The Washington times., 1925-05-04
TRUST ESTATE
EARNINGS HELD
TAXABLE
Supreme Court Decision One
of Most important Since
Law Was Passed
By RICHARD HATTON.

Considerable interest is being
manifested by local trust company
officials in a recent decision Of the
Supreme Court which holds in
effect that earnings of q trust
estate, paid in installments to a
beneficiary under the will, termin-
able at the end OF the trust, are
incomes to be taxed. The decision,
because OF its far-reacfing effects
upon inheritances, is regarded by
trust companies as one of the most
important since the income tax law
was established.
A contrary view to that held by
the Supreme Court has been taken
by the United States district court
In New York and the circuit court
of appeals, which held that these
tnstaliments were to be treated as
coming from the body of the estate
and constituting, therefore, a
legacy, thus not coming under the
definition of a taxable income.
The case in question is that OF
Roscoe Irwin, collector, versus Z
Palmer Gavit. and concerns, the es.
tate of Mr.. GavitB father-in.law,
the late Anthony A. Brady, who
died in 1913. The Brady will, pro-
bated in 1913, left the residue Of
his estate in trust to be divided
into six equal parts, to be applied,
so far as deemed proper to the
executor, to the education and sup
port OF Mr.. Brady's granddaughter,
Marcia Ann Gavit, daughter OF E
Palmer Gavft; the balance to be
divided into two equal parts, one
of them to be paid to Gayit in
EQUAL quarterly payments during
his life. But. upon the grand
daughter becoming twenty-one years
of age or dying, the fund went
over so that the granddaughter,
then being six years old. Gavit's
interest could not exceed fifteen
years.
Courts Decision.
The Supreme Court. in fits
opinion, says: 1.-THE statute in
section liza. subdivision one, pro-
vides that there shall be levied q
q tax upon the entire net income
arising or accruing from all
z sources in the preceding calendar
year to every citizen of the United
States
"If these payments properly may
be called income by the common
understanding of that word, ana
tho statute had failed,to hit them,
Il has missed so much of the gen
eral purpose that it EXPRESSED at
the start. Congress intended to
use its powers to the fun extent.
Gsisner VS.. Macufnber, 252 u. g.
1s9,203). BY B. the net income
10 TO include gains or profits and
income derived from any source
whatever, including the income
from but not the value of prop
+ erty acquired by gift, bequest, de-
wise or descent BY d, trustees
are to make return Of the net In
come of the person for whom
they. act, subject to this tax and
by d, trustees and others having
the control or payment OF fixed
o. discriminate gains, etc, OF
another person who are required
60 render a return on behalf OF
another are authorized to with
hold enough to pay the normal
tax
THE language quoted leaves no
doubt in our minds that il q fund
were given to trustees to A for
life. with remainder over, the i'm
come received by the trustees and
paid over to A should be income
Of A under the statute. 1t seems
10 as hardly less clear than even
~ there were a specific provision
that A should have no interest IN
the corpus, the payments would be
income none the less. within the
meaning of the statute and the
Constitution, and by popular
speech.
I'm the first case, it is true
that the bequeSt might be said
to be of the corpus for life; in
the second, IT might be said to be
Of the income. But we think that
the provision of the act that ex-
eTnpts requests assumes the gift
Of corpus and contrasts it with
the income arising from it. but
was not intended to exempt in
come properly so-called simply be-
cause of a severance between it
and the principal fund. No such
conclusion can be drawn from
Eisner VS.. Macumber, 252 u. g.,
1s9, 206, 207. The money was in
come in the hands OF the trustee
and we know Of nothing in the
law that prevented it being paid
and received as income by the
donee.
Gift Was Bequest.
1.-The courts below went on the
ground that the gift to the
plaintiff was a bequest and car
ried no interest in the corpus of
the fund. We do not regard
those considerations as conclusive.
Is we have said. but if it were
material a gift of the income of
q fund ordinarily is to be treated
bV equity az creating an infaraaf