement created annuities payable to the sisters by the petitioners during the life of Rosalinda Klein, the mother *917 of the petitioners, the probable term being approximately 15 years; that the sisters purchased the annuities from their brothers, the petitioners herein, by transferring to the brothers property which they, the sisters, had received by distribution of their father's estate; that the value of each annuity at the time of acquisition was $57,753.50, which became the capital base for measuring any subsequent gain or loss in respect thereof; and finally that each yearly payment of $5,000 to each sister represented in part a return of the cost of the annuity and in part a gain, the latter being represented by the so-called discount. It appears that *1036 , does not support the position of the petitioners, but, on the contrary, establishes that the payments by the petitioners to their sisters represented cost of certain assets purchased from the sisters, rather than distributions of the estate of the father. We adhere to our holding in this regard in So far as we can determine from the evidence, there was no obligation upon the petitioners under the terms of their father's will to make such payments to their sisters. The will was never contested so far as we know and the petitioners received all the property which the will of their father gave them. We see no reason for holding that these payments by the petitioners constituted distributions of the father's estate through them to the sisters. See . ; affirmed in , cited by the petitioners, is distinguishable because there the taxpayer transferred all his right to a certain portion of the income of trust property. We there stated that the taxpayer*1037 "completely divested himself of any interest in the right to receive such income." , cited by petitioners, is also distinguishable. There also the taxpayer had transferred, for a valuable and legal consideration, her right to receive income from a trust. In the instant proceeding, the amounts in question which were paid over by the petitioners to their sisters were, so far as we can determine, funds belonging to the petitioners. There was no such transfer of a specific right to income as was true in the above cited cases. See . None of the other cases cited by the petitioners is in point and no useful purpose would be served by discussing them. While the petitioners do not press the question on brief, the pleadings do raise the question of whether these payments are deductible in their entirety from gross income of the petitioners. However, as pointed out above, these payments were made in order to acquire *918 assets. They were capital expenditures which are not deductible from the gross income of the petitioners for the years in which paid. While*1038 the petitioners do not discuss the question in their briefs, the pleadings and proof do present the question as to whether the respondent should have allowed as a deduction certain portions of the payments made as representing interest paid by the petitioners. Section 214(a)(2) 1 of the Revenue Acts of 1924 and 1926, which are identical, allow the deduction of all interest paid or accrued within the taxable year on indebtedness. To be entitled to such a deduction a taxpayer must bring himself within the provisions of the statute. In , affirming *1039 , the United States Circuit Court of Appeals for the Eighth Circuit had before it the question of whether certain amounts paid out upon so-called "notes" constituted deductible interest. The notes were specifically made payable only to the payee, were nonassignable, nontransferable, and nonnegotiable and it was specifically provided that in the case of death of the payee the notes were to be void. The notes were payable on or before 30 years after date. "Interest" at the rate of 5 percent per annum was provided for and paid. The court, in holding that the payments made by the maker of the so-called notes were not deductible as interest under section 214(a)(2) of the Revenue Act of 1921, which is identical with the provisions of the statute in question in the instant proceeding, stated: [3] A debt is "that which is due from one person to another, whether money, goods or services; that which one person is bound to pay to another, or perform for his benefit." Webster's New International Dictionary. "In order to create an indebtedness there must be an actual liability at the time either to pay then, or at some future time." Bouv. Law*1040 Dict., Vol. 2, page 1531. "Every debt must be solvendum in praesenti, or solvendum in futuro - must be certain and in all events payable; whenever it is uncertain whether anything will ever be demandable by virtue of the contract, it cannot be called a 'debt'. While the sum of money may be payable upon a contingency, yet in such case it becomes a debt only when the contingency has happened, the term 'debt' being opposed to 'liability' when used in the sense of an inchoate or contingent debt." 17 Corpus Juris 1377. ; ; Lowery v. Fuller, 221 No.App. 495, ; ; . The term "indebtedness" as used in the Revenue Act implies an unconditional obligation to pay. Any definition more flexible would *919 only encourage subterfuge and deception. The "notes" involved in this case did not constitute a debt of the maker because their payment was contingent*1041 upon the payees being alive at the maturity of the instruments in 1950. [Emphasis supplied.] Likewise in the instant proceeding the liability of the petitioners to make payments in the future was contingent. The payments were to be made only so long as the mother was alive. Therefore this liability of the petitioners was not "indebtedness" within the meaning of the statute, and no part of the payments in deductible as interest under the statute. Furthermore, it is significant that there is no reference whatever to interest in the contract of April 19, 1913. So far as we can determine from the evidence the full amount of each payment constituted a part of the purchase price of the assets received by the petitioners from their sisters. , affirming ; , affirming . This is not inconsistent with our holding in *1042 , that a portion of each payment to the sisters, represented by the so-called discount, is taxable income when received. The fact that it is taxable to the recipient does not necessarily determine that it is deductible interest paid by the petitioners herein. Discount is defined in Black's Law Dictionary, 3d ed., as follows: DISCOUNT. In a general sense, an allowance or duction made from a gross sum on any account whatever. In a more limited and technical sense, the taking of interest in advance. * * * The term "discount" is not used in the instant proceeding in the latter sense. The second question presented is whether the petitioner, Irving N. Klein, is entitled to take as deductions in the years 1926 and 1927, the respective amounts of $15,881 and $13,718, representing premiums paid by him in those years upon life insurance policies upon his own life. These policies were in the aggregate amount of $500,000 and were taken out for the purpose of securing a loan in excess of $800,000, in order to acquire a controlling interest in a corporation. The beneficiary under each of the policies was a bank acting as trustee which was to*1043 hold the policies or the proceeds thereof to secure the loan from another bank. The petitioner did not reserve the right to change the beneficiary. There are set forth in the margin applicable provisions of the Revenue Act of 1926. 2 *920 In ; certiorari denied, , the Circuit Court of Appeals for the Third Circuit had under consideration similar provisions of the Revenue Acts of 1918 and 1921. There the taxpayer had placed as collateral to secure a loan, an insurance policy upon his own life, the beneficiary of which was his estate. It was there held that the premiums paid by the taxpayer upon such life insurance policy were not deductible. The court stated in part: * * * Though assigned to and held by the creditor and*1044 for two years used as collateral security, it was, none the less, a policy in which the taxpayer was "directly or indirectly" a beneficiary, for if it had matured when held as collateral, and payment had been made to the creditor, it would indirectly have augmented his estate by decreasing his liabilities. * * * To the same effect are ; and . Upon the authority of the above cases we hold that the petitioner in the instant proceeding was "directly or indirectly" a beneficiary under the policies in question and that the premiums in question are not deductible. The petitioner urges that the instant proceeding is distinguishable for the reason that the beneficiary, which the petitioner did not reserve the right to change, was the trustee. This, however, is immaterial. As pointed out in , if payment were made to the creditor upon these life insurance policies it would indirectly augment the petitioner's estate by decreasing the liabilities. In both *1045 , and , the beneficiaries under the policies were creditors of the taxpayers. The last question presented is whether the petitioner, Irving N. Klein, is entitled to deduct from his gross income for the year 1926 an amount of $1,175.43 alleged to represent one fifth of the depreciation sustained upon assets of the Rosalinda Klein trust. The respondent, in the notice of deficiency, increased the income reported by the petitioner from such trust and stated that in determining the income distributable by the trust the depreciation on the assets to the date of distribution to the heirs was disallowed. In the 30-day letter it was stated by the respondent that the depreciation sustained upon the trust assets was $5,877.15, but that since there was no specific provision in the will or a decree of court construing the will or the state law authorizing the taking of depreciation, such depreciation should be disallowed in computing the net income of the trust. At the hearing counsel for the petitioner took the position that there was only a question of law involved, and that if it were determined that depreciation*1046 should be allowed, then the amount thereof could be settled under Rule 50. Counsel for the respondent at that time refused to agree that there was only a question of law. Despite *921 this, the petitioner did not introduce evidence as to the amount of depreciation sustained upon the trust assets. In fact, there is no evidence to show the nature of the trust assets, the probable useful life thereof, or the basis for depreciation of such assets. In this situation we are not in a position to determine the amount of depreciation sustained. The fact that the respondent, in the 30-day letter, did not raise the question of the amount of depreciation is not determinative. The respondent's disallowance of the claimed deduction is presumptively correct and the petitioner has the burden of proving it wrong. . The hearing before the Board is a complete hearing de novo. . The burden is upon the taxpayer to show all elements necessary to a proper determination of the amount of depreciation sustained. This the petitioner has not done. Furthermore, the petitioner*1047 has failed to show that the property in question meets the requirements of the statute. Section 219 of the Revenue Act of 1926 provides that trusts are entitled, generally, to the same deductions to which individuals are entitled. Section 214 of the Revenue Act of 1926 relates to deductions allowed to individuals, and the subdivision applicable here is (a)(8). 3 In the instant proceeding, we do not know the nature of the trust property, nor do we know whether it was used in a trade or business, as required by the statute. See , affirmed on another issue in ; certiorari denied, . Thus, in this regard, the petitioner has also failed to show that either he or the trust is entitled to a deduction for depreciation. *1048 In view of the above it becomes unnecessary to determine, as a matter of law, whether the petitioner, as beneficiary, would otherwise be entitled to the benefit of a deduction for depreciation of the trust assets. Decision will be entered for the respondent. Footnotes 1. SEC. 214. (a) That in computing net income there shall be allowed as deductions: * * * (2) All interest paid or accrued within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations or securities (other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer) the interest upon which is wholly exempt from taxation under this title. ↩ 2. SEC. 215. (a) In computing net income no deduction shall in any case be allowed in respect of - * * * (4) Premiums paid on any life insurance policy covering the life of any officer of employee, or of any person financially interested in any trade or business carried on by the taxpayer, when the taxpayer is directly or indirectly a beneficiary under such policy. ↩ 3. SEC. 214. (a) In computing net income there shall be allowed as deductions: * * * (8) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence. In the case of improved real estate held by one person for life with remainder to another person, the deduction provided for in this paragraph shall be equitably apportioned between the life tenant and the remainderman under rules and regulations prescribed by the Commissioner with the approval of the Secretary. ↩