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missible. Alaska Realty Co. v. Commissioner (C. C. A., 6th Cir.) 141 Fed. (2d) 675.

While the answer here is not without some difficulty, it seems clear at least that the obligation assumed was to return the same building, not a new one. Granted that such a structure had been maintained with scrupulous care, and that its condition would be as good as such care could make it, it does not seem practical to expect that a 50-year old edifice would be as valuable as one half its age. We find no suggestion that the tenant would be required to make good that difference. in value. See St. Paul Union Depot Co. v. Commissioner (C. C. A., 8th Cir.), 123 Fed. (2d) 235. The consequence is that petitioner will suffer some loss from depreciation, and hence that some corresponding deduction must be allowed. Terminal Realty Corporation, 32 B. T. A. 623.

It accordingly becomes necessary to dispose of the contested question of basis. This, as we have already noted, involves the figure at which the property was returned for estate tax purposes, or its fair market value at the date of death, which are synonymous. The only difficulty here is that the property was included on the estate tax return with one aggregate figure for land and improvements combined. We conceive the sole remaining task as requiring a segregation of the two values.

The witnesses, all of whom were produced by petitioner, were not able to shed sufficient light on this aspect of the problem for us to profit greatly by their testimony. Two appraised the building on a replacement basis, with no discount for depreciation or obsolescence. The third valued the land and deducted this from an assumed total value at variance with that used by the executors.

By combining the proffered testimony, however, and adding other facts appearing in the record, we have arrived at the valuation of $250,000, as set forth in our findings. The annual depreciation deductions can readily be computed by using that basis, since there is no apparent disagreement between the parties as to the remaining useful life of the building, or as to the share of the total depreciation attributable to petitioner's interest.

Reviewed by the Court.

Decision will be entered under Rule 50.

HILL, J., dissenting: The basis for depreciation of the building in question in the hands of the legatees is the fair market value of the legatees' interest therein subject to the Carpenter leasehold at the time of decedent's death. Bueltermann v. United States, 155 Fed. (2d) 597.

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The basis for depreciation of the building in the hands of such legatees as determined in the majority opinion is the fair market value thereof at decedent's death, unaffected by the existence of the leasehold estate.

Since, in my opinion, the basis for depreciation as determined by the majority is not the basis upon which petitioner is entitled to compute depreciation in respect of the building, I am unable to agree with the holding of the majority.

JAMES A. HOGLE, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 7400. Promulgated October 17, 1946.

GIFT TAX-GIFT OF TRUST INCOME TAXABLE TO GRANTOR.-Where income of a trust is realized by the trust so that it is impressed with the trust as it arises, it does not represent a gift from the grantor, even though it is taxable to him.

G. A. Marr, Esq., for the petitioner.

E. C. Crouter, Esq., for the respondent.

The Commissioner determined the following deficiencies in gift tax and 25 per cent additions thereto on account of failures to file returns:

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The petitioner contends that he did not make taxable gifts of $96,089.31 in 1936, $52,146.43 in 1937, $133,111.63 in 1938, $26,340.66 in 1939, and $48,731.43 in 1940, each amount representing a part of the annual income of two trusts.

FINDINGS OF FACT.

The petitioner is an individual, with his residence and principal place of business at Salt Lake City, Utah. All gift tax returns filed by him, including the gift tax return for the year 1941, were filed with the collector of internal revenue for the district of Utah. He filed no gift tax returns for the years 1936 to 1940, inclusive.

The Commissioner included as taxable gifts made by the petitioner the net gains and profits from marginal trading in securities and grain futures realized by two trusts, the Copley trust and the Three

trust.

The Copley trust was created in 1922 by the petitioner and his wife. It was irrevocable and none of the income or principal of the trust

could ever revert to the petitioner. He retained no right to alter, to amend, or to change the beneficial interests. The trust was to consist of a trading account, to be operated under the direction of the petitioner. A third party was named trustee, but his participation was to be nominal. The profits and benefits, if any, were to be and were divided on April 15, 1945, among the petitioner's three children in fixed proportions stated in the deed of trust, and the trust was then terminated. No interim distributions were authorized or made. The petitioner was to stand any losses resulting from trading in the account, but any losses made good by him were to be returned to him out of the first profits of subsequent transactions. No property was transferred to the trust in 1922. It started with a trade in an account set up on the books of a brokerage business regularly carried on by a partnership consisting of the petitioner, his wife, and, later, his children. Property was transferred to the account prior to the years here in question. The trading in the account resulted in gains in all years except 1928 and 1929, in which losses amounting to more than $150,000 were sustained. The net worth of the account during the years involved herein was far more than was necessary to provide the margin required for the trading carried on in the account.

The Three trust was created by the petitioner and his wife in 1932. It was like the Copley trust in all material respects, except that it was to terminate on April 15, 1950, and meanwhile income could be distributed to the children at the discretion of the petitioner and any two of the three trustees. An account was opened for this trust similar to the account for the Copley trust. Gains and profits were realized in every year. The net worth of the account during the years involved herein was far more than was necessary to provide the margin required by the trading carried on in the account.

The Commissioner mailed a notice of deficiencies in income tax to the petitioner in 1940, holding, inter alia, that all of the income of these two trusts for the years 1934 to 1937, inclusive, was taxable to the petitioner. The Board of Tax Appeals sustained the Commissioner under section 22 (a) and Helvering v. Clifford, 309 U. S. 331. See 46 B. T. A. 122. The Circuit Court of Appeals for the Tenth Circuit reversed and held that the income from interest, dividends, outright sales, and all income of the accounts, other than income from trading on margin, was not taxable to the petitioner, but that income from trading on margin was taxable to him because it was directly attributable to the voluntary exercise by him of his personal skill in trading for the account of the trusts. See Hogle v. Commissioner, 132 Fed. (2d) 66. The parties then stipulated the amount of the income of the trusts from trading on margin for each year and decisions based upon that stipulation became final.

The Commissioner, in determining the deficiencies in gift tax involved herein, included in taxable gifts the following amounts representing the profits from trading on margin for the accounts of the two trusts during the years stated:

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Most of the facts have been stipulated and the stipulation is incorporated as a part of these findings of fact.

OPINION.

MURDOCK, Judge: The only question presented for decision in this case is whether the Commissioner erred in including in taxable gifts the profits from trading on margin for the accounts of the two trusts. The Commissioner argues that, since the income from marginal trading in the accounts for the years 1934 through 1937 was held taxable to the petitioner, it follows that the similar income for the years 1936 through 1940 must first have belonged to the petitioner and have been given by him to the trusts. This contention is not supported by the authorities cited by the respondent or by the facts in this case. It does not follow as a matter of course that, because income of a trust is taxable to the grantor, the transfer in trust is incomplete as to that income for gift tax purposes and that a gift tax liability arises when, as the income is earned, it is allowed to remain in the trust. The two taxes are not that closely integrated. Commissioner v. Prouty, 115 Fed. (2d) 331; Commissioner v. Beck's Estate, 129 Fed. (2d) 243.

The opinion of the Circuit Court in Hogle v. Commissioner, 132 Fed. (2d) 66, does not hold that Hogle was ever actually the owner of any of the corpus or income of these trusts. The court pointed out that Hogle could not share in the corpus or income of the trusts in any way. It recognized that all of the income realized in the accounts was realized as the income of the trusts and not the income of Hogle. The court was discussing the taxability of "the income derived by the trust" and it held that the profits derived by the trusts through trading on margins were taxable to Hogle because the earning of that income involved the exercise of personal skill and judgment by Hogle which he could exercise or withhold as he chose and it was proper to tax those profits for income tax purposes to him as "in substance personal earnings of Hogle." It is apparent from the opinion as a whole, despite certain statements, that the court regarded the profits from marginal trading as belonging in law to the trusts and not as profits actually belonging to Hogle, despite the fact that they were taxable to him under section 22 (a). The court recognized that the profits in

question could be realized only by the trust and never by Hogle personally.

The profits of the trusts from trading on margins were partly due, of course, to the personal skill and judgment of Hogle, who advised the trusts in the use of their funds. However, the profits arose from the use of trust corpus, i. e., only after the funds or securities belonging to the trusts were invested or sold in accordance with the advice of Hogle. While Hogle could give or withhold his advice, nevertheless, once he had given his advice he could not control the profits which the trust thereafter realized on its investments. He could not give or withhold those profits. The profits as they arose were the profits of the trust, and Hogle had no control whatsoever over them. He could not capture them or gain any economic benefit from them for himself. The question here is not whether Hogle may have made a gift to the trusts of personal services which might be valued independently of the profits derived from the marginal trading. The question is only whether he made a "transfer * * * of property by gift" to the trusts, consisting of the profits on the marginal trading accounts. Sec. 1000 (a), I. R. C. Neither the corpus nor the profit in the accounts was the property of Hogle under the law of Utah. He never made a gift of the profits to the trusts. The parties themselves seem to realize this. They have stipulated that the items in dispute are "the net gains and profits realized from marginal trading in securities and from trading in grain futures for the account of two certain trusts.” (Italics added.) This, in effect, is a stipulation that the gains and profits were the gains and profits of the trusts as they were realized. Furthermore, that stipulation appears to us to be in accordance with the facts. Consequently, those amounts could not be the subject of any transfer by gift from the petitioner to those trusts.

This case is different from Lucas v. Earl, 281 U. S. 111, in which the Supreme Court was dealing with salaries and attorneys' fees earned by Earl. Earl and his wife had agreed that his earnings should be considered as having been received and owned by him and his wife as joint tenants. The Court hesitated to say that the salary did not vest, as earned, in Earl, but held it taxable to him because he earned it, even if it never for a moment vested in him. Here the profits vested as realized in the trusts, not in Hogle, and he could not make a transfer of them by gift.

The Supreme Court said that the issue in Helvering v. Clifford, supra, was "whether the grantor after the trust had been established may still be treated, under this statutory scheme, as the owner of the corpus." The statutory scheme which it was considering was "the broad sweep" of section 22 (a). The holding was that the grantor continued to be the owner of the corpus for purposes of 22 (a). The

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