Hallowell v. Commissioner of Internal Revenue
| Decision Date | 04 March 1947 |
| Docket Number | No. 9167.,9167. |
| Citation | 160 F.2d 536 |
| Parties | HALLOWELL v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Third Circuit |
Charles S. Jacobs, of Philadelphia, Pa. (Wm. R. Spofford, Sherwin T. McDowell, and Ballard, Spahr, Andrews & Ingersoll, all of Philadelphia, Pa., on the brief), for petitioner.
Hilbert P. Zarky, of Washington, D. C. (Douglas W. McGregor, Asst. Atty. Gen., Sewall Key and J. Louis Monarch, Spec. Assts. to Atty. Gen. on the brief), for respondent.
Before BIGGS, ALBERT LEE STEPHENS and KALODNER, Circuit Judges.
On September 27, 1937 the taxpayer's husband established an irrevocable trust ("No. 2 Trust") to which he conveyed certain stocks, naming his son as trustee. The second paragraph of the indenture provided that,
The third paragraph of the indenture provided that after the petitioner's death the income should be paid to certain persons named in the petitioner's will, if then living, and, in default of appointment by the petitioner, the income should be disposed of in a manner not here pertinent.
On November 25, 1939 the petitioner's husband established another trust ("No. 3 Trust") in which the petitioner was also named as the primary income beneficiary. The pertinent provisions of the indenture creating this trust are substantially identical with those of the No. 2 indenture.
The income of the two trusts was reported on a fiscal year basis, ending on August 31 for the No. 2 Trust and October 31 for the No. 3 Trust. The petitioner filed her income tax returns on a calendar year basis. During the taxable years in question, 1938, 1939 and 1940, the petitioner did not request that any trust income be paid to her and the income was accumulated. She did not include the income of the trusts in her returns. The Commissioner assessed deficiencies, ruling that the petitioner was the owner of the income because of her power to demand and receive it and that therefore the income was taxable to her under Section 22(a) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 22 (a).1 The Tax Court sustained the Commissioner. 5 T.C. 1239. The appeal at bar followed.
The taxpayer contends that Sections 161 and 162 of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, §§ 161 and 162, apply; that under their provisions the income from the trusts in the taxable years in question was taxable to the trusts and not to her. She relies on Eustis v. Commissioner, 30 B.T.A. 820, seemingly acquiesced in by the Commissioner, 1940-1 C.B. 2; on Commissioner of Internal Revenue v. Dean, 10 Cir., 102 F.2d 699; in particular on Graham v. Miller, 3 Cir., 137 F.2d 507 and on G.C.M. 21799, 1940-1 C.B. 159. The petitioner points out that by G.C.M. 21799 the Commissioner appeared to acquiesce in the Dean and Graham decisions.
An examination of the provisions of the respective sections of the tax law makes apparent the functions conceived for them by Congress. It appears that Section 22(a) operated to impose the tax upon the petitioner unless the provisions of Section 161(a) (2) and Section 162(b) served to relieve her of tax and impose it upon the trustees. This is the pattern of taxation which Congress intended to impose on individuals and on trusts. If the income from the trusts was "to be distributed currently" by the fiduciary to the petitioner, whether she received it or not,2 she was liable for the tax. If the income was not currently distributable by the trustees to ...
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