Corning v. Commissioner of Internal Revenue, 7816.
| Decision Date | 06 June 1939 |
| Docket Number | No. 7816.,7816. |
| Citation | 104 F.2d 329 |
| Parties | CORNING v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Sixth Circuit |
David A. Gaskill, of Cleveland, Ohio (Thompson, Hine & Flory, and Earl P. Schneider, all of Cleveland, Ohio, on the brief), for petitioner.
Morton K. Rothschild, Sp. Asst. to Atty. Gen. (James W. Morris, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for respondent.
Before HICKS, SIMONS, and ARANT, Circuit Judges.
The question to be decided is whether the income for 1934 of two trusts created by the petitioner in a previous year and accumulated during the tax year, was taxable income of the petitioner in 1934 by reason of the provisions of §§ 166 and 167 of the Revenue Act of 1934, 26 U.S.C.A. §§ 166, 167. The Board of Tax Appeals in redetermining the deficiency asserted by the respondent held that it was.
The 1934 Act provides:
By the first trust instrument the petitioner conveyed to the Union Trust Company of Cleveland securities to be held by it as trustee during the lives of himself, his wife, father and mother, and for a period of twenty-one years after the death of the survivor, when the corpus was to be divided among the petitioner's direct descendants, or if none survived, to be paid to the petitioner's father if living. Of the income of the trust estate the trustee might pay so much as it deemed advisable to the petitioner and was then to accumulate the remainder and add it to the principal of the trust. Upon his death it was to pay the income to his wife. The trustee was given authority to sell the trust property, to invest the funds of the trust, and deal with the corpus unhampered by legal restrictions usually applicable to trustees, including the lending of money to or the purchase of property from the petitioner's estate without security and without liability for loss, provided, however, that before buying or selling securities the trustee should secure the approval of the petitioner's father, and after his death that of the petitioner, with right reserved to the petitioner to remove the trustee and substitute a successor upon written notice. It was provided that the petitioner's father might during his life amend or terminate the trust in whole or in part and change any beneficial interest thereunder. In case of termination of the trust under this power, the corpus was to be paid over to the petitioner if living, and if not then to anyone specified by his father. The petitioner also reserved the right after the death of his father, but in no event prior to 1932, to amend or terminate the trust, with the proviso, however, that he might not revest himself in any year with the corpus of the trust unless he had given notice in writing of his intention so to do not later than November 30th of the preceding year.
On December 1, 1931, the petitioner's father, Henry W. Corning, executed an amendment providing that the income of the trust during the life of the petitioner should be accumulated and added to the corpus, and changing from 1932 to 1937 the earliest date at which the petitioner after his father's death might terminate the trust. On August 8, 1933, the father executed a second amendment providing that sale, lease, investment or reinvestment of the trust estate until October 1, 1933, should be made by the trustee upon the direction of the petitioner, and that the trustee would be absolved from any and all responsibility for acts done under such direction. By a third amendment executed October 1, 1933, this power of direction by the petitioner was extended to July 5, 1935.
By the second trust instrument securities were transferred to one Shepherd as trustee in trust for the same beneficiaries. The father's powers therein were the same, and the reservations were identical except that the petitioner was unlimited as to time for revocation or amendment subsequent to his father's death. On January 17, 1933, the petitioner's father executed an amendment changing the provisions for payment by the trustee in its sole discretion of all or part of the income to petitioner so as to provide that the income in the sole discretion of the trustee be during the life of the petitioner accumulated or paid to the petitioner's wife, his mother, father, or any surviving descendants. Any income not so distributed was to be accumulated and set apart in a separate fund designated as "Fund A." Upon the petitioner's death Fund A was to be added to the corpus of the trust and the income from such corpus was to be paid to petitioner's wife for life and upon her death in equal shares to the petitioner's children, or per stirpes, to descendants, if any, of children not then living. By this amendment it was further provided that the father during his lifetime and the petitioner thereafter would have the right to change or modify any of the administrative provisions of the instrument and to change any beneficial interests thereunder and to revoke the trust in whole or in part by instrument in writing, and in the event of a revocation by the father the trustee was to pay over the principal, including Fund A, to the petitioner if living, if not to the father, or to such person or persons as the father might designate, provided, however, that during the petitioner's lifetime neither he nor the father was to have the power at any time prior to January 1, 1938, to revoke the trust either in whole or in part, or to direct any part of the income to be paid to the petitioner or to be applied to the payment of premiums upon policies of life insurance upon his life, and provided further that during the lifetime of the petitioner, and after January 1, 1938, neither he nor his father should have the power at any time during any taxable year to exercise any power not exercisable before that date, except that if during the month of December in the taxable year 1937, or of any taxable year thereafter, the father if living, or if not the petitioner, upon delivery to the trustee during such month of a written notice that such powers were desired after the first day of the next succeeding taxable year, that then during such specified time, but neither prior thereto nor subsequently, the father if living, or if not the petitioner, was to have full power by written instrument to revoke the trust in whole or in part and to direct that any part of the income thereafter accruing be paid over or accumulated for future distribution to the petitioner, or be applied by the trustee to the payment of premiums upon insurance upon his life. It was further provided that neither the petitioner nor his father should at any time have the right to vest in himself title to any part of Fund A, and that the trustee should in no event pay over any of the principal of Fund A to the petitioner during his life, and in the event of revocation Fund A was to be paid by the trustee to the persons named by and in the proportions designated by the father if then living, or if not by his mother if living, but neither should have the power to direct that Fund A be paid to the petitioner.
None of the income of the two trusts for 1934 was distributed, but all of it was accumulated by the trustee and added to the corpus of the trust. It will be observed that in the case of each trust the right reserved by the petitioner to direct the return to him of the corpus of the trust was...
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...Hallock, 6 Cir., 102 F.2d 1; Commissioner v. Kaplan, 1 Cir., 102 F.2d 329; Rothensies v. Cassell, 3 Cir., 103 F.2d 834; Corning v. Commissioner, 6 Cir., 104 F.2d 329; Rheinstrom v. Commissioner, 8 Cir., 105 F.2d 642. 10 Revenue Act of 1916, § 202(b), 39 Stat. 756, 777; Revenue Act of 1918, ......
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...the economic enjoyment of the property and his power of revocation is an exceedingly remote and contingent one. Thus in Corning v. Commissioner, 6 Cir., 104 F.2d 329, 332, the court said: "The term `power' as used in corresponding sections of earlier acts has not been thought to extend to t......
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...at times be technical. The conclusion of the Board in the instant case is based substantially upon the decision of Corning v. Commissioner, 6 Cir., 1939, 104 F.2d 329. In that case, the power to revoke the trusts was not vested in the grantor during the taxable year, but was to vest only up......
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