Van Wart v. Commissioner

Background

Catherine L. Van Wart was a minor who benefited from her grandfather’s trust. Her father, Dr. Roy M. Van Wart, was appointed her guardian and sued the trustees in the child’s name to collect accumulated and current trust income. After the suit succeeded, the trustees paid $160,000 in accumulated income and $80,000 in current income to the guardian, who then paid $30,000 from those funds to the attorneys who brought the suit. The guardian filed the child’s 1924 tax return and claimed the attorney fee as a deduction.

Reasoning

The Court addressed whether that attorney fee could be deducted as an ordinary business expense under the Revenue Act of 1924. It held that the income was taxable to the minor, not the guardian, and that the minor was not engaged in any trade or business. The Court noted that guardianship is not treated by the statute as a separate taxable business. Because the fee arose from litigation in the minor’s name and was paid out of her income for her benefit, it was a personal expense of the minor and not deductible as a business expense.

Real world impact

The decision means that when a guardian uses a minor’s trust or income to pay lawyers to recover that income, the fee cannot be claimed as a business deduction on the minor’s tax return. The ruling affirms the lower court’s judgment and clarifies that minors’ income is reported and taxed to the minor, and that guardianship does not create a separate business taxpayer.