*981 1. Several years prior to the taxable years petitioner created irrevocable trusts for his two minor daughters. The trustee was directed upon the written request of the grantor to pay over to the grantor $3,000 of the income in any one year for the support and maintenance of the minors and if the income was not sufficient he was required to invade the principal. In the taxable years one of the daughters had reached her majority and was married and the other was a minor and was living with petitioner. Held, $3,000 of the income of the trust for the unmarried minor daughter is taxable to petitioner under section 167(a)(2), Revenue Act of 1934, even though only small amounts of the income of the trust were actually paid to petitioner in each of the taxable years; held, further, that none of the income of the trust for the married daughter is taxable to petitioner, he not being legally liable for her support and maintenance and the trustee being vested with the discretion to pay over the income to the daughter after her marriage and having actually done so except $250 which was paid to petitioner but not used by him and was promptly paid over to the married daughter.
2. *982 Where the trusts provided that, in the event of the death of the beneficiaries without issue prior to the death of the grantor, the trustee should pay over the principal of the trusts together with any accumulation of income thereon to the grantor, held, that under such provisions there is only the mere possibility of a reverter to the grantor and this does not make the income taxable to the grantor under the provisions of section 166 and section 167(a)(1), Revenue Act of 1934. William E. Boeing,37 B.T.A. 178">37 B.T.A. 178, followed.
*774 In these proceedings, which have been consolidated, the Commissioner has determined deficiencies in income tax against petitioner of $3,127.55 for the year 1934 and $1,867.66 for the year 1935. The deficiencies result from the inclusion by the Commissioner in petitioner's *775 income for the year 1934 of the income from the Martha Elizabeth Pyeatt trust and the income from the Frances P. Sargeant (formerly Frances P. Pyeatt) trust, and from the inclusion in petitioner's income for the year 1935 of the income*983 from the Martha Elizabeth Pyeatt trust.
The petitioner, by appropriate assignments of error, contests the correctness of this action by the Commissioner. Although there was only one trust indenture, the parties seem to agree that it created two separate trusts and we shall so treat it.
FINDINGS OF FACT.
Petitioner, J. S. Pyeatt, is an individual, and during the years 1934 and 1935 was a resident of the State of Colorado, maintaining a home throughout those years in Denver. Petitioner is at present a resident of Cleveland, Ohio.
During the year 1923 petitioner, by a single indenture, created irrevocable trusts for the benefit of each of his two daughters, Martha Elizabeth, sometimes hereinafter referred to as Martha, and Frances Edith Pyeatt (now Frances P. Sargeant), sometimes hereinafter referred to as Frances, of which trusts the Chase National Bank of the City of New York was substituted as trustee during the year 1925.
The Chase National Bank of the City of New York, as trustee of the Martha Elizabeth Pyeatt trust, received $6,911.36 during the year 1934, consisting of $147.69 tax-free municipal bond interest, corporation bond interest of $5,226.31, and dividends*984 of $1,537.37. Of this above income $266.93 was distributed to petitioner during such year and he used it to pay the income tax of Martha due in that year. The balance was accumulated until Martha became twenty-one years of age, at which time it was distributed to her.
During the year 1935 said trustee of the Martha Elizabeth Pyeatt trust received a total net income of $7,712.70, consisting of $46.11 tax-free municipal bond interest, $4,890.84 corporation bond interest, and $2,775.75 in dividends. During that year $932.68 of the income was distributed to petitioner, and the balance was accumulated and distributed to Martha when she attained the age of twenty-one years. Of the amount of $932.68 distributed to petitioner in 1935, petitioner used $182.36 to pay Martha's income tax due in 1935, and the balance of $750 was turned over to her to be used in defraying the cost of her own support and maintenance for the months of October, November, and December of 1935.
The Chase National Bank of the City of New York, as trustee of the Frances Edith Pyeatt (now Frances P. Sargeant) trust, received a total net income during the year 1934 of $5,990.12, consisting of $164.20 tax-free*985 municipal bond interest, $4,425.42 *776 corporation bond interest, and $1,400.50 dividends. This income was distributed to Frances after she became twenty-one years of age, which was on January 14, 1934, except for $250 which was paid to petitioner in 1934 prior to January 14, by check to him, which he immediately endorsed and paid over to Frances.
The purposes of the trust indenture of February 9, 1923, are stated therein in part as follows (the numbering of the paragraphs is ours):
1
To divide said capital stock and any additions that may be made to this trust into two equal parts or shares and to have and to hold said shares unto the said Trustee, its successors and assigns, during the lives of Frances Edith Pyeatt, born January 14th, 1913, and Martha Elizabeth Pyeatt, born September 2nd, 1915, daughters of the Grantor, respectively; to sell and convert the same as hereunder directed and to invest and keep the proceeds invested without limitation to securities designated as legal investments for trustees in the State of New York; * * *
2
To collect and receive the profits and income thereof and to pay or apply the net income from one of said equal shares and so*986 much of the principal thereof as shall be required as hereinafter provided to or for the use of the said Frances Edith Pyeatt for her support, maintenance and education and upon her death, without issue during the continuance of this trust, to pay or apply such net income and so much of the principal as shall be required, as hereinafter provided, to or for the use of her said sister, Martha Elizabeth Pyeatt.
To pay or apply the net income from the other one of said equal shares and so much of the principal as shall be required, as hereinafter provided, to or for the use of the said Martha Elizabeth Pyeatt for her support, Maintenance and education, and upon her death, without issue during the continuance of this trust, to pay or apply such net income and so much of the principal as shall be required, as hereinafter provided, to or for the use of her said sister, Frances Edith Pyeatt.
3
In event of the death of said Frances Edith Pyeatt and Martha Elizabeth Pyeatt before the termination of this trust, without issue surviving, then said Trustee is directed to pay over the principal of said trust funds, together with any accumulations of income thereon, to the Grantor, or, if*987 he be not living, to his wife, Myra Loy Pyeatt, or if she be not living, to those persons who would be entitled to inherit the estate of the Grantor in accordance with the Intestacy Laws of the State of New York.
4
On January 1, 1943, unless sooner terminated, as hereinabove provided, the Trustee shall pay over to the said Frances Edith Pyeatt and the said Martha Elizabeth Pyeatt the principal of such trust fund so held for each of them, respectively, or if either of them shall have died without leaving surviving *777 issue, then the Trustee shall pay to the survivor the entire amount of the principal of both of said trusts and the trust hereby created shall thereupon terminate.
5
After the said Frances Edith Pyeatt and Martha Elizabeth Pyeatt shall have respectively attained the age of fifteen years, the Trustee on the written request of the Grantor, or of Myra Loy Pyeatt, his wife, or if neither Grantor nor his wife shall be living, then on the written request of the guardian of the said daughters during their respective minorities, shall pay out of the principal of their respective trust funds a sum or sums which, added to the income, shall provide a maximum payment*988 for their respective support and maintenance of three thousand dollars ($3,000) each in any one year, and after the said Frances Edith Pyeatt and Martha Elizabeth Pyeatt shall have respectively attained the age of twenty-one years, the Trustee shall on request of the Grantor or his wife, or if neither be living, then on request of the executor of the will of either of them, pay out of the principal of their respective trust funds a sum which, added to the income, shall provide a maximum payment of Four thousand dollars ($4,000) each for their respective support and maintenance in any one year, until the termination of the trust hereby created.
During the minority of the said Frances Edith Pyeatt and Martha Elizabeth Pyeatt respectively, the payments herein provided shall be made to either of their parents whose receipt therefor shall be a complete discharge and acquittance of the Trustee.
6
In event of the death of said parents during the minority of the said Frances Edith Pyeatt and Martha Elizabeth Pyeatt, or in the event that either of said beneficiaries shall marry before the termination of the trusts hereby created, or in the event either of said beneficiaries shall die*989 leaving issue to take interests under this agreement, the Trustee is to have absolute and sole discretion in the matter of disbursing the income to the end that the whole thereof shall be applied exclusively to and for the support, maintenance and education of those whom this agreement is intended to protect and benefit, and to this end, the Trustee shall require, if necessary, a submission of vouchers before disbursing such income.
The Trustee shall retain the securities deposited hereunder during the lifetime of the Grantor, and unless and until directed by him to dispose of them. Any reinvestments of the trust fund shall be made as directed by the Grantor during his life, without limitation to the class of securities in which trustees are permitted to invest, and the Trustee may continue to hold such investments, as well as the securities originally deposited hereunder, after the death of the Grantor; but in making new investments thereafter shall choose such securities as are designated as legal investments for trustees under the laws of the State of New York.
During the years 1934 and 1935 petitioner's daughter Martha lived with petitioner at Denver, Colorado, except for*990 about nine months of each year during which time she was away at school. Petitioner expended, from his personal funds for the support, maintenance, and education of Martha, during the year 1934, approximately $2,800, and during the year 1935 approximately $2,500.
*778 Petitioner, by executing the trust indenture of February 9, 1923, intended to provide a means for the education of his daughters in the event he died or anything happened whereby he would not have the funds with which to educate them.
In setting up the trusts it was petitioner's intention that a maximum of $3,000 per annum out of the income of the trusts should be payable from the trusts for the support, maintenance, and education of each of his daughters while they were under twenty-one years of age, and, if the income of the trusts was not sufficient to pay $3,000 each year for the support and maintenance of each minor, then so much of the principal of the trusts as might be necessary to make up the full $3,000 was to be paid over by the trustee. Such amounts were payable during his lifetime upon written request of petitioner. No requests for payments in the years 1934 and 1935, except for the amounts*991 actually paid by the trustee in those years, were made.
Frances Edith Pyeatt was married in September 1933 and lived in her own home during 1934.
In his determination of the deficiency against petitioner for the year 1934 the Commissioner, in explanation of the adjustments hereinbefore referred to, simply stated: "The income from the Martha Elizabeth Pyeatt Trust and from the Frances P. Sargeant Trust * * * is held to be income taxable to you, the grantor of the trusts."
The Commissioner, in his determination of the 1935 deficiency against petitioner, gave the following explanation of his action: "In accordance with section 166 of the Revenue Act of 1934 and the terms of the trust instrument, the income from the Martha Elizabeth Pyeatt Trust * * * is taxable on your return of income."
OPINION.
BLACK: The Commissioner has not made very clear his position in these proceedings. He has included in petitioner's income for 1934 all the taxable income of two trusts which in a prior year petitioner had established for his two daughters, Frances and Martha. In his deficiency notice for 1934 the Commissioner does not explain the ground upon which he included the income of these*992 two trusts in petitioner's income. For 1935 the Commissioner included in petitioner's income the income of the trust for Martha, but not the income of the trust for Frances. In justification of his action for 1935 the Commissioner cites section 166 of the Revenue Act of 1934.
Inasmuch as Frances married in 1933 and throughout the year 1934 was living with her husband in her own home and all of the 1934 income of the trust created for her benefit was paid to her by *779 the trustee, except $250 which was paid to petitioner just prior to January 14, 1934, and was immediately paid over to Frances by him, we hold that none of the 1934 income of the trust for Frances is taxable to petitioner. The reasons for this holding will be given more at length later on.
We shall now take up the question of the taxability to petitioner of the income in 1934 and 1935 of the trust for Martha. In both of these years Martha was a minor and the tax consequences for both years of the income of this trust are the same.
The Commissioner has not filed any brief, but his counsel at the hearing stated that the Commissioner is relying upon *993 Douglas v. Willcuts,296 U.S. 1">296 U.S. 1, and the line of cases decided in pursuance thereof. We presume that the Commissioner's contention that all the income of the trust for Martha for both taxable years is taxable to petitioner is based upon the following language in the trust: "* * * to pay or apply the net income from the other one of said equal shares and so much of the principal as shall be required, as hereinafter provided to or for the use of the said Martha Elizabeth Pyeatt * * *." (Italics supplied.) Evidently the Commissioner has interpreted "as hereinafter provided" to refer only to the principal of the trust and the trust itself to provide that all the income of the trust should be used for the support and maintenance of Martha during her minority. If this were the correct construction of the trust instrument, then unquestionably the Commissioner's contention that Douglas v. Willcuts, supra, applied to all the income of the trust for Martha for both years would be correct. Cf. Helvering v. Stokes,296 U.S. 665">296 U.S. 665. However, we do not construe the language above mentioned to refer only to the principal of the trust, *994 but construe it to also apply to the income and to provide that both shall be distributed "as hereinafter provided." When we look to the trust instrument to find out what provision is "hereinafter provided" for distribution for the support and maintenance of the minor, we find the language contained in paragraph 5 of the trust instrument as set out in our findings of fact. The language in paragraph 5 in some parts is not free from ambiguity. That is true as to the provision for a maximum distribution of $3,000 for the support and maintenance of the minor in any one year. We construe the meaning of the language of the trust in this respect to mean substantially this: The trustee shall pay out of income a maximum amount of $3,000 for the support and maintenance of the minor in any one year. This shall be paid upon the written request of the grantor or his wife, Myra Loy Pyeatt, and if the income is not sufficient for that purpose then the trustee shall invade the principal to make up the full $3,000.
*780 The testimony at the hearing was to the effect that both the grantor and the trustee interpreted the trust indenture as above indicated in their dealings with the trust. *995 We think the trust indenture is fairly susceptible to the construction which has been given it by the parties thereto. Therefore we hold that Douglas v. Willcuts, supra, does not apply except as to the maximum of $3,000 of the income which within the discretion of the grantor could be used for the support and maintenance of Martha. See our discussion in Jay C. Hormel,39 B.T.A. 244">39 B.T.A. 244. Cf. Phebe Warren McKean Downs,36 B.T.A. 1129">36 B.T.A. 1129; Hudson v. Jones,22 Fed.Supp. 938.
Petitioner relies upon E. E. Black,36 B.T.A. 346">36 B.T.A. 346, and other similar Board and court cases to support his contention that he is taxable only on the small amounts of income which he actually received from the trust in the two taxable years. These amounts are shown in our findings of fact. The Black case held in substance that, where the trust instrument confers upon the trustee the discretion to use all or part of the income of the trust for the support and maintenance of the minor and the evidence shows that none of the income was so used, then none of the income of the trust is taxable to the grantor who was legally liable*996 for the support and maintenance of the minor. To the same effect is Hudson v. Jones, supra;Higgins v. White, 93 Fed.(2d) 357. See G.C.M. 18972, Cumulative Bulletin, 1937-2, p. 231, which cites the Black case.
We do not think the foregoing authorities are applicable to the facts of the instant case. The discretion as to what part of the income of the trust should be used for the support and maintenance of the minor was not left to the trustee. That discretion was left to the settlor of the trust, petitioner herein, upon whom rested the legal obligation to support and maintain Martha during her minority. He was limited, however, to $3,000 which he could draw in any one year. The income in 1934 was ample to pay the full $3,000 without invading any part of the principal. It is true petitioner drew only $236 from Martha's trust in 1934, but he might have drawn the full $3,000 if he had so desired. The only reason that he did not draw it was because he did not care to, but preferred to pay most of Martha's expenses out of his own pocket. We think that in such a situation section 167(a)(2) of the Revenue Act of 1934 would be applicable*997 to $3,000 of the income of the trust, even though only $236 was withdrawn. That section reads: "(a) Where any part of the income of a trust * * * (2) may, in the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such part of the income, be distributed to the grantor * * * then such part of the income of the trust shall be included in computing the net income of the grantor."
*781 In such a case the doctrine of the Supreme Court in Corliess v. Bowers,281 U.S. 376">281 U.S. 376, as well as the express language of the foregoing statute applies. "The income that is subject to a man's unfetered command and that he is free to enjoy at his own option may be taxed to him as his income, whether he sees fit to enjoy it or not."
The stituation in the instant case, as we have already remarked, is distinguishable from that which existed in E. E. Black, supra, and that line of cases. In those cases the settlor could not go to the trustee and demand all or part of the income within his own discretion. He could get only such part of the income as the trustee, within the exercise of his discretion, might*998 pay to the settlor. In such latter circumstances, as we have already pointed out, the Board and the courts have held that, where the evidence shows that none of the income was used for the support and maintenance of the minor, the income of the trust is not taxable to the settlor.
As we have already stated, the Commissioner in his deficiency notice for the year 1935 justified his action by a reference to section 166 of the Revenue Act of 1934. Section 166 reates to revocable trusts as to corpus. The trusts in he instant case were not revocable as to corpus and we think section 166 has no application.
It might be contended that all the income of the trusts herein was taxable to petitioner under section 167(a)(1) because the trust indenture contains a provision which reads: "In event of the death of said Frances Edith Pyeatt and Martha Elizabeth Pyeatt before the termination of this trust, without issue surviving, then said Trustee is directed to pay over the principal of said trust funds, together with any accumulations of income thereon, to the Grantor * * *." Undoubtedly, under the doctrine of *999 Kaplan v. Commissioner, 66 Fed.(2d) 401, such a contention would be plausible. There, the court, in construing a statute substantially the same in language as section 167(a)(1) of the Revenue Act of 1934, said: "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." (Italics ours.) The Kaplan case, supra, was decided July 24, 1933, which was prior to the Supreme Court's decision in Helvering v. St. Louis Union Trust Co.,296 U.S. 39">296 U.S. 39, and Becker v. St. Louis Union Trust Co.,296 U.S. 48">296 U.S. 48, in which it was held that such a provision in a trust as we have quoted above from the Martha trust was a mere "possibility of reverter" and was not sufficient to require an inclusion in the decedent's estate of property conveyed in trust by decedent in his lifetime. Plainly, the language which we have quoted from the Kaplan case, supra, has been narrowed by these later decisions of the Supreme Court.
*782 We cited these Supreme Court cases as our authority for holding*1000 in William E. Boeing,37 B.T.A. 178">37 B.T.A. 178, that the income of a trust was not includible in the grantor's income although the trust instrument contained a possibility of a reverter if the beneficiary should die before reaching the age of thirty and prior to the death of the grantor. See also John Edward Rovensky,37 B.T.A. 702">37 B.T.A. 702; Meredith Wood,37 B.T.A. 1065">37 B.T.A. 1065; Henry A. B. Dunning,36 B.T.A. 1222">36 B.T.A. 1222.
Therefore, under authority of the foregoing cases, we hold that the income of the trusts is not taxable to petitioner because of the fact that under the terms of the trust both the accumulated income and the corpus of the trust might revert to petitioner if Frances and Martha died prior to petitioner and provided also they died without issue. Another reason, aside from any of the reasons given in the foregoing opinion as affecting the trust for Martha, as to why none of the income from the trust for Frances should be taxed to petitioner, is that Frances married in 1933 and was living with her husband in her own home in 1934. The trust indenture provided: "* * * in the event that either of said beneficiaries shall marry before*1001 the termination of the trusts hereby created, * * * the Trustee is to have absolute and sole discretion in the matter of disbursing the income to the end that the whole thereof shall be applied exclusively to and for the support, maintenance and education of those whom this agreement is intended to protect and benefit, and to this end, the Trustee shall require, if necessary, a submission of vouchers before disbursing such income." See paragraph 6 of the trust indenture set out in our findings of fact.
A representative of the trustee testified at the hearing and said that the trustee, acting under the foregoing provisions of the Frances trust, exercised its discretion and paid over all the income of the trust for Frances in 1934 to her except the $250 which was paid to petitioner shortly prior to January 14, 1934, the date when Frances became twenty-one years of age. The trustee did not explain why this $250 was paid over to petitioner, but petitioner testified that the check was promptly endorsed by him and paid to Frances. It was not used to discharge any legal obligation of petitioner, cf. *1002 Douglas v. Willcuts, supra, because Frances was married and living in Denver, Colorado. Under the laws of Colorado a parent is not legally liable for the support of his married daughter. Perkins v. Westcoat,3 Colo. App. 338">3 Colo.App. 338. See also 46 Corpus Juris, sec. 46, p. 1269. We hold, therefore, that the $250 which was paid to petitioner in 1934 from the income of the trust for Frances and was in turn paid over to Frances by him is not taxable to petitioner.
*783 In conformity with the foregoing opinion, we hold that none of the income of the trust for Frances is taxable to petitioner in 1934, and that $3,000 of the income from the trust for Martha is taxable to petitioner in each of the years 1934 and 1935, which includes the comparatively small amounts that were actually distributed to him in those years.
Reviewed by the Board.
Decision will be entered under Rule 50.