Appeal from the Order of the Board of Finance and Revenue, in case of In Re: Phoebe W. Haas Charitable Trust "A," Docket No. CPIT 38, dated June 3, 1974.
Philip C. Herr, II, with him Philip C. Herr, John H. Potts, and Herr, Potts & Herr, for appellant.
R. Scott Shearer, Deputy Attorney General, with him Donald J. Murphy, Deputy Attorney General, for appellee.
President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Opinion by President Judge Bowman.
[ 29 Pa. Commw. Page 215]
The refusal by the Board of Finance and Revenue to grant appellant's petition for refund of $502.99 paid with respect to 1972 personal income tax under Article III of the Tax Reform Code of 1971 (Act)*fn1 is the
[ 29 Pa. Commw. Page 216]
subject of this appeal by the Phoebe W. Haas Charitable Trust "A."
The stipulated facts disclose that the inter vivos trust in question was created by a resident grantor by Trust Agreement dated January 7, 1972. For trust administration purposes it is subject to and under the jurisdiction of the Court of Common Pleas of Montgomery County, Orphans' Court Division. Although its name implies sole dedication to charitable purposes, it is conceded, as it must be, that such is not the case. The trust instrument allows for the possibility of the future distribution of its principal for non-charitable purposes.*fn2 It is the application of the Act to certain capital gains realized by the Trust during the tax year 1972 and the manner by which such capital gains are to be accounted for and distributed under the Trust Agreement that gives rise to this controversy.
The Trust plan directs that all income be paid to charity for a period terminating twenty years after the death of the last of grantor's two sons;*fn3 thereupon all income and all principal (with the exception of amounts required by Article Eighteen to be paid to charity) are to be paid to such persons or organizations as the grantor's two sons may appoint by will.
[ 29 Pa. Commw. Page 217]
Article Eighteen of the Trust requires that the income of the Trust during the charitable period equal an average of 3 1/2% of the value of the principal of the Trust at the time of its creation; and the Trust Agreement further provides that there shall be restored to charity from principal or the subsequent or remainder interests any "short fall" of such amounts plus compound interest thereon.
As disclosed by its 1972 Pennsylvania Fiduciary Income Tax Return, the Trust received that year dividends of $256,700.10 and interest of $190,896.55, all of which was permanently set aside for charity after payment of administration expenses. Also, during that year, it realized capital gains from two sources; (a) gains of $9,658.32 on sale of assets allocated to the undistributed and invested income account for the benefit of charities and so set aside;*fn4 (b) gains of $21,869.27 on the sale of principal assets and allocated to principal. This second class of capital gains realized are reflected in the tax ...