*1784 On January 5, 1920, decedent executed and delivered to his wife an instrument of gift purporting to transfer thereby title to certain stock to his wife, but reserving to himself certain rights and uses with respect thereto, including the right to receive the dividends thereon. Held, that the dividends were income to the decedent.
*930 This proceeding is for the redetermination of deficiencies in income tax of Jesse T. Duryea, deceased, for the calendar years 1923 and 1924 in the amounts of $3,415.96 and $28,022.35, respectively. The petition alleges error as follows:
(1) Failure to allow as a deduction from taxable income for 1923 a "net loss" which the taxpayer had sustained for the calendar year 1922.
(2) Erroneous inclusion as dividends on taxpayer's returns of $25,373.16 for 1923 and $44,403.03 for 1924.
(3) Failure to allow ordinary and necessary business expenses of $3,140.32 and $1,290.90 sustained by taxpayer for 1923 and 1924, respectively.
At the hearing petitioner abandoned allegations (1) and (3).
FINDINGS OF FACT.
*1785 The taxpayer, Jesse T. Duryea, died on January 30, 1927, and this proceeding was instituted by the duly appointed and qualified representatives of his estate.
Upon several different occasions prior to 1920 the decedent had told his wife, Martha Duryea, and had stated to friends, that he intended to give her a certain number of shares of stock in the Pierce, Butler & Pierce Manufacturing Corporation, and on or about January 5, 1920, he handed her the following instrument, saying to her that it was a gift of said shares:
*931 In consideration of love and affection, I do hereby irrevocably give, assign and transfer unto my Wife, Martha Duryea, all of my shares of the Capital Stock of the Pierce, Butler & Pierce Manufacturing Corporation, standing in my name on the books of said Corporation, on this day, namely, 5,291 2/3 shares, and I do hereby irrevocably constitute and appoint Attorney, to transfer the said stock on the books of said Corporation, with full power of substitution in the premises.
This gift, assignment and transfer is made, however, subject to any prior pledges of said stock and also subject to the foregoing terms and conditions. Said stock shall continue*1786 to stand on the books of said Corporation in my name for such period as I may desire, and I shall have the right during my lifetime to receive dividends thereon in such amount as I may deem necessary for my requirements, and I am also to have the right to make changes in said shares, and to pledge or re-pledge the same for any loan or loans now made or which may hereafter be made on said stock as collateral, and with her consent to sell and dispose of any of the same.
In witness whereof I have hereunto subscribed my hand, and affixed my seal this 5th day of January, 1920.
(Signed) J. T. DURYEA
In presence of
(Signed) C. F. BENNETT
G. BOENAUThis instrument was accepted by Martha Duryea and deposited in her safe-deposit box, where it remained until after decedent's death. At the time the instrument was delivered to his wife decedent inquired whether she understood the conditions therein contained, to which question she replied in the affirmative, and accepted the instrument with knowledge of said conditions. On a number of occasions subsequent to the delivery of the aforesaid instrument and in the presence of friends the decedent referred to the fact that he had made*1787 a gift of certain stock to his wife.
Subsequent to the delivery of the instrument dated January 5, 1920, and on January 12, 1920, the following agreement was entered into by decedent and his wife:
NEW YORK, January 12, 1920.
It is mutually agreed by the parties hereto that in consideration of the loan of securities by Martha Duryea to J. T. Duryea, such stock to be used to collateralize certain Syndicate and other loans, that one-half (1/2) of the profits derived from such syndicates shall be paid to the said Martha Duryea, and that all stock shall be returned to her at the closing of such syndicates.
(Signed) MARTHA DURYEA
J. T. DURYEAWITNESS:
(Signed) ROGER MORTON
HELEN R. D. MORTON.
After January 5, 1920, the said shares of stock continued to stand in decedent's name on the books of the corporation, and the dividends paid thereon were collected by him. At no time during decedent's life did Martha Duryea have possession of the Pierce, Butler & Pierce stock, and except for the aforesaid stock she owned no other *932 corporate stocks during the years 1920 to 1924, inclusive, nor did she receive any dividends during said period from any other stocks*1788 whatsoever.
From time to time decedent borrowed corporate stock from other people to use as collateral, some of which was temporarily transferred to his name. In those cases where the said stock stood in his name he received the dividends and made a book record thereof and in other cases the dividend checks were made payable directly to the record owner of the stock.
Late in 1923 the decedent instructed a certified public accountant, who had been preparing his income-tax returns and the returns for his wife, to collect data necessary to open a separate set of books for him and one for his wife. The accountant submitted a statement of decedent's assets and liabilities, and a record of Mrs. Duryea's account from 1920 down to about January 1, 1924. As of January 1, 1924, the accountant opened a separate set of records, consisting of a journal (the journal being divided in two parts, one part for Duryea and the other for his wife) and a ledger, for decedent and a similar set for decedent's wife. The journal of Martha Duryea contains the following opening entry:
| January 1, 1924 | Dr. | Cr. | |
| Sundries: | |||
| To Martha Duryea, Capital for assets on hand at this date | 1 | 701,960.84 | |
| Pierce, Butler & Pierce Mfg. Corpn. Common Stock: | |||
| 6343.29 shares at par | 20 | 634,329 | |
| Jesse T. Duryea: | |||
| Amount due from him | 10 | 67,631.84 | |
| Received by him | Expended by him | ||
| Year 1920 | |||
| Divds PB&P Stock | 35,581.19 | ||
| Year 1921 | |||
| Dividends PB&P Stock | 12,506.53 | ||
| Real estate taxes | 1,338.97 | ||
| Interest on mortgage | 720. - | ||
| 1920 N.Y. State Income Tax | 611.62 | ||
| 1920 U.S. Income Tax | 2,642.98 | ||
| 5,313.57 | |||
| Year 1922 | |||
| Dividends PB & P Stock | 4,228.86 | ||
| Interest on mortgage | 720. - | ||
| Real estate taxes | 1,377.88 | ||
| 1921 N.Y. State Income Tax | 84.48 | ||
| 1921 U. S. Income Tax | 105.08 | ||
| 2,287.44 | |||
| Year 1923 | |||
| Dividends PB & P Stock | 25,373.16 | ||
| Interest on mortgage | 626.25 | ||
| Real estate taxes | 1,819.34 | ||
| N.Y. State Income Tax | 11.30 | ||
| U.S. Income Tax | |||
| 2,456.89 | |||
| 77,689.74 | 10,057.90 | ||
| One half interest in profit of Syndicates | |||
| P.B. & P. Mfg. Corpn. Stock (when realized) | |||
| To Martha Duryea Capital | 1 | ||
| Due when realized from J. T. Duryea |
*1789 *933 The $67,631.84 liability of the decedent to his wife was shown as such in his opening journal entries as of January 1, 1924, and in the account of Mrs. Duryea appearing on page 101 of decedent's ledger there is an opening credit entry on that date of that amount, together with further credits for dividends on the common stock of Pierce, Butler & Pierce Manufacturing Corporation in the following amounts on the dates stated:
| January 15, 1924 | $12,686.58 |
| April 16, 1924 | 12,686.58 |
| July 15, 1924 | 6,343.29 |
| October 16, 1924 | 12,686.58 |
| Total | 44,403.03 |
The income and expense account in the ledger of Mrs. Duryea for 1924 showed those amounts as income.
At the time of decedent's death the credit balance of Martha Duryea's account had increased to $204,381.85, practically all of the increase resulting from the receipt of dividends by decedent and crediting same to his wife's account. After decedent's death his books of account were used as a basis for opening a separate set of records for his estate.
After decedent's death his personal representatives transferred the stock referred to in the instrument dated January 5, 1920, to Mrs. Duryea. They also*1790 distributed to the owners thereof certain stock held in his name, which had been borrowed by decedent from other people.
The estate up to the date of hearing was still in process of administration and neither the accounts of the personal representatives nor the instruments hereinabove set forth had been considered and approved by a court of competent jurisdiction.
In making her Federal income-tax returns for the calendar years 1920 to 1924, inclusive, Martha Duryea included the dividends received by decedent from the Pierce, Butler & Pierce Manufacturing Corporation stock as her taxable income and paid the taxes due thereon. In each of these years the sole item of income which she reported was dividends from Pierce, Butler & Pierce Manufacturing Corporation stock. For 1923 and 1924 she reported income from dividends in the amounts of $25,373.16 and $44,403.03, respectively. The Commissioner added these dividends to the decedent's income for the years in question. In reporting her income under the New York State income-tax law, Martha Duryea included the dividends collected by decedent in her income for the calendar years 1920 to 1924, inclusive, and paid taxes thereon to*1791 the State.
*934 OPINION.
MORRIS: Due to the abandonment by the petitioners of two of the three issues presented by the pleadings, there is but one question left for consideration, namely, whether the dividends on the Pierce, Butler & Pierce Manufacturing Corporation stock received by the decedent in 1923 and 1924 were erroneously included in his gross income for said years.
The petitioners contend that the gift of stock to the decedent's wife on January 5, 1920, includid the ownership of the dividends, and, therefore, that decedent's income has been erroneously increased by including therein dividends belong to Mrs. Duryea. Their construction of the word "receive" used in the instrument in connection with the dividends is that the grantor intended thereby to reserve the right only to borrow such of the dividends as he might deem necessary for his requirements. The respondent contends that the decedent never effectually gave his wife anything, and that the limitations and conditions attached to the gift were such that the decedent retained the control, dominion, possession and benefits of the alleged gift to himself.
In our view of the case it is unnecessary to*1792 decide whether the decedent made an actual gift of the stock to his wife. Assuming that there was such a gift, the position most favorable to the petitioners, the questions remain whether the gift included the dividends or the same were specifically reserved by him, and if reserved, whether they were taxable to him or his wife.
We are unable to agree with the petitioners that the language in the instrument reading "I shall have the right during my lifetime to receive dividends thereon in such amount as I may deem necessary for my requirements" is merely an authorization to the grantor to borrow dividends to the extent of his needs from his wife. The language is clear and unambiguous that the grantor was excepting the dividends from the gift. The reservation is so broad and unlimited in its scope that decedent could have retained all of the dividends during his lifetime if he so desired, , and it is a matter of record that decedent actually collected them and used the money as his judgment dictated. Except for paying certain taxes and interest obligations of his wife, the record does not show that any of the income collected*1793 by him was paid to her. Certain book entries were made as of January 1, 1924, when an accountant opened a separate set of records for the decedent and his wife, showing the decedent indebted to his wife to the extent of the dividends in question, but between the dates of the execution of the agreement and the decedent's death, a period *935 of seven years, the wife did not receive any of the dividends. The language of the instrument of January 5, 1920, being clear, and the actual retention of the dividends by the decedent, in accordance with the contract, indicate the decedent's intention to reserve the dividends for his own use and enjoyment.
In , which reversed the Board's opinion at , on the theory that there was a gift of certain securities with a reservation of the income therefrom by the donor, it was held that the donee was not taxable upon the dividends, although the stock was transferred to his name on the books of the several corporations and he actually received the dividends and paid them over to the donor. The court used the following language:
*1794 * * * In the instant case, at the time of the execution of this contract, Catherine Bettendorf was the absolute owner of these securities, and as an incident to such ownership she was entitled to all the earnings or dividends derived therefrom. By her contract, however, she transferred the legal title to the stock, but by the terms of this same contract she retained and reserved to herself the right to the income during her life. The income was, therefore, at no time that of the petitioner, because by the very contract under which he held the legal title, he was bound to account to the donor for the income.
The facts in the instant case are even stronger for the conclusion reached by the court, as the stocks remained in the decedent's name, and the dividends were paid to and used by him. We conclude that the respondent did not err in including the dividends in the decedent's income.
Decision will be entered for the respondent.