[856]*856OPINION.
Miixiicen :
Petitioners in their brief filed in this proceeding contend: (1)- That Robert B. Stearns was entitled outright to his share of the trust; (2) that the estate of Isaac Stern was in course of administration in the year 1921; (3) that under the income-tax statute of the State of New York the petitioners were allowed to take deductions to the extent of the amount reserved by the executors and trustees; and (4) that the amounts reserved by the trustees were not distributable to petitioners under the terms of the will of-Isaac Stern, and therefore, were not taxable to them.
The first three contentions made may be disposed of briefly. With respect to the contention that Robert B. Stearns was entitled to his share outright, it may be pointed out that under the fourteenth clause of the will of his father he was entitled at the age of twenty-five years to have one-half of his share paid to him, provided his mother consented thereto, and that he was entitled to have the whole of his share paid over to him at the age of thirty years if a majority of the trustees other than himself in their discretion so decided. There is nothing in the record which indicates that either of these [857]*857events has happened. On the other hand, petitioner Robert B. Stearns in his petition states that he “ is one of the beneficiaries under a trust created by the will of the late Isaac Stern * * Until the corpus of the share of Robert B. Stearns is paid over to him in accordance with the provisions of the will of his father, it remains a part of the corpus of the trust and devolves on his death as provided in the will. Until so paid Robert B. Stearns has only an equitable life estate in the corpus.
There is nothing in the record from which it can be inferred that the estate of Isaac Stern was still in course of administration in the year 1921. The testator died in 1910 and every inference is that his estate has been settled and the corpus of the trust turned over to the trustees, who were the same persons as the executors, long prior to 1921. As above pointed out, Robert B. Stearns referred to himself as the beneficiary of a trust created in his favor and not as a beneficiary of an estate in process of administration. The petition of Virginia I. Stern contains the same allegation. We can decide this proceeding only upon the facts found in the record.
The construction placed on a state taxing statute is not authoritative in the construction of a Federal taxing statute, and therefore the action taken by the New York authorities with reference to the taxation of the income of this petitioner has no bearing on the question presented. Compare Florida v. Mellon, 273 U. S. 12, decided by the Supreme Court January 3, 1927, and J. Percival Smith, 6 B. T. A. 911.
This brings us to the last and controlling contention, which is, that so much of the income as was withheld by the trustees was not distributable to the petitioners and therefore not taxable to them. At the outset it is well to point out that the petitioners err when they state in their brief that it was stipulated at the hearing that “ the depreciation reserve set up by the executors was withheld from the beneficiaries and was not distributed nor distributable to them under the will.” No stipulation is found in the record to the eifect that this reserve was not distributable under the will of Isaac Stem. This is the question which is in issue in this case. The facts stipulated are correctly and fully stated in the findings of fact.
In this case petitioners refer to the seventeenth clause of the will of Isaac Stern and contend that under this provision the income of the trust was distributable at the discretion of the trustees. It is only necessary to point out that this clause relates solely to the payment of “ bequests ” and has no bearing on the payment of income arising fropi the trusts created by the will. This income the testator directs shall be paid annually in some cases, and semi-annually in others. As to the income payable to Robert B. Stearns, the mandatory direc[858]*858tion is that the trustees apply all the rent, income and profits to his use. The only reason advanced by petitioners why the amounts retained by the trustees and which are in issue in this proceeding should not be returned by them as income is the contention that the trustees had the right to retain this sum in order to rebuild such structures as might by lapse of time or use become valueless through depreciation.
Section 219 of the Revenue Act of 1921 in part provides:
(a) That the tax imposed by sections 210 and 211 shall apply to the income of estates or of any kind of property held in trust, including—
*******
(4) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct. * * * .
*******
(d) In cases under paragraph (4) of subdivision (a), and in the case of any income of an estate during the period of administration or settlement permitted by subdivision (c) to be deducted from the net income upon which tax is to be paid by the fiduciary, the tax shall not be paid by the fiduciary, but there shall be included in computing the net income of each beneficiary that part of the income of the estate or trust for its taxable year which, pursuant to the instrument or order governing the distribution, is distributable to such beneficiary, whether distributed or not, or if his taxable year is different from that of the estate or trust, then there shall be included in computing his net income his distributive share of the income of the estate or trust for its taxable year ending within the taxable year of the beneficiary. * * *
Section 219 of the Revenue Act of 1918 was construed in Baltzell v. Mitchell, 3 Fed. (2d) 428; 5 Am. Fed. Tax Rep. 5230. This decision is applicable to section 219 of the Revenue Act of 1921. See Arthur H. Fleming, 6 B. T. A. 900. In the Baltzell case it was said:
In considering Section 219 alone and apart from the other sections of the act, it is evident that in it Congress employed words which lead to confusion of thought. It states under subdivision (d) that the income under paragraph 4 on which the tax is to be 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 ihe 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.
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[856]*856OPINION.
Miixiicen :
Petitioners in their brief filed in this proceeding contend: (1)- That Robert B. Stearns was entitled outright to his share of the trust; (2) that the estate of Isaac Stern was in course of administration in the year 1921; (3) that under the income-tax statute of the State of New York the petitioners were allowed to take deductions to the extent of the amount reserved by the executors and trustees; and (4) that the amounts reserved by the trustees were not distributable to petitioners under the terms of the will of-Isaac Stern, and therefore, were not taxable to them.
The first three contentions made may be disposed of briefly. With respect to the contention that Robert B. Stearns was entitled to his share outright, it may be pointed out that under the fourteenth clause of the will of his father he was entitled at the age of twenty-five years to have one-half of his share paid to him, provided his mother consented thereto, and that he was entitled to have the whole of his share paid over to him at the age of thirty years if a majority of the trustees other than himself in their discretion so decided. There is nothing in the record which indicates that either of these [857]*857events has happened. On the other hand, petitioner Robert B. Stearns in his petition states that he “ is one of the beneficiaries under a trust created by the will of the late Isaac Stern * * Until the corpus of the share of Robert B. Stearns is paid over to him in accordance with the provisions of the will of his father, it remains a part of the corpus of the trust and devolves on his death as provided in the will. Until so paid Robert B. Stearns has only an equitable life estate in the corpus.
There is nothing in the record from which it can be inferred that the estate of Isaac Stern was still in course of administration in the year 1921. The testator died in 1910 and every inference is that his estate has been settled and the corpus of the trust turned over to the trustees, who were the same persons as the executors, long prior to 1921. As above pointed out, Robert B. Stearns referred to himself as the beneficiary of a trust created in his favor and not as a beneficiary of an estate in process of administration. The petition of Virginia I. Stern contains the same allegation. We can decide this proceeding only upon the facts found in the record.
The construction placed on a state taxing statute is not authoritative in the construction of a Federal taxing statute, and therefore the action taken by the New York authorities with reference to the taxation of the income of this petitioner has no bearing on the question presented. Compare Florida v. Mellon, 273 U. S. 12, decided by the Supreme Court January 3, 1927, and J. Percival Smith, 6 B. T. A. 911.
This brings us to the last and controlling contention, which is, that so much of the income as was withheld by the trustees was not distributable to the petitioners and therefore not taxable to them. At the outset it is well to point out that the petitioners err when they state in their brief that it was stipulated at the hearing that “ the depreciation reserve set up by the executors was withheld from the beneficiaries and was not distributed nor distributable to them under the will.” No stipulation is found in the record to the eifect that this reserve was not distributable under the will of Isaac Stem. This is the question which is in issue in this case. The facts stipulated are correctly and fully stated in the findings of fact.
In this case petitioners refer to the seventeenth clause of the will of Isaac Stern and contend that under this provision the income of the trust was distributable at the discretion of the trustees. It is only necessary to point out that this clause relates solely to the payment of “ bequests ” and has no bearing on the payment of income arising fropi the trusts created by the will. This income the testator directs shall be paid annually in some cases, and semi-annually in others. As to the income payable to Robert B. Stearns, the mandatory direc[858]*858tion is that the trustees apply all the rent, income and profits to his use. The only reason advanced by petitioners why the amounts retained by the trustees and which are in issue in this proceeding should not be returned by them as income is the contention that the trustees had the right to retain this sum in order to rebuild such structures as might by lapse of time or use become valueless through depreciation.
Section 219 of the Revenue Act of 1921 in part provides:
(a) That the tax imposed by sections 210 and 211 shall apply to the income of estates or of any kind of property held in trust, including—
*******
(4) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct. * * * .
*******
(d) In cases under paragraph (4) of subdivision (a), and in the case of any income of an estate during the period of administration or settlement permitted by subdivision (c) to be deducted from the net income upon which tax is to be paid by the fiduciary, the tax shall not be paid by the fiduciary, but there shall be included in computing the net income of each beneficiary that part of the income of the estate or trust for its taxable year which, pursuant to the instrument or order governing the distribution, is distributable to such beneficiary, whether distributed or not, or if his taxable year is different from that of the estate or trust, then there shall be included in computing his net income his distributive share of the income of the estate or trust for its taxable year ending within the taxable year of the beneficiary. * * *
Section 219 of the Revenue Act of 1918 was construed in Baltzell v. Mitchell, 3 Fed. (2d) 428; 5 Am. Fed. Tax Rep. 5230. This decision is applicable to section 219 of the Revenue Act of 1921. See Arthur H. Fleming, 6 B. T. A. 900. In the Baltzell case it was said:
In considering Section 219 alone and apart from the other sections of the act, it is evident that in it Congress employed words which lead to confusion of thought. It states under subdivision (d) that the income under paragraph 4 on which the tax is to be 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 ihe 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.
We must therefore look to the will of Isaac Stern to discover what was the distributable share of income of each petitioner. The thirteenth clause of the will directs the executors and trustees to “ receive and collect the rents, interest, income and profit thereof and pay over one equal third part of said rents, interest, income [859]*859and profits semi-annually to my beloved wife so long as she shall live * * The fourteenth clause directs the executors and trustees “ to receive the rents, income and profit thereof and apply the same to the use of my son so long as he shall live * * A careful reading of the will as a whole discloses no provision which directs the trustees to provide a sinking fund to rebuild structures which have become valueless by reason of depreciation. In the absence of such a direction the trustees were governed by the rule applicable to ordinary trustees. That rule is thus stated in Stevens v. Melcher, 152 N. Y. 551; 46 N. E. 965.
Ordinarily the duty devolves upon tenants in common in possession, life tenants, or trustees for equitable life tenants, of preserving the premises, defraying the expenses of ordinary repairs, and of paying the taxes and the accruing interest upon mortgages which may incumber the premises. In re Albertson, 113 N. Y. 434, 439, 21 N. E. 117.
If a house becomes so valueless that in the judgment of the trustees it should be torn down and rebuilt, the cost of rebuilding is an expenditure chargeable to capital. Stevens v. Melcher, supra. No case has been cited to us where in a situation like this a trustee has been permitted to set up a sinking fund to take care of depreciation and in our research Ve have found only two cases in which this question is involved. These cases are In re Chapman, 66 N. Y. S. 235, and Smith v. Keteltas, 70 N. Y. S. 1065. In the first case an executor had set up such a sinking fund and his action was disapproved. In the second case a trustee had used certain funds in the building of new houses on lots on which houses had been torn down because they had become worthless by reason of depreciation. A remainderman contended, among other things, that the trustees should have set up a sinking fund to meet this very event. This contention was denied. So it becomes apparent that the amounts set aside in this case by the trustees were parts of the shares of income which should have been distributed to petitioners. The fact that the trustees for family reasons desired to provide this sinking fund, has no effect on the taxa-bility of these amounts to petitioners. These amounts were distributable under the will of Isaac Stern and are taxable to them “ whether distributed or not.” The only material difference between the facts of this case and the facts in Arthur H. Fleming, supra, is that in this case the amounts representing depreciation were reserved by the trustees and in that case they were paid to the beneficiaries. As we have pointed out, the action of the trustees in this respect was in excess of the authority conferred upon them by the will of Isaac Stern, and, therefore, the case falls within the rule laid down in the Fleming case.
Reviewed by the Board.
Judgment •will be entered for the respondent.