312 U.S. 552 (1941), 257, Hormel v. Helvering

Docket Nº:No. 257
Citation:312 U.S. 552, 61 S.Ct. 719, 85 L.Ed. 1037
Party Name:Hormel v. Helvering
Case Date:March 17, 1941
Court:United States Supreme Court

Page 552

312 U.S. 552 (1941)

61 S.Ct. 719, 85 L.Ed. 1037




No. 257

United States Supreme Court

March 17, 1941

Argued March 3, 1941




1. Upon review of a decision of the Board of Tax Appeals that neither under § 166 nor § 167 of the Revenue Act of 1934 was the income of the trusts here involved taxable to the grantor, the Circuit Court of Appeals -- Helvering v. Clifford, 309 U.S. 331, having in the meantime been decided by this Court -- could properly consider the question of the grantor's liability under § 22(a) of the Act even though the Commissioner had not relied on that section in the proceeding before the Board. Pp. 554, 559.

2. Consideration of that question by the Circuit Court of Appeals, in the circumstances of this case, is consistent with its statutory authority in reviewing decisions of the Board of Tax Appeals to modify, reverse or remand, "as justice may require," decisions which are not in accordance with law. P. 556.

3. A rigid and undeviating judicially declared practice whereby courts of review would invariably and under all circumstances decline to consider all questions which had not previously been specifically urged would be out of harmony with the policy that rules of procedure and practice should promote, not defeat, the ends of justice. P. 557.

4. The cause is remanded in order that the applicability of § 22(n) may be considered in the light of such evidence touching that issue as may be offered by the taxpayer. P. 560.

111 F.2d 1 affirmed.

Certiorari, 311 U.S. 626, to review the reversal of a decision of the Board of Tax Appeals, 39 B.T.A. 244, which set aside a determination of a deficiency in income tax.

Page 553

BLACK, J., lead opinion

MR. JUSTICE BLACK delivered the opinion of the Court.

The Commissioner of Internal Revenue assessed a deficiency against petitioner for failure to include in his 1934 and 1935 tax returns the income of three separate trusts declared by him in 1934. Each of the declarations of trust recited that the beneficiaries were "Jay C. Hormel [petitioner himself], and Germaine D. Hormel, his wife, as guardian for their son," a different son being designated by each trust instrument. Each trust estate consisted of shares of [61 S.Ct. 720] stock in Geo. A. Hormel & Co., of which petitioner was an officer. Petitioner named himself and another as co-trustees; all dividends from each trust estate, up to $2,000 a year, were to be paid to petitioner's wife as guardian for the son named in the particular trust instrument, and any excess over $2,000 was to be paid to petitioner; the trusts were to expire automatically after three years, or upon the death of petitioner, or upon the death of the named son, whichever event should occur first; upon expiration of each trust, the entire principal should be the property of petitioner, his legatees, devisees, or heirs; petitioner and his wife (as guardian) had the power to remove petitioner's co-trustee at any time, and to choose a successor; the co-trustees could appoint proxies to exercise voting rights over the shares of stock making up the trust estates, and could sell the securities deposited and substitute others; it was provided that no title to the trust estates should vest in petitioner's wife, as guardian, or in his sons, and it was further provided that the wife and sons should have no power "to sell, transfer, encumber or in any manner anticipate or dispose of any

Page 554

interest in the trust estate;" and, finally, the trust instruments stated that the co-trustees were to be responsible for loss only upon willful and deliberate violations of their duties.

All of the trust income for the years in question was distributed to petitioner's wife as guardian, who reported it to the federal government as guardianship income. Petitioner, in his individual returns, did not include it. The Commissioner, taking the position that petitioner should have included the trust income in his individual returns, assessed a deficiency against him, asserting that the trusts were "revocable," and the income therefore petitioner's within in the meaning of section 166 of the Revenue Act of 1934.1 The Board of Tax Appeals decided against the Commissioner, holding that the income in question was taxable to petitioner neither under section 166 nor 167,2 the two sections expressly relied on by the Commissioner before the Board. In the Circuit Court of Appeals, the Commissioner abandoned reliance on section 166, urged that the Board was in error as to taxability under section 167, and

Page 555

argued that, in any event, the income was taxable to petitioner under section 22(a).3 The taxpayer argued that the applicability of section 22(a) was not...

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