Austin v. Commissioner , 18 B.T.A. 1096 ( 1930 )

WALTER F. AUSTIN, TRUSTEE, HERBERT T. AUSTIN TRUST, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Austin v. Commissioner

Docket No. 46075.

United States Board of Tax Appeals

18 B.T.A. 1096; 1930 BTA LEXIS 2523;

February 12, 1930, Promulgated

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Where the total income of a trust which is to be accumulated or held for future distribution consists partly of profit from the sale of capital assets and partly of other income, the tax is to be computed on the income as a whole and not upon the two kinds of income separately.

Cornelius C. Beekman, Esq., for the petitioner.

F. R. Shearer, Esq., for the respondent.

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MURDOCK

The Commissioner notified the petitioner of a deficiency in his tax liability for the calendar year 1927 in the amount of $657.20. The petitioner alleges that the Commissioner erred in refusing to tax him separately on the ordinary income of the trust which was to be accumulated during the minority of the beneficiary, and on the gain from the sale of assets included in the corpus of the trust. The answer admitted all the facts alleged in the petition and the case was submitted on the pleadings.

FINDING OF FACT.

The petitioner is an individual residing at Plainfield, N.J. He is trustee of the Herbert T. Austin trust, created under a deed of trust executed by him (the petitioner) on the second day of July, 1923. The trust is irrevocable. The beneficiary of the trust is an infant. The trust provides that the income is to be accumulated until the beneficiary shall reach his majority, when the accumulated income is to be paid over to him. Thereafter, the income is to be paid to the beneficiary until he attains the age of forty years, at which time the principal is to be turned over to him for his own use and benefit, absolutely and forever. Should the beneficiary die before reaching the age of forty years, the income therefrom is to be accumulated for the benefit of and paid to another son of the donor, Robert F. Austin, in similar manner. Upon his reaching the age of forty years, the principal is to be paid over to him for his own use and benefit, absolutely and forever. Should Robert F. Austin die before reaching the age of forty years, then the principal is to be paid and turned over to his descendants, per stirpes.

During the year 1927 the ordinary income from the trust fund was accumulated and a profit arose from the sale of capital assets which was added to the principal of the trust and reinvested. The petitioner, as trustee under this trust, made two reports of taxable income for the year ended December 31, 1927, which were duly filed. Both reports were made on Form 1040. In one report the petitioner set forth the ordinary income from the trust which was to be accumulated, and in the other report the petitioner set forth the profit arising from the sale of capital assets which was to be added to the corpus of the trust.

The Commissioner determined the deficiency by combining all of the income from the trust, all of which, he explained, should have been combined in one return and the tax thereon computed accordingly.

OPINION.

MURDOCK: It is clear that all of the income from the trust in question was to be accumulated or held for future distribution. The petitioner makes no claim that section 208 should be applied or that it would benefit him if applied. But for an entirely different purpose he seeks to differentiate between that income which he calls ordinary income and the income which represents the gain from the sale of capital assets of the corpus of the trust. He contends that aside from section 208 he is entitled to report these two classes of income separately and on separate returns. In this way he would bring more of the total income into the lower tax brackets, thus reducing the normal tax, and would also, in the same manner, reduce the surtax.

The Commissioner, in his deficiency notice, explained to the petitioner that there was no provision in the law or regulations to support such a separation of the income for tax purposes. Therefore, in accordance with article 341 of Regulations 69, pertaining to the Revenue Act of 1926, he added the two kinds of income, as reported, to arrive at the total net income of the trustee. From this income he deducted dividends and allowed an exemption of $1,500 to arrive at the income subject to normal tax, which tax he computed in the ordinary way, and to this tax he then added the surtax on the total income. He then deducted the tax paid at source to arrive at the total tax liability of the petitioner, from which he deducted the total amount of tax shown on the returns and the remainder was the deficiency.

We see no error in this action of the Commissioner and, therefore, approve his determination.

Judgment will be entered for the respondent.