120 F.2d 775 (2nd Cir. 1941), 212, Commissioner of Internal Revenue v. Buck

Docket Nº:212.
Citation:120 F.2d 775
Case Date:June 06, 1941
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 775

120 F.2d 775 (2nd Cir. 1941)




No. 212.

United States Court of Appeals, Second Circuit.

June 6, 1941

Page 776

Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key and L. W. Post, Sp. Assts. to Atty. Gen., for petitioner.

Joseph F. McCloy and M. Francis Bravman, both of New York City, for respondent.

Before L. HAND, CHASE, and FRANK, Circuit Judges.

FRANK, Circuit Judge.

In 1932 Ellsworth B. Buck, respondent here, conveyed 10, 000 shares of William Wrigley, Jr. Company stock to a bank, as trustee, to pay the income to his wife for life and, on her death, to pay the income and ultimately the principal to his children or their descendants. He retained a power 'to alter or amend in any respect whatsoever' the provisions relating to the distribution of the income or principal, except that this power could not be exercised so as to revoke the trust, revest title to the principal in him, or direct that the income be paid to him, accumulated for him, or applied to the payment of insurance premiums on his life. In the event that a beneficiary predeceased him, the share held for that beneficiary was to return to Buck. He also retained the powers to remove the trustee, and to direct the trustee how to exercise its powers to retain or dispose of the corpus and to invest or reinvest the proceeds of a sale, and reserved the right to vote any stock or to direct the trustee how to vote it.

In 1933 and 1934, the disputed years, the net income of the trust, amounting to $29, 400 and $34, 300, was paid to respondent's wife. These amounts were deposited by her in a personal bank account, and respondent, although signing as her attorney most of the checks drawn on this account, never used any of the money for his own benefit and never exercised control over her use of it. Mrs. Buck has owned the home in which she and respondent live since 1920, and she has personal property worth in excess of half a million dollars. At all times since their marriage they have shared the family expenses. This was not by prearrangements, however; having two other bank accounts, she drew checks for particular expenditures on whichever happened to be most convenient. Buck's income (assuming that the income from the trust was not his) ranged between $75, 000 and $140, 000, exclusive of losses on investments, which sometimes were in excess of his income.

The petitioner asserted deficiencies for 1933 and 1934 in respondent's income tax, arguing that he was taxable on the income of the trust under either section 22(a) or sections 166 and 167 of the Revenue Acts of 1932 and 1934, 26 U.S.C.A.Int.Rev.Acts, pages 487, 543, 669, 727. Alternatively, the Commissioner argued that a portion of the trust income applied by Mrs. Buck to the payments of premiums on policies of insurance on respondent's life, of which policies she was the beneficiary, was taxable to him under section 167. The Board of Tax Appeals found against the Commissioner, 41 B.T.A. 99, and he brings this petition for review.

A second issue, also found against the petitioner, is whether any portion of a payment received by respondent in 1934 under a life insurance contract is taxable to him. A policy on the life of his father, who died in 1919, provided that respondent would be paid an annuity of $1, 000 for 20 years certain and thereafter as long as he should live. The Commissioner sought to tax as income a portion of this amount which did not represent a return of capital.

First, we discuss respondent's liability to tax on the trust income under section 22(a). The meaning of that section has been illuminated for us by recent decisions of the Supreme Court; it is that illumination which must guide our steps. We must, accordingly, consider a variety of factors in 'drawing the line' between taxability and non-taxability in this field where 'difference in degree produce ultimate differences in kind'; Harrison v. Schaffner, 1941, 61 S.Ct. 759, 762, 85 L.Ed.--, always remembering that 'no one fact

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