Source: https://supreme.justia.com/cases/federal/us/309/344/
Timestamp: 2019-04-19 00:25:34+00:00

Document:
1. Section 166 of the Revenue Act of 1934, providing that the income from a trust shall be taxable to the grantor where "at any time the power to revert in the grantor title to any part of the corpus of the trust is vested" in him is inapplicable in the absence of such power, though the term of the trust be short and the corpus will soon revert to the grantor. A mere reversion is not a power to revest within the meaning of § 166. P. 309 U. S. 347.
2. Having invoked before the Board of Tax Appeals and the court below the comparatively narrow provisions of § 166 of the Revenue Act of 1934 to sustain the tax in question, and having expressly waived reliance on any other section, the Commissioner of Internal Revenue my not resort here for the first time to the broader provisions of § 22(a). P. 309 U. S. 348.
Certiorari, 308 U.S. 543, to review the affirmance of a decision of the Board of Tax Appeals (37 B.T.A. 1065) which reversed a determination of a deficiency in income tax.
"whether any property or money received or held in trust shall be treated as capital or income, and the mode in which any expense incidental to the execution of the trust is to be borne as between capital and income,"
with the proviso, however, that stock dividends and subscription rights should be treated as principal. He was prohibited from receiving any commissions with respect to principal or income, and an exculpatory clause purported to protect him against any loss except that occasioned by his willful misconduct. He had the power to appoint a substitute trustee. [Footnote 3] On termination of the trust, "all property then held in trust" was to go to him. The trust contained no power of revocation, nor any power to revest in the grantor at any time, prior to the date of termination, title to any part of the corpus.
During 1934, respondent paid over to his wife $8,750, which was the entire income from the trust for that year. She included it in her income tax return. The Commissioner, being of the opinion that the income was taxable to respondent, determined a deficiency in his 1934 return. Respondent appealed to the Board of Tax Appeals, which held that petitioner was in error, 37 B.T.A. 1065. The Circuit Court of Appeals affirmed, 104 F.2d 1013, on the authority of United States v. First National Bank of Birmingham, 74 F.2d 360.
Petitioner maintains that the trust income is taxable to respondent either under § 166 or § 22(a) of the Revenue Act of 1934, 48 Stat. 680, 686, 729, or both.
to impute to Congress a purpose to impose the tax when the grantor has an executory power to revest title in himself but to withhold the tax when the grantor, by provisions in the trust deed, has already exercised that power.
history corroborates this conclusion. When the 1934 Act was before the House Committee, the Treasury recommended that income from short-term trusts and from revocable trusts should be taxable to the creator. [Footnote 5] The Congress adopted the latter [Footnote 6] by an appropriate amendment to § 166, but it did not select the former for special treatment. When such clear choice of ideas has been made in the drafting of a specific provision of the law, its language must be taken at its face value. Sec. 166 is therefore not applicable to this trust, since respondent is given no power to recall the corpus. He or his estate gets it at the end of the term, on the death of his wife, or on his own death -- whichever is the earliest.
§ 166. Though petitioner, in his petition for certiorari, relied on § 22(a), respondent, in opposition thereto, took the position that that point was not available to petitioner here, as it was not raised below. In view of these facts, especially the express waiver below, we do not think that petitioner should be allowed to add here for the first time another string to his bow. As we have indicated, the issues under § 166 and § 22(a) are not coterminous. Though both deal with concepts of ownership, the range of inquiry under the latter is broad, under the former confined. To open here for the first time and in face of the express disclaimer an inquiry into the broader field is not only to deprive this Court of the assistance of a decision below, but to permit a shift to ground which the taxpayer had every reason to think was abandoned in the earlier stages of this litigation. [Footnote 7] See Burnet v. Commonwealth Improvement Co., 287 U. S. 415, 287 U. S. 418. It is not apparent why a less strict rule is necessary in order adequately to protect the revenue.
In 1932, the term was extended to five years from April, 1931.
His right to sell was subject to a collateral agreement, not material here, with one Scherman, granting Scherman a preemptive right in case respondent decided to sell.
No substitute trustee was, however, appointed, respondent continuing to act as trustee until termination of the trust in 1936.
"Where at any time the power to revest in the grantor title to any part of the corpus of the trust is vested --"
"(1) in the grantor, either alone or in conjunction with any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom, or"
"(2) in any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom,"
"then the income of such part of the trust shall be included in computing the net income of the grantor."
"The income from short-term trusts and trusts which are revocable by the creator at the expiration of a short period after notice by him should be made taxable to the creator of the trust."
"Under existing law, the income from a revocable trust is taxable to the grantor only where such grantor (or a person not having a substantial adverse interest in the trust) has the power within the taxable year to revest in the grantor title to any part of the corpus of the trust. Under the terms of some trusts, the power to revoke cannot be exercised within the taxable year, except upon advance notice delivered to the trustee during the preceding taxable year. If this notice is not given within the preceding taxable year, the courts have held that the grantor is not required under existing law to include the trust income for the taxable year in his return. The Senate amendments require the income from trusts of this type to be reported by the grantor. The House recedes."
Art. 166-1 of Treasury Regulations 86, originally promulgated under § 166, was not promulgated under § 22(a) until 1936 (T.D. 4629), two years after the tax liability here in issue occurred. Hence, we do not have a case of reliance by the government on a regulation which during the taxable year in question rested on two legs, one of which was § 22(a).

References: § 166
 § 166
 § 22
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 § 166
 § 22
 § 166

§ 166
 § 22
 § 166
 § 22
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Art. 166
 § 166
 § 22
 § 22