The opinion
MADDEN, Judge
(concurring in the result).
I agree that the plaintiff may not, as a beneficiary of the trust, take the depreciation for which she contends. I think, however, that the reason for this conclusion is not the reason given in the opinion of the court.
Section 23 (l) of the Revenue Act of 1934, 48 Stat. 689 , 26 U.S.C.A. Int.Rev. Code § 23 (l). says:
“Sec. 23. Deductions from gross income.
“In computing.net income there shall be allowed as deductions:
* * * * *
“(l) Depreciation. A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, in- *175 eluding a reasonable allowance for obsolescence. In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each.”
The opinion of the court, following the opinion of the Circuit Court of Appeals for the Seventh Circuit in Commissioner v. Netcher, 143 F.2d 484 , goes to considerable lengths to discover “pertinent provisions of the instrument creating the trust”, which have the effect of directing or authorizing the trustee to set up. a reserve for depreciation. The plaintiff urges that the will contains no “pertinent provisions”, but is completely silent on the subject. As to this, I agree with the plaintiff. I think that the words in the will “it being my wish that said real estate be held together for the benefit of my entire estate and the beneficiaries thereunder”, tell us nothing whatever about the wishes of the testator as to whether his widow and trustee should set up a depreciation reserve to replace, some time in the remote future, a new building which she, as trustee, built on the land after the testator’s death. The purpose, apparently, of carrying the process of construction of language to such lengths is to bring the case within the scope of that part of Section 23 (i) which is fairly clear and tangible.
I think that the alternative provision of the section which reads “or, in the absence of such [pertinent] provisions [of the instrument creating the trust] on the basis of the trust income allocable to each” [the income beneficiaries and the trustee] is, because of the silence of the will on the subject, the applicable provision. It seems to me to mean that when the will is silent, one must ascertain how, with regard to the depreciation question, the trust income is to be distributed, and assign the depreciation deduction accordingly. I cannot think of any other meaning for the statutory language quoted above. If it does mean what I have suggested, it is of great importance since, probably, a large proportion of trust instruments are silent on the question of setting up depreciation reserves.
If, then, the trust instrument contains no “pertinent provisions” one must look to the law relating to the duties of trustees to ascertain “the trust income allocable” to income beneficiaries and trustees. This will be the law of the state having jurisdiction of the trust. In this case that would be the law of Illinois. If the plaintiff, who here sues as beneficiary, does not have the right, as trustee, to set aside from income a reserve for depreciation of the property, and add that reserve to the corpus of the trust, she has been, for many years, violating the rights of the several other beneficiaries by diverting income which belonged to them to corpus which would ultimately go to remaindermen. So the plaintiff could hardly, and does not, suggest that the proper “basis of the trust income allocable to each” is different from the actual disposition of the income which has been made for many years by herself as trustee. See Restatement, Trusts, § 233, comments l and p as to the rules generally applicable in American jurisdictions.
The reports of committees of Congress, and the Regulations promulgated by the Department throw no light on the meaning of the statutory language which, I have suggested, is applicable to this case. But I can see no reason why there should be a difference, for tax purposes, between the following two cases. First, the testator directs the trustee to take out of income and add to the corpus each year 3⅟3% of the initial value of any building which is or may become a part of the trust property. Second, the testator says nothing relevant to the matter, but the law of the state having jurisdiction says that, unless the testator has expressly provided to the contrary the trustee shall take out of income and add to the corpus of the trust 3⅟3% of the initial value of any building which is or may become a part of the trust property. In each case the income, before depreciation, goes the same way, and the text of the statute seems to me to say that the allowance for depreciation, for income tax purposes, should go the same way. In both cases the income beneficiary has no right to receive as income, either presently or in the future, that part of the “income before depreciation is deducted” which is directed by the will or by the law not to be distributed, but to be put in a reserve. It is *176 none of his affair, as income for tax purposes, and that seems to be, in a somewhat vague sense, the reason why the statute denies him the right to use it as an offset against income which he has received from other sources. The trustee, as the owner of the corpus of the estate which would, but for the reserve, go down in its depreciated condition to the remainderman, represents the permanent interest in the property which is hurt by the depreciation, and should be able to set off the loss against taxable accretions to the corpus. It was not possible, in the statutory scheme, to treat the trust situation exactly like the legal life tenant and remainder situation, since in the latter case there is frequently no ascertainable person to represent the permanent interest in the property, and even if there is such a person, he has no income from it. It probably seemed fair to Congress, therefore, to give the life tenant the depreciation allowance even though the loss is, largely, not his loss, rather than to deny any depreciation allowance to anyone.
WHITAKER, Judge, concurs in the foregoing opinion.