## Facts

- Anna H. Collins, a cash-basis, calendar-year taxpayer, was an income beneficiary of two trusts with non-calendar fiscal years.
- Collins was the sole income beneficiary of the Philip Henrici trust, which used a fiscal year ending January 31.
- Collins was a 40% income beneficiary of the William M. Collins trust, which used a fiscal year ending March 31.
- Collins died on November 29, 1957; the executor filed a final income tax return for January 1, 1957 through the date of death.
- The final return included (1) Collins’s distributive shares from the trusts’ fiscal years ending January 31, 1957 and March 31, 1957, and (2) amounts actually distributed to Collins before death that related to trust fiscal years ending after her death:
  - $27,621.69 from the Henrici trust fiscal year ending January 31, 1958.
  - $7,041.57 from the Collins trust fiscal year ending March 31, 1958.
- The executor sought a refund of tax attributable to including the pre-death distributions tied to trust fiscal years ending after Collins’s death, relying on I.R.C. §§ 652(c) and 662(c).
- The IRS denied the refund under Treasury Regulations §§ 1.652(c)-2 and 1.662(c)-2, which require inclusion of pre-death distributions in the decedent’s final return even if the trust’s fiscal year ends after death.
- The parties stipulated the material facts; the dispute concerned the validity and application of the regulations.

## Issues

1. Whether Treasury Regulations §§ 1.652(c)-2 and 1.662(c)-2 validly interpret I.R.C. §§ 652(c) and 662(c) to require inclusion in a decedent-beneficiary’s final return of trust income actually distributed before death, even when the trust’s fiscal year ends after death.

## Decision

- The Seventh Circuit affirmed the district court’s partial dismissal of the refund claim.
- The court upheld Treasury Regulations §§ 1.652(c)-2 and 1.662(c)-2 as a reasonable interpretation of I.R.C. §§ 652(c) and 662(c).
- The executor was not entitled to a refund for taxes attributable to the pre-death distributions tied to trust fiscal years ending after the decedent’s death.

## Legal Principles

- Under I.R.C. §§ 652(c) and 662(c), trust beneficiary inclusion is generally keyed to the trust taxable year ending within the beneficiary’s taxable year.
- When a beneficiary dies during a trust’s fiscal year, Treasury may allocate amounts actually distributed before death to the decedent’s final taxable period and leave undistributed amounts to be handled at the trust or estate level.
- Treasury regulations receive substantial judicial deference and are upheld if they implement the statute in a reasonable manner and are not plainly inconsistent with the statutory text.
- In the death-year context, treating pre-death distributions as taxable to the decedent aligns with cash-basis recognition upon receipt and helps prevent omission or double taxation of trust income.

## Conclusion

The court sustained Treasury’s authority to treat trust income actually distributed to a beneficiary before death as includible in the decedent’s final return, notwithstanding that the trust’s fiscal year ended after death, because the regulations reasonably filled a statutory gap and coherently implemented the trust-beneficiary timing rules.


Schimberg v. United States, 365 F.2d 70 (7th Cir. 1966)