Public-domain · open source
OpenJurist

42 B.T.A. 1046

Towne v. Commissioner

United States Board of Tax Appeals

Decided October 22, 1940

United States Board of Tax Appeals · decided 1940-10-22

Trust income of the tax year undistributed during beneficiary's minority and properly paid to him on reaching majority in the same year held taxable to the trust and not to the beneficiary. Spreckels v. Commissioner, 101 Fed.(2d) 721, followed.

Cited by 3 later decisions — most recently February 1943

1 federal appellate ·

Key passage — most relied on by later courts

““(a) Application of tax. The taxes imposed by this title [chapter] upon individuals shall apply to the income of estates or of any kind of property held in trust, including— “(1) 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, * * * “(3) Income received by estates of deceased persons during the period of administration or settlement of the estate; and "(4) Income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated. * * * * “§ 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. * * “(c) In the case of income * * * which, in the discretion of the fiduciary, may be either distributed to the beneficiary or accumulated, there shall be allowed as an additional deduction * * * the amount of the income of tiie estate or trust for its taxable year, which is properly paid or credited during s”

quoted by 1 later decision, including Commissioner v. Clark

Relies on State Savings Loan & Trust Co. v. Commissioner · Spreckels v. Commissioner

Good law ✅— No negative treatment on recordhow we know

Decided 1940-10-22

View the full empirical analysis of this case →

Meelott,

¶1dissenting: In Adolph Bernard Spreckels, 37 B. T. A. 709, during the minority of the children, including the petitioner then before us, “their respective shares of said net income … [were to] be accumulated” and, as each child attained his majority, he was to receive “his or her proper share of the accumulated net income.” The court, in reversing the Board (Spreckels v. Commissioner, 101 Fed. (2d) 721), pointed out that, under section 162 (b), trust income dealt with therein “falls within two distinct and mutually exclusive categories: (1) Income accumulated for future distribution under the terms of the will or trust and (a) income which is to be distributed currently.” Holding that the income involved “belonged to the first category, not the second,” it correctly concluded that the income was taxable to the trust and not to the petitioner.

¶2Under the trust instruments in the instant proceeding the trustees were required to pay out of the net income of the trusts “so much as may be necessary for the support, maintenance and education” of the cestui que trust. This clause, it seems to me, vested in the fiduciary a discretion as to the amount which might be paid over to the beneficiary. That the trustees so considered it is evident from their treatment of the income; for it was not until petitioner had reached his majority that the income was placed in the surplus account and on the same day it was paid over to him. It is ap*1049parent, therefore, that until the very moment of distribution the trustees had the discretion either to pay the income over to petitioner or to accumulate it. If so, then under section 162 (c) the amount “which is properly paid or credited during such year to ⅜ … [the] beneficiary” should be included in computing his net income and be “allowed as an additional deduction in computing the net income of the … ⅜ trust.” Cf. State Savings Loan & Trust Co., Trustee, 25 B. T. A. 228; affd., 63 Fed. (2d) 482.

¶3Being of the opinion that the instant proceeding is distinguishable upon its facts from the Sprockets case and that the majority err in holding section 162 (c) to be inapplicable, I respectfully note my dissent.

/42/bta/1046 · .json · Public domain