*758 The petitioner, a nonresident alien individual, was a residuary legatee of an estate in the United States which consisted in part of a prior estate that was in trust pending final distribution. The trustee continued management of the trust through 1936, and thereby managed the petitioner's interest in the trust properties. Held, that the petitioner was not engaged in a trade or business in the United States and did not have an office or place of business therein, and that she is not taxable under section 211(b) of the Revenue Act of 1936.
*1211 The Commissioner determined a deficiency in income tax for the year 1936 in the amount of $11,596.13. The issue is whether the petitioner, a nonresident alien, was either engaged in a trade or business, or had an office or place of business in the United States so as to become subject to tax under section 211(b) of the Revenue Act of 1936.
FINDINGS OF FACT.
The petitioner is a nonresident alien residing at Berlin, Germany. She was not in the United States during 1936.
She is a residuary*759 legatee of the estate of Lilly Busch, who died in 1928. Lilly Busch was a residuary legatee, to the extent of one-eighth, of the estate of Adolphus Busch who died in 1913. The will of Adolphus Busch placed all of the residue of his estate in trust. The trustees were directed to convey one-eighth of the residue to Lilly Busch, absolutely. Not all of the estate of Adolphus Busch *1212 has been distributed. The part retained by the trustees was taken over prior to 1936 by the St. Louis Union Trust Co., as trustee, and was administered in 1936 under the name of Adolphus Busch Trust No. 10,688. That trust included the undistributed portion of the one-eight residue bequeathed to Lilly Busch. The petitioner has a one-thirteenth interest in the residue of the estate of Lilly Busch and, therefore, an interest of one-thirteenth of one-eighth in the Adolphus Busch Trust No. 10,688. The corpus of the trust included real estate. The petitioner's share of the income of the trust for 1936 was $1,887.52.
The petitioner is also a beneficiary of an inter vivos trust created by Lilly Busch in 1926. Her interest therein is one-thirteenth. The corpus of that trust consists of corporate*760 stock. Dividends were paid on the stock in 1936. The St. Louis Union Trust Co., which was one of the trustees, distributed to the petitioner her share of the trust income for 1936.
The undistributed residue of the estate of Lilly Busch, exclusive of her interest in the Adolphus Busch trust, was conveyed in 1931 to Lilly Busch, Inc., a Missouri corporation. The corporation issued 130,000 shares of stock, of which the petitioner received 10,000. The assets of the corporation included securities and real estate. The corporation paid a cash dividend and also distributed shares of stock of another corporation as a dividend in 1936. The dividends were delivered to the St. Louis Union Trust Co., which managed all of the petitioner's property in the United States, except one small trust from which no taxable income was realized. The cash dividend was deposited to the petitioner's account. The stock received as a dividend was sold later in the year by the trust company upon the petitioner's direction.
The St. Louis Union Trust Co., as agent for the petitioner, made several sales of securities in 1936. Each sale was made on order of the petitioner. No purchases were made for*761 the petitioner. The trust company held a power of attorney from the petitioner and her husband, but made no use of that power in effecting any transactions for the petitioner.
The petitioner did not own any real estate in the United States.
The St. Louis Union Trust Co. filed a nonresident alien income tax return, Form 1040 NB, on behalf of the petitioner for 1936, with the collector of internal revenue for the first district of Missouri. It reported $55,319.80 as "interest, dividends, rent, royalties, annuities, income from estates and trusts, and other fixed or determinable annual or periodical income * * * including income from Lilly Busch Trust * * *." The amount of tax liability was shown as $5,531.98.
*1213 The Commissioner determined that the petitioner realized income from the sources and in the amounts as follows:
| Interest | $913.28 |
| Fiduciary income | 48,216.43 |
| Partnership income | 1,887.52 |
| Capital gain | 10,587.91 |
| Dividends | 8,806.44 |
| Total | 70,411.58 |
He allowed deductions in the amount of $208.50, and determined net income to be $70,203.08.
The petitioner was not engaged in trade or business in the United States and she did not have*762 an office or place of business in the United States in 1936.
OPINION.
MURDOCK: The petitioner does not contest the correctness of the amounts involved in the determination made by the Commissioner. She, a nonresident alien, contends that she was not engaged in a trade or business within the United States and did not have a place of business in the United States. If her contention is correct, then she is subject to tax under section 211(a) of the Revenue Act of 1936 at the flat rate of 10 percent and, furthermore, capital gains are not included in her taxable income. The Commissioner contends that she had a place of business and was engaged in business in the United States and is taxable under section 211(b) at the normal tax and surtax rates.
The Commissioner advances only two grounds for his conclusion. One is that the petitioner's dealings in securities amounted to a trade or business. The facts clearly show that under , the few sales of securities did not constitute the carrying on of a trade or business. The other ground advanced by the Commissioner is that the absent petitioner, through her agent, the St. *763 Louis Union Trust Co., participated in the management and operation of the properties making up the residuary estate of Adolphus Busch in which she held an undivided one-thirteenth of a one-eighth interest. We may assume that the activities of the Union Trust Co. in managing the trust created by the will of Adolphus Busch constituted the carrying on of a business in 1936, since the facts do not show the contrary.
The petitioner did not create that trust and had no voice in the management of it. The trust was created by the will of Adolphus Busch, who died in 1913. The corpus of the trust originally constituting all of the residuary estate of Adolphus Busch had not been entirely distributed in 1928, when Lilly Busch died. The petitioner, *1214 as a residuary legatee of the estate of Lilly Busch, thus acquired an interest of one-thirteenth of one-eighth of the Adolphus Busch testamentary trust estate. She merely accepted that interest and did nothing about it. She never chose the trustee as her agent. Perhaps she could have demanded a partition, but she did not do so. The Commissioner, in Regulations 94, article 211-7(b), has provided:
Neither the beneficiaries nor*764 the grantor of a trust, whether revocable or irrevocable, is deemed to be engaged in trade or business in the United States or to have an office or place of business therein, merely because the trustee is engaged in trade or business in the United States or has an office or place of business therein.
The Commissioner's present contention is in direct conflict with this regulation. We conclude, upon the entire record in this case, that the petitioner was not engaged in a trade or business in the United States and did not have an office or place of business therein.
Decision will be entered under Rule 50.