*24 Decisions will be entered under Rule 50.
1. Petitioners are husband and wife, domiciled in Texas. On November 14, 1935, each petitioner created a trust having a corporate trustee and an advisory committee of three persons and provided that the net income of each trust was to be paid to the other as the advisory committee might direct for life, with remainder over to others. On June 14, 1935, each petitioner created a trust having a corporate trustee and an advisory committee of three persons and provided that the net income of each trust was to be paid to the other as the advisory committee might direct for life, and upon the death of the life beneficiary the corpus was to become a part of the life beneficiary's estate, distributable in accordance with his or her will or, in case of intestacy, under the Texas law of descent and distribution. Held, under the principles enunciated in Lehman v. Commissioner, 109 Fed. (2d) 99, these four trusts are reciprocal trusts and the net income therefrom is taxable to petitioners under section 167 (a) (2) of the Internal Revenue Code and as community income under the laws of Texas. Commissioner v. Porter, 148 Fed. (2d) 566.
*25 2. On June 14, 1935, petitioner Edgar Tobin created three trusts, each having a corporate trustee and an advisory committee of three persons. The net income was payable in the discretion of the advisory committee to the primary beneficiaries, consisting of his mother, daughter, and son, for life, with remainder over to others. On June 14, 1935, petitioner Margaret Batts Tobin created a trust having a corporate trustee and an advisory committee of three persons. The net income of this trust was payable in the discretion of the advisory committee to her son for life, with remainder over to others. All trusts were irrevocable and no part of the corpus or income could revert to the respective grantor. Each petitioner was a member of each advisory committee. Held, the net income of these four trusts is not taxable to petitioners under section 22 (a) of the Internal Revenue Code.
3. Upon the evidence, held, petitioners have failed in their proof to show error on the part of the respondent in disallowing certain deductions claimed for farm expenses.
4. Petitioners in 1943 deducted as a community business expense certain amounts paid to four trusts for storage of equipment used*26 in petitioners' business. The respondent did not disturb the deduction taken, as such, but did include the income of the trusts, including the storage charges paid to the trusts, in petitioners' community income. Under issue 1 we held such inclusion was proper except for one trust. Petitioners have assigned as error the disallowance by respondent of the entire amount paid to the four trusts. Held, since under issue 1 three of the trusts are not recognized as valid trusts for income tax purposes, the respondent's determination as to such trusts, including the storage charges involved, is sustained; held. further, that the storage charges paid to the fourth trust are deductible by petitioners as an ordinary and necessary business expense.
5. Held, petitioners are not entitled to a credit against the deficiencies for the tax paid for the years 1940 to 1943, inclusive, by the trustees of the trusts the income of which we held under issue 1 was taxable to petitioners. Leslie H. Green, 7 T. C. 263; affd., 168 Fed. (2d) 994, followed.
*929 These consolidated proceedings involve deficiencies in income tax for the calendar years 1940 to 1943, inclusive, as follows:
| 1940 | 1941 | 1943 | |
| Margaret Batts Tobin | $ 19,356.25 | $ 26,275.42 | $ 42,883.15 |
| Edgar G. Tobin | 19,356.25 | 26,275.42 | 42,879.62 |
The deficiencies are due to numerous adjustments made by the respondent in the net community income as reported by petitioners in their returns, some of which were contested by appropriate assignments of error and some of which were not contested. The noncontested adjustments need not be considered.
The principal adjustment contested by petitioners is a holding by the respondent that the income of three trusts created in 1935 by Margaret Batts Tobin and the income of five trusts created in 1935 by Edgar G. Tobin represented taxable community income to petitioners for the taxable years 1940 to 1943, inclusive, in the total amounts of $ 64,021.28, $ 79,751.86, $ 51,424.37, and $ 89,602.76 (consisting of net income of $ 73,575.37 and capital*29 gain of $ 16,027.39), respectively. The other adjustments contested by petitioners consisted of holdings by the respondent that certain amounts claimed as net farm expenses by the community for the taxable years 1940 and 1941 and by four of the trusts to which the farm was transferred during 1943 for the taxable year 1943 did not represent allowable deductions for those years; that an amount of $ 1,840 claimed as storage and care of equipment on the Oakwell farm by the community for the taxable year 1943 did not represent an allowable deduction for that year; and that an amount of $ 8,225 claimed as a loss from storm and flood damage by the community for the taxable year 1942 did not represent an allowable deduction for that year. Petitioners, by appropriate assignments *930 of error, also allege that they are entitled to a deduction of $ 8,753.98 as net farm expenses by the community for the taxable year 1942 in addition to the amounts disallowed by the respondent for the years 1940, 1941, and 1943.
By a first amendment to the original petitions, petitioners plead in the alternative that, if the income from trust property is held to be taxable to petitioners, then the tax *30 paid thereon by the trusts should be credited upon any deficiency assessed against petitioners as of the dates of payments thereof.
The issues thus raised in both dockets may be summarized as follows:
1. Is the income of the eight trusts for the taxable years 1940 to 1943, inclusive, taxable to petitioners as community income under the provisions of either section 22 (a) or section 167 of the Internal Revenue Code?
2. Are petitioners entitled to deduct from their community income for the taxable years 1940, 1941, and 1942 certain amounts as farm expenses, and, if taxable on the trust income under issue 1, are they also entitled to deduct from their community income for the taxable year 1943 certain amounts as farm expenses paid by four of the trusts to whom the farm was transferred during 1943?
3. Are petitioners entitled to deduct from their community income for the taxable year 1943 an amount of $ 1,840 claimed as storage and care of certain equipment during that year?
4. If the income of the trusts is held to be taxable to petitioners, are they entitled to a credit against the deficiencies for the tax paid by the trustees for the years 1940 to 1943, inclusive?
5. Are petitioners*31 entitled to a loss on account of flood damage in 1942 to the Oakwell farm?
Petitioners in their brief concede the fifth issue, and no further reference will be made to that issue.
FINDINGS OF FACT.
Petitioners are husband and wife and are domiciled in the State of Texas. During the taxable years 1940 to 1943, inclusive, they filed separate returns on the community property basis with the collector at Austin, Texas.
Issue 1. -- Petitioner Edgar G. Tobin, hereinafter sometimes referred to as Tobin, was born and lives in San Antonio, Texas. During World War I he was a commissioned officer in the aviation section of the Signal Corps of the United States Army and flew as a pilot throughout the war. After the war he started selling automobiles in San Antonio. He built up this business to where, after a few years, he had an agency of his own and an income of about $ 500 a month. After *931 Lindbergh flew to Paris in 1927, Tobin purchased a few surplus airplanes that were left over from World War I. About this time he was approached by an individual with a camera who asked Tobin if he would take some aerial pictures of Devil's River for a certain power company which was considering*32 building a dam on the river. Tobin consented to do this, and thereafter he conceived the idea of making aerial photographs for use in the petroleum industry. He interviewed the officials of several of the oil companies, who began to purchase photographs from him spasmodically. About 1929 or 1930, Tobin obtained a contract from the Humble Oil Co. to make an aerial map of the land between the Rio Grande and Sabine Rivers extending inland from the Gulf of Mexico approximately 100 miles, from which contract Tobin received about $ 1,200,000.
As Tobin's business of aerial photography developed, he organized different corporations to perform different functions, so that in 1935 his business was conducted by himself as an individual and by the Edgar Tobin Aero Co., the Tobin Map Co., and Tobin Aerial Surveys, Inc.
Petitioners were married in 1926. They have one son, Robert Batts Tobin, who was born March 12, 1934. Tobin had been married before and had a daughter, Katharine, by his previous marriage. His father had died sometime before 1935, but his mother, Ethel Murphy Tobin, was still living. His parents had always been people of small financial means. Petitioner Margaret Batts Tobin*33 was the daughter of Judge Robert L. Batts of the United States Circuit Court of Appeals for the Fifth Circuit (1917-1919) and Harriet Fiquet Batts of Austin, Texas. Batts resigned from the bench in August 1919 and was thereafter the local attorney for the Gulf Oil Corporation and also represented other oil companies. He had been a man of financial means, but during the depression which began in 1929 he had lost his fortune and was left with heavy debts. In 1935 Tobin and his wife, having in mind his former poverty and her family's recent financial reverses, decided each to try to protect, as far as they were able to do so, the persons who were dear to them, respectively, against future financial want. As a result, Tobin and his wife in 1935 created from community property eight trusts, of which five were created by Tobin out of his one-half of the community estate and three by his wife out of her one-half of the community estate. Sawnie R. Aldredge, who was a lawyer and a brother-in-law of Margaret Batts Tobin, did most of the work in preparing the trusts. He submitted the rough drafts of the trusts to Batts, who also assisted in their preparation. Each trust had a corporate*34 trustee and an advisory committee of three individuals. The corpus of the respective trusts as originally set up consisted of *932 stock in various companies and a promissory note, the fair market values of which were as follows:
| Ethel M. | Robert | Robert | ||
| Tobin and | Katharine | Batts | Batts | |
| Corpus | Katharine | Tobin | Tobin | Tobin |
| Tobin | Trust | Trust | Trust | |
| Trust | No. 1 | No. 1 | No. 2 | |
| Edgar Tobin Aero Co. stock | $ 1 300 | $ 130 | $ 130 | $ 2,600 |
| Tobin Map Co. stock | 500 | 1,000 | 500 | 4,000 |
| Pure Oil Co. stock | 8,000 | 8,000 | 8,000 | 16,000 |
| Humble Oil & Refining Co. stock | 6,000 | |||
| Promissory note | 14,500 | |||
| Total | 9,800 | 9,130 | 8,630 | 43,100 |
| Margaret | Ethel | Harriet | ||
| Edgar | Batts | Murphy | Fiquet | |
| Corpus | Tobin | Tobin | Tobin | Batts |
| Trust | Trust | Trust | Trust | |
| Edgar Tobin Aero Co. stock | $ 3,900 | $ 3,900 | ||
| Tobin Map Co. stock | 7,000 | 7,000 | ||
| Pure Oil Co. stock | 8,000 | 8,000 | ||
| Tobin Aerial Surveys, Inc., stock | $ 4,000 | $ 4,000 | ||
| Total | 18,900 | 18,900 | 4,000 | 4,000 |
Tobin is the trustor of the Ethel M. Tobin and Katharine Tobin Trust, which was executed on June 14, 1935. The net income of the trust, as directed by the advisory committee, *35 is payable to Ethel M. Tobin (trustor's aged mother) during her lifetime, and in the event of emergency or necessity it is to be supplemented with payments out of the corpus if unanimously directed by the advisory committee. The undistributed income is to be reinvested and become a part of the corpus. Upon the death of Ethel M. Tobin the trust continues for the benefit of the trustor's daughter, Katharine Tobin, to be finally distributed in four installments when she arrives at the ages of 21, 25, 30, and 35 years. Ethel M. Tobin was born about 1872 and Katharine about 1922, so that with reasonable expectancy of life the greater portion of the trust will be distributed to Katharine. The trust, however, provides that if Katharine dies leaving a child or children before the date of distribution, the child or children shall receive the balance; but if she leaves no children, the trustor's son, Robert Batts Tobin, is to be substituted as beneficiary and shall receive the balance of the trust fund upon the final termination of the trust, which is to be 20 years after the death of Katharine or when she would have been 35 years old if she had lived, whichever period is shorter. The*36 trust also provides that if Robert dies before Katharine or, having become the beneficiary, dies before receiving all the trust estate, then the trust is to continue for 10 years from the date of the death of the trustor's mother, daughter, or son (whichever may have last occurred) and the trustee shall deliver annually the income and 10 per cent of the corpus *933 to any child or children of Robert Batts Tobin; but that if Robert dies leaving no child, Margaret Batts Tobin shall be substituted as beneficiary and at the end of the 10-year period the trust estate shall be paid and delivered to her. The trust contains no provision for any distribution to the trustor.
Tobin is the trustor of the Katharine Tobin Trust No. 1, which was executed on June 14, 1935. The net income of the trust is payable to the trustor's daughter, Katharine Tobin, as directed by the advisory committee, to be supplemented in case of emergency or necessity out of the corpus if unanimously directed by the advisory committee. Undistributed income is to be reinvested and become a part of the corpus. The corpus is distributable to Katharine in four equal installments at the ages of 21, 25, 30, and 35 years. *37 In the event Katharine dies before receiving all the trust estate, the trust is to continue for the benefit of her children, if any, and if no children, then the trust is to terminate and the remaining trust estate is to be delivered to the trustee of the Robert Batts Tobin Trust No. 1 as a part of the corpus of that trust. The trust contains no provision for any distribution to the trustor.
Tobin is the trustor of the Robert Batts Tobin Trust No. 1, which was executed on June 14, 1935. Income of the trust is distributable in the discretion of the advisory committee to Robert Batts Tobin or for his benefit. The advisory committee may supplement by unanimous direction such income payment from the corpus in the case of emergency or necessity. Undistributed income is to be reinvested and become a part of the corpus. The corpus is to be distributed to Robert upon his reaching the ages of 21, 25, 30, and 35 years. In the event Robert dies before receiving all of the trust estate, the trust provides for contingent remainders to Robert's children, if any; or to the trustor's wife; or to the trustor's mother and his two sisters, or the survivor or survivors of them, share and share*38 alike. The trust contains no provision for any distribution to the trustor.
Margaret Batts Tobin is the trustor of Robert Batts Tobin Trust No. 2, which was executed on June 14, 1935. She was joined in the execution of the trust by her husband, Edgar G. Tobin, pro forma. Income of the trust is distributable in the discretion of the advisory committee to or for the benefit of the trustor's mother, Harriet Fiquet Boak Batts, during her life. The advisory committee may by unanimous direction supplement such income payments from corpus in the case of emergency or necessity. Undistributed income is to be reinvested and become a part of the corpus. In the event Robert Batts Tobin survives the trustor's mother, the trust continues for his benefit as successor beneficiary, with distribution of a proportionate part of the corpus to Robert upon his reaching 25, 31, 37, and 43 years of age. If Robert dies before receiving all of the trust estate, the trust provides *934 for contingent remainders to Robert's children, if any; or to the trustor's husband; or to the trustor's brother, sister, and sisters-in-law or to their children. The trustor's mother died in 1937. The trust*39 contains no provision for any distribution to the trustor.
Margaret Batts Tobin is the trustor of the Edgar Tobin Trust, which was executed on June 14, 1935. She was joined in the execution of the trust by her husband, Edgar G. Tobin, pro forma. Income of the trust is distributable to Tobin or for his benefit as the advisory committee may direct, supplemented in case of emergency and necessity by payments from corpus upon the unanimous direction of the advisory committee. Undistributed income is to be reinvested and become a part of the corpus. Upon the death of Tobin the corpus of the trust is to become a part of his estate, distributable in accordance with his will, or, if he dies intestate, under the Texas law of descent and distribution. The trust contains no provision for any distribution to the trustor.
Tobin is the trustor of the Ethel Murphy Tobin Trust, which was executed on June 14, 1935. Income of the trust is to be paid to Margaret Batts Tobin or for her benefit as the advisory committee may direct, supplemented in case of emergency and necessity by payment from corpus upon the unanimous direction of the advisory committee. Undistributed income is to be reinvested*40 and become a part of the corpus. Upon the death of Margaret Batts Tobin the corpus of the trust is to become a part of her estate, distributable in accordance with her will, or, if she dies intestate, under the Texas law of descent and distribution. The trust contains no provision for any distribution to the trustor.
Tobin is the trustor of the Margaret Batts Tobin Trust, which was executed on November 14, 1935. The income of the trust is to be paid to Margaret Batts Tobin during her life as the advisory committee may direct. Undistributed income is to be added to the corpus. No distribution of the corpus is to be made during the life of Margaret Batts Tobin. If Ethel Murphy Tobin survives Margaret Batts Tobin, then the trust is to continue for 10 years and the trustee is to deliver annually to Ethel Murphy Tobin for a period of 10 years all of the income and 10 per cent of the corpus, computed upon the basis of the value thereof at the time of the death of Margaret Batts Tobin. If the trustor's mother does not survive the trustor's wife, or if she dies before receiving all of the trust estate, then the trust shall continue for the benefit of Robert Batts Tobin and payments*41 are to be made to him, after his mother's death, under the conditions named in the trust instrument. If he dies before receiving all of the corpus, the trust estate passes to his children, if any, and if no children, then to Katharine Tobin, if living, and if not living, then to her children, and *935 if she leaves none, "then this trust shall terminate and the corpus and accumulated net income be paid or delivered in fee simple to my nieces, Anne and Jane Riley, share and share alike, or to the survivor of them." The trust contains no provision for any distribution to the trustor.
Margaret Batts Tobin is the trustor of the Harriet Fiquet Batts Trust, which was executed on November 14, 1935. She was joined in the execution by her husband pro forma. The net income of the trust is distributable to the trustor's husband during his life as the advisory committee may direct. Undistributed income is to be added to the corpus. No distribution of the corpus is to be made during the lifetime of Tobin. If the mother of the trustor survives Tobin, then the trust income and 10 per cent of the corpus as it then exists is distributable annually for 10 years to the trustor's mother. *42 If (as was the fact) the trustor's mother does not survive the trustor's husband, or if she dies before receiving all of the trust estate, then the trust shall continue for the benefit of Robert Batts Tobin and payments are to be made to him, after his father's death, under the conditions named in the trust instrument. If Robert dies before receiving all of the corpus, the trust estate passes to his children, if any, and if no children, then to the trustor's sister, Mrs. Sawnie R. Aldredge, if living, and if not living, then "this trust shall terminate and the corpus and accumulated net income shall be paid or delivered in fee simple to the children of my said sister, share and share alike, or to the survivor or survivors of my sister's said children." The trust contains no provision for any distribution to the trustor.
All of the trusts are declared to be irrevocable. Each trust contains substantially the following clauses:
The trustee shall have the power under limitations hereinafter provided:
(1) to receive, hold, manage, control, lease, sell, exchange, invest, reinvest, loan, convert, or in anywise dispose of any part of the trust estate;
(2) to borrow for the benefit of such*43 trust estate and to pledge the assets thereof as security for such loan;
(3) to make such contracts with reference to the estate or any part thereof as the trustee may consider proper;
(4) to incur such reasonable expenses as may be necessary;
(5) to take out insurance on a life or lives insurable in behalf of beneficiary, or pay premiums on insurance taken out in her favor or both.
In the exercise of the powers given, or in the discharge of any duty concerning the trust, the trustee is given (under limitations herein set forth) full discretion, and shall not be held responsible for any loss unless such loss is directly due to its negligence or bad faith. Without the consent of the Advisory Committee, no sale of any security or other property shall be made for reinvestment, nor any money borrowed.
In all dealings with reference to the property comprising the trust estate, no person dealing with such trustee shall be required to look to the application of the proceeds of such sales, leases, or other dealings.
*936 As compensation for this service, the trustee shall be entitled to retain out of the income derived from such trust estate two hundred dollars ($ 200.00) per annum.
*44 In the event of extraordinary services not usually connected with the administration of a trust, the trustee shall be entitled to extra compensation to be agreed upon between the trustee and the Advisory Committee hereinafter created.
There is hereby created an Advisory Committee, consisting of * * *. Members of the Advisory Committee shall receive ten dollars per month and expenses. Any member of the Advisory Committee may be employed by the other members and the trustee for professional or other services not included within the ordinary services of the Advisory Committee, and compensation therefor may be agreed upon between such member of the Advisory Committee and the other members and the trustee. The Committee may act by a majority except where by this instrument unanimous action is required. The trustee may consult with the Advisory Committee, or any member thereof, and is hereby authorized to comply with and follow any advice or instructions given to it by the Advisory Committee. In the event the Advisory Committee delivers written instructions to the trustee as to the management of said trust estate, either as to the distribution of a portion of the income or of the corpus*45 of the estate or as to investment of any part of either, or with reference to the exercise of rights as a stockholder of stock belonging to the trust, or with reference to any other matter in connection with the corpus or the income, the trustee shall be required to follow instructions of said Advisory Committee unless such instructions may render the trustee liable to other parties. When the trustee has received such instructions of the Advisory Committee and has followed same, the trustee shall be free from all responsibility to any beneficiary hereunder for any action or omission pursuant to such instructions. The trustee may at its discretion follow the instructions of a majority of the Advisory Committee, but shall not be required to act unless given written instructions signed by all members.
A member of the Advisory Committee shall have the right to resign by giving thirty days notice to the trustee and to the other members of the committee. In the event of the death, resignation, refusal, or inability to act, of any original or successor member or members of the Advisory Committee, the remaining member or members may appoint a successor or successors by an instrument filed*46 with the trustee. Action by the remaining member or members of the Advisory Committee in accepting such resignation shall make such resignation effective immediately.
The trustee shall have the right to resign by giving written notice to the trustor and the members of the Advisory Committee; the resignation shall become effective thirty days after notice, unless by action of the Advisory Committee within that period the resignation is made effective at an earlier date. Upon the resignation of the trustee or upon the arising of any circumstance making it impossible for the trustee to act, another trustee shall be elected by the Advisory Committee and thereupon all of the estates, duties, powers and privileges of the trustee, as provided by this instrument shall immediately devolve upon and become vested in said new trustee.
* * * *
The trustee shall retain and invest or reinvest any portion of the unexpended income upon instructions from the Advisory Committee and such unexpended income when so invested shall become a portion of the corpus of the trust estate.
A majority of the Advisory Committee may at any time without assigning any reason therefor, appoint a successor trustee in*47 place of the then acting trustee *937 by delivering written notice thereof to said acting trustee; thereupon all of the estates, duties, powers and privileges of the trustee so provided by this instrument shall immediately devolve upon and become vested in the said new trustee. Trustor may not be appointed. The compensation of such new trustee shall be fixed by the Advisory Committee.
Each of the three trusts designated as the Ethel M. Tobin and Katharine Tobin Trust, the Katharine Tobin Trust No. 1, and the Robert Batts Tobin Trust No. 1 contained the following clauses:
The Advisory Committee shall have the right to designate from time to time an attorney for the trust estate and shall notify the trustee in writing of such appointment; the trustee shall consult with such attorney in any matter connected with the trust estate in which the trustee or the Advisory Committee feels that it should have legal advice; the trustee is relieved from all responsibility for any action taken pursuant to the advice of such attorney. The compensation of such attorney shall be as agreed upon between the attorney, the Advisory Committee and the trustee.
The trustee shall furnish to the Trustor*48 and the members of the Advisory Committee, if they so request, at the end of each three (3) months period a statement of all receipts and disbursements of the trusteeship, covering such periods, together with an itemized list of all assets, investments, and the actions taken with reference to the administration of the trust estate.
Members of the Advisory Committee shall not be responsible to any person for any action taken in that capacity, except for gross negligence, fraud or willfull bad faith.
The advisory committee of each trust as originally appointed and as constituted during the taxable years was as follows:
(1) Ethel M. Tobin and Katharine Tobin Trust: The original committee consisted of Tobin, Margaret Batts Tobin, and Sawnie R. Aldredge. On June 17, 1940, Aldredge resigned and he was succeeded by Edith W. Harrison, who was the maternal grandmother of Katharine Tobin.
(2) Katharine Tobin Trust No. 1: The same as (1).
(3) Robert Batts Tobin Trust No. 1: The original committee was the same as (1). On June 17, 1940, Aldredge resigned, and he was succeeded by Georgia C. McNemer who was a personal friend of Margaret Batts Tobin.
(4) Robert Batts Tobin Trust No.*49 2: The same as (3).
(5) Edgar Tobin Trust: The original committee consisted of Ethel Murphy Tobin, Sawnie R. Aldredge, and Hilary C. Gross (later Hilary Cooper), who has been Tobin's employee for about 20 years. On November 15, 1936, Ethel Murphy Tobin and Aldredge resigned and were succeeded by Tobin and George S. Rice, Jr. On April 4, 1942, Rice resigned to accept a commission in the United States Air Forces and was succeeded by Ruth M. Harris, who is also one of Tobin's employees.
(6) Margaret Batts Tobin Trust: The original committee was the same as (5). On December 15, 1936, Ethel Murphy Tobin and Hilary *938 C. Gross resigned and were succeeded by Margaret Batts Tobin and Mary Batts Aldredge, who was the sister of Margaret Batts Tobin and the wife of Sawnie R. Aldredge. On June 17, 1940, both the Aldredges resigned and were succeeded by Georgia C. McNemer and J. H. Frost, who was president of the Frost National Bank in San Antonio.
(7) Ethel Murphy Tobin Trust: The original committee consisted of Sawnie R. Aldredge, Hilary C. Gross, and George S. Rice, Jr. On June 28, 1940, Aldredge resigned and was succeeded by Tobin. On April 4, 1942, Rice resigned*50 and was succeeded by Ruth M. Harris.
(8) Harriet Fiquet Batts Trust: The same as (7).
The members of the respective advisory committees were all persons of integrity and were selected by the respective trustors because he or she believed these members of the advisory committees would act in the best interests of the beneficiary or beneficiaries of the respective trusts.
One of the purposes of having an advisory committee for each trust was to free the trustee from responsibility in making more liberal investments, providing the trustee acted upon the recommendation of a majority of the committee.
The Alamo National Bank of San Antonio, Texas, was the original trustee in each one of the eight trusts. On June 18, 1937, the advisory committee of four of the trusts (Robert Batts Tobin Trust No. 1, Edgar Tobin Trust, Margaret Batts Tobin Trust, and Harriet Fiquet Batts Trust) notified the Alamo National Bank that they had appointed the Frost National Bank of San Antonio as successor trustee and requested the Alamo National Bank to transfer immediately all of the estate of each of these four trusts to the new trustee. On February 21, 1944, which is subsequent to the taxable years *51 here involved, the advisory committee of each of the other four trusts notified the Alamo National Bank that they had appointed the San Antonio Loan & Trust Co. as successor trustee and requested the Alamo National Bank to transfer immediately all of the estate of each of these four trusts to the new trustee.
On January 15, 1938, which is prior to the taxable years here involved, the advisory committee of the Edgar Tobin Trust, consisting of Tobin, Hilary Cooper, and George S. Rice, Jr., authorized and instructed the trustee (Frost National Bank) of the Edgar Tobin Trust to lend Tobin the sum of $ 10,000. This sum was repaid by Tobin on April 11, 1939, which was prior to the taxable years here involved.
About 1934 the Tobin Map Co. acquired a building at 502 West Mistletoe in San Antonio for use as a telephone exchange. When the telephone company in San Antonio went on a dial system, this building became surplus. On May 27, 1937, the Edgar Tobin Trust acquired *939 this building, together with the office furniture and equipment therein, from the Tobin Map Co. for $ 34,168.33 in cash. The trust carried this property on its books as real estate, $ 26,699.73, and miscellaneous*52 assets, $ 7,468.60. On August 1, 1942, the advisory committee of the Edgar Tobin Trust, consisting of Tobin, Hilary Cooper, and Ruth Harris, authorized and instructed the trustee (Frost National Bank) to lease the Mistletoe Building to Edgar Tobin Aerial Surveys from August 1, 1942, through July 31, 1943, at a monthly rental of $ 602.50.
On May 1, 1942, the advisory committee of the Edgar Tobin Trust, consisting of Tobin, Hilary Cooper, and Ruth Harris, authorized and instructed the trustee (Frost National Bank) to purchase from Tobin as of June 1, 1942, certain real estate and improvements known as 114 Camp Street in San Antonio for the sum of $ 106,983.49 and to give Tobin a note therefor payable on or before five years from date, with interest payable semiannually at the rate of 4 per cent, and the committee further authorized the trustee to rent the said premises from June 1, 1942, to June 30, 1943, to the United States for a monthly rental of $ 3,625, with the privilege of renewal in one-year periods for not longer than June 30, 1945. The price of $ 106,983.49 was the same price at which Tobin had previously purchased the property. On the same day, May 1, 1942, the advisory*53 committee of the Edgar Tobin Trust authorized the trustee of that trust to sell to the Margaret Batts Tobin Trust, Harriet Fiquet Batts Trust, and Ethel Murphy Tobin Trust each a one-fourth interest in the 114 Camp Street property in consideration for the assumption by each trust of a one-fourth obligation in the note given by the Edgar Tobin Trust to Tobin for $ 106,983.49.
On January 18, 1943, the advisory committee of the Edgar Tobin Trust instructed the trustee of the trust not to carry insurance of any kind on the Mistletoe and Camp Street properties, except that it could at its discretion require public liability insurance or war risk insurance, or both. Tobin considered it a waste of money to insure these buildings for fire.
At some time prior to the taxable years in question Tobin purchased, as community property, a farm of approximately 210 acres located in Bexar County beyond the edge of the city of San Antonio, which farm is hereinafter sometimes referred to as the Oakwell farm. On February 5, 1943, the Frost National Bank, as trustee for the Margaret Batts Tobin Trust, the Harriet Fiquet Batts Trust, the Robert Batts Tobin Trust No. 1, and the Edgar Tobin Trust, was *54 authorized and instructed by the respective advisory committees to purchase from Tobin as of February 15, 1943, each a one-fourth interest in the Oakwell farm, improvements, and stock. The consideration to be paid *940 by each trust for its respective one-fourth interest and the terms thereof were as follows:
| Trust | Consideration | Terms |
| Margaret Batts Tobin Trust | $ 16,465.49 | Cash |
| Harriet Fiquet Batts Trust | 16,465.50 | Cash |
| Robert Batts Tobin Trust No. 1 | 16,465.50 | 5-year 4% note |
| Edgar Tobin Trust | 16,465.50 | Cash |
At the same time the trustee of these four trusts was authorized to set up monthly from each trust, in an account known as the "Oakwell Farm" account, the sum of $ 250, subsequently increased to $ 1,250 per quarter, from which all normal and regular pay roll and maintenance bills would be paid.
The management and operation of the Oakwell farm were left to Hilary Cooper, who set up books to cover the farm operation. Hilary Cooper would make purchases for the farm at the request of the foreman and would deposit into the farm account all farm receipts. At the end of each three months Hilary Cooper would submit a statement to the trustee for its approval, showing*55 the farm operations. The trustee never disapproved any expenditures made for the farm.
The Oakwell farm was sold to the above mentioned four trusts at the price paid by Tobin, following his instructions that whatever he paid for a thing it went to the trusts at exactly the same price.
During the taxable years here involved each petitioner filed separate returns and each petitioner reported net income as follows:
| Year | Net income | Income tax | Victory tax |
| net income | net income | ||
| 1940 | $ 58,341.90 | ||
| 1941 | 61,253.33 | ||
| 1942 | 76,504.23 | ||
| 1943 | $ 73,988.28 | $ 79,708.21 |
The respondent determined that the net income of each of the eight trusts was taxable to petitioners as community income and that such net income of each of the trusts was as follows:
| Trust | 1940 | 1941 |
| 1. Ethel M. Tobin and Katharine Tobin Trust | $ 4,117.98 | $ 4,874.00 |
| 2. Katharine Tobin Trust No. 1 | 4,067.98 | 5,235.70 |
| 3. Robert Batts Tobin Trust No. 1 | 4,045.30 | 5,793.57 |
| 4. Robert Batts Tobin Trust No. 2 | 6,715.29 | 9,408.74 |
| 5. Edgar Tobin Trust | 13,005.12 | 15,183.41 |
| 6. Margaret Batts Tobin Trust | 12,409.61 | 16,052.65 |
| 7. Ethel Murphy Tobin Trust | 10,105.00 | 12,327.50 |
| 8. Harriet Fiquet Batts Trust | 9,555.00 | 10,876.29 |
| Total trust income held taxable to the community by | ||
| the respondent | 64,021.28 | 79,751.86 |
| Trust | 1942 | 1943 |
| 1. Ethel M. Tobin and Katharine Tobin Trust | $ 1,930.00 | None |
| 2. Katharine Tobin Trust No. 1 | 2,615.00 | $ 1,903.62 |
| 3. Robert Batts Tobin Trust No. 1 | 2,870.00 | 5,324.54 |
| 4. Robert Batts Tobin Trust No. 2 | 5,309.82 | 9,621.37 |
| 5. Edgar Tobin Trust | 12,371.50 | 21,936.03 |
| 6. Margaret Batts Tobin Trust | 11,072.16 | 20,436.66 |
| 7. Ethel Murphy Tobin Trust | 7,450.90 | 15,336.67 |
| 8. Harriet Fiquet Batts Trust | 7,804.99 | 15,043.87 |
| Total trust income held taxable to the community by | ||
| the respondent | 51,424.37 | 89,602.76 |
*941 During the taxable years here involved the net income of all of the trusts, except two, was accumulated and added to corpus. The two exceptions were the Ethel M. Tobin and Katharine Tobin Trust and the Katharine Tobin Trust No. 1. In the former trust $ 1,220 of income was distributed to Ethel Tobin in 1943, and in the latter trust $ 1,120 of income was distributed to Katharine Tobin in 1943. Katharine received her support and education from her father's funds. The said $ 1,120 was distributed to Katharine, so that she would have some extra spending money. Katharine became 21 years of age in December 1943, at which time 25 per cent of the*57 corpus of the Katharine Tobin Trust No. 1 was delivered to her.
In addition to the above net income which was accumulated and added to corpus, there were other amounts of income and principal from 1935 to 1943, inclusive, that were added to the corpus of each of the trusts. Also during this period certain portions of the corpus of the respective trusts were sold and the proceeds reinvested in other assets, so that by the end of 1943 the net corpus of the respective trusts, as shown by the books of the respective trusts, was as follows:
| Ethel M. | ||||
| Corpus | Tobin and | Katharine | Robert | Robert |
| Katharine | Tobin Trust | Batts Tobin | Batts Tobin | |
| Tobin Trust | No. 1 | Trust No. 1 | Trust No. 2 | |
| Cash | $ 18,970.54 | $ 9,581.15 | $ 6,015.22 | $ 23,065.17 |
| Stocks | 40,840.70 | 40,174.91 | 54,241.55 | 104,412.89 |
| Bonds | 370.00 | 370.00 | 370.00 | 370.00 |
| Real estate | 12,924.14 | |||
| Miscellaneous assets | 3,416.36 | 2,902.02 | ||
| Total | 60,181.24 | 50,126.06 | 76,967.27 | 130,750.08 |
| Less liabilities | None | None | 13,699.99 | None |
| Net corpus | 60,181.24 | 50,126.06 | 63,267.28 | 130,750.08 |
| Margaret | Ethel | Harriet | ||
| Corpus | Edgar Tobin | Batts Tobin | Murphy | Fiquet |
| Trust | Trust | Tobin Trust | Batts Trust | |
| Cash | $ 4,171.87 | $ 2,479.81 | $ 12,928.32 | $ 7,442.59 |
| Stocks | 114,898.40 | 138,919.09 | 83,382.41 | 77,244.57 |
| Bonds | 370.00 | 370.00 | 370.00 | 2,070.00 |
| Real estate | 66,369.75 | 39,670.01 | 26,745.87 | 39,670.01 |
| Miscellaneous assets | 12,933.63 | 5,465.02 | 2,048.67 | 5,465.04 |
| Total | 198,743.65 | 186,903.93 | 125,475.27 | 131,892.21 |
| Less liabilities | 16,745.87 | 18,745.87 | 8,745.87 | 23,745.87 |
| Net corpus | 181,997.78 | 168,158.06 | 116,729.40 | 108,146.34 |
*58 The above mentioned liability of the Robert Batts Tobin Trust No. 1 was the balance of the note payable to Tobin for the Oakwell farm. The above mentioned liabilities of the last four trusts were the balances of notes payable to Tobin for the 114 Camp Street property.
Tobin, in his will, left his one-half of the community to his two children, share and share alike, and about $ 20,000 of separate property *942 to his two nieces. He named Margaret Batts Tobin as executrix of his will and, in the event of her death, Hilary Cooper.
After the creation of the Ethel M. Tobin and Katharine Tobin Trust, the Katharine Tobin Trust No. 1, the Robert Batts Tobin Trust No. 1, and the Robert Batts Tobin Trust No. 2, the respective grantors of these trusts did not remain the owners of the assets transferred to the trusts for the purposes of section 22 (a) of the Internal Revenue Code.
Issue 2. -- At the time Tobin purchased the Oakwell farm his son Roberts was in delicate health and petitioner thought it might benefit his son to live in the country. Tobin made a tentative plan to use a small acreage out of the original total of about 210 acres as a site for a house, but went only to *59 the extent of having the profile design made of a house he had seen and admired in another state. Before he had done more his son regained his health and Tobin abandoned all plans to build. The farm had been used for farming purposes for over 100 years. It was improved only by fences, a small foreman's house, and sheds for cattle, sheep, goats, and other livestock. About 85 per cent of the farm was in cultivation and it has been farmed each year since the original purchase. As stated under issue 1, the farm was sold to four of the trusts in 1943.
On their returns for 1940 and 1941, petitioners reported as a part of their community income $ 305.24 and $ 618.83, respectively, as proceeds from the sale of sheep wool. They deducted as a part of their community deductions for farm expense the amounts of $ 10,614.75 and $ 10,276.80, respectively, which they itemized in their returns as follows:
| Item | 1940 | 1941 |
| Wages | $ 7,257.97 | $ 6,164.84 |
| Repairs and maintenance | 1,040.62 | 281.95 |
| Gas, oil and grease | 463.98 | 656.34 |
| Food, seed, etc | 558.22 | 322.60 |
| Utilities | 622.95 | 589.26 |
| Miscellaneous | 66.40 | |
| Insurance | 260.56 | 895.65 |
| Hardware and small tools | 77.74 | 62.19 |
| Supplies | 358.71 | |
| Veterinary and medicine | 59.85 | 180.49 |
| Hauling | 23.75 | |
| Depreciation on tenant house, sheds, and stables | 120.66 | 328.87 |
| Depreciation on farm equipment | 152.20 | 345.75 |
| Total | 10,614.75 | 10,276.80 |
*60 On their returns for 1942 and 1943 petitioners did not report any income or claim any deduction for expenses of the Oakwell farm.
For the year 1943 the Margaret Batts Tobin Trust, the Harriet Fiquet Batts Trust, the Robert Batts Tobin Trust No. 1, and the Edgar Tobin Trust each claimed as a deduction one-fourth of $ 6,518.20 as a loss from the operation of the Oakwell farm.
*943 The respondent, in his determination of the deficiencies, eliminated from income the proceeds from the sale of wool and disallowed the deductions claimed for farm expenses, and, in a statement attached to each deficiency notice, he explained his holdings as follows:
Farm expense is disallowed for the reason that the farming operation was not entered into for profit. but with the idea of establishing a country home.
It is held that the amount of $ 10,309.51 claimed as net farm expense by the community for the taxable year 1940 does not represent an allowable deduction for that year.
It is held that the amount of $ 9,657.97 claimed as net farm expense by the community for the taxable year 1941 does not represent an allowable deduction for that year.
It is held that farm losses claimed by various trusts*61 for the taxable year 1943 do not represent allowable deductions from the trust income, which income is held to represent taxable income to the community. Such farm losses are as follows:
| Trust | Farm Loss |
| Edgar Tobin Trust | $ 1,629.55 |
| Margaret Batts Tobin Trust | 1,629.55 |
| Robert Batts Tobin Trust No. 1 | 1,629.55 |
| Harriet Fiquet Batts Trust | 1,629.55 |
Issue 3. -- During the year 1943, after the Government took over the building at 114 Camp Street, Tobin moved certain valuable original mosaics which he had been using in his aerial surveys proprietorship business from that building and stored them on the Oakwell farm, which farm was then owned by the four trusts mentioned under issue 2. During 1943 Tobin paid the four trusts a total of $ 1,840 as rental. Petitioners in their 1943 returns deducted the $ 1,840 as a community expense under the caption of "Oakwell Farm -- Storage & Care of Equipment." The respondent in a statement attached to each deficiency notice said:
It is held that the amount of $ 1,840.00 claimed as storage and care of equipment on the Oakwell farm by the community for the taxable year 1943 does not represent an allowable deduction for that year.
*62 Issue 4. -- During the years 1940 to 1943, inclusive, the eight trusts created by petitioners in 1935 filed income tax returns and paid taxes on the incomes reported, as follows:
| 1940 | 1941 | 1942 | 1943 | |
| (1) Ethel M. Tobin and Katharine | ||||
| Tobin Trust | $ 201.73 | $ 591.58 | $ 347.70 | None |
| (2) Katharine Tobin Trust No. 1 | 197.31 | 653.07 | 493.30 | $ 371.23 |
| (3) Robert Batts Tobin Trust No. 1 | 197.14 | 747.90 | 549.40 | 798.68 |
| (4) Robert Batts Tobin Trust No. 2 | 448.73 | 1,547.19 | 1,134.55 | 2,715.75 |
| (5) Edgar Tobin Trust | 1,363.66 | 3,350.03 | 3,494.03 | 7,870.70 |
| (6) Margaret Batts Tobin Trust | 1,250.45 | 3,662.96 | 2,989.42 | 7,042.77 |
| (7) Ethel Murphy Tobin Trust | 910.35 | 2,375.08 | 1,745.27 | 5,241.58 |
| (8) Harriet Fiquet Batts Trust | 827.13 | 1,945.12 | 1,851.48 | 4,298.25 |
*944 OPINION.
We shall consider the issues in the order previously stated.
Issue 1. -- This issue involves the taxability of the net income of the eight trusts created by either one or the other of the petitioners in 1935, and it is the principal issue in the case. The respondent determined that the net income of all the trusts was taxable to petitioners as their community income, and in a statement attached*63 to each deficiency notice he explained his determination thus:
It is held that the income of various trusts created by either Edgar G. Tobin or Margaret Batts Tobin, represents taxable income to the community as follows: (Then follows a schedule showing the net income of each of the eight trusts for each of the taxable years 1940 to 1943, inclusive.)
The respondent, in his brief, contends (1) that the income of all eight trusts is taxable to petitioners as community income under section 22 (a) of the Internal Revenue Code (relying principally upon Helvering v. Clifford, 309 U.S. 331">309 U.S. 331), and (2) that, in addition to being taxable under section 22 (a), the income of four of the trusts (Edgar Tobin Trust, Margaret Batts Tobin Trust, Ethel Murphy Tobin Trust, and Harriet Fiquet Batts Trust) is also taxable to petitioners as community income under section 167 (a) (2) of the Internal Revenue Code.
Petitioners contend that the income in question is taxable to the trusts, which returned it and paid the tax thereon as separate taxable entities, and that no part of such income is taxable to petitioners.
We shall first consider whether the net income of the Ethel*64 Murphy Tobin Trust and the Harriet Fiquet Batts Trust is taxable to petitioners as community income under section 167 (a) (2), supra. The material provisions of this section are set forth in the margin. 1 As far as the life beneficiaries of these two trusts are concerned, the trusts are reciprocal trusts. They were each created on November 14, 1935. Tobin was the trustor of the Ethel Murphy Tobin Trust and Margaret Batts Tobin was the trustor of the Harriet Fiquet Batts Trust. The Ethel Murphy Tobin Trust provided that "The Trustee shall pay to Margaret Batts Tobin or for her benefit during the balance of her life, at such time and in such manner, as the Advisory Committee may *945 direct, any portion of the net income derived from said trust estate," with remainders over to others. The Harriet Fiquet Batts Trust provided that "The Trustee shall pay to Edgar G. Tobin or for his benefit during the balance of his life, at such time and in such manner, as the Advisory Committee may direct, any portion of the net income derived from said trust estate," with remainders over to others. The original corpus of each trust was the same, namely, 160 class C shares of Tobin Aerial*65 Surveys, Inc., of the fair value of $ 4,000. The advisory committee of each trust was the same.
It seems clear that if Margaret Batts Tobin had been the trustor of the Ethel Murphy Tobin Trust and if Tobin had been the trustor of the Harriet Fiquet Batts Trust, the net income of these trusts would be taxable to the trustors under section 167 (a) (2), supra, for under*66 the provisions of the trust instruments such income could be distributed to the trustor in the discretion of the trustor or of any person not having a substantial adverse interest in the disposition of the income. In substance, Margaret Batts Tobin was the trustor of the Ethel Murphy Tobin Trust and Tobin was the trustor of the Harriet Fiquet Batts Trust. Lehman v. Commissioner, 109 Fed. (2d) 99; certiorari denied, 310 U.S. 637">310 U.S. 637. Although the Lehman case was an estate tax case, we think the principles upon which that case rests are applicable here. See also Purdon Smith Whiteley, 42 B. T. A. 316; Werner A. Wieboldt, 5 T. C. 946. We hold, therefore, that for the taxable years in question Margaret Batts Tobin was in substance the grantor of the Ethel Murphy Tobin Trust and that the income of that trust could "in the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such * * * income" have been distributed to the grantor. We likewise hold that Tobin was in substance the grantor of the Harriet Fiquet*67 Batts Trust and that the income of that trust could have been distributed to him in the manner specified in section 167 (a) (2) of the Internal Revenue Code. It follows that the net income of these two trusts shall be included in computing the net income of the respective grantor. Sec. 167 (a) (2), supra.
It remains to be determined whether the income of these two trusts is community income. In view of our holdings above, the income of each trust must be regarded as having been received by the respective life beneficiary of each trust. Under the laws of Texas, such income when received falls into the community. Commissioner v. Porter, 148 Fed. (2d) 566; Commissioner v. Snowden, 148 Fed. (2d) 569; McFaddin v. Commissioner, 148 Fed. (2d) 570; and Estate of Ernest Hinds, 11 T. C. 314. We hold, therefore, that the net income of the Ethel Murphy Tobin Trust and the Harriet Fiquet Batts Trust is taxable to petitioners as community income.
*946 We next consider whether the net income of the Edgar Tobin Trust and the Margaret Batts Tobin Trust*68 is taxable to petitioners as community income under section 167 (a) (2), supra. These trusts are also reciprocal trusts and were both created on June 14, 1935. One was created by the wife for the benefit of her husband and one was created by the husband for the benefit of his wife. The original corpus of each trust was made up of the same kind and quantity of property, namely, 300 shares of Edgar Tobin Aero Co. stock, 7,000 shares of Tobin Map Co. stock, and 1,000 shares of Pure Oil Co. stock. The trust indentures were identical, except for the names of the respective trustor and beneficiary and the provision in the Edgar Tobin Trust whereby Margaret Batts Tobin, the trustor, was joined in the execution of the trust by her husband pro forma. Any portion of the income of each trust was payable to the beneficiary or for his or her benefit "at such time and in such manner, as the Advisory Committee may direct" and could be supplemented in case of emergency or necessity with "payment out of the corpus of the estate as the Advisory Committee may unanimously direct." Each trust further provided that upon the death of the beneficiary the corpus became a part of his or her estate, *69 distributable in accordance with his or her will, and, in case of intestacy, under the Texas law of descent and distribution.
It seems clear that, for the reasons given in our consideration of the Ethel Murphy Tobin Trust and the Harriet Fiquet Batts Trust, Tobin should be regarded as in substance the trustor of the Edgar Tobin Trust and Margaret Batts Tobin should in substance be regarded as the trustor of the Margaret Batts Tobin Trust, and that the same result as to the taxability of the net income of the two trusts now under consideration should be reached as was obtained under our consideration of the first two trusts. The income of these two trusts is taxable to petitioners under section 167 (a) (2) and is community income.
We now consider whether the net income of the Ethel M. Tobin and Katharine Tobin Trust, the Katharine Tobin Trust No. 1, the Robert Batts Tobin Trust No. 1, and the Robert Batts Tobin Trust No. 2 is taxable to petitioners as community income under section 22 (a) of the Internal Revenue Code. The material provisions of this section are set forth in the margin. 2 These trusts were clearly not reciprocal trusts such as we have just discussed above. The *70 respondent does not contend that the income of these trusts is taxable under either section *947 166 or 167 of the Internal Revenue Code. Neither does he contend that section 29.22 (a)-21 of Regulations 111, as added by T. D. 5488 (1946-1 C. B. 19) and as amended by T. D. 5567 (1947-2 C. B. 9), is applicable, as these regulations are made applicable only to taxable years beginning after December 31, 1945. See Mim. 5968 (1946-1 C. B. 25). The respondent does contend that the taxability of the net income of these trusts is controlled by Helvering v. Clifford, supra, and the cases which have followed that decision. Petitioners, on the other hand, contend that these trusts do not come within the Clifford doctrine and that they should be recognized for income tax purposes as valid trusts and should be taxed accordingly.
*71 The issue under the Clifford doctrine is whether after the trust has been established the grantor may still be treated under section 22 (a) as the "owner of the corpus." In the language of the Supreme Court the answer "must depend on an analysis of the terms of the trust and all the circumstances attendant on its creation and operation." In holding that Clifford was taxable on the income of the trust the Supreme Court, among other things, said:
* * * the short duration of the trust, the fact that the wife was the beneficiary, and the retention of control over the corpus by respondent all lead irresistibly to the conclusion that respondent continued to be the owner for purposes of § 22 (a).
* * * *
The bundle of rights which he retained was so substantial that respondent cannot be heard to complain that he is the "victim of despotic power when for the purpose of taxation he is treated as owner altogether." * * *
In the instant proceedings none of the four trusts now being considered were short term trusts. They were all for long terms and were irrevocable. Tobin was the grantor in three of the trusts and his wife, Margaret Batts Tobin, was the grantor in the Robert Batts Tobin*72 Trust No. 2. In no case would any of the trust property ever revert to the grantor or be used for his benefit in any way. In each trust a bank was named as the trustee and a committee of three persons, which was called the advisory committee, was appointed to assist the trustee in the management of the trust property. In no case did the grantor retain for himself or herself alone any of the powers of management enjoyed by Clifford in the Clifford trust. These powers were vested in the advisory committees, of which Tobin and his wife were members, in all four trusts. Originally Aldredge, who was the brother-in-law of Margaret Batts Tobin, was the third member of the committee. He resigned on June 17, 1940, and was succeeded in the first two trusts by Edith W. Harrison, who was the maternal grandmother of Katharine Tobin, and in the second two trusts by Georgia C. McNemer, who was a personal friend of Margaret Batts Tobin.
*948 Although Tobin was the grantor in the first three trusts and Margaret Batts Tobin was the grantor in the fourth trust, the respondent has in his argument in effect treated each trust as if both petitioners were the grantors of each trust. From this*73 he argues that, since both petitioners were members of each of the respective advisory committees, they, as grantors of each trust, retained a sufficient control over the trust property and its distribution among the beneficiaries as would make them continue to be the owners for purposes of section 22 (a). We know of no basis in fact or in law for such treatment. It is a fact that each trust had but one grantor, and we so hold. There would be no basis for holding otherwise.
As we analyze the facts and circumstances attendant the creation and operation of the four trusts now under consideration, it seems to us that the analysis narrows down to whether the fact that the grantor of each trust was also one of the three members of the respective advisory committees is a sufficiently strong factor to compel us to find that the grantor continued to be the owner for the purposes of section 22 (a). We do not think such a finding would be a true finding of the ultimate fact, and so we do not so find. Any power that the grantor had as a member of the advisory committee was to be exercised in a fiduciary capacity. It was not a power expressly retained in the trust instrument to the *74 grantor as an individual. Cf. W. C. Cartinhour, 3 T. C. 482, 489; Herbert T. Cherry, 3 T.C. 1171">3 T. C. 1171, 1179. It would certainly be true also that the other two members of the advisory committee were acting in a fiduciary capacity. There would be no basis for holding otherwise. We, therefore, hold that the respective grantor of each of the four trusts now under consideration did not continue to be the owner of the trust property for the purposes of section 22 (a). It follows that the respondent erred in taxing the income of these trusts to petitioners as community income.
We do not think it would serve any useful purpose to discuss the many cases cited by the parties in their briefs, for the Supreme Court in the Clifford case has left "to the triers of fact the initial determination of whether or not on the facts of each case the grantor remains the owner for purposes of section 22 (a), and we have found as an ultimate fact that the respective grantor of each of the four trusts now being considered did not remain the owner for such purposes. We have considered all the cases cited by both parties, together with several*75 others involving the Clifford doctrine, and we believe that our holding herein as to the four trusts now being considered falls within the ambit of such cases as Commissioner v. Branch, 114 Fed. (2d) 985; Jones v. Norris, 122 Fed. (2d) 6; Frederick Ayer, 45 B. T. A. 146; J. M. Leonard, 4 T. C. 1271; Cushman v. Commissioner, 153 Fed. (2d) 510; *949 and Alma M. Myer, 6 T. C. 77. See also cases cited below. 3
*76 Issue 2. -- Are petitioners entitled to deduct certain amounts as farm expenses? The evidence shows that petitioners deducted as net farm expenses the amounts of $ 10,309.51 and $ 9,657.97 for the years 1940 and 1941, respectively, and that each of the four trusts to whom the farm was transferred in 1943 deducted as farm losses in that year the amount of $ 1,629.55. Since we have held under issue 1 that the net income of one of these trusts to which the farm was transferred, namely, the Robert Batts Tobin Trust No. 1, is not taxable to petitioners, we are not here concerned with the farm losses of $ 1,629.55 deducted by that trust in 1943. In the pleadings petitioners have alleged error on the part of the respondent in also failing to allow a deduction for net farm expenses for 1942 of $ 8,753.98, but they offered no proof of any expenses for that year. Neither did they claim any deduction for farm expenses in their returns for 1942. The amounts that were deducted for the years 1940, 1941, and 1943 were disallowed by the respondent "for the reason that the farming operation was not entered into for profit, but with the idea of establishing a*77 country home."
Section 23 (a) (1) (A) of the Internal Revenue Code provides that in computing net income there shall be allowed as deductions "All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business * * *." The applicable regulations (sec. 19.23 (a)-11, Regulations 103 and sec. 29.23 (a)-11, Regulations 111) provide in part:
Expenses of farmers. -- A farmer who operates a farm for profit is entitled to deduct from gross income as necessary expenses all amounts actually expended in the carrying on of the business of farming. * * * If a farm is operated for recreation or pleasure and not on a commercial basis, and if the expenses incurred in connection with the farm are in excess of the receipts therefrom, the entire receipts from the sale of products may be ignored in rendering a return of income, and the expenses incurred, being regarded as personal expenses, will not constitute allowable deductions. * * *
The same regulations (sec. 19.23 (e)-5, Regulations 103, and sec. 29.23 (e)-5, Regulations 111) also provide:
Losses of farmers. -- Losses incurred in the operation of farms as business enterprises are deductible from gross income. * *78 * * If an individual owns *950 and operates a farm, in addition to being engaged in another trade, business, or calling, and sustains a loss from such operation of the farm, then the amount of loss sustained may be deducted from gross income received from all sources, provided the farm is not operated for recreation or pleasure. * * *
Tobin on his returns stated "Aerial Maps" as his principal occupation or profession. A person may have, and frequently does have, more than one business. The evidence as to the operation of this farm during the taxable years which we have before us is very meager. If it was being operated as a livestock farm, we have no information as to how many head of livestock were there or what was being done with them. On their income tax returns for 1940 and 1941, petitioners reported as a part of their community income $ 305.24 and $ 618.83, respectively, as the proceeds from the sale of sheep wool. These amounts the Commissioner has taken out of income in his determination of the deficiencies. That is all the information we have as to the cash receipts from this farm during the taxable years. In the instant proceedings the evidence fails to convince*79 us that Tobin or the trusts were operating the farm for profit or that they were carrying on the business of farming within the meaning of the Treasury regulations. In Union Trust Co. v. Commissioner, 54 Fed. (2d) 199, the court, in refusing to allow a taxpayer to deduct certain farm expenses, said:
It is admitted that the expenditures for which petitioner sought deduction were incurred in the maintenance and operation of the Valley Ridge property, but petitioner's obstacle is that it failed to establish before the Board the essential facts: (1) That it carried on farming operations thereon for gain; and (2) that the expenses incurred were both ordinary and necessary in transacting a farming business. * * * We think it is fair to assume that, if plaintiff had devoted the land to agriculture for expected profit, it could and would have shown the fact by pertinent evidence. It failed in this vital particular.
Cf. Deering v. Blair, 23 Fed. (2d) 975.
Issue 3. -- Are petitioners entitled to deduct from their community income for the taxable year 1943 an amount of $ 1,840 claimed as storage and care of certain*80 equipment during that year? Although in the statements attached to the deficiency notices the respondent says "It is held that the amount of $ 1,840.00 * * * does not represent an allowable deduction," it is apparent from the itemized list of adjustments to net income for the year 1943 also appearing in the statements attached to the deficiency notices that the respondent did not specifically disallow, as such, the $ 1,840 deducted by petitioners on their returns in arriving at the community income tax net income and the community victory tax net income of $ 147,976.55 and $ 159,416.42, respectively. This $ 1,840 was paid by petitioners to the four trusts to which the Oakwell farm was transferred in 1943. Each trust returned its share of the $ 1,840 (apparently $ 460) as taxable income. The respondent, by adjustments (b) and (c), included the net income *951 of these four trusts to which the Oakwell farm was transferred in petitioners' community income, as follows:
| Net income | Capital gain | |
| Edgar Tobin Trust | $ 19,442.61 | $ 2,493.42 |
| Margaret Batts Tobin Trust | 17,055.32 | 3,381.34 |
| Robert Batts Tobin Trust No. 1 | 4,061.20 | 1,263.34 |
| Harriet Fiquet Batts Trust | 12,021.04 | 3,022.83 |
| Total | 52,580.17 | 10,160.93 |
*81 By thus including the $ 52,580.17 in petitioners' community income, the respondent has, of course, added back to petitioners' community income the $ 1,840 which petitioners deducted on their returns and which the respondent did not disturb, as such. In his brief on this point the respondent argues as follows:
The Commissioner has shown that the income of the respective trusts is taxable to the community under sections 22 (a) and 167 of the Internal Revenue Code. Consequently any payment made for storing photographic equipment on the farm would have the effect of petitioners transferring money from one pocket to another. If the incomes of these trusts are held to be taxable to the petitioners, then it follows that the amount paid by Tobin for the storing of this photographic equipment does not constitute a deduction, since it was paid to himself.
Under issue 1 we have held that the income of Robert Batts Tobin Trust No. 1 was not taxable to petitioners, but that the income of the other three trusts was taxable to petitioners. In the recomputation under Rule 50 the present issue will adjust itself by excluding from petitioners' community income as determined by the respondent the*82 net income and capital gain of the Robert Batts Tobin Trust No. 1 in the respective amounts of $ 4,061.20 and $ 1,263.34. The effect of this will be that petitioners will have the benefit as a community deduction of that part of $ 1,840 (apparently $ 460) which they paid to the Robert Batts Tobin Trust No. 1 for storage of the equipment, and this is all they are entitled to under our holding that the incomes of the other three trusts are taxable to them.
We do not understand the respondent to contend that the $ 1,840 would not be allowable as an ordinary and necessary expense of Tobin's business if the respondent had recognized the trusts to which the amount was paid as valid trusts for income tax purposes. In order, however, that there be no doubt as to this point, we hold that the portion of the $ 1,840 (apparently $ 460) paid to the Robert Batts Tobin Trust No. 1 for storage of the equipment in question is allowable to petitioners as an ordinary and necessary business expense under section 23 (a) (1) (A) of the Internal Revenue Code.
Issue 4. -- In view of our holding under issue 1, the fourth issue has been narrowed to whether petitioners are entitled to a credit against*83 the deficiencies for the tax paid by the trustees of the Edgar Tobin, *952 Margaret Batts Tobin, Ethel Murphy Tobin, and Harriet Fiquet Batts Trusts for the years 1940 to 1943, inclusive. We decide this issue against petitioners upon the authority of Leslie H. Green, 7 T. C. 263, 277; affd. (C. C. A., 6th Cir.), 168 Fed. (2d) 994.
Decisions will be entered under Rule 50.
Footnotes
1. SEC. 167. INCOME FOR BENEFIT OF GRANTOR.
(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.
(b) As used in this section the term "in the discretion of the grantor" means "in the discretion of the grantor, either alone or in conjunction with any person not having a substantial adverse interest in the disposition of the part of the income in question."↩
2. SEC. 22. GROSS INCOME.
(a) General Definition. -- "Gross income" includes gains, profits, and income derived from salaries, wages, or compensation for personal services * * * of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. * * *↩
3. Commissioner v. Betts, 123 Fed. (2d) 534; Helvering v. Bok, 132 Fed. (2d) 365; Lillian M. Newman, 1 T. C. 921; Commissioner v. Katz, 139 Fed. (2d) 107; W. C. Cartinhour, supra;Estate of Benjamin Lowenstein, 3 T. C. 1133; Herbert T. Cherry, supra;Alice Ogden Smith, 4 T. C. 573; Litta Matthaei, 4 T. C. 1132; Hall v. Commissioner, 150 Fed. (2d) 304; Donald S. Black, 5 T. C. 759; Hawkins v. Commissioner, 152 Fed. (2d) 221; W. L. Taylor, 6 T. C. 201; Ernst Huber, 6 T. C. 219; Estate of Standish Backus, 6 T. C. 1036; David L. Loew, 7 T. C. 363; Commissioner v. Greenspun, 156 Fed. (2d) 917; Arthur L. Blakeslee, 7 T. C. 1171; Thomas v. Feldman, 158 Fed. (2d) 488; United States v. Morss, 159 Fed. (2d) 142; Jane Cooper Hemphill, 8 T. C. 257; William P. Anderson, 8 T. C. 921; Lewis W. Welch, 8 T. C. 1139; and Carman v. United States, 75 Fed. Supp. 717↩.