*1044 Where the grantor of a trust reserves a power to reacquire a portion of the property turned over to the trustees upon the payment of a small amount therefor, the trust is revocable within the meaning of section 219(g) of the Revenue Acts of 1924 and 1926 and section 166 of the Revenue Act of 1928, as to the excess value of the property which may be reacquired over the amount to be paid therefor by the grantor.
*1165 These proceedings, consolidated for hearing, are for the redetermination of deficiencies in income taxes for the years 1924 to 1928 both inclusive, as follows:
| Docket No. | Year | Deficiency |
| 47047 | 1924 | $81,706.94 |
| 1925 | 31,621.64 | |
| 51044 | 1926 | 34,145.85 |
| 1927 | 108,746.03 | |
| 55321 | 1928 | 134,672.28 |
| Total | 390,892.74 |
The parties have stipulated that the petitioner is entitled to deduct from the gross incomes of 1926, 1927, and 1928, $8,000, $7,000 and $78,679.71, respectively, in excess of any deductions allowed by the respondent in the determination of the deficiencies. The issue*1045 for the determination of the Board is whether the petitioner, the grantor of the trust, is liable to income tax in respect of a portion of the income of the fund upon the ground that the trust is a revocable trust within the meaning of section 219(g) of the Revenue Acts of 1924 and 1926, and section 166 of the Revenue Act of 1928.
FINDINGS OF FACT.
On October 16, 1923, petitioner, a resident of Detroit, Michigan, assigned and transferred to Frederick J. Fisher, the Security Trust Co. of Detroit, and himself, as trustees, 21,000 shares of the common stock of the Fisher Body Corporation, a New York corporation. On the same date the trustees made and executed a declaration of trust (received in evidence as exhibit A).
By the trust instrument it was agreed that the trustees were to hold the 21,000 shares of the Fisher Body Corporation stock under the name of the "CHARLES T. FISHER TRUST", together with any accruals thereto and substitutions and conversions thereof, and any other funds received in trust for certain beneficiaries. The trust instrument provided that the trustees should issue 21,000 shares each of two classes of beneficial interests designated as class A and class*1046 B certificates. The holders of the class A certificates are entitled to no income from the trust nor to any distribution of the corpus upon its termination. The only right possessed by the holders of *1166 the class A certificates is to exchange them for an equal number of shares of the Fisher Body Corporation (or other assets into which such shares may have been converted) upon the payment to the trustees of $10 for each share so exchanged. All certificates provided that "The interest of the certificate holder is not transferable unless the written consent of the Trustees has been first obtained."
The holders of the class B certificates are entitled to the income from the trust during the period of its existence and to the distribution pro rata of the corpus upon its termination. The trust was to continue without right of revocation (other than the rights inherent in the class A certificates) or termination until 21 years after the death of the last survivor of the beneficiaries.
All of the 21,000 class A certificates were issued to Charles T. Fisher, the grantor, petitioner herein, and certificates for 3,500 shares of class B interest were issued to each of the children*1047 of the petitioner, viz., Charles F., William E., Everill E., Thomas K., Mary V. and Sarah A. Fisher. During the whole of the calendar years 1924 to 1928, both inclusive, each of the children owned certificates for 3,500 shares of class B interest. During the whole of the calendar year 1924 and until March 2, 1925, the petitioner owned 21,000 shares of the class A interest. On or about March 2, 1925, the petitioner surrendered 12,500 shares of class A interest to the trustees and paid them the sum of $125,000. The trustees thereupon delivered to the petitioner 12,500 shares of the common stock of the Fisher Body Corporation. From March 2, 1925, until a date subsequent to December 31, 1928, petitioner owned and held certificates for 8,500 shares of class A interest.
On August 2, 1926, the trustees exchanged the 8,500 shares of the common stock of the Fisher Body Corporation, then held by them as trustees, for common stock of the General Motors Corporation which, under the provisions of the trust agreement, stood in the place of the stock exchanged.
During the calendar years 1924 to 1928, both inclusive, the trustees received dividends on the stock of the Fisher Body Corporation*1048 (and after August 2, 1926, on the stock of the General Motors Corporation exchanged therefor) in the amounts of $210,000, $170,000, $204,000, $493,000, and $646,000, respectively. All of the income received by the trustees was during those years paid or credited to the holders of certificates of class B interest. The respondent has included in petitioner's gross income for those years the following portions of the dividends so received:
| 1924 | $199,038.00 |
| 1925 | 154,944.00 |
| 1926 | 194,996.92 |
| 1927 | 482,259.53 |
| 1928 | 641,607.20 |
*1167 These amounts represent the same proportion of the total dividends received in each year that the average value of the corpus of the trust less $210,000 for 1924 and 1925, and less $85,000 for 1926, 1927, and 1928, bears to the total average value of the corpus. Petitioner alleges error on the part of the respondent in including in his gross incomes for the years under review any portion of the dividends received by the trustees.
OPINION.
SMITH: The question presented by these proceedings is whether the petitioner is liable to income tax in respect of any portion of the dividends received by the trustees for the Charles*1049 T. Fisher Trust for any of the years 1924 to 1928, inclusive. The respondent contends that the trust is a revocable trust and that the petitioner is liable to income tax in respect of such portion of the corpus of the trust as the petitioner might at any time revest in himself over the amount required to be paid by him for the acquisition of such part of the corpus.
The applicable statutes are subdivision (g) of section 219 of the Revenue Acts of 1924 and 1926, and section 166 of the Revenue Act of 1928, which are identical, and which read as follows:
Where the grantor of a trust has, at any time during the taxable year, either alone or in conjunction with any person not a beneficiary of the trust, the power to revest in himself title to any part of the corpus of the trust, then the income of such part of the trust for such taxable year shall be included in computing the net income of the grantor.
The purpose of section 219 of the Revenue Act of 1924 was declared by the Ways and Means Committee of the House of Representatives (Rept. No. 179, 68th Cong., 1st sess.) to be "to prevent the evasion of taxes by means of estates and trusts. The changes made are quite important. *1050 " The committee further stated:
Subdivision (g) of this section provides that where the grantor of a trust reserves the right to change the trust in favor of himself the income is taxed to the grantor.
The report of the Committee on Finance (Senate Rept. No. 398, 68th Cong., 1st sess.) upon this section is substantially to the same effect. It states:
Paragraph (g) of this section provides that where the grantor of a trust reserves the right to change the trust in favor of himself the income is taxed to the grantor. * * *
The creation of a revocable trust constitutes nothing but an assignment of the right to receive future income. Since such an assignment does not operate to increase the taxable income of the assignor, the creation of a revocable trust should not so operate, but the income of such a trust should be included in the income of the grantor. The bill so provides.
*1168 The petitioner contests the applicability of the above quoted provision of the Revenue Acts of 1924, 1926, and 1928 to the trust here in question upon the ground that the grantor did not reserve the right to revest in himself the assets transferred to the trustees, but merely an option*1051 to purchase them, and submits that "'power to revest in himself title to any part of the corpus of the trust', as used in the statutes here involved, obviously does not include * * * all cases in which the settlor can by any means whatsoever regain title to the property which he has conveyed to the trust."
In the interpretation of the applicable provisions of the statutes above quoted, the declared purpose of Congress in the enactment of the statute must not be lost sight of. As was stated by the Supreme Court in , "taxation, as it many times has been said, is eminently practical, and a practical mind, considering results, would have some difficulty in accepting the conclusion" contended for. In , the Court said:
* * * the courts will not permit themselves to be blinded or deceived by mere forms of law but, regardless of fictions, will deal with the substance of the transaction involved * * * as the justice of the case may require.
In *1052 , it was stated:
* * * But this case is not to be decided by attenuated subleties. It turns on the import and reasonable construction of the taxing act. * * *
In , the Supreme Court had before it a case involving a so-called revocable trust created in 1922. The tax liability arose under the Revenue Act of 1924. The Court held that income from a revocable trust may constitutionally be taxed to the grantor, though actually paid to the beneficiary. In the course of its opinion, the Court, speaking through Mr. Justice Holmes, said:
But taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed - the actual benefit for which the tax is paid. If a man directed his bank to pay over income as received to a servant or friend, until further orders, no one would doubt that he could be taxed upon the amounts so paid. It is answered that in that case he would have a title, whereas here he did not. But from the point of view of taxation there would be no difference. The title would merely mean a right to stop the payment before*1053 it took place. The same right existed here although it is not called a title but is called a power. The acquisition by the wife of the income became complete only when the plaintiff failed to exercise the power that he reserved. * * * Still speaking with reference to taxation, if a man disposes of a fund in such a way that another is allowed to enjoy the income which it is in the power of the first to appropriate it does not matter whether the permission is given by assent or by failure to express dissent. The income that it subject to a man's unfettered command and that he is free to enjoy at his own option may be taxed to him as his income, whether he sees fit to enjoy it or not. We consider the case too clear to need help from the local *1169 law of New York or from arguments based on the power of Congress to prevent escape from taxes or surtaxes by devices that easily might be applied to that end.
The record does not show the fair market value of the 21,000 shares of Fisher Body Corporation stock turned over to the trustees by the petitioner in 1923. No contention is made that the $10 required to be paid by a holder of a class A certificate for the reacquisition*1054 of a share of Fisher Body Corporation was a fair consideration for the purchase of such share. For all that the record shows the amount was only a nominal consideration. The dividends received by the trustees upon the stock in 1924 and subsequent years would tend to show that such was the fact. If the fact was otherwise, the burden was upon the petitioner to prove it. He has not carried such burden.
In these proceedings, the respondent is not attempting to tax the petitioner upon the full amount of the income of the trust, but only upon such portion of the income as the revocable portion of the trust bears to the total average value of the trust in each year. He is not attempting to tax the petitioner upon such portion of the income as the cash payment required of the grantor to gain possession of the assets of the trust bears to the total average value of such assets. The petitioner does not question the correctness of such allocation, provided it is held that he is liable to income tax upon any portion of the income of the trust. The allocation made by the respondent is approved.
The petitioner further contends that if it should be held that petitioner's right to purchase*1055 was equivalent to the power to revest in himself title to the corpus of the trust, section 219(g) of the Revenue Acts of 1924 and 1926 and section 166 of the Revenue Act of 1928 are unconstitutional in so far as they affect this trust. In support of such contention the petitioner cites . This is substantially the same question which was involved in The constitutionality of section 219 was sustained. We see no difference in principle between the proceedings at bar and the above cited decision of the Supreme Court.
Reviewed by the Board.
Judgment will be entered for the respondent.