Reeb v. Commissioner

1927 BTA LEXIS 2830 | B.T.A. | 1927

Lead Opinion

OPINION.

Littleton :

The Commissioner increased the minor’s income for the year 1920 (included in the petitioner’s income) in the sum of $17,726.41, alleging same to be taxable income resulting from investment in stock of the Elmhurst Investment Co., and increased the petitioner’s income for the same year $47,180, which he alleged to be taxable income resulting from the reorganization of the Elmhurst Investment Co.

These two sums are, however, by stipulation, eliminated from taxable income for the year 1920. The remaining complaint of the petitioner is that in computing his net income for the years involved, the Commissioner included the income of the trust in favor of petitioner’s minor daughter, Virginia C. Eeeb.

The Commissioner’s action in determining deficiencies was apparently, as indicated in his answer, based on the idea that the trust .instrument and the partnership agreement as regards the minor 7 daughter were not bona, fde and did not result in making a legal trust and partnership vesting the minor with any legal interest therein.

The evidence does not disclose that any one was ever appointed guardian of Virginia C. Eeeb, although the mother as trustee for her under the trust agreement entered into a partnership arrange-jbment with the father and adult daughters and received and now \ holds as a separate estate for her minor daughter certain funds, realized from the partnership and from the trust.

There is no indication from the evidence of bad faith on the part of the father in creating the trust in favor of the minor daughter, nor in the partnership arrangement effected with his wife, the trustee, as one of the partners. The father’s property was his own to do with as he desired. His wife could legally serve as trustee and in making her such for their minor daughter, he could impose restrictions and give the trustee the right and power to exercise her discretion in the matter of investments and handling of trust funds, as he did.

The father having legally created a trust and the mother having accepted and undertaken to execute the same as trustee and having acquired certain funds from the partnership and otherwise, which she now holds as a trust fund for the minor, such fund is not the' property of the father and is not taxable to him as such. In creating' the trust, the father made a separate estate for the minor daughter and ceased to have either ownership or control over the same. In such circumstances, the Commissioner erred in including the income of the minor’s trust estate as a part of petitioner’s taxable income.

Judgment will be entered on 15 days’ notice, wider Rule 50.

Considered by Smith and Love.