Corning v. Commissioner of Internal Revenue, Docket No. 86898.
| Decision Date | 13 July 1937 |
| Docket Number | Docket No. 86898. |
| Citation | 36 BTA 301 |
| Parties | WARREN H. CORNING, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
David A. Gaskill, Esq., and Earl P. Schneider, Esq., for the petitioner.
T. M. Mather, Esq., for the respondent.
On May 28, 1937, this Board promulgated an opinion herein — 35 B. T. A. 1162. On the 1st day of June 1937, a decision of the Board was entered pursuant to that opinion. June 11, 1937, petitioner moved for Board review of that opinion. June 15, 1937, the Chairman granted that motion. For cause appearing of record, the following opinion is substituted for that opinion of the Board, promulgated May 28, 1937, which latter opinion is hereby vacated.
Respondent determined a deficiency in petitioner's income tax for 1934 in the sum of $3,776.71, of which $3,713.04 is in controversy. The disputed tax arises by reason of the increasing of petitioner's reported income by the amount of the income realized, but not distributed, by the trustees in that year, under two trusts created in prior years by petitioner.
The facts are stipulated. The two trust instruments, together with the amendments executed, are made a part of the formal stipulation filed. Briefly stated, the facts are that petitioner in 1929 executed two trust instruments. By one he conveyed to the Union Trust Co. of Cleveland, Ohio, as trustee, certain corporate stock, such of the yearly income as the trustee might "deem advisable" to be paid to him for life, then to his wife for her life. On the death of the survivor of these two the corpus was to be divided among petitioner's direct descendants or in case there were none surviving, to be paid over to petitioner's father, if living. The trustee was given authority to sell the trust property, to invest funds of the trust, and otherwise deal with the trust corpus without legal restrictions otherwise applicable to trustees, and to lend money to or purchase property from petitioner's estate without security and without liability for loss. It was provided that the trustee should, before purchase or sale of securities, secure the approval, during his life, of petitioner's father and after his death of petitioner, and there was specifically reserved to petitioner the right at any time to remove the trustee and substitute another merely upon giving written notice.
It was further provided by this trust that 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 petitioner, if living, or if not living, then to any one specified by petitioner's father. Petitioner also reserved the right, after the death of his father, but in no event prior to 1932, to amend or terminate the trust, it being provided, 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 intended action not later than November 30 of the preceding year.
On December 1, 1931, petitioner's father, Henry W. Corning, in the exercise of his power to amend the terms of the trust instrument, executed an amendment providing that the income of the trust during the life of petitioner should be accumulated and added to the corpus, and changing from 1932 to 1937 the earliest date at which petitioner might terminate the trust. On August 8, 1933, petitioner's 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 direction of 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 petitioner was extended to July 1, 1935.
By the second trust certain securities were transferred by petitioner to one S. Roswell Shepherd as trustee. The beneficiaries were the same as in the first trust. The powers granted to the trustee and petitioner's father and those reserved to the petitioner were the same as in the first trust, with the one exception that petitioner was not limited as to time with respect to his right of revocation or amendment of the trust, except that it be subsequent to his father's death. This trust differs from the first mainly in the amendments executed by petitioner's father under the power granted him.
Thus, on January 17, 1933, petitioner's father executed an amendment changing the provision for payment by the trustee in its sole discretion of all or part of the income to petitioner, to provide that the income in the sole discretion of the trustee be, during the life of petitioner, accumulated or paid to petitioner's wife, his mother, his father, and/or any descendants of his surviving. Any income not so distributed by the trustee was to be accumulated and set apart in a separate "Fund A." Upon 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 over to petitioner's wife for life and upon her death to be paid in equal shares to petitioner's children, or, per stirpes, to descendants, if any, of children not then living. By this amendment it was further provided:
I hereby authorize and empower my father, HENRY W. CORNING, during his life, and thereafter I reserve to myself, during my life, the right, to change or modify any of the administrative provisions of this agreement and to change any beneficial interest hereunder and to revoke this trust either in whole or in part, by delivering to the Trustee an instrument in writing acknowledged like a conveyance of real property entitled to record in New York, unless acknowledgment be waived by it, and in the event of the revocation of all or a part of this trust by my father, the Trustee shall pay over the principal thereof so revoked (excluding, however, the principal of the said Fund A) to me if I am then living, or if I am not then living the Trustee shall pay over the entire principal thereof (including the principal of the said Fund A) to my father or to such person or persons as he may designate in writing to the Trustee; provided, however, that, during my life, neither my father nor I shall have the power, at any time prior to January first, 1938, to revoke this trust either in whole or in part or to direct that any part of the income of the trust be paid over or held or accumulated for future distribution to me or be applied by the Trustee to the payment of premiums upon policies of insurance on my life, and provided further, that during my life and after January first, 1938, neither my father nor I shall have the power at any time during any taxable year within the meaning of the revenue laws of the United States to exercise any of the aforesaid powers not exercisable before said date, except that, if, during the month of December in the taxable year 1937 or during the month of December in any taxable year thereafter, my father, or in case he is not living, then if I, deliver to the Trustee during such month a written notice that it is desired to have such powers during any specified time after the first day of the next succeeding taxable year, then during such specified time, but neither prior nor, except upon similar notice, subsequent thereto, my father if living and if he be not living, then I, shall have full power by instrument of the character hereinbefore specified, to revoke this trust in whole or in part or to direct that any part of the income of the trust thereafter accruing be paid over or held or accumulated for future distribution to me, or be applied by the Trustee to the payment of premiums upon policies of insurance upon my life. Anything herein to the contrary notwithstanding, neither my father nor I shall at any time have the right to vest in myself title to any part of the said Fund A, and the Trustee shall in no event pay over any of the principal of said Fund A to me during my life, and in the event of the revocation of this trust in whole or in part during my life any part or all of the said Fund A so affected shall be paid over by the Trustee to the persons named and in the proportions designated by my father, Henry W. Corning, if he is then living, by an instrument in writing delivered to the Trustee, and any affected part of the said Fund not validly so appointed shall be paid over to the persons named and in the proportions designated by my mother, EDITH W. CORNING, if she is then living; provided, however, that in no event shall either my father or my mother have the power to direct that any portion of said Fund A shall be paid over to me, and any affected part not validly so appointed shall be paid over to my said wife if she is then living, or if not, in equal shares per stirpes to my descendants then living, or if none, in equal shares per stirpes to my father's descendants (other than myself) then living. I also reserve the right for myself or any other person to increase this trust by delivering property or making insurance policies payable to the Trustee for that purpose or by bequest or devise by will. No income of the trust shall be applied to the payment of premiums upon policies of insurance on my life, unless and until direction shall be given to the Trustee therefor upon compliance with the conditions hereinbefore specified. In no case shall the duties and liabilities of the Trustee hereunder be increased without its written consent.
None of the income of the two trusts for 1934 was distributed but all was accumulated by the trustees.
Section 166 of the Revenue Act of 1934 provides:
SEC. 166. REVOCABLE TRUSTS.
Where at any time the power to revest in the grantor title to any part of the corpus of the trust is vested —
(1) in the grantor, either alone or in conjunction with any person not having a...
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