81 T.C. 260">*260 OPINION

Respondent determined a deficiency in the Federal income tax of petitioner's decedent for the taxable year 1975 of $ 98,222. Due to concessions, the issue for decision is the amount of gross income petitioner's decedent should have reported by virtue of having been during 1975 the income beneficiary of a simple trust earning only foreign source income.

All of the facts have been stipulated and are found accordingly.

Thomas H. Petschek resided at London, England, and Asher B. Lans resided at New York, N.Y., at the time the 1983 U.S. Tax Ct. LEXIS 44">*45 petition was filed.

81 T.C. 260">*261 For many years prior to 1975, petitioner's decedent, Ernst N. Petschek (hereinafter Petschek), was an American citizen residing in France. From January 1, 1975, to November 23, 1975, Petschek continued to be an American citizen residing in France. On November 24, 1975, he became a citizen of the Republic of France and thereby became and remained a nonresident alien for the balance of the calendar year 1975.

In December 1955, decedent's father established an inter vivos trust at New York, N.Y. Upon the death of decedent's father, this trust was divided into two equal parts, each of which became a separate trust. During 1975, Petschek was the sole income beneficiary of one of these trusts, the Ernest Petschek Trust 5A (Trust 5A).

The trustee of Trust 5A was required to distribute its net income "at least annually" to Petschek. Further, the trustee had complete discretion to invade the corpus of the trust for the use of Petschek, his spouse, or issue. Finally, Petschek possessed a testamentary special power of appointment over the corpus of Trust 5A.

During 1975, Petschek's cousin was the trustee of Trust 5A.

In 1975, Trust 5A was a simple trust within the purview 1983 U.S. Tax Ct. LEXIS 44">*46 of subpart B, part I, subchapter J, chapter 1, of the Internal Revenue Code of 1954.

Trust 5A was a calendar year, cash basis taxpayer. During the calendar year 1975, Trust 5A had the following income and deductible expenses:

From January 1, 1975, to November 23, 1975, Trust 5A had the following income and deductible expenses: 81 T.C. 260">*262

In 1975, Trust 5A had no income from sources within the United States and no part of its income was effectively connected with the conduct of a trade or business in the United States.

Between January 1, 1975, and November 23, 1975, inclusive, the trustee distributed $ 132,841 from Trust 5A to Petschek.

Petschek was alive for all of 1975. 1983 U.S. Tax Ct. LEXIS 44">*47 He reported his 1975 income on the cash basis using a calendar year. On his 1975 nonresident alien income tax return, Petschek reported no income from Trust 5A.

In his statutory notice of deficiency, respondent determined that Petschek was required to report $ 136,547 as taxable income from Trust 5A in 1975. This figure was calculated by prorating the entire amount of income (less expenses) realized by Trust 5A in calendar year 1975 over the number of days in 1975 when Petschek was an American citizen.

On brief, respondent contends that Petschek was required to report $ 136,657 as taxable income from Trust 5A in 1975. This figure represents the amount of income (less expenses) actually realized by Trust 5A between January 1, 1975, and November 23, 1975, inclusive. Alternatively, respondent contends that decedent was required to report $ 132,841 as taxable income from Trust 5A in 1975. This alternative figure represents the amount of money the trustee distributed to Petschek during the portion of 1975 when Petschek was an American citizen.

Petitioner, on the other hand, argues that Petschek did not receive any taxable income from Trust 5A while Petschek was an American citizen in 1983 U.S. Tax Ct. LEXIS 44">*48 1975. Consequently, petitioner contends, 81 T.C. 260">*263 decedent did not have to report any income from Trust 5A in 1975.

An American citizen who resides abroad for the entire taxable year is generally ³ taxable on his worldwide income. Sec. 1.1-1(b), Income Tax Regs.; Cook v. Tait, 265 U.S. 47">265 U.S. 47 (1924); Cinelli v. Commissioner, 502 F.2d 695">502 F.2d 695, 502 F.2d 695">697 (6th Cir. 1974), affg. a Memorandum Opinion of this Court; Filler v. Commissioner, 74 T.C. 406">74 T.C. 406, 74 T.C. 406">410 (1980). ⁴ Conversely, an individual who is a nonresident alien throughout the taxable year is taxable only on gross income derived from sources within the United States or gross income which is effectively connected with the conduct of a trade or business within the United States. Sec. 872(a).

A beneficiary of a trust is deemed to be engaged in a trade or business within the 1983 U.S. Tax Ct. LEXIS 44">*49 United States if the trust is engaged in a trade or business within the United States. Sec. 875(a); Di Portanova v. United States, 231 Ct. Cl.   , 690 F.2d 169">690 F.2d 169, 690 F.2d 169">172 (1982). ⁵ Similarly, a beneficiary receives income derived from sources within the United States to the extent that the trust receives income from sources within the United States. Sec. 652(b); sec. 1.652(b)-(1), Income Tax Regs.; Bence v. United States, 84 Ct. Cl. 605">84 Ct. Cl. 605, 18 F. Supp. 848">18 F. Supp. 848 (1937); Isidro Martin-Montis Trust v. Commissioner, 75 T.C. 381">75 T.C. 381 (1980); Muir v. Commissioner, 10 T.C. 307">10 T.C. 307 (1948), affd. and remanded 182 F.2d 819">182 F.2d 819 (4th Cir. 1950).

Applying the above principles to the instant case, it is clear that if Petschek had been alive and an American citizen throughout 1975, he would have been taxable on the full amount of distributable income (to the extent of distributable net income) received by Trust 5A in 1975. Sec. 652(a). On the other hand, since Trust 5A engaged in no trade or business within the United States and received no income from sources within the United States in 1975, if Petschek had been alive 81 T.C. 260">*264 and a nonresident alien throughout 1975, he 1983 U.S. Tax Ct. LEXIS 44">*50 would have been taxable on none of Trust 5A's distributable income.

Section 1.871-13(a), Income Tax Regs., requires that when an individual changes his status from nonresident U.S. citizen to nonresident alien during the taxable year, the individual's taxable year is to be divided into two separate periods: ⁶ During the first period, he is taxable under rules applicable to U.S. citizens; during the second period, which commences on the day U.S. citizenship is renounced, the individual is taxable under rules applicable to nonresident aliens. ^{71983 U.S. Tax Ct. LEXIS 44">*51}

Section 1.871-13(c), Income Tax Regs., further provides:

(c) Abandonment of U.S. citizenship or residence. Income from sources without the United States which is not effectively connected with the conduct by the taxpayer of a trade or business in the United States is not taxable if received by an alien individual while he is not a resident of the United States, even though he earns the income earlier in the taxable year while he is a citizen or resident of the United States. However, income from sources without the United States which is not effectively connected with the conduct by the taxpayer of a trade or business in the United States is taxable if received by an individual while he is a citizen or resident of the United States, even though he abandons his U.S. citizenship or residence after its receipt and before the close of the 1983 U.S. Tax Ct. LEXIS 44">*52 taxable year.

The question we must decide therefore is how much, if any, of Trust 5A's income Petschek "received," within the meaning of section 652 and section 1.871-13(c), Income Tax Regs., while he was still an American citizen in 1975. It is only on any such amount of income that Petschek is taxable. ^{81983 U.S. Tax Ct. LEXIS 44">*53}

81 T.C. 260">*265 Respondent argues that the conduit theory of trust taxation requires that Petschek be treated as receiving income from Trust 5A at the moment Trust 5A received income. He analogizes the instant situation to cases where a trust beneficiary either renounces an interest in a trust or dies prior to the end of the trust's taxable year. Further, respondent points to cases where, despite the apparently unambiguous language of the Code that an entity's full-year income is includable in the income of a taxpayer, an allocation of such income has been made for change-of-status taxpayers. ^{91983 U.S. Tax Ct. LEXIS 44">*54}

Petitioner, on the other hand, contends that a beneficiary of a trust cannot receive trust income until the end of the trust's taxable year since it is only at that time that the trust's distributable net income for the year can be determined.

The facts present a case of novel impression. ^{101983 U.S. Tax Ct. LEXIS 44">*55 1983 U.S. Tax Ct. LEXIS 44">*56 1983 U.S. Tax Ct. LEXIS 44">*57} We begin with an examination of general principles of trust taxation.

81 T.C. 260">*266 Generally, when a trust is required to distribute all of its income currently, the scheme of the Code is to treat the amount so distributable as the income of the beneficiary and not the trust. Freuler v. Helvering, 291 U.S. 35">291 U.S. 35, 291 U.S. 35">41 (1934). ¹¹ This is accomplished by allowing the trust a deduction (to the extent of its distributable net income (hereinafter DNI) for all income it is required to currently distribute; see sec. 651; and to include this deductible amount currently in the gross income of the beneficiary, whether or not the income is currently distributed. See secs. 651 and 652. ^{121983 U.S. Tax Ct. LEXIS 44">*58 1983 U.S. Tax Ct. LEXIS 44">*59 1983 U.S. Tax Ct. LEXIS 44">*60}

81 T.C. 260">*267 Two principles of trust taxation are especially important in this case. The first is that a beneficiary does not realize taxable income from a simple trust based on the fact that the beneficiary may actually or constructively receive such income. DeBrabant v. Commissioner, 34 B.T.A. 951">34 B.T.A. 951, 34 B.T.A. 951">955-956 (1936), affd. 90 F.2d 433">90 F.2d 433 (2d Cir. 1937). Rather, the beneficiary realizes income because the 1983 U.S. Tax Ct. LEXIS 44">*61 trust realizes income. As the Supreme Court stated in 291 U.S. 35">Freuler v. Helvering, supra at 42, "For the purpose of imposing the tax the act regards ownership, the right of property in the beneficiary, as equivalent to physical possession. The test of taxability to the beneficiary is not receipt of income, but the present right to receive it."

The difference between the constructive receipt doctrine and the method under which beneficiaries of simple trusts are taxed was illustrated in 34 B.T.A. 951">DeBrabant v. Commissioner, supra. There, the trustee withheld certain gross receipts received by the trust under the erroneous belief that the moneys constituted principal and not income. ¹³ In a later year, a State court 81 T.C. 260">*268 determined that the withheld amounts were in fact income and directed distribution. Although the beneficiary may not have been in constructive receipt of the trust income until after the State court adjudication, the Board of Tax Appeals held that the beneficiary had had a present right to receive the withheld income in the year the moneys were first received by the trust. Accordingly, the beneficiary was taxable on the trust's withheld income in the earlier year. Similarly, in Estate of Dula v. Commissioner, 23 T.C. 646">23 T.C. 646 (1955), 1983 U.S. Tax Ct. LEXIS 44">*62 affd. sub nom. Polt v. Commissioner, 233 F.2d 893">233 F.2d 893 (2d Cir. 1956), the trustee withheld certain currently distributable income until in a subsequent year he received an approval of his accounting from the Surrogate's Court. The Tax Court held that the beneficiary was taxable on the income of the trust in the year the trust received it. The Second Circuit affirmed the Tax Court, rejecting the beneficiary's argument that he lacked unfettered control of the trust's income in the year the trust received it. See also United States v. Higginson, 238 F.2d 439">238 F.2d 439 (1st Cir. 1956); Estate of Bruchmann v. Commissioner, 53 T.C. 403">53 T.C. 403 (1969) (Court reviewed).

Grant v. Commissioner, 11 T.C. 178">11 T.C. 178 (1948), affd. 174 F.2d 891">174 F.2d 891 (5th Cir. 1949), illustrates not only the above principle of trust taxation, but also a second principle, namely, 1983 U.S. Tax Ct. LEXIS 44">*63 that the beneficiary of a simple trust realizes income simultaneously with the trust's realization of income throughout its taxable year. Put another way, the taxable event to the beneficiary -- the attaching of the present right to receive income -- occurs daily as the trust realizes income, and does not occur only on the last day of the trust's taxable year.

In Grant, the taxpayer was the income beneficiary of a testamentary trust established July 31, 1943. Under the terms of the trust, the trustees were to pay the taxpayer at the end of each calendar year all or any part of the trust's net income she elected. Income not withdrawn would be added to corpus. The taxpayer never elected to receive any income from the trust and in June 1945, renounced her income interest in the trust. The Commissioner determined that the taxpayer was taxable 81 T.C. 260">*269 in 1943 and 1944 on the net income received by the trust in those years and was taxable in 1945 on the net income received by the trust in 1945 prior to the renunciation.

The Tax Court in Grant sustained the Commissioner's determination, stating:

The trust income was available to her [the beneficiary] each year upon request until she renounced 1983 U.S. Tax Ct. LEXIS 44">*64 her right thereto. She had the "realizable" economic gain necessary to make the income taxable to her. The trust provision "at the end of each calendar year" relates to the time when the trustees should pay the beneficiary the trust income, and not to the time of election as contended by petitioner. [11 T.C. 178">11 T.C. 181.]

Petitioner argues that Grant is distinguishable and that Hay v. United States, 263 F. Supp. 813">263 F. Supp. 813 (N.D. Tex. 1967), and Letts v. Commissioner, 84 F.2d 760">84 F.2d 760 (9th Cir. 1936), affg. 30 B.T.A. 800">30 B.T.A. 800 (1934), support a holding that a beneficiary includes the income of a simple trust only on the last day of the trust's taxable year. We disagree.

First, we do not find Grant distinguishable. Second, 263 F. Supp. 813">Hay v. United States, supra, itself is distinguishable as involving a complex trust. Third, 84 F.2d 760">Letts v. Commissioner, supra, merely stands for the proposition that it is irrelevant that a simple trust distributes money to its beneficiaries before it earns income during the taxable year, since it is the receipt of income by the trust and not the event of distribution which triggers taxation in the beneficiary.

Petitioner contends that since DNI is ordinarily calculated on the basis of the 1983 U.S. Tax Ct. LEXIS 44">*65 trust's taxable year, the beneficiary cannot know the trust's DNI until the end of the trust's taxable year. Thus, petitioner argues, the trust income is received for tax purposes only on the last day of the trust's taxable year. In support of this argument, petitioner points out that an interim calculation of DNI during the trust's taxable year may exceed DNI measured at the end of the trust's year if after the interim calculation the trust incurs losses or expenses chargeable to the income beneficiary.

But it does not logically follow that simply because DNI is usually calculated at the end of a trust's taxable year, it is only included in the gross income of the beneficiary on the last day of the trust's taxable year. We see no reason why interim calculations of both DNI and income distributable under State law cannot be made daily during the trust's taxable year. 81 T.C. 260">*270 Indeed, such an interim calculation of distributable income was in fact made in 11 T.C. 178">Grant v. Commissioner, supra, and would, in effect, be required under section 1.652(c)-3, Income Tax Regs., 1983 U.S. Tax Ct. LEXIS 44">*66 in a case where the existence of a beneficiary which is not an individual terminates prior to the end of a simple trust's taxable year.

In addition, the fact that interim distributable income or DNI may exceed distributable income or DNI measured at the end of the trust's taxable year does not mean that there is no distributable income or DNI until the last day of the trust's taxable year. (In such a case, a downward adjustment of interim distributable income or DNI may be necessary so as not to overtax the beneficiary; but we express no opinion on whether such an adjustment would be necessary since in the instant case Trust 5A's distributable income and DNI on December 31, 1975, clearly exceeded distributable income and DNI measured on an interim basis on November 23, 1975.)

Finally, petitioner argues that section 652(c) implies an end-of-year inclusion rule for the trust income. That subsection provides that when the taxable year of a beneficiary differs from that of the trust, the beneficiary must include in his income the amount of trust income for the taxable year or years of the trust ending within or with the beneficiary's taxable year. The case before us does not involve such 1983 U.S. Tax Ct. LEXIS 44">*67 different taxable years. Unquestionably, however, there is inherent in section 652(c) the implicit assumption that the respective statuses of the trust and the beneficiary will not have changed from year to year, and the section simply does not deal with atypical situations such as, for example, the situation where no trust year ends with or within the taxable year of a beneficiary who dies. Admittedly, section 652(c) is conceptually at odds with the "moment of receipt" concept articulated in 291 U.S. 35">Freuler v. Helvering, supra, but we view provisions such as section 652(c)¹⁴ as legislative rules of convenience limited to different taxable year situations which should not be expanded to cover other cases, such as the one before us, where an analogy would be inexact at best.

81 T.C. 260">*271 In any event, whether or not in a change-of-status case a beneficiary who employs a different taxable year from his trust would be required to include the trust income daily as realized by the trust is an issue we need not deal with here. But cf. Schimberg v. United States, 245 F. Supp. 616">245 F. Supp. 616 (N.D. Ill. 1965), 1983 U.S. Tax Ct. LEXIS 44">*68 affd. 365 F.2d 70">365 F.2d 70 (7th Cir. 1966), where the courts upheld income bunching in decedent beneficiary's last taxable year when he and two trusts employed different taxable years.

Having thus concluded that the beneficiary of a simple trust realizes taxable income simultaneously with the trust's realization of income, we now turn to the language of section 1.871-13(c), Income Tax Regs. That regulation provides that foreign source income "received" before the abandonment of U.S. Citizenship is taxable to the subsequent expatriate. Conversely, foreign source income "earned" while an American citizen but received while a nonresident alien is not taxable.

It is our view that under the foregoing analysis and section 1.871-13(c), Income Tax Regs., the income of the simple trust in question should be taxed to Petschek, on the same basis as it would have been had he owned the trust assets directly. ¹⁵ Thus, Petschek's share of the income is to be considered his property from the moment of its receipt by the trust ( 291 U.S. 35">Freuler v. Helvering, supra), regardless of whether it might have been distributed to him, and thus "received" by him, after the date upon which he surrendered his U.S. citizenship. 1983 U.S. Tax Ct. LEXIS 44">*69 By the same token, had the trust "earned" income (e.g., accrual interest income) during Petschek's period of U.S. citizenship, but actually received the income after such citizenship ended, Petschek would not, in turn, be deemed to have received such income as U.S. taxable income.¹⁶

The parties have computed the figure referred to above as $ 136,657. This amount exceeds the amount determined in the deficiency notice by $ 110. Under section 6214(a), we may 81 T.C. 260">*272 determine an increased deficiency only if respondent formally pleads an increased deficiency. 1983 U.S. Tax Ct. LEXIS 44">*70 Moise v. Burnet, 52 F.2d 1071">52 F.2d 1071, 52 F.2d 1071">1073 (9th Cir. 1931), revg. 13 B.T.A. 525">13 B.T.A. 525 (1928); Koufman v. Commissioner, 69 T.C. 473">69 T.C. 473, 69 T.C. 473">475-476 (1977). Respondent has not pleaded an increased deficiency. Accordingly, we sustain the determination in the deficiency notice.

Since petitioner has conceded all other adjustments,

Decision will be entered for the respondent.