Mr. John Hampton Barnes, of Philadelphia, Pa., for respondents Butterworth and others.
Mr. Robert T. McCracken, of Philadelphia, Pa., for respondent Fidelity-Philadelphia Trust Co.
Mr. Ralph B. Evans, of Philadelphia, Pa., for respondents Pardee and others.
Messrs. H. C. Kilpatrick, of Washington, D.C., E. J. Smyer, of Birmingham, Ala., and Oscar W. Underwood, Jr., of Washington, D.C., for respondent Title Guarantee Loan & Trust Co.
Mr. Justice McREYNOLDS delivered the opinion of the Court.
These causes demand construction and application of the provisions of section 219, Revenue Act of 1924, c. 234, 43 Stat. 253, 275 (U.S.C. title 26, § 960, 26 USCA § 960 note) (copied in the margin ), which lay a tax upon 'the income of estates or of any kind of property held in trust,' and direct that (b)(2), '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 beneficiaries, * * * but the amount so allowed as a deduction shall be included in computing the net income of the beneficiaries whether distributed to them or not. * * *' Also, the identical provisions of the Revenue Act of 1926, c. 27, 44 Stat. 9, 32, 33 (26 USCA § 960 note); and the substantially similar ones of the Revenue Act of 1928, c. 852, 45 Stat. 791, 838, §§ 161 and 162 (26 USCA §§ 2161, 2162).
In each cause the Commissioner of Internal Revenue assessed the portion of the income from the trust created by the husband's will which had been paid to the widow. The trustees claimed credit therefor. The Board of Tax Appeals approved the assessments. The Circuit Courts of Appeals held otherwise.
Causes Nos. 75, 76, and 78 involve the same point of law. The undisputed facts are similar and it will suffice to state those of No. 75. The record in No. 77 presents another question and the facts there will be set out.
No. 75.
William B. Butterworth, resident of Pennsylvania, died October 5, 1921. After certain bequests, his will gave the residue of the estate to respondents as trustees, with directions to pay the net income to the widow. She accepted under the will and surrendered the rights granted her by the state laws. During 1924 and 1925 the trustees paid her the income from the trust. The aggregate of these and antecedent payments was less than the estimated value of her statutory rights in the estate. In order to ascertain the taxable income of the trust, the respondents claimed the right to deduct from the gross amount payments made to the widow. The Commissioner denied this and the Board of Tax Appeals approved his action. The court below reversed the judgment.
Prior to Warner v. Walsh (C.C.A.) 15 F.(2d) 367, United States v. Bolster (C.C.A.) 26 F.(2d) 760, 59 A.L.R. 491, and Allen v. Brandeis (C.C.A.) 29 F.(2d) 36o, the Commissioner ruled that distributions from the income of a trust estate to the widow who elected to take under the husband's will in lieu of her statutory interest were taxable to her. These cases held that by relinquishment of her rights, she came to occupy the position of the purchaser of an annuity. They decided that payments to her were not subject to taxation until her total receipts from the trust estate amounted to the value of what she relinquished-her alleged capital. Thereafter, in similar cases, the Commissioner refused to give credit to the trustee for such payments and thus the present causes arose.
We cannot accept the reasoning advanced to support the three cases just cited. The evident general purpose of the statute was to tax in some way the whole income of all trust estates. If nothing was payable to beneficiaries, the income without deduction was assessable to the fiduciary. But he was entitled to credit for any sum paid to a beneficiary within the intendment of that word, and this amount then became taxable to the beneficiary. Certainly, Congress did not intend any income from a trust should escape taxation unless definitely exempted.
Is a widow who accepts the provisions of her husband's will and receives part or all of the income from an established trust in lieu of her statutory rights a beneficiary within the ambit of the statute? We think she is. It is unnecessary to discuss her rights or position under other circumstances. We are dealing with a tax statute and seeking to determine the will of Congress.