Court Opinion

ID: 9637356
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:04:24.892382+00
Date Added: 2024-06-11T18:09:55.548312
License: Public Domain

FRANK, Circuit Judge
(dissenting).
I dissent because of Stuart v. Commissioner, 317 U.S. 154, 63 S.Ct. 140, 87 L.Ed. 154; Dobson v. Commissioner, 320 U.S. 489, 64 S.Ct. 239, 88 L.Ed. 248, and Bing-ham’s Trust v. Commissioner, 325 U.S. 365, 65 S.Ct. 1232, and John Kelley Co. v. Commissioner, 66 S.Ct. 299.
In the Stuart case, 317 U.S. at page 169, 63 S.Ct. at page 148, 87 L.Ed. 154, there was presented to the Supreme Court a possible Clifford question which the Board had not considered, and the Supreme Court apparently remanded for decision by the Board. The sole facts which the Supreme Court noted as raising the Clifford issue were (1) that the trustees, consisting of the grantor, his wife and his brother, had power to vote the trusteed stock of the company of which the grantor was an executive and (2) that the grantor reserved the right to purchase the trusteed stock by substituting other property of at least equal market value, satisfactory to the trustees.
Here the trustees are the grantor and his wife who has no adverse interest. Here the grantor and his wife have the power to vote the trusteed stock of a company of which he is an important executive; the grantor reserves the power to direct the trustees to sell any part of the trust estate at prices he names; and the trustees (the grantor and his wife) may invest and reinvest without regard to legal restrictions on investments of trust funds.
In the Stuart case, on remand, it appeared that the taxpayer, his immediate family and the trusts owned, together, but 5.4% of the outstanding stock of the company, some of the stock of which was in the trust; the Tax Court found that taxpayer “through control of the trust corpus,” had not “retained any stock control” of the company, and therefore held against Cliffordization. See 2 T.C. 1103. But here, as we recently said, when discussing the Tax Court’s decision of the instant case in our opinion (per L. Hand, J., in Kohn-stamm v. Pedrick, 153 F.2d 506, “the shares in the fund, together with what the settlor himself owned, gave him forty percent of the whole voting strength of a corporation in which apparently the shares were widely scattered”; and we went on to say that, in such a company, 20% often constitutes control.
Had the present case been decided below by a district court, we would, as we said in Kohnstamm, be free to pass on the Clifford issue without regard to the decision of the lower court. But even in Kohnstamm — where we pointed out that the stock control was of little significance because the stock was that of a “closed” corporation — we said that had the decision been by the Tax Court, its “decision would conclude us, unless there emerged with inescapable clarity some error of law that we could not evade.”1 In the light of the Stuart case, I think no such error here appears.
The reason for the action taken by the Supreme Court in the Stuart case becomes more clear when we read Dobson v. Commissioner, 320 U.S. 489, 64 S.Ct. 239, 88 L.Ed. 248, Bingham’s Trust v. Commissioner, 325 U.S. 365, 65 S.Ct. 1232, and John Kelley Co. v. Commissioner, 66 S.Ct. 299. It would seem that the Supreme Court regards a Tax Court decision of a Clifford question as a one of “mixed law and fact” which “will usually afford little concrete *516guidance for future cases” except when, in reaching its decision, the Tax Court announces “a rule of general applicability,”2 as, for instance, if the Tax Court decided that all trusts in which 'the grantor has any voting power in trusteed stock come within Clifford. No such “rule of general applicability” appears in the Tax Court’s decision in the instant case.3 It is significant, I think, that when the Court, in the Dobson case, 320 U.S. at page 501, 64 S.Ct. at page 246, 88 L.Ed. 248, assimilating decisions of the Tax Court to those of administrative bodies, said “the judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body,” it cited the Clifford case.4

 Phipps v. Commissioner, 2 Cir., 137 F.2d 141, was a ease of that kind.

 Bingham’s Trust v. Commissioner, 325 U.S. at page 370, 65 S.Ct. at page 1235.

 That was not true in. Phipps v. Commissioner, supra.

 Since it is sometimes suggested that the- Bingham ease overruled the Dobson, it is of interest that Dobson was recently cited in Commissioner v. Flowers, 66 S.Ct, 250, John Kelley Co. v. Commissioner, supra.