*2009 A taxpayer, residing in Missouri, in 1916 conveyed all his property by a duly recorded trust deed to trustees for the payment of his debts and the use and benefit of his children after his death, reserving to himself during his life only income therefrom. He died in November, 1921, having duly filed his individual income-tax return for the calendar year 1920. The Commissioner, under section 3176 of the Revised Statutes of the United States, filed return for him for the calendar year 1921. Deficiencies in income tax for 1920 and 1921 were duly assessed against his administrator, from whom nothing could be collected, the estate being wholly insolvent. Before the bar of the statute of limitations had run, a 60-day deficiency letter was mailed the aforesaid trustees, proposing to assess against them the deficiencies in tax. They had in their possession as trustees assets transferred to them by the trust agreement of 1916 of a value in excess of the deficiencies in tax proposed to be assessed, but were not shown to then have any property or income belonging to the taxpayer or his estate. Held, in the circumstances of this case, the trustees are not liable for the proposed assessment*2010 either as transferees or as fiduciaries.
*580 The taxes in controversy are income taxes assessed against Henry B. Graham, deceased, for the year 1920 in the sum of $14,120.71 and interest thereon in the sum of $218.77, and for the year 1921 in the sum of $1,471.54, together with penalty in the sum of $367.89, or in the total amount of taxes, interest and penalty in the sum of $16,178.91.
The Commissioner on April 22, 1927, under the provisions of section 280 of the Revenue Act of 1926, determined a deficiency in income taxes against the petitioners as trustees of the estate of Henry *581 B. Graham, deceased, in the amounts and for the years as above indicated.
The petitioners aver they were not, in 1920 or 1921 or at any time since said dates, the transferees of any property of Henry B. Graham, deceased, within the meaning of section 280 of the Revenue Act of 1926, or the fiduciaries of said Graham within the meaning of section 3467 of the Revised Statutes of the United States or of aforesaid section 280, or so as to render either the petitioners*2011 or any property held by them, under any transfer from said Graham, liable for the payment of the aforesaid income taxes so assessed against said Graham.
Petitioners plead the statute of limitations, as a bar to the proposed assessment.
Petitioners also contend that section 280 of the Revenue Act of 1926 is a denial of due process of law, in violation of the Fifth Amendment to the Constitution of the United States.
The facts are stipulated.
FINDINGS OF FACT.
The American Trust Co. is a Missouri corporation, doing business in St. Louis, Mo.
John E. Bishop is a resident of the City of St. Louis, Mo.
The petitioners were made trustees under a certain trust indenture bearing date of May 23, 1916, by Henry B. Graham, then of the County of St. Louis, Missouri, now deceased, having died in November, 1921.
Henry B. Graham filed an individual income-tax return on March 15, 1921, for the calendar year 1920.
On or about April 10, 1925, under and pursuant to section 3176, Revised Statutes of the United States, an income-tax return for him, for the calendar year 1921, was prepared and filed by the Commissioner of Internal Revenue.
The property, assets and effects of*2012 said Graham, which passed into the hands of his personal representative, were insufficient to pay the expense of his last sickness and burial and his estate was insolvent.
On or about December 28, 1925, there was mailed to the administrator of the estate of Henry B. Graham, deceased, a deficiency letter proposing for assessment additional individual taxes for the years 1920 and 1921 as heretofore stated. On the 24th of February, 1926, the administrator of the estate of Henry B. Graham, deceased, duly filed with the United States Board of Tax Appeals an appeal from the deficiency letter proposing said assessment. The Commissioner on the 29th day of May, 1926, regularly assessed said taxes *582 and penalty as proposed with interest, in the sum of $16,178.91, which assessment is now wholly outstanding and unpaid. On June 13, 1928, the United States Board of Tax Appeals entered an order determining deficiencies to be due from such estate for taxes and penalty in the amount so assessed.
The trust indenture of May 23, 1916, was recorded in the office of the recorder of deeds of the City of St. Louis, Missouri, and in the office of the recorder of deeds, St. Louis County, *2013 Missouri, and the property described and conveyed in said deed of trust was delivered to the petitioners herein, as trustees. The property of Henry B. Graham so transferred and delivered to the petitioners, as trustees, was of a net value of approximately $430,000. The trustees took possession of said property and administered the same, and in pursuance of the provisions of said trust indenture, said trustees paid to Henry B. Graham, during his lifetime, the sum of $132,000. The trustees, as such, duly filed income-tax returns for the trust estate and duly paid all taxes assessed against them, as such trustee, on account of the receipt of the income of the trust estate.
On March 12, 1917, Henry B. Graham and wife executed another trust indenture by which they attempted to revoke the one of May 23, 1916. The trustees named in the trust indenture of March 12. 1917, brought suit against the petitioners for the possession of the property transferred to them by the trust indenture of May 23, 1916, which suit was styled McFarland v. Bishop, and was ultimately decided by the Supreme Court of the State of Missouri in favor of the petitioners. The decision and opinion of the*2014 Supreme Court of the State of Missouri in said case are reported in volume 282, Missouri Reports, p. 534 et seq., which decision and opinion as there reported are in evidence in this case.
These petitioners have never had in their possession or under their control any property of Henry B. Graham, deceased, or of his estate other than that which was conveyed and delivered to them under and in pursuance of the trust indenture of May 23, 1916. The additional taxes for the years 1920 and 1921 and the penalty for the year 1921 assessed against the estate of Henry B. Graham, deceased, as heretofore stated, have never been assessed against the petitioners or either of them and the only notice which the petitioners have received that the Commissioner proposed to assess the same against them was that contained in the deficiency letter of April 22, 1927.
Petitioners now have in their possession, as trustees, assets transferred to them by the trust indenture of May 23, 1916, which are of a net value in excess of the amount involved herein with interest allowed by law.
*583 The trust agreement of May 23, 1916, between Henry B. Graham, designated party of the first part, and the*2015 American Trust Co. and John E. Bishop, as trustees, parties of the second part, stated that the party of the first part desired to constitute parties of the second part trustees of:
* * * All property, real, personal or mixed belonging to the party of the first part, with the power and obligation as such trustees to hold, manage, control, sell, convey and otherwise dispose of said property and to invest and reinvest the income and proceeds therefrom, and the proceeds of any sale or disposition thereof, and from said property to undertake to make provision for the party of the first part and his children, Dorothy, Marjorie and Henry B. III, and any child or children that may be hereafter born to the party of the first part, and to protect and conserve the estate hereby conveyed and to that end undertake to provide for the payment of the debts and obligations of the party of the first part, and of all liens and encumbrances of any kind imposed upon said property or any part thereof from either a sale or by pledging said properties.
To effect such purpose, the party of the first part sold, assigned, transferred, conveyed and set over unto the said trustees:
1. * * * all the property*2016 of the party of the first part, real, personal and mixed, of which he is now owner, wherever the same may be situated, a description of which said real estate and so much of his personal property as he is now able to list appears in a schedule hereto attached and made a part hereof.
The agreement further provided:
2. The said trustees shall take and hold said property, and are hereby granted the power to manage and control the same and to sell, trade, exchange, pledge, mortgage and otherwise dispose of said property or any part thereof as in their judgment may be to the best interest of the estate hereby conveyed to them, and to invest and re-invest the income and proceeds which may be derived from the said estate and from any investments or loans heretofore made by the party of the first part or hereafter made by the said trustees, and to invest and re-invest the proceeds of any sale or disposition of any of said property as in their judgment may seem best.
3. From the property hereby conveyed to said trustees, or from the income or proceeds of sale of said property, or from any properties or proceeds thereof acquired by the trustees under the provisions and powers hereof, *2017 the said trustees shall pay or provide for the payment of all fixed charges against said estate, the expense of administering said estate, together with all premiums of insurance necessary to protect said property, and also all premiums due under life insurance policies upon the life of the party of the first part, and including also all salaries, court costs, attorneys' fees, commissions and damages, and other expenses which may in the sole discretion of said trustees be deemed necessary or proper in handling, caring for and disposing of and protecting said property, and in defending said property from any litigation which may affect said property, and including such attorneys' fees and expenses as may be deemed necessary and proper in the sole discretion of said trustees to protect or promote the best interest of the party of the first part or the trust estate hereby created. To the end of protecting the interest of the party of the first part, or the trust estate hereby created, the said trustees *584 are hereby authorized to pay such bills and make such compromises and adjustments as in their judgment may be proper, and to that end make such payments out of the estate hereby*2018 conveyed to them and any property hereafter acquired by them as such trustees as may be necessary to effect such compromises or adjustments. For the purposes above indicated, the trustees are hereby given the same power to handle, control and dispose of the said estate hereby conveyed to them, and the income and proceeds thereof, as the party of the first part had prior to this conveyance.
4. From said estate, or from the income or proceeds thereof, said trustees shall, during the life of the party of the first part and the continuance of this trust, pay to the party of the first part the sum of Five Hundred Dollars ($500.00) per month, which said payment shall be made to him on or before the 10th day of each calendar month. And, in addition thereto, such further sums as in the sole discretion of the said trustees may be necessary and proper to provide for medical and hospital care and treatment, and such extraordinary care and expenses as may arise from bodily injuries, sickness or ill-health of the party of the first part. Said payment of Five Hundred Dollars ($500.00) per month shall continue until all the debts of the party of the first part now existing and all indebtedness*2019 which may be incurred by the trustees under the provisions hereof shall have been paid and satisfied, after which time the party of the first part shall be entitled to and shall receive all of the income from said estate, after paying the expenses of administering the same and any expenses that may incur under the provisions of this agreement, which said income shall then be paid to the party of the first part as nearly as may be in equal monthly installments.
5. The parties of the second part are hereby given full power and authority to pay off all of the indebtedness of the party of the first part now existing, or such indebtedness as may be hereafter created by the trustees in the management of the estate hereby conveyed to them. The trust hereby created shall be a continuing one, and the trust estate shall be held intact subject to the payments hereinabove provided, during the life of the party of the first part, and after his death the same shall be held for his children in equal parts, and as they severally arrive at the age of twenty-five (25) years the proportionate part of the estate then held by the trustees hereunder shall be paid to said children, except that no child*2020 shall receive his or her proportionate part of said estate until one year after the death of the party of the first part. And providing further that the trustees are authorized after the death of the party of the first part from said estate to pay to or on behalf of each of said children such amounts as in the judgment of said trustees may be necessary and proper for the support, maintenance, education and comforts of said children.
OPINION.
SEAWELL: The petitioners have pleaded the statute of limitations as a bar to the proposed assessment of a deficiency in tax.
The taxpayer, Henry B. Graham, filed an individual income-tax return for the calendar year 1920, on March 15, 1921.
He died in November, 1921, and on or about April 10, 1925, pursuant to section 3176 of the Revised Statutes of the United States, the Commissioner filed for him an income-tax return for 1921.
On or about December 28, 1925, and before the statute of limitations had run, a deficiency letter proposing for assessment additional *585 income tax for 1920 and 1921, in the amount indicated in our findings of fact, was mailed to Graham's administrator.
On February 24, 1926, said administrator*2021 filed with this Board an appeal from the deficiency letter proposing such assessment.
On May 29, 1926, while the appeal was pending, the Commissioner assessed the tax and penalty as proposed, with interest, in the sum of $16,178.91.
On June 13, 1928, this Board determined deficiencies for the taxable years in question in the sum of $16,178.91.
Section 280(b)(1) of the Revenue Act of 1926 extended the period of limitation for assessment of any liability against transferees or fiduciaries for unpaid tax of a taxpayer or his estate, as follows:
Within one year after the expiration of the period of limitation for assessment against the taxpayer.
On April 22, 1927, which was prior to the expiration of the period of limitation for assessment against the taxpayer, the appeal of Graham's administrator being then pending, the Commissioner mailed a deficiency letter to the petitioners in accordance with the provisions of section 280 of the Revenue Act of 1926, proposing an assessment of income tax against them as trustees in the amount of $16,178.91. An appeal was taken and petition filed on June 17, 1927, for a redetermination of the tax proposed to be assessed and the same is*2022 now before us for determination.
We are of the opinion that the statute of limitations had not run against the proposed assessment of the tax against the petitioners, if they are transferees or fiduciaries within the meaning of section 280 of the Revenue Act of 1926 or of section 3467 of the Revised Statutes of the United States and have property of Graham or his estate in their possession.
The material portions of the trust conveyance made to petitioners on May 23, 1916, are set out in our findings of fact and the Supreme Court of Missouri, in McFarland v. Bishop,282 Mo. 534">282 Mo. 534; 222 S.W. 143">222 S.W. 143, construed the trust instrument and discussed the rights and liabilities of the parties thereunder and the application to the situation of the provisions of section 2880 of the 1909 Revised Statutes of Missouri, which section is as follows:
Every deed of gift and conveyance of the goods and chattels in trust to the use of the person so making such deed of gift or conveyance is declared to be void as against creditors, existing and subsequent.
The Supreme Court, in its opinion, stated:
It may be admitted that this section makes the conveyance, so far*2023 as it is to the use of Graham, null and void as to creditors and purchasers. But the statute does not make it null and void, even as to creditors and purchasers, *586 so far as it is for the use and benefit of Graham's children. This deed provided for the payment of his then existing debts, and there is nothing in the statute preventing Graham from giving or conveying the remainder of his property to his children or others as against subsequent creditors and purchasers.
* * *
But, it is plain enough that the remainder to Graham's children created by the deed of trust assailed is a vested remainder. The children to whom the remainder is given were living and are named, and the fact that the remainder opens to let in after-born children does not make it a contingent remainder. All the children, not simply those living at his death, are to take upon Graham's death, which is sure to occur. The vesting of the title is not postponed after Graham's death, until they reach the age of 25 years, but only the enjoyment of the possession of the property is thus postponed. This does not make the remainder contingent, or in any manner militate against its character as a vested*2024 remainder.
* * *
The deed of trust, being valid as to the provision for the children, may, no doubt, be avoided by subsequent purchasers or subsequent creditors of Graham, in so far, and so far only, as it is for Graham's use. In a proper proceeding, subsequent creditors or purchasers might therefore reach and appropriate the monthly sum of $500 and the income reserved to Graham.
Graham conveyed all his property to petitioners several years prior to the accrual of the income taxes now proposed to be assessed against them.
The trust created by the conveyance of May 23, 1916, was valid as to the children of Graham. It was irrevocable. It could be avoided by subsequent creditors of Graham, "in so far, and so far only" as it was for Graham's use.
Subsequent creditors of his might, by timely and proper proceedings, reach and appropriate the monthly sum due him of $500 and the income reserved to him. The Supreme Court of Missouri, in McFarland v. Bishop, supra, so held. There is no evidence adduced indicating that there was any notice of any claim for income tax in favor of the United States given or any lien therefor attempted to be asserted while*2025 the trustees had in their possession any income from the Graham estate.
In the absence of any such notice or any attempt to fix a lien thereon by proper proceedings, no duty or obligation rested on the trustees, as such, nor on them personally, to withhold from Graham the income, which by the provisions of the trust was to be paid to him monthly.
In considering the nature of the transferee's liability under section 280 of the Revenue Act of 1926, the construction of the language employed, and reference to its legislative history both indicate that it imposes no new liability upon the transferee and that the nature and extent of his liability is to be determined by *587 the settled principles of the common law and Federal and local statutes. In the report of the Senate Finance Committee on the Revenue Act of 1926, Committee Print January 22, 1926, page 30, it is stated, with reference to section 280:
"It is the purpose of the Committee's amendment to provide for the enforcement of such liability to the Government by the procedure provided in the act for the enforcement of tax deficiencies. It is not proposed, however, to define or change existing liability. The section*2026 merely provides that if the liability of the transferee exists under other law then that liability is to be enforced according to the new procedure applicable to tax deficiencies." A. H. Graves et al.,12 B.T.A. 124">12 B.T.A. 124.
Section 3467 of the Revised Statutes of the United States reads as follows:
Every executor, administrator, or assignee, or other person, who pays any debt due by the person or estate from whom or for which he acts, before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate for the debts so due to the United States, or for so much thereof as may remain due and unpaid.
The net value of the property transferrred to the petitioners in 1916 was approximately $430,000. The trustees as such filed income-tax returns for the trust estate and duly paid all taxes assessed against them as such trustees on account of the income of the trust estate.
Pursuant to the provisions of the trust, Graham, during his lifetime, was paid $132,000. He died leaving property insufficient to pay the expenses of his last sickness and burial. His estate was insolvent.
The petitioners, *2027 as trustees or otherwise, paid no debt due by Graham or his estate out of funds or income upon which the United States had any claim or right.
The trustees, petitioners herein, who are sought to be held liable as transferees or fiduciaries for the deficiency in tax assessed against Graham's estate, are not shown to now have or hold any income or property of said Graham, deceased, or to have so held any such at or since the receipt of any notice of the deficiency in tax claimed by the Commissioner. See Orville Livingston v. Becker,U.S. Dist. Ct., E. Dist. Mo., Oct. 12, 1929; P.-H. Federal Tax Service, Nov. 7, 1929, P1705, p. 1573.
What the trustees have and hold is not income which belonged to Graham, but the corpus of the estate, which vested in Graham's children and which is in no way liable for the deficiency in tax assessed against Graham's administrator.
The burden of proof is on the Commissioner to show that the petitioners, as transferees or fiduciaries, have in their possession or should have in their possession as such, assets or income liable for the payment of the aforesaid deficiencies in tax. Such has not been shown.
*588 We are, therefore, *2028 of the opinion that the tax deficiencies asserted should not be assessed against the petitioners as trustees or otherwise.
Judgment will be entered for the petitioners.