Income tax problems of fiduciaries and beneficiaries;

              Income Tax Problems of Fiduciaries and Beneficiaries
BY LAURENCE 0. EAMES PRINCIPAL, CHICAGO OFFICE
Presented at a technical session of the Illinois Society of Certified Public Accountants, Chicago — December 1956
INTRODUCTION
As there are many types of trusts, I should first define the par­ticular
type of trust I propose to discuss. We will exclude from consideration: Associations taxable as a corporation, Investment trusts, Liquidating trusts and Tax-exempt trusts, such as charitable trusts or foundations, and employee-pension and profit-sharing trusts.
This definition is not intended to limit the questions which may be asked later but merely to limit the subject to be covered in the al­lotted
time.
Specifically, we are considering a trust created by will or by a grantor where the trustees take title to and protect and conserve the corpus; the grantor is not a beneficiary and the beneficiaries do no more than accept the benefits of the trust.
The trust is a separate taxable entity and its entire income must be reported on a return filed by the trustee. A trust or estate is subject to the same normal tax and surtax as an individual taxpayer — that is, a single taxpayer who is not the head of a household.
CONDUIT RULE
Unlike an individual, however, the trust is allowed a deduction for that part of its gross income which is distributable to the beneficiaries or which is properly paid or credited to the beneficiaries. The income which is allocated to a beneficiary retains the same character in the hands of the beneficiary as it had under the trust. This principle of re­tention
of character of income considers the trust to be a mere funnel
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