Cleary v. Commissioner , 34 T.C. 728 ( 1960 )

Robert E. Cleary and Mildred W. Cleary, Petitioners, v. Commissioner of Internal Revenue, Respondent

Cleary v. Commissioner

Docket No. 75147

United States Tax Court

34 T.C. 728; 1960 U.S. Tax Ct. LEXIS 104;

July 20, 1960, Filed

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Decision will be entered under Rule 50.

Petitioner Mildred Cleary's father died testate in May 1945, designating Mildred, her sister, and their husbands as executors and trustees of his estate. Under his will, it was provided that one part of the net income up to $ 2,000 for each year should be made over and paid to Mildred. For each of the years 1945 through 1955 the estate had taxable income, on which for all years except 1945, 1951, and 1953 it paid an income tax thereon, but no distributions of income were in fact made until 1953. In 1950 Mildred indicated to her husband that she wanted the income from her bequest to go to her children, in the manner which had been provided for her sister's children, and in 1953 she joined the other executor-trustees in a direction that the check to cover the income from the part payable to her from 1952 income be made to her "in trust for Susan W., John W. and Robert E. Jr.," who were her three children. In 1957 she signed a written statement purporting to confirm her oral statements in 1950 as a renunciation of her bequest. Held, that the respondent did not err in determining that the distributions in 1953, 1954, and 1955 made payable to Mildred as trustee for her children were her income.

Samuel J. Foosaner, Esq., and Norman E. Schlesinger, Esq., for the petitioners.

John J. Hopkins, Esq., for the respondent.

Turner, Judge.

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TURNER

The respondent determined deficiencies in income tax against the petitioners for the taxable years 1953, 1954, and 1955 in the respective amounts of $ 760.84, $ 709.50, and $ 921.18. The question to be decided is whether Mildred W. Cleary timely and effectively renounced or disclaimed a bequest, under which she was entitled to receive up to $ 2,000 per year from the income of the estate of her father.

FINDINGS OF FACT.

Some of the facts have been stipulated and are found as stipulated.

Robert E. Cleary and Mildred W. Cleary are husband and wife, and residents of Chester, New Jersey. They filed joint income tax returns for the taxable years 1953, 1954, and 1955 with the district director of internal revenue at Newark, New Jersey.

John C. Welsh, the father of Mildred W. Cleary, died testate on May 2, 1945.

Decedent was the son of the founder of the milk business of Welsh Farms, Inc., and was associated with the company actively from 1915 to the date of his death in 1945. When he died the issued and outstanding stock of the company was as follows:

Preferred stock	Shares
John C. Welsh	250
Common stock
John C. Welsh	878
Mildred W. Cleary	60
Elizabeth W. Wilson	59
Robert E. Cleary	1
Ashley F. Wilson, Jr	1
William F. Salmon	1
Total	1,000

Elizabeth W. Wilson is the other daughter of the decedent and her husband is Ashley F. Wilson, Jr.

From May 2, 1945, up to and including December 31, 1955, the issued and outstanding stock which had been owned by the decedent was held by the executors and trustees pursuant to the terms of the will of the decedent.

The officers and directors of the company as of May 28, 1945, were as follows:

President, Robert E. Cleary.	Directors:
Treasurer, Robert E. Cleary.	Robert E. Cleary.
Vice president, vacant.	Ashley F. Wilson, Jr.
Secretary, William F. Salmon.	William F. Salmon.

Earle T. Holsapple, Jr., was elected vice president on February 1, 1949.

The above officers and directors continued through 1955.

The decedent's last will and testament after first directing the payment of debts and funeral expenses, provided in paragraph Second, as follows:

Second: I give, devise and bequeath all the rest, residue and remainder of my estate, real, personal or mixed, of whatever kind and wheresoever situate, to my Executors and Trustees, hereinafter named, IN TRUST NEVERTHELESS, for the following uses and purposes, that is to say: --

1. To run, operate and continue for the benefit of my estate any business or enterprise in which I may be interested at the time of my death until such time as in the opinion of my Executors and Trustees it is for the best interest of my estate to dispose of the same, and then to sell and convey the same upon such terms as they shall see fit, and the proceeds of such sale shall become a part of my estate and subject to the trusts herein provided.

2. To collect the income from my personal estate and to collect the rents, issues and profits from my real estate and to pay therefrom all necessary charges for taxes, insurance, repairs and other expenses in connection with my real estate.

3. I order and direct that the net income derived by way of dividends from thirty-three and one-third (33 1/3) per cent of the outstanding stock of Welsh Farms, Inc., a New Jersey corporation, be paid to my beloved wife, KAREN W. WELSH, for and during the term of her natural life or until such time as she shall remarry. In the event that all of the aforesaid stock is sold or otherwise disposed of during my lifetime or after my decease by my Executors and Trustees, then I direct my Executors and Trustees to pay to my beloved wife, KAREN W. WELSH, one-third (1/3) of the net income from the residue of my estate for and during the term of her natural life or until such time as she shall remarry. Whichever of the foregoing provisions shall become effective, it shall be in lieu of my wife's dower right under the laws of this State or any other jurisdiction.

4. I order and direct that the net income from the balance of my estate be regularly divided into two equal parts and be distributed by my Executors and Trustees as follows: --

(a) One part of the net income, as aforesaid, to the extent of Two Thousand ($ 2,000.00) Dollars per year, shall be made over and paid to my daughter, MILDRED CLEARY, presently of Montclair, New Jersey, for and during the term of her natural life; the balance of said part shall be used by my Executors and Trustees for the care, maintenance, education and support of the children of my said daughter, including any children who may be born to her after the making of this my last Will and Testament, until such time as the corpus of my estate is distributed as hereinafter provided. In the event that my daughter, MILDRED CLEARY, should die before the distribution of the corpus of my estate as hereinafter provided, I direct that the entire part be used for the care, maintenance, education and support of the children, as aforesaid, of my said daughter until distribution of the corpus is made.

(b) The second part of the net income, as aforesaid, shall be used by my Executors and Trustees for the care, maintenance, education and support of the children of my daughter, ELIZABETH A. WILSON, presently of Buffalo, New York, including any children who may be born to her after the making of this my last Will and Testament, until such time as the corpus of my estate is distributed as hereinafter provided.

(c) In the event that the payment of income, as aforesaid, for the care, maintenance, education and support of my grandchildren, should lapse by reason of the decease of all of the children of either of my said daughters, I direct that the share to which said deceased grandchildren would have been entitled, if living, under the preceding paragraphs (a) and (b) shall be paid to the mother of said deceased children for and during the term of her natural life and if she should die before the distribution of the corpus of my estate as hereinafter provided, then I direct that said income shall be used for the care, maintenance, education and support of the surviving children of my other daughter until such time as the corpus of my estate is distributed as hereinafter provided.

5. Upon the death of the last survivor of my daughters or upon the youngest of my grandchildren attaining the age of twenty-one years, whichever is later in point of time, I direct that one-half of the rest, residue and remainder of my estate be immediately made over, paid and delivered in equal shares to the surviving issue of my daughter, MILDRED CLEARY, per stirpes, to be theirs absolutely and forever. I direct that the other half of the rest, residue and remainder of my estate shall in like manner be immediately made over, paid and delivered in equal shares to the surviving issue of my daughter, ELIZABETH A. WILSON, per stirpes, to be theirs absolutely and forever.

6. In the event that either of my said daughters shall die leaving no issue her surviving, then I direct that the entire residue of my estate, as aforesaid, shall be paid to the issue of my other daughter, per stirpes, to be theirs absolutely and forever.

7. In the event that my last surviving daughter shall die without issue and there shall be no issue of mine then living, I give, devise and bequeath the rest, residue and remainder of my estate to my wife, KAREN W. WELSH, if she be then living. In the event that my said wife be not then living, I give, devise and bequeath the rest, residue and remainder of my estate to my two sons-in-law, ROBERT E. CLEARY and ASHLEY F. WILSON, share and share alike, or to the survivor if only one be then living. In the event that none of the foregoing persons take by reason of their prior decease, then I give, devise and bequeath the rest, residue and remainder of my estate to my next of kin and heirs at law as they shall exist at the time of the death of the last survivor of my daughters, in accordance with the laws of the State of New Jersey.

Paragraph Third of the aforesaid will provided that the decedent's two daughters and their husbands were to be executors and trustees.

On May 18, 1945, Robert E. Cleary petitioned the Surrogate's Court of Morris County, New Jersey, for admission of the decedent's will to probate and that letters testamentary and letters of trusteeship be granted and issued to the individuals nominated in the will. On the same date Robert E. Cleary formally accepted the aforesaid trusteeship and on August 10, 1945, his wife and her sister formally accepted. Ashley F. Wilson, Jr., formally accepted trusteeship on June 8, 1945.

On April 29, 1946, all four of the executors and trustees subscribed and swore to a New Jersey transfer inheritance tax return, in which under schedule E, the beneficiaries of the decedent's will and testamentary trust were listed, and where it was stated that Mildred W. Cleary had an interest in the estate in the amount of "$ 2,000 per year." The return also showed that at the decedent's death decedent owned realty in which he had an equity of $ 46,725 and personally valued at $ 63,210.46, and with deductions of $ 25,609.08, a net estate before Federal and State taxes of $ 84,326.38. Of the personal property, the value of decedent's 250 shares of preferred stock and 878 shares of common stock of Welsh Farms, Inc., was estimated as of the date of decedent's death at the respective amounts of $ 25,000 and $ 21,950, which represented the par value of $ 100 per preferred share of stock and $ 25 as the value for each common share of stock.

The fiduciary income tax returns filed by the Estate of John C. Welsh for the years 1945 through 1955 show the following:

Taxable year	Taxable	Tax paid
	income
1945	$ 388.32
1946	2,218.26	$ 326.47
1947	2,065.92	297.52
1948	715.52	19.17
1949	685.87	0.98
1950	982.52	66.55
1951	1,761.02
1952	1,982.53	306.92
1953	3,300.00
1954	1,344.41	268.88
1955	2,990.39	617.89

At some indefinite time and place in the early part of 1950, Robert told Mildred that it was possible that there would be a distribution of income from the estate, and she indicated that she did not want it, that she "would rather have had it for the children," as her sister's "children were having the same thing," and she thought "it would be that way" with hers.

On January 14, 1953, on Welsh Farms, Inc., stationery, Elizabeth E. Wilson, Ashley F. Wilson, Jr., and Mildred W. Cleary signed a writing directed to "Robert E. Cleary, Executor, Estate of John C. Welsh," in which the following statement was made:

We agree with your conclusion that under the terms of the will the Estate properly can make a payment to beneficiaries, to be treated as a transaction in 1952.

You are hereby directed to draw Estate checks each in the amount of $ 1,650.00, to the following:

Elizabeth W. Wilson in trust for Ashley F. III, Helen R. S. II, Sanford H., Bruce C. and Elizabeth A. II.

Mildred W. Cleary in trust for Susan W., John W. and Robert E. Jr.

In its fiduciary income tax return for each of the years 1953, 1954, and 1955, the estate of John C. Welsh claimed a deduction of $ 3,300 as the amount of its distributable income for each such year. Actual distribution to beneficiaries of the amount deducted on the 1953 return was made by 2 checks of $ 1,650 each, ¹ dated January --, 1954; and of the amounts deducted on the 1954 and 1955 returns, by checks also of $ 1,650 each, dated January 26, 1955, and January 25, 1956, respectively. In the making of each such distribution, 2 checks were drawn payable, one to "Mildred W. Cleary in trust for Susan Welsh Cleary, John Welsh Cleary and Robert E. Cleary, Jr.," and the other to "Elizabeth W. Wilson in trust for Ashley F. III, Helen R. S. II, Sanford H., Bruce C. and Elizabeth A. II."

The corporate returns of Welsh Farms, Inc., for the years 1940 through 1952 show net income or loss as follows:

	Net income
Year	(or loss)
1940	($ 1,265.29)
1941	(3,198.76)
1942	2,976.47
1943	(5,775.29)
1944	(15,674.82)
1945	(8,841.93)
1946	(19,623.91)
1947	1,274.41
1948	(29,692.67)
1949	n1 14,757.86
1950	1 7,052.66
1951	2 34,519.91
1952	33,356.75
1953	32,236.94
1954	55,062.43
1955	41,721.43

According to the minutes of the meetings of the company's board of directors, starting with the first meeting after the death of John C. Welsh, held on May 28, 1945, the board of Welsh Farms, Inc., authorized the payment of $ 416.67 per month, or $ 5,000 per annum, to the widow of the decedent in recognition of the valuable services the decedent had rendered to the corporation. The $ 5,000 per year so authorized was denominated by the minutes as a gratuity until 1951 and 1952, when $ 2,000 was referred to as a gratuity and $ 3,000 as salary. Beginning with 1953 the amount authorized was increased to $ 6,000 per year, with $ 3,000 described as salary and $ 3,000 as gratuity. During the years 1945 through 1955, the payments which were designated as gratuity, those which were designated as salary, and the amounts shown by the yearend balance sheets of the corporation for each of the indicated years were as follows:

			Earned surplus
Year	Gratuity	Salary	(or
			deficit)
1945	1 $ 1,200		($ 49,294.41)
1946	5,000		(49,837.61)
1947	5,000		(36,788.91)
1948	5,000		(67,051.00)
1949	5,000		(42,025.52)
1950	5,000		(34,972.86)
1951	2,000	$ 3,000	(9,952.95)
1952	2,000	3,000	9,113.48
1953	3,000	3,000	27,080.65
1954	3,000	3,000	56,043.08
1955	3,000	3,000	78,646.13

For each of the years 1951 through 1955, the amounts paid to the widow which were designated as gratuities were shown by the corporate income tax returns as nondeductible charges against earned surplus. For prior years the payments had been deducted as business expense.

On February 8, 1957, at the joint direction of the petitioners, an attorney prepared the following statement which was signed by Mildred W. Cleary in the presence of her husband:

Chester, N. J.

February 8, 1957

Trustees of Estate of John C. Welsh, Deceased.

This will serve to confirm in writing my having heretofore disclaimed and renounced any and all claim or right I had to any portion of the specific sum of which I was named beneficiary under Section 4(a) of the Will of my late father, John C. Welsh, as hereafter reviewed.

This provision so naming me beneficiary to the extent of $ 2,000 from a part of the net income of the trust created by that Will was different from the treatment accorded to my sister under the same Will. Prior to the availability of any income and any payment of income from said trust, I advised you as Trustees that I then disclaimed and renounced and relinquished any and all claims or rights to that sum and any part of that $ 2,000 special provision. You were advised at that time that I thereby intended that the income payments when and if payable under Section 4 of that Will should be paid out during the life of a child of mine and during the term of the trust as though I had not been named specially in the opening phrases of subdivision (a) of Section 4, and that my sister and I and our respective children should be treated alike and entitled to the same benefits respectively as though provisions of subdivision (a) were the same as those in subdivision (b) of Section 4 save for our names. My said renunciation and disclaimer did not apply to any other provisions of that Will.

At no time has any income from said trust been paid to me and this writing will serve to ratify the action of the Trustees under the Will of the late John C. Welsh in not paying any sum to me under section 4 (a) of that Will, and shall be taken as a release to said Trustees for their actions in that regard.

[signed] Mildred W. Cleary

In determining the deficiencies herein the respondent determined that the petitioner failed to report income distributable to Mildred during each of the taxable years from the estate of John C. Welsh. The amounts so determined as distributable were $ 1,585.06 for 1953, $ 1,650 for 1954, and $ 1,650 for 1955.

OPINION.

The question is whether for the years 1953, 1954, and 1955 income was distributable to Mildred from her father's estate so as to make such income her income. Petitioners contend that Mildred had renounced her bequest before any income was distributed from the estate and before the trustees determined that income could be distributed from the estate, and that the income was not hers. Respondent contends that prior to 1957, there was no clear, unequivocal renunciation by Mildred, and in any event there was no timely and valid renunciation.

Under the provisions of the will, Mildred during her life was entitled to the extent of $ 2,000 per year to one part or share of the net income of the property held in trust. And where, by the terms of a will, an individual is entitled for life to net income of the property held in trust, such individual thus becomes the owner of an equitable interest in the corpus of the property, which interest, in the absence of a valid restraint upon alienation, is present property alienable like any other property and by virtue of such interest the owner is entitled to enforce the trust and to obtain redress in case of breach. .

The decedent having died a resident of and his will and last testament having been probated in New Jersey, the law of that State is applicable with respect to the timeliness and the validity of a renunciation.

It appears well settled that a devisee or legatee is not compelled to accept a devise or legacy. ; ; . It appears equally well settled that there is a presumption of acceptance by a donee of a gift which is beneficial to him. . It also appears that in New Jersey if a devisee or legatee does not wish to accept a devise or legacy he is expected to reject it promptly or within a reasonable time after he has had notice of the devise or legacy.

What is a reasonable time to be allowed for "renunciation" of a legacy by a legatee depends upon the facts of the particular case, "renunciation" meaning the act of giving up a right.

In February 1957, Mildred made a formal written statement addressed to the trustees of the estate which was designed to confirm a purported oral renunciation of her claim or right to any portion "of the specific sum of which [she] was named beneficiary" under the will of her father. In , it was indicated that a disclaimer of a beneficial interest in a trust may operate retroactively, but petitioners concede that this Court held in , affd. , that a disclaimer may not operate retroactively so as to relieve the beneficiary of a tax on the share of income for prior years. Whether Mildred's written statement in 1957 is a renunciation, under New Jersey law, or could represent an assignment of her interest, as in , we need not decide, since 1957 is a year subsequent to the years with which we are here concerned.

It is the claim of petitioners, however, that Mildred made an oral renunciation of her bequest in the early part of 1950. Our question accordingly is as to the effectiveness and timeliness of what she did in that year.

In 1950 the decedent had been dead 5 years and in each year, including 1945, the year in which the decedent died, the estate realized income which under the will, there being no dividends from Welsh Farms, Inc., one-third of which was to go to decedent's widow, was to be divided in 2 parts, and one part "to the extent" of $ 2,000 was to "be made over and paid to" Mildred, with any balance of said part to be used "for the care, maintenance, education and support" of Mildred's children.

Noting that under both the Internal Revenue Code of 1939, section 162(b), ² and the Internal Revenue Code of 1954, section 652(a), ³ income which is required to be distributed currently to legatees, heirs, or beneficiaries must be included in computing the net income of the legatees, heirs, or beneficiaries, whether distributed to them or not, the petitioners contend that the estate had no income which was "required to be distributed" and which the decedent intended should be distributed, until after the oral renunciation by Mildred in 1950, and that such oral renunciation was timely and effective. In so contending, they argue that the decedent in his will had directed that his executors and trustees continue to operate the dairy business and intended that all of the assets of his estate be applied to the running of that business, to the end that it "could" produce dividend income with which to provide for his widow, his eight grandchildren and "a small bequest to his daughter Mildred," and that it was not until after several years of operation that the estate had income "available" for distribution or which was "required to be distributed," so that prior to 1950 there was no income for Mildred to renounce or disclaim, and that in fact "it was not until 1953, in view of the clear objectives expressed by the testator, that income from dividends derived from the earnings of Welsh Farms, Inc., were first made available to Mildred Cleary."

A difficulty with the contention is that the petitioners are attributing to the decedent intentions relating to the use and disposition of the income of his estate which are not to be found in his will. He did devise and bequeath the "rest, residue and remainder" of his estate to his executors and trustees "[to] run, operate and continue" for the benefit of his estate any business or enterprise in which he might at the time of his death be interested, until such time as in their opinion it should be for the best interest of his estate to dispose of the same, with the proceeds to become a part of his estate and subject to the trusts as in his will provided. Not only was there no provision that the income from such "rest, residue and remainder" of the estate be used in support and operation of the dairy business, but to the contrary, there was an unqualified direction that the net income to the extent of one-third of the dividends from Welsh Farms, Inc., be paid to Karen Welsh; that up to $ 2,000 of one of two parts of the remaining net income "be made over and paid" to Mildred, and the balance of such part "be used" for the care, maintenance, education and support of Mildred's children; and that similarly the second of the two parts of the net income "be used" for the children of Elizabeth. There was no provision that if the amount of the net income was small no distribution should be made. There was no provision for the accumulation of income by the executors and trustees. And more specifically, there was no provision which would permit any of the income to be used in the operation of the business of Welsh Farms, Inc. In short, the distribution and use of the net income as specified in the will was stated in mandatory terms, and no discretion with respect thereto was granted to the executors and trustees, and the distribution and use which was specified was not for the operation of Welsh Farms, Inc.

In , where it was provided in the trust instrument that the trustees were "to pay and apply" the net income from the trust corpus to the named beneficiary during her natural life, and where the trustees had withheld from current trust net income moneys to pay real estate taxes which would arise in the next succeeding year, the court, citing , for the proposition that it is well settled that "whether trust income is distributable or not depends upon the trust instrument," held that "since no provision was made in the trust instrument * * * giving the trustee discretion to accumulate earnings," but to the contrary the instrument showed "clearly that the testator * * * intended the entire net income * * * to be distributed to the taxpayer," the court below was in error in holding that the trust instrument "gave the trustee discretion to accumulate income within the meaning of the applicable Revenue Statutes."

In the instant case, the facts show that the trust estate received taxable income in each and every year, beginning with 1945, and though the source of this income is not shown, it could, insofar as appears of record, have been in whole or in part rent on real estate belonging to decedent's estate and used by Welsh Farms, Inc., in its business. Since none of the income represented dividends on Welsh Farms stock, it was mandatory under the will that this income "be regularly divided" into 2 parts and one part up to $ 2,000 "be made over and paid to * * * Mildred." It thus appears that for 5 years, from 1945 to 1950, the year of the claimed oral renouncement, she made no attempt to disclaim or renounce income which was hers and which by the terms of the will the executors and trustees had no authority, right, or power to withhold from her.

It is to be noted also that on April 29, 1946, Mildred had joined with the other executors in executing theNew Jersey inheritance tax return, which reported that she was a beneficiary, with an interest in the estate of "$ 2,000 per year." This was approximately a year after her father had died. Such a reporting was, to say the least, an indication that under the will she had become vested with an equitable interest in the corpus of the estate up to $ 2,000 per year from one part of the income produced by the residue of the estate, as heretofore set forth.

Even absent such indicated recognition of the vesting in Mildred of the interest in her father's estate, it would appear that, under the decisions of the New Jersey courts, a period of 5 years would be considered unreasonable for an effective rejection of the bequest. See , where it was held that a testamentary beneficiary who died a month after the testator's death had a reasonable time within which to make a choice of acceptance or rejection, and not indicating either, was presumed to have accepted the gift; also , where, under the circumstances of the case, an administrator could validly make a renunciation for the beneficiary-decedent, a delay of 4 months in filing a written disclaimer by the administrator was regarded as a failure to act within a reasonable period of time.

Although the testimony in the instant case is to the effect that the income of the Welsh estate was not distributed because it was needed by Welsh Farms, Inc., there is no showing as to what, in fact, was done with the income. Presumably it was accumulated. However, whatever was done with it currently, it is evident that Mildred participated therein by agreeing to nondistribution, accumulation, or its use by Welsh Farms, Inc., if in fact it was so used. It would thus appear that prior to 1950 Mildred had not only accepted her bequest of the equitable interest in the corpus of the estate, as pointed out heretofore, but during the 5-year period had either participated or acquiesced in the control over the income, which, being currently distributable, was under the applicable sections of both the 1939 Code and the 1954 Code taxable to her.

While relying strongly on , petitioners, as heretofore noted, have conceded, on brief, that under , a disclaimer may not operate retroactively so as to relieve the beneficiary of tax on income for prior years. Furthermore, the facts in the First National Bank of Portland, Executor case show that there the beneficiary at or immediately after the death of the testatrix had orally disclaimed his interest in the estate, whereas in the instant case it was 5 years before Mildred orally indicated she wanted her share of the income to be paid to her for the benefit of her children. In Annie Inman Grant, where the decision was for the respondent and against the taxpayer, the trust income for each year was to be paid to the taxpayer beneficiary, but only if payment was requested by the end of the year, and if request was not so made the income was to be otherwise disposed of, as provided by the will. In short, it was not available to the beneficiary after the end of the current year unless affirmative claim was made therefor within that year. In the instant case, the will carried a specific mandate that "one part of the net income, as aforesaid, to the extent of Two Thousand ($ 2,000.00) Dollars per year, shall be made over and paid to" Mildred. (Emphasis supplied.) The income to that extent belonged to Mildred. It was hers to take and to do with as she saw fit, and it continued to be hers for the taking. There was no divestment by the passage of time.

We are also of the view that aside from any prior vesting in Mildred of an equitable interest in the corpus of the decedent's estate, and even if we assume that timely renunciation could still have been made in 1950, that neither her conversation with her husband in 1950 nor the writing of January 1953, would have been, under New Jersey law, an effective renunciation of her bequest. In New Jersey, a renunciation must be made by a positive, overt act. ;. Her direction and authorization with respect to the distribution of the income was, as we view it, no more than a direction as to the manner in which distribution of her own income should be made. In short, it was no more than a direction that when her share of the income should in fact be distributed that it be paid to her as trustee for her children. See and compare .Under the pertinent Code provisions, supra, the income was taxable to her as earned, whether or not distributed.

The facts being as they are, we conclude and hold that Mildred made no timely and effective renunciation of her bequest, and for 1953, 1954, and 1955 one share of the net income of the estate for each such year up to $ 2,000, as heretofore set forth, was her income taxable to her, whether or not distributed, and it matters not that when distribution was in fact made that the checks were, at her direction, made payable to her as trustee for her children.

Decision will be entered under Rule 50.

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Footnotes

• 1. In his determination of deficiency, the respondent determined $ 1,585.06 as the amount of the shares of distributable income for 1953. Robert E. Cleary in his testimony at one point also indicated that the amount was $ 1,585.06, but in the course of his testimony when reading from the work sheet to the fiduciary return, stated the amount as $ 1,650. Whether there was or was not an actual distribution to beneficiaries of the 1952 distributable income, referred to in the above writing of January 14, 1953, or whether there was any actual distribution prior to the payments made by the checks dated January --, 1954, does not definitely appear of record.↩

• 1. Less loss carried over, no income reported.↩

• 2. Less loss carried over, $ 28,200.17 net income.↩

• 1. This amount is stipulated as having been paid as gratuity although the amount authorized was $ 416.67 per month and on the company's return for 1945 a deduction was taken for "payments to widow of deceased officer" in the amount of $ 3,333.36, which represents the aggregate of payments for 8 months at the authorized rate.↩

• 2. SEC. 162. NET INCOME.

  The net income of the estate or trust shall be computed in the same manner and on the same basis as in the case of an individual, except that --

  * * * *

  (b) 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 legatees, heirs, or beneficiaries, but the amount so allowed as a deduction shall be included in computing the net income of the legatees, heirs, or beneficiaries whether distributed to them or not. As used in this subsection, "income which is to be distributed currently" includes income for the taxable year of the estate or trust which, within the taxable year, becomes payable to the legatee, heir, or beneficiary. * * *↩

• 3. SEC. 652. INCLUSION OF AMOUNTS IN GROSS INCOME OF BENEFICIARIES OF TRUSTS DISTRIBUTING CURRENT INCOME ONLY.

  (a) Inclusion. -- Subject to subsection (b), the amount of income for the taxable year required to be distributed currently by a trust described in section 651 shall be included in the gross income of the beneficiaries to whom the income is required to be distributed, whether distributed or not. If such amount exceeds the distributable net income, there shall be included in the gross income of each beneficiary an amount which bears the same ratio to distributable net income as the amount of income required to be distributed to such beneficiary bears to the amount of income required to be distributed to all beneficiaries.↩