*256 Decision will be entered for the respondent.
An estate of which the petitioner was the residuary legatee had net income in the amount of $ 24,709.74 for the year 1942, and in December of that year the final account of the estate was filed with the probate court and all of the cash and other assets were distributed to petitioner. Held, under the provisions of
*563 The respondent determined a deficiency in income and victory taxes for the calendar year 1943 in the amount of $ 13,717.79. Because of the provisions of the current tax payment act of 1943, petitioner's income for the calendar year 1942 is in controversy.
The question presented pertains to the correctness of the Commissioner's determination that the entire net income of the estate of Tyler W. Carlisle for the year 1942 is includible in the income of the petitioner and taxable to her for the year 1942.
FINDINGS OF FACT.
We find the facts to be as stipulated. For the purpose of this proceeding, the following statement will suffice.
Petitioner resides in Shaker Heights, Ohio, and filed her Federal income tax returns for the years 1942 and 1943 with the collector of internal revenue for the eighteenth district of Ohio at Cleveland, Ohio. Her*258 books were kept and returns filed on the cash basis.
Petitioner was the wife of Tyler W. Carlisle, who died testate on *564 August 14, 1940. Petitioner was appointed executrix and decedent's will was admitted to probate in Cuyahoga County, Ohio, ten days thereafter. By the terms of the will petitioner received all of the residue of the estate, after the payment of debts and the costs of administration, for her natural life, with full power to consume, sell, incumber, or dispose of said estate in such manner and for such consideration as she might deem proper and with full discretion to consume any portion thereof that she might deem necessary for her own comfort and the support and education of decedent's children. The will further provided that if any of the estate remained unconsumed at the death of the petitioner, the remainder should pass to the children of Tyler W. Carlisle per stirpes.
The third and final account of the estate was filed with the Probate Court of Cuyahoga County, Ohio, in the latter part of 1942, and was approved by that court on December 7, 1942. That account and the second partial account show that petitioner received the following distributions during*259 the year 1942:
January 31, Hazel K. Carlisle -- partial distribution | $ 1,137.93 |
February 28, Hazel K. Carlisle -- partial distribution | 1,925.21 |
October 31, distribution to Hazel K. Carlisle | 163,114.15 |
After the distribution of $ 163,114.15 on October 31, 1942, the estate had no further cash on hand. The third and final account also discloses that the estate distributed to petitioner on October 31, 1942, certain chattels of the decedent and also stocks and bonds in kind. The petitioner did not receive any payments or other distributions from the estate at any time other than those shown in the first partial account, second partial account, and third and final account. An application for distribution in kind of the above mentioned stocks and bonds was executed by the executrix on January 23, 1943, and the journal entry authorizing distribution in kind was entered by the Probate Court of Cuyahoga County, Ohio, on January 25, 1943.
The estate of Tyler W. Carlisle did not file any tax return for the year 1943 because of the closing of the estate and the distribution of the assets thereof to the petitioner pursuant to the third and final account and journal entry authorizing*260 distribution in kind referred to above.
Among the securities in the estate which were converted into cash were 1,056 shares of Strong, Carlisle & Hammond Co. stock. This stock had been appraised for Federal estate tax purposes in the amount of $ 105,600. When it was sold on July 27, 1942, the price received was $ 148,606.08. The gain was $ 43,006.08, of which 50 per cent, or $ 21,503.04, was taxable as a capital net gain.
On the Fiduciary Income Tax Return, Form 1041, of the estate for *565 1942, the estate did not take or claim any deduction for any amount as distributed or distributable to the petitioner. The income and deductions reported on the fiduciary return were as follows:
INCOME | |
Dividends | $ 4,767.57 |
Interest on bank deposits, notes, etc | 154.64 |
Net gain from sale or exchange or capital assets | 21,503.04 |
Total income | 26,425.25 |
DEDUCTIONS | |
Taxes, personal property (Ohio) | 1,255.51 |
Other deductions authorized by law (attorneys' fees paid by | |
executrix and claimed as a nonbusiness expense) | 4,024.59 |
Total deductions | 5,280.10 |
Balance | 21,145.15 |
Less income distributable to beneficiaries | |
Net income (taxable to fiduciary) | 21,145.15 |
The petitioner*261 did not report as taxable income in her return for 1942 or 1943 any amount received from the estate.
In determining the deficiency the respondent redetermined the net income of the estate for the year 1942 by disallowing as a deduction $ 3,564.59 of the amount claimed by the estate as a deduction for attorney fees, thereby increasing the net income of the estate to $ 24,709.74. Respondent included this amount in petitioner's income for 1942.
OPINION.
At the hearing the petitioner conceded that the deduction of $ 3,564.59 for attorney fees taken on the fiduciary return constituted an improper deduction and that the correct net income of the estate for the year 1942 was, therefore, $ 24,709.74. On brief she contends that the capital gain of $ 43,006.08, of which 50 per cent, or $ 21,503.04, was taxable to the estate as a capital net gain, is not taxable to her because it constitutes an increase in the corpus of the estate distributable or distributed as corpus which was not deducted or deductible by the estate under the provisions of
An examination of petitioner's contentions indicates that she has erroneously construed the respondent's determination. Apparently, she is laboring under the misapprehension that the deficiency here in controversy is due to the respondent's inclusion in her income of capital gain in the amount of $ 21,503.04, plus an amount occasioned by the disallowance of the attorney fees which she arrived at by subtracting from $ 24,709.74 the capital gain of $ 21,503.04. The respondent's determination, as shown in our findings, is that the entire net income for 1942 reported in the fiduciary return, $ 21,145.15, plus the $ 3,564.59 which was improperly deducted by the estate for attorney fees, or $ 24,709.74, is includible in her income and *263 taxable to her. The issue is, therefore, whether the respondent properly included the entire corrected net income of the estate in petitioner's return for 1942.
In the Revenue Act of 1942, section 111, Congress amended the provisions of
In another group of cases decided prior to the 1942 amendments to
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 legatees, heirs, or beneficiaries, but the amount so allowed as a deduction should be included in computing the net income of the legatees, heirs, or beneficiaries whether distributed to them or not. As used in this subsection, "income which is to be distributed currently" includes income for the taxable year of the estate or trust which, within the taxable year, becomes payable to the legatee, heir, or beneficiary. Any amount allowed as a deduction under this paragraph*266 shall not be allowed as a deduction under subsection (c) of this section in the same or any succeeding year.
The underscored portion of
Senate Finance Committee Report No. 1631, 77th Cong., 2d sess., contains the following explanation of the purpose of this amendment to
Your committee bill adds an amendment to
The question of whether the income of an estate or trust*267 for the taxable year in which it becomes payable as part of an accumulation is taxable on the one hand to the estate or trust or on the other hand to the legatee or beneficiary has been a source of litigation in certain cases under existing law. This amendment is designed to clarify the law. * * *. [Emphasis supplied.]
The respondent relies upon the amendment to
We agree with the respondent. "The aim of the statute dealing with the income of estates and trusts is to tax such income either in the hands of the fiduciary or the beneficiary."
*569 Our best judgment is that the respondent correctly applied the provisions of
Decision will be entered for the respondent.