134 F.2d 159 | 2d Cir. | 1943
The taxpayer is the life beneficiary of several trusts under the terms of which the trustees were required to accumulate the income during his minority, to pay him the accumulated income upon his becoming 21 years of age, and thereafter to pay him the income for life, with remainders over. The taxpayer reached majority on November 16, 1938 and received on that date the accumulated income. It included income totaling $63,127.12 which the trustees had collected during 1938 before November 16th. They reported such income as taxable to their respective trusts and paid the taxes thereon. The taxpayer ■did not include it in his 1938 return. The Commissioner determined that it was income taxable to him and asserted a deficiency. Rejecting the Commissioner’s contention, the Tax Court decided that there was no deficiency.
The issue presented lies within narrow compass. It is whether income collected by trustees within a taxable year and required to be accumulated until the beneficiary reached his majority which occurred within such year, is taxable to the trust or to the beneficiary who then received it. The answer depends upon the proper construction and application of sections 161 and 162 of the Revenue Act of 1938, 52 Stat. 517,26 U.S.C.A. Int.Rev.Code, §§ 161, 162. The pertinent portions of these sections are printed in the margin.
For many years estates and trusts have been regarded as taxable entities for purposes of the federal income tax.
Although section 162(b) relates only to trust income “which is to be distributed currently,” the Commissioner contends that it requires a fiduciary to deduct the amount of income accumulated within a taxable year which becomes distributable during such year. We cannot accept that construction. The categories of trust income established by section 161(a) are based upon the fiduciary’s duties as prescribed by the terms of the trust. Income accumulated for “future distribution” speaks with reference to the trustee’s duty to retain the income after its receipt and without regard to the taxable year. In contrast to accumulated income subdivision (2) speaks of income to be “distributed currently,” that is, presently or periodically
The order is affirmed.
Ҥ 161. Imposition of tax
“(a) Application of tax. The taxes imposed by this title [chapter] upon individuals shall apply to the income of estates or of any kind of property held in trust, including—
“(1) Income * * * accumulated or held for future distribution under the terms of the will or trust;
“(2) Income which is to be distributed currently by the fiduciary to the beneficiaries, * * *
“(3) Income received by estates of deceased persons during the period of administration or settlement of the estate; and
*161 "(4) Income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated.
* * * *
Ҥ 162. Net income
“The net income of the estate or trust shall be computed in the same manner and on the same basis as in the case of an individual, except that—
* * $ * *
“(b) There shall be allowed as an additional deduction in computing the net income of the estate or trust the amount of the income of the estate or trust for its taxable year which is to be distributed currently by the fiduciary to the beneficiaries, * * * but the amount so allowed as a deduction shall be included in computing the net income of the beneficiaries whether distributed to them or not. * *
“(c) In the case of income * * * which, in the discretion of the fiduciary, may be either distributed to the beneficiary or accumulated, there shall be allowed as an additional deduction * * * the amount of the income of tiie estate or trust for its taxable year, which is properly paid or credited during such year to any * * * beneficiary, but the amount so allowed as a deduction shall be included in computing the net income of the * * * beneficiary.”
Section 219 of the Revenue Acts of 1924 and 1926, 26 U.S.C.A. Int.Rev.Acts, pages 28, 174; sections 161 and 162 of the Acts of 1928 and later years, 26 U.S.C.A. Int.Rev.Code, §§ 161, 162.
See DeBrabant v. Commissioner, 2 Cir., 90 F.2d 433, 437; Klein, Fed. Income Taxation, p. 1188; Paul & Mertens, Law of Fed. Income Taxation, Vol. 4, § 34.27.