- 5 - Commissioner v. Stearns, 65 F.2d 371, 373 (2d Cir. 1933). In essence, the Code is designed to impose tax on the owner of trust income, and a present right to receive income is equivalent to current ownership of such income. See Freuler v. Helvering, 291 U.S. 35, 42 (1934). Respondent contends that petitioner had a present right to receive income. Petitioner contends he had no such right. Respondent relies on a line of cases which hold that income is taxable to the current income beneficiary even though the trustee withheld distributions to such beneficiary during the course of State legal proceedings. See United States v. Higginson, 238 F.2d 439 (1st Cir. 1956); Estate of Bruchmann v. Commissioner, 53 T.C. 403 (1969); DeBrabant v. Commissioner, 34 B.T.A. 951 (1936), affd. 90 F.2d 433 (2d Cir. 1937). In each of these cases, however, the trustee exercised discretion and was not required to accumulate trust income. Because of the State Court order, petitioner did not have a present right to receive income distributions in 1994. See Blair v. Commissioner, 300 U.S. 5 (1937)(holding that State law determines the right of the beneficiary to trust income). The State Court order represented petitioner’s rights under Virginia law. See Young v. Commissioner, 110 T.C. 297, 300 (1998)(stating that Federal authorities must give “proper regard” to relevant State court rulings, quoting Commissioner v. Estate of Bosch, 387Page: Previous 1 2 3 4 5 6 Next
Last modified: May 25, 2011