De Amodio v. CIR, 13740

• Decision Date: 21 February 1962
• Docket Number: No. 13740,13741.,13740
• Parties: Inez DE AMODIO, Petitioner in No. 13740, John Amodio (Marquis deAmodio), Petitioner in No. 13741, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Third Circuit

299 F.2d 623 (1962)

Inez DE AMODIO, Petitioner in No. 13740, John Amodio (Marquis deAmodio), Petitioner in No. 13741, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Nos. 13740, 13741.

United States Court of Appeals Third Circuit.

Argued February 8, 1962.

Decided February 21, 1962.

William W. Scott, Jr., Pittsburgh, Pa. (Lee W. Eckels, Thorp, Reed & Armstrong, Pittsburgh, Pa., on the brief), for petitioners on review.

Robert L. Waters, Washington, D. C. (Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Joseph Kovner, Attorneys, Department of Justice, Washington, D. C., on the brief), for respondent.

Before BIGGS, Chief Judge, and GOODRICH and McLAUGHLIN, Circuit Judges.

GOODRICH, Circuit Judge.

I.

The first question in this litigation is whether the taxpayers, who are brother and sister, can, for the years 1953 and 1954, be taxed as individuals on the capital gains of a trust of which they are the sole beneficiaries. The Tax Court said that they could be so taxed; hence these appeals. 34 T.C. 894 (1960).

Inez DeAmodio and John Amodio are the sole beneficiaries of a trust set up by them in 1947.¹ Under the trust agreement the trustee had the power to determine whether money or property coming into his possession should be treated as corpus or income.² One-half the net income of the trust was payable to each of the taxpayers for life, payments to be made monthly. If one of the beneficiaries should die without leaving lawful issue, all interest in the corpus and income was to pass to the survivor. If the first to die left lawful issue, his or her share was to go to such issue. The trust could be amended or terminated at any time by the joint action of the beneficiaries. In 1953 the trust realized a net long-term capital gain of $33,018.68 and in 1954 a similar gain of $0.80.

The Tax Court decided that the Amodios were taxable as individuals on these long-term capital gains, placing its reliance on section 166 of the Internal Revenue Code of 1939, 26 U.S.C. § 166 (now Int.Rev.Code of 1954, § 676, 26 U.S.C. § 676). While we think the Tax Court was correct in this, we think there is equally good reason for resting the result on section 167(a) (2) of the 1939 Code (now Int.Rev.Code of 1954, § 677 (a) (1)). This section provides that the grantor is taxable on the income of a trust which may in the discretion of a nonadverse party be distributed to him. It is of no consequence that the income was not so distributed if, in fact, it could be.³

The trustee in this case is an independent nonadverse party. This is a Texas trust and under Texas law a trustee could, as provided in this trust instrument, distribute these capital gains to the beneficiaries.⁴ We really do not see that there is anything more to the case on this point than what has just been said. It fits precisely into the words of the statute aided by the Texas law regulating trustee authority.

The conclusion of the Tax Court under section 166 is an equally sound ground for the result reached. The statutory provision is that where there exists the power, in the grantor alone or in conjunction with a nonadverse party, to revest in the grantor title to any part of the corpus of a trust the grantor will be taxable on the income of that part of the trust.⁵ When the powers of the beneficiaries of this trust, outlined above, are kept in mind, we think here again the case fits clearly within the provisions of the statute.

Much point is made on behalf of the taxpayers that these beneficiaries had interests adverse to each other. A long analysis is made of the First Circuit decision in Welch v. Bradley, 130 F.2d 109, 143 A.L.R. 1108 (1942). This the taxpayers say is distinguishable from their case. The Government, in addition to discussing the Bradley case, cites Cochran v. United States, 62 F.Supp. 872, 105 Ct.Cl. 628 (1945).

Both decisions have to do with the problem in this case. But rather than reading what a court did about someone else's trust, we think it better to concentrate our attention on the facts of this case. These two grantor-beneficiaries shared equally in the income. In the event that the first should die without issue the survivor took all. If the first to die did leave lawful issue then his share was to go to such issue. Amendments or termination of the trust could be effected by the joint action of both beneficiaries. If either one demanded a payment provided for from the trust corpus an equal amount was to go to the other. We cannot see how this brother and sister had interests adverse to each other so far as this trust was concerned. It seems to us, therefore, that the case is as perfect a section 166 example as it is of section 167.

II.

The second question has to do only with John Amodio. He is domiciled in...