Withey, Judge:
The respondent has determined deficiencies in the income tax of the petitioners for 1951 as follows:
Docket No. Petitioner Deficiency
61221_ H. Lloyd Hess and Erla M. G. Hess_ $7, 138. 00
63524_ Estate of Bernice Garber, Deceased, J. Ferry Garber, Executor, and Estate of J. Ferry Garber, Deceased, John F. Garber, Executor_ 7, 176. 92
63525_ Frank P. Heckel and Mary G. Heckel_ 6, 266. 04
Issues presented for decision are (1) whether certain lump-sum cash distributions made as death benefits by two pension trusts to Erla M. G. Hess, J. Ferry Garber, and Mary G. Heckel, following the death of their father, Eli L. Garber, were taxable to the petitioners under section 165 (b) of the Internal Eevenue Code of 1939 as gain from the sale or exchange of a capital asset held for more than 6 months, and if so, (2) whether under section 22 (b) (1) (B) of the Code the petitioners are entitled to exclude from gross income certain portions of such distributions, and (3) whether under section 126 (c) of the Code the petitioners are entitled to a deduction of a portion of the estate tax on the estate of their father.
FINDINGS OF FACT.
Some of the facts have been stipulated and are found accordingly.
H. Lloyd Hess and Erla M. G. Hess are husband and wife and reside at Lititz, Pennsylvania. They filed a joint income tax return for 1951 with the collector of internal revenue at Philadelphia, Pennsylvania.
J. Ferry Garber and Bernice Garber were husband and wife during 1951 until Bernice’s death on September 28, 1951. Following her death J. Ferry Garber was appointed executor of her estate. They resided in Lancaster, Pennsylvania. J. Ferry Garber for himself and as executor of the estate of Bernice filed a joint income tax return for himself and her for 1951 with the collector at Philadelphia, Pennsylvania. J. Ferry Garber died on October 28,1957, and John F. Garber, who resides in Lancaster, Pennsylvania, is the duly qualified and acting executor of his estate.
Frank P. Heckel and Mary G. Heckel are husband and wife and reside at Lancaster, Pennsylvania. They filed a joint income tax return for 1951 with the collector at Philadelphia, Pennsylvania.
Eli L. Garber, the father of J. Ferry Garber, Erla M. G. Hess, and Mary G. Heckel, and sometimes hereinafter referred to as decedent, was born February 11, 1864, and died a resident of Lititz, Pennsylvania, on June 16,1951. From 1925 until his death the decedent was actively employed as president of Penn Dairies, Inc., a Pennsylvania corporation, sometimes hereinafter referred to as Penn. From 1930 until his death he also was actively employed as president of Garber Ice Cream Company, a Pennsylvania corporation, sometimes hereinafter referred to as Garber.
On September 26,1941, Penn established a pension plan by executing an employees pension trust agreement, which, with respondent’s approval, was amended from time to time and prior to the decedent’s death was last amended on November 22,1950, as of August 21,1950. In connection with the trust agreement an employees pension board was established and a “Formula of Benefits” was adopted. The trust agreement was in effect at all times pertinent to the instant cases and the trust created thereunder qualified as an exempt trust under section 165 (a) of the 1939 Code and was approved by the respondent.
On September 29,1943, Garber established a pension plan by executing an employees pension trust agreement, which, with respondent’s approval, was amended from time to time and prior to decedent’s death was last amended on November 30, 1946. In connection with the trust agreement an employees pension board was established and a formula of benefits was adopted. The trust agreement was in effect at all times pertinent to the instant cases and the trust created thereunder qualified as an exempt trust under section 165. (a) of the 1939 Code and was approved by respondent.
Each of the pension trusts kept its books on the basis of a fiscal year ended September 30.
Under the adopted formulae of benefits of Penn’s and Garber’s pension plans, reserves are accumulated for employees after they attain eligibility for participation. These reserves are set aside and earmarked for such employees’ credit from the annual donations of the corporations and are improved at the rate of 3 per cent. Under each of the pension plans the amount of the annual pension is determined by the number of years of service of the employee and by a percentage of average basic compensation, provided the maximum does not exceed a stated amount per annum. Upon retirement an employee is entitled to receive a pension payable for the life expectancy of such employee according to the Standard Annuitants Mortality Table of 1937; or an employee with the approval of the pension board may elect a 10-year certain and continuous life annuity, or may elect a life pension to continue throughout the lifetime of the employee for such an amount annually as may be procurable from a legal reserve life insurance company at the time of the employee’s retirement, based upon the accumulated reserves to the credit of the employee, or as may be determined by actuarial computations.
The formulae of benefits of the two pension plans provide that employees upon application to and with the approval of the pension boards shall be authorized to receive loans from the pension funds upon the furnishing of collateral, conditional that such loans shall be repaid and bear interest as determined by the pension boards, to meet any emergencies, to pay hospital, sickness, and accident expenses or for any other worthy purpose deemed sufficient by the pension boards.
Under each of the pension plans an employee, with the approval of or upon the request of his employer, may continue his employment beyond retirement age and any funds to the credit of such employee are improved by compound interest and retained in the trust fund, thereby providing for a larger pension to begin at a later date or such pension may commence on a full pension basis or a partial pension basis during the continuation of such employment, according to the election of the employee.
During the years 1941 through 1951 in the case of Penn and the years 1943 through 1951 in the case of Garber, their employees made no contributions to the respective pension trust funds.
The decedent, Eli L. Garber, was covered by the pension plans of Penn and Garber and was a participant in each plan.
The decedent became eligible to participate in the pension plans of Penn and Garber upon the establishment of the plans. He was 77 years of age upon the establishment of Penn’s pension plan in 1941 and reached pension age of 82 in 1946. He was 79 years of age upon the establishment of Garber’s pension plan in 1943 and reached pension age of 84 in 1948. He continued his employment with Penn and Garber after reaching his respective pension ages, and the funds to his credit under each pension plan were retained in each pension trust and improved by compound interest.
The decedent never obtained any loans from either of the pension trusts nor did he ever receive any retirement benefits under either of the pension plans.
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Withey, Judge:
The respondent has determined deficiencies in the income tax of the petitioners for 1951 as follows:
Docket No. Petitioner Deficiency
61221_ H. Lloyd Hess and Erla M. G. Hess_ $7, 138. 00
63524_ Estate of Bernice Garber, Deceased, J. Ferry Garber, Executor, and Estate of J. Ferry Garber, Deceased, John F. Garber, Executor_ 7, 176. 92
63525_ Frank P. Heckel and Mary G. Heckel_ 6, 266. 04
Issues presented for decision are (1) whether certain lump-sum cash distributions made as death benefits by two pension trusts to Erla M. G. Hess, J. Ferry Garber, and Mary G. Heckel, following the death of their father, Eli L. Garber, were taxable to the petitioners under section 165 (b) of the Internal Eevenue Code of 1939 as gain from the sale or exchange of a capital asset held for more than 6 months, and if so, (2) whether under section 22 (b) (1) (B) of the Code the petitioners are entitled to exclude from gross income certain portions of such distributions, and (3) whether under section 126 (c) of the Code the petitioners are entitled to a deduction of a portion of the estate tax on the estate of their father.
FINDINGS OF FACT.
Some of the facts have been stipulated and are found accordingly.
H. Lloyd Hess and Erla M. G. Hess are husband and wife and reside at Lititz, Pennsylvania. They filed a joint income tax return for 1951 with the collector of internal revenue at Philadelphia, Pennsylvania.
J. Ferry Garber and Bernice Garber were husband and wife during 1951 until Bernice’s death on September 28, 1951. Following her death J. Ferry Garber was appointed executor of her estate. They resided in Lancaster, Pennsylvania. J. Ferry Garber for himself and as executor of the estate of Bernice filed a joint income tax return for himself and her for 1951 with the collector at Philadelphia, Pennsylvania. J. Ferry Garber died on October 28,1957, and John F. Garber, who resides in Lancaster, Pennsylvania, is the duly qualified and acting executor of his estate.
Frank P. Heckel and Mary G. Heckel are husband and wife and reside at Lancaster, Pennsylvania. They filed a joint income tax return for 1951 with the collector at Philadelphia, Pennsylvania.
Eli L. Garber, the father of J. Ferry Garber, Erla M. G. Hess, and Mary G. Heckel, and sometimes hereinafter referred to as decedent, was born February 11, 1864, and died a resident of Lititz, Pennsylvania, on June 16,1951. From 1925 until his death the decedent was actively employed as president of Penn Dairies, Inc., a Pennsylvania corporation, sometimes hereinafter referred to as Penn. From 1930 until his death he also was actively employed as president of Garber Ice Cream Company, a Pennsylvania corporation, sometimes hereinafter referred to as Garber.
On September 26,1941, Penn established a pension plan by executing an employees pension trust agreement, which, with respondent’s approval, was amended from time to time and prior to the decedent’s death was last amended on November 22,1950, as of August 21,1950. In connection with the trust agreement an employees pension board was established and a “Formula of Benefits” was adopted. The trust agreement was in effect at all times pertinent to the instant cases and the trust created thereunder qualified as an exempt trust under section 165 (a) of the 1939 Code and was approved by the respondent.
On September 29,1943, Garber established a pension plan by executing an employees pension trust agreement, which, with respondent’s approval, was amended from time to time and prior to decedent’s death was last amended on November 30, 1946. In connection with the trust agreement an employees pension board was established and a formula of benefits was adopted. The trust agreement was in effect at all times pertinent to the instant cases and the trust created thereunder qualified as an exempt trust under section 165. (a) of the 1939 Code and was approved by respondent.
Each of the pension trusts kept its books on the basis of a fiscal year ended September 30.
Under the adopted formulae of benefits of Penn’s and Garber’s pension plans, reserves are accumulated for employees after they attain eligibility for participation. These reserves are set aside and earmarked for such employees’ credit from the annual donations of the corporations and are improved at the rate of 3 per cent. Under each of the pension plans the amount of the annual pension is determined by the number of years of service of the employee and by a percentage of average basic compensation, provided the maximum does not exceed a stated amount per annum. Upon retirement an employee is entitled to receive a pension payable for the life expectancy of such employee according to the Standard Annuitants Mortality Table of 1937; or an employee with the approval of the pension board may elect a 10-year certain and continuous life annuity, or may elect a life pension to continue throughout the lifetime of the employee for such an amount annually as may be procurable from a legal reserve life insurance company at the time of the employee’s retirement, based upon the accumulated reserves to the credit of the employee, or as may be determined by actuarial computations.
The formulae of benefits of the two pension plans provide that employees upon application to and with the approval of the pension boards shall be authorized to receive loans from the pension funds upon the furnishing of collateral, conditional that such loans shall be repaid and bear interest as determined by the pension boards, to meet any emergencies, to pay hospital, sickness, and accident expenses or for any other worthy purpose deemed sufficient by the pension boards.
Under each of the pension plans an employee, with the approval of or upon the request of his employer, may continue his employment beyond retirement age and any funds to the credit of such employee are improved by compound interest and retained in the trust fund, thereby providing for a larger pension to begin at a later date or such pension may commence on a full pension basis or a partial pension basis during the continuation of such employment, according to the election of the employee.
During the years 1941 through 1951 in the case of Penn and the years 1943 through 1951 in the case of Garber, their employees made no contributions to the respective pension trust funds.
The decedent, Eli L. Garber, was covered by the pension plans of Penn and Garber and was a participant in each plan.
The decedent became eligible to participate in the pension plans of Penn and Garber upon the establishment of the plans. He was 77 years of age upon the establishment of Penn’s pension plan in 1941 and reached pension age of 82 in 1946. He was 79 years of age upon the establishment of Garber’s pension plan in 1943 and reached pension age of 84 in 1948. He continued his employment with Penn and Garber after reaching his respective pension ages, and the funds to his credit under each pension plan were retained in each pension trust and improved by compound interest.
The decedent never obtained any loans from either of the pension trusts nor did he ever receive any retirement benefits under either of the pension plans.
The trust agreements under which each of the pension trusts was created contain identical provisions as follows:
ARTICLE! IV
TRUST FUND ALLOCATIONS
Section 1. GENERAL TRUST FUND: The Trustee and the Pension Board shall consider the entire corpus and the accumulated interest, issues and profits, insurance annuity contract reserves, and any death or other benefits therefrom, as a General Trust Fund, but for bookkeeping purposes, the Trustee shall allocate the General Trust Fund to accounts as follows: (1) Principal or Controlling Account; (2) Employee Individual Accounts; (3) Surplus Reserve Account, as hereinafter defined; and (4) such other accounts as may be determined by the Pension Board from time to time.
Section 2. PRINCIPAL OR CONTROLLING ACCOUNT: The Principal or Controlling Account shall consist of all donations of Property, real, personal or mixed, of whatsoever kind or character, received from the Corporation or from any other source, and all interests, dividends, issues and profits, and said account shall be credited with (1) all general expenses paid for the operation of the Trust Fund, (2) with insurance or annuity premiums paid to insurance companies for contracts carried by the Trustee as an investment; and (3) with amounts paid as benefits to any employee or beneficiary hereunder for such other payments as may be directed from time to time by the Pension- Board, and (4) with amounts allocated to the surplus reserve accounts or for amounts to provide special benefits hereinafter adopted by the Pension Board with the approval of the Corporation and the Commissioner of Internal Revenue, and in accordance with such approved formula of benefits.
The following is a statement of the income from investments of Penn pension trust for the fiscal years ended September 30, 1941, through September 30,1952, together with the number of participating employees:
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The following is a statement for the fiscal years ended September 30, 1941, through September 30, 1952, with respect to the Penn pension trust fund showing the total amount of assets in the fund at the beginning of the year, corporate contributions to the fund during the year, payments or disbursements to beneficiaries during the year, and the total amount of assets in the fund at the close of the year:
The following is a statement of the income from investments of Garber pension trust for the fiscal years ended September 30, 1943, through September 30, 1952, together with the number of participating employees:
The following is a statement for the fiscal years ended September 30, 1943, through September 30, 1952, with respect to the Garber pension trust fund showing the total amount of assets in the fund at the beginning of the year, corporate contributions to the fund during the year, payments or disbursements to beneficiaries during the year, and the total amount of assets in the fund at the close of the year:
Each of the pension plans provides that upon the death of an employee the accumulated reserves earmarked for an employee and contributed by the employer, less loans, advances, benefits, pension payments, or cash payments previously made, will be paid as death benefits.
The pension plan of Penn, as amended on August 21,1950, provides that the death benefits are to be paid to the employee’s designated berie-ficiary, or beneficiaries, and in the absence of a designated beneficiary, or beneficiaries, then to any surviving spouse, children, parents, brothers, sisters, or to the deceased employee’s estate, in accordance with the direction of the pension board.
The pension plan of Garber provides that the death benefits are to be paid to such spouse, heir or heirs, dependent or dependents of the deceased employee as the employee shall designate, and upon the failure of the employee to designate a beneficiary, then to the estate of such deceased employee.
On August 4,1950, the decedent executed and filed with the pension boards of Penn and Garber documents designated “Beneficiary and Employee Information” in each of which he requested that disposition of any credits to him remaining at his death be made as follows:
Pay or distribute to: any or either of my children, my children’s spouses, my grandchildren, their spouses and issue, or to the survivor of them, in such proportions and with payments in such amounts and at such times as the Pension or Betirement Board shall determine is for the best interests of the said benefl-ciaries, and as such distribution and payments may be amended by said Board from time to time.
As of the date of the decedent’s death, the accumulated reserves under the adopted formulae as improved by interest and set aside, earmarked, and credited to the decedent totaled $60,823.14 under the pension plan of Penn and $24,714.12 under the pension plan of Garber.
Under the terms of the pension plans and pursuant to the decedent’s request respecting distribution of such credits, the respective pension boards directed the respective trustees to make payment of the foregoing amounts to three of decedent’s children as follows “upon said children of Eli L. Garber executing a Beneficiaries’ Application and Release — Form 32”:
Feom Penn Employees’ Pension Teust Fund
Erla Garber Hess_$20, 274. 38
Mary Garber Heckel- 20, 274. 38
J. Ferry Garber_ 20,274.38
Total_ 60, 823.14
Feom Gaebee Employees’ Pension Teust Fund
Erla Garber Hess_$8, 238.04
Mary Garber Heckel- 8,238. 04
J. Ferry Garber_ 8,238. 04
Total_24, 714.12
On December 18,1951, the trustees of the pension trusts of Penn and Garber made distributions and payments to the children of the decedent in accordance with the foregoing direction of the pension boards.
In their respective joint income tax returns for 1951 the recipients of the above-mentioned payments made mention of their receipt of the payments but stated that the amounts thereof were not included in income because they were not considered to be taxable income. In determining the deficiencies here involved the respondent determined that the payments constituted income to the recipients taxable as gain from the sale or exchange of a capital asset held for more than 6 months.
OPINION.
The first question for determination is whether the respondent erred in determining that the lump-sum cash distributions made in December 1951 to Erla M. G. Hess, Mary Garber Ileckel, and J. Ferry Garber from the Penn pension trust and the Garber pension trust, following the death of their father, Eli L. Garber, were income to them taxable as gain from the sale or exchange of a capital asset held for more than 6 months.
Taking the position that the contributions made by Penn and Gar-ber to the respective trusts during their respective lives and through their fiscal year 1952 became corpus of the trusts at the time contributed and that the income received by the respective trusts during such years from investments was annually added to the corpus of the trusts by their respective trustees, the petitioners contend that the distributions in question were distributions of corpus or capital of the trusts and were not distributions of income of the trusts. On the basis that the distributions were corpus or capital of the trusts the petitioners make various arguments as to why the distributions were not income and were not taxable as such to the distributees.
Each of the trust agreements under which the respective trusts were created provides that, except for the expenses of administration of the trust, no part of the fund of the trust shall be used for purposes other than for the exclusive benefit of the corporation’s employees or their dependents and that no part of such funds shall inure for the benefit of the corporation. Further, each of the trust agreements specifically recites the intent of the corporation that the pension trust “shall be set up within the Provisions of Section 165 (a) of the Internal Revenue Code, as amended by the 1942 Revenue Act now in effect, pertaining to Pension Trusts,” and provides for modification of any portion of the agreement found to be in conflict with “the said Revenue Act” and for such further modification as might be required by future laws of the United States relating to employees’ retirement or pension plans. In view of the foregoing and since the parties herein have stipulated that the Penn and Garber pension trusts qualified as exempt trusts under section 165 of the Code, we construe the stipulation to mean that the trusts qualified as exempt trusts under section 165 (a) of the Code. Pertinent portions of section 165 are set out below.1
In addition to the above-mentioned provisions that funds of the trust were not to be used for purposes other than for the exclusive benefit of the corporation’s employees and dependents, statements contained in the trust agreement under which the Garber pension trust was created show that the purpose of the corporation in creating the trust was to provide an incentive for its employees to continue in its service until their retirement and to provide a reward to them for the services rendered while so continuing their association with the corporation. Although the trust agreement under which the Penn pension trust was created does not contain statements so specific as to the purpose of creation as are contained in the Garber trust agreement, we find nothing in the Penn trust agreement or otherwise in the record to indicate that Penn’s purpose in creating the Penn pension trust was substantially different with respect to its employees from what Gar-ber’s purpose was with respect to its employees. Accordingly, for present purposes we will regard the trusts as having been established to provide incentives for the employees of the respective corporations to continue in the service of their respective employers until retirement and to compensate the employees for services rendered while so continuing their associations with the corporations.
In view of the foregoing and since each of the trusts qualified for exemption under section 165 (a) of the Code, the contributions made by Penn and Garber to their respective pension trusts constituted, under section 23 (p) of the Code,2 allowable deductions to the corporations as representing sums paid into the trusts as compensation of employees.3 Such being the character of the corporate contributions to the trusts we think it is apparent that the funds of the respective trusts consisted (1) of income representing compensation of employees and (2) of income from investments made by the trusts. If the funds of the respective trusts consisted of anything other than the foregoing two classes of income, it is not apparent from the record. The first class of income was not taxable to the employees currently as paid into the trusts.4 Under the provisions of section 165 (a) neither class of income was taxable to the trusts.
While it is true the term “corpus” appears in the trust agreements, we are unable to find from the agreements or any other portion of the record that that term is used in the sense that it is used in the case of the historical trust, such as where one transfers property in trust with directions that the income therefrom be distributed to one person for a stated period and that upon the expiration of such period the corpus be distributed to another. Each of the trust agreements specifically directs that except for bookkeeping purposes the trustee and the pension board shall consider “the entire corpus” and the accumulated income of the trust as a general trust fund. Further, each of the trust agreements directs that the principal or controlling account maintained for bookkeeping purposes shall consist of all donations of property received from the corporation, and all income of the trust, Thus, for bookkeeping purposes, each trust agreement directs the inclusion in the same account of sums received as donations from the corporation and the sums received as income from investments of the trust.
From a consideration of all of the evidence bearing on the question including the character and nature of the pension trusts, the purpose for which created, and the sources and character of the sums received by them, we are unable to conclude, as petitioners contend, that the distributions in question were of corpus or capital of the trusts. In view of what has been said heretofore we think it is clear that such distributions were not only not corpus or capital of the trusts but were distributions of previously untaxed income.
The petitioners state that if the decedent had terminated his services with Penn and Garber and had received pension benefits from the respective trusts, such benefits might be classed as additional compensation and taxed to him as income under section 165 (b). However, they take the position that section 165 (b) was not intended to apply to the recipients or distributees of the death benefits here involved. In support of their position the petitioners contend that such distributees made no investment in or contribution to the trusts or rendered any service which produced the sums distributed to them, or with respect to which the distributions were made to them, and that, accordingly, in receiving the distributions, the distributees were merely the recipients of gratuities accorded them by the terms of the trust agreements and as provided by statute. We fail to perceive anything in the foregoing which indicates that section 165 (b) was not intended to apply to the distributees involved herein. In our opinion section 165 (b) was intended to and does apply to distributees situated as were the distributees in the instant cases. As we read section 165 (b) the. terms “distributee” and “employee” as used therein were not used synonymously. We find nothing in the. section to warrant the construction proposed by the argument of the petitioners, namely, that the section applied only to such a “distributee” as was, or had been, an “employee” and had no application to a “distributee” who was not, or had not been, an “employee.” The term “distributee” is used in a sense sufficiently comprehensive to include all who receive distributions from pension trusts qualifying under section 165 (a) irrespective of whether the recipients were, or ever had been, employees of those, who established the trusts. Accordingly, we hold that the distributions here involved were taxable to the distributees thereof. Since the total distributions payable with respect to the decedent were paid to the distributees within 1 taxable year of the distributees on account of the decedent’s separation from the service of Penn and Garber, tbe amounts of the distributions, the decedent having made no contribution to either trust, are to be considered a gain from the sale or exchange of a capital asset held for more than 6 months. Since the distributions were so considered by the respondent in determining the deficiencies here involved, his action is sustained.
Having held for the respondent on the foregoing issue it becomes necessary to consider two other issues. The first of these is whether the petitioners are entitled under section 22 (b) (1) (B) of the Code5 to exclude from their gross incomes certain portions of the amounts distributed as death benefits by the Penn and the Garber pension trusts.
The petitioners take the position that under section 22 (b) (1) (B), $5,000 of the total death benefits distributed by each of the pension trusts is to be excluded from the gross income of the distributees and that since each of the trusts distributed to each of the three dis-tributees one-third of the total distribution of death benefits made by it, each distributee was entitled to exclude from gross income $1,666.66 with respect to the distribution received from the Penn pension trust and $1,666.66 with respect to the distribution received from the Gar-ber pension trust. In determining the deficiencies the respondent did not allow any exclusions and he takes the position here that the dis-tributees were not entitled to exclude from gross income any amount with respect to the distribution received from either of the trusts.
Section 22 (b) (1) (B), as set out in the margin, represents an amendment made to the Code by section 302 of the Revenue Act of 1951, approved October 20,1951, and made applicable to taxable years beginning after December 31, 1950. The section was construed in T. D. 6020, approved June 17,1953,1953-2 C. B. 106, which amended Regulations 111. Pertinent portions of the regulations as so amended are set out below.6
Pointing to the fact that the decedent had reached retirement age under the Penn pension plan in 1946 and under the Garber pension plan in 1948 and that thereafter and until his death in 1951 he could have elected to receive his pensions or to take 10-year certain and continuous annuities, the respondent contends that the decedent possessed, immediately prior to his death, a nonforfeitable right to receive while living the amounts of the death benefits in question, and that the following portion of Eegulations 111, section 29.22 (b) (l)-2 (as added by T. D. 6020), prevents the exclusion by the distributees of any portion of the amounts received by them from the respective pension trusts:
The exclusion does not apply to amounts with respect to which the deceased employee possessed, immediately prior to his death, a nonforfeitable right to receive the amounts while living.
Tbe petitioners contend that so to construe the provisions of section 22 (b) (1) (B) as is done in the foregoing portion of the regulations is to limit or restrict the application of the section in a manner not justified by the provisions of the section itself.
From our consideration of section 22 (b) (1) (B) we find expressed therein only one limitation, namely, that the aggregate of the amounts excludible by all the beneficiaries of the deceased employee under all contracts of any one employer may not exceed $5,000. Since Congress has expressly limited the application of the section in the foregoing respect, we think if it had intended that the applicability of the section should also be limited in other respects, it would have expressly provided so. We agree with the petitioners and hold that the portion of the regulations in question may not be applied to bar the exclusions sought by petitioners.
The remaining issue is whether under section 126 (c) of the Code the petitioners are entitled to deductions of proportional parts of the estate tax of the estate of Eli L. Garber resulting from the inclusion in the gross estate of that estate of the amounts of the distributions made as death benefits which are involved herein. Pertinent portions of section 126 are set out below.7
From the provisions of section 126 (c) it is apparent that the deduction for estate tax therein provided is allowable to “[a] person who includes an amount in gross income under subsection (a)” of section 126. Under the provisions of subsection (a) of section 126 the amount to be included in the gross income of persons mentioned in that subsection is—
The amount of all items of gross income in respect of a decedent which are not properly includible in respect of the taxable period in which falls the date of his death or a prior period * * *
(a) Inclusion in Guoss Income.—
(1) General rule. — The amount of all Items of gross Income In respect of a decedent •which are not properly Includible In respect of the taxable period In which falls the date of his death or a prior period shall be Included in the gross income, for the taxable year when received, of:
(A) the estate of the decedent, if the right to receive the amount is acquired by the decedent’s estate from the decedent;
(B) the person who, by reason of the death of the decedent, acquires the right to receive the amount, if the right to receive the amount is not acquired by the decedent’s estate from the decedent; or
(C) the person who acquires from the decedent the right to receive the amount by bequest, devise, or inheritance, if the amount is received after a distribution by the decedent’s estate of such right.
* * * * * * *
(c) Deduction for Estate Tax.—
(1) Allowance of deduction. — A person who includes an amount in gross income under subsection (a) shall be allowed, for the same taxable year, as a deduction an amount which bears the same ratio to the estate tax attributable to the net value for estate tax purposes of all the items described in subseeion (a) (l).as the value for estate tax purposes of the items of gross income or portions thereof in respect of which such person included the amount in gross income (or the amount included in gross income, whichever is lower) bears to the value for estate tax purposes of all the items described in subsection (a) (1).
But, as pointed out above under the first issue, the distributions made by the pension trusts as death benefits were of income which had been received by the pension trusts which, under section 165 (a), were exempt from taxation. Such being the situation the death benefits received by the distributees cannot be regarded as “items of gross income in respect of a decedent which are not properly includible in respect of the taxable period in which falls the date of his death or a prior period.” In view of the foregoing we conclude that each of the distributees was not “[a] person who includes an amount in gross income under subsection (a)” of section 126, and not being such a person was not entitled to a deduction for estate tax as provided in section 126 (c).
Reviewed by the Court.
Decisions will ~be entered wider Bule 50.
HaRRON, /., dissents. TURNER, /., did not participate in the consideration of or decision in this report.