Federal income tax for the year 1940, under the provisions of section 131 (a) (3) of the Internal Revenue Code.1 The sum of $20,000 was agreed not to be income, as defined by the Internal Revenue statutes of the United States, since it was the equivalent of a legacy under the decision of Burnet v. Whitehouse, 283 U. S. 148. In Biddle v. Commissioner, 302 U. S. 573, it was held that the tax imposed by the foreign country must be a tax on income as that term is used and understood in our own taxing statutes. There the Supreme Court said: Section 131 does not say that the meaning of its words is to be determined by foreign taxing statutes and decisions, and there is nothing in its language to suggest that, in allowing the credit for foreign tax payments, a shifting standard was adopted by reference to foreign characterizations and classifications of tax legislation. The phrase "income taxes paid," as used in our own revenue laws, has for most practical purposes a well-understood meaning to be derived from an examination of the statutes which provide for the laying and collection of income taxes. It is that meaning which must be attributed to it as used in section 131. In Keasbey & Mattison Co. v. Rothensies, 133 Fed. (2d) 894; certiorari denied, 320 U. S. 739, the Circuit Court of Appeals for the Third Circuit had before it the question of whether or not a tax paid to the Province of Quebec was an income tax within the meaning of section 131 (a) (1), in which the same phraseology is used as in subsection (a) (3). There the court stated that it was conceded that in the application of the statute the criteria prescribed by our revenue laws are determinative of the meaning of the term "income taxes" as used therein. The court then said: It necessarily follows that a tax paid a foreign country is not an income tax within the meaning of Section 131 (a) (1) of the Act unless it conforms in its substantive elements to the criteria established under our revenue laws. These commonly accepted criteria, although not defined in the statute, may be easily ascertained. It is clear from a reading of the Act, as well as the revenue acts which preceded it, and the cases interpretive of its provisions, that an income tax is a direct tax upon income as therein defined. [Cases cited.] The defined concept of income has been uniformly restricted to a gain realized or a profit derived from capital, labor, or both. Section 22 (a) of the Internal Revenue Act of 1936. [Cases cited.] It seems logical to conclude that any tax, if it is to qualify as a tax on income within the meaning of Section 131 (a) (1), is 1SEC. 131. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF UNITED STATES. (a) ALLOWANCE OF CREDIT.-If the taxpayer signifies in his return his desire to have the benefits of this section, the tax imposed by this chapter shall be credited with: (1) CITIZEN AND DOMESTIC CORPORATION.-In the case of a citizen of the United States and of a domestic corporation, the amount of any income, war-profits, and excess-profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States; and (3) ALIEN RESIDENT OF UNITED STATES.-In the case of an alien resident of the United States, the amount of any such taxes paid or accrued during the taxable year to any foreign country, if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country subject to the same basic restrictions. The Supreme Court, without advancing any precise definition of the term "income tax", has unmistakably determined that taxes imposed on subjects other than income, e. g., franchises, privileges, etc., are not income taxes, although measured on the basis of income. [Cases cited] These criteria are determinative of the nature of the tax in question. Thereupon the court denied the credit sought. See St. Paul Fire & Marine Insurance Co. v. Reynolds, 44 Fed. Supp. 863. In the case at bar the tax paid by the petitioner on the $20,000, although called an "income tax" in the Dominion of Canada, was not such a tax in the United States. The petitioner has not brought herself within the statutory provision on which she relies and the strict construction thereof. Consequently, no credit here may be allowed to her under the provisions of section 131 (a) (3). New Colonial Ice Co. v. Helvering, 292 U. S. 435; United States v. Stewart, 311 U. S. 60; United States Trust Co. of New York v. Helvering, 307 U. S. 57. It is almost superfluous for us to add that section 131 was enacted to prevent the double taxation of the same income in a foreign country and in the United States. Hubbard v. United States, 17 Fed. Supp. 93; certiorari denied, 300 U. S. 666. In the very nature of the facts before us, there is no double taxation. The contrary appears. There was only a single taxation on the item in controversy, and that was imposed by the Dominion of Canada. If the petitioner should prevail and credit be allowed, she would escape the full taxation to which she is subject in this country upon that portion of her income which is taxable in both countries. Certainly that result is not contemplated by the statute. Furthermore, we think that the statutory phrase, "if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country," (sec. 131 (a) (3)) is deserving of comment. The stipulated facts do not recite that the Dominion of Canada allows a similar credit to citizens of the United States residing within her borders. However disastrous that omission may be to the petitioner's cause, it is logical to conclude that no such credit is allowed by the Dominion of Canada because it could not be asked to allow, nor could it allow, a credit for taxes on a legacy, a type of accretion nontaxable in the United States. The allowance of credit under section 131 (a) (3) is conditioned upon such reciprocal allowance by the foreign country. Until that condition is fulfilled the section can not become. operative.2 2 Sec. 8. [Income War Tax Act of the Dominion of Canada.] A taxpayer shall be entitled to deduct from the tax that would otherwise be payable by him under this Act * (b) Income tax paid in any foreign country.-the amount paid to any foreign country for income tax in respect to the income of the taxpayer derived from sources therein, if such foreign country in imposing such tax allows a similar credit to persons in receipt of income derived from sources within Canada. [See also T. D. 5206, art. XV.] The petitioner relies solely on I. B. Dexter, 47 B. T. A. 285. That case, however, is readily distinguishable from the case at bar in two major respects: (1) The income there in controversy was derived from the same source, i. e., the sale of capital assets, taxable in both jurisdictions but on different bases; whereas here the receipt of the $20,000 legacy was not taxable at all in the United States; and (2), the problem was posed upon the applicability of section 131 (b) and its solution was reached by limiting the credit strictly in accordance with the directions of subsection (b). We may observe also that the credit allowances afforded to a citizen of the United States and an alien resident of the United States are not identical, in view of the condition imposed in subsection (a) (3). The petitioners in the Dexter case were citizens of the United States. Here the petitioner is a resident alien and must conform strictly to the requirements of the statute whose benefit she seeks to secure. Keasbey & Mattison Co. v. Rothensies, supra. The respondent's determination is sustained. Decision will be entered for the respondent. MINNIE BEHL, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. FLORENCE BEHL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket Nos. 7042, 7043. Promulgated December 31, 1946. Held, under applicable sections of the Trust Estates Act of Louisiana, identical with provisions of The Uniform Principal and Income Act, trustees of a testamentary trust properly charged to income interest paid by them on an estate tax deficiency, and currently distributable income taxable to trust beneficiaries is reduced accordingly. LeDoux R. Provosty, Esq., for the petitioners. D. Louis Bergeron, Esq., for the respondent. These consolidated proceedings involve income tax deficiencies for the calendar year 1941 determined by respondent against petitioner Minnie Behl, Docket No. 7042, in the amount of $725.09, and against petitioner Florence Behl, Docket No. 7043, in the amount of $665.17. The common question is whether petitioners' taxable income is reduced in any amount by reason of the payment of interest on Federal estate tax deficiencies on an estate of which they are legatees. The case was submitted on oral testimony and an amended stipulation of facts, with joint exhibits attached. The facts stipulated are so found. FINDINGS OF FACT. Minnie Behl and Florence Behl, hereinafter referred to as petitioners, are individuals residing in Grand Rapids, Michigan. Both are residuary legatees of the estates of E. W. and A. F. Zimmerman. On March 9, 1942, petitioners filed their individual income tax returns for the calendar year 1941 with the collector of internal revenue for the district of Michigan. Included in each return was the following income: Estate of E. W. Zimmerman_ Total fiduciary income_ $23, 379. 56 1, 735. 74 25, 115. 30 A. F. Zimmerman, hereinafter some times referred to as decedent, died on March 12, 1938, a resident of Alexandria, Rapides Parish, Louisiana. He was a residuary legatee of the estate of E. W. Zimmerman, who predeceased him. By his last will and testament, dated June 9, 1936, A. F. Zimmerman bequeathed one-twentieth of the residue of his estate to each of the petitioners and provided that these portions, along with the remainder of the residue, were to be held in an irrevocable trust for 10 years and administered as a trust estate under the laws of Louisiana as then in force or later enacted. He further provided as follows: I desire the income during the life of said trust to be paid annually to the parties last named [residuary legatees], their heirs or assigns, in proportion to their interests in the trust. Decedent also declared in his will that it was his intention that, in the event any of the Louisiana laws relative to trusts had been or should be repealed, future legislation on the subject should be applicable to the trust provided for, and particularly if such subsequent legislation should extend the 10-year period of once permissible trust existence. The Guaranty Bank & Trust Co., Alexandria, Louisiana, hereinafter referred to as the bank, and J. W. Beasley were named coexecutors and cotrustees by the decedent. The estate of A. F. Zimmerman was solvent at all times from the date of his death. The Trust Law of Louisiana, Act #107 of 1920, was repealed by Act #7 of the Third Extraordinary Session of 1935, approved July 8, 1935. The Trust Estates Act of Louisiana, Act #81 of 1938, became effective July 22, 1938. On April 19, 1938, each of the petitioners and each of the other residuary legatees of the estate of A. F. Zimmerman executed separate documents providing that she or he consented to and ratified all the terms of the A. F. Zimmerman will and agreed that all properties belonging to decedent in the State of Louisiana should remain in trust. for a period of 10 years from the date of his death under the same terms and conditions set forth in the will until such time as the trust laws of Louisiana should be reenacted. In these identical documents each of the residuary legatees also appointed the trustees named in the decedent's will as his agents to manage his interest in the estate in accordance with the powers conferred by the will. On May 23, 1939, the Ninth Judicial District Court, Parish of Rapides, State of Louisiana, issued an order approving the final account of the coexecutors of the estate of A. F. Zimmerman, reciting that the cotrustees named in the will had elected to accept the trust imposed upon them, and providing that they should have possession thenceforth of decedent's estate according to the provisions of his will and according to law. A Federal estate tax return was due to be filed by the estate of A. F. Zimmerman not later than June 12, 1939. This return was filed on January 20, 1941, by the coexecutors and disclosed a Federal estate tax liability of $63,292.50, a 25 per cent delinquency penalty of $15,823.14, and interest of $6,097.17. The total amount was paid with the filing of the return. On July 14, 1941, there was paid an additional Federal estate tax of $11,599.31, a 25 per cent delinquency penalty of $2,899.82, and interest of $1,445.31. Total interest so paid in 1941 was $7,542.48. On October 23, 1941, petitioners and other persons, including the residuary legatees of A. F. Zimmerman, executed a document entitled "Trust Agreement for Zimmerman Trust No. 1." The signers of the document are designated therein as settlors and J. W. Beasley and Guaranty Bank & Trust Co., Alexandria, Louisiana, are designated trustees. The stated purpose of the trust is "the administration of the Estates of Edward William Zimmerman and Albert Franz Zimmerman," and it is specified that the trust shall begin with the execution of the agreement and shall terminate on November 22, 1950. Provision is made in the trust agreement that it shall be governed by the law of Louisiana, and the situs of the trust and its assets is declared to be Rapides Parish, Louisiana. The trust interest of each of the petitioners is specified to be an undivided % interest. All records pertaining to the estates of E. W. and A. F. Zimmerman, as well as to the beneficiaries, were maintained in the trust department of the bank. The cotrustees charged to corpus the total Federal estate taxes and penalties paid. On March 6, 1942, the bank and Beasley, as cotrustees, filed nontaxable fiduciary income tax returns for the estates of E. W. and A. F. Zimmerman for the calendar year 1941. With respect to the estate of A: F. Zimmerman, gross income and deductions were stated to be $42,257.29 and $7,542.48, respectively, leaving $34,714.81 as net income. The returns disclosed that net income distributable to each of petitioners as beneficiary was $1,735.74 from the estate of A. F. Zimmerman |