OPINION.
Murdock, Judge:The only question presented for decision in this case is whether the Commissioner erred in including in taxable gifts the profits from trading on margin for the accounts of the two trusts. The Commissioner argues that, since the income from marginal trading in the accounts for the years 1934 through 1937 was held taxable to the petitioner, it follows that the similar income for the years 1936 through 1940 mpst first have belonged to the petitioner and .have been given by him to the trusts. This contention is not supported by the authorities cited by the respondent or by the facts in this case. It does not follow as a matter of course that, because income of a trust is taxable to the grantor, the transfer in trust is incomplete as to that income for gift tax purposes and that a gift tax liability arises when, as the income is earned, it is allowed to remain in the trust. The two taxes are not that closely integrated. Commissioner v. Prouty, 115 Fed. (2d) 331; Commissioner v. Beck's Estate, 129 Fed. (2d) 243.
The opinion of the Circuit Court in Hogle v. Commissioner, 132 Fed. (2d) 66, does not hold that Hogle was ever actually the owner of any of the corpus or income of these trusts. The court pointed out that Hogle could not share in the corpus or income of the trusts in any way. It recognized that all of the income realized in the accounts was realized as the income of the trusts and not the income of Hogle. The court was discussing the taxability of “the income derived by the trust” and it held that the profits derived by the trusts through trading on margins were taxable to Hogle because the earning of that income involved the exercise of personal skill and judgment by Hogle which he could exercise or withhold as he chose and it was proper to tax those profits for income tax purposes to him as “in substance personal earnings of Hogle.” It is apparent from the opinion as a whole, despite certain statements, that the court regarded the profits from marginal trading as belonging in law to the trusts and not as profits actually belonging to Hogle, despite the fact that they were taxable to him under section 22 (a). The court recognized that the profits in question could be realized only by the trust and never by Hogle personally.
The profits of the trusts from trading on margins were partly due, of course, to the personal skill and judgment of Hogle, who advised the trusts in the use of their funds. However, the profits arose from the use of trust corpus, i. e., only after the funds or securities belonging to the trusts were invested or sold in accordance with the advice of Hogle. While Hogle could give or withhold his advice, nevertheless, once he had given his advice he could not control the profits which the trust thereafter realized on its investments. He could not give or withhold those profits. The profits as they arose were the profits of the trust, and Hogle had no control whatsoever over them. He could not capture them or gain any economic benefit from them for himself. The question here is not whether Hogle may have made a gift to the trusts of personal services which might be valued independently of the profits derived from the marginal trading. The question is only whether he made a “transfer * * * of property by gift” to the trusts, consisting of the profits on the marginal trading accounts. Sec. 1000 (a), I. R. C. Neither the corpus nor the profit in the accounts was the property of Hogle under the law of Utah. He never made a gift of the profits to the trusts. The parties themselves seem to realize this. They have stipulated that the items in dispute are “the net gains and profits realized from marginal trading in securities and from trading in grain futures for the account of two certain trusts.” (Italics added.) This, in effect, is a stipulation that the gains and profits were the gains and profits of the trusts as they were realized. Furthermore, that stipulation appears to us to be in accordance with the facts. Consequently, those amounts could not be the subject of any transfer by gift from the petitioner to those trusts.
This case is different from Lucas v. Earl, 281 U. S. 111, in which the Supreme Court was dealing with salaries and attorneys’ fees earned by Earl. Earl and his wife had agreed that his earnings should be considered as having been received and owned by him and his wife as joint tenants. The Court hesitated to say that the salary did not vest, as earned, in Earl, but held it taxable to him because he earned it, even if it never for a moment vested in him. Here the profits vested as realized in the trusts, not in Hogle, and he could not make a transfer of them by gift.
The Supreme Court said that the issue in Helvering v. Clifford, supra, was “whether the grantor after the trust had been established may still be treated, under this statutory scheme, as the owner of the corpus.” The statutory scheme which it was considering was “the broad sweep” of section 22 (a). The holding was that the grantor continued to be the owner of the corpus for purposes of 22 (a). The Court recognized “his disability to make a gift of the corpus to others during the term of the trust.” It has been held in the present case that the profits in question were taxable to the grantor under 22 (a), but the Clifford case is not authority for the proposition that, by allowing the profits to remain the property of the trusts, the grantor thereby made a gift of those profits to the trusts. When we examine this transaction from the standpoint of gift taxes as opposed to income taxes, we find there is no statute such as 22 (a) which has a broad sweep and which requires us to look behind the legal situation to some other in order to impose a gift tax. Also, it must be remembered that this is not a revocable trust in which the grantor, seeing a potential gain which he could capture for himself by revoking, may be said to have made a gift when he fails to revoke. Nor is it a trust where the grantor has retained the power to determine directly or indirectly which of two or more beneficiaries may receive the income, and finally allowing it to go one way, might be said to have made a gift at that time.
We must hold in this case that legal title to the amounts in question was never in the petitioner and was never transferred by him to the trusts, either in the taxable years or in any other years. Those profits were impressed with a trust when they first came into existence and the trust did not merely attach after they had come' into existence. It is our understanding that the deficiencies result entirely from the action of the Commissioner in including in taxable gifts the gains and profits from trading on margin discussed above, and that if these amounts are not taxable gifts there is no deficiency for any year and, consequently, there can be no addition for failure to file returns.
Reviewed by the Court.
Decision will be entered for the petitioner.