Schimberg v. United States

Anna H. Collins was the beneficiary of two trusts and received income from both trusts in the year leading up to her death. The first trust filed income taxes using fiscal years beginning February 1 and ending January 31. The second trust filed income taxes using fiscal years beginning April 1 and ending March 31. Collins died on November 29, 1957. The executor of Collins’s estate (plaintiff) filed a final income tax return for Collins, in which he reported the distributions that Collins had received from both trusts. Collins and her estate reported income taxes on a cash basis. For both trusts, this meant that income was reported from each trust’s previously completed fiscal year, as well as each trust’s then-current fiscal year. Collins’s estate requested a refund for the taxes that were attributable to the distributions made during each of the trust’s then-current fiscal years. Collins’s estate referred to § 652(c) of the Internal Revenue Code, which stated that, for any given year, a beneficiary of a trust must include in her gross income any trust income that was distributed to her for the trust’s fiscal year ending within the beneficiary’s tax year. The Internal Revenue Service (IRS) (defendant) denied the request for a refund, citing Treasury Regulation 1.652(c)-2, which stated that a trust income distributed to a beneficiary before the beneficiary’s death was part of the decedent’s gross income. Collins’s estate appealed to the district court. The district court ruled in favor of the IRS, and Collins’s estate appealed, arguing that regulation 1.652(c)-2 was unreasonable and beyond the scope of the IRS commissioner’s authority to promulgate regulations.