present taxpayers' income under § 167 (a) (1) and (2) also. This leads us to consider both § 22 (a) and § 167, and their interplay on one another, together.

Section 167 took its present form in the Revenue Act of 1932. It was enacted especially to prevent avoidance of surtax by the trust device, when the income really remained in substance at the disposal of the settlor. S. Rep. No. 665, 72d Cong., 1st Sess., pp. 34–35. It is to be interpreted in the light of its purpose for the protection of the federal revenue. United States v. Hodson, 10 Wall. 395, 406; United States v. Pelzer, 312 U. S. 399, 403. Of course, where the settlor or donor is not actually or in substance a present or possible beneficiary of the trust, he escapes the surtax by a gift in trust. Revenue Act of 1934, §§ 161 to 168, Supplement E, 48 Stat. 727. Cf. Helvering v. Fuller, 310 U. S. 69, 74. In the absence of a legislative rule, we have left to the process of repeated adjudications the line between "gifts of income-producing property and gifts of income from property of which the donor remains the owner, for all substantial and practical purposes." Harrison v. Schaffner, 312 U. S. 579, 583.

In the John Stuart trusts, the trustees, in their discretion, were to distribute income to the named beneficiaries for fifteen years and thereafter to distribute the entire net income. In the Douglas Stuart trusts, the directions authorized discretionary distribution to the beneficiaries [168] or its application to their education, support and maintenance until the children reached the age of twenty-five years. Undistributed portions of the income were to be added to the corpus. Plainly, these distributions or accumulations were to be used for the economic advantage of the children of the settlors and to the amount of these distributions and accumulations would satisfy the normal desire of a parent to make gifts to his children. Is this alone sufficient to make the income of the trusts taxable to the settlors?

Disregarding for the moment the minority of some of the beneficiaries, we think not. So broad a basis would tax to a father the income of a simple trust with a disinterested trustee for the benefit of his adult child. No act of Congress manifests such an intention. Economic gain realized or realizable by the taxpayer is necessary to produce a taxable income under our statutory scheme. That gain need not be collected by the taxpayer. He may give away the right to receive it, as was done in Helvering v. Horst, 311 U. S. 112, Helvering v. Eubank, 311 U. S. 122, 125, and Harrison v. Schaffner, 312 U. S. 579. But the donor nevertheless had the "use [realization] of his economic gain." 311 U. S. at 117. In none of the cases had the taxpayer really disposed of the res which produced the income. In Corliss v. Bowers, 281 U. S. 376, he had disposed of the res but with a power to revoke at any moment. This right to realize income by revocation at the settlor's option overcame the technical disposition. The "non-material satisfactions" (gifts-contributions) of a donor are not taxable as income. Helvering v. Horst, supra.

That economic gain for the taxable year, as distinguished from the non-material satisfactions, may be obtained through a control of a trust so complete that it must be said the taxpayer is the owner of its income. So [169] it was in Helvering v. Clifford, 309 U. S. 331, 335, 336. Cf. Helvering v. Fuller, 310 U. S. 69, 72 note 1, 76, Section, 22 (a), we have said, indicated the intention of Congress to use its

constitutional powers of income taxation to their "full measure." Helvering v. Clifford, 309 U. S. 331, 334; Helvering v. Midland Life Ins. Co., 300 U. S. 216, 223; Douglas v. Willouts, 296 U. S. 1, 9; Irwin v. Gavit, 268 U. S. 161, 166. Control of the stocks of the company of which the grantors were executives may have determined the manner of creating the trusts. Paragraph eight permits recapture of the stocks from the trust by payment of their value. (See p. 158, ante.) Family relationship evidently played a part in the selection of the trustees. On the other hand, broad powers of management in trustees, even though without adverse interest, point to complete divestment of control, as does the impossibility of reversion to the grantors.3 The interlocking trustees were not appointed simultaneously. The triers of fact have made no finding upon this point. Cf. Helvering v. Clifford, supra, 336, 338. When the Board of Tax Appeals decided these cases under § 166 it was not necessary for it to reach a conclusion on 22 (a) or its effect upon § 167. That should be done in No. 48, the John Stuart trusts.

In No. 49, the R. Douglas Stuart trusts, the minority of each of the beneficiaries brings the income from the trusts under the provisions of 167 (a) (1) and (2). The grantor owes to each the parental obligation of support. The Court of Appeals assumed that all income expended was used for such a purpose unless the taxpayer showed to the contrary. So far as the income was used to discharge [170] this obligation, the sums expended were properly added to the taxpayer's income.1

As indicated in the cases of the Board of Tax Appeals cited in the immediately preceding note, the Board has restricted the tax liability of a grantor of a trust for the support and maintenance of an infant and other purposes to such sums as, actually or by presumption, have been expended to relieve the settlor of his obligations. The Board has not taxed the whole of such income to the taxpayer merely because a part could have been but was not used for the support of an infant. We take a contrary view. Among these involved problems of statutory construction, we observe the time-tried admonition of restricting the scope of our decision to the circumstances before us. We are not here appraising the application of § 167 to cases where a wife is the trustee or beneficiary of the funds which may be used for the family benefit. Cf. Suhr v. Commissioner, 126 F. 2d 283, 285, with Altmaier v. Commissioner, 116 F. 2d 162, and Fulham v. Commissioner, 110 F. 2d 916. We are dealing with a trust for minors where the trustees, without any interest adverse to the grantor, have authority to devote so much of the net income as "to them shall seem advisable" to the "education, support and maintenance" of the minor. The applicable statute says, "Where any part of the income be distributed to the grantor be included in computing the net income of the grantor." a provision the possibility of the use of the income to

then such part

may

shall

Under such relieve the

3 Cf. Helvering v. Clifford, supra; Suhr v. Commissioner, 126 F. 2d 283; Whiteley v. Commissioner, 120 F. 2d 782; Commissioner v. Buck, 120 F. 2d 775; Fulham v. Commis sioner, 110 F. 2d 916.

Douglas v. Willcuts, 296 U. S. 1; Commissioner v. Grosvenor, 85 F. 2d 2; Black v. Commissioner, 36 B. T. A. 346; Tiernan v. Commissioner, 37 B. T. A. 1048, 1054; Pyeatt v. Commissioner, 39 B. T. A. 774, 780; Chandler v. Commissioner, 41 B. T. A. 165, 178; Wolcott v. Commissioner, 42 B. T. A. 1151, 1157.

See also General Counsel's Memorandum 18972, 1937-2 Cum. Bull. 231, 233.

grantor, pro tanto, [171] of his parental obligation is sufficient to bring the entire income of these trusts for minors within the rule of attribution laid down in Douglas v. Willouts.

No. 48 is reversed and remanded to the Circuit Court of Appeals for remand to the Board of Tax Appeals.

No. 49 is reversed and for the reasons herein stated, the decision of the Board of Tax Appeals is affirmed.

MR. CHIEF JUSTICE STONE:

No. 48 reversed.

No. 49 reversed.

I think judgment should go for the Government in each case. Assuming, as the opinion of the Court declares, that we must look to Illinois law to determine whether the trustees were free to distribute to respondents the trust income which the Commissioner has taxed under § 167 of the Revenue Act of 1934, still I think respondents have failed to carry the burden which rests on them to show that the Illinois law prevents such distribution. The power conferred on. the trustees to dispose of future income was without restriction. They were in terms authorized at any time to alter the trust instrument so as to change the beneficiary, to change the time when the trust fund or any part of it or the income was to be distributed, or to change it "in any other respect." On its face each trust gave to the trustees other than the settlor plenary power to bestow undistributed income on any person they might choose as beneficiaries, including the settlor.

We are cited to no decision in the Illinois courts which either holds or suggests that a power in trust so broadly phrased may not be exercised for the benefit of its donor. Even the generally accepted rule that the donee of a power in trust may not use it for his own benefit, which Illinois does not appear to follow, would hardly support the conclusion that he could not exercise it for the benefit of the [172] donor. Reinecke v. Smith, 289 U. S. 172, 176. We are without even a speculative basis in judicial authority or in reason for predicting that the Supreme Court of Illinois would forbid such an exercise of the power.

When state law has not been authoritatively declared we pay great deference to the reasoned opinion of circuit courts of appeals, whose duty it is to ascertain from all available data what the highest court of the state will probably hold the state law to be. Wichita Royalty Co. v. City Bank, 306 U. S. 103; West v. A. T. & T. Co., 311 U. S. 223. But we have not wholly abdicated our function of reviewing such determinations of state law, merely because courts of appeals have made them.

Here our task is the easier because of the salutary rule that he who assails a deficiency assessment before the Board of Tax Appeals assumes the burden of showing, in point of law as well as of fact, that the tax is unlawfully assessed. Helvering v. Fitch, 309 U. S. 149. The terms of the trust instruments bring them so plainly within the provisions of the taxing statute as concededly to subject respondents to the tax unless we are able to conclude that some law of Illinois denies effect to their words. Respondents suggest no reason for such a rule of law which has ever been advanced in judicial opinion, treatise or elsewhere, and they point to no decision of the Illinois

68843-45-20

courts recognizing its existence. I am unable to conclude that it does exist and consequently that the tax was not properly laid.

The Board of Tax Appeals found that the trust instruments meant what they said and that in the family circle involved they would be carried out according to their meaning. It was hardly excessive skepticism on the Board's part to conclude that Illinois law would not prevent compliance with the expressed intention. Its judgment ought not lightly to be disregarded.

MR. JUSTICE BLACK and MR. JUSTICE DOUGLAS join in this opinion.

(f) VIOLATIONS OF LAW

1. SPIES v. UNITED STATES

(317 U. S. 492. No. 278-Decided January 11, 1943)

Section 145 (b) of the Internal Revenue Code, making it a felony willfully to attempt to evade or defeat a tax, is not violated by willful omissions to make a return and pay a tax, defined in § 145 (a) as misdemeanors. P. 497.

128 F.2d 743, reversed.

CERTIORARI, post, p. 610, to review the affirmance of a conviction upon an indictment under 26 U. S. C. § 145 (b) for attempting to evade and defeat a federal income tax.

MR. JUSTICE JACKSON delivered the opinion of the Court.

Petitioner has been convicted of attempting to defeat and evade income tax, in violation of § 145 (b) of the Revenue Act of 1936, 49 Stat. 1648, 1703, now § 145 (b) of the Internal Revenue Code. The Circuit Court of Appeals found the assignment of error directed to the charge to the jury the only one of importance enough to notice. The charge followed the interpretation put upon this section of the statute in O'Brien v. United States, 51 F. 2d 193 (C. C. A. 7), and United States v. Miro, 60 F. 2d 58 (C. C. [493] A. 2), which followed it. The Circuit Court of Appeals affirmed, stating that "we must continue so to construe the section until the Supreme Court decides otherwise." 128 F. 2d 743. One Judge said that as a new matter he would decide otherwise and expressed approval of the dissent in the O'Brien case. As the construction of the section raises an important question of federal law not passed on by this Court, we granted certiorari.

Petitioner admitted at the opening of the trial that he had sufficient income during the year in question to place him under a statutory duty to file a return and to pay a tax, and that he failed to do either. The evidence during nearly two weeks of trial was directed principally toward establishing the exact amount of the tax and the manner of receiving and handling income and accounting, which the Government contends shows an intent to evade or defeat the tax. Petitioner's testimony related to his good character, his physical illness at the time the return became due, and lack of willfulness in his defaults, chiefly because of a psychological disturbance, amounting to something more than worry but something less than insanity.

Section 145 (a) makes, among other things, willful failure to pay a tax or make a return by one having petitioner's income at the time

or times required by law a misdemeanor.1 Section 145 (b) makes a willful attempt in any [494] manner to evade or defeat any tax such as his a felony. Petitioner was not indicted for either misdemeanor. The indictment contained a single count setting forth the felony charge of willfully attempting to defeat and evade the tax, and recited willful failure to file a return and willful failure to pay the tax as the means to the felonious end.

The petitioner requested an instruction that "You may not find the defendant guilty of a willful attempt to defeat and evade the income tax, if you find only that he had willfully failed to make a return of taxable income and has willfully failed to pay the tax on that income." This was refused, and the Court charged that "If you find that the defendant had a net income for 1936 upon which some income tax was due, and I believe that is conceded, if you find that the defendant willfully failed to file an income tax return for that year, if you find that the defendant willfully failed to pay the tax due on his income for that year, you may, if you find that the facts and circumstances warrant it find that the defendant willfully attempted to evade or defeat the tax." The Court refused a request to instruct that an affirmative act was necessary to constitute a willful attempt, and charged that "Attempt means to try to do or accomplish. In order to find an attempt it is not necessary to find affirmative steps to accomplish the prohibited purpose. An attempt may be found on the basis of inactivity or on refraining to act, as well."

It is the Government's contention that a willful failure to file a return, together with a willful failure to pay the [495] tax, may, without more, constitute an attempt to defeat or evade a tax within § 145 (b). Petitioner claims that such proof establishes only two misdemeanors under § 145 (a), and that it takes more than the sum of two such misdemeanors to make the felony under § 145 (b). The legislative history of the section contains nothing helpful on the question here at issue, and we must find the answer from the section itself and its context in the revenue laws.

The United States has relied for the collection of its income tax largely upon the taxpayer's own disclosures rather than upon a system of withholding the tax from him by those from whom income may be received. This system can function successfully only if those within and near taxable income keep and render true accounts. In many ways, taxpayers' neglect or deceit may prejudice the orderly and punctual administration of the system as well as the revenues themselves. Congress has imposed a variety of sanctions for the protection of the system and the revenues. The relation of the offense of which this petitioner has been convicted to other and lesser revenue

1"Any person required under this title to pay any tax, or required by law or regulations made under authority thereof to make a return, keep any records, or supply any information, for the purposes of the computation, assessment, or collection of any tax imposed by this title, who willfully fails to pay such tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdeameanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution."

"Any person required under this title to collect, account for, and pay over any tax imposed by this title, who willfully fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution."