balance in the reserve are now freed for general use by the petitioner. They can now be reflected in surplus. But the change does not necessarily create any taxable income in 1942. The tax benefit rule has as much application in such a situation as in any other. The petitioner has been able to show that deductions taken by it to build up this balance did not result in a reduction of tax except as to $40.07 thereof, and, under the Dobson principle, only $40.07 would represent taxable income. Cf. Cohan v. Commissioner, 39 Fed. (2d) 540. Decision will be entered under Rule 50.

ESTATE OF LELIA E. COULTER, DECEASED, JOEL WRIGHT COULTER, EXECUTOR, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 3821. Promulgated December 5, 1946.

1. In 1920 decedent joined with her three children in the creation of a trust, contributing one-half of the corpus. It was provided that out of the net income she should receive $200 per month and such further sum as the trustee might in its absolute discretion determine to be adequate or necessary for her proper support, care, and maintenance. It was further provided that if the trustee, in its absolute and uncontrolled discretion, should deem the net income insufficient to provide for the reasonable needs and comforts of the decedent, it was authorized and empowered, as often as it should deem necessary or advisable, to pay to or apply for the benefit of the decedent such portions of the principal of the trust estate, up to and including the whole, as it in its absolute discretion might determine to be adequate for such purposes. At the decedent's death none of the corpus had been used for such purposes. Held, that one-half of the value of the corpus at the time of the decedent's death is includible in her gross estate, under section 811 (c) of the Internal Revenue Code, as a transfer intended to take effect in possession or enjoyment at or after her death.

2. Under the terms of the trust the decedent had the power, in conjunction with the other trustors, to revoke the trust and cut off any contingent remainder interests. Held, that one-half of the value of the corpus at the time of decedent's death is includible in her gross estate under section 811 (d) (2) of the Internal Revenue Code.

3. Fair market value of certain shares of corporate stock at the time of decedent's death determined.

A. Calder Mackay, Esq., and Adam Y. Bennion, Esq., for the petitioner.

E. A. Tonjes, Esq., for the respondent.

TURNER, Judge: The respondent determined an estate tax deficiency of $60,220.62. The issues presented are (1) whether the respondent erred in determining that a certain transfer of property made by decedent in 1920 as one of four grantors of a trust was made

in contemplation of death or was intended to take effect in possession or enjoyment at or after death, within the meaning of section 811 (c) and (d) of the Internal Revenue Code, and accordingly should be included in decedent's gross estate, and (2), whether the respondent erred in determining the value of certain shares of corporate stocks contained in the transfer.

FINDINGS OF FACT.

Joel Wright Coulter is the executor, within the meaning of section 930 of the Internal Revenue Code, of the estate of Lelia E. Coulter, deceased, who died testate on March 22, 1942, a resident of Los Angeles, California. The return for the estate was filed with the collector of internal revenue for the sixth district of California, at Los Angeles.

ISSUE I.-Inclusion of Transferred Property in Decedent's Gross Estate.

FINDINGS OF FACT.

The decedent's husband, Frank M. Coulter, died in October 1915. His father, B. F. Coulter, had died in 1911, bequeathing to him 249 shares of stock in Coulter Dry Goods Co., sometimes hereinafter referred to as Dry Goods; 2492% shares of stock in B. F. Coulter Association, sometimes hereinafter referred to as Association; $27,300 face value of Government bonds; and a small amount of cash. The estate of B. F. Coulter was still in the process of administration when Frank M. Coulter died in 1915. In addition to the assets bequeathed to him by his father, Frank M. Coulter's estate owned 750 shares of stock in Dry Goods and 750 shares of stock in Association. Final distribution of Frank M. Coulter's estate was made on or about October 19, 1920, including his interest in the then undistributed estate of his father, which in turn was distributed on or about November 21, 1921.

By his will Frank M. Coulter bequeathed outright to his widow, Lelia E. Coulter, the decedent herein, one-half of his estate. The other one-half he bequeathed to her during her widowhood, with remainder over, upon her remarriage or death, to their three children, Mary I. Posey, Lelia A. Seeley, and Joel Wright Coulter, in equal shares.

Under date of September 29, 1920, and prior to the distribution of the estates of Frank M. Coulter and B. F. Coulter, the decedent and her 3 children, as trustors, transferred to Title Insurance & Trust Co., of Los Angeles, as trustee, all of their right and interest as heirs, legatees, devisees, or successors of Frank M. Coulter, or otherwise, in and

to the 750 shares of stock in Dry Goods and 750 shares of stock in Association in the estate of Frank M. Coulter, together with their interest in and to the estate of B. F. Coulter. Five hundred shares of the foregoing 750 shares of stock in Dry Goods and 500 shares of the 750 shares of stock in Association were at that time subject to and pledged as collateral for an indebtedness of $86,344.59 to the First National Bank of Los Angeles which was created by Frank M. Coulter prior to his death.

In connection with the foregoing transfers, the four trustors and the trustee executed a declaration of trust dated October 1, 1920.

By paragraph II of the trust instrument the trustee was given broad powers of management, including the right to buy from and sell to the trust, as well as to loan money to it. The trustee was vested with sole discretion and power to determine what should constitute principal of the trust estate, gross income therefrom, and net income available for payment under the terms of the trust. Paragraph III related to the payment of expenses, taxes, etc., arising from the operation of the trust, together with fees payable to the trustee. The instrument further provided:

nance.

IV.

Out of the net income derived from the trust estate and available for distribution hereunder there shall be paid to said Lelia E. Coulter the sum of $200.00 per month and such further sums as the Trustee may in its absolute discretion determine to be adequate or necessary for her proper support, care and mainteThe remainder of the entire net income derived from the trust estate and available for distribution hereunder shall be applied to the payment of the principal and interest upon the indebtedness * * [of $86,344.59 created by Frank M. Coulter], excepting such part or portion thereof as should in the absolute and uncontrolled discretion of the Trustee be retained for the safety and protection of the trust estate. Upon and after the payment of said indebtedness, the entire net income from the trust estate up to and including but not exceeding the sum of Twelve Thousand Dollars ($12,000.00) per annum, and available for distribution hereunder, shall be paid monthly to said Lelia E Coulter and all of said net income, exceeding said sum of Twelve Thousand Dollars ($12,000.00) per annum, and available for distribution hereunder, shall be paid quarterly in equal shares to each of said Trustors, Joel Wright Coulter, Mary Isabelle Posey and Lelia Alice Seeley.

V.

It is a further express provision of this trust that if said Trustee, in its absolute and uncontrolled discretion, should deem that the net income distributed from the trust estate should not be sufficient to provide for the reasonable needs and comforts of said Lelia E. Coulter, during any period or periods of her illness or other want or necessity, it may and is hereby authorized and empowered, and as often as it shall deem necessary or advisable, pay to or use, apply or expend for the use and benefit of said Lelia E. Coulter such portions of the principal of the trust estate, up to and including the whole thereof, as said Trustee, in its absolute discretion, may determine to be adequate for said Lelia E. Coulter during such period or periods. The receipt of said Lelia E. Coulter shall be a

full release and acquittance to the Trustee for the proper application of any part of the principal distributed to her. If the Trustee shall use, apply or expend any portion of the principal of the trust estate for the use and benefit of said Lelia E. Coulter its services in this respect shall be regarded as extraordinary services for which the Trustee shall be entitled to additional compensation as hereinbefore provided.

A provision similar to that contained in paragraph V was contained in paragraph VI, authorizing the invasion of corpus in behalf of the three children-trustors, in the absolute and uncontrolled discretion of the trustee, with the limitation that not more than one-third of the entire corpus could be paid in this manner to or for the use of any one of these three trustors. Amounts so paid were to be treated as advancements in determining their respective shares upon termination of the trust. Interest at the rate of 4 per cent per annum upon amounts so paid to or for any one of the three trustors was to be deducted from the annual net income distributable to such trustor and paid to the others. Paragraph VII provided for the transfer of additional property to the trust by the four trustors. In paragraph VIII the trustee agreed to secure renewal from time to time, for a period of five years, of the loan represented by the above mentioned indebtedness of $86,344.59, or to refinance the loan from other sources for such period, or at its option to carry the loan itself.

Paragraph IX provided that, unless sooner terminated under the power of revocation reserved by the trustors, the trust should terminate upon the death of the decedent herein and that the corpus and undistributed income should be distributed to the three childrentrustors in equal shares, subject to the provisions of paragraph VI, supra. In event of the death of either of the three children-trustors prior to the termination of the trust, his or her share was to go to the devisees or legatees named in his or her last will, or, in the absence of a will, to his or her heirs at law, according to the laws of California then in force. Under paragraph X, if any of the three childrentrustors should die during the life of the trust, the income to which he or she would have been entitled was to be distributed to the heirs, legatees, or devisees named in his or her will, or, in the absence of a will, to his or her heirs at law, according to the laws of California then in force.

Paragraph XI contained the following:

XI.

It is a further provision of this trust that said Trustors, or in the event of the death of any or either of said Trustors, then the survivors or survivor of said Trustors, have reserved, and said Trustee does hereby assent to the express right and power reserved unto said Trustors, to revoke in whole or in part this trust, at any time, by notice of revocation in writing, addressed and delivered to said Trustee at least ninety (90) days prior to the taking effect of such revocation.

In the event this trust is revoked in whole or in part by said Trustors under this paragraph prior to the death of said Lelia E. Coulter, then the trust estate, together with all accrued net income thereon, to be distributed on account of such revocation shall be distributed to said Joel Wright Coulter, Mary Isabelle Posey and Lelia Alice Seeley in equal shares, subject to the provisions of paragraph 6 hereof, provided that in the event of the death of either of them prior to such revocation of this trust then the interest which he or she would have taken if he or she had survived such revocation of this trust shall go to and be distributed to the devisees or legatees named in his or her last will and testament, or in the absence of any such will or testament, then to his or her heirs at law, according to the laws of the State of California then in force.

In October 1940 the trust instrument was amended in certain particulars which are not material here.

At the time the trust was created in 1920 the decedent was 65 years of age and was healthy, active, and in good spirits. She was executrix of her husband's estate, but had had no business experience. Her daughters also were without business experience. Her son, Joel Wright Coulter, was and had been a farmer, residing away from Los Angeles. In this situation and in view of the fact that a considerable amount was owing by the estate of decedent's husband, for which certain shares of stock in Dry Goods and in Association had been pledged, it was thought by the decedent and her children that upon the creation of a trust, under the management of Title Insurance & Trust Co., with a provision for the application of most of the trust income to the payment of the indebtedness, the holder of the indebtedness would not foreclose on such shares of stock as were pledged as collateral. Further, the decedent and her children desired to be relieved of the management of the property composing the trust estate. They believed that the Title Insurance & Trust Co. could handle the property more efficiently than they could and that they would be better off financially by having it do so. Apart from her interest in the property transferred to the trust, the decedent had other property substantial in amount which she retained, including securities of an approximate value of $10,000 and a 12-room house located upon a lot which she sold a few years later, after the house had been removed therefrom, for $75,000.

The indebtedness to the First National Bank of Los Angeles mentioned above was paid off by the trust during 1920 with the proceeds of a loan by the trustee, Title Insurance & Trust Co., which latter loan was in turn paid by 1925, principally out of trust income, in accordance with the terms of the trust instrument. From October 1, 1920, through the calendar year 1941, the total income of the trust amounted to $430,271.45, composed of the following: Dividends on stock in Dry Goods, $317,528.93, and on stock in Association, $112,643.41, and miscellaneous income, $99.11. From such income there was paid the following: Interest on the loan, $20,519.96; trust charges, $33,774.64;