[G. L. c. 62, §§ 9, 10 the validity of any tax on the income of a deceased person received prior to his death; but in 1919 the statute was amended so as to authorize the taxation of all income received by a deceased person prior to his death taxable under this chapter, except business income.3

With respect to income received by an executor or administrator accruing in the interval between the death of the decedent and the distribution of his estate, the executor or administrator is taxable except with respect to so much of such income as is payable to or is accumulated for the benefit of persons who are not residents of this commonwealth, or, in the case of income from intangibles, for persons who would not be taxable if they received the income directly by reason of the smallness of its amount and the smallness of their income from all sources. An executor or administrator is accordingly obliged to include in his return of income a statement of the respective domiciles of the beneficiaries and of their proportionate shares in the income; and beneficiaries' claims of exemption based upon the smallness of their income may be included in such return.*

Estates Held in Trust

SECTION 10. The income received by estates held in trust by trustees, any one of whom is an inhabitant of the commonwealth or has derived his appointment from a court of the commonwealth, shall be subject to the taxes assessed by this chapter to the extent that the persons to whom the income from the trust is payable, or for whose benefit it is accumulated, are inhabitants of the commonwealth. Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests shall be taxed as if accumulated for the benefit of inhabitants of the commonwealth. In the computation of the tax, the trustees, in addition to the deduction on account of interest paid, allowed under section two, shall be entitled to the following deductions from income taxable under section one, and under paragraphs (a) and (c) of section five, before the taxable income of the beneficiaries shall finally be determined:

(a) Such proportion of the following items as the amounts of income taxable under section one and subsections (a) and (c) of section five together bear to the total income received by the trustee St. 1919, c. 136, §1.

G. L. c. 62, §12, infra, page 474.

G. L. c. 62, § 10]

from all sources, exclusive of income taxable under subsection (b) of section five, to wit: (1) all taxes paid within the year to the United States or any other nation or to any state, county, city, town or district, except taxes assessed on real estate or tangible personal property, inheritance or other taxes assessed upon the transfer of estates of deceased persons, Massachusetts income taxes and assessments for betterments; (2) amounts paid within the year for rental of safe deposit boxes; and (3) amounts paid within the year for premiums on surety bonds of the trustee.

(b) All amounts paid on account of fees or compensation for services of the trustee, to an amount not exceeding five per cent of the gross income taxable under section one, and subsections (a) and (c) of section five.

(c) All taxes paid within the year to the commonwealth and assessed under this chapter on income taxable under section one and subsections (a) and (c) of section five, on account of beneficiaries who still remain inhabitants of the commonwealth.

(d) The trustees may also deduct from the income taxable under section one a proper amount for the amortization, according to any approved method, of premiums paid upon bonds owned by the estate the income of which is taxable under said section one.

In the enactment. of the income tax the legislature determined to commit this commonwealth to the enlightened principle that a state should not use its constitutional powers to their utmost limit by taxing trust property to the trustee if he is a resident, regardless of the domicile of the beneficiary, and to the beneficiary if he is a resident and the trustee a non-resident,' but should confine itself to a single and consistent rule for the taxation of trust property. Accordingly it was determined that the taxability of trust property should depend wholly upon the domicile of the beneficiary, although for purposes of convenience the tax was assessed upon the trustee if he was within the jurisdiction of the commonwealth. In this respect a change was

As to the constitutionality of the double taxation of trust property see supra, Part I, §33.

2 The trustee is the logical person to make the return and pay the tax upon trust property, as he has the information and the funds available. The reason that the beneficiary includes trust property in his return and pays the tax thereon under the federal income tax law is that the tax is graded in proportion to the income of the taxpayer from all sources, and the trustee, having in most cases no knowledge of his beneficiary's other income, would not know how much to pay.

[G. L. c. 62, § 10 made from the law as it previously existed, as under the former provisions a resident trustee was taxed without regard to the domicile of the beneficiary, and a resident beneficiary of a nonresident trustee was also taxed, unless the trust property was legally taxed to a trustee under a testamentary trust in another state.3

Under the present law, it is necessary for the trustee to set forth in his return the domicile of each beneficiary and the proportionate part of the income payable to each. The domicile of each beneficiary is determined as of January first of the year in which the return is filed, unless a non-resident beneficiary becomes a resident before June thirtieth in such year, in which case the commissioner has ruled that a tax is due on the income payable to such beneficiary; and if he makes such change of domicile after the trustee has filed his return, the trustee is required to file a supplementary return setting forth the facts.

Apart from the exemption based upon the domicile of the beneficiaries and the deductions set forth in the foregoing section of the statute, the trustee is taxable upon all money or other property received by him which would be taxable as income to a person who received it in his own right, without regard to the fact that the money received is not distributed but is allowed to accumulate, or that for the purpose of the trust it is deemed principal and not income. The breadth of the construction given to the world "income" in the Forty-fourth Amendment is illustrated by the numerous classes of receipts which are considered capital and not income as between life tenant and remainderman, but are considered income for purposes of taxation. The fact that money is received by a trustee rather than by an individual investor, and must be treated by him as capital, does not affect the right of the commonwealth to tax it as income.

Trusts for charitable purposes are subject to the tax, unless the beneficiary comes within one of the classes specifically St. 1909, c. 490, Part I, §23, cl. 5; and see Hunt v. Perry, 165 Mass. 287 (1896).

Thus profits and gains arising from the increase in value of investments and realized by sale, money derived from the sale of "rights," and stock dividends, are considered capital as between life tenant and remainderman but are income for purposes of taxation. Tax Commissioner v. Putnam, 227 Mass. 522 (1917). The rule as to stock dividends was subsequently changed by statute. See G. L. c. 62, §1 (b), supra, page 441.

5

G. L. c. 62, §§ 10, 11] exempted from taxation by existing law, or unless the beneficiaries of the charity are not inhabitants of the commonwealth. If some are residents and others non-residents the tax must be apportioned accordingly.

The object of the provision in regard to deductions is to permit the trustee to claim as a deduction the same proportion of the expenses of the trust which are chargeable to income under the established probate practice that the taxable income bears to the whole income of the trust, so far as the same is derived from invested capital and not from a business carried on by the trustee.

Income from Non-Resident Trustees

SECTION 11. If an inhabitant of the commonwealth receives income from one or more trustees, none of whom is an inhabitant of the commonwealth or has derived his appointment from a court of the commonwealth, such income shall be subject to the taxes imposed by this chapter, according to the nature of the income received by the trustees.

1

The foregoing section carries out the principle explained under the preceding section, by which the taxability of trust property is made to depend upon the domicile of the beneficiary. It has been held that although the legal title to trust property is in the trustee, and the situs of intangible property is ordinarily at the domicile of the owner, the beneficiary has an interest in intangible property held in trust which may be taxed at his domicile. The beneficiary does not necessarily have any means of knowing the character of the trust property or whether it is taxable, but the commissioner, doubtless believing that the beneficiary can find out if he really wants to, has ruled that if a resident beneficiary cannot secure from a non-resident trustee information as to the nature of the income received, so that it may be properly segregated for taxation, the whole shall be treated as derived from taxable interest and dividends, and taxed at the six per cent rate.

In the original income tax act, it was intended that all taxable income received by a resident beneficiary from a

1

See Watson v. Boston, 209 Mass. 18 (1911).

Maguire v. Tax Commissioner, 230 Mass. 503 (1918), affirmed, Maguire v. Trefry, 253 U. S. 12 (1920).

[G. L. c. 62, §§ 11, 12 non-resident trustee should be taxed; but as elsewhere in the statute it was provided that income derived from property exempt from taxation under existing law should not be taxed, and the existing law exempted property held by a non-resident trustee for a resident beneficiary under a testamentary trust if legally taxed in another state, it was held that such exemption applied under the income tax act.2 The statute was later amended to carry into effect the original intent of the legislature.3

Claim of Exemption for Beneficiary

SECTION 12. A trustee may, at the request of any beneficiary, claim the benefit of the exemption provided by subsection (a) of section eight for each person to whom the income from the trust is payable, or for whose benefit it is accumulated, and an inhabitant of this commonwealth receiving income from one or more trustees, none of whom is an inhabitant of this commonwealth or has derived his appointment from a court of this commonwealth, may also claim the benefit of such exemption; provided, that the commissioner is satisfied by an affidavit from the beneficiary claiming exemption, or for whose benefit the same is claimed, or otherwise, that such beneficiary is not allowed in all trusts or estates under which he may be a beneficiary, and on account of all income on which he is liable to taxation under this chapter, more than the total amount of exemption to which he is entitled under said subsection (a).

Since the exemption depends upon the total income of the beneficiary, or on his total business income, which the fiduciary would have no means of knowing, although the fiduciary is to pay the tax, he cannot well claim the exemption until he is assured that the beneficiary had no other income which would deprive him of his exemption.

A beneficiary who has no taxable income except from a fiduciary who is taxable under this act is not taxable himself, although if such income exceeds two thousand dollars he must file a return under the provisions of section twenty-two. The return, however, need not set out the income thus received.

'Maguire v. Tax Commissioner, 230 Mass. 503 (1918).

St. 1918, c. 207.