words which lead to confusion of thought.

It states under

subdivision (d) that the income under paragraph 4 on which the tax is assessed and collected shall be "his distributive share, whether distributed or not, of the net income of the estate or trust for the taxable year." The beneficiary clearly has no distributive share in the net income of the estate or trust; but he has a distributive share of income to be paid him under and in accordance with the terms of the trust, and resort must be had to them to ascertain his proportion of the income or his distributive share. The beneficiary is not interested in the capital of the trust, but only in the income. If there are accretions to the capital, these are not distributable as income, so that the beneficiary may receive any part of them; and if there are capital losses they cannot be made good out of the income. The capital may be depleted by such losses; but the income for that taxable year is not. It may in future years be diminished because of the diminution of the capital.

In the case of Hannah P. Weld, the income paid to her by the fiduciaries under the trust for the year 1919 was $133,557.35. During that year the trustees sold securities belonging to the trust estate at a loss of $147,597.26; and if the contention of the plaintiff is sound, she was not liable for the payment of any income tax for that year, because the trust estate had no net income. Such a construction of the section is not reasonable nor warranted by the act of which it forms a part.

Under section 210 Congress enacted that a normal income tax "should be levied, collected and paid for each taxable year upon the net income of every individual" at the rates therein provided, and by section 211 that, in addition to the normal tax, a surtax should be levied, collected, and paid upon the net income of every individual.

It cannot be supposed that Congress intended that the taxes under sections 210 and 211 should be paid by an individual who was engaged in some business or gainful occupation which yielded an income upon which such tax could be levied and collected, and also provided that the beneficiary of a trust, although paid a large amount in accordance with the terms of such trust, should escape all taxation upon the amount so paid, because the trust, as such, through losses of capital, did not show a net income. The fiduciary and the beneficiary are

separate taxable persons. Merchants' Loan & Trust Co. v. Smietanka, 255 U. S. 509, 41 S. Ct. 386, 65 L. ed. 751, 15 A. L. R. 1305. The fiduciary is to pay the tax upon the net income of the estate or trust, and, in determining this net income, gains and losses of capital are to be considered.

Wise and prudent management of the trust estate may dictate the sale of worthless securities, or those which yield a small return, and the purchase of others which yield a larger return. Such an exchange, while it may show a bookkeeping loss in the securities sold, may increase future returns upon the whole trust estate, and instead of entailing any loss upon the beneficiary may increase the income to be distributed to him thereafter.

If the trust estate of which Hannah P. Weld is the beneficiary had made a gain in the sale of securities of the same amount as the aggregate of losses in the sale of securities for that year, Mrs. Weld would have received no part of these gains, although, in determining the net income of the estate, the fiduciary must include them. She could not claim the losses made in capital as deductions from her net income, because the only losses to be deducted by the individual taxpayer under section 214, subdivisions 4 and 5, are, under the former, those incurred by the taxpayer in trade or business, and, under 5, those incurred in any transaction entered into for profit, though not connected with trade or business. Hannah P. Weld was carrying on no business or trade during the taxable year in question, and incurred no losses under this subdivision; nor did she enter into any transaction for profit in which any losses were sustained. The losses which were sustained were those of the trust estate, and could be deducted by the fiduciaries in making their returns.

Whatever the net income of the estate might have been in any year, it is necessary to resort to the instrument containing the terms of the trust to determine her distributive share. Therefore the distributive share which Congress must have had in mind and intended to be taxed was the distributive share of the income allotted to her under and in accordance with the terms of the trust.

It is faintly contended in argument that what was paid to the beneficiary in these cases above a distributive share of the net income was paid from capital; but this cannot be so,

because the beneficiary was not entitled to share in any of the accretions to capital, and even in the case of Mrs. Baltzell, who had a "vested equitable remainder" in the estate held in trust, according to the decision of the Supreme Court of Massachusetts in Forbes v. Snow, 245 Mass. 85, 140 N. E. 418, no part of the capital could be paid to her until after the termination of the life estate.

The interpretation placed upon section 219 was a sensible and reasonable one, and within its scope when considered as a part of the whole act. The change made by Congress by the act of 1921 simply served to clarify its provisions and make "the interpretation thereof more definite and certain," as stated in the report of the Senate committee on finance. In each case the entry must be:

The judgment of the District Court is affirmed, with costs to the defendant in error in this court."

46

46 Certiorari denied April 20, 1925, 45 Sup. Ct. 510.

For a discussion of some of the problems involved in the provisions in the Rev. Act of 1924 for the taxation of the income of trusts, see Roswell Magill, Notes on the Revenue Act of 1924, (1924) 24 Columbia L. Rev. 836, 858; National Income Tax Magazine, March, 1925, p. 102.

CHAPTER VI

ADMINISTRATIVE PROVISIONS

SECTION 1.-COLLECTION OF THE TAX

Revenue Act of 1924.

Returns To Be Public Records.

SEC. 257. (a) Returns upon which the tax has been determined by the Commissioner shall constitute public records; but they shall be open to inspection only upon order of the President and under rules and regulations prescribed by the Secretary and approved by the President: Provided, That the Committee on Ways and Means of the House of Representatives, the Committee on Finance of the Senate, or a special committee of the Senate or House, shall have the right to call on the Secretary of the Treasury for, and it shall be his duty to furnish, any data of any character contained in or shown by the returns or any of them, that may be required by the committee; and any such committee shall have the right, acting directly as a committee, or by and through. such examiners or agents as it may designate or appoint, to inspect all or any of the returns at such times and in such manner as it may determine; and any relevant or useful information thus obtained may be submitted by the committee obtaining it to the Senate or the House, or to both the Senate and House, as the case may be: Provided further, That the proper officers of any State may, upon the request of the governor thereof, have access to the returns of any corporation, or to an abstract thereof showing the name and income of the corporation, at such times and in such manner as the Secretary may prescribe: Provided further, That all bona fide shareholders of record owning 1 per cent or more of the outstanding stock of any corporation shall, upon making request of the Commissioner, be allowed to examine the annual income returns of such corporation and of its subsidiaries. Any shareholder who pursuant to the provisions of this section is allowed to examine the return of any corporation, and who makes known in any manner whatever not provided by law the amount or source of income, profits, losses, expenditures, or any particular thereof, set forth or disclosed in any