The opinion
Akundell, dissenting: I can not agree with the decision of the majority on the first issue, and I therefore respectfully note my dissent.
The question as to whether an estate is being held by the executor or by the same person or persons as trustees under the will of a decedent has been before the courts of Massachusetts a number of times. In Welch v. City of Boston, 211 Mass. 178 ; 97 N. E. 893 , the executors of an estate determined to distribute to themselves as trustees under the will of their decedent a portion of the property left by him. The trustees opened an inventory of the property transferred in trust and they otherwise accounted for it as property held pursuant to the terms of the trust. As executors, however, they had filed no account in the probate court showing the transfer to the trust or seeking an approval of such transfer. The city of Boston claimed the right to collect a tax upon the whole property from the estate. The court, upon consideration and review of the authorities, held that where a part or the whole of the estate is given to the same person or persons as trustees, who are also the executors, there must not only be some definite, unequivocal, and final act of transfer from the executor to the trustee, but such act, before it could become “authoritative and notorious,” had to be shown by an account duly filed and allowed by the probate court. In Massachusetts Institute of Technology v. Attorney General, 235 Mass. 288 ; 126 N. E. 521 , the Supreme Judicial Court pointed out that Welch v. City of Boston, supra, and the earlier opinions which that decision affirmed and the later cases which follow it, have established beyond the peradventure of a doubt that executors are liable to taxation as executors for the amounts given to them as trustees until their account as executors, showing a distribution to themselves as trustees, has been allowed in the probate court. See also Donnelly v. Levers & Sargent Co., 226 Mass. 214 ; 115 N. E. 252 . Hence, under the laws of Massachusetts I think it may not be said that petitioner Chick held the property in a capacity other than that of executor.
Probate and settlement of estates of deceased persons is regarded as being in the nature of a proceeding in rem, wholly statutory, and exclusively within the province of the tribunal set up by the state for dealing with such matters, and the Federal courts are without jurisdiction to interfere. Ellis v. Stevens, 37 Fed. Supp. 488, and authorities there cited. The Supreme Court has pointed out that the problem of whether or not the income of a trust or an estate is currently distributable is a question of local law, Freuler v. Helvering, 291 U. S. 35 , and that the states establish the procedures governing the probate of wills and the processes of administration, Lyeth v. Hoey, 305 U. S. 188 .
Here the income was currently distributable only under the terms of the trust. So long as the property remained in the hands of the executor there was no duty to distribute any of the income to either of the petitionei’s herein. It would be taxable to the estate under section 161(a) (8) unless distributions were actually made, giving rise to deduction under section 162(c) and representing taxable income in the hands of the distributee. See In re Smith's Estate, 64 Fed. Supp. 196, where the court stated:
There was no present right on the part of the beneficiaries to receive the income of the estate, even though the will as construed by the Chancery Court of Shelby County, Temí., provided that the income was to accrue to the beneficiaries “as and from the date of the death of the testator.” This is true because the estate during the taxable period was in process of administration, and in fact still is. The plaintiff’s capacity as executor was entirely different from its capacity as trustee. While acting as executor it was under the orders of the County Court of Obion County, Tenn., where it was bound by law to make its final settlement as executor after the estate had been fully administered. During the process of administration the income of the estate was the property of the plaintiff as executor. The plaintiff was under no obligation to pay over any income of the estate to the testamentary trust beneficiaries while acting as executor, and the trust beneficiaries did not have an enforcible right against the executor for such payment.
The problem here is not to ascertain the status for Federal tax purposes of something received by the petitioners in the normal course through distribution from the estate, as was the situation in Lyeth v. Hoey, supra. Rather, we are requested by the respondent to regard the situation as if the trust had been established and to conclude that the application of the statutes in question is not dependent upon the state procedures and processes with respect to the actual administration of the estate. The majority have adopted that view.
I think the Circuit Court of Appeals for the Fifth Circuit took the proper view of the matter in Frederich v. Commissioner, 145 Fed. (2d) 796, reversing 2 T. C. 936 , when it held that the period contemplated by the statute and by the regulations is the period during which the estate is actually in process of administration under .the laws of the state, absent fraud, conspiracy to evade taxes, or other serious irregularity. By design, or at least by necessary implication, the provisions relating to the taxation of estates and trusts depend in their application upon the state laws and processes, and, as the Circuit Court observed in the Frederich case, the onus of a delayed distribution of an estate’s assets is the taxation of the income as a unit during the period of actual administration.
Here there -is no suggestion that this was a scheme or device designed for the purpose of defrauding the Federal Government. The evidence with respect to the nature of the assets making up the residuary estate and all the factors and circumstances in connection therewith indicate that there were business reasons, which apparently have been deemed sufficient by the court having jurisdiction, to warrant continued administration of the estate. Hence, there is no basis for a conclusion to the contrary, and I think the determination of the respondent on this issue should not be sustained.
Tyson, /., agrees with this dissent.