Aufiero v. Commissioner

JOHN M. AUFIERO, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Aufiero v. Commissioner Docket No. 100035. United States Board of Tax Appeals 43 B.T.A. 753; 1941 BTA LEXIS 1447; February 28, 1941, Promulgated *1447 Held, petitioner is not entitled to deduct from gross income (under section 23(0)(2), Revenue Act of 1934) payments made during 1934 and 1935 for the erection of a school building in Struno, Italy. C. Leo De Orsey, Esq., and Maurice Friedman, Esq., for the petitioner. James C. Maddox, Esq., for the respondent. VAN FOSSAN *753 This proceeding involves deficiencies in the petitioner's income taxes for the years 1934 and 1935 in the sums of $7,789.89 and $3,788.28. The petitioner alleges that the respondent erred in refusing to allow as deductions to a charitable trust amounts paid by the petitioner during each taxable year for the erection of a school building in the town of Sturno, Italy. FINDINGS OF FACT. The petitioner is the president and general manager of the E. a. Laboratories, Inc. His office is in Brooklyn, New York. He was born in the town of Sturno, Italy, and came to the United States in 1904 when about twelve years of age. He obtained his education in the public schools and in the Pratt Institute of Brooklyn and was graduated from the latter institution. While attending Pratt Institute the petitioner promised*1448 his mother that if he ever made enough money to do so he would erect a school building in Sturno. In 1926 he went to Italy primarily in connection with that pledge to his mother. At that time he had saved a little money for such purpose. While in Sturno he discussed with Nicola Ciampo and Ernesto Grella, both physicians, Vito Moccia, a lawyer, and others his purpose to erect a school building for the children and town of Sturno. The petitioner selected a site in the center of the town. At his request Ciampo, an old schoolmate, agreed to act as the petitioner's "rappresentante" and "fiduciario" (translated by petitioner as "representative" and "fiduciary", respectively) and in that capacity to be responsible for the money furnished by the petitioner for the erection of the building, to supervise the construction thereof, to pay the workmen, contractor, and watchman, to purchase materials, and to cooperate with the petitioner in carrying out the project. The petitioner considered Ciampo to be "the big boss of the project." *754 Ciampo was to telegraph the petitioner as sums were successively needed and the petitioner agreed to make them available. At one time the petitioner*1449 directed Ciampo to suspend the work because he did not have sufficient funds to continue it. This period of suspension covered about two years. Neither Ciampo nor Grella, his successor, received any compensation for his services. While in Italy the petitioner and Ciampo went to a bank in Avellino to arrange for the procedure necessary to transfer funds from the petitioner to Ciampo. There the head of the foreign department informed them that in order to make it possible for Ciampo to withdraw the money, which from time to time would be deposited by the petitioner in his own account, a power of attorney authorizing the withdrawal would be required. In the latter part of 1928 Ciampo negotiated for the acquisition of the building site. In August 1929 he requested the petitioner to forward funds for the purchase of the land. On August 30, 1929, the petitioner cabled to Ciampo as follows: "Power of attorney plus necessary funds for purchase of school zone sent today. Plans for building not yet completed." Upon receipt of the funds Ciampo concluded the purchase of the land, taking title in petitioner's name. On March 27, 1929, plans for the building were drawn up and submitted*1450 to the petitioner for approval. Such changes as he desired were made. In December 1930 the petitioner again went to Italy. He conferred with Ciampo, Grella, Giuseppe Flamma, a contractor, and others concerning construction of the building. The petitioner and Flamma then, on December 18, 1930, executed a contract for the work at 674,000 lire, according to plans "compiled" by Flamma and "fully approved" by the petitioner. In that contract the petitioner appointed as works' director Angelo Giorgio Iorizzo, at 5 percent of the cost, and Ciampo as "representative and fiduciary, who will receive monthly from Iorizzo the status of advanced works and to dffect payments due Flamma." Iorizzo was an architect. He was the petitioner's private agent and was employed at Ciampo's suggestion to see that the work was being performed according to contract. The terms of the contract with Flamma were changed to a cost basis. In December 1931 Ciampo requested of and obtained from the local "Federation of Industries" the right to pay the workers at the second class, or lower, rate as prescribed by the federation. Such arrangement was approved because the work was considered to be of the same*1451 class as that of public administration. Iorizzo reported to the petitioner on the progress of the work. On November 22, 1932, the petitioner wrote to his bank at Avellino *755 confirming his cable of 100,000 lire, 90,000 of which was to be paid to Ciampo "as usual with consent of Iorizzo." The remaining 10,000 lire were for the petitioner's personal use. In 1934 the petitioner purchased and transmitted to his bank in Italy for deposit in his account a total of 3,635 lire at a cost of $319.97 and in 1935 he so transmitted the following sums: Date Amount in lire Cost August 24 40,000 $3,291 September 25 60,000 4,899 November 19 60,000 4,866 December 10 50,000 4,043 The purchases on August 24 and September 25 were charged to the account of E. A. Laboratories, Inc. In 1934 Ciampo moved to Rome for professional reasons and was replaced by Grella. The lire purchased in 1935 were transmitted to Grella, whose duties in connection with the project were the same as those of Ciampo. During 1935 the petitioner expended $18,750 for the school at Sturno. On October 10, 1937, the petitioner executed a special power of attorney authorizing Tullio*1452 Tamburini to do all things required by Italian law to effect the donation of the school building to the Commune of Sturno. On October 17, 1937, Tamburini, as special attorney for the petitioner and pursuant to the authority granted to him by the power of attorney of October 10, 1937, executed a deed of donation to Vito Moccia, Mayor of Sturno, representing that town, conveying the school building to be used exclusively for the education of the youth of Sturno and to serve as a memorial for the petitioner's mother, Maria di Paola. The translation of articles V and VIII of the deed is as follows: Article V. The effects of the donation begin from this day, the Commune of Sturno remaining vested with the enjoyment and legal and material possession of it. Article VIII. The donation, object of the present act, remains fully valid from this moment in regards of the donator Commendatore Michaelangelo Aufiero, and will become perfect also for the Commune of Sturno after the approbation of the present act as the constituted parts authorize to execute from this time. The Mayor of Sturno was duly authorized to accept the donation of the school building. The building was dedicated*1453 in 1937 and was occupied as a public school during the week following the dedication. *756 The petitioner expended a total of more than $125,000 for the purchase of the land and the construction of the building. In August 1936 the petitioner and E. A. Laboratories, Inc., employed an accountant-auditor to take charge of their books. The petitioner had no books of record. The accountant opened a ledger for him as of January 1, 1937. While inspecting the petitioner's check books he discovered that certain withdrawals from his bank in Brooklyn ultimately went to Italy. Upon being told that such expenditures were for a school being built there, the petitioner was advised to include them as contributions in his income tax return. The claim for the deduction here in question was first made in the petition in this proceeding. OPINION. VAN FOSSAN: The petitioner contends that he created a trust fund in 1926 for the purpose of erecting a school building for the benefit of the youth of Sturno, Italy, and that gifts made by him to that fund in 1934 and 1935 are deductible from his gross income under the provisions of section 23(o)(2) of the Revenue Act of 1934. 1 *1454 Respondent denies that any such trust was established and contends that the relationship existing between the petitioner and Ciampo (succeeded by Grella) was one of agency. Addressing ourselves to the difference between a trust and an agency, in Scott on Trusts, vol. I, sec. 8, p. 62, we find the following comments: § 8. Trust and agency. - Although an agent is in a fiduciary relation to his principal, as a trustee is to the beneficiaries of the trust, the two relationships have a different history and different consequences flow from them. * * * * * * An agent acts for and in behalf of his principal and subject to his control; a trustee as such is not subject to the control of his beneficiary, although he is under a duty to deal with the trust property for his benefit in accordance with the terms of the trust and can be compelled by the beneficiary to perform this duty. The agent owes a duty of obedience to his principal; a trustee is under a duty to conform to the terms of the trust. An agent as such does not have title to the property of the principal, although he may be entrusted with possession and although he may have power to pass title; a trustee has title*1455 to the trust property. * * * *757 The agency relation may be terminated at the will of the principal or of the agent, and in any event ends on the death of either, although there are situations in which there is what is loosely called "a power coupled with an interest," where the relation involves more than mere agency, where it does not so terminate. On the other hand the trust relation cannot ordinarily be terminated at the will of the settlor or of the beneficiary or of the trustee, and does not end on the death of any of these persons, unless it is so provided by the terms of the trust. * * * Whether a relationship of trust or agency is created depends upon the intention of the parties. The mere fact that a person describes himself as agent does not necessarily mean that an agency rather than a trust is created. * * * * * * A person may be both agent and trustee for another. If he undertakes to act on behalf of the other and subject to his control he is an agent; but if he is vested with the title to property which he holds for his principal, he is also a trustee. In such a case, however, it is the agency relation which predominates, and the principles*1456 of agency, rather than the principles of trusts, are applicable. * * * Various other distinctions, not pertinent here, are noted. See also Restatement of the Law of Trusts, vol. I, sec. 8, p. 28; the Law of Trusts and Trustees by Bogert, vol. I, sec. 15, p. 45. Applying the principles so set forth to the facts of record, we entertain no doubt that the relationship between petitioner and Ciampo for the erection of the school building was one of agency and that no trust, within the meaning of the statute, was created or existed for the purposes described in section 23(o)(2). Throughout the entire record of the case, including the testimony of the petitioner and others, the correspondence, contracts, conveyances and cablegrams, there is nothing which leads us to conclude that a trust or trust fund was established; that a trust was to be administered according to specific terms; or that the public and private officials with whom Ciampo dealt were aware at any time that the operation was being carried on by a trust. On the contrary, the personal participation of the petitioner was emphasized at every point. It is true that, on occasion, Ciampo was referred to by the petitioner*1457 as "trustee" but obviously that word was used in the general sense of a "fiduciary" or one who occupies a confidential relationship to another and not in the technical sense in which the petitioner now asks us to construe it. Many relationships, such as bailment, guardianship, executorship, and agency, are alike in that they involve an element of faith, confidence, and "trust", but the legal significance of the terms varies with the underlying facts and circumstances of each case. So here, the petitioner apparently considered Ciampo his trustee in a broad sense *758 of reposing confidence in his integrity but with no intention to create the legal relationship which must support his claim for deduction. The petitioner's intentions must be determined by his actions. From the time of his first discussion of his proposed donation with Ciampo and others, until the final transfer of the property in October 1937, his dealings with Ciampo (later Grella) were on the basis of agency. The petitioner retained entire control of the project. The title to the land, the plans and drawings of the building, the contract for its erection, the transmission and deposit of funds, the method*1458 and time of making payments for construction, and the final transfer of title and possession to the town of Sturno were all under the petitioner's domination and were neither controlled nor influenced in any way be Ciampo. Ciampo had only to carry out his principal's instructions, precisely given and duly supported by power of attorney. Deductions are a matter of legislative grace. Not every charitable gift is deductible. The statutory requisites must be satisfied. The Board has no power to read into the record an intent or purpose to create a trust when the fundamental characteristics of such a relationship are not to be found. We have no doubt of the petitioner's intention to donate the building to the town of Sturno. The actual gift was made in 1937. The record shows that the petitioner, through Ciampo, bought the land in 1929; that he retained ownership, possession, and control of it until 1937. At no time did Ciampo have either title to or control over it. The funds to pay for the construction of the building were deposited in the bank and retained in the petitioner's name until they were needed for disbursement to the contractor and for other costs. In this situation*1459 we are of the opinion that petitioner has not brought himself within the statute. The respondent also argues that the trust relationship, if any, was created in Italy and that the Italian laws governing it have not been proved; that a gift to a town is not a gift to a corporation organized and operated exclusively for religious, charitable, scientific or educational purposes and that, at the most, until 1937 the school building was to be donated at some time in the future. We need not consider the merits of these arguments, since the record itself does not warrant our finding that a trust, as contended by the petitioner, was actually created. Decision will be entered for the respondent. Footnotes 1. SEC. 23. DEDUCTIONS FROM GROSS INCOME. In computing net income there shall be allowed as deductions: * * * (o) CHARITABLE AND OTHER CONTRIBUTIONS. - In the case of an individual, contributions or gifts made within the taxable year to or for the use of: * * * (2) a corporation, or trust, or community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation. ↩