Court Opinion

ID: 6887182
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:31:43.605358+00
Date Added: 2024-06-11T16:05:44.749416
License: Public Domain

JONES, Circuit Judge
(dissenting).
By the terms of the testamentary trust here involved the trustee is under the duty of distributing annually the whole of each calendar year’s accrued net income to beneficiaries who are ascertainable immediately upon the close of the year.1 If that does not constitute a current distribution of the trust income, then I must confess to a misapprehension of the description. In fact, it has seemed to me that *510the currency of a distribution of trust income is determinable according to the extent and period of the payment rather than upon the ascertainment of those who take as beneficiaries so long as the trust does not offend against the rule respecting accumulations. It then becomes pertinent to consider whether the instant trust so offends.
Of course, where the persons who, as beneficiaries, are to receive the income for a particular period may change during the hiatus between the close of the income year and the time for determining who qualify as beneficiaries, an accumulation, such as is excluded by Sec. 161 of the Internal Revenue Code, may be effected. In was in such circumstances that the trust in Commissioner v. Dean, 10 Cir., 102 F.2d 699, 702, was deemed to work an accumulation of income “for the benefit of unascertained persons or persons with contingent interests; * * * persons whose identity could not be ascertained until the end of the administrative year [three days after the close of the calendar (income) year].” In the Dean case, the income for the calendar year was not distributable until January 3rd of the succeeding year when the beneficiaries thereof first became ascertainable. In the meantime the right of those who would have taken as beneficiaries at the close of the calendar year could be lost. But such is not this case. Here the income at the close of the calendar year was distributable to the beneficiaries who became absolutely certain with the instantaneous advent of the New Year. To hold that, because the beneficiaries of the annual net income which has accrued up to midnight of December 31st cannot be definitely known until a split second later, an accumulation of income is' thereby effected seems to me to substitute fancy for legal possibility without regard for reality.
It is my opinion that trader the terms of the trust here involved there is a current distribution of income to beneficiaries whose right to receive it is concomitant with the end of the calendar (income) year and that there is neither accumulation of income in trust for the benefit of unborn or unascertained persons or persons with contingent interests nor is there an accumulation for future distribution. Neither does the trustee’s day to day retention of income within the limits of the permissible period for distribution constitute an accumulation of income. Had the testatrix provided that the income for the calendar year should be distributed annually to those who at midnight of December 31st qualified as beneficiaries in accordance with her will, concededly there would have been no accumulation of income. Yet the day to day retention of income throughout the calendar year would have been the same as under the will as written.
With the income distributable currently and not accumulated for any purpose, it follows that it is taxable to the ascertained distributees for the year in which it was received by the trust, whether actually distributed or not (see Freuler v. Helvering, 291 U.S. 35, 40-42, 54 S.Ct. 308, 78 L.Ed 634), and that the fiduciary in its tax return for the trust for the income year is entitled to a pro tanto deduction, as allowed by Sec. 162 of the Internal Revenue Code, to the extent of the income currently so distributable. Such indeed was the Commissioner’s own view, as applied to this very trust, throughout all prior tax years until 1940, when following the late decision in the Dean case, supra, he disallowed the fiduciary’s deduction for distribution of the calendar year’s income to the beneficiaries and assessed a tax accordingly against the trust. As already indicated, I am unable to see how the decision in the Dean case furnishes any justification for the Commissioner’s departure from his former ruling which I think correctly applied the law so far as the facts attendant upon the instant trust are concerned. I therefore dissent from the order now entered by the majority.