*218 Decision will be entered under Rule 50.
1. Petitioner gave $ 1,000 a month for the promotion of "Lumia," the art of light in motion. The money was placed in a bank account called the "Light Fund." It could be withdrawn by Wilfred, the discoverer of "Lumia." He used "Art Institute of Light" as a letterhead to arouse interest, and after the taxable years he organized a corporation with that name used on the letterhead. It is conceded that the purposes of Wilfred were educational. Held, that the contributions were to an individual and not to a "trust, or * * * fund" within the meaning of section 505 (a) (2) (B), Revenue Act of 1932 as amended.
2. Petitioner transferred certain policies of insurance upon the life of her husband to a trust. She was the beneficiary in, and had been assigned all of her husband's rights under, the policies. She assigned all of her rights to a trustee under a trust instrument which lodged discretion in the trustee to distribute income and/or corpus. During the taxable years she paid the premiums. Held, the payments were gifts of future interests.
*717 The Commissioner determined a deficiency of $ 1,207.50 in gift taxes for each of the calendar years 1937 and 1938. The proceedings were consolidated for hearing. The question involved is whether or not gifts of $ 12,000 made in each taxable year were deductible gifts. By amended answer respondent has now asked for increased deficiencies of $ 1,913.55 and $ 1,922.39 for the taxable years 1937 and 1938, respectively. The issue raised by the amended answer is whether or not payments of premiums upon insurance policies previously transferred to an irrevocable trust constituted gifts and, if so, whether the gifts were of future interests. All facts as to the second issue have been stipulated.
FINDINGS OF FACT.
Petitioner is an individual, having her office in Cleveland, Ohio. The gift tax returns for the taxable years 1937 and 1938 were filed with the collector of internal revenue for the eighteenth district of Ohio.
Thomas Wilfred, an artist, became interested in the use of light as a medium of artistic expression while he was in college*220 in 1905. At first he devoted only spare time to the development of this art, but in 1918 he began to devote most, if not all, of his time to it. He continued to do so to the time of the hearing. During the early years he financed the development of "Lumia," the art of light in motion, from his earnings in other fields.
*718 During those early years Wilfred took out a number of patents. Feeling that he had a duty to perform to the whole world, Wilfred wanted this art to live beyond his own life. Thus, he began the formation of the Art Institute of Light, which was not incorporated at first. The institute consisted merely of a letterhead and nothing more. This letterhead was adopted for the purpose of arousing interest in the art. In 1933 "Art Institute of Light" was registered as a trade name with the State of New York.
In 1933 Wilfred accepted an important job of lighting at the Chicago World Fair. With the money earned there, he rented space in the Grand Central Palace, New York City, under the name of the institute. He established a recital hall holding from 60 to 70 people and built as fine an instrument as he could. Then he began to give recitals and to gather *221 people around him.
Wilfred began experimenting with a membership plan whereby persons could pay $ 6 or more and become members. Members were entitled to attend all recitals and have the use of the public facilities of the institute. The admission to the recitals charged to others than members was $ 1. However, recitals were given free to various groups of students in and around New York City.
In 1930 a statement of aims was made. The aims were stated as follows:
To gather a Group of inspired Workers and to provide a Recital Hall, surrounded by Studios and Laboratories in which they may experiment, teach and demonstrate the results of their work on the use of Light as an independent medium for Esthetic Expression.
To establish a Library on the subjects involved through the collection and preservation of all pertinent records, books and other data.
To establish a Museum through the collection of early instruments and plans, now in danger of destruction.
To perfect and standardize Lumia Instruments and recording systems for the use of artists desirous of composing in Light.
To provide Studio and Laboratory facilities for Artists and Inventors -- that they may solve their individual*222 problems and cooperate, assisted by the Institute staff.
To give frequent Lumia recitals, lectures and special performances in the hall and to invite Universities, Colleges and Art Institutions to send their students to these events.
To send out Lumia Players and Lecturers to Educational and Art Institutions throughout the World.
To build up a Membership, supporting and enjoying the activities of the Institute.
To promote a better understanding of the new and almost untouched Esthetic Possibilities now dormant in Light.
To bring about a general recognition of Lumia -- the Art of Light -- which is opening a Gate to a new World of Beauty and appealing to the awakening Spirituality in Man.
These aims have remained the same throughout the years.
*719 Wilfred has given recitals abroad and in this country. Recitals in the United States at places other than the institute recital hall are arranged by some group which pays Wilfred a regular fee. He has also given many free recitals for the purpose of stimulating the interest of students in colleges and high schools in and around New York City.
In connection with his experiments to reveal the esthetic possibilities in light Wilfred did*223 some work in psychiatry. In 1939, at the request of the division of psychology at the University of Wisconsin, he built an elaborate instrument for use by the university in experimentation in the "aneurization of certain phases of schizophrenia, a branch of psychiatry." The instrument cost between six and seven hundred dollars and the university agreed to pay a rental therefor of $ 50 a year.
To the layman, the art of light in motion is exemplified most vividly by the portion of the motion picture "Fantasia," which deals with the abstract.
Petitioner first became interested in Wilfred's work in 1934. She was made an honorary life member of the institute. At her request Wilfred submitted a budget for the institute for a year. The total amount was about $ 11,000 and included an item of $ 4,500 for "personal expenses for living and keeping the above little family reasonably happy."
By letter bearing date of February 2, 1935, petitioner responded to Wilfred's letter in part as follows:
* * * I had hoped to be able to write you that the modest eleven thousand could be comfortably fitted into the Lighthouse Fund which I am establishing at the Bank of the Manhattan Co. -- I can't see*224 clearly yet -- but I can say very definitely that five thousand can most certainly go to you from this Fund. This will insure the peace of mind for those "Three Lovely Things" [referring to his family] and start a tiny bit on more freedom for you -- Then if I can work out some way to squeeze money out of sheets of paper called bonds, I'll let you know promptly -- For I see "Light" as an essential in our New World -- and hope this will steady the ship for the moment.
In a letter bearing date of March 1, 1935, petitioner stated in part as follows:
During these weeks I have been busy establishing a trust fund that will go as far as is humanly possible to secure money for the future despite the troublesome times in which we live. The formalities are practically concluded, and the first check for "The Light Fund" upon which Thomas Wilfred may draw is being deposited in the Bank of The Manhattan Co., 40 Wall Street.
* * * *
The first check will be for two thousand dollars and the succeeding months will be for ($ 1000) one thousand. The total for the year will therefore come to twelve thousand $ 12,000 which is a wee bit over your budget. The Lighthouse Fund is happy that*225 its resources make this possible.
May I say one more thing?
I shall greatly appreciate it if you will permit me to remain anonymous -- that you may need to have some answer to queries I can see -- So suggest that you *720 speak the very literal truth. That you received your assistance from a fund -- whose trustees are interested in your work. * * *
Petitioner continued to advance $ 1,000 a month through 1936, 1937, and 1938. Memberships were also continued throughout the taxable years and beyond.
Wilfred withdrew from the fund whatever he needed for personal living expenses and the rest was spent for the development of his work. During the taxable years Wilfred reported all the income and expenses in his personal income tax returns. He reported the $ 12,000 received each year as a gift. No income tax returns were filed for or on behalf of the institute for 1937 or 1938. The following statements are annual reports of the institute for 1937 and 1938:
| ART INSTITUTE OF LIGHT ANNUAL STATEMENT FOR 1937 | |||
| Expenditures: | |||
| Wages and Commissions | $ 3,270.50 | ||
| Laboratory Supplies | 1,432.06 | ||
| Rent and Electric Current | 1,794.66 | ||
| Office Supplies | 608.43 | ||
| Art Supplies | 550.87 | ||
| Telephone, Telegrams & Messages | 114.43 | ||
| Attorney's Fee | 25.00 | ||
| Advertising and Mailing | 1,336.30 | ||
| Travel and Transportation | 350.67 | ||
| Total | $ 9,482.92 | ||
| Income: | |||
| Twelve Light Fund Payments | $ 12,000.00 | ||
| 36 Recitals in Institute | 1,289.50 | ||
| 1 Recital, Stillwater, Okla | 500.00 | ||
| 1 Recital, Ithaca, N. Y | 300.00 | ||
| Total | $ 14,089.50 | ||
| Income | $ 14,089.50 | ||
| Expenditures | 9,482.92 | ||
| Private Expenses | $ 4,606.58 |
*226 All above items have been prepared in detail, supplemented by receipted bills and cancelled checks for tax inspection.
| My income tax reports read: | |||
| Gifts from the Light Fund | $ 12,000.00 | ||
| Taxable Income | $ 2,089.50 | ||
| Expenditures | 9,482.92 | ||
| Deficit | $ 7,393.42 | ||
| [Signed] Thomas Wilfred. |
| ART INSTITUTE OF LIGHT, ANNUAL REPORT FOR 1938. | |||
| Expenditures: | |||
| Rent and Electric Current | $ 1,932.57 | ||
| Laboratory Supplies | 1,375.84 | ||
| Wages and Commissions | 4,237.00 | ||
| Office Supplies | 364.64 | ||
| Art Supplies | 406.11 | ||
| Telephone, Telegrams & Messages | 208.09 | ||
| Advertising and Mailing | 960.84 | ||
| Travel and Transportation | 2,266.58 | ||
| Total | $ 11,751.67 | ||
| Income: | |||
| Twelve Light Fund Payments | $ 12,000.00 | ||
| 31 Recitals in Institute | 1,326.00 | ||
| 16 Recitals on Tour | 4,199.00 | ||
| Total | $ 17,525.00 | ||
| Total Income | $ 17,525.00 | ||
| Institute Expenditures | 11,751.67 | ||
| Private Expenditures | 4,850.00 | ||
| Balance | $ 923.33 |
All above items have been prepared in detail, supplemented by receipted bills and cancelled checks, ready for inspection at any time.
| My income tax report will read: | ||
| Gifts from the Light Fund | $ 12,000.00 | |
| Taxable Income | $ 5,525.00 | |
| Expenditures | 11,751.67 | |
| Deficit | $ 6,226.67 | |
| New York City, | ||
| January 24th 1939 | ||
| [Signed] Thomas Wilfred. |
*227 In 1939 the institute was incorporated and since that time the Commissioner has listed the institute as an organization donations to which are deductible.
On June 4, 1932, petitioner executed an irrevocable trust agreement with the Cleveland Trust Co. for the benefit of her three sons. She transferred policies of insurance on the life of her husband to the trustee as corpus. These policies had originally been made payable to the estate of Chester C. Bolton, petitioner's husband. However, the beneficiary was changed to petitioner and her husband assigned his interest in the policies to her. Petitioner in turn assigned all of her interest in those policies to the trustee. The trust instrument provided, inter alia:
* * * *
No obligations shall rest on the Trustee to see to the payment of premiums due and to become due on any such policies. It is my expectation and intention to *722 pay the premiums falling due on said policies during the life of my husband. In event I should predecease my husband, or if for any reason I shall fail or neglect to pay said premiums, I authorize and empower the Trustee to advance its own funds therefor and for the repayment of such, with *228 interest, the Trustee shall have a lien upon said policies and all interests therein including the proceeds of said policies upon the demise of my husband, as well as the right at any time prior thereto to exercise any of the privileges of surrendering said policies whereby it may so reimburse itself from such surrender values. Nothing herein contained, however, shall be construed as rendering it obligatory upon the Trustee to make any such advances. * * *
* * * *
In event income becomes available before any son reaches the age of twenty-five (25) years, the Trustee is authorized and empowered to pay to or for the benefit of such one until he arrives at such age only so much of the income derived from the share held for such one as it shall deem necessary or proper to provide for his suitable support, maintenance, education and advancement in life, and any income not so expended shall be added to the share from which it is derived. * * *
If and when any such son shall attain the age of twenty-five (25) years, the entire net income derived from the share of such son shall be paid to such one, in quarterly installments or oftener, during the life of such one, except as otherwise hereinafter*229 provided.
The trustee had the power to withhold temporarily all payments of income directed to be made to the beneficiaries in the event the trustee should determine that such payments would not be for their best interests. Any income so withheld may at any subsequent time be paid to the beneficiary from whom it was withheld, or to his wife, child, or children, or may be added to his share of principal.
Petitioner paid $ 11,093.05 in 1937 and $ 11,144.30 in 1938 as the aggregate of premiums upon the policies transferred to the trustee. None of the policies produced any income during the years 1937 or 1938.
Petitioner's husband died on October 28, 1939.
OPINION.
The first issue is whether or not petitioner made a deductible gift in each of the taxable years. Respondent contends that the gifts were to an individual and therefore taxable under section 501 of the Revenue Act of 1932. He concedes, however, that the purposes of the work were educational, and thus the issue is limited to whether or not the gifts were "to or for the use of * * * trust, or * * * fund." Sec. 505 (a) (2) (B), Revenue Act of 1932, as amended by sec. 517, Revenue Act of 1934.
Petitioner contends that the gifts*230 were to a fund or trust and therefore deductible under section 505 (a) (2) (B).
The facts show that petitioner became interested in the work which Wilfred was doing with light. She asked him to submit a budget to her. This budget included the personal living expenses of Wilfred as well as the contemplated expense of furthering "Lumia." Petitioner *723 agreed to advance $ 1,000 a month. She deposited the money in a bank under the name of "Light Fund." She made arrangements for Wilfred to withdraw $ 1,000 a month from this "fund." The amount of $ 12,000 deposited by petitioner each year and withdrawn by Wilfred was included in Wilfred's income tax return for each year as a gift. No income tax returns were filed by or on behalf of the institute. Petitioner included in her gift tax return the amount of $ 12,000 each taxable year as a charitable gift to the "Art Institute of Light."
Petitioner's first contention is that the so-called "Light Fund" was a fund within the meaning of the statute. This contention appears to be without merit. Any deposit of money in a bank could be called a fund, but we do not believe that Congress intended, by the use of the word "fund" in section*231 505 (a) (2) (B), to include a mere bank deposit. A bank deposit is not "organized or operated" as the statute requires. These and other words of the statute compel us to hold that the "Light Fund" was not a fund within the meaning of section 505 (a) (2) (B).
Petitioner's second contention is as follows:
Wilfred, in his prior conferences with Mrs. Bolton, by showing her the Statement of Aims and the budget and through correspondence with her found on Pages 19-26 of the Record, became a trustee of these funds, pledging himself to spend them for the purposes of the Art Institute of Light and, except for his personal "salary" as director, for these purposes alone. It was as much of a trust and as truly binding on Wilfred as though an attorney had drawn for them a fifty page indenture.
Under the facts of this case we are of the same opinion as was Wilfred when he filed his income tax returns. He there treated the gifts as gifts to him personally. It seems perfectly obvious that petitioner did not intend to establish a trust. She intended merely to see that Wilfred had sufficient money to enable him to live comfortably and to carry on his work. Since the gift was to an individual*232 and not to a trust or fund, it is not a deductible gift and should have been included as a taxable gift in petitioner's gift tax returns for the taxable years.
The second issue was raised by the amended answer of respondent. He contends that the payments of premiums upon policies of insurance transferred in trust were gifts of future interests. All of the facts relating to this issue were stipulated and briefly are as follows: Petitioner established an irrevocable trust for the benefit of her three sons. The corpus was made up of insurance policies upon the life of petitioner's husband. Petitioner was the beneficiary under these policies and her husband had assigned all of his rights thereunder to her. She in turn assigned all of her rights to the trustee as corpus of the trust for her three sons. In the trust instrument it was stated that petitioner expected and intended to pay premiums during the *724 life of her husband. During the taxable years she did pay the premiums. The trust instrument provided as follows:
In the event income becomes available before any son reaches the age of twenty-five (25) years, the Trustee is authorized and empowered to pay to or for the*233 benefit of such one until he arrives at such age only so much of the income derived from the share held for such one as it shall deem necessary or proper to provide for his suitable support, maintenance, education and advancement in life, and any income not so expended shall be added to the share from which it is derived. * * *
Respondent contends that these payments of the premiums represented gifts and that they were gifts of future interests. At the hearing petitioner's attorney stated that he did not desire to file a brief upon this issue.
There can be no doubt that the original gift in trust of the insurance policies was a gift of future interests, since the beneficiaries had no rights under the instrument until they reached the age of 25. Prior to that time distribution of the income and of corpus was in the discretion of the trustee. Thus, the gifts of the corpus and income were gifts of future interests. ; cf. . Moreover, the gift in trust of the insurance policies was by the terms of the policies a gift of future interests and the payments*234 of premiums thereon by petitioner were therefore gifts of future interests. .
(reversed on another point in ), holding that payment of premiums on insurance policies constituting corpus of a trust was not a gift of future interests, antedated the decision of the Supreme Court in . Respondent's contention that the payments of the premiums were gifts of future interests is sustained.
Decision will be entered under Rule 50.
Leech, J., concurring: It is apparently conceded that the transfer of the insurance policies by petitioner in 1932 to a trust for the benefit of her three sons was a gift of "future interests" because those interests were, by the trust, "limited to commence in use, possession or enjoyment at some future date or time." Whether the payment by petitioner of the premiums on those policies in 1937 and 1938 were present or "future interests," is our only question. Petitioner*235 undoubtedly could have given the money, with which these premiums were paid, to the children or the trust with the condition that it be so used. But the fact is that she did not do so. She paid the premiums herself. And tax questions, such as this, must be resolved by what *725 was done, not by what might have been done. Weiss v. Wiener, 279 U.S. 333">279 U.S. 333. No obligation to pay these premiums existed. The insurance policies were essentially merely contracts covering a period of one year and containing certain options. By paying the annual premiums for the taxable years, petitioner exercised one of those options and purchased a new contract for each such year. It would seem unanswerable that, since the interests of the children under the original insurance contracts, transferred to the trust, were "future," their interests under the same contracts for the taxable years were likewise "future."
Black, J., dissenting: I respectfully dissent from the majority opinion, which holds that the $ 11,093.05 insurance premiums which petitioner paid in 1937 and the $ 11,144.30 which she paid in 1938 were gifts of future interests. The policies*236 of insurance themselves were irrevocably transferred by petitioner in 1932 to a trust for the benefit of her three sons. We do not have that gift before us, but I am perfectly willing to assume that it was a gift of future interests. That fact seems clear and I shall not attempt to argue otherwise. But the policies, although valuable property, were not self-perpetuating. Somebody had to pay the annual premiums in order that they should remain alive. In each of the taxable years petitioner paid the premiums. The Commissioner by his amended answer affirmatively alleges that in so doing petitioner made gifts to her three sons of the amounts of the premiums so paid and that these gifts were of future interests and no $ 5,000 exclusions are allowable. It seems clear that gifts were made all right and are taxable, but I am unable to see where such gifts partake in any manner of future interests.
Article 11 of Regulations 79 defines future interests in property as follows:
* * * "Future interests" is a legal term, and includes reversions, remainders, and other interests or estates, whether vested or contingent, and whether or not supported by a particular interest or estate, which*237 are limited to commence in use, possession or enjoyment at some future date or time. * * * [Italics supplied.]
I am unable to see where a gift made to pay insurance premiums is limited to commence in use, possession, or enjoyment at some future date or time. It seems to me that it commences right now and its use and enjoyment are immediate.
It is true, of course, that petitioner's three sons did not have the immediate use and enjoyment of the policies themselves or the proceeds thereof and that as to these things the gifts which had been made in a prior year were of future interests, but it is equally true, I think, that so far as the gifts of the money to pay the premiums are concerned there was immediate use and enjoyment.
*726 Suppose, instead of making the payments of the premiums to the insurance companies, petitioner had given her three sons the cash with which to pay them. Could it be contended that the gifts to them of the cash would be gifts of future interests? I don't think so. I can not see where the situation is changed any by the fact that petitioner, instead of giving the money to her sons, paid the premiums directly to the insurance companies, thus making*238 indirect gifts to her three sons. In such a circumstance the trust was not the donee of the gifts. The three sons were the donees of the gifts, and I believe the gifts were no more gifts of future interests than they would have been if she had made them directly to her sons.
It must be conceded, of course, that the court decided in , that gifts of the kind here made were of future interests, but, with all due respect to that court, I think that decision was wrong. In the Boeing case the court devoted the major part of its opinion to a discussion that the gifts of the policies themselves, which had been made in 1932, were gifts of future interests. Having arrived at that conclusion, the court held as a matter of course and without further discussion that the gifts of the premiums by Boeing in 1936 and 1937 to keep the policies alive were gifts of future interests. It is my view that the problem is not that simple.
For reasons I have stated above, I think that the gifts which petitioner made to her three sons in 1936 and 1937 in the payment of these insurance premiums were gifts of present interests *239 and not future interests, and that the use and enjoyment to the sons were immediate and consisted in the present payment of insurance premiums to keep alive policies of insurance of which they were already the beneficial owners and in which they had very valuable rights which would be lost if the premiums were not paid.