Court Opinion

ID: 4601636
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:28:01.982016+00
Date Added: 2024-06-11T07:52:31.761738
License: Public Domain

ARCHER L. BOLTON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Bolton v. CommissionerDocket No. 104331.United States Board of Tax Appeals45 B.T.A. 321; 1941 BTA LEXIS 1136; October 10, 1941, Promulgated *1136  TRUST INCOME - TAXABLE TO GRANTOR. - Income of a trust held not taxable to petitioner who was not the grantor, although his gift of property was the source of the corpus, and who could not benefit personally from the trust but as trustee was to manage the trust for the benefit of others named by the grantor.  Robert A. B. Cook, Esq., and Henry C. Johnson, Esq., for the petitioner.  Martin M. Lore, Esq., for the respondent.  MURDOCK *321  The Commissioner determined a deficiency of $2,091.68 in the income tax of the petitioner for 1937.  The issue for decision is whether the income for 1937 of a trust dated December 4, 1931, is taxable to the petitioner.  *322  FINDINGS OF FACT.  The petitioner is an individual who filed a separate return for 1937 in Massachusetts.  The Commissioner included in the income of the petitioner $10,103.46, representing the income of a trust established on December 4, 1931, by Ethel J. Bolton, the wife of the petitioner.  The petitioner and Ethel J. Bolton have been married for many years.  They have three children.  The petitioner had given his wife property from time to time following their marriage. *1137  She had her separate estate and filed separate returns.  The petitioner, on some day in the first half of September 1931, told his wife that he was giving her 500 shares of preferred stock of John W. Bolton & Sons, Inc., a corporation, and asked her what she wanted done with the certificate.  She told him to keep it with her other securities which he had.  No certificate for any of the 500 preferred shares was ever issued in her name.  The certificate was not endorsed.  The 500 shares of preferred were exchanged on December 4, 1931, for 500 shares of common to help the corporation, which was having difficulties due to the business depression.  The exchange was pursuant to a vote of the stockholders on November 5, 1931.  Ethel decided, when she learned that the preferred was to be changed into common stock, that she would place the stock in trust, primarily for her two sons, so that they might have an interest in the business.  The sons were then about five and fourteen years of age.  An officer of a bank prepared several drafts of a proposed trust for her.  The petitioner saw the drafts and was consulted by his wife on the subject of the proposed trust.  The following was placed*1138  on the preferred stock register of the corporation on December 4, 1931, by the petitioner: Cancelled as a gift to my wife Ethel J. Bolton for whose benefit and stead 500 shares of common stock are to be issued in my name as trustee, in order to carry out the provisions of the trust which she has established.  A certificate for 500 shares of common was issued to the petitioner as trustee on December 4, 1931, and he has held that stock ever since.  Ethel J. Bolton executed a deed of trust on December 4, 1931, wherein she stated that she transferred 500 shares of common stock of John W. Bolton & Sons, Inc., to the petitioner as trustee.  No other property has ever been transferred to the trust.  The petitioner was given the right to appoint a successor trustee, but has continued as trustee.  The deed of trust was in part as follows: The trustee, in addition to and not in limitation of all common law and statutory authority, shall have power with regard to both real and personal *323  property in the trust fund and any part thereof, to mortgage, to lease with or without option to purchase, to sell in whole or in part at public or at private sale without approval of any court*1139  and without liability upon any person dealing with the trustee to see to the application of any money or other property delivered to it; to exchange property for other property; to invest and reinvest in securities or properties although of a kind or in an amount which ordinarily would not be considered suitable for a trust investment; and to purchase or retain any securities the purchase or retention of which are requested by the Donor; to keep any or all securities or other property in the name of some other person or corporation or in his own name without disclosing his fiduciary capacity; to determine what shall be charged or credited to income and what to principal notwithstanding any determination by the courts and specifically but without limitation, to make such determination in regard to stock and cash dividends, rights and all other receipts in respect of the ownership of stock, and to purchase or retain stocks which pay dividends in whole or in part otherwise than in cash and in his discretion to treat such dividends in whole or in part as income; to determine who are the distributees hereunder and the proportions in which they shall take; to make payments of principal or*1140  income direct to and otherwise to deal with minors as though they were of full age; to make distributions or divisions of principal hereunder in property in kind at values determined by it; to decide whether or not to make deductions from income for depreciation, obsolescence, amortization or waste, and, if so, in what amount; to pay, compromise or contest any claim or other matter directly or indirectly affecting this fund; to employ counsel for any of the above or other purposes and to determine whether or not to act upon his advice, and generally to do all things in relation to the trust fund which the Donor could do if living and this trust had not been executed.  All such divisions and decisions made by the trustee in good faith shall be conclusive on all parties at interest.  The trustee shall pay over the net income from the trust or so much thereof as he may in his sole discretion deem for the best interests of the beneficiaries to ARCHER LEROY BOLTON, of Lawrence, during his lifetime and after his death the trustee hereunder shall pay over said net income in equal shares to my sons, ARCHER LEROY BOLTON, Jr., and JOHN W. BOLTON, 3rd, until both, or the survivor of them, shall*1141  arrive at the age of thirty years, at which time the trustee shall transfer and pay over the principal and accumulated income of the trust in equal shares to my said sons or their issue by right of representation, free and discharged from all trusts.  In the event that all the foregoing trusts should fail, then upon the death of the last of all the beneficiaries hereinbefore designated, my trustee shall pay over to my daughter, DOROTHY, if she be then living, or to her issue if she shall have then deceased, the principal and accumulated income of this trust, free and discharged from all trusts; and if my said daughter, DOROTHY, shall have deceased leaving no issue, then to those persons who would be entitled to receive the same under the laws of the Commonwealth of Massachusetts then in force if I had then died intestate.  A return was filed for the trust for 1937 showing taxable income of $10,103.46.  All of the income of the trust has been accumulated and none has ever been paid to or used to benefit the petitioner.  He and his wife have always regarded the trust as one solely for the benefit of their children.  *324  The petitioner has been treasurer of John W. Bolton*1142  & Sons, Inc., since its organization in 1906.  The stock of the corporation prior to the exchange in the latter part of 1931 consisted of 2,000 shares of preferred and 500 shares of common.  The petitioner owned 250 shares of common.  One thousand shares of preferred were exchanged for an equal number of shares of common on December 4, 1931.  A dividend was paid on the common stock in 1929, the next in 1936, and the last in 1937.  OPINION.  MURDOCK: The respondent has tried to impeach the testimony of the Boltons in an effort to show that the alleged gift was lacking in bona fides. They testified that a gift was made.  The respondent does not attack on the ground that any essential element was missing but upon the broad ground that the whole thing was a sham, perpetrated to avoid taxes.  The evidence does not support this contention and mere suspicion is not enough.  The wife of the petitioner's brother created a similar trust on the same day and the respondent says that both were schemes of the husbands.  But each couple was unaware of what the other was doing.  The similarity was due wholly to the voluntary activity of an officer of a bank who furnished the forms and suggested*1143  the trusts.  He knew that the couples were not close and avoided mentioning any affairs of one to the other.  The testimony is that the gift was absolute and the trust was a later decision of the wife.  The petitioner was not the grantor in any sense of the word and sections 166 and 167 have no application.  The respondent says that the petitioner could use the income of the trust as he saw fit and he had such broad control over the trust as to require the taxation of the income to him under section 22(a).  The petitioner had no right to use any of the income except for the benefit of the sons.  He was not a beneficiary.  Cases where a grantor "retained" substantial control over a trust are not in point.  This petitioner was to manage the trust for the benefit of others who were named and given fixed rights in the trust instrument.  He was not given sufficient control to justify taxing the income to him.  No authority is cited for taxing the income of a trust to a trustee who was not a grantor, who could not benefit personally from the trust, and who could only manage the trust for named beneficiaries.  Decision will be entered under Rule 50.