text:
    John S. Mack, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 89719.
    Promulgated January 26, 1939.

      Samuel Kaufman, Esq., for the petitioner.

      Lewis S. Pendleton, Esq., for the respondent.
   OPINION.

Hill:

The question for determination here is whether or not the transfers effected under the three trust instruments referred to in our findings of fact above constituted gifts subject to tax under section 501 of the Eevenue Act of 1932, which imposes a tax upon the transfer in trust or otherwise by any individual of property by gift. In respect of all three trusts, it is conceded that petitioner, as grantor, did not in terms retain any power to alter, amend or revoke, and can not revest in himself or his estate any legal or beneficial interest in the property transferred.

We shall first consider the two trusts established for the benefit of petitioner’s sons, since the trust instruments, in so far as material to the question presented, contain substantially the same provisions.

Petitioner contends that the transfers in trust for the benefit of his two sons were not present gifts within the purview of section 501, supra, for the reasons (1) that the grantor reserved to himself and his wife, during their lifetimes, the power to direct distribution of both income and principal; (2) that upon the death of the named beneficiaries the grantor may designate other beneficiaries both as to principal and income; and (3) that the gifts do not become effective in possession or enjoyment until at or after the death of the grantor. In support of his contentions, petitioner cites and relies upon Hesslein v. Hoey (C. C. A., 2d Cir.), 91 Fed. (2d) 954.

In the cited case it was held that there was no gift tax liability under a transfer in trust where the grantor divested himself of all beneficial interest in the property transferred but reserved the power to alter the disposition of the property in any way he might from time to time see fit, save only that the alteration must not revest any interest in himself or his estate.

The question here of whether or not there was a gift depends on whether there was a vested present or future title to the trust property in a named or ascertainable beneficiary or beneficiaries. By the terms of the trust instrument the grantor parted irrevocably with all title to, and economic interest in, the trust property. The trust instrument specifically designated certain persons who are to take fixed proportions of the trust estate as beneficiaries upon the happening of certain contingencies and subject to the retained powers by the grantor to direct a partial or complete distribution of the trust property during his lifetime.

Except through the exercise of powers retained by the grantor, none of the trust property, either corpus or income, is to be disposed of or distributed during his lifetime. The distribution of the undistributed trust estate, if any, after the death of the grantor is to be made to the then living distributees designated in the trust instrument. So long as the grantor shall live he will have power to determine whether any of the beneficiaries named in the trust instruments, other than his sons, shall ever receive any of the trust property, or whether they shall receive a less amount of such property than that provided in the trust instruments.

Through an exercise of the powers retained by the grantor the manner of disposition of the trust corpus and income as prescribed by the terms of the trust instruments may be materially modified or completely changed. In fact, either trust may in effect be terminated at any time during the lifetime of the grantor by the complete distribution at his direction of all the trust property to his son, or in the event of the death of the son, then to any member or members, whom he may appoint, of the families of the grantor and his son. Such a distribution of the trust property at the direction of the grantor would operate to eliminate as beneficiaries of the trusts all other persons designated as such in the trust instruments. Such exercise of the retained powers by the grantor would be tantamount to a revocation of the trusts and a substitution of other terms than those of the trust instruments as to the distributees of the trust property. Even if the grantor should choose to direct a distribution of less than the whole of the trust property to his sons or to a selected member or members of his or his sons’ families, such action would so alter or change the terms of the trust instruments as to affect materially the economic interests of the designated beneficiaries of the trusts.

Under any view of the potentialities of the retained powers by the grantor it can not be ascertained or determined during the lifetime of the grantor who the distributees will be or what the extent, if any, of their interests in the trust property will be. It can not, therefore, be held that there was a gift in praesenti of the trust property so long as the grantor has the power to direct a distribution thereof contrary to the terms of the trust. Even the grantor’s sons, independently of the exercise of the grantor’s retained powers, will take nothing under the trust instruments until or after the death of the grantor. Neither will the sons take anything if they should predecease the grantor. If either son be not living at the time of the death of the grantor other distributees named in the trust instrument may take by substitution, but not in remainder, the income and corpus of the trust which would have been distributable to the son had he survived the grantor. In the event of either son’s death prior to that of the grantor there will have been no intervening estate or title vested in him prior to that which may be vested in the substituted distributees.

Independently of the exercise of the retained powers by the grantor in their behalf the sons’ interests in the trust property will vest only upon their surviving the grantor and at the death of the latter. If any interest in the trust property shall vest in either son prior to the death of the grantor it will be because of the exercise in his behalf of the retained powers by the grantor, and not by virtue of the terms of tlie trust instrument. Such a vesting would constitute a gift to him independently of the trust. The son’s enjoyment or possession of the trust property by virtue of the trust instrument will take effect only at or after the death of the grantor.

Under this state of facts, upon the death of the grantor the property conveyed in trust would be includable in his estate for estate tax purposes under section 803 of the Eevenue Act of 1932, which is in part as follows:

SEC. 803.-future INTERESTS.
(a) Section 302 (c) of tlie Revenue Act of 1926, as amended by the Joint Resolution of March 3, 1931, is amended to read as follows:
“(c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, * * * intended to take effect in possession or enjoyment at or after his death, * * * or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money’s worth. * * *”

See also section 401 of the Eevenue Act of 1934, amending section 302 (d) of the Eevenue Act of 1926, to read in part as follows:

(d) (1) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter amend, or revoke, * * *

Cf. Porter v. Commissioner, 288 U. S. 436; Port v. Helvering, 69 Fed. (2d) 836; Commissioner v. Chase National Bank of New York, 82 Fed. (2d) 157; Hoblitzelle v. United States (Ct. Cls.), 3 Fed. Supp. 331; Cook v. Commissioner, 66 Fed. (2d) 995; Witherbee v.. Commissioner, 70 Fed. (2d) 696.

A gift of property, the possession or enjoyment of which is to' take effect only at or after the death of the donor, or a gift of property in certain designated proportions to certain named persons,, with power retained by the donor during his lifetime to change-materially the economic interests of the donees in such property, or-to eliminate entirely certain of the named donees from participating; in such gift, is not a gift in praesenti.

The title to such property vests in the donees only at the death, of the donor and is not a transfer that is subject to the gift tax.. Such property would be includable in a deceased donor’s estate for estate tax purposes under section 302 (c) of the Eevenue Act of 1926, as amended by section 803 (a) of the Eevenue Act of 1932, and. section 302 (d) of the Eevenue Act of 1926 as amended by section-401 of the Eevenue Act of 1934. Except in the case of gifts in contemplation of death, the provisions of the statute imposing the gift tax and of the statute imposing the estate tax are mutually exclusive. Cf. Colonial Trust Co., Executor, 38 B. T. A. 1398; Harriet W. Rosenau, 37 B. T. A. 468; Burnet v. Guggenheim, 288 U. S. 280.

On the question of whether there was a gift in praesenti, the instant case is distinguishable from the case of Helvering v. St. Louis Union Trust Co., 296 U. S. 39. In that case the net income of the trust was to be paid to the trustor’s daughter during her life, with remainder over to persons named. The trustee had power to terminate the trust whenever he might deem it wise to do so, whereupon the estate was to revert to the grantor. The indenture provided that if the daughter predeceased the grantor the trust should terminate and the trust estate be paid over and delivered to the grantor absolutely. The Commissioner assessed a deficiency in estate tax against the estate of the grantor under section 302 (c) of the Kevenue Act of 1924, on the theory that the transfer to the trustee was one intended to take effect in possession or enjoyment at or after his death. The Supreme Court in its opinion said:

The grant was final and absolute in terms, and beyond the power of the grantor to revoke or alter. At the death of the grantor, neither of the contingencies upon which the trust estate would revert to the grantor had taken place.
* % # * .•}; #
The event which gives rise to the [estate] tax is the death of the decedent, with the resulting transfer of his estate either by will or the law relating to intestacy. When, therefore, section 302 (c) includes within the purview of section 301 (a) a transfer inter vivos “intended to take effect in possession or enjoyment at or after his death,” it does so upon the theory that such a transfer in effect is testamentary; that is to say, a substitute for either a disposition by will or a passing in virtue of intestacy.
*******
“Complete ownership of the gift, together with all its incidents, has passed during the life of both donor and donee, and no interest of any kind remains to pass to one or cease in the other in consequence of the death which happens after-wards. * * *”
The property brought into the estate by subdivision 302 (c) for the purpose of the tax is, as said by this court in Reinecke v. Trust Co., 278 U. S. 339, 348, * * *
“Either property transferred in contemplation of death or property passing out of the control, possession or enjoyment of the decedent at his death.”
* * # * # * ijt
It is not, in reason, possible to find in the circumstances anything which suggests that the death of the grantor, whenever it might happen, would effect any change, or was intended to effect any change, in the extent or quality of the estates conveyed in trust. The only death which could have had any such effect was that of the daughter, the grantee, and that event did not take place.

In that case the gift was in praesenti and was a life estate in the donee, the enjoyment and possession of which took effect immediately and was not postponed until or after the death of the donor. The death of the donor did not, as the Court said, “bring into being or ripen for the donee or any one else, so far as the gift was concerned, any property right or interest which can be the subject of any form of death tax.”

In the St. Louis Union Trust Co. case the death of the donor “simply put an end to what, at best, was a mere possibility of a reverter by extinguishing it; that is to say, by converting what was merely possible into an utter impossibility.” The present case is distinguishable in that only the death of the donor will render determinable the extent of the exercise or nonexercise of a power of voluntary control over the disposition of the trust property materially different from that prescribed by the trust instrument, and not until his death can the status of the beneficiaries named in the trust instrument relative to their interests, if any, in the trust property, be determined. Such interests as the named beneficiaries may have in the trust property being determinable only upon the death of the grantor, their possession and enjoyment thereof can take effect only at or after the death of the grantor.

In the St. Louis Union Trust Co. case the grantor had absolutely no control over the contingencies which might operate to reinvest in him the trust property. In the instant case there can be no re-verter of either title or economic interest in the grantor, but during his lifetime he has the retained power to control the disposition of the property as among the named beneficiaries and some persons not so named, even to the exclusion of some of them.

In the instant case, until the death of the grantor it will be impossible to determine who will be the distributees of the trust property or the extent of their distributable shares, if any, unless the grantor during his lifetime shall have directed a complete disposition of all of the trust property under his retained powers so to do.

Generally speaking, the cases which hold that there was a gift in praesenti of trust property, notwithstanding a contingent reversion thereof to the grantor, are cases in which there was an irrevocable conveyance in trust for the benefit of a named beneficiary for life, with the condition that upon the death of such beneficiary the fund then in the hands of the trustee was to be transferred back to the grantor if then living. In such a case the grantor can do nothing to change the effect of the indenture of trust. In such a case the property is beyond his control, except for the happening of a contingency over which he has no control, and the rights of the beneficiary do not depend either upon the death of the grantor or upon the exercise of retained powers during his lifetime.

That is not the situation in the present case. It is true that the term of the trust is not measured by the life of the grantor, but he has retained power to determine the term of the trust by terminating it through directing a complete distribution of the trust property at any time during his lifetime. For this reason the trust has no assured life beyond the grantor’s lifetime, and it can not be said that during his lifetime the term of the trust is measurable by any determinable period. Whether or not the term of the trust shall extend beyond the lifetime of the grantor depends on whether or not the grantor shall make a complete distribution of the trust property during his lifetime. The trust as a functioning entity, freed from the power of the grantor to change its terms, can not begin to operate until after the death of the grantor; nor even then if the grantor shall have directed a complete distribution during his lifetime of all the trust property.

Except as to his sons, the grantor has the power so to alter or modify the terms of the trust as to exclude every beneficiary designated in the trust instrument from ever enjoying or possessing any interest in the property in question. What then did he give, if anything, to his sons by the terms of the trust, and upon what conditions? He gave them at his death, (a) the accumulated income, if any, (b) not to exceed 50 percent of the principal of the trust, payable in specified installments if and when they should attain certain ages, and (c) the current income of the trust for life. If, however, either son should predecease the grantor, he would receive nothing by virtue of the; trust. His survival of the grantor is a condition precedent to the vesting of title in the son. There was, therefore, no gift to either son in praesenti of any of the trust property, but only ai gift to take effect in enjoyment or possession at or after the death of the grantor. Cf. Klein v. United States, 283 U. S. 231.

In the case of Thomas E. Wells, 34 B. T. A. 315; affd., 88 Fed. (2d) 339 (C. C. A., 7th Cir.), the only question involved was whether the gift was one of present or future interests. The Commissioner determined a deficiency in gift tax on the theory that the gift was of future interests, and that hence the taxpayer was not entitled to exclude therefrom the amount of $5,000 in determining the taxable amount of the gift. The taxpayer created three irrevocable trusts, one for each of his three minor children, and transferred shares of corporate stock to each of the three trusts. Each of the trust instruments provided as follows: (1) That the income of the trust, after payment of expenses, taxes, etc., be accumulated until the beneficiary reached the age of 21 years or died before that time; (2) upon reaching the age of 21 years the beneficiary was to receive the income until he reached the age of 30 years, or until the death of his mother, whichever occurred first, then he was to receive the corpus; and (3) in the event of the death of the beneficiary before the time of the distribution of the trust, the corpus was to go to his children, and in default of issue, to other children of the taxpayer.

The present proceeding is distinguishable from the Wells case in the following essental particulars: In that case the interest of the beneficiary in the trust property became unalterably fixed and irrevocable upon the creation of the trust. Neither the trustor nor any one else had any power to alter or modify the provisions or term of the trust. The death of the trustor had no relationship to the vesting of the! interest of the beneficiary or to his possession or enjoyment of the trust property. The! term of the trust was measured by a certain specified period in the life of the beneficiary or, in the alternative, by the term of his life should his death occur within such specified pei’iod. In the latter event, the trust provided that certain ascertainable persons should take the trust property, with no power in the trustor to appoint others so to take.

For the reasons indicated, we hold that the two transfers in trust for the benefit of petitioner’s sons were not gifts subject to the tax imposed by section 501, supra.

The instrument creating the trust for the benefit of petitioner’s wife provided that the trustee should pay the income to her for life without restriction, and so much of the principal as the grantor during his lifetime might direct. The wife was also given a general power of appointment by will or codicil over the principal of the trust as it might exist at her death. If the wife predeceased the grantor without exercising her power of appointment, then the grantor reserved the right to direct distribution of income and principal to such distributees, exclusive of himself, as he might appoint. The balance of the trust property not so distributed was to be paid over to the trustees of the Mack Foundation.

Thus, it appears that the grantor divested himself of all beneficial interest in the trust property and relinquished any present right of control with respect to the designation of beneficiaries. The possibility of reversion to the grantor of the power to name other beneficiaries depended upon the happening of two future contingencies, neither of which was under his control, namely, (1) the death of his wife during his lifetime, and (2) her failure to exercise her general power of appointment. In our opinion, the mere possibility of the reversion of such a power of control is too remote to render the transfer to the trustee for the benefit of petitioner’s wife nontaxable as a gift. Cf. Nanaline H. Duke et al., Executors, 23 B. T. A. 1104; affd., 62 Fed. (2d) 1057; affd., 290 U. S. 591; Helvering v. St. Louis Union Trust Co., supra, at page 45; Tait v. Safe Deposit & Trust Co. of Baltimore, 74 Fed. (2d) 851, 857; Commissioner v. Stokes, 79 Fed. (2d) 256, 258; Sydney B. Bliss, 26 B. T. A. 962, 966.

As to the trust for the benefit of his wife, petitioner argues that the transfer should not be taxable as a gift for the reason that if the wife died during the lifetime of the grantor without exercising her power of appointment, the grantor might then appoint the entire amount of the principal to a charity, and such ultimate transfer would not be subject to a gift tax. The answer to this contention is that petitioner as grantor now has no present power to make such an appointment, and the contingencies by virtue of which alone he might reacquire such a power may never happen. We think it is clear that, under the doctrine of the Duke case and other decisions above cited, petitioner has retained no such interest in or control over the trust corpus as would, if cut off by death, subject the property to the estate tax as a part of his gross estate.

Where the grantor of a trust retains a general power of appointment the corpus must be included in his gross estate under section 302 (c), Revenue Act of 1926, as amended, and this is true even though the trust instrument be irrevocable, Harriet W. Rosenau, supra. But the petitioner in the instant case retained no such power; by express provision he gave the power to his wife, and the trust corpus will therefore be taxable as a part of her gross estate, not of petitioner’s. In such situation, the fact that the corpus of the trust may be included in the wife’s gross estate at her death is no sufficient reason to hold that the prior transfer in trust of the property by gift from petitioner to his wife should not be subject to the gift tax imposed by section 501, supra.

Decision will be entered under Rule 50.


source: Caselaw Access Project

author: ArNold :

license: Public Domain

text:
    Edythe C. Young as Executrix of the Last Will and Testament of William J. Young, Jr., Deceased, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 90414.
    Promulgated January 27, 1939.

      John W. Townsend Esq., for the petitioner.

      Harold F. Noneman, Esq., for the respondent.
   OPINION.

ArNold :

Petitioner contends that the right of deduction is specifically granted by section 303 (a) (1) of the Revenue Act of 1926, as a claim allowed by the laws of the jurisdiction under which the estate is being administered, that the claim is not founded upon a promise or agreement but upon a decree of a court of competent jurisdiction, which decree is founded on an obligation imposed by law.

Respondent disallowed the deduction on the ground that the claim is founded upon a promise or agreement to pay alimony during the lifetime of the decedent’s former wife and contends it was not incurred for adequate and full consideration in money or money’s worth within the meaning of sections 804 and 805 of the Revenue Act of 1932, amending section 303 (a) (1) and (d) of the Revenue Act of 1926.

Section 303 (a) (1) and (d) of the Kevenue Act of 1926, as amended by sections 804 and 805 of the Kevenue Act of 1932, and as further amended by section 403 (a) of the Revenue Act of 1934, is set out in the margin, in so far as applicable.

The first question to determine is whether the claim was founded upon a promise or agreement. If not so founded, the provisions of the act with reference to consideration will hot be applicable. We think the claim was not founded upon a promise or agreement, but was founded upon the divorce decree in which alimony was awarded in a fixed sum of $4,500 per year, payable annually during the lifetime of Katherine P. Young.

It is true that Katherine P. Young and the decedent entered into an agreement during the pendency of the divorce proceedings which provided inter alia for the payment of alimony in the event a decree for divorce was granted, but the wife’s right to alimony grows out of the legal duty of the husband to support her and not out of a promise or agreement. Martin v. Martin, 65 Iowa, 255; 21 N. W. 595; Wilson v. Hinman, 182 N. Y. 408; 75 N. E. 236; Wagner v. Wagner, 132 Mich. 343; 93 N. W. 889; Stahl v. Stahl, 114 Ill. 375; 2 N. E. 160; Emerson v. Emerson, 120 Md. 584; 87 Atl. 1033. “The judgment for alimony does not create a new obligation or duty in that respect. It but determines the extent of the existing obligation, and regulates the manner of its performance.” Martin v. Martin, supra.

Even if the parties have settled their property rights, and have made provision for the support of the wife by a written agreement, the court may disregard the agreement and award such alimony as it deems right. In such case the right to alimony is predicated on the action of the court and not upon the agreement of the parties. Douglas v. Willcuts, 296 U. S. 1; Parsons v. Parsons, 152 Iowa, 68; 131 N. W. 17; Wilson v. Wilson, 40 Iowa, 230. Section 10481 of the Iowa Code of 1935 provides that when a divorce is decreed, the court may make such order in relation to the children, property, parties, and the maintenance of the parties, as shall be right, and may make subsequent changes in these respects when circumstances render them expedient.

In O'Hagan v. O'Hagan, 4 Iowa, 509, it was held that the obligation to pay alimony is a personal one and terminates upon the death of either party, but, where the decree awards alimony during the life of the wife, and the court has acted upon the whole question during their joint lives, the decree has the same force and validity as any other judgment, and upon the husband’s death may be enforced against his estate.

After the marriage was dissolved in 1917, Katherine P. Young was no longer a member of decedent’s family, and the only relationship which existed between them was that of a judgment creditor and a judgment debtor. As a judgment creditor she was vested with the same rights to enforce her claim which the law gives to all other creditors of that class. Schooley v. Schooley. 184 Iowa, 835; 169 N. W. 56, 58.

It would seem to follow that the claim which Katherine P. Young asserted against the decedent’s estate rested immediately upon the' judgment and decree of the Iowa court, which in turn was a judicial determination of the amount required from decedent to discharge an obligation imposed by law. Neither the obligation, nor the amount thereof, was created or determined by the agreement of the parties. The law imposed the one and the decree of court determined and adjudicated the other.

Both parties rely upon our decision in the Estate of Eben B. Phillips, 36 B. T. A. 752, as determinative of this case. The Phillips case involved two claims, both of which were founded upon contract. One claim rested upon an agreement whereby the husband made provision for his wife, through the creation of a trust, in consideration of her relinquishment of dower and all other marital rights. Thereafter the husband obtained an uncontested divorce. It does not appear that the contract with the wife was in any way made a part of the divorce decree. The predivorce contract with the wife was subsequently modified by the parties in particulars not presently material. Another agreement was entered into concerning the support of children. Following the death of the husband there was litigation as to the liability of the estate under the agreement for the support of the children. There was no showing that the wife’s claims were presented and adjudicated in that or any other litigation. We held that the claim for deduction founded on the contracts with the wife was not allowable. Deduction was denied because the contracts were in settlement of dower or other marital rights and the statute expressly prohibits the treatment of such claims as allowable deductions. Cf. Empire Trust Co., Executors, 35 B. T. A. 866; aff'd., 94 Fed. (2d) 307. The claim for support of children, adjudicated by the local court having jurisdiction over the estate, was held to be an allowable deduction. Not only was the claim enforceable against the estate, but the conversion of the father’s obligation for support of his minor child into a fixed amount was considered to be adequate and full consideration.

The facts here make this case distinguishable from the Phillips case. The claim here is not founded on the promise or agreement between husband and wife in settlement of dower or other marital rights in the decedent’s property or estate, but upon the decree of the Arizona court which recognized the obligation imposed upon the estate by the decree of the Iowa court. The claim against the estate rests upon alimony, which is not founded on contract, express! or implied, but on the natural and legal duty of the husband to support the wife. Audubon v. Shufeldt, 181 U. S. 575. In Iowa neither the right to support nor the right to alimony create an interest in the wife in her husband’s property or estate, Martin v Martin, supra, and since the limitation contained in section 303 (d) is bottomed upon the relinquishment or promised relinquishment of rights “m the decedent's property op estate,” it can not be said that Katherine P. Young’s relinquishment of her claim for alimony was a relinquishment of a right in either decedent’s property or in his estate.

In view of the foregoing discussion it is our opinion that the amount paid in satisfaction of the claim for alimony is a proper deduction from the decedent’s gross estate. In so holding we have assumed that the petitioner is entitled to the entire amount of the deduction claimed, if, as a matter of law, she is entitled to any deduction whatever, since the parties have tried and briefed the issue upon that theory.

It is admitted that subsequent to the issuance of the deficiency notice, the petitioner consented to the immediate assessment and collection of $420 of the alleged deficiency, in order to avoid the accrual of interest; thereon during the pendency of this proceeding. The inference is that payment of the $420 was made, but, the admissions in the pleadings and the stipulation of facts are insuificient to support a finding that the $420 was actually paid. If payment of this portion of the asserted deficiency has been made, there has been an overpayment of tax, and decision will be entered accordingly.

Decision will be entered under Bule 50.

       Sec. 303. For the purpose of the tax the value of the net estate shall be determined—
      (a) In the case of a citizen or resident of the united States, by deducting from the value of the gross estate—
      (1) Such amounts—
      *******
      (C) for claims against the estate,
      *******
      (E) » * * as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered * * *. The deduction herein allowed in the case of claims against the estate, unpaid mortgages, or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money’s worth. * * *
      (d) * * * For the purposes of this title, a relinquishment or promised relinquishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent’s property or estate, shall not be considered to any extent a consideration “in money or money’s worth”


author: Steenhagen:

text:
    Estate of Nathan H. Gordon, Sarah A. Gordon, Bernard L. Gorfinkle and Max I. Mydans, Executors, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 82614.
    Promulgated January 27, 1939.

      Maurice H. Horblit, Esq., for the petitioner.

      Stanley B. Pierson, Esq., for the respondent.
   OPINION.

Steenhagen:

In determining Gordon’s income tax for 1932, the Commissioner included the $43,642.97 in his taxable income, saying “This office holds that under the provisions of the trust instruments the undistributed income was held or accumulated for future distribution to you and that the income so accumulated and added to principal is taxable income to you under section 167 of the Revenue Act of 1932.” This determination Gordon’s executors assail.

The facts clearly show that the Commissioner’s determination is in error. The taxpayer, regardless of what right, power, or interest he may have had in the income of any or all of the six trusts during earlier years, had before 1932 divested himself of it entirely by transferring it to the corporation. If the corporation were wholly dissociated from Gordon, there would have been no conceivable theory of the statute under which the accumulated trust income could have been taxed to him. For one may effectively relieve himself from tax by assigning his interest in a trust from which he has been deriving income. Blair v. Commissioner, 300 U. S. 5.

The Commissioner urges that because of Gordon’s relation to the corporation and the Foundation Trust, by which the corporation’s shares were owned, “control of the entire situation was in petitioner’s hands, and the purported transfer to the corporation of his rever-sionary interests in the trusts numbered 1 to 6 did not diminish his interests therein.” The evidence, however, shows that the “purported” transfer was genuine and it must be recognized as such. The corporation was an operating legal person which had been in existence and active since 1923, and there is nothing in the evidence to support a finding that it was in reality less or different from the separate corporation it purported to be or to justify disregarding it. The Foundation Trust owned all the corporation’s shares. This trust! was, however, managed by six trustees, of whom a majority was needed to authorize a disposition of trust property; and the taxpayer was only one of the six. His power to remove and substitute trustees is not the equivalent of a power to acquire the corporation’s shares in the trust fund. The fact that Gordon had been paid a salary by the corporation in earlier years or that there were borrowings and lend-ings to and by it does not serve to obliterate it or prove it a sham. Indeed the accurate accounting by both the borrower and lender in recognition of the indebtedness and its fluctuations tends rather to support the recognition of them as genuine.

The Commissioner’s determination is reversed.

Decision will be entered under Bule 50.


author: Black:

text:
    Walter C. Janney and Pauline F. M. Janney, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 86849.
    Promulgated January 31, 1939.

      Bernhard Knollenberg, Esq., for the petitioners.

      James D. Mead, Jr., Esq., for the respondent.
   OPINION.

Black:

The Commissioner has determined a deficiency in income tax against petitioners for the year 1934 of $37,109.29.

The petition assigns two errors, as follows:

(1) The respondent has erroneously disallowed a loss of $89,963.35 sustained by the petitioner, Walter C. Janney, upon the sale of capital assets during said year 1934, notwithstanding the inclusion in the petitioners’ joint return for said year 1934 of gains from the sale of capital assets by the petitioner, Pauline F. M. Janney, in the amount of $94,491, in contravention of sections 51 (b) and 117 (d) of the Revenue Act of 1934.

(2) The respondent has erroneously attributed a capital loss of $729.82 (appearing in the petitioners’ joint return as an item in arriving at a net income of $21,564.31 from the W. C. Janney trust) to the petitioner, Walter C. Janney, whereas in fact said W. C. Janney trust was created by the petitioner Pauline F. M. Janney and said capital loss should be attributed to her and allowed as a deduction against the capital gains of said petitioner, Pauline F. M. Janney, in any event.

A stipulation has been filed which disposes of issue (2) above in petitioners’ favor. Effect will be given to this stipulation in a recom-putation under Pule 50.

The facts in this proceeding have all been stipulated and we adopt them as our findings of fact. The following resumé of the facts will suffice for the purposes of this opinion :

The petitioners are husband and wife, residing at Bryn Mawr, Pennsylvania, and were living together throughout the year 1934. During the year 1934 the wife, Pauline F. M. Janney, realized gains from the sale of capital assets in the amount of $127,501.02. The amount of such gains to be taken into account under section 117 (a) of the Kevenue Act of 1934 was $94,491. During the year 1934 the husband, Walter C. Janney, suffered losses from the sale of capital assets in the amount of $229,544.66, of which the amount to be taken into account under section 117 (a) of the Kevenue Act of 1934 was $91,963.35.

The petitioners filed a single joint return for the year 1934 with the collector of internal revenue for the first district of Pennsylvania at Philadelphia, Pennsylvania. In this return the capital gains of the wife, in the amount of $94,491 as stated above, were included in gross income, and the capital losses of the husband in the amount of $91,-963.35 were deducted in toto. The joint return showed a net income (including other items not concerned in this case) of $26,160.30, on which normal and surtaxes in the amount of $1,648.91 were computed.

In determining the deficiency the respondent, in accordance with the provisions of article 117-5 of Regulations 86, determined that the losses of petitioner Walter C. Janney from the sale of capital assets could not be applied to reduce the gains realized by petitioner Pauline F. M. Janney from the sale of capital assets. Accordingly, respondent refused to permit the losses of petitioner Walter C. Janney from the sale of capital assets in the amount of $91,963.35 to be offset against the gains from the sale of capital assets in the amount of $94,491 realized by petitioner Pauline F. M. Janney for the purpose of computing their net taxable income for the calendar year 1934, except to the extent of the $2,000 limitation provided for by section 117 (d) of the Kevenue Act of 1934. By reason of such holding, respondent increased the capital gain reported by the petitioners on their joint return by an amount of $89,963.35.

The applicable sections of the statute and the Treasury regulations promulgated in pursuance thereof are printed in the margin. By a reading of article 117-5 of Regulations 86 it will be seen that the situation which we have in the instant case is specifically covered thereby.

It is well settled that regulations promulgated by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, and pursuant to authority granted in the statute, have the force and effect of law if they are reasonable and are not in conflict with some express provision of the statute. Maryland Casualty Co. v. United States (1920), 251 U. S. 342, 349, and cases there cited; United States v. Eliason (1842), 16 Pet. 291; Ex parte Reed (1879), 100 U. S. 13; In re Kollock (1897), 165 U. S. 526; Alfred E. Fuhlage (1935), 32 B. T. A. 222, 229.

The petitioners concede that the aforementioned regulation is applicable and that it sustains the action taken by the Commissioner in his determination of the deficiency, if it is valid. Petitioners contend that the regulation is invalid in that it puts an interpretation on the provisions of section 117 (d) of the Revenue Act of 1934 which is not justified by the language of that provision when read in conjunction with other provisions of the same revenue act. Petitioners’ contention may be summarized to be briefly this: That in applying section lit (d) to a joint return filed by husband and wife it should be construed as if it read thus:

In a joint return of husband and wife losses of both spouses from sales or exchanges of capital assets shall he allowed only to the extent of $2,000 plus the gains of both spouses from such sales or exchanges.

When we consider that it is now well settled that although husband and wife may, under the permission granted them by law, file a joint return, they are nevertheless regarded as separate taxpayers, we think the construction of section 117 (d) for which petitioners contend is not admissible. A very similar contention was made in II. Denny Pierce et al., 37 B. T. A. 225, as to the construction of section 23 (r) (1) of the Revenue Act of 1932, but we denied it.

In the Pierce case husband and wife filed a joint income tax return. The husband realized profits in the taxable year from sales of securities held less than two years but sustained no losses from such sales. The wife sustained losses in the taxable year from such sales but realized no profits from like sales. We held that under section 23 (r) (1) of the Revenue Act of 1932 the wife could not deduct the loss from her gross income not connected with the sale of securities held less than two years; nor could the husband in a joint return offset the wife’s loss against his profits from the sale of securities held less than two years.

Section 23 (r) (1) of the Revenue Act of 1932, which was involved in the Pierce case, reads as follows:

(r) Limitation on Stock Losses.—

(1) Losses from sales or exchanges of stocks and bonds (as defined in subsection (t) of this section) which are not capital assets (as defined in section 101) shall be allowed only to the extent of the gains from such sales or exchanges (including gains which may he derived by a taxpayer from the retirement of his own obligations). * * *

While section 117 (d) of the Revenue Act of 1934, involved in the instant case, deals with the subject of “Limitation on Capital Losses”, whereas section 23 (r) (1) of the Revenue Act of 1932 deals with the subject of “Limitation on Stock Losses” from the sale of securities held for less than two years, we can see no valid reason why a different construction should be given to section 117 (d) of the Revenue Act of 1934 in applying it to a joint return of husband and wife than that which we gave under similar circumstances to section 23 (r) (1) of the Revenue Act of 1932 in the Pierce case. Our decision in the Pierce case was recently affirmed by the Second Circuit in Pierce v. Commissioner, 100 Fed. (2d) 397.

On the authority of the Pierce case, supra, we affirm the Commissioner in applying the provisions of section 117 (d) of the Revenue Act of 1934 to the joint return filed by petitioners.

Decision will be entered under Rule 60.

       Revenue Act of 1934—
      SEC. 51. individual RETURNS.
      $***«»*
      (b) Husband and Wife. — If a husband and wife living together have an aggregate net income for the taxable year of $2,500 or over, or an aggregate gross income for such year of $5,000 or over—
      (1) Each shall make such a return, or
      (2) The income of each shall be included in a single joint return, in which ease the tax shall be computed on the aggregate income.
      SEC. 117. CAPITAL GAINS AND LOSSES.
      (d) Limitation on Capital Losses. — Losses from sales or exchanges of capital assets shall be allowed only to the extent of $2,000 plus the gains from such sales or exchanges.
      Regulations 86—
      A«t. 51-1. — * * * A husband and wife living together for the entire year need make no returns unless their aggregate gross income for the taxable year is at least $5,000, or their aggregate net income is at least $2,500. If their aggregate net income for the taxable year is $2,500 or more, or their aggregate gross income is $5,000 or more, either each must make a return or the income of each must be included in a single joint return. * * * If the income of each is included in a single joint return, the tax is computed on the aggregate income and all deductions and credits to which either is entitled shall be taken from such aggregate income. A joint return of husband and wife may be filed only if they were living together at the close of their taxable year. If one spouse dies prior to the last day of the taxable year, the surviving spouse may not include the income of the deceased spouse in a joint return for such taxable year. * * *
      Am. 117-5. Application of section lit in the case of husband and wife. — In the application of section 117, a husband and wife, regardless of whether a joint return or separate returns are made, are considered to be separate taxpayers. Accordingly, the limitation under section 117 (d) on the allowance of losses of one spouse from sales or exchanges of capital assets is in all cases to be computed without regard to gains and losses of the other spouse upon sales or exchanges of capital assets.


author: Murdock: Ofper,

text:
    Jay C. Hormel, Petitioner, v. Commissioner of Internal Revenue, Respondent. George A. Hormel, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 89114, 89115, 93571, 93572.
    Promulgated January 31, 1939.

      H. A. Mihills, G. P. A., for tbe petitioners.

      W. Frank Gibbs, Esq., for tbe respondent.
   OPINION.

Murdock:

Tbe Commissioner determined deficiencies as follows:

J. C. Hormel

The petitioners created several trusts in 1934 and filed gift tax returns reporting tbe transfers as subject to gift tax. Thereafter they did not include in their income the income of the trusts, which, under the terms of the trusts, was payable to others. The Commissioner has determined deficiencies in gift tax due to an increased valuation of the stock transferred and, at the same time, he has included the income of the trusts as a part of the income of the grantors. The parties have agreed upon the value of the stock and the petitioners do not resist a gift tax in case the income is not taxable to them. The respondent seems to concede that the gift tax is due only in case the income is not taxable to the grantors. See Harriet W. Rosenau, 37 B. T. A. 468. The facts have been stipulated and are hereby found in accordance with the stipulation.

J. C. Hormel created a trust on July 16, 1934, and transferred shares of stock to that trust. He named himself and another as cotrustees and provided that all net dividends up to, but not to exceed, the sum of $25,000 per year, were to be paid to his wife, Germaine D. Hormel, and all excess dividends were to be paid to himself. The trust was to terminate upon the death of the wife, at which time the corpus of the trust was to become the property of the grantor, his heirs, or persons named in his will. The grantor retained no power to revoke, alter, or amend the trust. George A. Hormel created a similar trust in 1934, under which he and his wife Lillian were the beneficiaries.

J. C. Hormel, on July 16, 1934, created three other trusts naming himself and another as trustees, and conveying to each trust some shares of stock. These trusts were similar to the trusts already mentioned with the following exceptions: Dividends up to, but not to exceed, $2,000 per year, in the case of each trust, were to be paid to the grantor’s wife as guardian for one of their minor children, and the guardian was to receive the funds “for the use and benefit of” one of the children; excess dividends were to be paid to the grantor; and each trust “shall be automatically revoked and shall terminate at the expiration of three years from and after the date hereof” or upon the earlier death of either of the beneficiaries.

The explanation given in the deficiency notices for taxing to the grantors the income of the trusts which was payable to others, is that section 166 of the Revenue Act of 1934 applies. That section is entitled “Revocable Trusts” and provides:

■Where at any time the power to revest in the grantor title to any part of the corpus of the trust is vested—
(1) in the grantor, either alone or in conjunction with any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom, or
(2) in any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom,
then the income of such part of the trust shall be included in computing the net income of the grantor.

Each of these trusts was irrevocable. At no time during the period of the existence of any trust was there vested in the grantor, either alone or in conjunction with any other person not having a substantial adverse interest, or in any person not having a substantial adverse interest, a power to revest title to any part of the corpus of the trust in the grantor. The fact that title to the trust corpus was to revest in the grantor or his heirs upon the termination of the trust does not serve to bring it within section 166. John Edward Rovensky, 37 B. T. A. 702; Meredith Wood, 37 B. T. A. 1065; Henry A. B. Dimming, 36 B. T. A. 1222. The trust in the Wood case was for a period of three years. The question of the applicability of section 166 was discussed in the above cited cases and requires no further discussion here. The respondent recognizes that those decisions are against him but argues that they should not be followed. However, we choose to follow them.

The respondent does not suggest that the line of cases beginning with Douglas v. Willcuts, 296 U. S. 1, has any application to the income of the trusts payable to the wife, but he does argue that the principle of those decisions is applicable in the case of the income of the trusts for the benefit of the children, which income he says is taxable to the grantor under section 167. The Board has already considered a similar contention in the cases of Henry A. B. Dunning, supra, and Ralph L. Gray, 38 B. T. A. 584. We held in those cases that, where a grantor created a trust and provided that the income from the trust was payable to or for the use of a beneficiary, without any restriction as to the use which might be made of the income, the income was not taxable to the grantor even though he owed a duty of support, maintenance, or education to the beneficiary. The Circuit Court' of Appeals for the Second Circuit took the same view in Shanley v. Bowers, 81 Fed. (2d) 13. We thus drew a distinction between such cases and cases like Douglas v. Willcuts, supra; Helvering v. Schweitzer, 296 U. S. 551; Helvering v. Blumenthal, 296 U. S. 552; Helvering v. Coxey, 297 U. S. 694; Helvering v. Grosvenor, 85 Fed. (2d) 2, where the grantor expressly required that the income be; used to discharge some obligation which he owed to the recipient. No authority is cited which has held that income is taxable to a grantor where he has failed to require that it be used to discharge an obligation of his. Cf. Hudson v. Jones, 22 Fed. Supp. 938; E. E. Black, 36 B. T. A. 346; Martin F. Tiernan, Trustee, 37 B. T. A. 1048.

The trust instrument in the Gray case provided that the corpus of the trust was to be divided into three equal parts; one called the wife’s share, another called the son’s share, and another called the daughter’s share. The following provision of the instrument relates to the use which was' to be made of the income from the son’s share until he reached the age of 22, and there was a similar provision in regard to the income from the daughter’s share:

The net income from the Son’s Share shall be paid, quarter-annually as nearly as practicable, to the said Anna Marie Gray until such time as the son of the Settlor, Stewart Sill Gray, shall reach the age of twenty-two (22) years or until the death of the said Stewart Sill Gray if the said Stewart Sill Gray shall die before reaching the age of twenty-two (22) years, provided that if prior thereto, the said Anna Marie Gray shall die or the marriage relation between the said Anna Marie Gray and the Settlor shall be terminated, then from and after the date of her death or the date of such termination of :said marriage relation, the net income shall be paid and/or expended for the benefit of the said son of the Settlor, Stewart Sill Gray, and/or accumulated all as hereinafter provided. So long as the said Stewart Sill Gray shall remain a minor, the Trustee shall have the discretion to pay the net income or such part thereof as the Trustee in his, its or their discretion shall determine and at such periods and in such installments as the Trustee in his, its or theiir discretion shall determine, to the natural guardian or the testamentary guardian or any other guardian or curator of the said Stewart Sill Gray and/or to expend so much thereof as the Trustee in his, its or their discretion shall determine for the use and benefit of the said Stewart Sill Gray and/or to accumulate so much of the net income as the Trustee in his, its or their discretion shall determine, such accumulated income, if any, to be later distributed or expended or to become a part of the principal of the Son’s Share as the Trustee in his, its or their discretion shall determine. The Trustee’s determination shall be final and conclusive upon all parties interested in the Trust Estate.

The income of the children’s shares was to be paid to them directly after they became 22 years of age, and there were provisions for distribution of the principal to them also. We held that the income was not taxable to the grantor.

The grantor here merely left the income for the use and benefit of his minor children. It is difficult to conceive how he could have placed less restriction on its use and at the same time have indicated that it was to be theirs alone. He did not require that the income be used for their maintenance, support, or education. Thus, it could have been used freely in any way whatsoever for their use and benefit, without violating the terms of the trust instrument. Although the present record does not show whether or not any of the income was actually used for their support, maintenance, and education, that circumstance is important only in contrast with the Dimming and Gray cases, where it appeared affirmatively that some of the income had been used voluntarily by the recipients for the support, maintenance, or education of the grantors’ wives or children, and we nevertheless held that the income was not taxable to the grantor. We hold, following the Dunning and Gray cases, that the income of these trusts was not taxable to the grantor. Cf. John Edward Rovensky, supra.

Cases have been presented to the Board involving trusts created for short periods where the grantor has reserved to himself practically all of the substantial benefits as owner of the property, and the Board has held that such trusts are lacking in substance to such an extent that the income is taxable to the grantor. See Estate of A. C. O'Laughlin, 38 B. T. A. 1120, and cases there cited. The respondent does not argue that those cases are applicable here and obviously they are not, because here the trusts were not lacking in substance during the three years of their existence. In the case of each of these trusts the income was actually paid in accordance with the provisions of the trust instrument. They did not leave to the grantor any substantial rights and interest in, control over, or management of the trust property during the existence of the trusts. The grantor could not use the trust property for bis own benefit or enjoyment. Thus, these trusts can not be disregarded and it can not be said that they fall within section 167 because a part of the income of the trusts might be distributed to the grantor or held for future distribution to him.

Reviewed by the Board.

Decisions will be entered wider Rule 50.

Ofper,

dissenting: Section 167, Revenue Act of 1934, provides:

(a) Where any part of the income of a trust—
‡ ‡ ‡ $
(2) may, in, the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such part of the income, be distributed to the grantor;
***##*# then such part of the income of the trust shall be included in computing the net income of the grantor.

A distribution for the grantor’s benefit, as for example the payment of an obligation of support owed by him, is the equivalent of a distribution to him. Douglas v. Willcuts, 296 U. S. 1; Helvering v. Coxey, 297 U. S. 694; Commissioner v. Grosvenor, 85 Fed. (2d) 2. Regulations 86 issued under the 1934 Act is declaratory of the same principle.

The wife here has no interest adverse to petitioner in the distribution of the income from the children’s trusts. Reinecke v. Smith, 289 U. S. 172. As the majority opinion concedes, she could have expended it for the support of the grantor’s infant children, for which he was responsible, Knutson v. Haugen, 191 Mich. 420; 254 N. W. 464, with no resulting violation of her trust. Gasquet v. Pollock, 1 (N. Y.) App. Div. 512; 37 N. Y. S. 357; see Bird v. Newcomb (Va. 1938), 196 S. E. 605, and cases there cited. And if she did so it is clear as it was in E. E. Black, 36 B. T. A. 346; Martin F. Tiernan, 37 B. T. A. 1048; Hudson v. Jones, 22 Fed. Supp. 938, and Comm issioner v. Grosvenor, supra, tbat to that extent at least the discharge of an obligation of the grantor would require that the income be treated as his. The petitioner “was responsible for the minor children’s maintenance and support, so that the transfer * * * correspondingly relieved him of his statutory duty. Such relief made him, to that extent, a beneficiary. Savage v. Commissioner (C. C. A.) 82 Fed. (2d) 92.” Clark v. Commissioner (C. C. A., 3d Cir.), 84 Fed. (2d) 725, 726.

The trusts for the benefit of petitioner’s children thus fall squarely within the terms of the statute, as it has been construed, and of respondent’s regulation. The statutory requirement that one thus benefited shall be taxed on that benefit has been relieved only to a limited degree; that is, the extent to which a petitioner can show, first, that there was no agreement express or implied by the grantor and the guardian or trustee that any part of the income should be devoted to the discharge of the grantor’s obligation of support, Henry A. B. Dunning, 36 B. T. A. 1222, 1231, 1232; and, second, that even if there be no such agreement the avails of the trust have not in fact been applied to any such purpose. E. E. Black, supra; Martin F. Tiernan, supra. While it may be conceded that there was no express provision in the trust deed requiring that the income be spent to benefit the grantor, that was possible in the wife’s discretion. On the authority of the cases last cited that evidence, of which the majority so easily disposes, was accordingly the pivotal, the controlling issue. For the sole fact which would foreclose a determination in favor of respondent would be that actually no part of the trust income was so used, a fact which, like any other, could have been proved by petitioner. His omission leads logically to the inference that it was not the fact, and legally to the result that his failure of proof requires affirmance of the respondent’s determination. Commissioner v. Grosvenor, supra.

This decision, therefore, seems to be nothing more than an overruling of the Black, and Tiernan cases in favor of the supposed doctrine of Ralph L. Gray, 38 B. T. A. 584 and Henry A. B. Dummmg, supra. The confusion and inequity inevitable in any such result may be demonstrated by what has actually occurred in the history of those very proceedings. Not only was acquiescence in the Black decision announced by respondent (1937—2 C. B. 3), but on the strength of that decision respondent’s counsel published an opinion to the effect that such trust income is taxable to the grantor only to the extent that it is actually distributed for the support of those to whom the grantor owes that duty. 1937—2 C. B. 231, G. C. M. 18972. And that opinion has been cited as authority by at least one District Court in a case very similar to this. Hudson v. Jones, supra.

Finally, the proposed conclusion finds no support in the Dimming and Gray cases on which the majority relies. The contrast made fundamental by the statute between the discretion of a beneficiary and that of a fiduciary, see Reinecke v. Smith, supra, furnishes a complete distinction from anything in those cases, which, at least in their published form, are identical with each other in their facts and conclusions. The finding in the Gray case (p. 585) that “There is no provision anywhere in the trust instrument designating the manner in which any of the income shall be expended by the wife”, is controlling, regardless of the unpublished record reproduced and re-construed in the prevailing opinion. The San Simeon (C. C. A., 2d Cir.), 68 Fed. (2d) 798, 802. Thus, in both the Dimming and Gray cases the application of the income resided in the discretion of the wife, who was the beneficiary. That she chose to apply some part of the income to the expenses of the household was immaterial because the statute never came into operation. Her discretion was that of a person with “a substantial adverse interest.” Here the wife, in whose discretion the income can be applied for the grantor’s benefit, has no interest whatever adverse to the grantor.

The majority is quite evidently confusing the two independent factors which must be considered in cases of this kind. It can not hold that payment of the children’s maintenance is not constructive receipt by the grantor without disregarding Douglas v. Will cuts, supra; On the other hand, it can not, without violating the express language of section 167, hold that such distribution to the grantor, being the result of a discretion exercised by one not adversely interested, is not taxable to the grantor. But it is enabled to reach its desired result by applying to a decision of the first question — the Douglas v. WiTlouts principle — cases where only the second question was involved, Henry A. B. Dunning and Rcilph L. Gray, supra; and by disregarding the cases where the relevant issue was considered, E. E. Black and Martin F. Tiernan, supra.

For the reasons stated I am compelled to note my dissent from that part of the majority opinion which holds that the income from the trusts for the benefit of the children is not taxable to petitioner. Had the opposite result been reached it would have been unnecessary to consider the further question of the effect of the short period for which these trusts were created. On this point I have grave doubts of the correctness of the prevailing opinion and it seems to me it is contrary to what we said not so long ago in Frances Marshall Canfield et al., Executors, 31 B. T. A. 724.

TtjRNER, Mellott, Hill, Disney, Harron, and Kern agree with this dissent.

       Akt. 167-1. Trusts In the income of which the grantor retains an interest.—
      # * # * * * *
      (b) * * * The test of the sufficiency of the grantor’s retained interest in the trust income, * * * is whether the grantor has failed to divest himself, * * * of every right which might, by any possibility, enable him to have the income, at some time, distributed to him, actually or constructively. * * *
      *******
      If the grantor has retained any such interest in the income, such income is taxable to the grantor regardless of—
      *******
      (4) whether, if such distribution results in the inuring of benefits to the grantor from the application of the income in satisfaction of his legal obligation, such obligation is * * *, to support dependents, * * * to furnish maintenance, and support or otherwise;