Court Opinion

ID: 4498159
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:15:48.246647+00
Date Added: 2024-06-11T14:54:15.848814
License: Public Domain

Leech,
dissenting: This decision must rest, of course, upon the record in this proceeding alone. Since that record does not include any part of the record in any other proceeding, I have grave doubt as to the correctness of the conclusion of the majority on the first issue.
The conclusion on the second issue is, I think, not only wrong but clearly inconsistent with a long line of Board decisions.
The income of the irrevocable trusts was to be paid to the grantor if and when requested by him during the minority of each beneficiary and was thereupon to be used solely for the support, maintenance, education, and enjoyment of the minor beneficiary. However, no part of the trust income Avas paid to the grantor during the taxable year. Nevertheless, the grantor is held taxable on all of this trust income, under section 167 (a) (2), because he could have obtained and used it to meet his legal obligation to support, maintain, and educate his children. That result requires a linkage of the rationale of Douglas v. Willcuts, 296 U. S. 1, with the language of the cited section, which, I think, is unjustifiable and barred by that section itself. See dissent in Dorothy Whitney Elmhirst, 41 B. T. A. 348, 368.
Moreover, the Board, in a number of cases, including such recent promulgations as George H. Deuble, 42 B. T. A. 277, and Percy M. Chandler, 41 B. T. A. 165, has refused to apply this rationale in construing that statutory provision where a trustee had the power to distribute such income to the grantor. See J. Edward Johnston, 41 B. T. A. 550; Dorothy Whitney Elmhirst, supra; Arthur Letts, Jr., 41 B. T. A. 1172; E. E. Black, 36 B. T. A. 346; Martin F. Tiernan, Trustee, 37 B. T. A. 1048; Hudson v. Jones, 22 Fed. Supp. 938. These cases hold that a grantor, in a situation like the present, is taxable only on such trust income as was actually received and used to discharge his legal obligation. The majoi’ity attempt to distinguish those cases on the ground that the discretion to distribute the trust income was there vested in a trustee while here it was reposed in the grantor himself. This distinction is clearly untenable. A mere trustee has no interest substantially adverse to that of the grantor, Reinecke v. Smith, 289 U. S. 172, and, therefore, under the explicit terms of section 167 (a) (2), the possibility of the existence of any such distinction is wholly eliminated. See Randolph E. Paul, “Five years with Douglas v. Willcuts,” *41853 Harvard Law Review 8, note. Furthermore, this attempted distinction is implicitly rejected in the recent case of Alfred C. Berolzheimer, 40 B. T. A. 645. It is true that J. S. Pyeatt, 39 B. T. A. 774, is consistent with the result in this proceeding, but it is, I think, wholly inconsistent with the line of cases cited above, and should be overruled on this point.
Henry A. Loeb, 40 B. T. A. 517, upon which the majority alternatively rest their conclusion, is obviously distinguishable. In that case the trust income was payable to the grantors, in the discretion of the trustee, without restriction a,s to its use, and was thus expressly taxable to the grantors under section 167 (a) (2). Here, the use of the income was restricted to that of meeting the legal obligation of the grantor. If that use had been limited to any other than that of paying a legal obligation of the grantor or directly benefiting him, such income, even if paid and so used, would not have been taxable to the grantor. See Corliss v. Bowers, 281 U. S. 376; Higgins v. Smith, 308 U. S. 473; Helvering v. Clifford, 309 U. S. 331; Burnet v. Wells, 289 U. S. 670; Commissioner v. Morton, 108 Fed. (2d) 1005. Thus, the only possible basis, constitutionally and otherwise, for taxing the contested trust income to the grantor here, is under section 167 (a) (2) on the ground, implicitly barred by that section itself and inconsistent with decided cases, that he could have secured and used it to meet his legal obligation.
It is argued that the added prescribed use of the income for the “enjoyment” of the beneficiary nullified the effect of any prior limitation and left the income, when received by the grantor, without substantial restriction as to its use.
But, the “enjoyment” had to be the enjoyment of the beneficiary and not the grantor. That those uses are certainly not synonymous contradicts any nullification of the earlier restrictions — particularly here where “enjoyment” is coupled conjunctively with the “support, maintenance, [and] education” of the beneficiary. And if disjunc-tively construed, “enjoyment” of the beneficiary, since it was no obligation of the grantor, would have relieved the grantor of tax. See Jay C. Hormel, 39 B. T. A. 244, reversed on another ground, 111 Fed. (2d) 1.
At all events, I think the restrictions here on the use of the trust income were undoubtedly substantial. Cf. Mary E. Wenger, 42 B. T. A. 225. And, since none of this income was received by or used to meet a legal obligation of the grantor, under every decision of the Board of which I know, except J. S. Pyeatt, supra, it is not taxable to him.
Smith, Van FossaN and Tyson agree with this dissent.