American Trust Company, a Corporation v. James G. Smyth, Collector of Internal Revenue and United States of America

Appellant, as trustee of a testamentary trust created by the will of Harry L. Tevis, paid a tax in the sum of $570,-957.86 on its fiduciary income for the trust for the year 1946. A claim for refund was seasonably filed and was thereafter disallowed by the Commissioner of Internal Revenue. This suit for refund followed. The trial court denied relief.

Tevis died on July 19, 1931, in Santa Clara County, California, where his will was duly probated and the trust in question created. The trust required the rents, issues and profits of the trust estate to be paid in equal shares to the children of the testator’s niece, Florence Fermor-Hesketh, born prior to the decedent’s death, or to their survivors, during their lives. During 1946 the four living beneficiaries of the trust were domiciled and residents of the United Kingdom. A portion of the trust is to terminate upon the death of each of the four beneficiaries.

During 1946 the trustee, a California corporation, sold certain shares of stock from the corpus of the trust, thereby realizing a long-term capital gain. Under the terms of the trust, and the law of California, this capital gain was allocated to the corpus, there to be held…