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B. Whether the Fact That HEH Trustees Had Discretion To
Allocate HEH Income Satisfies the Sec. 48(f) Requirement
That HEH’s Income Be Allocable to the HEH Beneficiaries
Petitioners contend that the fact that the HEH trustees had
discretion to allocate HEH income satisfies the section 48(f)
requirement that HEH’s income be allocable to the HEH
beneficiaries. Petitioners contend that income is “allocable”
for purposes of section 48(f) if a trustee can allocate income to
a beneficiary, and that thus HEH income was allocable to
petitioner in 1996 because the HEH trustees could have allocated
income and tax credits to him in 1996.
We do not agree with petitioners’ contention that the fact
that the HEH trustees had discretion to allocate HEH income to
petitioner satisfies the requirement under section 48(f) that
HEH’s income be allocable to him.5 Tax credits are apportioned
between a trust and its beneficiaries “in accordance with their
sharing of income for tax purposes.” S. Rept. 1881, 87th Cong.,
2d Sess. (1962), 1962-3 C.B. 707, 726; H. Rept. 1447, 87th Cong.,
2d Sess. (1962), 1962-3 C.B. 405, 419. Thus, it is not enough
that the HEH trustees had discretion to allocate income to
petitioner; the trustees must also have allocated HEH income to
him.
5 In Richter v. Commissioner, supra, we noted that HEH’s
minutes state that the HEH trustees had discretion to allocate
tax benefits to beneficiaries. However, we did not consider
whether the fact that the HEH trustees had discretion to allocate
HEH income to the taxpayer satisfied the requirement under sec.
48(f) that HEH’s income be allocable to him.
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