*1229 These proceedings were on motion consolidated for hearing and involve deficiencies in income tax for the calendar years 1924 of $352.82; 1925 of $1,324.70; and 1926 of $1,510.37 in Docket No. 44943; and for the calendar year 1928 of $677.89 in Docket No. 52861. A single issue is raised in the pleadings for all four years, whether the business conducted by the petitioner as trustee constituted an association taxable as a corporation.
FINDINGS OF FACT.
E. A. Holmes, trustee of the Holmes Bakery & Confectionery, began as a baker in 1905 and continued in this trade as an individual until 1922. Sometime before 1922 he had invested money in a corporation manufacturing an automatic carbureter, which failed and went into bankruptcy. Fearing this corporation's creditors might reach his baking business, petitioner to protect himself created a trust, the pertinent provisions of which are set out below, by an instrument dated December 1, 1922, and thereafter amended in *1230 June 1927. By this instrument he declared himself*1218 trustee, for the benefit of his wife and two infant sons, aged respectively about eighteen and thirteen years, and any holders of certificates of beneficial interest, of all the assets of the bakery and confectionery business which he then owned as an individual. The trust instrument was duly recorded in Cook County, Illinois. Holmes took possession of the bakery business as trustee and held himself out as such in his business dealings. The bank account of the business was changed to the name of Holmes as trustee, and checks against it were signed by Holmes as trustee. Returns of the bakery business were filed by Holmes as trustee. The trust was terminated in 1930 and the business given corporate form.
The trust instrument in form was an agreement between Holmes as trustee "and Martha L. Holmes, Richard P. Holmes, Robert E. Holmes and each and every one of the holders, from time to time, of certificates of shares of beneficial interest (hereinafter designated as "beneficiaries"), parties of the second part." The instrument was signed and sealed by Holmes "in token of his acceptance of the trust hereinabove mentioned," and each certificate holder, it was set out, assented to*1219 the limitations of the trust by accepting such certificate. The trustee recited that he was "in possession of the bakery and confectionery business" at a certain address, and that this included fixtures, machinery, ovens, raw materials, cash, a lease to the premises and good will; and thereupon follows the declaration of trust in the following words:
NOW, THEREFORE, the trustee hereby declares that he will hold said property, as well as all other property which he may acquire as such Trustee, together with the proceeds and avails thereof in trust to hold, manage and dispose of the same and to collect, receive and distribute the net income thereof for the benefit of the beneficiaries from time to time whose interests are represented by certificates for shares of beneficial interest issued hereunder in the manner and subject to the stipulations hereunder contained, to-wit:
Article I stated that the trustee should manage the trust and do all necessary acts relating to it under the name of "Holmes Bakery & Confectionery." The purposes of its creation to carry on the bakery business were set out in the next article in the following language:
ARTICLE II
Section One: The Trustee*1220 is authorized and empowered:
(a) To engage in the business of manufacturing, buying, selling and dealing in pastry, bread, cakes, pies, biscuits, crackers, confectionery, fancy groceries and all other foods and ingredients of foods and all substances and ingredients used or which may be used in the manufacture of bakery and confectionery products; to manufacture, buy, sell, distribute and deal in merchandise and provisions, particularly intended for consumption as food; to apply for patents, register, acquire and grant licenses in and dispose of rights in respect to manufacturing *1231 business or trade, including inventions, processes, patents, trade marks and trade names.
(b) To buy, acquire, hold, own and sell shares of stock, participation shares, Trust certificates, certificates of interest, bonds, debentures, script, commercial papers, mortgages, notes, securities and obligations of all kinds of any corporation, trust, association, partnership, or individual; * * *.
The trustee was given broad powers of management, investment and control; generally to conduct the business "as fully as if the trustee were the absolute owner of the trust estate." Among his enumerated*1221 powers were those of buying and selling personal and real property, maintaining suits and borrowing money against the trust estate. He was allowed to pay himself as trustee "such compensation for his services as he may deem reasonable." Legal title to the property was expressly vested in him and he was to have complete powers of control over it.
All liability was expressly limited to the trust property, both "acts and omissions of the trustee as a trustee and of the trustee as a Beneficiary"; "and all personal liability of the trustee, both as trustee and as a Beneficiary," was expressly negatived; it being expressly provided that "every note, bond, contract, certificate of undertaking" by the trustee in connection with the trust "shall conclusively to taken to have been executed or done only in his capacity of trustee under this Declaration of Trust * * *." The trustee might also hold beneficial certificates as set out below:
The Trustee may acquire, own, hold and dispose of shares of beneficial interest in this Trust to the same extent [as] if he were not a Trustee, without being disqualified to act as a Trustee, and while owning and holding such shares on his personal account, *1222 as a Beneficiary, shall be entitled to the same rights, privileges and interests as any other Beneficiary, and as a Beneficiary shall be chargeable with no liability because he is both a Trustee and a Beneficiary. The Trustee, notwithstanding the fiduciary position which he holds, may deal with himself as Trustee in relation to the Trust Estate as freely as if he were not a Trustee hereunder.
Article VI, section one, provided for the evidence of beneficial interest, as follows:
During the continuance of this Trust the beneficial interests therein and hereunder may be evidenced by certificates for shares of beneficial interest. Such shares in the first instance, shall be divided into One Thousand (1000) beneficial interest shares.
Income of the trust was retainable and dividends were payable at the trustee's discretion; on dissolution a distribution of the res was to be made to the beneficiaries; the certificates of beneficial interest were to be negotiable in form, gave the holders no title to the res, were to be offered to the trustee first on sale, with a ten days' option in him, and their transfer was to be recorded on the trust books; additional shares might be*1223 issued in the trustee's discretion.
*1232 The trustee was given absolute discretion as to distribution of the income of the trust estate. The trustee might name his successor; he might terminate the trust at will during its existence, the limit of its life being "the life of any beneficiary herein specifically named" and twenty-one years thereafter; and he might amend the trust instrument in his discretion except as such amendment might affect existing rights or alter the limitation of liability of the trustee or the beneficiaries.
The trust instrument was amended on June 27, 1927, by increasing the maximum number of shares of beneficial interest from 1,000 to 2,500 and accordingly altering the language of the trust certificate of beneficial interest.
No certificates of beneficial interest were issued under the original trust instrument or as amended. The trust never had any officers or directors; no by-laws; never set up new books, but made its income tax returns from the old books of the business as continued; paid no dividends and made no distribution to the beneficiaries on its dissolution, in 1930, when it was reconstituted as a corporation. Holmes considered*1224 the trust business as his own and took money from it as he liked.
OPINION.
MATTHEWS: The only question to be determined is whether the trust was taxable as an association.
We do not think petitioner was an association for taxing purposes under section 2(a)(2) of the Revenue Acts of 1924 and 1926, and section 701(a)(2) of the Revenue Act of 1928. The trust instrument bore some resemblance, it is true, to that of a "Massachusetts Trust." It had a business purpose and carried on business activities. But the evidence shows that no certificates of beneficial interest were ever issued either to Holmes himself, to his wife and sons, or to outsiders. In view of the language of the provision in Article VI, section one, that certificates "may" be issued as evidence of beneficial interest, but not absolutely requiring their issuance, it is conceivable that the interests of the named beneficiaries, Holmes's wife and sons, vested immediately, although the extent of their interests is not determined by the instrument. We think petitioner should be allowed the benefit of the doubt. The powers which he might have exercised lay dormant. The new money which he might have brought into*1225 the business by the sale of interests to others never came in. It may well be doubted whether strangers would wish to risk their money in an enterprise dominated wholly by one man. At any rate none ever did. Some lingering hope of such investment may still have been in Holmes's mind in 1927, five years after the trust's creation, when he provided by amendment for an *1233 increase in the number of beneficial certificates which might be issued; but if there was such a hope, it was never realized. Holmes went on doing business in the same way as he had done hitherto. True, he had taken care that the trust instrument be recorded so that persons dealing with the bakery should be put on notice that the business was run as a trust; and, of course, the limitation of liability to the trust property, which was apparently the main thing sought by Holmes in changing the form of the business, put the business in fact in a different position to third persons from what it had hitherto occupied. But we do not think this should be the criterion of whether the business was an "association." It had been a one-man business, it became a one-man trust, with beneficiaries in Holmes's own family*1226 designated but never holding beneficial certificates, but the business went on in the same way, as far as ownership, control, and management went. The trust instrument shows that Holmes himself contemplated being a beneficiary, and in view of the evidence that no beneficial certificates were issued, and that no dividends were paid by the trust, we may well conclude that he was in fact the sole beneficiary, notwithstanding the possible view that the interests of his wife and sons vested by execution of the instrument.
The "trust" did not have a quasi-corporate form. The trust instrument did not provide for officers or directors, nor for a fixed capital stock. This "trust" certainly does not come within the definition of "association" laid down by the Supreme Court in . Cf. . The principal quasi-corporate feature was the beneficial certificates, which as we have said, were never issued. The mere existence of powers in the trust instrument is not enough to bring a trust within the statute, if those powers are allowed to remain dormant. *1227 . The Guitar case, supra, was a "family trust," for the benefit, as here, of a man, his wife and their children. Beneficial certificates were not issued and the trustees (including) the father and two sons) were given very complete powers. We held it a trust. Cf. .
But we do not think this point need be labored. The Holmes Bakery & Confectionery was not taxable as an association.
The petitioner in his brief contends for the first time that under section 219(g) of the Revenue Acts of 1924 and 1926, and section 166 of the Revenue Act of 1928, the income from the trust was taxable to Holmes, the individual, because of the powers reserved by him in the trust instrument to control the trust, revest the corpus in *1234 himself and terminate the trust. On this theory he contends that not only is there no deficiency, but that there has been an overpayment for each year and asks judgment for such overpayments. Assuming without deciding that this is not an untimely attempt to raise a new issue, it does not require serious consideration, *1228 since the record does not show what payments in taxes have been made by the trust.
Reviewed by the Board.
Judgment will be entered under Rule 50.
SMITH, VAN FOSSAN, AND GOODRICH concur in the result.