*1486 In 1934 taxpayer set up two short term trusts, naming his wife and sister as beneficiaries. Previously the taxpayer had been supporting his sister, and he ceased to make regular contributions after the execution of the trust. The trustee, a business associate, was instructed to pay the income of the trusts to the beneficiaries and was forbidden to alter the corpus without the written consent of the taxpayer. The trust corpus consisted in each case of a certain number of shares of stock in a corporation of which the taxpayer was the vice president and a member of the board of directors. The trustee executed proxies to the board of directors in the matter of voting the stock. Held, the income of both trusts is taxable to the settlor under section 22(a) of the Revenue Acts of 1934 and 1936.
*535 This proceeding involves the income tax liability of an individual. The Commissioner determined that there were deficiencies for the years 1935, 1936, and 1937 in the amounts of $4,753.64, $25,599.32, and $12,565.69, respectively, due from this petitioner. *1487 The deficiencies arise from the inclusion in petitioner's gross income of the income of two short term trusts created by him. The question presented is whether the income of these two trusts is properly taxable to the petitioner, as settlor.
The facts in this proceeding have been stipulated for the most part and we find them to be as stipulated. The additional facts adduced by oral testimony, together with a summation of the facts stipulated, are as follows.
FINDINGS OF FACT.
The petitioner, Archibald G. Bush, is an individual residing in St. Paul, Minnesota. During the year 1934 and all the years herein referred to Edyth D. Bush was, and now is, the wife of the petitioner. Minnie G. Bush was a sister of the petitioner.
During the years 1935, 1936, and 1937 petitioner was the vice president and a member of the board of directors of the Minnesota Mining & Manufacturing Co., and had acted in those capacities since 1921. During the years 1935 and 1936 he held in his own name 43,005 shares of capital stock of the Minnesota Mining & Manufacturing Co.; during the year 1937 he held 42,095 shares of this stock. The Minnesota Mining & Manufacturing Co. is a Delaware corporation, *1488 having its principal office at 100 West Tenth Street, Wilmington, Delaware, and its main factory and business office is in the city of St. Paul, Minnesota. *536 During the years 1935, 1936, and 1937 petitioner's wife held in her own name 20,000 shares of capital stock of the Minnesota Mining & Manufacturing Co. This stock had been purchased by petitioner for his wife in 1929 for the sum of $251,500. Petitioner borrowed $250,000 of this. By prior arrangement Edyth Bush paid to petitioner $12,000 in 1936 to help pay off the loan, which was done in that year. During the years 1935, 1936, and 1937 the Minnesota Mining & Manufacturing Co. had outstanding 961,260 shares of no par value capital stock.
On December 11, 1934, petitioner and one Herbert P. Buetow, assistant treasurer of the company, executed a trust agreement. Petitioner and Buetow were good friends and saw each other almost daily in the course of their work. That day petitioner caused 20,000 shares of the above mentioned stock to be transferred from his name to that of "Herbert P. Buetow, Trustee", and paid the Federal documentary stamp tax of $800 on the transfer.
The same day petitioner and Buetow executed*1489 another trust instrument, and petitioner caused 3,000 shares of the above mentioned stock to be transferred from his name to "Herbert P. Buetow, Trustee" and paid the Federal documentary stamp tax of $120 on the transfer. The stock was kept in Buetow's office at the Minnesota Mining & Manufacturing Co. in a safe owned by the company and intended for the keeping of the company's records. The only other persons who had access to this safe were William L. McKnight and Buetow's private secretary.
No other property was transferred by petitioner to Buetow during any of the years 1934 to 1937, inclusive.
For convenience the instrument relating to the 20,000 shares of stock will be hereinafter referred to as trust No. 1 and the other instrument as trust No. 2. Prior to and at the time of the execution of these agreements, petitioner knew that William L. McKnight, president of the company, and a close friend, had created a trust for his wife. Petitioner consulted one Connolly, the attorney who prepared the McKnight trust agreement, and they discussed the question of income taxes. Connolly advised petitioner that the income of the trust was not taxable to the settlor, because the*1490 Commissioner of Internal Revenue had so ruled.
Buetow, as trustee of trust No. 1, was instructed to pay the net income from the 20,000 shares of stock in installments to Edyth Bush until she should attain the age of 50 years, at which time he was directed to pay over the principal to the petitioner and the trust was to cease. Any income unpaid at that time was to be paid over to Edyth Bush. The trust was also to cease if Edyth Bush died before attaining the age of 50 years, at which time any accrued income remaining unpaid was to be paid over to the estate *537 of Edyth Bush. Provision was also made for the termination of the trust in the event the petitioner died before his wife reached 50. The trustee agreed with petitioner not to change the corpus or make investment of trust funds during petitioner's lifetime without petitioner's written approval. The trustee was to determine what receipts were income and what were principal. He was also given leave to employ counsel and other agents in discharge of his duties, and the right to determine and pay them reasonable compensation. Petitioner expressly surrendered all right and power to amend, modify, or revoke this trust*1491 in whole or in part.
Under the terms of this trust Buetow received, as the only income from the corpus, checks for dividends on the 20,000 shares of stock of the Minnesota Mining & Manufacturing Co. in the following amounts:
| 1935 | $13,500 |
| 1936 | $35,000 |
| 1937 | $18,000 |
Trust No. 2 was essentially the same as trust No. 1, except that it was to terminate when Minnie Bush, the sister named as beneficiary therein, attained the age of 44 years or sooner died. The corpus of this second trust was 3,000 shares of stock of the Minnesota Mining & Manufacturing Co.
In the years 1935, 1936, and 1937, Buetow received as the only income from the corpus of trust No. 2 dividend checks on the 3,000 shares in the following amounts:
| 1935 | $2,025 |
| 1936 | $5,250 |
| 1937 | $1,200 |
Under the terms of trust No. 1 checks for the dividends on the 20,000 shares were received by Buetow quarterly and were deposited to his credit in a bank account which he maintained in the Farmers & Merchants State Bank, St. Paul, Minnesota, under the name of "Herbert P. Buetow, Trustee." The same account was used as a place for deposit of the dividends received under trust No. 2. Immediately*1492 after the receipt of each of the checks for the dividends on the 20,000 shares, a check, payable to Edyth D. Bush, was drawn upon said account by Buetow for the full amount thereof.
The dividend checks of trust No. 2 were likewise deposited in the same account and up to and including October 21, 1936, Buetow paid all these amounts to Minnie G. Bush. During the two years prior to December 11, 1934, petitioner sent to Minnie Bush monthly checks totaling approximately $1,880 in the year 1933 and $1,693 in 1934. With one exception no further checks were sent to Minnie Bush by petitioner until after May 19, 1937. On October 26, 1936, Minnie G. Bush suffered a nervous breakdown and was, and still is, confined to *538 a hospital in the State of New York. She has been unable to carry on her business affairs; and, as no guardian had been appointed, Herbert Buetow made no further payments to her. After May 19, 1937, petitioner paid all of her expenses, amounting to about $9,000 per year.
Under the trust, as trustee, Buetow had the power to vote the stock of the trust and nowhere in either agreement was this power restricted. Actually, however, he named the company's board*1493 of directors as proxy to vote the shares. Petitioner was one of the members of the board of directors.
Buetow received no compensation for his services in connection with these two trusts, although he realized that he was assuming serious legal responsibilities.
During the years 1935, 1936, and 1937 Buetow filed fiduciary returns with respect to trust No. 1 and trust No. 2. As amounts distributable to beneficiaries he listed all the dividend payments actually paid by him to Edyth Bush and all dividend payments which he received for Minnie Bush under trust No. 2, whether actually paid to her or not. The beneficiaries reported as income in those years all amounts received for their benefit under the trusts.
Edyth Bush attained the age of 50 years on August 20, 1937. The period from the date of execution of trust No. 1 until August 20, 1937, was 2 years, 8 months and 9 days. Buetow endorsed and returned the certificates for the 20,000 shares of stock to the petitioner and the shares were transferred on the company's books from the name of "Herbert P. Buetow, Trustee", to petitioner on December 16, 1937. The Federal documentary stamp tax of $800 on the transfer was paid*1494 by the petitioner. A check for a dividend received by Buetow after August 20 and before December 16 was deposited in Buetow's account, and a check for the full amount thereof was immediately drawn to and delivered to this petitioner.
Minnie Bush attained the age of 44 years on May 19, 1937. The duration of trust No. 2 was 2 years, 5 months and 8 days. The shares were transferred and the tax thereon paid by petitioner. On June 8, 1937, 600 of the shares were changed to petitioner's name on the company's books and the remaining 2,400 shares on June 23, 1937.
Petitioner, on or before March 15, 1935, filed a gift tax return reporting the amounts of income of the stock referred to in trusts Nos. 1 and 2 for the year 1934.
During the years 1935, 1936, and 1937 Edyth Bush had income of her own, exclusive of income from trust No. 1, as follows:
| Year | Holdings | Income |
| 1935 | $315,307.44 | $17,778.48 |
| 1936 | 321,025.73 | 40,354.16 |
| 1937 | 324,000.00 | 47,111.21 |
*539 Minnie Bush had been employed as a secretary up until 1931, but, due to failing health, she was unable to continue her employment from 1931 until the present time.
Prior to December 1934 all*1495 income of Edyth Bush was deposited in the bank account of petitioner, which he maintained in the Farmers & Merchants State Bank, St. Paul, Minnesota. The only bank account maintained by Edyth Bush prior to December 1934 was an account she maintained for the purpose of paying household expenses. The funds for this household account were withdrawn from petitioner's personal account, referred to above. In December 1934 a separate account was opened in the name of "Mrs. A. G. Bush and A. G. Bush." The only deposits made in this account during the years 1934, 1935, and 1937 were all the funds received by Edyth Bush, including the checks signed "Herbert P. Buetow, Trustee"; and all checks drawn against this account were signed by Edyth Bush. No checks drawn on the account of "Mrs. A. G. Bush and A. G. Bush" were signed by the petitioner from December 11, 1934, until the present time. From December 1934 until August 20, 1937, all funds deposited in the household account were transferred there from the "Mrs. A. G. Bush and A. G. Bush" account. Since August 20, 1937, all separate funds of Edyth Bush, and no other funds, have been deposited in the "mrs. A. G. Bush and A. G. Bush" account. *1496 From August 20, 1937, until the present time all household expenses have been paid by Edyth Bush from her separate funds.
The total disbursements of Edyth D. Bush during the years 1935, 1936, and that part of 1937 ending on August 31, are as follows:
| 1935 | 1936 | Jan. 1 to Aug. 31, 1937 | |
| Paid from household account: | |||
| Servants | $3,278.63 | $3,549.10 | $2,558.07 |
| Groceries and medical service and supplies | 2,670.09 | 2,706.81 | 2,039.17 |
| Clothing and household supplies and equipment | 2,204.18 | 2,510.69 | 2,423.63 |
| Cost of theatrical performance | 1,012.08 | ||
| Gifts to relatives, friends, and charities | 307.45 | 260.00 | 380.00 |
| Miscellaneous expense | 912.87 | 1,241.62 | 652.05 |
| Total | 10,385.30 | 10,268.22 | 8,052.92 |
| Paid from "Mrs. A. G. Bush and A. G. Bush" account: | |||
| To A. G. Bush | 2,000.00 | ||
| To A. G. Bush(birthday gift) | 1,000.00 | ||
| Purchase of automobile | 4,300.00 | ||
| Federal income tax | 218.98 | 3,168.25 | 9,768.17 |
| State income tax | 137.88 | 1,009.96 | 1,474.27 |
| Field-Schlick store (dry goods store) | 2,700.00 | ||
| Dayton's store (department store) | 788.04 | ||
| Investment (stocks) | 722.09 | ||
| Paid mortgage on home in name of A. G. Bush | 1,390.00 | 12,360.00 | |
| To A. G. Bush (used by him to repay loan) | 12,000.00 | ||
| Miscellaneous expense | 1,695.36 | 423.51 | 152.77 |
| Total | 11,464,31 | 32,449.76 | 11,395.21 |
| Total disbursements | 21,849.61 | 42,717.98 | 19,448.13 |
*1497 *540 OPINION.
KERN: Respondent contends that his determination of deficiency should be affirmed on two grounds. He asserts that the entire income of the two trusts is taxable to petitioner not only by virtue of section 22(a) of the Revenue Acts of 1934 and 1936, but also under the theory of . It will be unnecessary for us to consider this latter ground, however, since our decision is controlled by section 22(a).
The lack of importance of the trustee's role and the small degree of power held by him make manifest to us the unwillingness of the petitioner to part with the substantial ownership of the corpus during the lives of the trusts. In the case of , the Court set forth the real issue to be discussed in cases which involve trusts the income of which has been determined taxable to the settlor under section 22(a), as follows:
Technical considerations, niceties of the law of trusts or conveyances, or the legal paraphernalia which inventive genius may construct as a refuge from surtaxes should not obscure the basic issue. That issue is whether the grantor after*1498 the trust has been established may still be treated, under this statutory scheme, as the owner of the corpus.
In the instant proceeding the trusts were for short terms, the beneficiaries were the settlor's wife, whose income was used to defray the household expenses of the settlor, and his sister, for whose support he felt responsible; the trustee was a close business associate and personal friend of the settlor, who would, as a practical matter, conform to his wishes with regard to the voting of the stock forming the corpus of the trusts; the trustee did, in fact, execute proxies covering the stock to a group which included the settlor; and the trustee had no power to change the corpus of the trusts without the consent of the settlor. Since the facts point toward the conclusion that petitioner desired to hold on to all his stock in the Minnesota Mining & Manufacturing Co., petitioner was not inconvenienced by having the shares held by a trustee for a short term without power to dispose of them except upon receiving authority so to do from petitioner. As it turned out, he took active part in voting the shares under the proxy. The trustee was no more than a friendly middle man*1499 in the family negotiations.
Although we have found no cases involving exactly similar facts, we have no hesitancy, after a thorough study of the Clifford case, supra, and the decisions of the courts and this Board decided after the opinion in that case was handed down, in concluding that the income from both trusts for the years 1935, 1936, and 1937 is taxable to the petitioner by virtue of section 22(a) of the Revenue Acts of 1934 and 1936. Cf. ; Herbert W. ; .
Decision will be entered for the respondent.