Grandin v. Commissioner

Phillips,

dissenting: The prevailing opinion seems to me inadequate to dispose of the question presented. Granting that the expenditure involved is deductible in computing the income of the trust estate, it does not follow that the amount of income which the beneficiaries are entitled to receive is affected. A deduction of this kind may be, and ordinarily would be, chargeable against the capital of the estate. Such deductions affect the amount to be returned by the executor or trustee but not the amount to be returned by the beneficiary as his distributive share. Baltzell v. Mitchell, 3 Fed. (2d) 428; Mary P. Eno Steffanson, 1 B. T. A. 979; Louise P. V. Whitcomb, 4 B. T. A. 80; aff'd. 25 Fed. (2d) 528; Elizabeth M. Abell, 4 B. T. A. 87; Arthur H. Fleming, 6 B. T. A. 900; Abell v. Tait, 30 Fed. (2d) 54; certiorari denied; 279 U. S. 849.

We must then proceed to determine whether this expenditure affected the distributive share of these petitioners in the income of the estate. It is found that the trustees deducted the payment to the attorneys in computing the net income for 1923 and distributed the balance among the beneficiaries. The amount distributed to the beneficiaries is not controlling if they were entitled to a greater amount under the terms of the trust. The question, then, is, Did the trustees properly withhold the amount of this payment from the distributive share of the beneficiaries? Here the findings leave *519us in doubt. Until the respective children reached 35 years of age, the income could he withheld and added to the principal fund. If that situation existed, the beneficiaries are not taxable on the amount withheld. Elizabeth S. Sprague, 8 B. T. A. 173; A. W. Henn, Trustee, 8 B. T. A. 190. If, on the other hand, any of the beneficiaries was over 35, it was incumbent on the trustees to distribute all of his share of the income of the trust. The payment in question, being in the nature of an expense of administration which would ordinarily be borne by the executors or administrators of an estate and paid from the corpus thereof, would not properly be chargeable against the life tenant or beneficiary of the trust and would not diminish his share of the annual income. The findings failing to show that the distributive shares of the petitioners in the income of the trust were less than the amount used by the Commissioner in computing their income, I dissent from the conclusion reached.

GeeejST and Artjndbll agree with this dissent.