Helvering v. Stuart, Nos. 49 and 48

CourtUnited States Supreme Court
Writing for the CourtREED
Citation63 S.Ct. 140,87 L.Ed. 154,317 U.S. 154
PartiesHELVERING, Commissioner of Internal Revenue, v. STUART (two cases)
Docket NumberNos. 49 and 48
Decision Date16 November 1942

317 U.S. 154
63 S.Ct. 140
87 L.Ed. 154
HELVERING, Commissioner of Internal Revenue,

v.

STUART (two cases).

Nos. 49 and 48.
Argued Oct. 22, 23, 1942.
Decided Nov. 16, 1942.

As Modified on Denial of Rehearing Dec. 14, 1942.

[Syllabus from pages 154-156 intentionally omitted]

Page 156

Messrs. Francis Biddle, Atty. Gen., and Samuel O. Clark, Jr., Asst. Atty. Gen., for petitioner.

Messrs. Herbert Pope and George I. Haight, both of Chicago, Ill., for respondent R. Douglas Stuart.

Mr. Herbert Pope, of Chicago, Ill., for respondent John Stuart.

Mr. Justice REED delivered the opinion of the Court.

These petitions for certiorari bring here the liability of each respondent for increased income taxes for the years 1934 and 1935. A deficiency was determined by the Commissioner for each year because of the taxpayers' failure to include in their returns income from various trusts previously created by them for the benefit of their children.

The taxpayers are brothers, residents of Illinois. In 1930 John Stuart, the respondent in No. 48, created one trust for each of his three children: Joan, Ellen and John. Later, in 1932, R. Douglas Stuart, the respondent in No. 49, created such trusts for each of his four children: Robert, Anne, Margaret and Harriet. The trusts were much alike. They were made in Illinois and specifically provided that they were to be governed by the laws of that state. The three children of John were all of age

Page 157

by January 1, 1934. None of the children of Douglas were of age during either of the taxable years.

By the creation of the trusts, each taxpayer transferred to three trustees certain shares of the common stock of the Quaker Oats Company, of which respondents were respectively president and first vice-president. The trustees named in each instrument were the taxpayer-settlor, his wife and his brother. The trusts created by John thus had John, his wife and Douglas as trustees and those created by Douglas had Douglas, his wife and John as trustees.

The trustees were given the power and authority of 'absolute owners' over the handling of the financial details of the respective trusts. They were freed from liability or responsibility except such as were due to actual fraud or willful mismanagement.

In the trusts created by R. Douglas Stuart for his minor children, the trustees were directed to 'pay over to (the beneficiary) so much of the net income from the Trust Fund, or shall apply so much of said income for his education, support and maintenance, as to them shall seem advisable, and in such manner as to them shall seem best, and free from control of any guardian, the unexpended portion, if any, of such income to be added to the principal of the Trust Fund. When the said (beneficiary) shall attain the age of twenty-five years, the Trustees shall pay over and deliver to him one-half of the Trust Fund; and they shall pay over to him in reasonable installments the income from the remaining one-half of the Trust Fund until he shall attain the age of thirty years, when they shall pay over and deliver to him the remainder of the Trust Fund.'

In the trusts created by John Stuart for his adult children the directions were that the trustees should for fifteen years 'pay over and distribute, in reasonable in-

Page 158

stallments,' to the beneficiaries so much of the net income 'as they in their sole discretion shall deem advisable, the undistributed portion of such income to be added to and become a part of the principal of the Trust Fund.' After the fifteen years, the entire net income was to be paid to the beneficiary for and during her life.

Each trust provided for the devolution of the corpus to the issue of the beneficiary named in the instrument and in default of such issue to the issue of the donor and in default of issue of either, to named educational or charitable institutions.

Two paragraphs relating to changes and amendments are important. They were the same in all the instruments and read as follows:

'Eighth. The Donor reserves and shall have the right at any time and from time to time to direct the Trustees to sell the whole of the Trust Fund, or any part thereof, and to reinvest the proceeds in such other property as the Donor shall direct. The Donor further reserves and shall have the right at any time and from time to time to withdraw and take over to himself the whole or any part of the Trust Fund upon first transferring and delivering to the Trustees other property satisfactory to them of a market value at least equal to that of the property so withdrawn.

'Ninth. During the life of the Donor, the said (wife and brother of the donor), or the survivor of them, shall have full power and authority, by an instrument in writing signed and delivered by them or by the survivor of them to the Trustees, to alter, change or amend this Indenture at any time and from time to time by changing the beneficiary hereunder, or by changing the time when the Trust Fund, or any part thereof, or the income, is to be distributed, or by changing the Trustees, or in any other respect.'

Page 159

Pursuant to the authority of paragraph ninth, the two trustees authorized in the trusts to make changes did provide on the 2d and 3d of August, 1935, respectively, for the cancellation and expunction of both the eighth and ninth paragraphs set out above and for the substitution of the following in lieu of the expunged ninth paragraph:

'Ninth. This Indenture and all of the provisions thereof are irrevocable and not subject to alteration, change or amendment.' The Commissioner does not claim that any trust income received after these amendments is attributable to the taxpayers.

In answer to the taxpayer's petition in No. 49 for the redetermination of the deficiencies, the Commissioner asserted the increase was required by the provisions of Sections 22, 166, and 167 of the Revenue Act of 1934, 48 Stat. 680, 26 U.S.C.A. Int.Rev. Acts, pages 669, 727. Section 22 was not raised by the Commissioner in his answer to the petition in No. 48. But the applicability of that section was raised by the Commissioner as appellee before the Circuit Court of Appeals. Helvering v. Gowran, 302 U.S. 238, 245, 58 S.Ct. 154, 158, 82 L.Ed. 224. The contention in the Court of Appeals rested on the facts stipulated in the Board of Tax Appeals. On the rejection of that ground in the court below the Commissioner was entitled to raise the question, as he did, in his petition for certiorari and rely on Section 22 in this Court. Helvering v. Gowran, 302 U.S. 246, 58 S.Ct. 158, 82 L.Ed. 224; cf. Hormel v. Helvering, 312 U.S. 552, 61 S.Ct. 719, 85 L.Ed. 1037. So far as pertinent the sections are set out in the footnote below.*

Page 160

The Board of Tax Appeals upheld the Commissioner's determinations that Section 166 governed the trusts' incomes because the powers of the wife and brother, as trustees, under the ninth paragraph were sufficient to revest the funds in the grantors and because the trustees were without substantial adverse interests. The Circuit Court of Appeals reversed this determination, Stuart v. Commissioner, 7 Cir., 124 F.2d 772, 777, on its conclusion that under the law of Illinois 'the wife and brother as trustees had no authority * * * to revest the property in the grantor.' The same reasoning led the appellate court to say that neither Section 167 nor 22 was applicable, except as to the income of the Douglas Stuart trusts actually used for the support of a minor child.

Page 161

The applications for certiorari were granted because of differing views in the courts of appeals as to the inclusion of the incomes of trusts with similar provisions in the gross incomes of the donors by virtue of the sections of the Act relied upon by the Commissioner. Altmaier v. Commissioner, 6 Cir., 116 F.2d 162; Fulham v. Commissioner, 1 Cir., 110 F.2d 916; Whiteley v. Commissioner, 3 Cir., 120 F.2d 782; Commissioner v. Buck, 2 Cir., 120 F.2d 775.

To reach a decision as to the applicability of Sections 166 and 167 of the Revenue Act of 1934, see footnote page 3 (63 S.Ct. 144) supra, to these trusts, the instruments must be construed to determine whether the power to revest title to any part of the corpora in the grantors or to distribute to them any of the income lies with any persons not having a substantial adverse interest to the grantors. That construction must be made in the light of rules of law for the interpretation of such documents. The intention of Congress controls what law, federal or state, is to be applied. Burnet v. Harmel, 287 U.S. 103, 110, 53 S.Ct. 74, 77, 77 L.Ed. 199; Lyeth v. Hoey, 305 U.S. 188, 194, 59 S.Ct. 155, 158, 83 L.Ed. 119, 119 A.L.R. 410. Since the federal revenue laws are designed for a national scheme of taxation, their provisions are not to be deemed subject to state law 'unless the language or necessary implication of the section involved' so requires. United States v. Pelzer, 312 U.S. 399, 402, 403, 61 S.Ct. 659, 661, 85 L.Ed. 913. This decision applied federal definition to determine whether an interest in property was called a 'future interest.' When Congress fixes a tax on the possibility of the revesting of property or the distribution of income, the 'necessary implication,' we think, is that the possibility is to be determined by the state law. Grantees under deeds, wills and trusts, alike, take according to the rule of the state law. The power to transfer or distribute assets of a trust is essentially a matter of local law. Blair v. Commissioner, 300 U.S. 5, 9, 57 S.Ct. 330, 331, 81 L.Ed. 465; Freuler v. Helvering, 291

Page 162

U.S. 35, 43—45, 54 S.Ct. 308, 311, 312, 78 L.Ed. 634.1 Congress has selected an event, that is the receipt or distributions of trust funds by or to a grantor, normally brought about by local law, and has directed a tax to be levied if that event may occur. Whether that event may or may not occur depends upon the...

To continue reading

Request your trial
357 practice notes
  • Francisco v. U.S., No. 00-1802
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • February 5, 2001
    ...of delay damages are governed solely by federal law, in this case the considerations underlying S 104(a)(2).5 See Helvering v. Stuart, 317 U.S. 154, 162 (1942); Lyeth v. Hoey, 305 U.S. 188, 194 (1938). "A court therefore must look first to state law to ascertain the existence and nature of ......
  • Doll v. Commissioner of Internal Revenue, No. 12773.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • May 11, 1945
    ...make or not make State law control the application of its acts.2 Thus it is the intention of Congress which governs (Helvering v. Stuart, 317 U.S. 154, 161, 63 S.Ct. 140, 87 L.Ed. In determining whether or not Congress intended State law to control, several tests have developed. Among these......
  • Mogis v. Lyman-Richey Sand & Gravel Corp., No. 14182.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • May 18, 1951
    ...24, 86 L.Ed. 21; MacGregor v. State Mutual Life Assur. Company, 315 U.S. 280, 281, 62 S.Ct. 607, 86 L.Ed. 846; and Helvering v. Stuart, 317 U.S. 154, 164, 63 S.Ct. 140, 87 L.Ed. 154. In MacGregor v. State Mutual Company, supra, that court said: "No decision of the Supreme Court of Michigan,......
  • National Equipment Rental, Ltd v. Szukhent, No. 81
    • United States
    • United States Supreme Court
    • January 6, 1964
    ...County); Emerson Radio & Phonograph Corp. v. Eskind, 32 Misc.2d 1038, 228 N.Y.S.2d 841 (Sup.Ct., N.Y. County). 6. Helvering v. Stuart, 317 U.S. 154, 164, 63 S.Ct. 140, 146, 87 L.Ed. 154; see also United States v. Durham Lumber Co., 363 U.S. 522, 526—527, 80 S.Ct. 1282, 1284, 4 L.Ed.2d 1371;......
  • Request a trial to view additional results
357 cases
  • Francisco v. U.S., No. 00-1802
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • February 5, 2001
    ...of delay damages are governed solely by federal law, in this case the considerations underlying S 104(a)(2).5 See Helvering v. Stuart, 317 U.S. 154, 162 (1942); Lyeth v. Hoey, 305 U.S. 188, 194 (1938). "A court therefore must look first to state law to ascertain the existence and nature of ......
  • Doll v. Commissioner of Internal Revenue, No. 12773.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • May 11, 1945
    ...make or not make State law control the application of its acts.2 Thus it is the intention of Congress which governs (Helvering v. Stuart, 317 U.S. 154, 161, 63 S.Ct. 140, 87 L.Ed. In determining whether or not Congress intended State law to control, several tests have developed. Among these......
  • Mogis v. Lyman-Richey Sand & Gravel Corp., No. 14182.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • May 18, 1951
    ...24, 86 L.Ed. 21; MacGregor v. State Mutual Life Assur. Company, 315 U.S. 280, 281, 62 S.Ct. 607, 86 L.Ed. 846; and Helvering v. Stuart, 317 U.S. 154, 164, 63 S.Ct. 140, 87 L.Ed. 154. In MacGregor v. State Mutual Company, supra, that court said: "No decision of the Supreme Court of Michigan,......
  • National Equipment Rental, Ltd v. Szukhent, No. 81
    • United States
    • United States Supreme Court
    • January 6, 1964
    ...County); Emerson Radio & Phonograph Corp. v. Eskind, 32 Misc.2d 1038, 228 N.Y.S.2d 841 (Sup.Ct., N.Y. County). 6. Helvering v. Stuart, 317 U.S. 154, 164, 63 S.Ct. 140, 146, 87 L.Ed. 154; see also United States v. Durham Lumber Co., 363 U.S. 522, 526—527, 80 S.Ct. 1282, 1284, 4 L.Ed.2d 1371;......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT