Morsman v. Commissioner of Internal Revenue, No. 10621.

CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)
Writing for the CourtGARDNER, WOODROUGH, and THOMAS, Circuit
Citation90 F.2d 18
PartiesMORSMAN v. COMMISSIONER OF INTERNAL REVENUE.
Decision Date21 May 1937
Docket NumberNo. 10621.

90 F.2d 18 (1937)

MORSMAN
v.
COMMISSIONER OF INTERNAL REVENUE.

No. 10621.

Circuit Court of Appeals, Eighth Circuit.

April 30, 1937.

Rehearing Denied May 21, 1937.


90 F.2d 19
COPYRIGHT MATERIAL OMITTED
90 F.2d 20
Edgar M. Morsman, Jr., of Omaha, Neb. (Edgar M. Morsman, III, of Omaha, Neb., on the brief), for petitioner

Joseph M. Jones, Sp. Asst. to Atty. Gen. (Robert H. Jackson, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for respondent.

Before GARDNER, WOODROUGH, and THOMAS, Circuit Judges.

THOMAS, Circuit Judge.

This is a petition to review a decision of the Board of Tax Appeals which sustained the action of the Commissioner of Internal Revenue determining a deficiency in petitioner's income tax for 1929 in the amount of $5,440.70.

The question for decision is whether the profit realized from the sale of certain securities was taxable to the petitioner individually or to an alleged trust entity created by him.

The facts giving rise to the controversy are as follows: The petitioner executed an instrument captioned "Trust Agreement" on January 28, 1929, in which he named himself as trustee and provided that the United States Trust Company should be successor trustee. He was then president of the trust company and maintained his office at its place of business. The so-called trust agreement reads thus:

"Know all Men by These Presents:

"That I, Robert P. Morsman, of Omaha, Douglas County, Nebraska, do hereby declare that I hold the property hereinafter mentioned in trust for the uses and purposes hereinafter set forth, and to that end I do hereby sell, assign, transfer, and set over to myself as trustee the following described goods, bonds, credits, securities, and property, to-wit:

100 shares A. T. & T. Co.

600 shares International Utilities Pfd. B.

To Have And To Hold said goods, bonds, credits, securities, and property unto said Robert P. Morsman, his successors and assigns, but in trust, and for the uses and purposes and upon the conditions as follows, to-wit:

(1) The United States Trust Company shall be the successor in trust. At any time prior to January 1, 1939, the trustee, Robert P. Morsman, may turn over to the United States Trust Company the trust funds and property, and thereupon said United States Trust Company shall become trustee hereunder, and said Robert P. Morsman shall cease to be trustee. On January 1, 1939, it shall be the duty of said Robert P. Morsman to turn over the trust fund and property to the United States Trust Company as successor in trust to the said Robert P. Morsman.

(2) The creator of this trust may, from time to time, turn over to the trustee additional funds and property and thereupon such additional funds and property shall be and become part of the trust hereby created, subject to all the terms and conditions hereof.

90 F.2d 21

(3) The income of said fund and property shall remain undistributed up to January 1, 1934, and shall, up to said date be added to and become a part of the principal of said fund.

(4) The trustee shall have full power and authority to manage, handle, control, sell, invest, and reinvest said trust property in the manner in which the trustee shall deem wise and proper.

(5) After January 1, 1934, the income from said property and funds shall be paid to Robert P. Morsman during the remainder of his natural life.

(6) In the event Robert P. Morsman dies leaving issue, then said income shall be divided annually among such issue, children of a deceased child to take the share such deceased child would have taken had such child not died.

(7) In the event Robert P. Morsman dies leaving no issue surviving him, then upon his death said trust shall cease and terminate. Should Robert P. Morsman die leaving issue surviving, then said trust shall cease and terminate twenty years after his death.

(8) Upon the termination of said trust, the trust estate shall be divided between the issue of Robert P. Morsman, if there be any then living, children of a deceased child to take the same share such deceased child would have taken had such child not died. If, at the termination of said trust, there be no issue of said Robert P. Morsman then living, and said Robert P. Morsman dies a married man, then said trust estate shall be turned over to the widow of said Robert P. Morsman, if there be one then living, and, if not, then said trust estate shall be distributed among the heirs of Robert P. Morsman, heirs to be ascertained according to the laws of the State of Nebraska."

When the foregoing instrument was signed, the certificates of stock mentioned therein were not assigned to petitioner as trustee, but were merely indorsed in blank, and were placed by him with the instrument itself in his safe deposit box. On February 1, 1929, he sold the 100 shares of A. T. & T. stock and, on February 5, 1929, he sold the 600 shares of International Utilities stock. On the dates of February 4, and 8, with the proceeds of these sales he purchased cashier's checks payable to himself as trustee. He kept no separate bank account for the trust fund. On February 8, 1929, petitioner added to the trust fund the sum of $3,371.78 by his personal check payable to himself as trustee; and simultaneously, as trustee, with the greater part of the proceeds bought certain mortgages from himself as an individual. The balance was later used in purchasing a mortgage from the United States Trust Company for the trust. On March 30, 1929, the petitioner handed over to himself, as trustee, another 100 shares of A. T. & T. stock, indorsing the stock certificate in blank as before. This stock was sold on May 1, 1929, and on that date he used the greater part of the proceeds of the sale in buying certain mortgages from himself and certain bonds from the United States Trust Company for the trust fund.

On May 3, 1929, the petitioner, in accordance with the provisions of the trust agreement, assigned and delivered to the United States Trust Company all the funds then included in the trust, amounting at that time, on account of the various transactions of petitioner while he handled the fund, to $59,337. The company accepted and receipted for the property on the same day.

The petitioner did not report the profit realized from the sale of the securities in his individual income tax for the year 1929. These profits were reported in a separate return filed by the United States Trust Company, as trustee. The Commissioner has determined that the profit realized from the sale of the securities in 1929 was taxable as income to the petitioner individually. The Board of Tax Appeals sustained the ruling of the Commissioner on the ground that the trustee and the cestui que trust under the so-called trust agreement were one and the same person prior to May 3, 1929, and that consequently the instrument did not of itself result in the creation of a legal trust before that date. The petitioner asks for a review of this adverse ruling.

At the outset the intent of the petitioner in the execution of the trust agreement is disclosed both in his testimony before the Board of Tax Appeals and in the argument of his counsel in this court. He testified "that his income return for the year 1929 showed a net income of $68,000.00; that at the time said trust agreement was executed he had in mind the idea of selling the A. T. & T. stock and the International Utilities Preferred B stock; that at the time he knew such a sale represented a considerable profit; that prior to the execution of such instrument, he discussed with his brother the question of the taxability of such profits to himself or to

90 F.2d 22
the trust, if a trust were executed." And his counsel in his brief frankly admits "that one of the inducements to the execution of the trust deed was the fact that the profit from the sale of these securities could be taxed to a trustee instead of being income to petitioner." It is insisted, however, that "there is nothing wrong in petitioner's action." The question, of course, is not one of right or wrong. The question is whether or not the petitioner has properly manifested an intention to establish a fiduciary relationship in which there were imposed upon him as trustee some enforceable duty with respect to the securities sold by him prior to May 3, 1929. Trusts, Restatement, §§ 2 and 23. It is true that a legal transaction will not be denied its intended effect though an underlying motive may have been the evasion of taxes. Gregory v. Helvering, 293 U.S. 465, 469, 55 S.Ct. 266, 267, 79 L.Ed. 596, 97 A.L.R. 1355; Helvering v. St. Louis Trust Co., 296 U.S. 39, 56 S.Ct. 74, 80 L.Ed. 29, 100 A.L.R. 1239; Becker v. St. Louis Union Trust Co., 296 U.S. 48, 56 S.Ct. 78, 80 L.Ed. 35. But the transaction may always be scrutinized to see whether it is in reality what it appears to be. Gregory v. Helvering, supra; Johnson v. Commissioner (C.C.A.2) 86 F.(2d) 710, 712. Substance and not form should control in the application of tax laws. United States v. Phellis, 257 U.S. 156, 42 S.Ct. 63, 66 L.Ed. 180; Lonsdale v. Commissioner (C.C.A.8) 32 F.(2d) 537, 539. When a taxpayer thus boldly proclaims that his intent, at least in part, in attempting to create a trust is to evade taxes, the court should examine the forms used by him for the accomplishment of his purpose with particular care; and, if his ingenuity fails at any point, the court should not lend him its aid by resolving doubts in his favor

The gist of the trust agreement in this case may be summarized as follows: The petitioner gratuitously declared (1) that he would hold the stocks enumerated, then owned by him, in trust with power to add thereto, "control, sell, invest and reinvest" the same (a) for his own benefit during life, and (b) at his death for his widow, issue, or heirs; and (2) that the United States Trust Company should be successor trustee, and that he would turn the corpus of the trust over to the trust company not later...

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28 practice notes
  • Fedders Financial Corp. v. Director, Div. of Taxation
    • United States
    • United States State Supreme Court (New Jersey)
    • June 4, 1984
    ...of assets so as to effect tax savings. Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935); Morsman v. Commissioner, 90 F.2d 18 (8th Cir.1937). See Note, "Statutory Construction: Presumptions: Interpretation of Tax Statutes," 42 Cornell L.Q. 589, 590 (1957) ("doubts Page 4......
  • Continental Oil Co. v. Helvering, No. 6918.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • October 3, 1938
    ...293 U.S. 507, 515, 55 S.Ct. 287, 290, 79 L.Ed. 623; Lightsey v. Commissioner, 4 Cir., 63 F.2d 254, 255; Morsman v. Commissioner, 8 Cir., 90 F.2d 18, 23, 113 A.L.R. 441, certiorari denied Morsman v. Helvering, 302 U.S. 701, 58 S.Ct. 20, 82 L.Ed. 542; Seymour Mfg. Co. v. Burnet, 61 App.D.C. 2......
  • Continental Oil Co. v. Jones, No. 6287.
    • United States
    • United States District Courts. 10th Circuit. Western District of Oklahoma
    • February 16, 1939
    ...an opinion by Mr. Justice Sutherland, expressly reaffirms the principles stated in Gregory v. Helvering, supra. In Morsman v. Commissioner, 90 F.2d 18, 22, 113 A.L.R. 441, the Eighth Circuit Court of Appeals said: "When a taxpayer thus boldly proclaims that his intent, at least in part, in ......
  • Continental Oil Co. v. Jones, No. 1938.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • June 26, 1940
    ...293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596, 97 A.L.R. 1355; Johnson v. Commissioner, 2 Cir., 86 F.2d 710; Morsman v. Commissioner, 8 Cir., 90 F.2d 18, 113 A.L.R. 441, certiorari denied, 302 U.S. 701, 58 S.Ct. 20, 82 L.Ed. 542; Jones v. Page, 5 Cir., 102 F.2d 144, certiorari denied, 308 U. S. ......
  • Request a trial to view additional results
28 cases
  • Fedders Financial Corp. v. Director, Div. of Taxation
    • United States
    • United States State Supreme Court (New Jersey)
    • June 4, 1984
    ...of assets so as to effect tax savings. Gregory v. Helvering, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935); Morsman v. Commissioner, 90 F.2d 18 (8th Cir.1937). See Note, "Statutory Construction: Presumptions: Interpretation of Tax Statutes," 42 Cornell L.Q. 589, 590 (1957) ("doubts Page 4......
  • Continental Oil Co. v. Helvering, No. 6918.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • October 3, 1938
    ...293 U.S. 507, 515, 55 S.Ct. 287, 290, 79 L.Ed. 623; Lightsey v. Commissioner, 4 Cir., 63 F.2d 254, 255; Morsman v. Commissioner, 8 Cir., 90 F.2d 18, 23, 113 A.L.R. 441, certiorari denied Morsman v. Helvering, 302 U.S. 701, 58 S.Ct. 20, 82 L.Ed. 542; Seymour Mfg. Co. v. Burnet, 61 App.D.C. 2......
  • Continental Oil Co. v. Jones, No. 6287.
    • United States
    • United States District Courts. 10th Circuit. Western District of Oklahoma
    • February 16, 1939
    ...an opinion by Mr. Justice Sutherland, expressly reaffirms the principles stated in Gregory v. Helvering, supra. In Morsman v. Commissioner, 90 F.2d 18, 22, 113 A.L.R. 441, the Eighth Circuit Court of Appeals said: "When a taxpayer thus boldly proclaims that his intent, at least in part, in ......
  • Continental Oil Co. v. Jones, No. 1938.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • June 26, 1940
    ...293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596, 97 A.L.R. 1355; Johnson v. Commissioner, 2 Cir., 86 F.2d 710; Morsman v. Commissioner, 8 Cir., 90 F.2d 18, 113 A.L.R. 441, certiorari denied, 302 U.S. 701, 58 S.Ct. 20, 82 L.Ed. 542; Jones v. Page, 5 Cir., 102 F.2d 144, certiorari denied, 308 U. S. ......
  • Request a trial to view additional results

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