recited and relied upon McClain v. Commissioner, 311 U. S. 527, wherein the only question at hand was the definition of "retirement" and where the Court spoke of retirement "of such securities as are here involved" and of the fact that the amounts received therefor shall be considered as received in exchange therefor. It is apparent that in the McClain case the Court was assuming, and the parties did not disagree, that the bonds involved were within the category encompassed by section 117 (f), that is, that they were in registered form or had interest coupons attached. In the absence of anything to indicate otherwise, or to raise any question in this regard, in the Stoddard case, it is clear that it does not inferentially, just as it does not expressly, overrule the Gerard case. We hold that the notes here involved were not in registered form, and therefore that the amounts received thereon in the taxable years by the petitioners were ordinary income to the petitioners, and not capital gain. The respondent on his part, and by amended answer, in the case of petitioner Joseph E. Gilbert only, raises the contention that not merely the reported portion of the amounts received in the taxable years by petitioner Joseph E. Gilbert were taxable, but that the entire amount received is subject to tax, on the theory that he had in prior years collected more than his cost basis in the notes, leaving taxable the entire amounts received in the years here involved. To meet this contention the petitioner relies upon Shafpa Realty Corporation, 8 B. T. A. 283, and in our opinion that case indicates that the respondent's contention may not soundly be sustained. It is to be noted that in the original transaction of sale in 1927 petitioner Joseph E. Gilbert received for his property, in money and value of notes received, exactly the amount of his "equity" in the property-that is, having a cost basis of $4,100,000, he received, above $2,100,000 mortgages already on the property, $2,000,000, of which $1,000,000 was cash and $1,000,000 was the fair market value of $1,650,000 face value of notes received. He had, therefore, neither profit nor loss upon that transaction, and though the respondent suggests the law as to installment sales, it is clear that the present question has nothing to do with the transaction of sale in 1927. On it no profit was reportable, either in installments or otherwise, for there was none. We are concerned only with the fact that upon notes of a value of $1,000,000 the petitioners, so far as they were concerned, later collected the face value, a greater amount. The respondent's position is, in substance, that in such case the first moneys collected on the notes must be entirely applied upon the cost basis, and that only thereafter need the holder account for profit. This was, however, exactly the view in question in the Shafpa Realty case, and therein it was said that "It is no more correct to say that the part payment was all a return of principal than it is to say that it was all a return of income." It is clear to us that the amounts received by petitioner Joseph E. Gilbert (respondent does not raise the question in Victor B. Gilbert case) in a previous year may not properly be labeled as all a return of principal. The petitioner merely received some money in the Shafpa Realty case; and the amount collected was allocated between principal and income. In this matter the petitioner, in his return for 1933, gave the amounts received like treatment, and the Commissioner accepted it. He questioned it in the present matter only by amended answer, alleging that he erred in taxing as ordinary gain only the amounts reported by the petitioner (instead of the full amounts received). We think that the Commissioner has demonstrated no such error. In Burnet v. Logan, 283 U. S. 404, relied upon by - him, the amounts to be received in the future had no ascertainable fair market value, whereas here it is agreed that in 1927, $1,000,000 was the fair market value of the $1,650,000 face value of notes. We find no parallel in that case to the present question, and we find no error on the part of the respondent in taxing as ordinary income the stipulated amounts returned by the petitioners. Decisions will be entered for the respondent, in the amounts set forth in the deficiency notices. ALFRED COWLEs, Petitioner, v. COMMISSIONER OF INTERNAL Docket No. 6001. Promulgated January 9, 1946. Petitioner is a life beneficiary and a cotrustee of a trust created William N. Haddad, Esq., for the petitioner. This proceeding involves the determination by the respondent of a deficiency of $1,535.89 in petitioner's income tax for the calendar year 1941. The deficiency results from two adjustments made by the respondent to the net income as disclosed by petitioner's return. Petitioner does not contest these adjustments, but claims that instead of a deficiency he is due a refund of $578.99, and he assigns as error the following: (a) The Commissioner erroneously refused to eliminate from petitioner's income $3,229.20 of income which was received by the trustees of a trust created by the petitioner's father, known as the Alfred Cowles III Trust of December 1, 1934, which income was used by the trustees to pay premiums on insurance policies owned by the trust and was never distributed to the petitioner. This resulted in an overstatement of the distributable income of said trust by $3,229.20. FINDINGS OF FACT. Petitioner is an individual, residing in Chicago, Illinois. The return for the period herein involved was filed with the collector at Chicago on or about March 14, 1942. On December 1, 1934, petitioner's father, as "Grantor," created the "Alfred Cowles III Trust" and named petitioner and petitioner's younger brother, Knight Cheney Cowles, as "Trustees." Alfred Cowles III, referred to in the trust indenture, is the petitioner herein. The corpus of the trust as listed in Exhibit A of the indenture consisted of 122 shares of the capital stock of the Tribune Co., and was, under article I, subject to a charge of $55,000 payable to the grantor on December 31, 1934. The body of the indenture consisted of article I, with 8 sections, and article II, with 13 sections. The first 3 sections of article I provide: Section 1. The Trustees shall pay to Alfred Cowles III, if he demands it, the entire net income of said Trust Estate in convenient installments, and in any event as often as once in each year. Any part of the net income not so paid shall be accumulated and added at the end of each calendar year to the principal of said Trust Estate. Section 2. Upon the death of the said Alfred Cowles III, the Trustees shall pay, transfer and deliver the Trust Estate, together with all unexpended accumulations thereon, to such person or persons and in such shares and proportions, and for such estate or estates, and in such manner and upon such trusts, as said Alfred Cowles III may by his last will and testament limit, direct and appoint. Section 3. In default of such appointment by Alfred Cowles III, if Elizabeth Strong Cowles, wife of Alfred Cowles III, shall survive Alfred Cowles III as his widow, the Trustees shall pay to her, during her life, so much of the entire net income of the Trust Estate as she shall demand for the use of herself and the lineal descendants of Alfred Cowles III, and in addition so much of said net income for her own unrestricted use as the Trustees may in their absolute discretion determine after receipt of a demand by her for said additional income. Sections 4 and 5 of article I "In default of such appointment by Alfred Cowles III," deal further with the disposition of the remainder upon the death of petitioner's wife, if she shall have taken under section 3, supra, or upon the death of petitioner if his wife shall not have so taken. The beneficiaries were the children and grandchildren of petitioner, if any, and, if none, then the heirs at law of the grantor. Sections 6 and 7 of article I deal with matters not material to this proceeding. Section 8 is as follows: Section 8. If at any time during the life of this trust the Trustees shall determine in their discretion that the income payable to any beneficiary hereunder is insufficient for the maintenance of such beneficiary in health and comfort, the Trustees may from time to time in their discretion pay to such beneficiary such sum or sums out of the principal of the fund, the income of which is payable to such beneficiary, as may be in the judgment of the Trustees necessary, in addition to the income from such fund, for the maintenance of such beneficiary in health and comfort. Article II dealt with the powers and duties of the trustees. Section 4 thereof provided in part: The Trustees may in their discretion take out, purchase, or otherwise acquire a policy or policies of life, health or accident insurance on the life or health of Alfred Cowles III or of any other beneficiary or beneficiaries hereunder, and the said policies may be made payable to such beneficiaries or to the Trustees, and the Trustees may pay all premiums and other expenses and charges incurred in connection with said insurance, and charge the same to the income of the Trust Estate. Any amounts received by the Trustees on account of said insurance (whether upon maturity or surrender of the policies or otherwise) shall be added to the principal of the Trust Estate. Section 8 of article II provided: Section 8. The Trustee or Trustees for the time being under this Indenture shall have full power and authority from time to time, with the consent in writing of the person or persons entitled to receive not less than half the then net income of the Trust Estate, by an instrument in writing signed by all of the Trustees, to alter or amend this instrument, or to terminate the trusts hereby created as to the whole or any part of the Trust Estate, and in the event of such termination to pay over, transfer and deliver the portion of the Trust Estate affected as may be directed in said instrument of termination: provided, however, that no part of the principal or income of the Trust Estate shall be revested in the Grantor by virtue of any such alteration, amendment or termination. Section 10 of article II provided that "There shall at all times be at least two acting trustees to execute the trusts herein provided for" and to that end made provision for the appointment of additional trustees. Section 11 provided in part: Section 11. The Trustees may from time to time delegate their power and authority herein to one of their number who shall be designated as Managing Trustee. All acts of such Managing Trustee shall have all the force and effect of the acts of both Trustees, except that none of the capital stock or other property held hereunder by the Trustees shall be sold by the Managing Trustee, and the trusts hereby created shall not be terminated by the Managing Trustee, except with the written consent of all acting Trustees, and the amount of income payable to any beneficiary hereunder, when discretionary with the Trustees, shall in all cases be determined by all acting Trustees. Petitioner's brother Knight was the original managing trustee. In 1939 petitioner's father died and petitioner became the managing trustee. Petitioner and his wife, Elizabeth Strong Cowles, have 2 children, aged 20 and 17, respectively. Acting pursuant to section 4 of article II of the trust agreement, the trustees in 1941 applied for and took out with the Equitable Life Assurance Society of the United States an insurance policy on the life of petitioner in the amount of $60,000. The application for the policy was signed by the two trustees as such, the proceeds were payable to the trustees, and all rights of ownership were vested solely in the trustees. The annual premium on the above mentioned policy, amounting to $3,229.20, was paid by the trustees in 1941 out of the income of the trust and was charged to the income account. The net income of the trust for the year 1941, before applying section 162 (b) of the Internal Revenue Code, was $30,939.21. Out of this amount the trustees paid the premium of $3,229.20, leaving a balance of $27,710.01 which was distributed to petitioner as life beneficiary under article I, section 1, of the trust instrument. In making their fiduciary income tax return for the year 1941 the trustees reported the amount distributed to petitioner as $30,939.21, instead of $27,710.01; and petitioner included the larger amount in his own return. Later, the trustees filed an amended return showing the amount distributed as $27,710.01, and petitioner filed a claim for refund of the tax paid by him on account of the difference between that amount and the $30,939.21 included in his return. This claim was filed with the collector of internal revenue at Chicago on June 9, 1943. In a statement attached to the deficiency notice the respondent advised petitioner in part as follows: In your claim for refund of income tax paid for the year 1941 you claim that you erroneously reported excessive income to the extent of $3,229.20 from the Alfred Cowles III Trust. It is held that under the provisions of Sections 162 (b) and 22 (a) of the Internal Revenue Code, the entire net income of said trust for the year 1941 is taxable to you as reported by you in your return, and, consequently, the contention made in your claim must be denied. Petitioner in his return for the calendar year 1941 reported a total tax liability of $35,760.12. This amount was paid by petitioner in four equal installments on March 16, June 4, September 5, and December 11, 1942. The deficiency notice was mailed to petitioner on June 15, 1944. Petitioner is in the business of investment counsel and trust fund management. He has been in that business for about 15 years. He has an office in Chicago, in which he manages about 75 different investment accounts, including about 40 trusts. With the exception of 2 in which he has a personal interest, all of these trusts are managed |