1956 U.S. Tax Ct. LEXIS 244">*244
Trusts -- Accumulated Income --
25 T.C. 1230">*1231 The Commissioner determined the following deficiencies in income tax against petitioner:
| Year | Deficiency |
| 1949 | $ 1,342.93 |
| 1950 | 2,504.97 |
| 1951 | 2,323.84 |
The only issue before us is whether or not the Commissioner properly included in petitioner's gross income for the taxable years certain income of the Peter B. Barker Trust under section 22 (a) or
FINDINGS OF FACT.
Part of the facts have been stipulated, are so found, and1956 U.S. Tax Ct. LEXIS 244">*246 the stipulation and attached exhibits are included herein by reference.
Petitioner is an individual residing in Chicago, Illinois. His income tax returns for the years in question were filed with the collector of internal revenue for the first district of Illinois.
Petitioner became 21 years of age on January 8, 1949. At that time he had had no business experience, was single, physically fit, and subject to draft into the Armed Forces of the United States. He had little appreciation of "what a dollar was worth."
Petitioner was drafted into the armed services of the United States in August 1950. He served in Korea and was wounded in the fall of 1952. Prior to his induction, his father, Lewis Barker, talked with him about the creation of a trust for the purpose of conserving his assets until he became more mature and could "hold onto his money."
As a result of these talks petitioner on January 10, 1949, executed and delivered as donor an indenture of trust in which the City National Bank and Trust Company of Chicago, Lewis Barker, and Winifred G. Barker, his mother, were designated as trustees. The trust was designated the Peter B. Barker Trust.
Pursuant to the trust indenture1956 U.S. Tax Ct. LEXIS 244">*247 petitioner delivered and assigned to the trustees certain properties consisting primarily of shares of stock, his interest in another trust, and life insurance policies on his own life 25 T.C. 1230">*1232 and that of his father. The trust indenture,
1. It recited that the donor (petitioner) has arrived at the age of 21, has come into the possession of substantial property and is desirous of conserving his property and a substantial portion of the income thereof until such time as he shall have had sufficient business experience to adequately handle and manage the same.
2. The trust was to continue until January 8, 1963, at which time, in the event the donor was still living, the trust was to terminate and the trustees were to deliver over to the donor all of the trust corpus and all the accumulated and undistributed income thereof.
3. In the event the donor should marry and die prior to January 8, 1963, leaving a wife and issue, or leaving issue only surviving, the trust was to continue for the benefit of his wife and issue or for the benefit of the issue only until such issue attained their respective majorities at which time the trust 1956 U.S. Tax Ct. LEXIS 244">*248 estate was to be distributed by the trustees to the wife or child then living.
4. In the event donor should die prior to January 8, 1963, leaving neither wife nor issue surviving, the corpus and accumulated and undistributed income of the trust estate was to be distributed to Lewis Barker and Winifred G. Barker, or the survivor of them. The trust document further provided that in the event neither Lewis Barker nor Winifred G. Barker was then living, distribution should be made to the brother and sister of the donor.
5. The trust document further provided that yearly payments should be made to the donor in each of the years of the trust in sums ranging from $ 1,800 per year, the first year of the trust, to $ 3,000 due in the fifth year and in each subsequent year of the trust. Also that if, because of accident, sickness or other emergency, or unusual condition of any kind presently unforeseen, or, if in the judgment of said trustees the donor should be in need of funds in addition to the net income payable to him pursuant to the foregoing provisions, the trustees may, out of the accumulated and undistributed income of the trust estate, pay to the donor for his own use and benefit 1956 U.S. Tax Ct. LEXIS 244">*249 such sum or sums as in the absolute and uncontrolled opinion of the trustees shall be reasonably sufficient to relieve the need then felt. The trustees were also to pay to donor after the first 3-year period all income earned on accumulated and undistributed income.
6. The trust instrument provided for broad managerial powers on the part of the trustees.
7. It was also provided that the trust was irrevocable. However, the trust could be altered or amended by a written memorandum executed both by donor and the trustees in order to provide for such matters as the designation of successor trustees or the powers of investment 25 T.C. 1230">*1233 of the trust funds. The gifts and distributions of income or corpus as outlined in the trust instrument could not be changed or amended.
The Peter B. Barker Trust filed fiduciary income tax returns for the years 1949, 1950, and 1951.
Trust income was reported by the trustees for each of the years in question and the income reported by the trustees as distributed to petitioner (including monies paid as premiums on life insurance held in the trust) was reported by petitioner in his income tax returns for each of the years in question. Income of the trust1956 U.S. Tax Ct. LEXIS 244">*250 was reported as follows:
| 1949 | 1950 | 1951 | ||
| Income less deductions | $ 9,093.45 | $ 12,706.49 | $ 12,045.74 | |
| Less: Insurance premiums paid on | ||||
| petitioner's life | $ 607.80 | $ 607.80 | $ 607.80 | |
| Insurance premium paid on | ||||
| the life of petitioner's father | 629.60 | 574.80 | 573.50 | |
| Paid to petitioner | 1,500.00 | 2,075.00 | 2,375.00 | |
| Income from trust reported by petitioner | $ 2,737.40 | $ 3,257.60 | $ 3,556.30 | |
| Net income reported by trust | 6,356.05 | 9,448.89 | 8,489.44 | |
Petitioner did not include in his income the income accumulated by the Peter B. Barker Trust.
Commonly used standard mortality tables show that the actuarial probability of a male aged 21 attaining the age of 35 is a minimum of 96.85 per cent and a maximum of 97.3968 per cent.
Petitioner was married in March 1954 and at the time of the hearing herein had a wife and child.
OPINION.
In taxing the accumulated but undistributed income of the trust to petitioner the Commissioner places reliance on the broad terms of section 22 (a) and also on
On the facts of this case, we think the controversy is to be decided on the basis of is, or 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 may be, held or accumulated for future distribution to the grantor; or 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; * * *
Here there is no question about that portion of the trust income which was actually paid over to petitioner or applied to pay premiums on the insurance policies held in trust. Petitioner included such income 25 T.C. 1230">*1234 in his returns and paid the tax on it. The issue here arises with respect to the trust income which was accumulated but not paid over to petitioner. Is the petitioner also accountable for such accumulated income? We think he is.
The corporate trustee as such had no substantial adverse interest in the disposition of the trust income. Neither do we think the other two trustees (the father and mother of petitioner) had a substantial adverse interest in the disposition1956 U.S. Tax Ct. LEXIS 244">*252 of the income. Whether they had such an interest is largely a question of fact.
Furthermore, the trustees do have discretion almost without limit to distribute all income1956 U.S. Tax Ct. LEXIS 244">*253 of the trust to petitioner. The trust instrument vests the power to distribute the income to petitioner in the absolute and uncontrolled opinion of the trustees.
If, because of accident, sickness or other emergency, or unusual condition of any kind, presently unforeseen, or, if in the judgment of said Trustees, the Donor [petitioner] shall be in need of funds in addition to the net income payable to him [otherwise under the instrument] * * *
Under somewhat similar circumstances this tribunal has held trust income to be taxable to the grantor although undistributed, under sections 166 and 167. In
The so-called contingencies, "any accident, sickness, calamity, misfortune, adversity, bereavement or loss, financially or otherwise", the occurrence of one of which gives rise to the right1956 U.S. Tax Ct. LEXIS 244">*254 to call for distributions from the trust, are so broad and all-embracing that the use and enjoyment of the income and, if necessary, the corpus by petitioner, is, for practical purposes, almost as complete as if she had retained title to the property. Petitioner has merely set aside in the hands of a trustee an amount of her excess capital to be held and accumulated as a protection to herself and her children against a "rainy day." These named contingencies 25 T.C. 1230">*1235 permit her, if she cares to do so, and secures the acquiescense of the trustee, to cause the expenditure of the income, and if necessary the corpus, for the needs for which she would normally have used and expended the property had no trust been created. * * *
The fact that the grantor, under the terms of the trust in the
Petitioner contends that if we hold as above indicated it is tantamount to holding that petitioner is taxable with income which is income of the trust and which is not income of petitioner, and accordingly that the
Petitioner also makes the point that there is nothing in the record to indicate that the trust in question was set up to avoid taxes. But even if this is so petitioner cannot thus avoid the incidence of the statute which we think plainly charges him with taxes on the accumulated income of the trust.
Our view of the case makes it unnecessary to discuss the applicability of section 22 (a) or of the
