1932 BTA LEXIS 1110">*1110 A trust is not revocable within the meaning of sections 166 and/or 167 of the Revenue Act of 1928 where the grantor's power to alter, amend or revoke the trust can be exercised only in conjunction with the two trustees who are contingent beneficiaries of the trust.
27 B.T.A. 171">*171 The respondent has determined a deficiency in income tax for 1928 in the amount of $1,909.92, which arises from his determination that a certain trust created by the petitioner was revocable and that the entire net income thereof, including profit from the sale of trust securities, was taxable to her; that the basis for computing profit on the sale of securities by the trustees is cost to a prior trust of which petitioner was beneficiary; and that petitioner was not entitled to a deduction for charitable contributions in the amount of $856.30. At the hearing the respondent conceded the deduction for charitable contributions and stipulated with the petitioner that, if the Board should find that the basis for computing profit on the sale of securities was the fair market value1932 BTA LEXIS 1110">*1111 at the date transferred to the trust, then the net income determined by the respondent should be reduced by the amount of $9,666.29.
FINDINGS OF FACT.
The petitioner is an individual, residing in Boston, Massachusetts. On July 1, 1927, she conveyed all her property rights as sole beneficiary of a certain trust, together with certain property acquired by her from the estate of Emily C. Roberts, to Charles H. Jones, her husband, and Paul Jones, her son, as trustees, to hold the property during her life and pay over the net income to her annually. Upon her death the property was to be transferred as she might by will 27 B.T.A. 171">*172 appoint, or, in default of appointment, one-third to Charles H. Jones and the remainder to her issue then living by right of representation. The trust instrument provided that Bessie R. Jones could amend, alter or revoke the trust at any time by an instrument in writing signed and sealed by her and by all of the trustees. During the taxable year the trustees were Charles H. Jones and Paul Jones.
The trust from which the petitioner acquired certain of the properties conveyed in trust on July 1, 1927, had been created on February 2, 1903, by the petitioner1932 BTA LEXIS 1110">*1112 and two others, who paid in to the trust the proceeds from the sale of certain real estate inherited by them. The trustees invested and reinvested the funds thus acquired by them until 1927, when the petitioner, having become the sole survivor of the trust, directed, by instrument dated September 15, 1927, that all of the trust property be transferred to the trustees of the July 1, 1927, trust. Included in such assets were numerous securities acquired by the trustees at various times between 1903 and 1927. During the taxable year some of the securities so acquired were sold by the trustees of the July 1, 1927, trust and a profit was realized.
On the petitioner's income tax return for 1928 she reported as income the ordinary net income of the trust. Upon the fiduciary income tax return filed by the trustees for the same year they reported as income taxable to them a profit of $10,170.45 from the sale of certain securities, which was computed on the basis of the fair market value when transferred by the trustees of the 1903 trust to the 1927 trust, namely, September 15, 1927. Upon audit of the returns the respondent determined that the trust created July 1, 1927, was revocable1932 BTA LEXIS 1110">*1113 within the meaning of sections 166 and/or 167 of the Revenue Act of 1928 and that all of the income, including profit from the sale of securities, was taxable to the petitioner. He determined that the basis for computing profit from the sale of securities acquired from the 1903 trust was cost to such prior owner or March 1, 1913, value and accordingly increased the profit reported.
OPINION.
LANSDON: Sections 166 and 167 of the Revenue Act of 1928 provide that, where the grantor of a trust has the power "either alone or in conjunction with any person not a beneficiary of the trust" to divert to himself either the corpus or income of the trust, he shall be taxable on such income or the income from such corpus. In the instant case the power to revoke was in conjunction with the two trustees who were beneficiaries of the trust in the event the grantor did not exercise the power of appointment reserved to her. The respondent contends that such a contingent beneficial interest was 27 B.T.A. 171">*173 not contemplated by the word "beneficiary" as used in sections 166 and 167 of the Revenue Act of 1928. In 1932 BTA LEXIS 1110">*1114 , however, where the Circuit Court of Appeals for the First Circuit reversed the Board's decision reported in , it was held that the word "beneficiary" included all classes of beneficiaries under the trust. In the course of its discussion the court stated:
It would seem that Congress did not intend, by the use of the term "beneficiary" in Section 219(g) only a beneficiary having a present vested interest, but intended to include within that term a beneficiary or beneficiaries having contingent interests as well as those having present or vested ones.
Undoubtedly Congress could have drawn a line between beneficiaries holding vested and contingent interests, or between those having contingent interests based on their respective degrees of remoteness, but it has done neither of these things. It is, therefore, far more reasonable to conclude that by the word "beneficiary" Congress intended to include persons or classes of persons designated, in the particular trust under consideration, entitled to take present or contingent interests thereunder.
1932 BTA LEXIS 1110">*1115 In accordance with the opinion of the Circuit Court in the Smith cash which is controlling here, we conclude that the trust of July 1, 1927, was not revocable within the meaning of sections 166 and/or 167 of the Revenue Act of 1928. Cf. ; and . It follows that petitioner is taxable on the ordinary net income only.
Since no part of the profit from the sale of the trust assets is taxable to the petitioner, it is unnecessary for us to determine the basis for computing such profit.
Reviewed by the Board.
Decision will be entered under Rule 50.
MURDOCK concurs in the result.