dissenting: There are few cases which have provoked such wide spread litigation as Helvering v. Clifford, 309 U. S. 331. We have here a far cry from the simple facts underlying that wholesome decision, yet the facts in the instant case are said by the majority to require a similar treatment. There is no doubt that some opinions of this Court seem to point in the direction taken by my colleagues, but I think no case goes quite so far. Frederick B. Rentschler, 1 T. C. 814, now on appeal to the Second Circuit; Louis Stockstrom, 3 T. C. 255, now on appeal to the Eighth Circuit. Frank G. Hoover, 42 B. T. A. 786, heavily relied on by the majority opinion, is not in point, as that was a case of a short term trust; Verne Marshall, 1 T. C. 442, also cited, was largely based on Howard Phipps, 47 B. T. A. 357, which was reversed on appeal. Many of our opinions have sought to restrict Clifford, supra, more nearly to the facts which prompted the Supreme Court’s utterance. Lolita S. Armour, 41 B. T. A. 777; aff'd., 125 Fed. (2d) 467; Frederick Ayer, 45 B. T. A. 146; Emma B. Maloy, 45 B. T. A. 1104; Meyer Katz, 46 B. T. A. 187; aff'd., 139 Fed. (2d) 107; Lura H. Morgan, 2 T. C. 510; George H. Whiteley, 2 T. C. 618; W. C. Cartinhour, 3 T. C. 482; Estate of Benjamin Lowenstein, 3 T. C. 1133; David Small, 3 T. C. 1142; see also Jones v. Norris, 122 Fed. (2d) 6; Commissioner v. Betts, 123 Fed. (2d) 534; Commissioner v. Branch, 114 Fed. (2d) 985; Phipps v. Commissioner, 137 Fed. (2d) 141. Some opinions of this Court on the subject simply can not be reconciled. I think, in the circumstances, it would be more profitable to reexamine the fundamental factors to be considered with a view to exploring the full implications, as well as the logical limitations, of the doctrine announced in Helvering v. Clifford, supra.
Trusts, and particularly family trusts, are not new in our economy. They did not just find their way into our history with the advent of the Sixteenth Amendment; their birth lies in antiquity. Congress was fully conscious of this and has always provided for their taxation in the several revenue laws. By sections 161 to 172 of the Internal Revenue Code it has now established a somewhat elaborate method for their taxation and to meet the various problems that have arisen in connection with them. Stated in A, B, C language, the income of distributable trusts is to be taxed to the distributees; otherwise the trust is to be taxed as an entity at the same rates as an individual. Sections 166 and 167 are designed to prevent avoidance and evasion of the revenue laws and, in general, these sections tax the grantor of a trust on the income by reason of certain controls retained by him in the trust instrument.
The deficiency in the instant case was determined by the Commissioner under section 22 (a) and sections 166 and 167 of the Internal Revenue Code. The trust instrument permitted the income to be used for the maintenance and education of the grantor’s minor children, and Helvering v. Stuart, 317 U. S. 154, had held that if the income may be so used it is taxable in its entirety to the grantor. This latter decision disapproved of what we had held in E. E. Black, 36 B. T. A. 346, to the effect that the grantor was taxable only on the income which was, in fact, used for the discharge of his legal obligations. But before the instant case came to trial Congress, by section 134 of the Revenue Act of 1943, retroactively undid what Helvering v. Stuart, supra, required and, in effect, reinstated the rule of E. E, Black, supra. Thus, the sole basis on which the deficiency can now be sustained is section 22 (a) of the Internal Revenue Code.
It is hardly necessary to discuss section 22 (a) other than to note that it contains so broad a definition of income as to reach whatever may be defined as income within the meaning of the Sixteenth Amendment. Irwin v. Gavit, 268 U. S. 161. But, what is taxed under section 22 (a) must be the income of the taxpayer; income received by him; income used to defray his legal obligations; income subject to his direction. It must be income from his property and not the income from the property of another. This section is not like sections 166 and 167, which were, designed to prevent an avoidance of the tax laws and to that end taxed income to a grantor of a. trust when, in fact, the income was not received by him. The justification for imposing a tax under section 22 (a) under the rule in the Clifford case is that the grantor of a trust has not, in fact, made a gift of the corpus of the trust, but has retained the economic ownership of that corpus. The trust may be valid under the state law and, of course, that is true in the case even of a revocable trust, but the rationale of Clifford, supra. is that the rights reserved by the grantor are the equivalent of full ownership.
What then are the rights reserved by Cushman, the grantor in the instant case? The trust is irrevocable and he can never acquire the principal or the income. These two attributes of ownership have gone beyond his reach and for that reason alone it would at least behoove one to be cautious before announcing that what the grantor retained was the equivalent of full ownership. Clifford, supra. But, it is said that Cushman reserved the right in his capacity as grantor (although he was also one of two trustees) to direct the trustees (himself and wife) when and at what prices to buy and sell the property constituting the trust corpus. That the trust was made in good faith for the benefit of his.minor children is found as a fact by the majority, and it is also found that his purpose in establishing the trust was to divorce himself completely from the ownership of the property constituting the corpus of the trust. It is at least doubtful if reserved powers of management, however broad, can vest in the grantor of a trust attributes of ownership sufficient to give him that economic interest essential to taxation under section 22 (a). Jones v. Norris, supra. The trust in this particular case is governed by the laws of New York, and, as I understand the law of that state, as announced in Carrier v. Carrier, 226 N. Y. 114; 123 N. E. 135; Heyman v. Heyman, 33 N. Y. S. (2d) 235; and Phipps v. Commissioner, supra, a trustee or a grantor-trustee will not be permitted to deal with a trust to his own advantage, but courts of equity will always see that his actions are in furtherance of the interests of the beneficiaries and that he may not profit at their expense.
We know as a fact that Cushman did not receive the income of this trust in the taxable year. We know that the income was not used to pay his obligations, and the record is barren of any suggestion whatever that he realized any economic benefit by his retained powers of management. The full facts have been laid before us and I find in the record no basis for even a presumption or suspicion that the grantor received any economic profit by reason of his retained right of management.
It is not even suggested that the retained power of management gives to the grantor any right to revoke or alter the terms of the trust. Such a right must be found, if at all, in the instrument creating the trust; and none appears. As stated in Helvering v. Stuart, supra, the nonmaterial satisfactions that may grow out of the handling of a family trust are not sufficient to warrant taxing to the grantor the income of that trust, but there must be a gain, a profit, an economic benefit. This benefit may not be inferred, it may not be based on wishful thinking, and certainly it should not be grounded on suspicion.
I do not overlook the fact that the trust instrument by its terms permits the use of the income, should the occasion arise, for the education and maintenance of petitioner’s minor children. But, I have already pointed out that section 167 of the Internal Kevenue Code, as amended by section 134 of the 1943 Act, taxes the grantor only to the extent that such income is, in fact, used, and in the instant case none of the income was, in fact, so used. It would seem to me little short of judicial impertinence if this provision of the trust instrument is used to support the taxation of the income under section 22 (a) in the face of a Congressional mandate that such income is not to be taxed to the grantor under section 167.
The Supreme Court has repeatedly admonished us to consider its words in the light of the facts, and not to lift these words out of their context. Helvering v. Stuart, supra. I fear the latter is precisely what we have done here. It would seem that before we go to the length indicated by the majority we should wait for Congress to point the way.
Mukdock, Sternhagen, Van Fossan, and Harron, JJ., agree with this dissent.