consistent with footnote 10 of the opinion in Grace (see 395 U.S. at 324), which provides:

We do not mean to say that the existence of "consideration," in the traditional legal sense of a bargained-for exchange, can never be relevant. In certain cases, inquiries into the settlor's reasons for creating the trusts may be helpful in establishing the requisite link between the two trusts. We only hold that a finding of bargained-for consideration is not necessary to establish reciprocity.

Under the circumstances of this case, I would hold that the reciprocal trust doctrine should apply. The only evidence of record herein is that the trusts were established at or about the same time. Such being the case, it cannot be said that the petitioners have carried their burden of proof that each trust was not bargained for by the establishment of the other trust.

STERRETT and WILES, JJ., agree with this concurring opinion.

HALL, J., dissenting in part: In every one of the cases in which the reciprocal trust doctrine has ultimately been applied, including United States v. Estate of Grace, 395 U.S. 316 (1969), the arrangements that were challenged involved the crossing between grantors of very substantial economic interests. All but one of the cases involved the exchange of life estates or beneficial powers exercisable by the holders for their own benefit.1 The one exception, a decision of this Court, subsequently reversed by the Court of Appeals for the Third Circuit, involved the exchange of significant powers to shift economic interests as between beneficiaries, i.e., a spray power. Estate of Newberry v. Commissioner, 17 T.C. 597 (1951), revd. 201 F.2d 874 (3d Cir. 1953). However, even if our holding in Newberry's Estate could have survived the Third Circuit reversal, it could not

'Estate of Lindsay v. Commissioner, 2 T.C. 174 (1943) (life estates); Cole's Estate v. Commissioner, 140 F.2d 636 (8th Cir. 1944) (life estates); Estate of Oliver v. Commissioner, 3 T.C.M. 408, 13 P-H Memo. T.C. par. 44,138 (1944) (life estates); Hanauer's Estate v. Commissioner, 149 F.2d 857 (2d Cir. 1945) (life estates and power to amend); Orvis v. Higgins, 180 F.2d 537 (2d Cir. 1950) (life estates); McLain v. Jarecki, 232 F.2d 211 (7th Cir. 1956) (life estates); Moreno's Estate v. Commissioner, 260 F.2d 389 (8th Cir. 1958) (life estates); Estate of Carter v. Commissioner, 31 T.C. 1148 (1959) (life estates); United States v. Estate of Grace, 395 U.S. 316 (1969) (life estates and power to change beneficial interests); Lehman v. Commissioner, 109 F.2d 99 (2d Cir. 1940) (power to withdraw corpus); In re Lueders' Estate, 164 F.2d 128 (3d Cir. 1947) (life estates and power to withdran corpus). Cf. Krause v. Commissioner, 57 T.C. 890 (1972), affd. 497 F.2d 1109 (6th Cir. 1974) (grantor trust provisions applied for income tax purposes where spouses granted to trustees reciprocal powers to accumulate and pay over income and corpus to each other).

survive the enunciation of the retained economic benefit test by the Supreme Court in Grace.

Applying the Grace approach to the present case, it seems clear that powers to use principal and interest for minor grandchildren's needs, deemed by respondent to be exchanged by Bruno and Bertha, were not powers having "economic value" to the decedents. The majority, in applying Grace, in effect, reads the word "economic" out of the Supreme Court's formulation, saying it was not essential to the principle of the case. Certainly these trusts did not reflect the thinly disguised retention of an "economic interest" which the Supreme Court found determinative. Rather, in each case, the settlor made a completed gift in trust of his or her own property to their minor grandchildren, the natural objects of their bounty, not retaining any power which would include the corpus of the trusts in the settlor's estate. The trust conferred economic interests only on the beneficiary; they conferred no economic interest on the trustee whose only power was to accelerate the receipt of the economic interest by the beneficiary during his minority. Not even a “spray" power was retained, so that the "retention" on uncrossing the trusts fell short of even the retention in Newberry's Estate, the previous high water mark of this Court's application of the reciprocal trust doctrine. Neither settlor would have been economically worse off had the other not elected to make a concurrent gift to the objects of his natural bounty. It is therefore also most difficult to perceive the "interrelation" between the trusts called for in Estate of Grace. In my view, they were concurrent and similar, but not interrelated in any meaningful sense. Had the property in question all happened to belong to one grandparent, there is no reason to believe that grandparent would not have wished to put it in trust, naming the other as trustee, and there would be no question of includability. I see insufficient reason why essentially the same result cannot properly be achieved where each grandparent happens to own part of the property sought to be entrusted. This is not the kind of situation the reciprocal trust doctrine was intended to cover or, at least since Grace, ever has been extended to cover. I recognize the majority's argument that Congress has decided the question of retained powers which suffice for includability and that indirect retention of the equivalent of such powers through reciprocal arrangements should produce the same result. However, I

believe this would carry a good and necessary principle too farcertainly further than the language of Grace would warrant. I conclude that such an extension of the doctrine is unwarranted under these circumstances. While it is true that each settlor gave the other powers, retention of which would have frustrated the estate plan, Congress permits a grantor, and it is common planning, to put such powers in the hands of one's spouse. The mere fact that both spouses had similar property and one spouse concurrently does the same with his or her own trusts does not improve the economic position of the power-holding spouse or make the other spouse the "transferor." Congress chose to allow the entrusting to a spouse of the power to accumulate trust income or to distribute trust income or corpus, which power could not be retained personally. It seems to me that until Congress provides to the contrary, it is not for us to say that where spouses happen to own similar property they are barred from each doing concurrently what either could safely do alone. Unlike the cases of illusory relinquishment of economic interests where the reciprocal trust doctrine has been applied, there has here been the real relinquishment of economic value which the statute contemplates for exclusion from the estate.

DRENNEN, SCOTT, and GOFFE, JJ., agree with this dissenting opinion.

ASSOCIATED MASTER BARBERS & BEAUTICIANS OF AMERICA, INC., PETITIONER V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket Nos. 2501–75, 604–77.

Filed October 20, 1977.

Held: 1. During the years in issue petitioner did not qualify as a tax-exempt trade association or business league within the provisions of sec. 501(c)(6), I.R.C. 1954, and sec. 1.501(c)(6)-1, Income Tax Regs. It engaged in a regular business of a kind ordinarily carried on for profit and its activities were directed to the performance of particular services for individual members. Therefore, respondent properly revoked petitioner's tax-exempt status for such years.

2. Petitioner is a membership organization operated primarily to furnish services or goods to its members and it therefore subject to the provisions of sec. 277, I.R.C. 1954. Accordingly, petitioner had taxable income of $23,064.89 for its taxable year ended Sept. 30, 1973, and is not entitled to a net operating loss carryback of

$46,109.87 to its taxable years ended Sept. 30, 1970, and Sept. 30,
1971.

William M. Claytor, for the petitioner.

Eric B. Jorgensen, for the respondent.

DAWSON, Judge: In these consolidated cases respondent determined the following deficiencies in petitioner's Federal income taxes:

The issues presented for decision are (1) whether the petitioner qualified as an organization exempt from taxation under section 501(c)(6)1 during the years in question and (2) if the petitioner was not exempt from taxation, whether it was a membership organization within the meaning of section 277, so as to prevent the carryback of its net operating loss incurred in its taxable year ended September 30, 1973, to its taxable years ended September 30, 1970, and September 30, 1971.

FINDINGS OF FACT

Some of the facts are stipulated. The stipulation of facts and exhibits attached thereto incorporated herein by this reference. Associated Master Barbers & Beauticians of America, Inc. (petitioner), is an Illinois corporation whose principal place of business and principal office was located at 219 Greenwich Road, Charlotte, N.C., when the petition was filed in this case.

For all times pertinent herein, the petitioner prepared its Return of Organization Exempt From Income Tax (Form 990) and kept its books and records on the accrual method of accounting. Petitioner's tax return (Form 990) for its taxable year ended September 30, 1967, was filed with the District Director of Internal Revenue at Greensboro, N. C. Petitioner's tax returns (Forms 990) for its taxable years ended September 30, 1968, September 30, 1969, September 30, 1970, September 30, 1971, September 30, 1972, and September 30, 1973, were filed with the Internal Revenue Service Center, Philadelphia, Pa. Petitioner filed an Exempt Organization Income Tax Return

'All statutory references are to the Internal Revenue Code of 1954, as amended and in effect during the years in issue, unless otherwise indicated.

(Form 990-T) for its taxable year ended September 30, 1971, with the Internal Revenue Service Center, Philadelphia, Pa.

Petitioner was incorporated on December 13, 1924, in the State of Illinois as a nonprofit organization with its headquarters in Chicago. In August 1967, it moved to its present headquarters located in Charlotte, N.C. From 1927 to the present, it has filed as a tax-exempt organization.

According to petitioner's articles of incorporation, the stated purpose for which petitioner was formed was "to found and conduct an association of Master Barbers for mutual co-operation in business and not for profit." In its original constitution and bylaws, adopted in November 1924, petitioner's purpose for organization was stated in the preamble as follows:

WHEREAS, The Master Barbers throughout America have never been organized as a body nationally, and,

WHEREAS, Their progress has been slow entirely from lack of unity and confidence in each other as workers, and,

WHEREAS, Unity guided by intelligence is a source of strength that can withstand all attacks, and that without intelligent organization we cannot acquire the advantages of standardization which will enable us to act together, for without organization we cannot concentrate our strength and direct our efforts toward the desired end, that we may elevate the standard of the Barber Profession.

THEREFORE, For the purpose of promoting such unity of sentiment and action among the Master Barbers throughout America, joining them closer together for united protection:

BE IT RESOLVED, That such an organization be created and known as the Associated Master Barbers of America.

On March 31, 1927, petitioner was originally determined by the respondent to be an organization exempt from tax under section 231(7), Revenue Act of 1926, now section 501(c)(6). This exempt status was subsequently reaffirmed on June 13, 1938, May 20, 1941, and December 16, 1944. On January 24, 1947, the petitioner's subordinate chapters were found to be exempt from tax under section 101(7), I.R.C. 1939, now section 501(c)(6). Their exempt status was subsequently reaffirmed in 1957, 1958, 1960, 1961, 1963, 1965, 1966, 1967, and 1976.

Respondent revoked the petitioner's exempt status by determination letter dated February 28, 1973. Its exempt status was revoked effective October 1, 1966. As of the present time, respondent has not revoked the exemptions for petitioner's subordinate chapters.