Opinion ID: 782888
Heading Depth: 4
Heading Rank: 4

Heading: Kanter was the substantial owner of BRT

Text: 70 Generally, if a grantor of a trust has the power to dispose of the beneficial enjoyment of that trust through a power of appointment, then the grantor is treated as the owner of the trust and the income of the trust must be included in the income of the grantor. 26 U.S.C. §§ 671, 674(a); 26 C.F.R. § 1.674(a)-1. Kanter argues that he three times renounced his beneficial interest in BRT and, by those renunciations, lost the power of appointment that he had under the trust document. But the Tax Court notes that, after the third of Kanter's renunciations, sixty new beneficiaries were added to BRT. 19 Kanter was the only person who ever had the power under the trust document to appoint new beneficiaries. The most logical inference (which the Tax Court drew) is that Kanter himself appointed the new beneficiaries and that his earlier renunciations were shams. Kanter fails to rebut this. Kanter's only argument directly on this issue appears in his reply brief, in which he argues that the Tax Court improperly refused to reopen the record to admit evidence that Kanter's children were the grantors of the various JSK Trusts that had been added as beneficiaries of BRT. 20 (Reply Br. at 18.) This purported evidence would not be probative of the issue whether Kanter had exercised the power of appointment under BRT. The Tax Court's findings that Kanter was the grantor of BRT and that he held a power of appointment of beneficiaries of BRT were not clearly erroneous. Therefore, the Tax Court's finding that Kanter is taxable on BRT's income in 1986 (and 1987) is also not clearly erroneous. 71 As an alternative, the Tax Court also found that Kanter's borrowing from BRT without repayment and without adequate security subjected Kanter to liability for BRT's income. See 26 U.S.C. § 675(3) (The grantor shall be treated as the owner of any portion of a trust in respect of which.... [t]he grantor has directly or indirectly borrowed the corpus or income and has not completely repaid the loan, including any interest, before the beginning of the taxable year.). It appears undisputed that Kanter had borrowed money from BRT in a way that subjects him to liability under § 675(3), and that at the beginning of 1987 he still owed BRT $287,030. This would be sufficient for Kanter to incur liability for 1987. 21 There are, however, no findings by the Tax Court as to any amount Kanter owed to BRT as of January 1, 1986. Therefore, there could be no tax liability for Kanter in 1986 based on § 675(3). In the end this conclusion does not affect ultimate tax liability because under § 674 Kanter remains liable for both 1986 and 1987. 72 In conclusion, we affirm the Tax Court's determination that Kanter was the grantor of BRT in 1986 and 1987 and is taxable on BRT's income for those years.