5 T.C. 803">*803 This case involves deficiencies in income tax determined by the Commissioner as follows:

The question involved is whether the petitioner is taxable upon the income of two trusts set up by him for his two sons as beneficiaries.

We entered a memorandum findings of fact and opinion herein on January 14, 1943, holding in effect that the petitioner was taxable upon the entire trust income involved, under the doctrine of Helvering v. Stuart, 317 U.S. 154">317 U.S. 154, though only a part was actually used for the support of the sons, 1945 U.S. Tax Ct. LEXIS 74">*76 minors in the taxable years. Upon appeal, the Circuit Court of Appeals for the Sixth Circuit reversed, holding that only so much trust income was taxable to the petitioner as was actually required and used for the support of the minor sons, but the court remanded the case with directions to determine the taxability of the petitioner under section 22 (a) of the Internal Revenue Code, which we had not found necessary of consideration. Since the remand, the parties have filed a second supplemental stipulation of facts, further evidence has been taken, and further pleadings proffered. The matter, therefore, now arises upon consideration of section 22 (a) of the Internal Revenue Code, and of the Revenue Acts of 1936 and 1938.

Though findings of fact were made on the previous consideration, since additional facts now appear, from supplemental stipulation and evidence, for the sake of clarity and integrated examination of the question we make the following findings of fact.

FINDINGS OF FACT.

We find the facts to be as stipulated by the parties. So far as deemed material to consideration of the issue, they are set forth in these findings.

5 T.C. 803">*804 The petitioner is an individual, residing1945 U.S. Tax Ct. LEXIS 74">*77 in Cleveland Heights, Ohio. His income tax returns for the taxable years here involved were filed with the collector for the eighteenth district of Ohio. The return for 1936 was filed, under extension of time granted, on April 15, 1937.

The petitioner has served continuously as a director and as president of the Cleveland Graphite Bronze Co. (sometimes herein called Graphite) since 1919. Directors of the Cleveland Graphite Bronze Co. since 1919 have been elected annually to serve for one year. Petitioner since 1919 has been elected a director of said corporation by the unanimous vote of all stockholders present in person or by proxy at such annual meetings, and has been elected president of said corporation by unanimous vote of the directors each year since 1919.

On December 31, 1935, the petitioner owned 33,049 shares of the common stock (the only class of stock outstanding during 1936-1939) of the Cleveland Graphite Bronze Co., and on the same date his wife owned 10,000 shares. Petitioner held more stock than any other individual, the holding nearest his own being 11,000 shores. Each share of common stock was entitled to one vote throughout the taxable years. In the year 1945 U.S. Tax Ct. LEXIS 74">*78 1936 petitioner's holdings of the stock decreased to 25,099 shares, and in 1938 to 24,099 shares. The total shares outstanding during the years 1935 to 1939 was 321,920, of a par value of $ 1 each.

At the stockholders' meetings of the Cleveland Graphite Bronze Co. the following percentages of the outstanding stock of that company were voted in the respective years:

The number of stockholders of the common shares of the Cleveland Graphite Bronze Co. varied from 1,002 on December 31, 1935, to 1,741 on December 31, 1939.

Twelve directors were elected in each of the years 1936 and 1937, and eleven in each of the years 1938 and 1939.

On December 31, 1935, petitioner, then 61 years of age, transferred 2 certificates, each representing 5,000 shares of the stock, to Central United National Bank of Cleveland (now Central National Bank of Cleveland), to be held and administered by it and himself as cotrustees in accordance with the terms of two agreements and declarations of trust then executed by him, each involving one of his sons and one 5,000-share certificate.

Paragraph 5 of each of the trust instruments provides1945 U.S. Tax Ct. LEXIS 74">*79 in part as follows:

5. I reserve the right at any time during my lifetime to change the Corporate Trustee herein or hereafter appointed by me to such other bank or trust company 5 T.C. 803">*805 in the United States as I may designate in writing, * * * In any event said successor corporate trustee shall be a bank or trust company in the United States having the necessary corporate powers to succeed as corporate trustee hereunder and a capital and surplus of not less than Four Million Dollars ($ 4,000,000.00). * * *

Paragraph 7 of each instrument empowers the trustees, among other things, to collect the income and profits arising from trust assets then transferred to the trustees or later acquired by them, to sell, exchange, lease, and otherwise dispose of trust assets; to invest and reinvest trust funds in such loans, stocks, securities, or real estate as they may deem proper without regard to statutes, rules, or practices of courts limiting trust investments; to retain any property or securities transferred to the corporate trustee without liability for depreciation; to determine whether money or property coming into possession of the corporate trustee should be treated as principal or 1945 U.S. Tax Ct. LEXIS 74">*80 income and to apportion expenses and losses to principal or income as they deem just; to borrow money upon such terms and at such times as they deem proper for the protection or improvement of the trust estates; to compromise claims in favor of or against the trust estates; to make distributions of trust assets in kind; to manage all property as if held by them as absolute owners; to vote all stocks or securities in the trust estate; and to exchange securities for other securities issued by the same or another corporation, whether or not in connection with the reorganization, consolidation, or merger of any corporation.

Other pertinent provisions of one of the trust instruments follows:

14. The Trustees shall not use any part of the income of the trust estate to pay any insurance premiums on any policy of insurance on my life held as a part of the trust, but such premium or premiums may be paid from the principal of the trust estate, if the Trustees deem it advisable so to do.

15. The net income from the trust estate shall be accumulated and added to the principal of the trust estate until my son Ben F. Hopkins, Jr., arrives at the age of twenty-one years and thereafter the net income1945 U.S. Tax Ct. LEXIS 74">*81 shall be paid to him monthly so long as he lives, provided, however, that so long as I am living and competent to act, there may be and shall be paid to and applied and utilized for my son Ben F. Hopkins, Jr., from the net income and/or principal such sum or sums, and at such time or times, and in such manner as I may, in my sole discretion, deem to be to his best interests. Any income not paid to, nor expended nor utilized for my said son shall be accumulated and added to the principal of the trust estate.

16. Upon the death of my son Ben F. Hopkins, Jr., the trust estate remaining unconsumed at his death shall vest in and be distributed in such shares and amounts, and in such manner, as my son Ben F. Hopkins, Jr., may appoint by last will and testament or codicil; provided, however, this power must be exercised in favor of one or more of the following, to-wit: My son's widow, the lawful issue of my son's body, my son's mother, and his brothers.

The corresponding provisions of the other instrument are the same, except that the beneficiary named therein is John B. Hopkins, another of petitioner's sons.

5 T.C. 803">*806 Provision is made in paragraph 17 of each instrument, in case of the1945 U.S. Tax Ct. LEXIS 74">*82 failure of either son to exercise his testamentary power of appointment, for gifts over the remainder to the issue of such son, or in default of issue to petitioner's other sons and their issue per stirpes, subject to certain rights of the widow of the deceased son to receive the income from one-half of the remainder. This paragraph also contains the following provision:

* * * Should it occur at any time that there are no living beneficiaries hereunder, then this trust shall terminate and the trust estate shall vest in and be distributable to The Cleveland Foundation of Cleveland, Ohio.

Paragraph 18 of both instruments contains spendthrift provisions directing that the trustees shall hold all income and principal, and in their discretion expend only such sums as they deem proper for the maintenance of any beneficiary or his wife or children, in the event that he attempt to alienate or encumber his interest, or upon the occurrence of any event which would result by operation of law in its alienation or encumbrance.

Paragraph 19 of both instruments provides:

19. This settlement is made without any right of revocation or recall in me, but the right is reserved to me, during my life, 1945 U.S. Tax Ct. LEXIS 74">*83 in case it is found or considered that this instrument is uncertain or incomplete in any respect, to from time to time modify the terms of this instrument, but only for the purpose of clarifying, defining or enlarging the powers of the Trustees to facilitate the administration of the trust estate. Any such modification shall be by written instrument signed by me and delivered to the Corporate Trustee.

Each trust instrument also gave the grantor power to add other property to the trust, with the corporate trustees' consent.

Paragraph 8 provides, in effect, that the trustees should, to the extent deemed by them advisable, assist petitioner's executors to pay estate, succession, or inheritance taxes by making loans to him and to purchase assets of the estate from him, at market values, if any, or if none, at values deemed by the trustees reasonable and fair.

During the year 1936 the trustees of each of the trusts sold 3,350 shares of Graphite stock. Said stock was sold through F. Eberstadt & Co., acting as broker, to Robert Benson & Co., 24 Old Broad Street, London, England. The purchasers of said stock were not related to and had no connection with the petitioner or any member of1945 U.S. Tax Ct. LEXIS 74">*84 his family. After completion of the sales each of said trusts owned 1,650 shares of said stock and no further sales or purchases of the stock have been made by the trustees of the trusts.

On January 13, 1939, petitioner executed two supplemental trust agreements wherein, reciting the power of modification reserved to himself in paragraph 19 of the original instruments, he directed that the trustees during the life of his sons Ben and John, and upon written 5 T.C. 803">*807 request by either, should have the discretionary power to make payments out of trust corpus for the maintenance, comfort, support, and education of such son, or of his wife or children. This grant of power was stated for the purpose of perpetuating, after petitioner's death, the power reserved to himself by paragraph 15 of the trust instruments; the trustees were directed, in its exercise, to consider petitioner's "own steadfast purpose to provide adequate and suitable financial support for my son." Both supplemental instruments also directed the trustees, upon written request by either of the two sons, to pay to him out of the principal fund of the trust estate a sum sufficient to purchase or to build a suitable dwelling1945 U.S. Tax Ct. LEXIS 74">*85 house for his own use.

Both trusts continued in force during all of the taxable years, and both of the supplemental trust agreements of January 13, 1939, continued in force during the remainder of that year. Petitioner did not exercise his power to appoint a different corporate trustee.

Ben F. Hopkins, Jr., was born July 30, 1919, and John B. Hopkins was born July 18, 1920. Both were minors during all of the taxable years involved. The petitioner was amply able to provide for their support during that period. He never directed that any payments of principal or income of the trust funds be made to them, and no part of the income or principal received or held by the trustees was distributed, but all income was accumulated and added to the corpus of the trust from which it arose.

During the years 1936, 1937, 1938, and 1939, the entire support, maintenance, and education of petitioner's minor sons, Ben F. Hopkins, Jr., and John B. Hopkins, in a manner consistent with the petitioner's station in life, were provided by petitioner from petitioner's own separate funds. The amounts required and expended by the petitioner for such purposes during the years 1936, 1937, 1938, and 1939 were1945 U.S. Tax Ct. LEXIS 74">*86 not in excess of the following:

Petitioner also supported the two sons after they became of age.

The net income of the Ben F. Hopkins, Jr., and John B. Hopkins trusts, as disclosed by the fiduciary return of income for the designated years, were respectively: 5 T.C. 803">*808

The capital gains shown in the foregoing figures reflect percentage reductions provided for in section 117 of the Internal Revenue Code. The amounts of said capital gains, before reduction by such percentages, were as follows:

1945 U.S. Tax Ct. LEXIS 74">*87 The trustees added the amount of all capital gains to the corpus of the trust from which they arose.

On March 24, 1936, the petitioner added insurance policies on his own life to the corpus of each trust. During the taxable years there became due on such insurance policies premiums in the total amount of $ 17,920.11 in the Ben F. Hopkins, Jr., trust and $ 17,658.74 in the John B. Hopkins trust. At or about the times the premiums on the said policies became payable, petitioner supplied to the trustees sufficient funds to pay the said premiums, which amounts were added to the principal of the said trust. Premiums were paid by the trustees from such source, and no amounts of income or accumulated income were ever expended by the trustees of the aforesaid trust estate in the payment of premiums on policies assigned to the trust or on any other policies on the life of petitioner or any other person.

The petitioner reported in his individual Federal income tax returns for the taxable years as follows:

Capital gain was included in the 1945 U.S. Tax Ct. LEXIS 74">*88 petitioner's income tax return for 1936 to the extent of $ 95,332.73.

5 T.C. 803">*809 At the time of setting up the trusts for his two sons, petitioner stated that they were "bread and butter trusts for the boys" to protect them in the event that his fortunes changed, so that they might have support in their own lives.

The sale of the 3,350 shares of stock in the Cleveland Graphite Bronze Co. by each trust in 1936 was suggested by the vice president in charge of the estate trust department of the Central National Bank of Cleveland, which was the corporate trustee in both trusts. The reason for the sale was to secure a diversification of the assets in the trust. The petitioner acquiesced in the sale.

There was never any controversy in the election of the petitioner as president and director of the Cleveland Graphite Bronze Co.

The petitioner never suggested the technical provisions of the trust, but left that matter to his attorneys and the trustee. He did not suggest to them that he sought any personal benefit out of the creation of the trusts. The provision of the trusts with reference to the right of the petitioner as grantor to direct distributions of principal for the best interest1945 U.S. Tax Ct. LEXIS 74">*89 of his sons was suggested by the attorneys and the vice president of the Central National Bank of Cleveland. The petitioner understood that he could not be a beneficiary in any way himself. The purpose of the trusts was to assure the boys the necessities of life as long as they lived, regardless of other financial situations.

In setting up the trusts petitioner did not consider effect upon his relationship with the Cleveland Graphite Bronze Co., and the same was true when the trustees sold stock in that company.

The bank, as corporate trustee, kept possession of the trust property and kept the books relative thereto. Petitioner did not dictate to the bank, rarely made suggestions, and practically without exception followed the recommendations of the bank's trust officers, who administered the trust like any other under their supervision. As to trust investments, the practice of the bank was to suggest purchases to petitioner by letter, which he studied and approved, or made counter proposals.

OPINION.

The respondent contends that the petitioner is taxable, under section 22 (a) of the Internal Revenue Code, upon the income of the two trusts involved under the principles laid down1945 U.S. Tax Ct. LEXIS 74">*90 in Helvering v. Clifford, 309 U.S. 331">309 U.S. 331. The petitioner contends that there is no occasion, under all of the facts here involved, for the application of that section or decision.

We have studied the many cases cited to us by both parties, with relation to the many facts involved, and set forth in our findings above, and we have come to the conclusion that the petitioner is taxable upon the trust income. Not every element relied upon by the respondent 5 T.C. 803">*810 supports that conclusion. Thus, we do not think the fact that the original trust corpus was stock of the Cleveland Graphite Bronze Co. is of particular importance. About two-thirds of it was soon sold in order to diversify the securities. The petitioner's holdings of that stock, though larger than those of any other stockholder, were a very small percentage of the stock, and the whole record convinces us that the petitioner's connection with that company was not such as to affect the present question. Nor do we give effect to respondent's idea that income of the trusts was applied to the payment of premiums upon policies of insurance on the life of the grantor. Though suggesting this in1945 U.S. Tax Ct. LEXIS 74">*91 the facts requested, respondent does not argue the point. Under the remand of this case, we are to consider only section 22 (a), and may not consider section 167 (a) (3) of the Internal Revenue Code, as to payment of life insurance premiums. In any event, however, the petitioner supplied the money with which each premium was paid, and it went only temporarily into the trust funds, so that we do not think the premiums should be considered as paid by the trustees. Nevertheless, the powers reserved to the grantor were so broad and of such a nature that, in our opinion, under the cited cases the trust income should be taxed to him. In addition to other broad powers the petitioner had, under section 15 of each trust instrument, the power so long as he lived and was competent to act, and within his sole discretion, to require that there be paid to and applied and utilized for each of his sons from net income and/or principal such sums as he deemed to the best interests of his sons. Considering what has been said on the subject of such powers reserved to the grantor, we do not consider it necessary to discuss or enumerate many cases cited by both parties, which are found not to touch1945 U.S. Tax Ct. LEXIS 74">*92 the question of the particular power here found.

It is obvious, we think, that the petitioner under section 15 had the right to "spray" the net income of the trusts as between primary beneficiaries and the remaindermen within the thought of Commissioner v. Buck, 120 Fed. (2d) 775, and more particularly within the decision in Stockstrom v. Commissioner, 148 Fed. (2d) 491, affirming 3 T.C. 255. In the Stockstrom case, as to the trusts for the grandchildren, the grantor had reserved to himself, in addition to other broad powers, in effect the same power involved in section 15 of the trust instruments here involved. Discussing the point, the Circuit Court says:

* * * As to the income of the trusts for his grandchildren, petitioner as trustee could make payments to the grandchild-beneficiary or accumulate all or any part of the income during the lifetime of such beneficiary and "the Trustee shall decide as to the disbursement * * * of any current or accumulated income * * * and as to whether any income * * * shall be accumulated and the decision of the Trustee in such matter shall be 1945 U.S. Tax Ct. LEXIS 74">*93 conclusive and 5 T.C. 803">*811 binding on all parties in interest." Income which had been accumulated in any of the ten trusts during the life of the primary beneficiary was on the latter's death to become part of the remainder, the same as principal. To the extent of his power as trustee to accumulate, petitioner thus could control the disposition of income as between life-beneficiary and remaindermen (in addition to his power in the case of the trusts for his children, on any distribution of income made by him, to choose or apportion between the child-beneficiary and any or all of the latter's children). The record shows that during the taxable years involved, in both the trusts for his children and those for his grandchildren, petitioner had exercised a discretion as to the distribution to or the withholding of income from a primary beneficiary. The primary beneficiaries were not able to realize anything from the trusts, either directly or indirectly, except through distributions by the trustee, for the trust instruments all contained a spendthrift provision preventing the assignment of any interest in either principal or income and any seizure by attachment, garnishment or other process1945 U.S. Tax Ct. LEXIS 74">*94 for a beneficiary's debt or liability.

The Tax Court said in its opinion: "The apparent purpose of the trusts * * * was to allocate the income from property owned by the donor-trustee taxpayer to members of his immediate family * * * and at the same time effect a retention by the donor during his life of control over that property equivalent for all practical purposes to the control which he held before the trust gifts, and a control over the amount of income available to the beneficiaries of the trusts thus established by him. * * * There is no question but that he had the broadest administrative powers over the trust corpus. His powers over the distribution of the trust income were * * * [also] substantial. * * * In all of the trusts the immediate payment of any income to any beneficiary was in his sole discretion. While it is true that any trust income not paid out was to be accumulated in the trust, this retention of the power over the purse strings with regard to the members of his immediate family who were beneficiaries would warrant our conclusion that 'the direct satisfactions of pater familias are thus virtually undiminished, as are those indirect satisfactions * * * 1945 U.S. Tax Ct. LEXIS 74">*95 which the Supreme Court regards as noteworthy indicia of taxability.' See Commissioner v. Buck [2 Cir.], 120 Fed. (2d) 775, p. 778. When this power of the settlor-trustee over the distribution of the trust income is combined with extraordinarily broad administrative powers over the trust corpus, we can not escape the conclusion that the doctrine of Helvering v. Clifford [309 U.S. 331">309 U.S. 331] is applicable and the incomes of the trust are taxable to the settlor."

The language above summarizes the views of this Court and of the Circuit Court upon the question there presented, and, since we are unable to distinguish the situation in the Stockstrom case from the one here presented, it expresses in substance our views herein.

The petitioner points out particularly what was said in J. M. Leonard, 4 T.C. 1271, in effect as distinguishing the Stockstrom case and indicating the view of this Court. We find in that case, however, a situation essentially different from the one here involved, for there the grantor did not retain power to direct in his sole discretion the course of principal or1945 U.S. Tax Ct. LEXIS 74">*96 income, because 10 percent of the trust estate (not to exceed the sum of $ 10,000) was required to be delivered to the beneficiary at the age of 21, and at the age of 30, 25 percent was required to be delivered, while at the age of 50 years the trustees were required to 5 T.C. 803">*812 deliver the remainder of the trust estate. Moreover, the trust terminated after 20 years and 10 months after the death of the last of the three living children. Though the grantor did reserve some considerable discretion in the Leonard case, it is apparent, we think, that the mandatory distributions above recited distinguish the situation from that in the Stockstrom case. It is distinguished in the Leonard case, where we pointed out that the trusts in the Stockstrom case were for the lifetime of the beneficiaries and that the settlor-trustee was not required to distribute any part of the income to any of the beneficiaries during his lifetime, while in the Leonard case we said: "Leonard had no powers to cause the shifting of income from one beneficiary to another such as were present in the Stockstrom or Buck cases." We pointed out also in the Leonard case that "They reserved1945 U.S. Tax Ct. LEXIS 74">*97 no power or right to direct that the income or principal of the trusts be paid to beneficiaries other than those named in the trusts." We clearly think, therefore, that the Leonard case is not helpful here.

The case of Joel E. Hall, 4 T.C. 506, was relied upon by the respondent herein, but has since been reversed, Hall v. Commissioner, 150 Fed. (2d) 304. In our view, however, the situation there is distinguishable from the instant case, for we find there that the trust was for a period of fifteen years, at the end of which time all assets were required to be distributed to the beneficiaries; and the court, after citing the Buck, Stockstrom, and other cases, for the statement that, "it has been held that the power to shift the income from one beneficiary to another is the realization of economic gain within the statute," goes on to say:

* * * In our case the trustee was authorized in his discretion to withhold the distribution of income, but he could not shift it from one beneficiary to another -- nor could he hold it during his lifetime or the lifetime of the beneficiaries as in the Stockstrom and Miller1945 U.S. Tax Ct. LEXIS 74">*98 cases, and cases cited therein. The trustee could not change the beneficial interest of the beneficiary; he was not authorized or empowered to "reduce or obliterate" the share of principal or interest originally allocated to any of the beneficiaries. At the expiration of the trust, fifteen years from the date of its execution, the corpus and economic income must be distributed to the beneficiaries or their issue. * * *

Plainly, therefore, since in the instant case the petitioner as grantor had the power completely to withhold the income and the trust endured during the lifetime of the beneficiary, the Hall case is of no assistance, but indicates rather that, under the circumstances involved in the situation here at hand, the answer would be different.

Petitioner also cites Alex McCutchin, 4 T.C. 1242; David Small, 3 T.C. 1142; and Alice Ogden Smith, 4 T.C. 573. The McCutchin case involved two sets of trusts, the first of which did involve some discretion until the beneficiaries reached the age of 25, but after that age the entire net income was required to be distributed to the1945 U.S. Tax Ct. LEXIS 74">*99 beneficiaries. As to those trusts we distinguished the situation from that 5 T.C. 803">*813 involved in the Stockstrom and Buck cases. As to other trusts for the benefit of the grantor's parents, we held that the grantor was taxable under section 22 (a), under the doctrine of the Buck and Stockstrom cases, and pointed out that the beneficiaries were to be paid, within the discretion of the trustee, that undistributed income was to be accumulated, and that the whole was to vest in the grantor's sons upon the death of the primary beneficiary. The case, therefore, is authority for the view we here take. The Small case, with reference to discretion in the distribution or withholding of income, concerned only the minority of children, for upon the attainment of the age of 21 any accumulations were required to be paid over to such child. The case is not authority upon the present question. In Alice Ogden Smith, supra, all income accumulated was to be paid to the beneficiary at the age of 30 years, so that any discretion in withholding would not benefit other beneficiaries or remaindermen, whereas in the instant case the beneficiaries might1945 U.S. Tax Ct. LEXIS 74">*100 never receive any benefit of the trusts. Had the petitioner in his sole discretion concluded that his sons were amply provided for otherwise, or earning all he thought they needed, he had the power to direct the benefits of the trusts either to the limited beneficiaries under the wills of his sons, or, upon their intestacy, to their issue or their widows, or in default thereof to a certain foundation in Cleveland, Ohio. Such power reserved to the grantor, when added to the other broad powers exercisable by the petitioner, in our opinion, indicate that he retained a control equivalent to an enjoyment taxable under section 22 (a).

We conclude and hold that the Commissioner did not err in adding the trust income to the petitioner's gross income.

With respect to the statute of limitations (section 275 (a) of the Revenue Act of 1936) pleaded (by amendment permitted) by the petitioner as to the year 1936: Since the petitioner relies upon the three-year statute, and does not contend that more than five years elapsed after the filing of return before issuance of notice of deficiency, and since the facts above set forth show omission of more than 25 percent of gross income, properly includible1945 U.S. Tax Ct. LEXIS 74">*101 under our conclusions above, it is apparent that in any event the five-year statute, section 275 (c) of the Revenue Act of 1936, has not run, so that, even if we were, under the remand of this case for determination under section 22 (a), free to consider the question of limitations, none would apply.

Decision will be entered for the respondent in the amounts determined in the deficiency notice.