income; to sell, mortgage, or exchange any of the trust property upon whatever terms they consider advisable without application to court; to keep funds uninvested for as long as they consider advisable; to invest funds of the trust in the same investments as funds of any other trust are invested of which the trustees may be trustees, and to deposit funds of the trust in the same bank account as funds of such other trusts; to distribute as income the entire interest on securities originally transferred to the trust without allocating accrued interest to principal; to distribute as income the entire interest on securities purchased at a premium without setting aside a fund to amortize the premium; to purchase, sell, and exercise conversion, subscription, and other rights; to participate in reorganizations of any business in which the trust has an interest; to determine whether any property or funds constitute principal or income, and whether any sum paid out shall be charged to principal or income; to compromise or settle any claim which may have been made against the trustees.

Between November 27 and December 6, 1935, petitioners met, in their capacity as trustees, to decide upon future distributions of income from the two trusts. They determined, orally, that all of the income of one trust was to be distributed to Edgar R. Stix, 2nd, and that all of the income of the other trust was to be distributed to Robert L. Stix. As between the two sons of Lawrence C. Stix, it was decided. that income should be distributed to Edgar R. Stix, 2nd, rather than to Lawrence C. Stix, Jr., because the latter was employed and was earning a good income. With respect to the sons of Edgar R. Stix, it was decided that the income should be distributed to Robert L. Stix because he was then at college and was the older of the two children of Edgar R. Stix. The trustees wanted to build up some capital for the time when Robert L. Stix would be graduated from college and would attain his majority.

No change was made with respect to the decisions as to the use of the income of the trusts, as set forth above, until the end of 1937. At that time, it was decided to distribute all of the income of one trust to Donald Stix, a son of Edgar, who was then in college. Robert Stix had attained his majority at the end of 1937 and the trustees decided to distribute the income to his young brother. No change was made with respect to the use of all of the income of the other trust. The trustees continued to pay the income to Edgar R. Stix, 2nd. In 1939 petitioners reduced to writing the decisions which they had made orally in 1935 and 1937 as to the distribution of the income of the two trusts.

None of the principal of either trust has ever been distributed and petitioners have never received any income from the trusts.

ears the amounts of all of the income of one

svere included in the income tax return of Edgar of the above years.

e years the amounts of all of the income of the rease thereof, were as follows:

eats were included in the income tax return of Donald ara of the above years.

e of petitioner Edgar R. Stix for the years 1938, 1939, vas approximately $15,000, $15,000, and $20,000 respectoner Edgar R. Stix fully supported his son Donald

xable years and paid for Donald's education, except that stributed towards his education the sums of $1,027 in 1939 29 1940.

ree of petitioner Lawrence C. Stix for the years 1938, 1939, was approximately $65,000, $100,000, and $100,000, respecDuring the taxable years petitioner Lawrence C. Stix fully speed his son Edgar R. Stix, 2nd, and paid all of the cost of his

ng the taxable years Donald Stix had an income of about year, exclusive of income received by him from the trust, and Edgar R. Stix, 2nd, had an annual income of about $1,000 a year,

sive of the income received by him from the trust. Each mainred his own separate bank account, in which distributions of trust ce were deposited. Securities owned by each were registered in their respective names.

All decisions concerning distributions from both trusts were made jointly by the two trustees.

Petitioners have never been in business together. Neither one has ever been indebted to the other, or under any financial obligation to the other.

No loans have ever been made by either trust to anyone, nor has either trust ever made any investments in any business in which either trustee was interested.

The cash balances of each trust were kept in a separate bank account under the name Lena Stix Trust and the securities owned by the trust were registered in the same name. A double entry set of books for each trust was kept by a certified public accountant, who submitted semiannual written reports on the financial status of the

two trusts.

Edgar R. Stix has made claims for refunds of overpaid taxes for the years 1938 and 1939, and Lawrence C. Stix has made claims for refunds of overpaid taxes for the years 1938, 1939, and 1940.

OPINION.

OPPER, Judge: The disposition of this proceeding seems to us to be governed by Edward Mallinckrodt, Jr., 2 T. C. 1128. There, equally, the petitioner was the beneficiary of a trust created for him by another, but he could obtain the trust income by directing the remaining trustees to that effect. His failure to make that direction with the consequent absence of any payment to him was relied upon as requiring the application of section 162, taxing trust income to the trust if undistributed. There were other aspects of control in the petitioner similar to those here, but our decision may be summed up by the statement in the opinion that:

Certainly with such powers and rights in and to the trust corpus, and particularly to the income produced, there can be no question that if petitioner were the grantor he would be taxable on the income under section 22 (a), Helvering v. Clifford, supra, and petitioner makes no claim to the contrary. The fact that the powers and rights are not the retained powers and rights of a grantor but were received by the petitioner as beneficiary of the trust and by grant from his father makes them no less substantial.

The case was affirmed (C. C. A., 8th Cir.), 146 Fed. (2d) 1:

because the power of petitioner to receive this trust income each year, upon request, can be regarded as the equivalent of ownership of the income for purposes of taxation. It seems to us, as it did to the majority of the Tax Court, that it is the possession of power over the disposition of trust income which is of significance in determining whether, under section 22 (a), the income is taxable to the possessor of such power, and that logically it makes no difference whether the possessor is a grantor who retained the power or a beneficiary who acquired it from another. See Jergens v. Commissioner, supra, at p. 498 of 136 F. (2d). Since the trust income in suit was available to petitioner upon request in each of the years involved, he had in each of those years the "realizable” economic gain necessary to make the income taxable to him. Certiorari has been denied 324 U. S. 871.

In one aspect the present facts vary slightly from those in the Mallinckrodt case. Here, as we read the trust instrument, it was unnecessary for either petitioner to make a request in order for the income from his trust to be paid to him. Only by the affirmative action of the petitioners as cotrustees in exercising their discretion to pay the income to their children would there be the necessary conduct resulting

664385-45-vol. 473

in a failure on the part of the respective petitioners to receive the entire trust income. That they undertook in the years before us to engage in that affirmative act cannot, it seems clear, place these circumstances. in any stronger light than where the failure of the beneficiary to take action has a similar effect. it does not matter whether the permission is given by assent or by failure to express dissent." Corliss v. Bowers, 281 U. S. 376.

*

The only action which could deprive either petitioner of his respective right to the trust income was thus the concurrent action of both as reciprocal trustees in directing the income elsewhere. If the trustees, including in each case one of the petitioners, could not agree, the discretion under New York law could not be exercised. In re Johnson's Will, 123 Misc. Rep. 834; 207 N. Y. S. 66; In re Campbell's Will, 13 N. Y. S. (2d) 773; affd., 26 N. Y. S. (2d) 491. And in the absence of that discretionary action the income would be left to the destination directed by the trust instrument and necessarily find its way to the respective petitioner as "primary beneficiary." The failure of either to concur was all that was necessary for him to obtain the income from his own trust. We need not, accordingly, resort to the reciprocal trust theory presented by the Lehman case, for the conclusion that it was within the unhampered power of each petitioner to obtain the current income of the trust if that suited his purpose. See also Edward E. Bishop, 4 T. C. 862.

Strenuous effort is made to satisfy us that, in spite of the express direction for the distribution of income, the true purpose of the trust was to benefit the grandsons, rather than or at least equally with the petitioners. But the whole tenor of the instrument contradicts any such conclusion, aside from the provisions dealing with income. Each trust is limited to the life of the respective primary beneficiary. Upon the termination of the trust no provision is made for the grandsons except in the event that the primary beneficiary shall have failed to make a valid testamentary disposition as to his trust. Not only are the two primary beneficiaries appointed the only two trustees, but if they resign they may designate successor trustees. And, finally, the duty of the trustees to account is specified to be only to the primary beneficiary during his life. Thus we can not view the trust as establishing an interest in the grandsons paramount to that in petitioners, of which a court of equity would take cognizance. Cf. Phipps v. Com missioner (C. C. A., 2d Cir.), 137 Fed. (2d) 141; see Commissioner v. Irving Trust Co. (Beugler Estate) (C. C. A., 2d Cir.), 147 Fed. (2d) 946; Morsman v. Commissioner (C. C. A., 8th Cir.), 90 Fed. (2d) 18; certiorari denied, 302 U. S. 701; Greene v. Greene, 125 N. Y. 506; 26 N. E. 739.

1 Allan S. Lehman et al., Executors, 39 B. T. A. 17; affd. (C. C. A., 2d Cir.), 109 Fed. (2d) 99; certiorari denied, 310 U. S. 637.

But even were the evidence stronger on this point, it would not suffice to distinguish the Mallinckrodt case, where it was recognized that "the grantor's intention in creating the trust was primarily to provide for petitioner's children and grandchildren," and that "the powers conferred upon the petitioner and upon the trustees over the disposition of the income and corpus of the trust were not granted with the thought that they would be exercised for the sole use or benefit of petitioner."

Finally, the fact that petitioners chose to make their sons the beneficiaries from year to year can not alter the significance of their command over the income. The situation each year was as though the petitioner-beneficiary determined to assign to the designated grandson his share of the trust income, prior to distribution, without to any extent releasing his basic interest in the trust or his opportunity to grant or withhold similar gifts in the years to come.

By §§ 161 (a) and 162 (b) the tax is laid upon the income "of any kind of property held in trust," and income of a trust for the taxable year which is to be distributed to the beneficiaries is to be taxed to them "whether distributed to them or not." In construing these and like provisions in other revenue acts we have uniformly held that they are not so much concerned with the refinements of title as with the actual command over the income which is taxed and the actual benefit for which the tax is paid. See Corliss v. Bowers, 281 U. S. 376; Lucas v. Earl, supra; Helvering v. Horst, supra; Helvering v. Eubank, supra; Helvering v. Clifford, supra. It was for that reason that in each of those cases it was held that one vested with the right to receive income did not escape the tax by any kind of anticipatory arrangement, however skillfully devised, by which he procures payment of it to another, since, by the exercise of his power to command the income, he enjoys the benefit of the income on which the tax is laid. [Harrison v. Schaffner, 312 U. S. 579, 581.]

We are of the opinion that respondent correctly charged petitioners with the trust income.

Reviewed by the Court.

Decisions will be entered for the respondent.

VAN FOSSAN, J., dissents.

HARRON, J., dissenting: Respondent has taxed the income of each of the Lena Stix trusts to each petitioner, respectively, although the income was received by other persons who were income beneficiaries named in each trust instrument. The majority have concluded that the income of the trusts is taxable to petitioners under section 22 (a), and that conclusion carries with the further conclusion that section 162 (b) does not apply in the taxation of the income of these trusts. The conclusion by the majority has been made under the egis of Corliss v. Bowers, 281 U. S. 376, and Helvering v. Clifford, 309 U. S. 331. I use the word egis rather than the word rationale, advisedly, because the reasoning of these cases can not be applied to the Lena Stix trusts.