Spreckels v. Commissioner of Internal Revenue
Decision Date | 14 February 1939 |
Docket Number | No. 8942.,8942. |
Citation | 101 F.2d 721 |
Parties | SPRECKELS v. COMMISSIONER OF INTERNAL REVENUE. |
Court | U.S. Court of Appeals — Ninth Circuit |
Walter Slack, of San Francisco, Cal., for petitioner.
James W. Morris, Asst. Atty. Gen., and Sewall Key, John A. Gage, and Edward F. McMahon, Spec. Assts. to Atty. Gen., for respondent.
Before DENMAN, MATHEWS, and HEALY, Circuit Judges.
Petitioner, Adolph Bernard Spreckels, seeks reversal of a decision of the Board of Tax Appeals1 which determined that there was a deficiency of $3,886.11 in respect of petitioner's income tax for the calendar year 1932. The facts are not in dispute. They are, briefly stated, as follows:
Petitioner's father, Adolph Bernard Spreckels (hereafter called decedent), died on June 28, 1924, leaving a will whereby certain property was devised and bequeathed to trustees, in trust, for the benefit of decedent's widow, Alma de Bretteville Spreckels, and his three children, Alma Spreckels Rosekrans, Dorothy Constance Spreckels and petitioner. The will was admitted to probate and, in conformity therewith, the trust property was distributed to the trustees on February 24, 1932. The decree of distribution provides, as, presumably, the will provided,2 that the trustees shall collect the income of the trust estate and, at such intervals as shall be found practicable, pay one-half the net income thereof to Alma de Bretteville Spreckels. The decree further provides:
The widow and all three children of decedent were living at the end of 1932 and, so far as the record shows, are still living. At the time of decedent's death, all the children were minors. The decree of distribution reads as if all were minors at the time of the decree, February 24, 1932. As a matter of fact, the eldest child, Alma Spreckels Rosekrans, had theretofore attained her majority. The other two were still minors. Petitioner attained his majority on October 30, 1932. Dorothy Constance Spreckels attained hers on March 9, 1934.
Income from the trust estate was collected and disposed of by the trustees in conformity with the decree. Accordingly, from February 24, 1932, to October 29, 1932, petitioner's share of the trust income was accumulated for future distribution to him, that is to say, for distribution to him on October 30, 1932. The amount, $8,042.65, so accumulated was so distributed. In computing his net income for 1932, petitioner did not include this amount. Respondent, the Commissioner of Internal Revenue, contended, and the Board agreed, that it should have been included. Hence the claimed deficiency.
The question is whether the $8,042.65 was taxable to the trust as its income or to petitioner as his income. The answer to this question is found in §§ 161 and 162 of the Revenue Act of 1932, 47 Stat. 219, 220, 26 U.S.C.A. §§ 161, 162, the pertinent portions of which are as follows:
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"(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. * * *"
Trust income dealt with in the above quoted provisions falls into two distinct and mutually exclusive categories: (1) Income accumulated for future distribution under the terms of the will or trust and (2) income which is to be distributed currently by the fiduciary to the beneficiaries. The first is taxable to the trust, the second to the beneficiaries. The income here involved belonged to the first category, not the second. It, therefore, was taxable to the trust, not to petitioner.
The fact that this income was distributed to petitioner in the same taxable year in which it was accumulated is immaterial. Though distributed in the same taxable year, it was not to be and was not distributed currently, but was to be and was accumulated for future distribution to a beneficiary under the will or trust. All income so accumulated is taxable to the trust, not to the beneficiary, and this is true regardless of...
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