CHAPTER 8

FIDUCIARIES

The law provides that "Guardians, trustees, executors, administrators, receivers, conservators, and all persons, corporations, or associations, acting in any fiduciary capacity, shall make and render a return of the income of the person, trust, or estate for whom or which they act, and be subject to all the provisions of this title which apply to individuals." For the purpose of discussion in this book fiduciaries are divided into two classes, this chapter dealing with the subject in general and with the particular provisions applicable to domestic fiduciaries, that is, those which reside in this country or have an office or place of business here and consequently are within the jurisdiction of this Government. Foreign fiduciaries, which subject is treated in the following chapter, are defined for the purpose of this book as fiduciaries who neither reside in this country nor have an office or place of business here, that is, those who are not within the jurisdiction of this Government. A non-resident citizen acting as a fiduciary would, it seems, be entitled to be classed with the domestic fiduciaries since the United States has some measure of jurisdiction over him as a citizen, and since the withholding provisions of the law do not apply to non-resident citizens.

1 Act of September 8, 1916, § 8 (c).

Who Are Fiduciaries. It will be noted by the provision of the law quoted in the preceding paragraph that an individual, a corporation or an association may be a fiduciary under the law. A fiduciary for income tax purposes is one who holds in trust an estate to which another has the beneficial title or in which another has a beneficial interest,2 or receives and controls the income of another as in the case of receivers.

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AGENTS. An agent, as such, is not a fiduciary for his principal even though he may have complete charge of the property of his principal. There may be a fiduciary relationship between an agent and a principal but the word "agent" does not denote a fiduciary within the meaning of the law.*

POWER OF ATTORNEY. A person cannot, by power of attorney, appoint another to act as a fiduciary. A person acting under a power of attorney in the management of property, having no title thereto, but with full authority to deal with the property as he sees fit, is merely an agent. A power of attorney does not constitute a fiduciary relationship, and, in all cases where no legal trust has been created in the estate controlled by the agent and attorney, the liability under the law to make returns and pay the tax rests with the principal.5

GUARDIANS. A legal guardian is a fiduciary but it does not seem that a natural guardian comes within the definition. It has been held by the Treasury Depart

2 T. D. 2090.

3 T. D. 2135. 4 T. D. 2090.

5 T. D. 2137.

ment that where a minor child is in receipt of income, the father, his natural guardian, cannot make a return covering the income of the child but should include the income of the minor as a part of his (the father's) income for the year. The income of a minor child can be reported separately only when a separate legal estate has been created.

TRUSTEES. Trustees are expressly specified in the law as fiduciaries. They are required to report the income of the trust and the distributive interests therein of the beneficiaries. If a part of the income of the trust for any year is not distributed or distributable the income tax, both normal and supertax, on that part, as an entity, must be reported by the trustee and the tax paid by him.

EXECUTORS AND ADMINISTRATORS. Executors and administrators are fiduciaries with respect to the estate of the deceased person under their control. They are subject to certain special duties with respect to reporting income of the deceased and reporting and paying the tax upon the entire income of the estate during the period of administration or settlement, as more fully indicated in the following paragraphs.

RECEIVERS. A receiver for an individual is a fiduciary but a receiver for a corporation is not. It is especially provided that receivers, trustees in bankruptcy,

6 Letter from Treasury Department dated October 30 1916, I. T. S. 1917, ¶ 248. To hold otherwise would, of course, give endless opportunity for evasion of the law.

7 Letters from Treasury Department dated February 27, 1915, and June 22, 1916; I. T. S. 1917, ¶¶ 597 and 598.

or assignees operating the property or business of a corporation shall make returns of the income in the same manner and form as is required of corporations, and the tax will be assessed and collected in the same manner as if assessed directly against the corporation of whose business or properties they have custody and control.8

TEMPORARY RECEIVER HELD TO BE FIDUCIARY. One appointed under interlocutory orders of the United States District Court to act as receiver of an individual in a proceeding wherein certain persons complaining as creditors were seeking to have the property of the individual distributed among them, was held to be a fiduciary, notwithstanding that title to the property in question (cash and securities) remained in the individual sued and that his position and right to deal with the same was only suspended. The receiver having received income from the property in his possession was required to file a return as a fiduciary. On the amount reported in the return as income, a tax would be paid as in the case of undistributed net income of estates.

COMMITTEE FOR AN INCOMPETENT. The committee for an incompetent person is regarded as a fiduciary.10

Who Are Beneficiaries. A beneficiary within the meaning of the law and the regulations, and in the sense used in this book, is the ward, cestui que trust,

8 Act of September 8, 1916, § 13 (c).

9 Letter from Treasury Department dated January 22, 1917. 10 Letter from Treasury Department dated February 21, 1916; I. T. S. 1917, ¶¶ 605 and 606.

legatee, distributee, creditor, or other person entitled to any part of the net income of a trust or estate in the charge of a fiduciary. The trust estate itself is called a beneficiary with respect to the undistributed · income of the estate.

Duties of Fiduciaries Generally. Fiduciaries are required by the law to "make and render a return of the income of the person, trust, or estate for whom or which they act, and be subject to all the provisions of this title which apply to individuals." 11 Where income has been received by an estate or from any kind of property held in trust, the tax is to be assessed against the fiduciary, unless (a) the income is returned for the purpose of the tax by the beneficiary or (b) the income is to be distributed annually or regularly between existing beneficiaries, in which case the rate of tax and method of computing the same is based upon the amount of the individual shares to be distributed. Fiduciaries are indemnified by the law against the claims or demands of every beneficiary for all payments of taxes which they shall be required to make under this provision of the law, and are given credit for the amount of such payments against the beneficiary or principal in any accounting which they may make as such fiduciaries.12

Duties of Executors and Administrators. In addition to the duties which executors and administrators have in common with other fiduciaries, they are also required under the law to report the income of the decedent for that part of the last year during which

11 Act of September 8, 1916, § 8 (c). 12 Act of September 8, 1916, § 2 (b).