Brooks v. Welch, 7276
| Decision Date | 09 December 1938 |
| Docket Number | 7277.,No. 7276,7276 |
| Citation | 25 F. Supp. 819 |
| Parties | BROOKS v. WELCH, Former Collector of Internal Revenue. EMMONS v. SAME. |
| Court | U.S. District Court — District of Massachusetts |
Edward C. Thayer and Rackeman, Sawyer & Brewster, all of Boston, Mass., for plaintiffs.
John A. Conavan, U. S. Atty., and C. Keefe Hurley, Asst. U. S. Atty., of Boston, Mass., for defendant.
The above actions to recover income taxes paid on 1934 income present identical issues. They were tried together, without jury, and will be considered in one opinion. The facts are stipulated and may serve as findings required by Rule 52 of Rules of Civil Procedure, 28 U.S.C.A. following section 723c. So far as material to the questions involved, the facts are these:
On March 1, 1912, Shepherd Brooks created a trust which, as amended, provided that the trustees should have authority to accumulate any part or all of their income, and that any income not accumulated should be paid equally to three beneficiaries, namely, — Helen B. Emmons, Gorham Brooks and Rachel B. Jackson, all children of Shepherd Brooks, until March 1, 1933.
Upon the termination of the trust, the entire trust property was to be divided among the said beneficiaries. Or, in case any one of them should not be living at the time of the final distribution, his or her share was to go to his or her heirs at law and next of kin.
The trust instrument also provided: "The three beneficiaries hereinbefore named may by an instrument in writing signed, sealed and acknowledged by all of them or their legal representatives on or before the first day of March A. D. 1933, extend the term of the Trust hereby created, provided the term as extended shall not go beyond the life of the last survivor of said three beneficiaries and twenty-one years thereafter."
On October 1, 1932, the trustees were Gorham Brooks, James Jackson and Russell Tyson, and the three children of Shepherd Brooks were the beneficiaries. On that day the trustees and the beneficiaries entered into an agreement by which the terms of the original trust agreement were modified and amended by extending the time from March 1, 1933, to 20 years after the death of the last survivor of the beneficiaries, with a provision that the trust might be terminated before that time when "all of the Trustees, in their discretion, shall decide so to do."
The trustees duly returned, and paid the tax shown to be due on the undistributed net income of the trust for the year 1934.
The plaintiffs returned, and paid the tax shown to be due on so much of the income as was distributed to them.
The Commissioner of Internal Revenue assessed upon each plaintiff an additional tax which was arrived at by including in the taxable income for the year 1934 his or her share in the undistributed income of the trust for that year. The reason for so doing was that the Commissioner determined that the tax upon the undistributed income was due from the beneficiaries and not from the trust, by virtue of the provisions of sections 166 and 167 of the Revenue Act of 1932, 26 U.S.C.A. §§ 166, 167. These sections, so far as material, are as follows:
Revenue Act of 1932, c. 209, 47 Stat. 169:
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then such part of the income of the trust shall...
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Sexton v. United States
...the action to extend was being taken by all the beneficiaries and the trustees. We have considered the rationale expressed in Brooks v. Welch, D.C., 25 F. Supp. 819, cited by plaintiff, and reject it insofar as it is inconsistent with our Once it is determined that decedent relinquished a p......