Bryant v. Commissioner of Internal Revenue

• Decision Date: 08 December 1950
• Docket Number: No. 6156.,6156.
• Parties: BRYANT v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fourth Circuit

185 F.2d 517 (1950)

BRYANT v. COMMISSIONER OF INTERNAL REVENUE.

No. 6156.

United States Court of Appeals, Fourth Circuit.

Argued October 16, 1950.

Decided December 8, 1950.

Joel B. Adams, Asheville, N.C. (Adams & Adams, Asheville, N.C., on brief) for petitioner.

L. W. Post, Sp. Asst. to the Atty. Gen. (Theron Lamar Caudle, Asst. Atty. Gen., and Ellis N. Slack, Sp. Asst. to the Atty. Gen., on brief) for respondent.

Before PARKER, SOPER and DOBIE, Circuit Judges.

SOPER, Circuit Judge.

This petition for review relates to a decision of the Tax Court of the United States in which a deficiency of $459.40 in the income and victory tax for the year 1943, and a deficiency of $12221.05 in the income tax for the year 1944 was adjudicated against the petitioner.

Edith Moorhead Bryant, the taxpayer, was one of the beneficiaries and the remainderman of a trust estate created by the will of S. E. Moorhead, her father, a resident of New York who died in 1941. He bequeathed 2500 shares of stock of Liggett & Myers Tobacco Company to the Guardian Trust Company of New York in trust to pay out of the income therefrom or from the principal, if necessary, $10,000 annually to his wife for her life, and to pay the balance of the income, if any, to his daughter. Upon the death or remarriage of the widow the trustee was directed to pay over the principal of the trust fund, less statutory commissions, to his daughter.

The widow died on October 17, 1943, but the estate was not transferred to the taxpayer until April 3, 1944 when the trustee delivered the entire corpus to the taxpayer. The trustee collected $8857.30 of income in 1943 and $1837.58 of income in 1944. Out of the income for 1943 the trustee paid to the widow before her death and to her estate after her death the aggregate sum of $7945.20 (less commissions), which represented the proportionate part of $10,000 due her for the period from January 1 to October 17, 1943. Out of the balance of the income the trustee paid state and federal income taxes on capital gains, expenses incurred in the termination of the trust, consisting of trustee's commissions, attorney's fees, transfer taxes and express charges, and also paid the trustee's commissions on income. These payments amounted in all to $4707.12, leaving only $186.71 remaining in its hands. This sum, together with the corpus, was paid and delivered to the taxpayer on or about April 3, 1944. No part of the principal or income from the estate was paid to the taxpayer prior to that date.

An instrument in the form of a receipt, release and indemnification was executed between the Trust Company, the taxpayer and the executors of the esate of the widow, which recited that the taxpayer had paid to the trustees the sum of $4461.81 to enable the trustee to avoid the necessity of liquidating any of the securities of the trust estate for the purpose of paying the income due the estate of the widow and the commissions due the trustee and other termination charges. No payment, however, was in fact made by the taxpayer to the trustee, but the expenditures referred to were paid solely out of the income as previously stated.

The Tax Court held that none of the payments made by the Trustee were properly deductible from the income due the taxpayer except the income due the widow for the year 1943, the income taxes due the State of New York, and the trustee's commissions on income, and that hence the remainder of income in the trustee's hands, amounting to the sum of $596.61 for the year 1943 and the sum of $1752.72¹ for the year 1944 represented income which was currently distributable to the taxpayer. The taxpayer contends that this decision was wrong because she actually received only $186.71 as income from the trust estate in 1943 and 1944, and that only this amount was currently distributable to her within the meaning of Section 162(b) of the Internal Revenue Code, 26 U.S.C.A. § 162(b), which provides in effect that in computing the net income of an estate for income tax purposes, the amount of the income for the taxable year which is to be distributed currently to the beneficiaries may be deducted; but the amount so allowed as a deduction shall be included in computing the net income of the beneficiary whether distributed to them or not.

The decision of the case is not controlled by the erroneous statement in the agreement of settlement between the trustee and the taxpayer that the taxpayer furnished the funds which enabled the trustee to defray taxes and termination charges without selling any of the corpus of the trust; nor by the fact that the trustee actually used income of the trust to pay these expenses so that the taxpayer received only a small part of the income in the taxable years. The test of taxability is not the receipt of income but the right to...