On May 3, 1944, Ralph R. Huesman died testate, a resident of the state of California. At the time of his death there was due and owing him from Desmond's, a California corporation, the sum of $80,517 as a bonus for services rendered. Huesman's last will and testament was admitted to probate. The net value of the estate exceeded $250,000. The provisions of the will involved in the instant case are appended.1

The executors of the estate, in that capacity and in their capacity as testamentary trustees, procured an order and decree from the probate court for distribution of the $80,517 bonus. The probate court made a finding2 and entered an order based thereon.3

On April 30, 1945, the sum of $80,517 bonus was paid to the executors. On the same day the executors paid to the testamentary trustees the said sum of $80,517. The same day the trustees paid to Loyola University the said sum. At the time of receipt of said sum of $80,517 by the testamentary trustees and its distribution by them said sum constituted the only cash asset of the trust estate.

Petitioners (executors of the estate) operated on a cash receipts and disbursements basis. Petitioners filed a fiduciary income tax return for the fiscal year ended April 30, 1945. This return showed a gross income of $80,517 and deductions for distributions for "amounts distributable to beneficiaries" of $80,517. The Commissioner of Internal Revenue disallowed the said sum of $80,517 claimed as an amount distributable to beneficiaries as not constituting a proper deduction under the provisions of § 162 of Internal Revenue Code, 26 U.S.C.A. § 162.

Petitioners appealed the Commissioner's determination to the Tax Court. The Tax Court affirmed the finding of the Commissioner and now we have the problem for determination.

Petitioners separate their specifications of error into several parts but essentially their complaint is: That the executors of the estate were entitled to a deduction for an item of gross income distributed under § 162(a).4

We understand the term "paid pursuant to the terms of the will" in § 162(a) to mean that the charity must be denominated an income beneficiary in the instrument or, it at least must receive a right to be paid income by virtue of the gift made to it. Of course, the trustee may be given discretion in the will whether or not to make an income payment to the charity at all, see Old Colony Trust Co. v. Commissioner, 1937, 301 U.S. 379, 57 S. Ct. 813, 81 L. Ed. 1169, but even in such a situation when the income is received by the charity it is received in response to a right to income created in the will or trust. Thus, when a charity is made a pecuniary legatee, even though the payment to the charity is made out of funds which constitute gross income, no deduction may be taken under § 162(a) because the money is not received by the charity in satisfaction of a claim for income. Wellman v. Welch, 1 Cir., 1938, 99 F.2d 75. In the present case the will makes a gift to the charity of 5% of the residue less certain other gifts; the charity is a residuary legatee. In terms there is no gift of income made to the charity; the gift is one of corpus. Under state law it may be that a residuary legatee has a right to income realized from investment of his share of the corpus between the date of death of the testator and the time distribution of the gift is made. But there was no such income available for distribution in the instant case, hence, the fund could have been paid only in satisfaction of the right to corpus.

The charity's right to be paid corpus was not a right to be paid a particular asset which constituted a portion of the corpus. The will gives no right to the charity to have its gift paid out of the proceeds of a particular asset. No asset or its proceeds was earmarked for the charity and we fail to find in the will authorization for the executors to do so. The situation when the executors secured payment of the bonus can be described as follows: The executors had a portion of the corpus which under the will they were bound eventually to deliver to the trustees. No legatee had a right to these particular dollars because they derived from income in respect of a decedent. The trustees might have allocated these funds to the trust created for the wife out of the residue or, to any of the other gifts made. But in no case would the recipient have received the fund because he had a right to it as such; but simply in satisfaction of a right to corpus. When the executors collected the bonus, under the will the proceeds lost their identity and became indistinguishable from any of the other moneys or choses in action which constituted corpus. The ingenious attempt to channel the funds by a series of related transactions does not change this result. Under these circumstances the charity received the money solely by reason of its right to share in proceeds of the corpus and not in satisfaction of a right to that portion of the corpus which might also be said to qualify as gross income under § 162(a). In other words, the sum in question was paid to the charity as and for corpus and not because the charity's admitted right to corpus gave it a right to this particular item as such. This negatives the idea that the payment was "* * * pursuant to the terms of the will * * *" under § 162(a). Cf. Wellman v. Welch, supra; Old Colony Trust Co. v. Com'r, 1938, 38 B.T.A. 828; I.T. 1966, III-I Cum. Bull. 215. Having so concluded we find it unnecessary to decide, as did the Tax Court, that § 126 income can in no instance be available for distribution under § 162.

Judgment affirmed.