*711 The petitioners were the owners of all but two of the outstanding shares of stock of a corporation, which they contracted to sell to certain bankers. Before all of the conditions of the contract had been fulfilled the petitioners transferred some of their shares of stock to trustees, the trust instruments providing that the grantors should have the power to direct the trustee in writing to purchase and sell securities. The sale was made and the consideration for the shares theretofore transferred to the trustees was received by the trustee (there being at that time only one). Held, that the sales were made by the trustee as principal and not as agent; held, further, that as to two of the trusts the grantors neither alone nor in conjunction with others not beneficiaries had any control over the income of the trusts and that the grantors are not liable to tax upon the income thereof; held, further, that as to 26 other trusts the grantors controlled the right to receive the income and principal through reserved powers of alteration and revocation of the trusts and are therefore taxable upon the income of the trusts under section 167 of the Revenue Act of 1928.
*319 These proceedings, consolidated for hearing, involve income tax deficiencies for 1929 as follows:
| Petitioner | Docket No. | Deficiency |
| Harry T. Rollins | 63954 | $72,132.73 |
| Glendora M. Rollins | 63955 | 23,223.79 |
| Margaret C. Rollins | 63956 | 23,095.84 |
| Ellen F. Rollins | 63957 | 15,662.68 |
| Ralph E. Rollins | 63958 | 65,498.43 |
Certain issues raised by the pleadings involving the basis for the computation of capital gains upon the sales of shares of stock of the Rollins Hosiery Mills and also the amount of capital losses sustained *320 by Harry T. Rollins and Ralph E. Rollins on the sales of shares of stock of the Packard Iowa Motor Co. have been settled by stipulation of the parties. The only issue for the determination of the Board is whether the petitioners are liable for income tax on capital net gains arising from sales of shares of stock of the Rollins Hosiery Mills, the proceeds of which were received by certain trusts created by the petitioners in 1929.
FINDINGS OF FACT.
On January 1, 1929, the*713 petitioners were the owners of all of the shares of stock of the Rollins Hosiery Mills, an Iowa corporation, with the exception of two shares of series A preferred stock. Ellen F. Rollins, at the present time 86 years of age, is the mother of Harry T. Rollins and Ralph E. Rollins. Glendora M. Rollins is the wife ofHarry T. Rollins, and Margaret C. Rollins is the wife of Ralph E. Rollins.
On February 13, 1929, Harry T. Rollins and Ralph E. Rollins granted to R. P. Minton & Co., an investment banking house located in Chicago, an exclusive option to purchase on or before April 13, 1929, all of the capital stock, both preferred and common, of the Rollins Hosiery Mills for $2,600,000, plus accrued dividends not paid on either the series A or series B preferred stock for the period January 1, 1929, to the date of the exercise of the option, and plus all net earnings subsequent to January 19, 1929, the net earnings figure, however, to be reduced by the dividends accrued on the preferred stock from January 19, 1929, to the date of the exercise of the option.
The option was extended from time to time, with certain modifications in the terms thereof, until July 19, 1929, on which date*714 a memorandum of agreement was entered into between the Rollins brothers as "vendors" and R. P. Minton & Co. as "bankers", which recites that the "vendors" owned or controlled all of the issued and outstanding capital stock of Rollins Hosiery Mills, an Iowa corporation; that the vendors were desirous of causing the sale of certain shares of capital stock of the company and the bankers were desirous of purchasing same; that the bankers contemplated the organization of a Delaware corporation, referred to as the "New Company", which it was contemplated would acquire certain assets subject to certain liabilities of the old company; that the vendors would cause to be sold 80 percent of all the issued and outstanding capital stock of each class of stock of the old company and the bankers would purchase the same for the sum of $2,080,000, plus interest at 3 percent per annum on the $2,080,000 from July 20 to the date of payment, and plus 3 percent on the sum to be withdrawn from *321 the old company as provided in paragraph 3 of the memorandum of agreement.
It was further provided in the agreement that on August 15, 1929, or at any time prior thereto within three days after receipt*715 of notice from the bankers, the vendors would cause to be delivered said shares of stock at the office of the Des Moines National Bank, Des Moines, Iowa, against the payment of the purchase price, subject to certain conditions, among which were that the bankers should be furnished with a certified statement of the earnings of the Rollins Hosiery Mills for a period of six months, which should show that those earnings were not less than $200,000, and that an attorney of the bankers' selection should declare that the title of the Rollins Hosiery Mills to its properties was a merchantable one.
The outstanding capital stock of Rollins Hosiery Mills on July 19, 1929, consisted of 2,100 shares of 7 percent "A" preferred stock; 4,806 shares of 7 percent "B" preferred stock, and 7,000 shares of common stock, all of a par value of $100 a share. All of these shares of stock were then held as follows:
| Harry T. Rollins | 3,500 shares of common stock |
| Ralph E. Rollins | 3,500 shares of common stock |
| 249 shares of "A" preferred stock | |
| Glendora M. Rollins | 2,403 shares of "B" preferred stock |
| 249 shares of "A" preferred stock | |
| Margaret C. Rollins | 2,403 shares of "B" preferred stock |
| Ellen F. Rollins | 1,600 shares of "A" preferred stock |
| J. R. Proctor | 2 shares of "A" preferred stock |
*716 Before the contract of sale of July 19, 1929, was consummated, and on July 24, 1929, Harry T. Rollins and Ralph E. Rollins each executed a trust agreement by which each assigned and conveyed to J. R. Proctor, trustee, of Des Moines, Iowa, 1,881 shares of the common capital stock of the Rollins Hosiery Mills, to be held in trust for the uses and purposes therein set forth. These trusts are hereinafter referred to as the Proctor trusts. The trust instruments each contained the following provisions:
1. In disposing of the income and principal of this trust, the trustee's duties shall be:
A. To pay the income thereof in equal shares per stirpes to my descendants from time to time surviving until the death of the last surviving of my children, * * * both of whom are now living, and thereupon to pay over the remaining principal then held in his hands in equal shares per stirpes to my descendants then living, or if none, to such persons as shall then constitute my heirs at law according to the Iowa laws now governing the descent of real estate.
2. Notwithstanding the foregoing provision I hereby confer upon my wife, * * * full power and authority at any time by deed executed*717 and delivered to the trustee, or by will, to appoint any person or trustee to receive the whole or any part of the principal and/or income of the trust held hereunder, *322 in absolute ownership or upon such trusts and estates as she shall set forth in such deed or will, and if such appointment be by deed the trustee shall upon receipt of such deed immediately deliver the same to the person or persons, trustee or trustees so appointed therein, * * * No trustee receiving property under such power of appointment shall be required to examine into the accounts of the trustee hereunder. The exercise of such power of appointment shall constitute a release to the trustee hereunder from all liability for his accounts with respect to the property included herein. * * *
* * *
5. * * * all profits realized from the sale of any part of the trust corpus shall be considered as principal; * * *
6. I reserve the option to direct in writing that the trustee issue voting proxies for and retain, sell, exchange, invest, reinvest, lease, mortgage or improve any of the trust property held hereunder in such manner as I may direct and without liability to the trustee for resulting loss. * *718 * *
* * *
9. I hereby reserve the right from time to time by an instrument in writing delivered to the trustee, to alter, change, or modify any of the administrative provisions of this trust, provided that the duties and responsibilities of the trustee shall not be substantially increased without his written consent, and provided that the beneficial interests established hereunder shall not be affected thereby. I shall not have the right to revoke the trust.
* * *
12. * * * I reserve the right at any time to require the resignation of any Trustee at any time acting hereunder and to appoint a successor trustee. * * *
On August 3, 1929, Glendora M. Rollins and Margaret C. Rollins, the wives of the grantors of the Proctor trusts, exercised the powers of appointment conferred upon them under the trust instruments dated July 24, 1929, and appointed the City Bank Farmers Trust Co., of New York City, trustee for the purposes set forth in two certain trust instruments, the material parts of which read as follows:
1. In disposing of the income and principal of this trust the Trustee's duties shall be:
A. To pay the income thereof to me during my life, and after my death*719 to pay the income thereof to my husband * * *, if he is then living, during the remainder of his life, * * *
* * *
2. The Trustee may after my death from time to time apply to the use of my said husband, if he shall survive me, and my descendants, or any of them, so much of the principal of the trust fund as in its discretion it may deem advisable for their proper education, care, comfort or support.
* * *
4. * * * all profits realized from the sale of any part of the trust corpus shall be considered as principal; * * *
5. Upon receipt of directions in writing by my husband, * * * during his lifetime, the Trustee shall issue voting proxies for and retain, sell, exchange, invest, reinvest, lease, mortgage or improve any of the trust property held hereunder in such manner as my said husband * * *, may direct, and without liability to the Trustee for resulting loss. * * *
* * *
*323 8. I hereby reserve the right from time to time by an instrument in writing delivered to the Trustee, to alter, change, or modify any of the administrative provisions of this trust, provided that the duties and responsibilities of the Trustee shall not be substantially increased*720 without its written consent, and provided that the beneficial interests established hereunder shall not be affected thereby. I shall not have the right to revoke the trust.
* * *
10. The trust shall take effect upon acceptance by the Trustee and in all respects shall be governed by Iowa laws.
11. * * * I reserve the right at any time to require the resignation of any Trustee at any time acting hereunder and to appoint a successor Trustee. No successor Trustee who may assume duties hereunder during the continuance of the trust, shall be required to examine the accounts of the predecessor Trustee, unless I, or said beneficiaries, shall so request in writing, and the receipt of any successor Trustee bearing my approval during my lifetime or the approval of said beneficiaries after my death, shall constitute a release to the predecessor Trustee hereunder from all liability for such Trustee's acts with respect to the trust property. * * *
The City Bank Farmers Trust Co. accepted the appointments executed by Glendora M. Rollins and Margaret C. Rollins on August 8, 1929, numbering the trusts 12,634 and 12,635, respectively.
The income from the trusts, numbered 12,634 and*721 12,635, was deposited in accounts against which Harry T. Rollins and Ralph E. Rollins, respectively, had the right to draw checks and did draw checks for such purposes as they saw fit.
On the same date, August, 3, 1929, the 5 petitioners created 26 additional separate and distinct trusts by transferring to the City Bank Farmers Trust Co., as trustee, shares of stock of the Rollins Hosiery Mills as follows:
| Grantor | Number of trusts created | Shares transferred |
| Harry T. Rollins | 5 | 641 common. |
| Margaret C. Rollins | 6 | 249 class "A" pfd. |
| 2,001 class "B" pfd. | ||
| Ralph E. Rollins | 3 | 405 common. |
| Glendora M. Rollins | 6 | 249 class "A" pfd. |
| 2,001 class "B" pfd. | ||
| Ellen F. Rollins | 6 | 1,600 class "A" pfd. |
These trusts were numbered, in the trustee's books, 12,636 to 12,661, inclusive.
In trust numbered 12,636, Ellen F. Rollins, grantor, there are the following provisions material in this controversy:
1. In disposing of the income and principal of this trust the Trustee's duties shall be:
A. To pay so much of the income thereof, and in such shares, equal or unequal, as the Trustee in its discretion deems advisable, to me and to my granddaughter, FLORENCE*722 ROLLINS, and to accumulate the remaining income and add it to the principal, during my life;
* * *
*324 2. The Trustee may from time to time apply to the use of myself and my descendants or any of us so much of the principal of the trust as in its discretion it may deem advisable for our proper education, care, comfort and support.
* * *
4. * * * all profits realized from the sale of any part of the trust corpus shall be considered as principal; * * *
5. Upon receipt of directions in writing by my son, HARRY T. ROLLINS, during his lifetime, the trustee shall issue voting proxies for and retain, sell, exchange, invest, reinvest, lease, mortgage or improve any of the trust property held hereunder in such manner as my said son, HARRY T. ROLLINS, may direct, and without liability to the trustee for resulting loss. * * *
* * *
8. After January 1st, 1930, I reserve the right, from time to time, by an instrument in writing delivered to the trustee, to amend or revoke this agreement, in whole or in part, and to change any beneficial interest hereunder; provided, however, that I shall not have the power at any time during any taxable year within the meaning of the*723 revenue laws of the United States to revest in myself title to any part of the corpus of the trust, except upon written notice delivered to the trustee during the preceding taxable year, or except with the written consent of the beneficiary, other than myself, currently entitled to the distributable income of the trust or of such share thereof as may be affected thereby; * * *
* * *
10. The trust shall take effect upon the acceptance by the trustee and in all respects shall be governed by Iowa laws.
11. * * * I reserve the right at any time to require the resignation of any trustee at any time acting hereunder and to appoint a successor trustee. No successor trustee who may assume duties hereunder during the continuance of the trust shall be required to examine the accounts of the predecessor trustee, unless I, or said beneficiaries, shall so request in writing, and the receipt of any successor trustee bearing my approval during my lifetime * * *, shall constitute a release to the predecessor trustee hereunder from all liability for such trustee's acts with respect to the trust property. * * *
Substantially the same provisions are contained in the trusts numbered 12,637*724 to 12,661, inclusive.
Each of the aforesaid 26 trust instruments was executed by the grantor in Des Moines on August 3, 1929, and on that date certificates representing the shares of stock to be teansferred in trust were issued to Kordula & Co., a "dummy" theretofore suggested by the City Bank Farmers Trust Co. as its nominee.
Letters of instruction to the City Bank Farmers Trust Co. from Harry T. Rollins, Ralph E. Rollins, Glendora M. Rollins, and Margaret C. Rollins, each dated August 3, 1929, were delivered to the City Bank Farmers Trust Co. by John H. Martin, Messenger, along with the trust instruments and stock certificates, on August 8, 1929. The letter signed by Harry T. Rollins reads as follows:
*325 In accordance with the authority granted to me in the trusts created by me, my wife, Glendora M. Rollins, and my mother, Ellen F. Rollins, with you, I hereby authorize and direct you to sell all of the Preferred "A" and Preferred "B" stock of the Rollins Hosiery Mills, an Iowa corporation, which you hold in said trusts, to R. P. Minton and Company, Inc., or its nominee, for the price of $107.00 per share, and I direct that you deduct from the proceeds the sum of*725 $2.78 per share to be paid by you to Jas. A. Holt as part of his finder's commission.
And I further authorize and direct you to sell all of the Common stock of the Rollins Hosiery Mills, an Iowa corporation, which you hold in said trusts, to R. P. Minton & Company, Inc., or its nominees, for the price of $265.8654 per share, and I direct that you deduct from the proceeds the sum of $2.78 per share to be paid to Jas. A. Holt, as part of his finder's commission.
I further direct that all remittances of income from each of said trusts shall, until further notice from me, be made by you to the persons entitled thereto under the terms of each of said trusts on the 20th day of each calendar month.
That signed by Ralph E. Rollins was the same in substance. The letter signed by Margaret C. Rollins read as follows:
I am handing you herewith Certificate No. 31 of the Rollins Hosiery Mills for 1881 shares of the Common stock of that Company, which is made out in the name of Kordula and Company, who you have stated as your nominee, and which is the stock referred to in that certain Trust Agreement executed by me of this date, providing for the payment of the income from the trust fund*726 to me, after my death to my husband, Ralph E. Rollins, and upon the death of the survivor of myself to my children, and for the payment of the principal of said fund to my children in accordance with the terms of said agreement.
I request that you execute the said agreement as trustee, upon advice from Sargent, Gamble & Read, my attorneys, and acknowledge receipt of the enclosed shares of stock.
I am sending the stock, together with the executed trust agreements to you by Mr. John H. Martin as my agent, and I request that you have the stock certificates properly endorsed by Kordula and Company in blank, and return by the messenger, and also have Kordula and Company execute stock powers to R. E. Rollins as Agent for purposes of sale.
I agree that your action in turning over the stock to Mr. Martin as messenger shall be without any liability, responsibility or accountability on your part for or on account thereof.
That signed by Glendora M. Rollins was of like import.
A letter from the City Bank Farmers Trust Co., trustee, dated January 25, 1930, and addressed to Harry T. Rollins, contains, among other things, the following:
In those trusts in which the Trustee has a*727 discretion as to the payment of income, we shall be glad to receive your suggestions as to the amount of the income to be remitted to the respective beneficiaries.
To the above Harry T. Rollins replied by letter dated February 1, 1930, as follows:
Replying to your letter of January 25 in which you ask for suggestions as to the amount of income to be remitted to the respective beneficiaries under *326 the Trusts created last August, will say that this matter has been talked over by the different members of the family and we have reached the following conclusions:
It is suggested that the income from Trust 12634 be paid monthly to Glendora M. Rollins.
That the income from Trust 12635 be paid monthly to Margaret C. Rollins.
That the income from Trusts 12636, 12637, 12638, 12639 and 12640 and 12641 be paid quarterly to Ellen F. Rollins.
That the income from Trusts 12642, 12643 and 12644 be paid quarterly to Ralph E. Rollins.
That the income from Trusts 12645, 12646, 12647, 12648, 12649 be paid quarterly to Harry T. Rollins.
That the income from Trusts 12650, 12651 and 12652 be paid quarterly to Margaret C. Rollins.
That the income from Trust 12653 be paid*728 as follows:
$100.00 annually be paid to Molly Clemons of Charles City, Iowa, the balance to be paid quarterly to Margaret C. Rollins.
That the income from Trust 12654 be paid quarterly to Margaret C. Rollins.
That the income from Trust 12655 be paid as follows:
$100.00 annually to Augusta Clemens of Charles City, Iowa, the balance quarterly to Margaret C. Rollins.
That the income from Trusts 12656, 12657, 12658, 12659, 12660, and 12661 be paid quarterly to Glendora M. Rollins.
It is suggested too that the quarterly payments be made the first of March, first of June, first of September and first of December.
I trust that the above are the remittance instructions that you will need.
The entire income from the 26 trust funds, numbered 12,636 to 12,661, inclusive, was distributed, upon direction of the grantors or their agents, to the grantors, with a few immaterial exceptions wherein small sums were paid by the trustee to others upon instructions from the grantors, or their agents.
The City Bank Farmers Trust Co., as trustee, filed an income tax return for the year 1929 for each of the 28 trusts above described, in which it reported as income the profits, if any, *729 on the sale of the Rollins Hosiery Mills stock. In the case of each of the trusts above referred to, with the exception of trusts numbered 12,634 and 12,635, the City Bank Farmers Trust Co. paid to the collector the tax upon the profit computed by the trustee as having been realized from the sale of the Rollins Hosiery Mills stock conveyed to the trustee. In the trusts numbered 12,634 and 12,635 no profits were reported on the sale of the stock because of the contention of the trustee that the basis of the stock sold equaled the amount received. The respondent has proposed on overassessment to the City Bank Farmers Trust Co., trustee, of the income taxes paid by it for each of the trusts and protective claims for refund have been filed by the City Bank Farmers Trust Co. for the trusts. The petitioners kept their accounts and made their returns upon the cash receipts and disbursements basis.
*327 OPINION.
SMITH: The respondent contends that the profits on the above described sales of shares of stock of the Rollins Hosiery Mills are taxable to the petitioners individually, and not to the trusts which received the proceeds of the sales.
As pertaining to all of the*730 trusts the respondent makes the broad contention that the trustee, the City Bank Farmers Trust Co., to which all of the shares sold were transferred by the petitioners after the contract of July 19, 1929, was entered into, acted merely as agent for the petitioners in consummating the sale and that the grantors were not relieved of income tax liability on the profits resulting from the transaction.
We do not think that this contention can be sustained. All of the shares of stock sold were conveyed to the trustee before the sale was consummated. There is no question but that the transfers were lawfully made and that the trustee acquired legal title to the shares. In Preston R. Bassett,33 B.T.A. 182">33 B.T.A. 182, where the respondent made substantially the same contentions as he makes in the instant proceedings and where the facts were similar, we said:
Respondent's other contentions may be briefly disposed of. He contends that in the circumstances of the sale contemplated at the time the trust was created petitioner made a gift of the proceeds of the stock after sale and not of the stock itself. This contention rests on the assumption that the trust was a mere device to*731 avoid taxation and as such is to be disregarded, for otherwise it is clearly demonstrable that the gift of the stock covered by an executory contract of sale is something essentially different from the gift of the proceeds received on the sale after its consummation, Williston on Sales, § 1, 2. The sale might well have never gone through. In fact, such a possibility was contemplated by the parties and expressly provided for in the contract, for if certain representations of the sellers were not made good by the three months' audit provided, the buyer might withdraw. He might, indeed, withdraw in any case, but if caprice were his only motive, he forfeited the $12,000 which he had put in escrow on signing the contract. Evidently, then what petitioner's wife received on April 12, 1929, was a gift of stock with an interest in the contract of sale, which was agreed upon on the day the trust was created and signed on the next day after.
See also Edwin L. Bowen,33 B.T.A. 208">33 B.T.A. 208.
The reservation by the grantors to themselves or their nominees of the right to direct the trustee to sell the stock and to invest the proceeds of the sale in accordance with their wishes*732 did not affect the validity of the trusts. It amounted to no more than a reservation by the grantors of the right to change the form of the trust corpus. Such a right is not adverse to the interests of the trusts or the beneficiaries.
It is evident that one of the motives of the petitioners, and per the principal one, in creating the trusts was to avoid liability for the income tax that would have fallen on them if they had held *328 the shares of stock until the sale was completed in accordance with the existing agreement. In point of time, the trusts were all created in the short interval between the execution of the agreement of sale, July 19, 1929, and its final consummation, August 10, 1929. All of the trust agreements were carefully worded so as to relieve the petitioners of any individual liability for income tax on the profits from the sale of the stock. All of the group of 26 trusts, as distinguished from the two Proctor trusts, contained the significant provision that:
* * * I shall not have the power at any time during any taxable year within the meaning of the revenue laws of the United States to revest in myself title to any part of the corpus of the trust, *733 except upon written notice delivered to the trustee during the preceding taxable year, or except with the written consent of the beneficiary, other than myself, currently entitled to the distributable income of the trust or of such share thereof as may be affected thereby; * * *
It is well settled, however, that the presence of a motive to avoid tax liability is not of material significance. United States v. Isham,17 Wall. 496">17 Wall. 496; Bullen v. State of Wisconsin,240 U.S. 625">240 U.S. 625; Gregory v. Helvering,293 U.S. 465">293 U.S. 465; Chisholm v. Commissioner, 79 Fed.(2d) 14.
Since the trusts here were all validly created and since the shares of stock in question were transferred to the trustee to form the corpora of the trusts, the profits on the subsequent sale of the shares constituted income of the trusts taxable either to the trust entities or the beneficiaries, under sections 161 and 162 of the Revenue Act of 1928, or to the grantors of the trusts, under the provisions of sections 166 and 167.
The last mentioned sections provide:
SEC. 166. REVOCABLE TRUSTS.
Where the grantor of a trust has, at any time during*734 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.
SEC. 167. INCOME FOR BENEFIT OF GRANTOR.
Where any part of the income of a trust may, in the discretion of the grantor of the trust, either alone or in conjunction with any person not a beneficiary of the trust, be distributed to the grantor or be held or accumulated for future distribution to him, * * * such part of the income of the trust shall be included in computing the net income of the grantor.
With respect to the so-called Proctor trusts the respondent makes the contention in his brief, and cites a number of cases which appear to support his contention, that under the two original trust agreements executed by Harry T. Rollins and Ralph E. Rollins, respectively, the wives of the grantors were given a naked power of appointment not coupled with an interest, that such powers were revocable *329 by the husbands, the grantors, and that the husbands were the legal grantors*735 of the benefits conferred in the trusts created by the wives in the exercise of their appointive powers. Assuming the correctness of these contentions, it does not follow that any of the income of the trusts is taxable to the grantors under sections 166 or 167 because of any power in them to revest in themselves title to any part of the corpus of the trusts (section 166) or because any part of such income might in their discretion have been distributed, or accumulated for future distribution, to them (section 167). The revocation of the powers of appointment contained in the original trust agreements would not have revested in the grantors title to any part of the corpus of the trusts, but would have left the trust estates to be administered as the grantors had directed in the original trust agreements. Under the provisions of those agreements the grantors had no power to revest in themselves title to any part of the corpus of the trusts. They reserved the right "to alter, change, or modify any of the administrative provisions of this trust, * * * provided that the beneficial interests established hereunder shall not be affected thereby." Obviously, the revesting in themselves*736 of any part of the corpus of the trusts by the grantors would have affected adversely the beneficial interests of the beneficiaries who otherwise were to receive it. It was specifically provided in the trust agreements that the grantors themselves had no power to revoke the trusts. Such powers were conferred on the grantors' wives exclusively.
The respondent further submits that the provision made in the original trust agreements for the payment of the income per stirpes to the grantors' surviving descendants indicates an intention on the part of the grantors not to dispose of or relinquish control of the income of the trusts during their lives. The most that could be inferred from this provision is that the grantors intended for their wives, in the exercise of their appointive powers, to make necessary provisions for the disposition of the current income of the trusts. This the wives did within a short time, naming themselves as beneficiaries to receive the income of the trusts for life. The original grantors made no reservations either expressed or implied by which they in their own discretion might have revested in themselves title to any of the corpus of the trusts or caused*737 any of the income to be distributed or held for future distribution to them.
It is to be observed, too, that the sale of the shares of stock from which the income in dispute arose did not take place until after the wives had exercised their powers of appointment and caused the shares to be transferred to the new trustee, the City Bank Farmers Trust Co., to be held in the trusts created by them. Under those trust agreements there was no power reserved either to the wives or *330 their husbands, whichever are considered the legal grantors of the trust, to revest in themselves title to any part of the corpus of the trusts or to have any of the profits from the sale of the shares distributed to any of them during the taxable year. The income of the trusts was all distributable to the wives during their lives, but there was a provision in each trust instrument that the profits from the sale of any part of the corpus were to be added to principal and were therefore not distributable. It is true that what constitutes income of a trust for Federal tax purposes must be determined under the provisions of the Federal taxing statutes and the governing rules of law, *738 Greenough v. Commissioner, 74 Fed.(2d) 25, but our question here is not what was income to the trusts, but what part of the income of the trusts might be distributed to the petitioners as grantors of the trusts. We are of the opinion that the profits on the sale of the shares of stock held in these trusts, numbered 12,634 and 12,635, are not taxable to any of the petitioners individually.
In each of the other 26 trusts, the income, in the discretion of the trustee, was to be either distributed to the grantor and another beneficiary or accumulated and added to the principal. There was a provision in each trust instrument (see paragraph 8 in trust numbered 12,636 above) that the grantor should have the power at any time after January 1, 1930, to amend or revoke the trust agreement:
* * * in whole or in part, and to change any beneficial interest hereunder; provided, however, that I shall not have the power at any time during any taxable year within the meaning of the revenue laws of the United States to revest in myself title to any part of the corpus of the trust, except upon written notice delivered to the trustee during the preceding taxable year, or except*739 with the written consent of the beneficiary, other than myself, currently entitled to the distributable income of the trust or of such share thereof as may be affected thereby; * * *
In other words, under this provision of the trust instruments the grantors could amend or revoke the trusts and receive all or any part of the principal and income as their own at any time after January 1, 1930, after having given notice of the revocation to the trustee in the preceding year. For instance, such notice might have been given on December 31, 1929, and the trusts revoked on January 2, 1930, the grantors then receiving all of the profits from the sale of the shares of stock in question, which by specific provision in the trust agreements was to be added to the principal.
We think that this amounted to a discretionary power in the grantors to have this income of the trusts held and accumulated for future distribution to them within the meaning of section 167. Upon this point compare Sawtell v. Commissioner, 82 Fed.(2d) 221, and *740 Preston R. Bassett, supra.In the latter case the grantor irrevocably *331 conveyed shares of stock to himself as trustee, the income to be paid to his wife for life and the principal on her death to go to himself and his heirs. We held that the grantor had no discretionary power with respect to, and was not taxable on, the profits derived from the sale of the shares after the declaration of trust. In the Sawtell case the facts were similar, the trust agreement providing that the income was to be accumulated and distributed to the grantor, if living, on January 1 of the next succeeding taxable year. The court held, reversing the Board in Margaret S. Sawtell,32 B.T.A. 687">32 B.T.A. 687, and citing with approval Preston R. Bassett, supra, that there was no discretionary power in the grantor to have the income of the trust accumulated for future distribution, since the income was to be accumulated at all events. As to the trusts here, the grantors' discretionary power lay in their continuing right to revoke the trusts and thus have the undistributed income and principal distributed to them. There was no such right in the grantors in*741 the Bassett and Sawtell cases.
It is true that the grantors here could not have amended or revoked the trusts during the taxable year 1929, but section 167, unlike section 166, of the Revenue Act of 1928 does not make this a prerequisite. The language of section 167 is substantially the same as that of section 219(h) of the Revenue Act of 1924. As stated by the Supreme Court in Burnet v. Wells,289 U.S. 670">289 U.S. 670:
The purpose of the law is disclosed by its legislative history, and indeed is clear upon the surface. When the bill which became the Revenue Act of 1924 was introduced in the House of Representatives, the report of the Committee on Ways and Means made an explanatory statement. Referring to section 219(h) it said: "Trusts have been used to evade taxes by means of provisions allowing the distribution of the income to the grantor or its use for his benefit. The purpose of this subdivision of the bill is to stop this evasion." * * * By the creation of trusts, incomes had been so divided and subdivided as to withdraw from the government the benefit of the graduated taxes and surtaxes applicable to income when concentrated in a single ownership. *742 Like methods of evasion, or, to speak more accurately, of avoidance * * * had been used to diminish the transfer or succession taxes payable at death. One can read in the revisions of the Revenue Acts the record of the government's endeavor to keep pace with the fertility of invention whereby taxpayers had contrived to keep the larger benefits of ownership and be relieved of the attendant burdens.
* * * The solidarity of the family is to make it possible for the taxpayer to surrender title to another and to keep dominion for himself, or, if not technical dominion, at least the substance of enjoyment. * * * In these and other cases there has been a progressive endeavor by the Congress and the courts to bring about a correspondence between the legal concept of ownership and the economic realities of enjoyment of fruition. Of a piece with that endeavor is the statute now assailed.
In Farmers' Loan & Trust Co. v. Bowers (C.C.A., 2d Cir.) 68 Fed.(2d) 916, the court stated: "Statutory provisions intended to *332 prevent the evasion of the general purposes of the statute ought to be fairly and reasonably construed so as to carry out their purposes."
*743 In Kaplan v. Commissioner (C.C.A., 1st Cir.), 66 Fed.(2d) 401, it was stated:
* * * We think the statute means that if under any circumstances or contingencies any part of the accumulated income might inure to the benefit of the grantor such portion of the income is taxable to him.
In Margaret S. Sawtell v. Commissioner, supra, the same court said:
* * * Taken in its ordinary meaning section 167 applies only to trusts in which the grantor has discretion to have the income accumulated for his benefit; it does not include trusts for the direct accumulation of income for the grantor. * * *
We do not see how on any reasonable reading of the language of section 167 it can be held to cover trusts like the present one. No doubt the situation before us is a casus omissus, - the amendment of this section in the Act of 1932 and the committee's reports on the change make that clear, - but we do not think that in a tax statute the court has power to extend it by construction to include such cases unless they come within the language used on reasonable interpretation of it. * * *
The facts in these proceedings are materially different from those which*744 obtained in the Sawtell case and we are of the opinion that the rule announced in that case is not applicable here. Here, unquestionably, the grantors of the trusts had a large discretion as to the amount of the income which should be paid out and the persons to whom it should be paid. The profits from the sales of the securities received by the trustee, although declared by the trust instruments to form a part of the capital of the trusts, could, nevertheless, be reached by the grantors in subsequent years. Through their rights to amend or revoke the trusts "in whole or in part, and to change any beneficial interest" the profits from the sales of shares of stock could be brought into the ownership and possession of the grantors. They constituted "income of the trust" within the meaning of section 167 of the Revenue Act of 1928. See Greenough v. Commissioner, supra.
In our opinion the profits from the sale of the shares of stock held in the 26 trusts numbered 12,636 to 12,661, inclusive, are taxable to the respective grantors of those trusts.
Reviewed by the Board.
Judgment will be entered under Rule 50.
MURDOCK, MATTHEWS, LEECH, and TURNER*745 dissent.