Mills v. Commissioner

39 B.T.A. 798, 1939 BTA LEXIS 977

• Court: United States Board of Tax Appeals
• Decided: April 20, 1939
• Docket: Docket No. 91734.
• Status: Published

Opinions

OPINION.

Leech :

The Commissioner determined a deficiency of $713.86 in the 1935 income tax of the decedent, Evelyn Scott Mills, by treating as her income the capital gain resulting from the sale or other disposition of securities by a trustee. The determination was predicated on Eevenue Act of 1934, section 166,¹ and the petitioner, in assailing it, contests the applicability of that section. This is the sole issue in the case, and the facts have all been stipulated.

In 1927 the decedent, by a written instrument, created a trust, the income of which was to be distributed to her. The only provision of the instrument which is material to the present issue is as follows:

II

Application op Income and Coepus. The gross income derived from said Trust property, which shall come into the hands of the Trustee, shall be applied by the Trustee to the purposes and in the order following:

*******

(3)In the event it shall develop that the net income derived from said Trust Property shall be insufficient to furnish to said Trustor the funds to which she has been accustomed for the upkeep of her home and her personal enjoyment, then to pay from the corpus of said Estate to said Trustor or to said Lewis Hunt Mills on her behalf (or to any other of said beneficiaries upon the express request of said Trustor) such amount as may in the discretion of said Trustee be reasonably necessary for such purpose.

It is conceded that, under the law of Oregon, by which the trust is controlled, the trustee must add these capital gains to the corpus of the trust.

Kespondent supports his position upon two premises, the existence of both of which is essential to his determination. These premises are: (1) That the trustee was a person “not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom”, and (2) that, “the power to revest in the grantor title to * * * the corpus of the trust is vested” in such trustee. The petitioner denies both premises.

Inasmuch as the trustee had no interest in the corpus, except as trustee, it did not have a “substantial adverse interest” within the meaning of section 166, supra. Reinecke v. Smith, 289 U. S. 172; Witherbee v. Commissioner, 70 Fed. (2d) 696; Sterling Morton, 38 B. T. A. 1283.

In the present trust instrument, the trustee was authorized “to pay from the corpus of said Estate to said Trustor or to said Lewis Hunt Mills on her behalf (or to any other of said beneficiaries upon the express request of said Trustor) such amount as may in the discretion of said Trustee be reasonably necessary for said purpose.” That purpose is defined in the earlier part of the paragraph.

Respondent argues that such provision vested in the trustee a power to revest corpus of the estate in the decedent, settlor. That such power was vested, if at all, in the trustee, as such, does not contradict its character as a “power” within section 166, supra, particularly because its limitation, if it was such, was as broad as the “enjoyment” of the settlor. See Rollins v. Helvering, 92 Fed. (2d) 390, affirming 34 B. T. A. 319; certiorari denied, 302 U. S. 763; Fanny M. Dravo et al., Executors, 34 B. T. A. 190; Daisy Christine Patterson, Executrix, 36 B. T. A. 407; appeal dismissed, 99 Fed. (2d) 1007; but compare Higgins v. White, 93 Fed. (2d) 357; First Rational Bank of Boston v. Welch, 24 Fed. Supp. 695. However, that power could be exercised, only, if and when “it shall develop that the net income derived from said Trust Property shall be insufficient to furnish to said Trustor the funds to which she has been accustomed for the upkeep of her home and her personal enjoyment.” True, the happening of that contingency was ascertainable. Ithaca Trust Co. v. United States, 279 U. S. 151. Nevertheless, it was “a contingency in the nature of a condition subsequent, the occurrence of which was entirely fortuitous so far as any control, design, or volition on his part was concerned.” Helvering v. St. Louis Union Trust Co., 296 U. S. 39. And, “Since the contingency alone makes possible the exercise of the power, it is no power at all until the contingency occurs, or at most an incipient or inchoate power, Sugden on Powers, vol. 1, §§ 320, 321.” John Edward Rovensky, 37 B. T. A. 702, at page 704. See Phebe Warren McKean Downs, 36 B. T. A. 1129; also I. T. 3238, 1938 Int. Rev. Bull. No. 50. The power here to revest corpus in the settlor, decedent, did not vest, therefore, until and unless the contingency occurred upon which it could be exercised. John Edward Bovensky, supra; Phebe Warren McKean Downs, supra. Trust income for 1935, alone, is involved. It is admitted that none of the corpus was distributed to the settlor during that year. But neither that fact nor anything else, yet, in the record contradicts the occurrence of such contingency during that period. See Daisy Christine Patterson, Executrix, supra.

It was petitioner’s burden to show error in respondent’s determination. Since he has failed, thus far, to contradict the occurrence of the contingency upon which the exercise of the power to revest corpus depended, we think he has failed to establish error in the contested determination.

Reviewed by the Board.

Decision will be entered under Bule 50.

Opeek concurs in the result. Disney concurs only in the result.

1 SEC. 166. REVOCABLE TRÜSTS.

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.