An appeal from a decision of the Board of Tax Appeals disallowing deductions claimed by appellant taxpayer for exhaustion and wear and tear of depreciable assets of a trust estate in the" income of which appellant was a life tenant.
It appears that under the last will and testament of A. C. Whitcomb, deceased, certain of his property was left to.a trustee in trust to pay periodically the one-third of the income thereof to testator’s widow for and during her natural life, and to pay the remaining two-thirds of the income to testator’s two childrеn, Adolphe and Charlotte, in equal shares, with reversion or remainder of the whole to their descendants per stirpes, if any be alive at the time of the death of the two children; and, if none he alivе at that time, then to pay the same to ILirvard College. After testator’s decease, Adolphe, one of the children, died, survived by the appellant Marguerite T. Whitcomb, his widow, and by their two children. It has bеen judicially determined that during the life of testator’s daughter, Charlotte, the appellant is entitled tо receive one-ninth of the income of the trust created by the will.
This ease relates to appellant’s income tax return for the income received by her from the trust estate in the year 1918. Fоr that year the trustee as sueh made an income tax return for the trust estate as an entity, deducting from the gross income thereof the current expenses, including interest and taxes, and deducting also аn allowance for exhaustion and wear and tear of the depreciable assets of the estate. The difference between the gross income and the deductions was stated in the return as the net income of the trust, and as the aggregate distributive net income of the beneficiaries. This return was approved by the Commissioner of Internal Revenue. See sections 212 (a), 213 (a), subsection (8) of section 214 (a), and subsections (b) and (d) of subsection (4) of section 219 (a), Revenue Act of 1918 (Comp. St. §§ 6336%£(a), 6336%ff(a), 6336%g(a), subsec. 8, 6336%ii(a), subsec. 4(b), (d).
Upon the actual distribution of the income, howqver, the trustee paid to the respective beneficiaries, including appellant, their shares of the net distributive income as stated in his return, and also paid to them like shares of the amounts deducted in the return for exhaustion аnd wear and tear.
When appellant prepared her income tax return for the same year, she failed to include therein the sum paid to her by the trustee as her share of the amount deducted in his return for exhaustion and wear and tear. The Commissioner in auditing appellant’s return added thereto the sum thus omitted; and upon appeal the Board sustained this action. Appellant contеnds that this was error, and claims that under section 219 of the act (Comp. St. § 6336%ii) the amount to he taxed to her is her distributive share of the not income of the trust estate as computed and shown by the trustee’s return, аnd no more, and that distributions from a depreciation reserve, being distributions of capital, do not сonstitute taxable income, and accordingly that the distribution to- appellant of her share оf the depreciation fund is not to bo treated as taxable income in her hands.
We think the Board’s decision is right. The appellant as life tenant in the trust estate was entitled to receive the full onе-ninth of the income therefrom, without regard to exhaustion or wear and tear of the corpus of the estate, and that is what appellant actually received from the trustee as her distributive shаre of the income. The trustee was not entitled to withhold any part of her share of the incomе of the trust estate in order to make good the exhaustion or wear and tear of the caрital assets of the estate; nor did the trustee in fact do so. Capital losses in sueh eases fall uрon the reversioners or remaindermen, and not upon the life tenant. Therefore the paymеnt made by the trustee to appellant was in fact and law the distributive share of the income to whiсh she was entitled as life tenant, and consisted in no part of capital depreciation rеstored to her. It was therefore taxable in her hands. This conclusion is not negatived by the fact that the trustee was entitled to enter deductions for capital losses or gains in his return for the trust estate as a single entity. In Baltzell v. Mitchell,
The decision appealed from is affirmed.