through double taxation such as existed under the law of 1918, whereby United States citizens resident in the Philippines could be taxed twice upon the same income,96 was relieved by section 262 97 incorporated in the 1921 law, effective from January 1, 1921, and also reincorporated in the 1924 law. This section determines the status of citizens resident in possessions of the United States as to whether, for purposes of taxation, they could be considered non-resident aliens or residents.

REGULATION. The gross income of a domestic corporation (1) 80 per cent or more of the gross income of which (computed without the benefit of this article) for the three-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession of the United States, and (2) 50 per cent or more of the gross income of which (computed without the benefit of this article) for such period or such part thereof was derived from the active conduct of a trade or business within a possession of the United States, means only gross income from sources within the United States. (Art. 1136.)

RULING. If a taxpayer has been conducting a trade or business in a possession of the United States for a number of years preceding the close of his taxable year December 31, 1923, the three-year period applicable to his case is the period January 1, 1921, to December 31, 1923. If his income derived from sources in the possession during that period satisfies the 80 per cent and the 50 per cent conditions of section 262 he is entitled to the benefits of that section. If, however, the taxpayer has been conducting a business in this possession for less than three years, the period that is applicable to his case is the period preceding the close of his taxable year that he was engaged in conducting a business there. In such case the 80 per cent condition and the 50 per cent condition must be satisfied with respect to his income during this period. (C. B. III-1, page 376; I. T. 1973.)

The sections of the 1924 law relating to fiduciaries differ in essential features from those of the prior laws. While many of the changes effected by the new law have merely clarified the provisions of the 1916, 1917, 1918 and 1921 laws, material changes have been made in the following respects:

1. Returns must now be made for every estate or trust, the gross income of which for the taxable year is $5,000 or over, regardless of the amount of the net income.1

2. Income which, in the discretion of the fiduciaries, may be either distributed to the beneficiaries or accumulated is taxed to the beneficiaries if distributed or to the fiduciaries if not distributed.2

3. Where the creator of a trust has the power, during the taxable year, either alone or in conjunction with any one other than a beneficiary of the trust, to revest in himself title to any part of the corpus of the trust, the income of such part of the corpus of the trust is taxed to the grantor.3

4. Where the creator of a trust has the power, either alone or in conjunction with any person not a beneficiary of the trust, to direct that any part of the income of the trust be distributed to him (the creator) or held or accumulated for future distribution to him, or where any part of the income is or may be applied to the payment of premiums upon policies of insurance on the life of the grantor (except insurance payable for certain charitable purposes) such part of the income is taxed to the creator of the trust.1

5. Except in the cases mentioned in the two paragraphs next preceding, the income of every estate or trust is taxed to the fiduciaries, but the fiduciaries, in computing the taxable net income of the estate or trust, are allowed to make certain deductions not permitted to the ordinary taxpayer. These deductions are practically

the same as those allowed under the 1921 law, except that (a) income which in the discretion of the fiduciaries may be either distributed or accumulated and which is properly paid or credited to the beneficiaries during the taxable year, and (b) income which the instrument creating the trust directs to be paid or set aside for the prevention of cruelty to children or animals or for the establishment, acquisition, or care of a public cemetery may be deducted. 6. Net losses of an estate or trust may now be taken advantage of only by the estate or trust.8

7

Fiduciary defined.-A fiduciary is one who occupies a position of peculiar confidence toward others. As a general rule, a fiduciary has legal title to the property and those for whom he acts enjoy the beneficial interest. The law defines a fiduciary as follows:

LAW. Section 200. (b) The term "fiduciary" means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person.*

REGULATION. "Fiduciary" is a term which applies to persons that occupy positions of peculiar confidence toward others, such as trustees, executors, and administrators. A fiduciary for income tax purposes is a person who holds in trust an estate to which another has the beneficial title or in which another has a beneficial interest, or receives and controls income of another, as in the case of receivers. A committee or guardian of the property of an incompetent person is a fiduciary. . . . . (Art. 1521.)

A father and son, having acquired from an intestate a life estate and vested remainder respectively in real property in New York, made a joint conveyance of the property for an amount in excess of its value when acquired by them. The proceeds of the sale were placed in a bank in the father's name and they agreed that the father should have the income from the fund for life and upon his death that the principal should go to the son. It was held that the father was a trustee for the son.

RULING.

Under the laws of the State of New York and by the weight of authority generally, where a life estate with remainder over

See page 1399.

See page 1428.

See page 1426.

[Former Procedure] In the 1918 and 1921 laws the final clause in the definition was, "or any person acting in any fiduciary capacity for any person, trust or estate."

The act of 1913 included agents in the definition of fiduciaries, but this clearly did not mean the ordinary agent or attorney. The term "agent" has in law a well-recognized meaning which is distinct from that of "fiduciary," and the later acts properly omitted agents from this classification. See article 1522 on page 1353.

The

is created in personal property, the life tenant is entitled to possession, and upon possession becomes a trustee for the remainderman. profit derived from the sale therefore represents the undistributable income of a trust entity. . . . . (C. B. 5, page 186; O. D. 1040.)

Trustees in bankruptcy and receivers for individuals are classed as fiduciaries under the law. For a full discussion of their respon

sibilities, see page 115 et seq.

RULING. The status of the fiduciary as a citizen or an alien, a resident or a nonresident, has nothing to do with the status of the trust, In case of a trust which is treated as a taxable entity the tax is imposed upon the income of the trust, not of the trustee, although the trustee is required to pay it on behalf of the trust for which he acts. The status of such a trust depends upon where it was created. If it owes its existence to the laws of a foreign country or of a political subdivision thereof, it is to be regarded as a nonresident alien entity. . . . (C. B. II-2, page 164; I. T. 1885.) FIDUCIARIES DISTINGUISHED FROM AGENTS. 10-An agent may be defined as a representative vested with authority to bring his constituent, called the principal, into contractual relations with others. This authority may be either general or special. If an agent's powers are limited to the performance of specified acts, he is a special agent, while if he has authority to transact generally the business of the principal in regard to which he is employed, he is a general agent.

REGULATION. There may be a fiduciary relationship between an agent and a principal, but the word "agent" does not denote a fiduciary. A fiduciary relationship can not be created by a power of attorney. An agent having entire charge of property, with authority to effect and execute leases with tenants entirely on his own responsibility and without consulting his principal, merely turning over the net profits from the property periodically to his principal by virtue of authority conferred upon him by a power of attorney, is not a fiduciary within the meaning of the statute. In cases where no legal trust has been created in the estate controlled by the agent and attorney the liability to make a return rests with the principal. (Art. 1522.)

The Attorney General has held that the Alien Property Custodian is an agent for the President of the United States and not a trustee for the aliens whose property he holds. Consequently, the Custodian is not required to pay any tax on the income derived from such property. This does not necessarily mean that the income. will escape taxation; when and if the property is returned to the alien, the government may require the alien to pay any taxes due on the income received therefrom while in the Custodian's possession.11

10 See footnote 9, page 1352.

11 C. B. 3. page 199; Op. A. G. 2; 32 Op. A. G. 249. See also C. B. 3, page 203; O. D. 598, and 33 Op. A. G. 511.