First Nat. Bank of Boston v. Comm'r of Corp. & Taxation

• Decision Date: 27 February 1931
• Parties: FIRST NAT. BANK OF BOSTON v. COMMISSIONER OF CORPORATIONS AND TAXATION.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

274 Mass. 583

175 N.E. 97

FIRST NAT. BANK OF BOSTON

v.COMMISSIONER OF CORPORATIONS AND TAXATION.

Supreme Judicial Court of Massachusetts, Suffolk.

Feb. 27, 1931.

Report from Superior Court, Suffolk County; John D. McLaughlin, Judge.

Complaint by the First National Bank of Boston, trustee, for abatement of part of an income tax assessed by the Commissioner of Corporations and Taxation.

Complaint dismissed.

G. S. Fuller, of Boston, for complainant.

C. F. Lovejoy, Asst. Dist. Atty., of Boston, for respondent.

CARROLL, J.

This is a complaint for abatement of part of an income tax assessed upon the excess of gains over losses on sales by a trustee. The trustee, under a trust agreement made on September 8, 1927, sold between that date and December 31, 1927, certain securities of the trust. The trust is what is known as a funded life insurance trust. The donor transferred insurance policies on his life and, in addition, certain securities of which the net income was to be used during the life of the donor, as far as necessary, to pay the premiums on the policies, the excess income to accumulate, but with power, in the sole discretion of the trustee, to pay the donor a portion or all of the excess income but not including gains realized from the sales of securities. On the donor's death, the proceeds of the insurance policies were to be added to the trust fund, the income to be paid to the donor's wife and children with remainder over. The seventh clause of the trust agreement was in these words: ‘This trust shall be revocable or subject to amendment on or after the first day of January in any year upon the written declaration of the Donor delivered to the Trustee, but only upon condition that and provided the Donor shall, in the preceding calendar year, have notified in writing the Trustee of his intention so to revoke or amend.’

In deciding the amount of gains, the commissioner, under regulation No. 8051, determined the taxable gain on the basis of cost to the donor. The petitioner disputes the validity of this regulation and contends that the only taxable gain is the difference between the selling price and the value of the securities when on September, 8, 1927, they were transferred to the trustee. Regulation No. 8051 provides: ‘In the case of revocable trusts established on or after January 1, 1916, the ‘cost’ shall be the actual cost to the grantor of the trust; and in the case of revocable trusts established prior to January 1, 1916, the ‘cost’ shall be either the actual cost to the grantor of the trust or the value on January 1, 1916, any gain or loss being computed as provided in Regulation 8062.'

G. L. c. 62, § 5, as amended by St. 1921, c. 376, § 1, St. 1922, c. 449, § 1, provides: ‘Income of the following classes received by any inhabitant of the commonwealth during the preceding calendar year shall be taxed as follows: * * * The excess of the gains over the losses received by the taxpayer from purchases or sales of intangible personal property, whether or not said taxpayer is engaged in the business of dealing in such property, shall be taxed at the rate of three per cent per annum.’ Section 7 provides: ‘* * * In determining gains or losses realized from sale of capital assets, the basis of determination, in case of property owned on January first, nineteen hundred and sixteen, shall be the value on that date, and in case of property acquired thereafter, the value on the date when it is acquired.’ (See now St. 1928, c. 217, §§ 1, 2.) Section 10 provides: ‘The income received by estates held in trust by trustees, any one of whom is an inhabitant of the commonwealth or has derived his appointment from a court of the commonwealth, shall be subject to the taxes assessed by this chapter to the extent that the persons to whom the income from the trust is payable, or for whose benefit it is accumulated, are inhabitants of the commonwealth.’

The Legislature had the power to impose a tax on the complainant, using as a basis for the determination of gains and losses the cost of the securities to the donor of the trust. Maguire v. Tax Commissioner, 230 Mass. 503, 120 N. E. 162;Irwin v. Gavit, 268 U. S. 161, 45 S. Ct. 475, 69 L. Ed. 897. See Taft v. Bowers, 278 U. S. 470, 49 S. St. 199,73 L. Ed. 460, 64 A. L. R. 362. There is no constitutional objection which prevents the Legislature from enacting that the fiduciary shall, for purposes of taxation, be in the same position as is the preceding owner. Boston Safe Deposit & Trust Co. v. Commissioner of Corporations and Taxation (Mass.) 174 N. E. 114.

G. L. c. 62, § 10, treats of the question of the taxability of trustees. As was said in Hutchins v. Commissioner of Corporations and Taxation (Mass.) 172 N. E. 605, 608: ‘Examination of the history of the parts of section 10 does not disclose any legislative purpose to make exceptions to its general phraseology. That section indicates an intention on the part of the General Court to tax all the income there described which is within its power to tax. It is as broad as the jurisdiction of the Commonwealth.’ The increase represented by the difference between the cost of the securities to the donor and the price for which they were sold by the trustee was income received within the meaning...