*1 hеarings the ref- appellant before at the July following our eree held order unable that we are We state 1937. Salkind reach that Mrs. the conchtsion sought to be owner abundantly reclaimed her. fact it was the and never clear that she any interest possessed owner thereof or equity. therein law or . either at
Rehearing is denied.
BUFFINGTON, dis- Judge, Circuit
sents. OF
RHEINSTROM v. COMMISSIONER REVENUE. INTERNAL
No. 11265. Eighth Appeals, Circuit.
Circuit Court June WOODROUGH, Judge, dis-
senting. *2 invested for his benefit “and/or” his wife and trustees children. The were directed to hold of such income 12%% for the taxpayer’s benefit of the son Arthur upon F. Clifford the same terms and con- Pratt, Minneapolis, Minn. Donald F. applicable Benjamin ditions as were to B. Minne- MacGregor, of (Guesmer, Carson & Clifford. The trustees directed to Minn., briefs), petitioner. apolis, hold income for such the benefit 12%% Asst, Foster, Sp. Atty. Louise to Gen. taxpayer’s daughter, Katherine Clif- Gen., Atty. Morris, (James W. Asst. and ford, pay with discretion to only over so Marselli, Sp. Key Harry Assts. Sewall and much of the income to as to them Atty. Gen., respond- briefs), to best, seemed any unexpend- invest ent. balance benefit. The remain- SANBORN, GARDNER, Before and ing net income was to be ac- 10% WOODROUGH, Judges. Circuit cumulated, and held invested “as a reserve fund, power with absolute and discretion SANBORN, Judge. pay said trustees to over to” the tax- petition This decision payer, lifetime, to review a “during part, such if Apрeals (37 of Tax T. any Board B. A. of this of the entire net income 10% deficiency gift 308) redetermining a taxes accumulations, of said any, if petitioner year 1934, thereon, for the under best, to said trustees seem the Revenue Act of 1932.1 power and with absolute discretion in trustees, said after the death of” tax- dispute. The facts are No- On payer, pay “to over children of” 7, 1934, vember executed taxpayer, “or to their successors in trus- inter- delivered tees, trust instrument them, provided, est as irrevocably transferring part, hereinafter such if trust, personal property any, of the value of of this of the entire net income 10% $205,222.27. The created of said accumulations, any, if and her four chil- thereon, may to said trustees seem best By terms, * *” * its she retained a life in- dren. terest net the entire income. The 40% In her tax year 1934, return for the pay trustees directed her son in the belief that in creat- H. Stewart Clifford the entire net 12%% ing this trust she had made four —one to hold income. were directed 12%% each four children—excluded income for benefit of her of such son $20,000by virtue of 504(b). (See Section Clifford, Benjamin B. with the dis- 1.) assumed, footnote She also in making pay him so cretion over to much return, she retained a life in- best, thereof as to them seem terest the income prоp- power portion all or a there- 50% erty children; paid trust. any She wife tax “and/or” unexpended portion of such basis. nue puted gift. shall ing U.S.C.A. resident, er tangible each “(a) 47 Stat. “(a) “(b) “Sec. “Sec. 501 The such calendar Act of 1932 are: calendar General definition. For pertinent provisions is in trust or imposed § 550. provided 169, 245, intangible the calendar tax shall [§ [Section nonresident, is direct or 553], year year by thereafter in section 502 Net 26 U.S.C. 550]. [*] * the transfer dur- otherwise, real or year The term indirect, Imposition of the Reve- whether property individual, 1932 and § tax, personal, wheth- [551], com- ‘net shall gifts’ vidual, U.S.C.A. the donor deductions made ests in first сase of (a), 47 Stat. “(1) 47 Stat. “(a) “(b) “See. 1111 corporation.” U.S.C.A. be included $5,000 not, during means the When Gifts less than a trust or property) § for the during 169, 289, during 169, 247, provided term of such § used (other the calendar [§ 1696(1). 1096]. Definitions in the total ‘person’ total amount of the calendar purposes than of in section 26 U.S.C. § 26 U.S.C. year.” $5,000. Act— means an indi- partnership, any year, future inter- such amount of 505 [554]. subsection person § year, less 1696(1), In the person 6áá Board, ques- apparently fore two Revenue Internal presented: (1) the trans- Did tions were taxpayer’s she trust which fer in of “future her children three of single gift entitling created constitute to but entitled terests”, she was and that *3 $5,000, or it еxclusion of did her one ac $5,000, which was of one exclusion her one to each of gifts, constitute four son gift to her unconditional the count of were the beneficiaries four who deter also The Commissioner Stewart. taxpayer (2) the Did the retain in of trust? a life retained she had not that mined fund”, such equitable but had in the “reserve or “reserve in the terest the income by up fund” trust in the instrument? an interest set 40% Com of the This action estate.2 trust Board made the ruled that the deficiency com in the resulted missioner gift, a single which trust was the plained of. donee, the and that she no in- had retained terest in the reserve be fund which could Boаrd petitioned the in determining gift considered her tax.3 Be- a redetermination. Appeals for
Tax
income,
by
this case
limitation or condition
balance
sidered
may
pus,
solute
cent
ered
which,
that
come
corpus
pleted
and the income
strument.
ficiaries,
namely, Benjamin
of the other three children
F.
invested in the discretion
tates
reason
are
tion,
cumulated and
sioner in his
do not
else,
made in trust
ture interests
Board
joyment.
their
the absolute
that
2
“Under the terms of the
[*]
“No
Clifford
one trust
The statements
you
With
use,
as
which is
the
or
#
of the
you
or
are
from
whether or not vested
children and heirs because of
exclusions
discretion of the trustees. The
follows:
said
receive
because of a
may
shall be
[*]
to be
on November
an
income
possession
there was
reserved the income
not vested in
there was a
payable
Although you
exclusions
one-fourth
Although
corpus
intermediate estate
respect
(page
not be
discretion
these transfers
designated
deficiency
immediately
to three of
from
include interests and es-
Katherine
added to the
of future interests
corpus
from three-fourths of
paid
are allowed
virtue of one
of the trust for
but one
paid
trust
or
of future
10
B.
there were four bene
to the dоnees or ac-
Stewart H.
are allowable.
limitation,
of 37
these
giving
are therefore con-
per
enjoyment
first
letter
as
possession
Clifford,
to these
by
Clifford,
of the trustees.
a reserve
cent
you,
trust executed
your children,
balance of
B.T.A.):
question,
the Commis-
two
corpus,
whether
from
the trustees
are consid-
one
interests.”
made com-
unrestrict-
in
title,
a condi-
life,
Jan.
someone
appears
matters
Clifford
paid
against
Arthur
the
for the
donees,
40
corpus
or
fund,
gifts
cor-
Fu-
“In
per
the
ab-
the.
30,
en-
in-
in
or
Board
Krebs,
titioner also contends
a life interest
but one
Wells
life interest
of the income
may
invested
tention
come of the
tioner
itself.
titioner has
under
trust should be
allowed
the trust
ambiguity
derstanding
by
by
on the
Com’r, 36
come
[7
and
sidering
ed life interest
way
the
pus of the
ant to section
The contention of the
commuted value of which should
ducted
(e)
denture.
With
Cir.],
the
fact, supra,
of the second article
authority
authority
be excluded.
power
part
article 3 of
said
argument
during
[3
from
petitioner,
trustees as a reserve fund
respect
trustees;
We
any part
by
gift
that she retained a life interest
indenture,
by
Com’r,
Cir.] 90 F.2d
of the income
an
B.T.A. 630. Cf. Thomas
(page
property given
percent
must,
any part
reserved
them,
deducted the value of
in their
(f)
to the second
examination of the
in the 40
respondent
deduction
respondent.
in 50
exempt
reserved
that,
313 of
34
petitioner
previous
of this income to
brief,
Regulations
and,
of the second article of
made,
provided
life,
339;
therefore,
Seymour
set out
the trustees do have
be accumulated and
B.T.A.
although
trust
percent
petitioner
absolute discretion
percent
880.”
therefore,
trust
37
it is
value
Commissioner v.
percent
of the trust
life interest
to the trustees
erred
in our
B.T.A.):
decisions that
makes a con-
trust
is to be held
Despite
corpus
question,
she
H. Knox
in the
conclude on
to the trust
only $5,000
by
seem
alter
trust
has been
сommut-
retained
is based
affirmed
the cor-
findings
our un-
because
income.
percent
section
be de-
pursu-
same
“Pe-
peti-
con-
best
the
pe-
in-
in-
E.
presented
opinion
questions
“We are of the
Three
are
interest,
for decision:
Court
of the interest
the test used be the nature
constitute
in trust
1. Did the transfer
gave,
the nature of the
which the donor
or
four
to the trust
cestuis
interest which
the trustees
?
im-
que trusts received.
statute
Since
four
If
constituted
poses
it seems
the tax
interests”?
of them
of “future
pertinent
the interest
determine whether
3. Did
retain
an interest
gave was a
which the donor
fund
have been
in the reserve
which should
to determine
future interest rather than
computing
taken into consideration in
par-
quality of the
received
*4
liability?
beneficiary.
is clear that
the
ticular
support
1.
the
In
of his contention that
parted
subject-
completely
the
donor
trust,
single
made a
title,
including
right,
all
gifts,
matter of the
the Commissioner
cites
v.
enjoyment,
possession or
at
and interest in
Wells, Cir.,
339,
7
88
and
F.2d
Commission-
making
We think
the transfer.
the time of
Krebs, Cir.,
ques-
er
3
90
880.
F.2d
clearly appears,
we consider that
when
tion considered in those cases was wheth-
made,
gifts
the
were
the
after
gifts
gifts
pres-
er certain
were
trust
whatever, present
longer any
no
interest
or of
ent
сase,
future interests.
In the Wells
donated,
future,
funds
or
in the stock
court,
discussing
question,
the
present
interest.
that the
were
(page
said
341
F.2d)
of 88
:
however, that
nature of
“Assuming,
the
be considered from the stand-
the
is to
undisputed
“Under the
evidence all the
re-
point
of the interests
of the character
elements of
pres-
a consummated
were
given,
that of those
the
ceived rather than
ent. With
donor
the
the trans-
undoubtedly
interests.
trustees
took
fer was
thereby
He
futuro.
di-
‘person’ is
Inasmuch
term
defined
title,
himself
as the
vestige
vested
of all
by section
of the act
include
trust
part
future act on
modify
his
could
or
abrogate
estate,
involved
Likewise,
trust estates here
or
the
act.
the donees
persons to whom
competent
must be held
were
accept
the
they
meaning
the
the
made within
did
were
immediately.
they
so
trusts,
True
were
the
as-
they
504(h).
of section
That is
reason
persons,
were no different from
signed
conclusion
for a similar
the
the
Act
states.
took
so
immedi-
Circuit in Commissioner of Inter-
possession
ate
Seventh
title to and
prop-
of all the
erty
(C.C.A.) 88 F.2d
Revenue v. Wells
339.
donor;
they put
nal
the
it to instant
purpose
use
the directed
of building up
opinion
that test-
“We are further
an estate for the ultimate and contingent
cestuis
nature
ed
benеficiaries, who
named specifically.
trusts,
donor was entitled to the
que
The fact
those beneficiaries did
named,
donees
deduction. The
possession
come
corpus
into
until
respective
to them were
values of the
future,
some time in
dependent
given
ascertainable,
they were
use
some contingency, does not make the do-
unexpended ac-
the income and of the
any
nor’s act
completed
the less a
intervening
an
income without
cumulated
trustees. The
must not be
fact
over-
possession
though physical
even
looked that
the Act
involved relates to postponed.”
receipts.”
and not
case,
in the Wells
It is to be noted that
case,
was the
Krebs
court
trust
donee
the court
held that the
(page
said
Krebs
F.2d):
gift;
while in the
case the
trust,
power.
indenture
discloses
she has noth-
no such
Nor
petitioner
ing
legal
according
any
any
does the
equi-.
be valued
right
formula, and,
therefore,
table
no deduction can
distribution
to her of
any part
percent
bo made in
the 10
addition in
deduction of
of the income
subject
provisions
which is
value
reserved life interest
of sec-
(f)
percent
tion
income.
second
trust
Of.
article of
Sal-
only hope
indenture.
omon
She
v. State Tax Commission of
сan
New
York,
trustees,
discretion,
in their
265,
rectly
payer.
The Commissioner concedes that
Davidson v.
Welch,
by
H. Federal
stitutes
was decided
doctrine,
United
February
the decision
ion that this
ed as
fer in trust such
does not
the
ten on
Commissioner
cy
ent
beneficiaries.
note
having
court,
Davidson, Cir.,
her
the trust as the
the Board of Tax
The
In this
that Wells case is
opinion
decided
decided.
that she
had filed her
after
January
D.C.Mass.,
a
States,
taxpayer
the
refer
adopted
a redetermination
in his
of future
connection,
Tax
interests,
expressing
February
taxpayer
1
March
made to
but refers
to a trust.4
the
Welch;
the Board
letter
D.C.,
30, 1936,
there
Service,
as
by
the cases were not cor
relies
donees. The Wells
22
contention
originally
It is
the
petition
interests.
Appeals,
31, 1939,
four
N.D.Ill.,
F.Supp. 726;
of which he
the same
it is
Commissioner, question
here
upon
the Commissioner
Vol.
obvious
the
the beneficiaries
made four
1937.
gifts,
as the donee
taxpayer, writ-
interesting
100,
involved con-
basis
that a trans-
4,
Davidson v.
promulgated
of the tax
Ryerson
regarded
It
28
1939
August
par.
viеw,
affirming
The tax-
is
that the
deficien-
F.Supp.
regard- whom
appar-
Welch
C. C.
these
is of
opin- the donee on whom the
gifts
rul-
the
the tate
as the
gift. The trustee was not
the
more
benefits
trustee
title without consideration.’
‘transfers
was ‘not aimed at
bestow his
of a
at
beneficiary
interpretation
any
takes
ceded
Revenue
property with donative
title to the
strumentality of a
minister it
rect
trust;
trustee, on
transfers
[*]
economic
plaintiff’s
trust
beneficiary
beneficial
in accordance with
“The statute
gift.’
“We think it is
nearly
[*]
he
considered
bare
and that a
did not
“It
than with technicalities
Act of 1932
res;
[*]
conveys
beneficiaries in this cаse
for,
under an
bounty
must
an indirect one
property with
Surely
legal
are the donees.
the title
benefits’
with a
?
bounty. The transfer
that he has an
interest,
partake
other
‘had
of
title
every
the
gift, whether it
and that
transfer of title
conceded
1932,
irrevocable
trust
constituting
that have the
hand,
real
change of economic
come to be
plain enough that a
legal
in its behalf. The
call for
effected
intent;
is not.
*5
donor intended
is the
(which
the terms
like
owner;
through the
holds the
title
the
the
It was aimed
that in
the owner
that of
equitable es
quality
right to ad
‘no
transfer of
a
beneficiary
trustee,
trust, who
of a
devoid of
object оf
Does the
identified
different
title’,
that the
did), is
is a di
is con
change
quality
to the
equity
1924,
legal
trust
in
at
ion in the case of Welch v.
pra, indicate
sideration
cuit with
The
Court of
following excerpts
respect
(page
views
Appeals
102,
103 of
of the United States
question
for the First Cir-
from
Davidson,
102
under con-
F.2d):
opin-
su-
donee
signed as error the denial
for a
[*]
“While the
January
ruling
[*]
within the
[*]
that under the trust indenture
18, 1934,
government has
provisions
the trustee
of Section
its
simply
request
as-
fu
proposed
not of
en
In connection
with
statute,
con
interests.
The
as thus
ture
Revenue
actment
Section 505
ready
strued,
447, 553,
of tax avoid
(c.
affords
means
Act of 1938
52 Stat.
any
ance,
num
553(b)
sincе a donor
create
amended
which
Section
U.S.C.A. §
year
by
in
in favor
504(b)
ber of trusts
the same
of the Revenue Act
beneficiary
$5,000
respect
eliminating
same
with a
with
exclusions
applying
trust,
Report
exclusion
to each
where
trust,
transfers
Rep.
if
otherwise
(S.
than
No.
Finance Committee
subject
trust,
more
Cong.,
p.
in no
Sess.,
41)
would
this
3d
contains
75th
single
$5,000.
pro
exclusion of
The
is also
“The committee
statement:
change
proposed
$40,-
posing
does not reduce the
ex
an
amendment
exemption
gifts.
specific
trust.
would
clusion
apply only
Appeals
com
will
when
amendment
of Tax
several
The Board
year
puting
held,
the tаx for
calendar
with re
Federal courts
years.”
succeeding
spect
trust,
calendar
trust enti
account
and on that
the donees
ties were
re-
reasonably
it now it
as the
treated
Act
504(b) of
Revenue
cipient
taxpayer.
trust indenture
under
contends
January
donee, object
is the
had in
the trust
view
1932, creating
Act of
the trust was
1111(a) (1) of the
to confer
any
Section
upon
boon
her
states that
trust or her
(1),
trustees. To
1696(a)
26 U.S.C.A. §
Act,
device, means,
means
in that
the trust
‘person’,
used
was mere
word
part- method or
individual,
mechanism for enabling
trust or
‘an
effectuate
if
nership
corporation.’ But
Section
wishes
management
рre-
question
applicable,
1111(a) (1) is
and the distri-
bution of
raised
from the one
income derived therefrom
sented does not differ
herself and
which we have
assignment
Only
error
her children.
trans-
daugh-
fers of
the beneficial
already considered and held
interests in the trust
possessed
estate to the
for whom
children
individuals
ters of the
gifts.
to whom the characteristics
pos-
If it
intended and
had been
sible for
give directly
interests
are
economic
each
exactly
of her children
donees.”
the same
terest
property
by
which she transfer-
with the views
We are
entire accord
red to them
instrument,
expressed by
and with
con-
thаt court
number
same,
would have been the
tax,
un-
as we
clusion reached
derstand,
it.
since the same or similar benefits would
all trans-
'not a tax
have been transferred to the same donees
consideration,
fers made without
without the intervention of the trust.
tax,
namely,
a tax
having
gift. The con-
the attributes of a
our conclusion that the
veyance by
trustees
the
title and of
creating
made four —one
pos-
right
*6
to each of her children—and that she made
purpose
trust
session
of
no
or
the trust or
to
to the trus
administering
managing
it
ac-
tees.
in-
with the terms
trust
cordance
strument,
2. The
contends,
Commissioner
how-
unquestionably transfer
was
а
ever, that,
so,
if
even
this is
would make
trust,
it would be
it
but
seems
us that
it
to
no
bility,
taxpayer’s
difference
contrary
common
call it a
lia-
to
sense to
since
her son
her
Stewart receiv-
to
to
trust and
a trust. With
ed an
of no
unconditional
trustees,
giver
vested interest
was a
trust,
share of
income of
es-
trust
gifts. She was a creator of the
tate, and the interests of the other three
powers
grantor
rights,
and du-
certain
children are
regarded
to be
as
by
“future
to
who
selected
her to
ties
terests”.
tention
Commissioner directs at-
for the bene-
administer the
fit
trust
by
to
fact that
By
terms
her children.
herself and
trust
requir-
instrument the trustees are not
she
relаtionship
which
virtue
the trust
pay
ed to
to
pro-
these three children their
created,
acquired the
ti-
the trustees
portion
income, may
accumulate
conveyed, and
tle
which
she
benefit, or,
it for their
of
in the case of two
obligated
perform the
became
services
them, may pay
them,
it to
their wives
imposed
required and to fulfill
duties
or children.
It
true that
chil-
the three
by
trust instrument. To the
extent
dren,
Stewart,
other
received no
the services
the reasonable value of
render-
right
unconditional
the income
to have
them,
their shares of
by
would be
ed
entitled
the trustees
paid
by
to them
compensation.
trаnsfer,
the trustees.
so far as
true, however,
equally
It
concerned,
the tax-
they were
was not even a trans-
payer
no
retained
interest in the shares of
It
fer without consideration.
was
busi-
a
assigned
them,
income which were
arrangement
they
ness
from which
were to
that, by
the terms of the
each of them
compensation.
reasonable
Their
derive a
(or the wives and children of
sons)
the two
obligations
promise
the duties
to fulfill
were to have his or
share or it was to
upon
adequate
imposed
was an
con-
them
for his or her
accumulated
benefit. The
for the
sideration
transfer.
became
benefits cоnferred
enjoyment
trust
estate which
the administrators
her children
taxpayer created. Whether the trust
conditional,
it was
commence at once
person,
regarded
thing
a
a
or
itself
we,
future date
abstraction,
and was for
not at
think is not im- and
mere
immediate benefit.
perceive
sole
are unable
their
portant. We
how
trustees,
depended entirely upon
over
Wells, supra,
F.2d
v.
Commissioner
beneficiary
no control.
retained
whose acts she
interest of
dealt
with
they have
shows
fact
record
accumu-
that the
provided
aof
trust which
benefit,
paid
it for
age,
to her or used
became
until he
lation of income
By
importance.
we do not
,the
until
consider
income
to receive
when he was
might
instrument, they
terms
trust
his moth-
the death of
thirty or until
he was
fund
part
reserve
corpus.
distribute all or
er,
receive the
when he
towas
lifetime,
was,
they
during
or
fu-
was held
analogous
A somewhat
that withhold all of
interest, mainly
it.
ground,
ture
it
upon by
this Court
by the tax-
situation was ruled
was the
Co.,
Helvering
Union Trust
bene-
v. St. Louis
received
payer, and not that
Cir.,
416. There
trustee
gift 8
whether the
ficiary, which
discretionary power
termi-
given
interest.
or
trust, and
trust
instrument
nate
Krebs, supra, 90 F.2d
v.
provided
es-
if it
terminated the
directed the'
with trusts
dealt
This
grantor.
tate was
revert to the
use the
trustees to
.income
possibility
Court held
that the
that the
maintenance, bene-
support,
for the
estates
during
grantor’s
would be terminated
un-
of named
fit and education
lifetime would
the transfer one
not make
years
age, the
twenty-five
til
possession
enjoyment
to take effect in
at
or
unexpended
paid
income to
them
be then
death,
the time the
or after
and that at
issue, appointees
their
or distributees.
grantor
parted with
created the trust he
regard-
It was held that
beneficial interest
trust estate.
all
The
the benefi-
being
Supreme
Helvering
Court affirmed.
ciaries,
gifts of
“future interests”.
Co., 296 U.S.
Louis Union Trust
v. St.
Noyes Hassett, D.C.Mass.,
presumptive. case refused Wells The Commissioner interpretation exemption veer as in the allow suit and defended the case, supra, one, Krebs and order not based thе demand. The $5,000 several made out deductions to be Commissioner insisted such transfers that provide transfer. demands .The for the interests that we count the objects bounty beneficiaries who out of the the donor’s ,of get property its property plain- cor- income future pus $5,000 in the future and ly intent make deduction outside of letter and the (not exemption suggested for each one of the Act of Con- them. It is clause of humor) without that argued his trans- the Commissioner and gress. Appeals entity, posi- Boards of Tax gift, was an taken fer that it have help justify counting of in the tions such named trustee act, person defined in accelerated frustration Certainly tax law. those officers as the transfer was made to the trus- praesenti, been obedient got to the court. But the he all the estate tee responsibility Congress interests which Acts of in contrast beneficiaries, before ought facts the court is the court. go to the there would $5,000.00 court’s task to find the true deduction. Cir- one Congress carry tent of Appeals the Seventh Cir- intent cuit Court into contentions the tax- cuit sustained those .effect. $5,000.00 held payer deduc- These future interests in cre- from all trans- tion should be' made long these ated term trusts can upon long term trusts. fers relieved from tax laid Con- Wells, respect, F.2d due 339. With interpretations gress on expounds. the court right. the Commissioner I think conflicting put .Those ones has the court forward unconvincing seem me. I think course, Noyes Has- Of *9 the Commissioner did the best he could D.C., sett, F.Supp. promptly resulted plain according the law mean- the tax- There Wells decision. Congress, intent of ing and that he was wanting provide future payer, exemption refusing to right in extend the very terests according transfers which to these upon long enduring trusts. substantial nothing provide letter and intent their accomplished transmission of He bene- interests future property, in his to his heirs interests , ficiaries. effectually testamen- presumptive