dissenting: Section 167, Revenue Act of 1934, provides:
(a) Where any part of the income of a trust—
‡ ‡ ‡ $
(2) may, in, the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such part of the income, be distributed to the grantor;
***##*# then such part of the income of the trust shall be included in computing the net income of the grantor.
A distribution for the grantor’s benefit, as for example the payment of an obligation of support owed by him, is the equivalent of a distribution to him. Douglas v. Willcuts, 296 U. S. 1; Helvering v. Coxey, 297 U. S. 694; Commissioner v. Grosvenor, 85 Fed. (2d) 2. Regulations 86 issued under the 1934 Act is declaratory of the same principle.1
The wife here has no interest adverse to petitioner in the distribution of the income from the children’s trusts. Reinecke v. Smith, 289 U. S. 172. As the majority opinion concedes, she could have expended it for the support of the grantor’s infant children, for which he was responsible, Knutson v. Haugen, 191 Mich. 420; 254 N. W. 464, with no resulting violation of her trust. Gasquet v. Pollock, 1 (N. Y.) App. Div. 512; 37 N. Y. S. 357; see Bird v. Newcomb (Va. 1938), 196 S. E. 605, and cases there cited. And if she did so it is clear as it was in E. E. Black, 36 B. T. A. 346; Martin F. Tiernan, 37 B. T. A. 1048; Hudson v. Jones, 22 Fed. Supp. 938, and Comm*249issioner v. Grosvenor, supra, tbat to that extent at least the discharge of an obligation of the grantor would require that the income be treated as his. The petitioner “was responsible for the minor children’s maintenance and support, so that the transfer * * * correspondingly relieved him of his statutory duty. Such relief made him, to that extent, a beneficiary. Savage v. Commissioner (C. C. A.) 82 Fed. (2d) 92.” Clark v. Commissioner (C. C. A., 3d Cir.), 84 Fed. (2d) 725, 726.
The trusts for the benefit of petitioner’s children thus fall squarely within the terms of the statute, as it has been construed, and of respondent’s regulation. The statutory requirement that one thus benefited shall be taxed on that benefit has been relieved only to a limited degree; that is, the extent to which a petitioner can show, first, that there was no agreement express or implied by the grantor and the guardian or trustee that any part of the income should be devoted to the discharge of the grantor’s obligation of support, Henry A. B. Dunning, 36 B. T. A. 1222, 1231, 1232; and, second, that even if there be no such agreement the avails of the trust have not in fact been applied to any such purpose. E. E. Black, supra; Martin F. Tiernan, supra. While it may be conceded that there was no express provision in the trust deed requiring that the income be spent to benefit the grantor, that was possible in the wife’s discretion. On the authority of the cases last cited that evidence, of which the majority so easily disposes, was accordingly the pivotal, the controlling issue. For the sole fact which would foreclose a determination in favor of respondent would be that actually no part of the trust income was so used, a fact which, like any other, could have been proved by petitioner. His omission leads logically to the inference that it was not the fact, and legally to the result that his failure of proof requires affirmance of the respondent’s determination. Commissioner v. Grosvenor, supra.
This decision, therefore, seems to be nothing more than an overruling of the Black, and Tiernan cases in favor of the supposed doctrine of Ralph L. Gray, 38 B. T. A. 584 and Henry A. B. Dummmg, supra. The confusion and inequity inevitable in any such result may be demonstrated by what has actually occurred in the history of those very proceedings. Not only was acquiescence in the Black decision announced by respondent (1937—2 C. B. 3), but on the strength of that decision respondent’s counsel published an opinion to the effect that such trust income is taxable to the grantor only to the extent that it is actually distributed for the support of those to whom the grantor owes that duty. 1937—2 C. B. 231, G. C. M. 18972. And that opinion has been cited as authority by at least one District Court in a case very similar to this. Hudson v. Jones, supra.
*250Finally, the proposed conclusion finds no support in the Dimming and Gray cases on which the majority relies. The contrast made fundamental by the statute between the discretion of a beneficiary and that of a fiduciary, see Reinecke v. Smith, supra, furnishes a complete distinction from anything in those cases, which, at least in their published form, are identical with each other in their facts and conclusions. The finding in the Gray case (p. 585) that “There is no provision anywhere in the trust instrument designating the manner in which any of the income shall be expended by the wife”, is controlling, regardless of the unpublished record reproduced and re-construed in the prevailing opinion. The San Simeon (C. C. A., 2d Cir.), 68 Fed. (2d) 798, 802. Thus, in both the Dimming and Gray cases the application of the income resided in the discretion of the wife, who was the beneficiary. That she chose to apply some part of the income to the expenses of the household was immaterial because the statute never came into operation. Her discretion was that of a person with “a substantial adverse interest.” Here the wife, in whose discretion the income can be applied for the grantor’s benefit, has no interest whatever adverse to the grantor.
The majority is quite evidently confusing the two independent factors which must be considered in cases of this kind. It can not hold that payment of the children’s maintenance is not constructive receipt by the grantor without disregarding Douglas v. Will cuts, supra; On the other hand, it can not, without violating the express language of section 167, hold that such distribution to the grantor, being the result of a discretion exercised by one not adversely interested, is not taxable to the grantor. But it is enabled to reach its desired result by applying to a decision of the first question — the Douglas v. WiTlouts principle — cases where only the second question was involved, Henry A. B. Dunning and Rcilph L. Gray, supra; and by disregarding the cases where the relevant issue was considered, E. E. Black and Martin F. Tiernan, supra.
For the reasons stated I am compelled to note my dissent from that part of the majority opinion which holds that the income from the trusts for the benefit of the children is not taxable to petitioner. Had the opposite result been reached it would have been unnecessary to consider the further question of the effect of the short period for which these trusts were created. On this point I have grave doubts of the correctness of the prevailing opinion and it seems to me it is contrary to what we said not so long ago in Frances Marshall Canfield et al., Executors, 31 B. T. A. 724.
TtjRNER, Mellott, Hill, Disney, Harron, and Kern agree with this dissent.Akt. 167-1. Trusts In the income of which the grantor retains an interest.—
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(b) * * * The test of the sufficiency of the grantor’s retained interest in the trust income, * * * is whether the grantor has failed to divest himself, * * * of every right which might, by any possibility, enable him to have the income, at some time, distributed to him, actually or constructively. * * *
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If the grantor has retained any such interest in the income, such income is taxable to the grantor regardless of—
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(4) whether, if such distribution results in the inuring of benefits to the grantor from the application of the income in satisfaction of his legal obligation, such obligation is * * *, to support dependents, * * * to furnish maintenance, and support or otherwise;
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