[291 U.S. 35, 36] Messrs. Claude R. Branch, of Providence, R.I., Felix T. Smith, of San Francisco, Cal., and W. W. Spalding, of Washington, D.C., for petitioner.
The Attorney General and Mr. Erwin N. Griswold, of Washington, D.C., for respondent.
Mr. Justice ROBERTS delivered the opinion of the Court.
A. C. Whitcomb, a resident of California, died in 1889, and by his will, probated in that state, gave the residue of his estate in trust, one- third of the income to be paid to his widow for life, with limitations in remainder. The petitioner is the administrator of the estate of Mrs. Whitcomb, who died in 1921. The will of A. C. Whitcomb contained no direction for the computation of trust income, none for the keeping of the trustee's accounts and none for any allowance or deduction representing depreciation. Beginning about 1906 the trustee converted trust assets into real estate and other forms of investment [291 U.S. 35, 37] subject to depreciation. In fiduciary income tax returns for 1921 and subsequent years, the trustee deducted from gross income an amount representing depreciation, but failed to withhold from the beneficiaries, to whom he paid income, the amount of the depreciation deduction, so that each beneficiary was paid his or her full ratable share of income for the taxable year. As Mrs. Whitcomb died in 1921 a portion of the year's income was paid to her and a portion to the petitioner as her administrator. Neither the petitioner, as administrator of Mrs. Whitcomb, nor any of the other beneficiaries, included in their returns, as income received, that proportion of the income represented by the depreciation deduction shown on the trustee's fiduciary return.
The applicable sections of the Revenue Act of 19211 are:
In the belief that these provisions warranted his action, the Commissioner of Internal Revenue increased the income shown on the petitioner's return by so much of the amount received as reflected the proportionate share of [291 U.S. 35, 38] the depreciation deducted by the trustee in his fiduciary return, and determined a deficiency accordingly. The petitioner appealed to the Board of Tax Appeals.