## Facts

- C. T. Wyche and Harriet S. Wyche were individual taxpayers and the parents of three minor children during tax years 1963–1967.
- Mr. Wyche created three separate trusts for the benefit of the children, with Mrs. Wyche serving as trustee for each trust.
- Each trust was structured to run for more than ten years and held income-producing rental real property as its corpus.
- After paying trust expenses, the trustee was required to distribute all current trust income at least annually to the beneficiaries in equal shares.
- The trust instruments permitted the trustee to satisfy the annual distribution requirement by: (a) paying money directly to a child, (b) depositing the funds in a bank or savings account for the child, (c) purchasing securities in the child’s name, or (d) expending sums for the child’s education.
- The Wyche children generally attended tuition-charging private schools and also took music or dancing lessons.
- The trustee used trust income to pay the children’s private-school tuition and the costs of the music/dancing lessons.
- The IRS determined that the amounts paid from trust income for tuition and lessons were includible in the Wyches’ income on the theory that the payments satisfied a parent’s legal obligation to support minor children.
- The IRS also treated proceeds received by the Wyches from the sale of an undivided interest in a tract of land as ordinary income rather than capital gain.
- The Wyches paid the assessed tax and interest for 1963–1967 and brought a refund suit against the United States in the Court of Claims (Trial Division).

## Issues

1. Whether trust income used to pay private-school tuition and music/dancing lessons for the taxpayers’ minor children was includible in the taxpayers’ income because those payments discharged a legally enforceable support obligation under South Carolina law.
2. Whether proceeds from the sale of an undivided interest in a tract of land were taxable as capital gain rather than ordinary income.

## Decision

- The court found for the taxpayers on the trust-income issue and concluded that the trust income used to pay the children’s private-school tuition and music/dancing lessons was not includible in the taxpayers’ income.
- Applying South Carolina law governing a parent’s duty of support, the court concluded that, on these facts, private-school tuition and music/dancing lessons were not expenses the parent was legally required to provide.
- The court rejected the government’s attempt to treat these expenditures as a legally enforceable (or otherwise taxable) parental obligation merely because the children in fact attended private school and took lessons.
- The court found for the government on the land-sale issue and sustained the IRS’s ordinary-income treatment of the proceeds from the sale of the undivided land interest.
- Overall, the taxpayers recovered in part (trust issue) and did not recover on the capital-gain/ordinary-income issue.

## Legal Principles

- If trust income is applied to satisfy a grantor-parent’s legally enforceable duty to support minor children, federal tax law may treat the parent as having received that income.
- Whether a particular expenditure falls within a parent’s legally enforceable support duty is determined by state law.
- Under South Carolina’s “necessaries” concept, a parent’s duty of support extends to required necessities of life; expenses outside that legally required category are not treated as discharging a legal support duty for federal income tax attribution.
- Payments for private-school tuition and enrichment lessons are not automatically treated as part of a parent’s legally enforceable support duty; the controlling question is whether state law makes those items legally required on the facts shown.
- For gains from selling an interest in land, whether the proceeds qualify for capital-gain treatment depends on the applicable federal income-tax characterization rules and the taxpayer’s ability to show the transaction produces capital gain rather than ordinary income.

## Conclusion

Wyche held that trust income used to pay minor children’s private-school tuition and music/dancing lessons was not taxable to the parents because, under South Carolina law, those expenditures were not within the parents’ legally enforceable duty of support, but it also upheld the government’s treatment of proceeds from the sale of an undivided land interest as ordinary income rather than capital gain.


Wyche v. United States, 36 A.F.T.R.2d (P-H) 75-5816 (1974)