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    Old Colony Co. v. Comm'r., 301 U.S. 379 (1937)

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    The Supreme Court ruled that charitable contributions made by a trust estate do not need to be explicitly directed by the trust document to be deductible, and do not need to be shown to have been paid from income received in the tax year. The trust deed authorized but did not require the trustee to make charitable payments that did not jeopardize annuity obligations. It was sufficient that the contributions were made "pursuant to" and in accordance with the terms of the trust. The purpose of the statute was to encourage charitable giving, not impose narrow technical requirements.

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    Old Colony Co. v. Comm'r., 301 U.S. 379 (1937)

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    The Supreme Court ruled that charitable contributions made by a trust estate do not need to be explicitly directed by the trust document to be deductible, and do not need to be shown to have been paid from income received in the tax year. The trust deed authorized but did not require the trustee to make charitable payments that did not jeopardize annuity obligations. It was sufficient that the contributions were made "pursuant to" and in accordance with the terms of the trust. The purpose of the statute was to encourage charitable giving, not impose narrow technical requirements.

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    Filed: 1937-05-17 Precedential Status: Precedential Citations: 301 U.S. 379 Docket: 703

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    The Supreme Court ruled that charitable contributions made by a trust estate do not need to be explicitly directed by the trust document to be deductible, and do not need to be shown to have been paid from income received in the tax year. The trust deed authorized but did not require the trustee to make charitable payments that did not jeopardize annuity obligations. It was sufficient that the contributions were made "pursuant to" and in accordance with the terms of the trust. The purpose of the statute was to encourage charitable giving, not impose narrow technical requirements.

    Copyright:

    Public Domain
    Download as COURT, PDF, TXT or read online from Scribd
    Download as court, pdf, or txt
    83 views5 pages

    Old Colony Co. v. Comm'r., 301 U.S. 379 (1937)

    Uploaded by

    Scribd Government Docs
    The Supreme Court ruled that charitable contributions made by a trust estate do not need to be explicitly directed by the trust document to be deductible, and do not need to be shown to have been paid from income received in the tax year. The trust deed authorized but did not require the trustee to make charitable payments that did not jeopardize annuity obligations. It was sufficient that the contributions were made "pursuant to" and in accordance with the terms of the trust. The purpose of the statute was to encourage charitable giving, not impose narrow technical requirements.

    Copyright:

    Public Domain
    Download as COURT, PDF, TXT or read online from Scribd
    Download as court, pdf, or txt
    of 5

    301 U.S.

    379
    57 S.Ct. 813
    81 L.Ed. 1169

    OLD COLONY TRUST CO.


    v.
    COMMISSIONER OF INTERNAL REVENUE.
    No. 703.
    Argued April 29, 30, 1937.
    Decided May 17, 1937.

    Mr. Harold S. Davis, of Boston, Mass., for petitioner.


    Mr. A. F. Prescott, of Washington, D.C., for respondent.
    Mr. Justice McREYNOLDS delivered the opinion of the Court.

    Under trust deed of July 19, 1922, the Old Colony Trust Company came into
    possession of valuable income producing property from which to pay certain
    sums and satisfy specified annuities. The deed continues: '13. I authorize my
    said trustees to pay to charities as hereinafter described such sums as in their
    judgment may be paid without jeopardizing the annuities herein provided for,
    whenever for a period of one year the trust fund held by them as then invested
    shall have yielded a net income equal to twice the amount of the annuities
    which they are then required to pay, and upon the death of the survivor of those
    persons, who under the terms of this instrument are to receive annual incomes
    under the trust hereby created, I direct my said trustees to distribute the rest and
    residue remaining in their hands among corporations and trustees organized,
    operating and holding exclusively for religious, charitable, scientific, literary or
    educational purposes, including the encouragement of art and the prevention of
    cruelty to children or animals, the sum paid over by said trustees to such
    corporations or boards of trustees to be held by such corporations and boards of
    trustees in trust, and the income thereof to be expended for the general purposes
    for which such corporations and boards of trustees are organized, and I request
    that said funds be designated by each corporation or board of trustees as the
    Henry Clay Jackson Fund.'

    Each year after 1923 the estate's income was more than twice the amount
    necessary for the annuities. The trustee has kept separate principal and income
    accounts. From 1925 to 1933 all annuities were duly paid and considerable
    sums went to charities; none of these payments was charged to the principal
    account. Tax returns have been based upon actual receipts and disbursements.

    January 1, 1931, the income account showed unexpended balance of


    $187,999.43. During that year the income received amounted to $164,339.39;
    the trustee expended and charged against income account $212,862.80, of
    which $190,000 went to charities. The 1931 tax return claimed deductions for
    charity payments up to the amount of the year's income. The Commissioner
    disallowed this because 'it is not disclosed that payments were made out of
    income of the taxable year to the charities nor that any portion of the income
    was credited to any charity.'

    The Board of Tax Appeals held the trustee must affirmatively prove the
    payments in question were from income received during 1931; also, that except
    as to a small sum, it had not sustained the necessary burden of proof.

    The Circuit Court of Appeals (87 F.(2d) 131, 134) ruled that none of the
    contributions was deductible because not imperatively directed by the trust
    deed. It took the view that as the trustee exercised discretion as to payment they
    were not made 'pursuant to the terms of the * * * deed creating the trust.'
    Accordingly, it approved the Commissioner's assessment and remanded the
    cause to the Board.

    The matter is here by certiorari. Annuity payments are not now in controversy.
    Two questions are presented and both must be answered in the negative.

    1. Under Section 162, Revenue Act, 1928, 45 Stat. 838, 26 U.S.C.A. 162,
    copied in the margin, is it necessary that the will or deed creating a trust
    definitely direct the charitable contributions which are claimed as deductions?1

    Section 23(n) of the 1928 Act which authorizes certain deductions for
    charitable contributions by individuals does not confine them to payments
    actually made from income, but does limit their amount to 15 per cent. of the
    net received during the year.2 In lieu of these deductions, section 162(a)
    permits trust estates to deduct charitable contributions to the full extent of gross
    income when made pursuant to the trust deed.

    We are asked to hold that the words 'pursuant to' mean directed or definitely

    We are asked to hold that the words 'pursuant to' mean directed or definitely
    enjoined. And this notwithstanding the admission that Congress intended to
    encourage charitable contributions by relieving them from taxation. Lederer,
    Collector, v. Stockton, 260 U.S. 3, 43 S.Ct. 5, 67 L.Ed. 99; United States v.
    Provident Trust Co., Administrator, 291 U.S. 272, 285, 54 S.Ct. 389, 392, 78
    L.Ed. 793.

    10

    'Pursuant to' is defined as 'acting or done in consequence or in prosecution (of


    anything); hence, agreeable; conformable; following; according.'3

    11

    The words of the statute are plain and should be accorded their usual
    significance in the absence of some dominant reason to the contrary. We find
    nothing in the regulations or practice of the Treasury Department or in the
    general purpose of the statute which requires the narrow meaning advocated by
    respondent. Neither the Commissioner nor the Board of Tax Appeals accepted
    or mentioned with favor the interpretation which his counsel now advance; and
    this is hardly compatible with the theory of controlling rulings or practice by
    the Bureau.

    12

    The questioned donations were made by the petitioners in pursuance of the trust
    deed.

    13

    II. In order that they may be allowed as deductions is it necessary affirmatively


    to show that charitable contributions by a trust estate were actually paid out of
    income received during the year in which they were made?

    14

    Section 23(n) limits deductible contributions to 15 per cent. of net income.


    Section 162(a) permits them to the full extent of gross income. This language
    should be construed with the view of carrying out the purpose of Congress
    evidently the encouragement of donations by trust estates. There are no words
    limiting these to something actually paid from the year's income. And so to
    interpret the Act could seriously interfere with the beneficent purpose. One
    creating a trust might be unwilling to bind it absolutely to pay something to
    charity but would authorize his trustee so to do after considering then existing
    circumstances.

    15

    Capital and income accounts in the conduct of the business of estates are well
    understood. Congress sought to encourage donations out of gross income, and
    we find no reason for saying that it intended to limit the exemption to sums
    which the trust could show were actually paid out of receipts during a particular
    tax year. The design was to forego some possible revenue in order to promote
    aid to charity. Here the trustee responded to an implied invitation and the estate

    ought not to be burdened in consequence.


    16

    The judgment of the court below must be reversed and the cause returned there
    for further proceedings in harmony with this opinion.

    17

    Reversed.

    Revenue Act, 1928, 162, 45 Stat. 838, 26 U.S.C.A. 162.


    ' 162. Net income
    'The net income of the estate or trust shall be computed in the same manner and
    on the same basis as in the case of an individual, except that
    '(a) There shall be allowed as a deduction (in lieu of the deduction for
    charitable, etc., contributions authorized by section 23(n)(o)) any part of the
    gross income, without limitation, which pursuant to the terms of the will or
    deed creating the trust, is during the taxable year paid or permanently set aside
    for the purposes and in the manner specified in section 23(n)(o), or is to be used
    exclusively for religious, charitable, scientific, literary, or educational purposes,
    or for the prevention of cruelty to children or animals, or for the establishment,
    acquisition, maintenance, or operation of a public cemetery not operated for
    profit; * * * (b) and (c).'

    Revenue Act 1928, 23, 45 Stat. 799 (26 U.S.C.A. 23 and note).
    ' 23. Deductions from gross income
    'In computing net income there shall be allowed as deductions: * * * (a), (b),
    etc.
    '(n)(o) Charitable and other contributions. In the case of an individual,
    contributions or gifts made within the taxable year to or for the use of:
    '(1) the United States, any State, Territory, or any political subdivision thereof,
    or the District of Columbia, for exclusively public purposes;
    '(2) a corporation, or trust, or community chest, fund, or foundation, organized
    and operated exclusively for religious, charitable, scientific, literary, or
    educational purposes, or for the prevention of cruelty to children or animals, no
    part of the net earnings of which inures to the benefit of any private shareholder
    or individual; * * *

    '(3) the special fund for vocational rehabilitation authorized by section 7 of the
    Vocational Rehabilitation Act (section 440 of Title 38);
    '(4) Posts or organizations of war veterans, or auxiliary units or societies of any
    such posts or organizations, if such posts, organizations, units, or societies are
    organized in the United States or any of its possessions, and if no part of their
    net earnings inures to the benefit of any private shareholder or individual; or
    '(5) a fraternal society, order, or association, operating under the lodge system,
    but only if such contributions or gifts are to be used exclusively for religious,
    charitable, scientific, literary, or educational purposes, or for the prevention of
    cruelty to children or animals;
    to an amount which in all the above cases combined does not exceed 15 per
    centum of the taxpayer's net income as computed without the benefit of this
    subsection. Such contributions or gifts shall be allowable as deductions only if
    verified under rules and regulations prescribed by the Commissioner, with the
    approval of the Secretary. (For unlimited deduction if contributions and gifts
    exceed 90 per centum of the net income, see section 120.)'
    3

    Webster's New International Dictionary, Unabridged (2d Ed.) 1935.

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