Eustis v. Commissioner of Internal Revenue, Docket No. 71637.
| Decision Date | 31 May 1934 |
| Docket Number | Docket No. 71637. |
| Citation | 30 BTA 820 |
| Parties | AUGUSTUS H. EUSTIS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Kenneth Howes, Esq., for the petitioner.
Dean P. Kimball, Esq., for the respondent.
This proceeding is for the redetermination of a deficiency in income tax for the calendar year 1930 in the amount of $398.56. The only error assigned is the action of the respondent in including in taxable income for the year certain income of a trust from December 15 to December 31, 1930. The facts were stipulated and we set forth herein only those we deem to be material for a decision of the case.
The petitioner is the grandson of Augustus Hemenway, who died on June 16, 1876, a resident of Massachusetts. Since the death of his mother, Edith Hemenway Eustis, in 1904, the petitioner has been one of the beneficiaries entitled to receive income under the provisions of the trust established under article seventh of the will of Augustus Hemenway. The trust is still in existence.
The will of Augustus Hemenway was admitted to probate in Norfolk County, Massachusetts, on July 26, 1876.
The trustees of the trust established under article seventh of the will of Augustus Hemenway have always made their Federal income tax returns on the basis of the calendar year, and on the basis of cash receipts and disbursements.
During the calendar year 1930 the trustees made income distributions to the petitioner, as one of the income beneficiaries of the trust, on June 15 and December 15, 1930. The petitioner in his individual Federal income tax return for the calendar year 1930 reported such part of the distributions made to him by the trustees on June 15 and December 15, 1930, as representing taxable income and paid the taxes shown to be due thereon.
The petitioner has always kept his books and made his Federal income tax returns on the basis of the calendar year and on the basis of cash receipts and disbursements.
During the period from December 16 to December 31, 1930, inclusive, the trustees received certain taxable income. They reported this income in their Federal income tax entity return (Form 1040) for the calendar year 1930, and paid the taxes shown to be due thereon. The petitioner's share of said income, as an income beneficiary of the trust, amounted to $1,285.99, consisting of $550.73 of dividends from domestic corporations and $735.26 of other income. The $1,285.99 was not in fact distributed to the petitioner by the trustees until June 15, 1931, and no part of it was reported in the petitioner's individual Federal income tax return for the calendar year 1930. The respondent determined that the $1,285.99 was income taxable to the petitioner for the calendar year 1930.
Article seventh of the will of Augustus Hemenway, after creating a trust with respect to certain property, provided as follows:
To pay all the remaining net rents and income, during the continuance of this trust, by semi-annual payments in every year, in equal shares, to such of the said four persons, namely, my wife and three children, as may be living at the time of payment, and to the lawful issue then living of any my child who has then deceased, (whether such my child have died before or after me) such issue taking by representation, according to the stocks, the share which such my deceased child would have taken, if living. All payments of net rents and income made under the trusts created for the benefit of my wife, children and issue, (shall be made either into the hand of the person named, or upon his, or her, written order or receipt, given at or after the time and not by anticipation or in compliance with any assignment; * * * Italics supplied.
Mary Hemenway, widow of the creator of the trust, and a beneficiary with the three children of such trust, died testate on March 6, 1894, leaving the three children surviving her. The Supreme Judicial Court of Massachusetts, in the case of Hemenway v. Hemenway, 171 Mass. 42, was asked by the trustees to determine whether any income collected by them after December 15, 1893, the date of the last semiannual payment to Mrs. Hemenway, should be paid to the executors of her will, and, if so, how the shares of the income should be apportioned as between her estate and the three children, whether as of December 16, 1893, or as of March 6, 1894. The court there said:
The language of the seventh article of the will seems to us carefully to provide for the effect of the death of the testator's widow, or of any one of his children, upon the distribution of the net rents and income. The payments are to be made from time to time out of the rents and income collected by the trustees, semiannually, reckoning from the death of the testator, and each payment is to be made "to such of the said four persons, namely, my wife and three children, as may be living at the time of payment, and to the lawful issue then living of any my child who has then deceased," etc., and "shall be made either into the hand of the person named, or upon his or her written order, or receipt, given at or after the time, and not by anticipation or in compliance with any assignment." These four persons are not given by the will any interest in the rents and income, except the right to receive these semiannual payments in the manner directed. If any one of them is not alive at the time when the payment should be made, only those living at that time are to receive the payment, and they are to receive all that is then payable. The language used seems to us necessarily to exclude any apportionment between the estate of the widow and the three children. The trustees should be instructed that there should be no apportionment of the net rents and income of the trust property received by them after December 15, 1893.
The petitioner contends that the income of the trust from December 15 to December 31, 1930, was taxable to the trustees and that the respondent erred in determining that the part thereof which is here in controversy was to be included in his income for 1930 and as taxable to him.
The Revenue Act of 1928 provides as follows:
SEC. 161. IMPOSITION OF TAX.
(a) Application of tax. — The taxes imposed by this title upon individuals shall apply to the income of estates or of any kind of property held in trust, including—
(1) Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests, and 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, * * *
* * * * * * *
(b) Computation and payment. — The tax shall be computed upon the net income of the estate or trust, and shall be paid by the fiduciary, except as provided in section 166 () and section 167 (). For return made by beneficiary, see section 143.
SEC. 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. Any amount allowed as a deduction under this paragraph shall not be allowed as a deduction under subsection (c) of this section in the same or any succeeding taxable year.
The petitioner, relying on the decision of the Supreme Judicial Court of Massachusetts mentioned above, urges that no part of the income of the trust for the period in controversy was on December 31, 1930, distributable to him and that it was not known on that date whether any portion of it would become distributable to him, since his...
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