Booth v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 81961.
| Decision Date | 16 June 1937 |
| Docket Number | Docket No. 81961. |
| Citation | 36 BTA 141 |
| Parties | ELLEN S. BOOTH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Thomas G. Long, Esq., for the petitioner.
Conway N. Kitchen, Esq., for the respondent.
This is a proceeding for the redetermination of deficiencies in income tax for the years 1931 and 1932 in the amount of $55,080 and $81,551.72, respectively.
The only issue involved is whether certain income from a trust paid to an educational organization in 1931 and 1932 under a revocable assignment executed by the petitioner as beneficiary of such trust is taxable to the petitioner.
FINDINGS OF FACT.
The petitioner resides in the County of Oakland, State of Michigan. She is the daughter of James E. Scripps, who died in Detroit, Michigan, on May 29, 1906. On May 4, 1906, Scripps executed a trust agreement by which he transferred certain shares of stocks to three trustees for a period of 30 years ending May 4, 1936. Such agreement provided in part that the trustees should pay all the income from the trust to the grantor during his life and (section (c)) after his death "at least fifty (50) per cent of all of the dividends, earnings or other income or revenue that shall come into their hands as holders of said stocks, in equal shares" to his four children, including the petitioner herein, their heirs and assigns, and (section (d)) also the remaining 50 percent thereof unless otherwise used for the improvement of the properties of the corporations in which the stock is held, or for reinvestment, or otherwise, in the discretion of the trustees; that (section (e)) at the termination of the trust the trust estate should be distributed as follows: 60 percent in equal parts to his children then surviving, 25 percent in equal parts to his grandchildren then surviving, and 15 percent in equal parts to his grandchildren then surviving "of any children now surviving me"; and that:
(f) I expressly provide that this conveyance is made upon the express condition that no interest in the body or corpus of the estate hereby conveyed shall vest except in my said trustees, or their successors, until the termination of said trust, but as to the income accruing during the period of said trust, that such income shall and does vest subject to the terms of this instrument in my children now surviving me, their heirs, legatees or assigns. My said trustees and their successors are hereby expressly vested with the full and complete legal and equitable title to all of said stocks and properties until the termination of the trust created hereby subject only to the obligation to execute such trust in accordance with the provisions of this instrument.
On December 31, 1930, the petitioner executed an agreement wherein she assigned to the Cranbrook Foundation, an educational organization within the meaning of section 23 (n) of the Revenue Acts of 1928 and 1932, "one-half of all interest and estate (together with all payments and distributions which shall hereafter be made in respect of said one-half of said first party petitioner in and under sections (c) and (d) ()" of the trust agreement executed by her father on May 4, 1906. The assignment further provided that it may be terminated by the assignor in writing executed and filed with the assignee, specifying a date of termination occurring after the expiration of the taxable year within the meaning of the Federal revenue laws.
The above assignment was revoked by the petitioner in an instrument executed by her on October 25, 1932, effective as of January 2, 1933.
During the taxable years 1931 and 1932 the trustees under the trust agreement paid directly to the Cranbrook Foundation the sums of $324,000 and $232,000, respectively, which represented dividends received in such years by the trustees from the trust estate and which would have been paid to the petitioner by the trustees pursuant to the provision of sections (c) and (d) of the trust agreement if the petitioner had not executed the assignment of December 31, 1930, in favor of the Cranbrook Foundation.
The respondent added the amounts paid to the Cranbrook Foundation to petitioner's taxable income as dividends received for the years 1931 and 1932, respectively, and allowed increased deductions for those years on account of contributions to the maximum amount of 15 percent specified in section 23 (n) of the Revenue Acts of 1928 and 1932.
It is agreed by the parties that the sole issue to be determined is the correctness of the respondent's determination that the sums of $324,000 and $232,000 constituted taxable income to the petitioner for the years 1931 and 1932 respectively.
The respondent contends that the petitioner did not convey by her assignment to the Cranbrook Foundation any present property or right of property; that at most she undertook to assign future or anticipated income to which she might be entitled under the trust; that the income was distributable to her by the trustees to the same extent as if the assignment had not been executed; and that hence it was all taxable to her.
Under the express provisions of the trust agreement, one-fourth of the distributable income of the trust was payable to the petitioner, her heirs and assigns upon the death of her father and until the termination of the trust on May 4, 1936, and the right to receive such income vested in her, her heirs and assigns during such period. Although the trust agreement provided that the equitable as well as the legal title in the trust property should be vested in the trustees, the right to receive the income vested in her and she had at least the right to enforce the performance of the trust by the trustees. Sec. 12982, Comp. Laws of Mich., 1929; Roberts v. Michigan Trust Co., 273 Mich. 91; 262 N. W. 744. Such right or beneficial interest is "present property alienable like any other, in the absence of a valid restraint upon alienation." Blair v. Commissioner, 300 U. S. 5, and cases cited therein. The trust agreement contained no restriction upon alienation and the income of the trust was payable to the beneficiaries, "their heirs and assigns."
The validity of the assignment has not been questioned by the respondent. The trustees recognized the validity of the assignment and paid the income directly to the Cranbrook Foundation during 1931 and 1932, the period during which the assignment was in force and effect. Furthermore, the validity of an assignment of a right to receive income of a trust under the laws of Michigan was considered by the Board in Grace Scripps Clark, 16 B. T. A. 453. That case involved an assignment executed in California by one of the four children of the grantor of the same trust involved herein of one-half interest in all the income of the trust, which may from time to time be payable to her or to which she may be thereafter entitled, to her husband. The Board therein stated that "It is well established in California, as also in Michigan, that a beneficiary of a trust of the nature of that under consideration may assign his interest therein", and held that the legal effect of the assigning instrument was to vest in the husband all right, title, and interest in and to one-half of her interest in the trust fund, including the income therefrom, and that one-half of the income...
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