## Facts

- Peter J. Maresca died testate on December 5, 1974, and his will left the residuary estate to the Peter J. Maresca Trust.
- The trust directed annual income distributions to five tax-exempt organizations until January 1, 2000, when the remainder would be divided among those organizations.
- Bruce G. Murphy served in dual roles: executor of Maresca’s estate and trustee of the trust.
- Murphy qualified as executor on December 13, 1974, filed an estate-tax return on July 14, 1975, and the IRS issued an estate-tax closing letter on September 21, 1976.
- Murphy qualified as trustee on January 3, 1977.
- On January 18, 1977, Murphy filed the estate’s final accounting (final settlement) in the Virginia Beach Circuit Court. Under Virginia procedure, the matter was posted publicly in early February and could not be completed until at least 10 days after posting; the accounting was approved on February 24, 1977, and recorded on March 14, 1977.
- The final accounting listed the “balance of estate” as passing to “Bruce G. Murphy, Trustee,” and included blocks of securities as part of the residue.
- On February 2 and 3, 1977 (and one additional sale on April 18, 1977), nearly all of those securities were sold through a broker.
- The stock certificates remained registered in Maresca’s name; Murphy endorsed the certificates as “Executor of the Estate of Peter J. Maresca,” and the broker’s checks were made payable to Murphy as executor.
- On February 4, 1977, Murphy opened a bank account titled in his trustee capacity and deposited the sale proceeds into that trust account after endorsing the checks.
- On April 24, 1978, Murphy filed the trust’s 1977 Form 1041 reporting $60,606.48 of capital gain from the securities sales and claiming an offsetting charitable set-aside deduction under I.R.C. § 642(c), resulting in no taxable income; the return was filed late and without extensions.
- On June 16, 1978, Murphy filed a trust accounting for January 3, 1977 through January 2, 1978 treating the securities as trust assets and the sales as trust transactions.
- The IRS issued a notice of deficiency to the trust for 1977 determining a deficiency of $14,303.21 and an addition to tax under I.R.C. § 6651(a)(1) of $715.16.
- In the Tax Court, the trust abandoned the § 642(c) set-aside argument and instead contended the estate (not the trust) owned and sold the securities, and that the estate later distributed the proceeds to the trust.

## Issues

1. Whether the Peter J. Maresca Trust or the Estate of Peter J. Maresca was the owner and seller of the securities sold in February and April 1977, and therefore the proper taxpayer on the resulting capital gain.
2. Whether the trust was liable for the addition to tax under I.R.C. § 6651(a)(1) for late filing of its 1977 fiduciary return.

## Decision

- The Tax Court held that the trust, not the estate, was the owner and seller of the securities; the capital gain was taxable to the trust.
- The court rejected the trust’s claim that Virginia probate approval/recording of the final accounting controlled the federal income-tax result, concluding that the trust held the benefits and burdens of ownership of the residuary securities when they were sold.
- The court treated Murphy’s endorsements and receipt of checks as “executor” as formalities that did not outweigh the overall record showing the residue was being administered for the trust and the proceeds were placed into a trust account.
- The court found it significant that the trust’s own filings (the Form 1041 and the trust accounting) characterized the securities as trust property and the gains as trust gains.
- The court sustained the Commissioner’s deficiency determination against the trust.
- The court also sustained the § 6651(a)(1) addition to tax because the return was filed late and the trust did not establish reasonable cause.

## Legal Principles

- Federal income tax follows the party that, in substance, holds the benefits and burdens of ownership at the time of sale; record title and transaction mechanics are relevant but not controlling.
- State law defines property rights, but federal law determines how those rights are taxed; probate-court timing steps may not control tax ownership where the economic ownership has shifted.
- A fiduciary’s dual capacity (executor and trustee) requires examining the full set of acts and documents to determine for whom the fiduciary was acting when property was sold.
- A taxpayer may not readily recast a transaction for litigation after treating it consistently in returns and fiduciary accountings as belonging to that taxpayer.
- An addition to tax under I.R.C. § 6651(a)(1) applies to a late-filed return absent proof of reasonable cause (and not willful neglect).

## Conclusion

The Tax Court concluded that the residuary securities were, for federal income-tax purposes, owned and sold by the Peter J. Maresca Trust when they were sold in February and April 1977, making the resulting capital gains taxable to the trust; it therefore upheld the Commissioner’s deficiency and the late-filing addition to tax under § 6651(a)(1).


Peter J. Maresca Trust v. Commissioner, 46 T.C.M. (CCH) 1147 (1983)