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A taxable gain was realized by the delivery of the securities; thus, the appreciation was a capital gain, taxable at the rates specified in Section 117. Neither under Section 111(a) nor under Section 22(a), 26 U.S.C.A. Int. Rev. Acts, page 669, can the gain realized be taxed as ordinary income.
Petitioner was the trustee of a testamentary trust that allowed petitioner to pay testator's niece $ 5,000,000 in both cash and securities from the trust estate. Respondent commissioner determined that the distribution of the securities to the niece resulted in capital gains which were taxable to the petitioner under the Revenue Act of 1934, 26 U.S.C.S. § 117. The board upheld the respondent's determination and petitioner appealed contending that the delivery of the securities of the trust estate was a donative disposition of the property and no gain was realized.
Did the distribution of securities to the legatee of the trust result in capital gains taxable to the petitioner under the Revenue Act of 1934, 26 U.S.C.S. § 117?
On appeal, the court found that the bequest was not a donative disposition of specific property because the niece never had to chance that the securities might change in value by the time of the transfer. The property was an exchange and thus the capital gains were taxable. Accordingly, the court affirmed the order.