Clark v. Commissioner

*199OPINION.

Phillips :

Petitioner’s counsel contends that the income in question is not taxable to the trustees on two grounds: (1) that the income falls within section 219(a) (4) of the Revenue Act of 1921 as “income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals,” or (2) that the income was to be distributed to exempt corporations and falls within the decision of the Board in Appeal of Herbert Jermain Slocum, et al., Executors, 6 B. T. A. 36, and the decision of the district court in Slocum v. Bowers, 15 Fed. (2d) 400, since affirmed by the United States Circuit Court of Appeals of the Second Circuit in Bowers v. Slocum, 20 Fed. (2d) 350.

The pertinent provisions of the Revenue Act of 1921 are as follows:

Sec. 219. (a) That the tax imposed by sections 210 and 211 shall apply to the income of estates or of any kind of property held in trust, including—
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(2) Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests;
(3) Income held for future distribution under the terms of the will or trust; and
(4) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct.
(b) The fiduciary shall be responsible for making the return of income for the estate or trust for which he acts. The net income of the estate or trust shall be computed in the same manner and on the same basis as provided in section 212, except that (in lieu of the deduction authorized by paragraph (11) of subdivision (a) of section 214) there shall also be allowed as a deduction, *200without limitation, any part of the gross income which, pursuant to the terms of the will or deed creating the trust, is during the taxable year paid or permanently set aside for the purposes and in the manner specified in paragraph (11) of subdivision (a) of section 214. In cases in which there is any income of the class described in paragraph (4) of subdivision (a) of this section the fiduciary shall include in the return a statement of the income of the estate or trust which, pursuant to the instrument or order governing the distribution, is distributable to each beneficiary, whether or not distributed before the close of the taxable year for which the return is made.
(c) In cases under paragraphs (1), (2), or (3) of subdivision (a) or in any other case within subdivision (a) of this section except paragraph (4) thereof the tax shall be imposed upon the net income of the estate or trust and shall be paid by the fiduciary. * * *
(d) In cases under paragraph (4) of subdivision (a) * * * the tax shall not be paid by the fiduciary, but there shall be included in computing the net income of each beneficiary that part of the income of the estate or trust for its taxable year which, pursuant to the instrument or order governing the distribution, is distributable to such beneficiary, whether distributed or not, * * *
Seo. 214. (a) That in computing net income there shall be allowed as deductions:
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(11) Contributions or gifts made within the taxable year to or for the use of: * * * (B) any corporation, or community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including posts of the American Legion or the women’s auxiliary units thereof, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual; * * *

There is in the will no provision for the periodical distribution of income. Principal and income are treated as one. The trustees are to distribute both “ in such portions and sums and at such time, or times and in such manner and ways and with such limitations as to use as they shall deem proper, beneficial and expedient.” The argument that income must be distributed periodically goes too far, for since income and principal are to be distributed alike, it implies that the principal must be distributed periodically. We see no such direction in the will.

There must also be considered that portion of section 219(b) providing that in cases under paragraph (4) of subdivision (a) there shall be included in computing the net income of the beneficiary that part of the income which is distributable to such beneficiary.

If any meaning is to be given to this provision in construing paragraph (a) (4) it must be that the latter paragraph implies a known beneficiary, which would exclude the instant case from that paragraph.

*201Furthermore, in setting aside the residuary estate in the hands of trustees instead of directing its distribution by the executors, it seems clear that testator intended that the distribution should not take place for some time. In the absence of any provision for the separate distribution of income, this confirms the conclusion to be drawn from the language of the will that any income or accretions to the principal fund are to be treated as part of the entire fund. In such circumstances, it becomes impossible to say that any distribution is either principal or income, for it is merely a distribution of a part of a whole consisting of both.

Nor does the instant case fall within Appeal of Herbert Jermain Slocum et al., Executors, supra, or Bowers v. Slocum, supra, where it clearly appeared that all of the income must go to corporations of the character described in section 219 (b). Here the beneficiaries of the trust are not so confined. That the trustees should some two years after the year involved make a distribution of a part of the fund to corporations within the limitation, seems to us immaterial.

Reviewed by the Board.

Decision will be entered for the respondent.