Court Opinion

ID: 4596174
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:16:33.33598+00
Date Added: 2024-06-11T07:51:34.217797
License: Public Domain

GENEVIEVE F. MOORE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Moore v. CommissionerDocket No. 94648.United States Board of Tax Appeals39 B.T.A. 808; 1939 BTA LEXIS 975; April 21, 1939, Promulgated *975  1.  Where trust established for grantor's children permitted grantor to obtain corpus and accumulations of income only in the event of a remote contingency, held, following William E. Boeing,37 B.T.A. 178">37 B.T.A. 178, the income, not being accumulated for future distribution to the grantor, is not taxable to her under section 167:a):1), Revenue Acts of 1934 and 1936.  2.  Where trustees were empowered to use trust income for payment of premiums upon policies of insurance on grantor's life, but no such policies were in existence during tax years, held that trust income is not taxable to the grantor under section 167:a):3), Revenue acts of 1934 and 1936.  A. F. Hillix, Esq., and Paul F. Moore, Esq., for the petitioner.  Carroll Walker, Esq., Elizabeth B. Fegan Esq., Arthur H. Fast, Esq., and Irving M. Tullar, Esq., for the respondent.  OPPER*809  This proceeding was brought for a redetermination of deficiencies in petitioner's income tax for the calendar years 1935 and 1936 in the respective amounts of $670.51 and $4,549.50.  The question presented for our determination is whether income of a certain trust created by petitioner*976  for the benefit of her children is taxable to her, first, for the reason that it might be held or accumulated for future distribution to her, within the meaning of section 167(a)(1) of the Revenue Acts of 1934 and 1936, or, second, for the reason that the power is given the trustees to use trust income for the payment of premiums upon policies of insurance on the life of petitioner.  FINDINGS OF FACT.  The stipulated facts are found.  From the facts so found and the pleadings we make the following summary, which is adequate for present purposes.  Petitioner is an individual residing in Kansas City, Missouri.  On September 11, 1934, she executed a trust indenture conveying considerable property to certain trustees.  The trust instrument purported to create six trust estates.  :Art. I.) It is specifically provided that the trust at the will of the settlor in the principal or income The principal beneficiaries of two of the six shares were trustees of the entire trust.  :Art. XIII, par. 10; art. XIV, par. 4.) Petitioner was named as one of the trustees and acted as such until June 29, 1935, but has not been a trustee since that time.  :Art. XIII, par. 10.) The trust indenture*977  provided that the income of the trusts should be distributed by the trustees at least semiannually.  :Art. VII, par. 1.) It further provided, subject to later provisions for a Fund may demand and receive one-third of his trust estate; when he reaches 30 he may demand and receive one-half of the balance of his trust estate; and at the age of 35 he may demand and receive the remainder.  :Art. VI, par. 1.) It is also provided that, in the event of the death of a principal beneficiary leaving no surviving spouse or children, his share is disposed of as he by will directs, if he has attained testamentary capacity.  If he has made no such direction by will, then his estate is to go to the other beneficiaries, becoming a part of their trust interest.  In the case of the death of a beneficiary leaving surviving a spouse, but no children, the surviving spouse takes a life estate in the interest *810  of which the deceased was the beneficiary, and upon the death of the spouse the share so represented is to be credited to the interest or shares of the beneficiaries per stirpes. In the event of remarriage, if the trust income is more than is needed for the support of the surviving*978  spouse, the excess may be diverted to the use of the other beneficiaries per stirpes. In the event of the death of a beneficiary leaving surviving him a spouse, and child or children, or children only, the spouse during life and thereafter the children take the interest of the deceased.  In the event that the trust is still in existence 21 years after the date of the death of the last specifically named beneficiary, the trust is to terminate and distribution of the property is to be made to the then remaining beneficiaries, or their legal representatives, according to their interests at that time.  In the event of the termination of the trust, there being at the time no surviving beneficiary, the trustees are to distribute the remaining assets to the settler, if she be then living, otherwise to the then heirs at law of the settlor according to the laws of descent and distribution of the State of Missouri.  :Art. VI.) The trustees are permitted to create a aggregate value of $200,000, which the beneficiaries have no power to alienate.  Upon the death of the last specifically named beneficiary the fund is to be divided among the remaining beneficiaries.  :Art. VIII,) It is*979  further provided, during the lifetime of petitioner :art. IV, par. 4:a) and :b)): If the Trustees deem it for the best interest of any of the beneficiaries or of the Trust Estate that any part or all of his distributable income be not delivered to or for such beneficiary, then the Trustees may withhold same.  Absolute and uncontrolled discretion in regard to the foregoing is hereby vested in the Trustees, and their right to make such distribution or not shall not be questioned by any person whomsoever; Provided, that during the lifetime of the Settlor any part or all of such withheld income or share may be distributed at any time if the Trustees so elect and decide.  In the event of the withholding of any distributable income consequent upon the exercise of the discretionary powers of the Trustees hereunder, the amount so withheld shall be subject to and governed by the provisions of this Indenture and shall be credited to the share of the beneficiary so that such retained share or income shall be and become a part of the principal share of such beneficiary and subject to distribution as such, except as provided in the foregoing paragraph.  The trust indenture also provided : *980  art. III:3)): The Trustees may invest in and/or pay the premiums upon any life insurance contracts or annuities for the benefit or welfare of any beneficiary or beneficiaries hereunder, whether the principal payment of such life insurance contract or annuity is payable during the lifetime of such beneficiary or thereafter; Provided, that such payment shall be charged against the interest of such beneficiary the same as though distribution had been made thereof.  *811  At the date of the declaration of the trust petitioner was 52 years of age.  The names and respective dates of birth of her children the beneficiaries of the respective trusts, are as follows: William J. Moore, April 18, 1908 Paul F. Moore, February 10, 1910 Louis T. Moore, May 19, 1913 Mary Rosalee Moore, April 24, 1916 Charles C. Moore, August 23, 1917 Josephine L. Moore, September 22, 1922 Respondent determined that the trust income was taxable to the grantor, as stated in the deficiency letter: This office is of the opinion that the income of the trusts created by you for the benefit of four of your children, who were not trustees, is taxable to you, the grantor, under the provisions of section*981  167:a):1) of the Revenue Act of 1934 for the reason that the income may be accumulated in the discretion of the grantor in conjunction with persons not having a substantial adverse interest in the disposition of the income.  OPINION.  OPPER: The question is whether the petitioner is taxable on income of trust property conveyed by her for the benefit of her six children.  It is first contended by respondent that the provisions of section 167:a):1) of the Revenue Acts of 1934 and 1936 are applicable in that the income may be accumulated for the ultimate benefit of the grantor.  As we read the trust agreement income may be accumulated, but, in order that such accumulations can ultimately revert to the grantor, the following contingencies would be requisite: Death of all six of grantor's children prior to arriving at the age of 35 :or, as to the testamentary power of appointment if at the time of death they are unmarried and have testamentary capacity, and without issue who survive to the age of 35 or for 21 years after the death of the last of the grantor's children.  Only upon the happening of all of these events could any interest in the accumulations revert to the grantor. *982  Since the grantor is 56 years of age and her children range from 16 to 30 years of age, the improbability of the contingency is extreme.  Without suggesting that the provisions of section 167 depend for application upon the propinquity or remoteness of the contingency upon which the grantor may take the accumulations, it seems clear that we have here the same 1402), of which we said in , *812  of the trust may be said to be 'held or accumulated for future distribution to the grantor', within the meaning of section 167. As a second ground, not mentioned in the deficiency notice and relied upon for the first time in his brief, respondent points to that part of the trust instrument which provides that invest in and/or pay the premiums upon any life insurance contracts or annuities for the benefit or welfare of any beneficiary or beneficiaries hereunder, * * * proceeding of subdivision :a):3) of section 167. 1*983 While on its face section 167 might appear to apply, it has, so far as can be discovered, never been considered applicable even by the respondent as broadly as is now suggested.  In , where the Board held that the payments which could have been made upon life insurance policies were to be taxed to the grantor, it is evident that respondent made no effort to tax the entire income of the trust to him, but only the comparatively small proportion which represented premiums on insurance policies then in force.  Even so to these the Board was reversed in 85 Fed.:2d) 315 :C.C.A., 6th Cir.).  In , the Commissioner for certain years charged petitioner with premiums paid on an insurance policy and in other years included the entire income of the trust.  We said :p. 1234): Clearly the Commissioner erred as to 1928, 1929, and 1930 in including in the petitioner's income more than the part of the income of the trust applicable to the payment of the premiums on the policy.  Apparently, no appeal from this part of the decision was taken by the respondent.  The Board's decision, in so far*984  as appealed from, was affirmed by the Circuit Court of Appeals for the Eighth Circuit, 87 Fed.:2d) 991 :certiorari denied, ). See also . And the respondent's regulations 2 can be said to justify this position.  It follows that application of the provision in question depends upon the existence in the tax year of policies upon which it would *813  have been physically possible for the trustees to pay premiums and upon the amount of the premiums so payable.  There is no evidence in the record as to either of these points, and the form of the deficiency letter avoided in this instance the imposition upon petitioner of the burden of disproving any facts with relation thereto.  On both issues therefore the respondent's determination must be overruled.  Decision will be entered under Rule 50.Footnotes1. Revenue Acts of 1934 and 1936 - SEC. 167.  INCOME FOR BENEFIT OF GRANTOR.  :a) Where any part of the income of a trust - * * * :3) is, or in the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such part of the income may be, applied to the payment of premiums upon policies of insurance on the life of the grantor :except policies of insurance irrevocable payable for the purposes and in the manner specified in section 23:o), relating to the so-called deduction); then such part of the income of the trust shall be included in computing the net income of the grantor. ↩2. E.g., Regulations 86, art. 167-1.  * * * :b) * * * Such a distribution also occurs if the income is applied in payment of premiums upon policies of insurance on the grantor's life. ↩