[1103]*1103OPINION.
Leech :
The five trusts in this proceeding were before us in Henry A. B. Dunning, 36 B. T. A. 1222, upon a deficiency proposed for the year 1933 under the Revenue Act of 1932. We there held that none of the trust income was taxable to petitioner under section 166 of the 1932 Act, but that such portion of that income as was used to pay premiums on petitioner’s life insurance was taxable to him under section 167 (a) (3) of the 1932 Act. Petitioner concedes that the latter point is res adjudicaba as to this proceeding, and that he is properly taxable with respect to such portion of the 1934 income as was used to pay premiums on policies of insurance on his life.
Respondent argues that our decision in 36 B. T. A. 1222, supra, was made under the Revenue Act of 1932 and that the change in section 166 by the Revenue Act of 1934 renders all the income of these trusts taxable to the petitioner under that section as thus amended. That change consisted in striking out the words “during the taxable year.” He advances no other ground for taxing the income of these trusts to petitioner.
The income which the respondent seeks to tax as that of the taxpayer is that of trusts which must be assumed here to be juristic entities, for tax purposes, which the taxpayer did not and could not receive at any time.
The controlling enactment reads:
SEC. 166. REVOCABLE TRUSTS.
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 * * *.
[1104]*1104The trust instruments may be susceptible of two constructions. The first is that the grantor thus created irrevocable trusts for terms of five years each. The second alternative is that the grantor taxpayer in the quoted trust deeds created trusts for terms longer than five years each.
Upon either such premise of fact, the respondent is, we think, foreclosed by decisions of the courts and the Board.
If it be found that the first alternative premise existed, then we have no more than irrevocable five-year term trusts, with a reversion, in the grantor, in each. The Supreme Court, in Helvering v. Wood, 309 U. S. 344, refused to apply the quoted enactment in such cases.
On the other hand, if the second alternative condition of fact is found to obtain, then, since the power in the grantor to revest the corpora of these trusts could not be exercised unless and until the grantor lived for five years, that power did not exist during that period, which included the taxable year. That is to say, it can not, therefore, be said that “at any time the power to revest in the grantor title to any part of the * * * [corpora;] of the * * * [trusts] is vested — (1) in the grantor.” This conclusion, it seems to us, is inescapable in view of the decision of the Sixth Circuit Court of Appeals in Corning v. Commissioner, 104 Fed. (2d) 329, wherein that court said:
* * * The first question that confronts us, therefore, is whether under the phrasing of § 166 the petitioner as grantor reserved to himself a vested power over the title of any part of the corpus of the trust. The respondent by Article 166-1, Regulation 86, undertook to interpret the section as providing for the taxation of income of a trust to the grantor if there was a power to revoke upon the lapse of a period of years or upon the happening of a specified event, regardless of whether such time be fixed, determinable, or certain to come. The petitioner contends that § 166 does not apply, and since not ambiguous may not be made to apply by regulation, because his right of revocation is subject to a contingency which has not yet happened and the happening of which is beyond his power to control. The Board sustained the Commissioner’s interpretation of the statute and the validity of his regulation. It draws a distinction between the existence of a power to revoke and the right to exercise that power. Even though the right to exercise the power to revoke may be contingent, it says, nevertheless the existence of the power during the tax year is not contingent.
The distinction is difficult to apprehend. It is not consonant with generally accepted concepts of powers, for a power which is not presently exercisable and may never be capable of being exercised does not exist. 1, Sugden on Powers, 3d Amer. Ed. 371, 372. It is difficult, therefore, to comprehend that one may be vested with a power that is not presently nor with certainty exercisable In futuro.
[The 1928 Act]
The immediate precursor of § 166 was the similarly numbered section of the act of 1928. That section provided for the taxing of trust income, to the grantor “where the grantor of a trust has at any time during the taxable year . . . [1105]*1105the power to revest in himself title to any part of the corpus of the trust . . This opened the door, if indeed it did not invite, the so-called “year-and-a-day” trusts, sustained in decisions such as Lewis v. White, 56 Fed. (2d) 390 (D. C. Mass.), and Langley v. Commissioner, 61 Fed. (2d) 796 (C. C. A. 2). In the 1934 Act the words “during the taxable year” were eliminated. From this it is argued that the trust is revocable if the power to revest may be exercised by the grantor “at any time”. It does not follow from this, however, that the Congress in the 1934 Act used either the term “power” or the term “vested” in a sense other than these terms were used in the 1928 or preceding Revenue Acts, and the committee reports of the Congress do not so indicate. The term “power” as used in corresponding sections of earlier acts has not been thought to extend to the reservation of a right conditioned upon a contingency that may never occur. Commissioner v. Stokes, 79 Fed. (2d) 256 (C. C. A. 3) [35-2 USTC ¶ 9528]; Higgins v. White, 93 Fed. (2d) 357 (C. C. A. 1) [37-2 USTC ¶ 9601],
The court there thus reversed the Board and denied the validity of the argument which respondent makes here to the effect that, assuming the existence of the second premise of fact, “the power” was “vested” in the grantor “to revest” the corpora of these trusts in himself at any time during the first three consecutive five-year periods — that the exercise, only, of that power was contingent on the survival of the grantor throughout those periods. As the Circuit Court there said:
* * * Subsequent to decision in tbe present case tbe Board of Tax Appeals departed from its presently applied view of tbe existence of a vested power under similar trust provisions in the case of John E. Rovensky, 37 B. T. A., 702 [Dec. 10,006], and that of Sophia P. O. Morton, 38 B. T. A., No. 58 [CCH Dec. 10,410], and bas still more recently expressly reversed itself in the case of Horace Andrews, Docket No. 89152, decided October 22,1938 [CCH Dec. 10,488-B], and in that of Emery May Holden Norweb, Docket Nos. 89291, 91798, 91826, decided December 28,1938 [CCH Dec. 10,554-A],
The Board has consistently followed or approved the rule laid down in that Circuit Court decision, not only in numerous memorandum opinions, but in the following published cases:
Free access — add to your briefcase to read the full text and ask questions with AI
[1103]*1103OPINION.
Leech :
The five trusts in this proceeding were before us in Henry A. B. Dunning, 36 B. T. A. 1222, upon a deficiency proposed for the year 1933 under the Revenue Act of 1932. We there held that none of the trust income was taxable to petitioner under section 166 of the 1932 Act, but that such portion of that income as was used to pay premiums on petitioner’s life insurance was taxable to him under section 167 (a) (3) of the 1932 Act. Petitioner concedes that the latter point is res adjudicaba as to this proceeding, and that he is properly taxable with respect to such portion of the 1934 income as was used to pay premiums on policies of insurance on his life.
Respondent argues that our decision in 36 B. T. A. 1222, supra, was made under the Revenue Act of 1932 and that the change in section 166 by the Revenue Act of 1934 renders all the income of these trusts taxable to the petitioner under that section as thus amended. That change consisted in striking out the words “during the taxable year.” He advances no other ground for taxing the income of these trusts to petitioner.
The income which the respondent seeks to tax as that of the taxpayer is that of trusts which must be assumed here to be juristic entities, for tax purposes, which the taxpayer did not and could not receive at any time.
The controlling enactment reads:
SEC. 166. REVOCABLE TRUSTS.
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 * * *.
[1104]*1104The trust instruments may be susceptible of two constructions. The first is that the grantor thus created irrevocable trusts for terms of five years each. The second alternative is that the grantor taxpayer in the quoted trust deeds created trusts for terms longer than five years each.
Upon either such premise of fact, the respondent is, we think, foreclosed by decisions of the courts and the Board.
If it be found that the first alternative premise existed, then we have no more than irrevocable five-year term trusts, with a reversion, in the grantor, in each. The Supreme Court, in Helvering v. Wood, 309 U. S. 344, refused to apply the quoted enactment in such cases.
On the other hand, if the second alternative condition of fact is found to obtain, then, since the power in the grantor to revest the corpora of these trusts could not be exercised unless and until the grantor lived for five years, that power did not exist during that period, which included the taxable year. That is to say, it can not, therefore, be said that “at any time the power to revest in the grantor title to any part of the * * * [corpora;] of the * * * [trusts] is vested — (1) in the grantor.” This conclusion, it seems to us, is inescapable in view of the decision of the Sixth Circuit Court of Appeals in Corning v. Commissioner, 104 Fed. (2d) 329, wherein that court said:
* * * The first question that confronts us, therefore, is whether under the phrasing of § 166 the petitioner as grantor reserved to himself a vested power over the title of any part of the corpus of the trust. The respondent by Article 166-1, Regulation 86, undertook to interpret the section as providing for the taxation of income of a trust to the grantor if there was a power to revoke upon the lapse of a period of years or upon the happening of a specified event, regardless of whether such time be fixed, determinable, or certain to come. The petitioner contends that § 166 does not apply, and since not ambiguous may not be made to apply by regulation, because his right of revocation is subject to a contingency which has not yet happened and the happening of which is beyond his power to control. The Board sustained the Commissioner’s interpretation of the statute and the validity of his regulation. It draws a distinction between the existence of a power to revoke and the right to exercise that power. Even though the right to exercise the power to revoke may be contingent, it says, nevertheless the existence of the power during the tax year is not contingent.
The distinction is difficult to apprehend. It is not consonant with generally accepted concepts of powers, for a power which is not presently exercisable and may never be capable of being exercised does not exist. 1, Sugden on Powers, 3d Amer. Ed. 371, 372. It is difficult, therefore, to comprehend that one may be vested with a power that is not presently nor with certainty exercisable In futuro.
[The 1928 Act]
The immediate precursor of § 166 was the similarly numbered section of the act of 1928. That section provided for the taxing of trust income, to the grantor “where the grantor of a trust has at any time during the taxable year . . . [1105]*1105the power to revest in himself title to any part of the corpus of the trust . . This opened the door, if indeed it did not invite, the so-called “year-and-a-day” trusts, sustained in decisions such as Lewis v. White, 56 Fed. (2d) 390 (D. C. Mass.), and Langley v. Commissioner, 61 Fed. (2d) 796 (C. C. A. 2). In the 1934 Act the words “during the taxable year” were eliminated. From this it is argued that the trust is revocable if the power to revest may be exercised by the grantor “at any time”. It does not follow from this, however, that the Congress in the 1934 Act used either the term “power” or the term “vested” in a sense other than these terms were used in the 1928 or preceding Revenue Acts, and the committee reports of the Congress do not so indicate. The term “power” as used in corresponding sections of earlier acts has not been thought to extend to the reservation of a right conditioned upon a contingency that may never occur. Commissioner v. Stokes, 79 Fed. (2d) 256 (C. C. A. 3) [35-2 USTC ¶ 9528]; Higgins v. White, 93 Fed. (2d) 357 (C. C. A. 1) [37-2 USTC ¶ 9601],
The court there thus reversed the Board and denied the validity of the argument which respondent makes here to the effect that, assuming the existence of the second premise of fact, “the power” was “vested” in the grantor “to revest” the corpora of these trusts in himself at any time during the first three consecutive five-year periods — that the exercise, only, of that power was contingent on the survival of the grantor throughout those periods. As the Circuit Court there said:
* * * Subsequent to decision in tbe present case tbe Board of Tax Appeals departed from its presently applied view of tbe existence of a vested power under similar trust provisions in the case of John E. Rovensky, 37 B. T. A., 702 [Dec. 10,006], and that of Sophia P. O. Morton, 38 B. T. A., No. 58 [CCH Dec. 10,410], and bas still more recently expressly reversed itself in the case of Horace Andrews, Docket No. 89152, decided October 22,1938 [CCH Dec. 10,488-B], and in that of Emery May Holden Norweb, Docket Nos. 89291, 91798, 91826, decided December 28,1938 [CCH Dec. 10,554-A],
The Board has consistently followed or approved the rule laid down in that Circuit Court decision, not only in numerous memorandum opinions, but in the following published cases: Ellsworth B. Buck, 41 B. T. A. 99; Emily Trevor, 40 B. T. A. 1241; and Raoul Fleischmann, 40 B. T. A. 672. See also Edna B. Elias, 41 B. T. A. 1109, promulgated simultaneously with the opinion herein. Nothing that appears in Helvering v. Wood, supra; Helvering v. Clifford, 309 U. S. 331; Helvering v. Hallock, 309 U. S. 106, or First National Bank of Chicago v. Commissioner, 110 Fed. (2d) 448, furnishes, we think, a sufficient reason for any present change in attitude toward the rule thus laid down by the Circuit Court in the Corning case.
The case of Estate of A. C. O'Laughlin, 38 B. T. A. 1120, upon which respondent relies here, does lend support to that position. However, that case was decided by the Board on the authority of its decision in the Corning case, supra, and before the reversal of that case. The opinion of the Seventh Circuit Court of Appeals, in affirming the O’Laughlin case, does so without referring to the appli[1106]*1106cation of section 166, and decides the case wholly on the application of sections 22 (a) and 167 which, upon an examination of the affirmed decision of the Board, were the primary bases upon which the respondent was there sustained.
Reviewed by the Board.
Decision will be entered under Rule 50.
Disney dissents.