*197 Decisions will be entered under Rule 50.
In 1934 petitioner conveyed property in trust to his brother for the benefit of his minor children. In 1935, by separate instrument, petitioner conveyed other property to himself and his brother in trust for the benefit of his minor children. Petitioner consistently treated the instruments as creating one trust, although not specifically authorized in the trust instruments. Part of the income of the trust property was used for the support, education, and maintenance of petitioner's minor children; part was used to pay premiums on insurance taken out by petitioner on his own life, which policies were not assigned to the trust, and to pay premiums on other policies owned by petitioner and not irrevocably assigned by him to the trust; substantial amounts were loaned to petitioner in his individual capacity and to a partnership of which he was a member; and trust funds were used to purchase real estate used by petitioner in his business. Held, the income of the trust or trusts is includible in petitioner's community income under section 22 (a) and under the principle of Helvering v. Clifford, 309 U.S. 331">309 U.S. 331.*198
*1053 This proceeding involves deficiencies in income tax, together with a 5 percent penalty for delinquency in filing returns for the year *1054 1937, determined against each petitioner for the years and in the amounts as follows:
| 5% delinquency | ||
| Year | Deficiency | penalty |
| 1937 | $ 2,634.58 | $ 131.73 |
| 1938 | 2,520.02 | |
| 1939 | 1,633.35 | |
| 1940 | 1,567.19 | |
| 1941 | 2,610.73 | |
| Total | 10,965.87 | 131.73 |
*199 Petitioners allege error in so far as the deficiencies result from including in their community income the income of certain property conveyed in trust by petitioner George Beggs under indentures dated July 9, 1934, and December 20, 1935. Petitioners also plead the statute of limitations as to the years 1937 and 1938. It is agreed, however, that, if the income of the trusts is properly includible in petitioners' income, the extended period for assessment provided by section 275 (c) of the Revenue Act of 1936 and of the Internal Revenue Code is applicable, in which case the notices of deficiency were timely. The cases have been consolidated for hearing, inasmuch as the issues as to each petitioner are identical, petitioner Francine Beggs being involved only because community returns were filed.
FINDINGS OF FACT.
The petitioners, George Beggs and Francine Beggs, are husband and wife and at all times here material resided at Fort Worth, Texas. For all the years here involved they filed separate returns on the community property basis with the collector of internal revenue for the second district of Texas.
In 1931 petitioner acquired a 21/64 interest in the gas, oil, and other minerals*200 in certain lands in Rusk County, Texas.
In 1930 he acquired land known as the Pursley Ranch for a consideration of $ 59,707.81, of which he paid $ 17,207.81 in cash and gave his promissory note in the sum of $ 42,500 for the balance due.
In 1932 he acquired land known as the Foley Ranch for a consideration of $ 75,000, of which he paid $ 3,000 in cash and gave his promissory note in the sum of $ 72,000 for the balance due.
At the time petitioner acquired the above property he had in mind creating a trust and he intended to have the income derived from the oil rights pay for the ranch lands.
On March 16, 1934, petitioner conveyed to J. E. Beggs, his brother, as trustee, his interest in the oil properties in trust for the benefit of his four children, Deborah Dickey Beggs, born November 20, 1918, George Beggs, Jr., born June 19, 1921, Ed Farmer Garrett Beggs, *1055 born October 21, 1922, and Helen Francine Beggs, born June 27, 1925. This instrument, after describing the property transferred, reads in full as follows:
This conveyance is made, in trust, for the use and benefit of my four children, Deborah Dickey Beggs, George Beggs, Jr., Ed Farmer Garrett Beggs, and Helen Francine*201 Beggs; and my said trustee is hereby empowered to manage, sell, control, and dispose of said minerals for the use and benefit of my said children, and to pay to them in equal parts the proceeds and revenues therefrom; and the entire beneficial interest in and to said minerals is hereby vested in my said children.
In the event of the death or resignation of said trustee, grantor shall have the right to appoint another trustee with all the powers herein granted.
Witness my hand at Fort Worth, this the 16th day of March, A. D. 1934.
[Signed] Geo. Beggs
This transfer was reported in a gift tax return by petitioner at a value of $ 52,900. A gift tax of $ 21.75 was paid.
After the execution of the foregoing instrument, it was found that the trustee thereunder was not empowered to borrow money or to execute mortgages, which powers were essential to petitioner's plan to have the ranch land brought into the trust as hereinafter described. Petitioner wanted to avoid, if possible, any indebtedness of the trust to himself personally and discussed the matter with an attorney. The attorney advised him that it would be necessary to obtain the consent of all parties interested in the matter, including*202 the beneficiaries, who were at that time minors, in order to modify the trust instrument. Petitioner, however, did not desire to have the children know the extent of the property which had been conveyed in trust for them or to subject them to a court proceeding and, accordingly, after consultation with an attorney and with the trustee it was decided that the attorney should proceed to correct the instrument without the consent of the beneficiaries. Thereupon, by instrument dated July 6, 1934, the trust property was reconveyed by J. E. Beggs, trustee, to petitioner and on July 9, 1934, the same property was transferred back to the trustee. The corrected instrument, after reciting the description of the property, reads in full as follows:
This conveyance is made, in trust, for the use and benefit of my four children, Deborah Dickey Beggs, George Beggs, Jr., Ed Farmer Garrett Beggs, and Helen Francine Beggs; and my said Trustee is hereby empowered to manage, control, dispose of, sell and convey, any part or all of said minerals, and to borrow money thereon, or any part thereof, and pursuant thereto to execute mortgage or mortgages, assignments, transfers and conveyances thereon, for*203 the use and benefit of my said children, and to pay to them in equal parts the proceeds and revenue therefrom; and the entire beneficial interest in and to said minerals is hereby vested in my said children.
In the event of the death or resignation of said Trustee, Grantor shall have the right to appoint another Trustee with all the powers herein granted.
*1056 This instrument is a correction Deed in Trust, executed in lieu of and in the place and stead of a certain original Deed in Trust dated March 16, 1934, filed for record and recorded in Vol. 246, at pages 514-15, Deed Records of Rusk County, Texas.
Witness my Hand at Fort Worth, Texas, this the 9th day of July, A. D. 1934.
[Signed] George Beggs.
On December 20, 1935, petitioner conveyed to himself and J. E. Beggs, as trustee, the Pursley and Foley Ranches purchased by him in 1930 and 1932. The trust instrument provided that there should at all times be two trustees; that upon the death, resignation, failure to act, or incapacity of either of the initial trustees, the remaining trustee should immediately appoint a substitute; that upon the thirtieth birthday of the younger of petitioner's two sons the then acting trustees*204 should cease to act and the two sons become joint trustees; that, if either of the boys should die before reaching the age of 30, the survivor upon becoming 30 should become trustee and himself appoint a second trustee; that, in the event both boys should die prior to reaching the age of 30, the then acting trustees should continue in that office.
That instrument further provides as follows:
Second: That the Trustees are to reimburse the said George Beggs for certain indebtedness due and owing by the Trust herein and hereby created, to him, as hereinafter set forth, represented by and equivalent to: The amounts paid by him on the original purchase price of said lands, with interest thereon, plus any amounts that the said George Beggs may hereafter be required to pay on the incumbrances outstanding thereon; and the amounts paid by him on improvements on said lands, plus interest thereon; all of which is reflected by the books of the said George Beggs. But It Is Expressly Stipulated that any and all conveyances executed by said Trustees conveying any or all of said lands, or any interest therein, or any and all Deeds of Trust or mortgages executed by them thereon, pursuant to the terms, *205 provisions, and conditions of this Trust, shall be free and clear of all of said indebtednesses in favor of the said George Beggs without the execution by him of a release thereof or of his joinder in the execution of said conveyances, Deeds of Trust or mortgages.
Paragraph third of the trust instrument authorized and empowered the trustee to sell or transfer any part or all of the real estate, to mortgage the lands when necessary for the preservation of the trust estate, to execute oil leases on the trust property and "to manage, control, lease and rent" the trust property. The trustee was further specifically authorized to lease the land to petitioner J. E. Beggs or to either or both of the two sons at rental rates current at the time of such leasing. The proceeds from the sale of land were to be applied first to payment of the existing mortgages and second to be invested and held in trust as part of the corpus of the trust. The proceeds from mineral leases were to be applied first to the payment of mortgages, second to the upkeep of the trust properties, including interest and *1057 taxes, and third to be invested and held as part of the trust corpus, "or, may be treated*206 as income and paid by the Trustees to the Beneficiaries hereunder annually or semi-annually as the same accrue and are collected." The proceeds from the leasing of lands and from any other investments were to be applied first to the payment of mortgages, second to make up any deficit in expenses of upkeep, taxes, and interest, resulting from an inadequacy of other sources of income to cover the same, and the balance to be distributed periodically as income to the beneficiaries. It is further provided that any and all income properly paid, credited, or distributed to the beneficiaries under the foregoing provisions shall be chargeable directly to the beneficiaries pro rata.
Paragraphs fourth and fifth of the trust instrument provide as follows:
Fourth: (a) That during the existence of this trust and until the termination thereof, the beneficial use of said properties shall be, and the same is hereby vested in the four children of the Grantor hereof, to-wit: Deborah Dickey Beggs, George Beggs, Jr., Ed Farmer Garrett Beggs and Helen Francine Beggs, share and share alike, or in the survivors or survivor of them, as hereinafter modified. (b) That in the event of the death of any one *207 or more of said children during the existence of this trust, the beneficial interest or interests of said child or children so dying, shall, subject to the terms and conditions hereof, thereupon pass to and become vested in the lineal descendant or lineal descendants of said child or children so dying, as the case may be, per stirpes, respectively, but in no event shall the same pass to and become vested in the husband or wife of any deceased child or children; but if said deceased child or children leave no lineal descendant or lineal descendants then in that event the beneficial interest or interests of said child or children so dying prior to the termination of this trust shall thereupon pass to and become vested in the survivors or survivor of the said Deborah Dickey Beggs, George Beggs, Jr., Ed Farmer Garrett Beggs and Helen Francine Beggs, share and share alike, which survivors or survivor shall thereupon become the sole beneficiaries under the terms, conditions and provisions of this trust and continue as such until the termination thereof. Provided, however, that in the event of the death of all of the said children, to-wit: Deborah Dickey Beggs, George Beggs, Jr., Ed Farmer*208 Garrett Beggs and Helen Francine Beggs, and of all of their lineal descendants, if any, prior to the 27th day of June, A. D., 1990, thus extinguishing all of the Beneficiaries herein named, then in that event this trust shall cease and terminate, and the legal and equitable title to all of the properties herein and hereby conveyed shall thereupon revert and pass to George Beggs, the grantor hereof, his heirs and assigns in fee simple forever.
Fifth: That this trust shall cease and terminate on the 27th day of June, A. D., 1990, unless terminated prior thereto as hereinbefore provided, whereupon the legal title to the properties hereinbefore described and all property, both real and personal, forming a part of said trust estate, shall thereupon pass to and become vested in fee simple forever in the persons, who, in accordance with Article Fourth hereof, supra, shall then be entitled to the beneficial or equitable use thereof.
It was petitioner's purpose through the medium of the two trust instruments set forth above to purchase the ranch lands with the proceeds from the mineral interests conveyed to J. E. Beggs as trustee *1058 under the trust instrument of March 16, 1934. Although*209 the two trust instruments were executed as separate instruments and at different times, petitioner looked upon all of the property as one trust estate, and kept all of the accounts and transactions as a single trust.
Additional properties were purchased by the trust with the income received from the gas, oil, and mineral royalties. A small amount of stocks and bonds was also purchased by the trust. Some of these properties were purchased by petitioner and transferred to the trust by him, the purchase price being carried on the books as a credit in his favor.
On October 20, 1923, petitioner took out four policies on his life with the Aetna Life Insurance Co., each one in the face amount of $ 12,500, naming separately one of his children in each policy as a beneficiary thereof. From October 8, 1938, through the year 1941 the premiums on these policies were paid by the trust out of trust income. Such premiums amounted to an aggregate of $ 1,152.50 each year. There was no assignment of the policies to the trust. The policies were handled in this manner because petitioner "considered they [the children] would get the benefits of it [them] * * *."
Prior to 1928 petitioner had acquired*210 by assignment an insurance policy on the life of William H. Slay, Sr., of Fort Worth, Texas, issued by the Indianapolis Life Insurance Co. of Indianapolis, in the sum of $ 2,500. The policy had been assigned to petitioner in settlement of a debt of the insured. By a writing dated September 29, 1938, petitioner purported to assign all his right and title in this policy to J. E. Beggs, trustee, for the benefit of his four children. Premiums in the amount of $ 216.25 were paid from trust funds each year from 1938 through 1941. The instrument reads in full as follows:
For Value Received, I, George Beggs, hereby assign and transfer unto J. E. Beggs, Trustee for Deborah Dickey Beggs, George Beggs, III, Ed Farmer Garrett Beggs and Helen Francine Beggs, all my right, title and interest in the policy of insurance known as No. 52642 issued by The Indianapolis Life Insurance Company of Indianapolis, Indiana, upon the life of William H. Slay, Sr., of Fort Worth, Texas, and all dividends, benefits, surrender values and advantages to be had or derived therefrom, subject to the conditions and provisions of said policy, and to the Rules and Regulations of the Company.
For the purpose of more *211 effectually carrying out this assignment I hereby constitute and appoint said assignee my lawful substitute, and irrevocable Attorney-in-Fact for and in my name, place, and stead to collect from said Company any and all monies which, under said policy, shall become owing or may be collectible thereon, at or before its maturity, whether for dividends, the sum insured, the exercise of any option or otherwise, and to acquit and release said Company as fully as I could do in person.
Witness my hand, this 29th day of September, A. D., 1938.
[Signed] Geo. Beggs.
Prior to 1938 petitioner had acquired by assignment in settlement of a debt of the insured a policy of insurance on the life of U. M. *1059 Simon, in the face amount of $ 25,000, issued by the Southland Life Insurance Co. On April 1, 1940, petitioner executed the following instrument:
To Whom It May Concern:
Regarding Life Insurance policies Indianapolis Life -- #52642 on the life of W. H. Slay -- Southland Life Ins. Policy U. M. Simon -- #55935.
This is to state and serve as evidence that any interest I have had in these policies or may have at this date or any future date is the property of Trusts #1 -- J. E. Beggs and *212 Trust #2 -- J. E. Beggs and Geo. Beggs -- such trusts are for my four children -- Deborah -- George -- Ed Farmer and Francine.
The yearly premiums on the Simon policy, in the amount of $ 766.25, were paid by the trust from trust income from 1938 through 1941. Neither of the purported assignments was noted on the policies or on the books of the respective insuring companies.
Throughout the entire period here involved only one bank account was kept for the trusts. That account was opened on or about July 30, 1934, in the name of J. E. Beggs, trustee. Petitioner was authorized to draw checks by signing J. E. Beggs, trustee, by Geo. Beggs. Both the trustee and petitioner did draw checks from the beginning. Petitioner used his own discretion in the matter of drawing checks on the account.
Financial dealings between the trusts and petitioner have been numerous over the years. The books of the trusts reflect these dealings in the following accounts, hereby incorporated by reference in these findings in their entirety: "Accounts Payable -- George Beggs," "Accounts Receivable -- George Beggs," "Notes Payable -- George Beggs," "Notes Receivable -- George Beggs," and "Notes Receivable -- *213 Beggs Bros." The following table is a summary of loans by the trust to petitioner on open account from the year 1934, together with repayments and year-end balances.
| Year-end | |||
| Year | Loans | Repayments | balances |
| 1934 | $ 14,135.79 | $ 686.03 | $ 13,449.76 |
| 1935 | 28,269.58 | 20,998.04 | 20,721.30 |
| 1936 | 1,209.80 | 777.75 | 21,153.35 |
| 1937 | 367.10 | 799.15 | |
| Note for | |||
| $ 20,721.30 |
The repayments were made partly in cash, but mainly by crediting the accounts receivable with expenditures made by petitioner on behalf of the trusts. The final payment in 1937, closing the account, was made by a credit of $ 799.15, by reason of expenditures made by petitioner on one of the ranches, and by a note in the amount of $ 20,721.30 given the trusts by petitioner on November 19, 1937. This note was thereupon taken into the trust account entitled "Notes Receivable -- George Beggs."
*1060 Petitioner became indebted to the trust on demand notes, given by him as evidences of advances to him by the trust, as shown in the following table, which is a summary of the "Notes Receivable -- George Beggs" account.
| Year-end | |||
| Year | Notes | Repayments | balances |
| 1934 | $ 1,000.00 | $ 1,000.00 | |
| 1935 | 9,000.00 | $ 8,260 | 1,740.00 |
| 1936 | 4,707.68 | 6,447.68 | |
| 1937 | 20,721.30 | 1,000 | 26,168.98 |
| 1938 | 26,168.98 |
*214 In 1939 the notes receivable account was closed and petitioner ceased to be indebted to the trusts by virtue of a transfer of credits to the notes receivable account from the "Accounts Payable -- George Beggs" account. The latter account was set up on June 23, 1939, to reflect expenditures made on the ranch lands by petitioner prior to the transfer in trust on December 20, 1935. Since June 23, 1939, petitioner has always appeared as a creditor on the books of the trusts. As of the close of 1941 the books showed the trusts to be indebted to him on three demand notes, as follows: One note in the amount of $ 50,189.34; one note in the amount of $ 8,359.64; and one note in the amount of $ 46,588.08, making a total indebtedness of $ 105,137.06. Interest was paid by the trusts on all three notes.
The advances and loans set forth in the preceding two tables were made in connection with various transactions between petitioner and the trust and on a few occasions advances were made from trust funds to take care of some pressing obligations of petitioner while he was absent. Advances were made to petitioner's wife on four different occasions, but these advances were promptly repaid by *215 petitioner and so were any other advances of a like nature.
The trusts also loaned money to Beggs Bros., a partnership engaged in the ranching business and composed of petitioner, J. E. Beggs, and a third brother, W. D. Beggs, which loans were evidenced by demand promissory notes of the partnership. The following summary of the trusts' "Notes Receivable -- Beggs Bros." account shows such loans, the repayments, and the year-end balances. 1
| Year-end | |||
| Year | Loans | Repayments | balances |
| 1934 | $ 4,000.00 | $ 4,000.00 | |
| 1935 | 8,300.00 | 12,300.00 | |
| 1936 | 2,648.20 | $ 1,000.00 | 13,948.20 |
| 1937 | 11,953.11 | 10,000.00 | 15,901.31 |
| 1938 | 13,809.94 | 21,967.95 | 7,743.30 |
| 1939 | 7,743.30 | 7,743.30 | 7,743.30 |
| 1940 | 7,743.30 | 7,743.30 | 7,743.30 |
| 1941 | 11,759.70 | 7,743.30 | 11,759.70 |
*1061 These loans were made for reasons personal to the *216 Beggs Bros. partnership.
Since acquisition by petitioner, the Pursley and Foley Ranches have been rented to Beggs Bros. at the prevailing rental price.
Upon petitioners' request the time for filing their returns for the calendar year 1937 was extended from March 15 to April 15, 1938. The returns were not actually filed until April 19, 1938. The failure to file the returns within the time prescribed was not due to reasonable cause.
During the years 1937 to 1941, inclusive, the following amounts of trust income were expended for the care, education, and maintenance of the minor beneficiaries of the trusts:
| 1937 | $ 8,030.61 |
| 1938 | 6,573.88 |
| 1939 | 6,302.45 |
| 1940 | 5,893.24 |
| 1941 | 8,169.02 |
Petitioner has either paid the tax due by reason of the expenditures for the benefit of his children in these years or has signed Form 870 with respect thereto.
Respondent increased the community income of petitioner by including therein the income of the trusts in each of the years from 1937 to 1941, inclusive. Respondent also determined a 5 percent penalty against each petitioner for failure to file timely returns for 1937.
OPINION.
The principal issue presented for decision is whether or not*217 the income of the trust or trusts created by petitioner George Beggs by instruments dated July 9, 1934, and December 20, 1935, may be treated as the community income of petitioners despite the transfer in trust, under section 22(a) of the Revenue Acts of 1936 and 1938 and the Internal Revenue Code, and under the principle of . As stated in the Clifford case, the issue is whether the grantor, after the trust has been established, may still be treated as the owner of the corpus within the meaning of section 22(a), and the answer to the question depends upon "an analysis of the terms of the trust and all the circumstances attendant on its creation and operation."
The complex factors of this case, brought into proper focus, present a relatively simple picture. Petitioner George Beggs, desiring to create a trust for his children, conceived a long range plan for effectuating his desire. His plan was to set up a trust consisting of oil properties and then, as the oil properties were wasting assets, to have the *1062 proceeds thereof pay for ranch lands already owned by him, subject to purchase money mortgages. *218 He was to be reimbursed for the consideration advanced by him in purchasing the ranch lands and for all expenditures made by him on the ranches up to the time of the conveyance in trust and was to be paid interest thereon. In pursuance of this plan the trust, composed of the oil properties, was created March 16, 1934. Some months later petitioner realized that this trust instrument did not empower the trustee to borrow money or to assume mortgages, powers essential to the operation of his plan. Without the consent of the beneficiaries, petitioner summarily directed the reconveyance of the trust property to himself and then under a modified indenture, incorporating the desired powers, he retransferred the property to the same trustee. The following year, by separate instrument, he transferred the ranch lands in trust to himself and to his brother, who was the sole trustee under the first trust indenture. The second instrument stands by itself without reference to the first trust and contains different and more complete terms for the management and disposition of the property subject to it.
Petitioner looked upon the two instruments as constituting one trust, used the one bank*219 account for both, and maintained a single set of books for the two trusts. In fact the greater part, perhaps almost all, of the income, came from the oil properties constituting the corpus of the first trust.
Under the trust instrument of July 9, 1934, J. E. Beggs, petitioner's brother, was sole trustee. However, it appears that petitioner, in fact, acted as cotrustee. The powers conferred upon the trustee by this instrument were "to manage, control, dispose of, sell and convey, any part or all of said minerals, and to borrow money thereon, or any part thereof, and * * * to execute mortgage or mortgages, assignments, transfers, and conveyances thereon, * * * and to pay to them [the children] in equal parts the proceeds and revenues therefrom * * *."
Under the trust instrument of December 20, 1935, all of the usual broad powers of management ordinarily vested in trustees were conferred upon petitioner and his brother as cotrustees. It may be noted here that there was given them no power to lend trust funds to themselves or to anyone else. (This was also true of the trust instruments dated March 16 and July 9, 1934.) This trust provided specifically for the handling and disposition*220 of the trust income, directing the application of the income first to the payment of the mortgage indebtedness and second to the payment of ordinary expenses, upkeep, taxes, and interest. Income over and above these items from the sale of land was to be accumulated and income from *1063 the leasing of mineral interests on the land was to be accumulated or distributed at the discretion of the trustees. Only income from the leasing of land or from sources other than the above in excess of amounts necessary to cover mortgage payments and expenses of upkeep was required to be distributed to the beneficiaries.
The parties have argued at length the question of whether one or two trusts are involved here. Petitioner contends it was at all times his intention to create only one trust and that his treatment of the profits placed in trust is consistent with that intention. Respondent points to the separate and independent instruments, the different terms of the instruments, and to the fact that there were two trustees under the second indenture, to establish that there were two trusts actually created. Under our view of the question, however, this point makes but little difference.
*221 Upon analysis of the terms of the two instruments, there is nothing therein which could be considered to impeach the absoluteness of the transfers in trust. However, the manner of operation of the trust or trusts is significant. In the first place, the original trust of March 16, 1934, was substantially modified by petitioner without the consent of the beneficiaries. Then he proceeded to borrow large sums from the trust, although the trustee was not authorized to lend money. After the second conveyance in trust in 1935, he continued as trustee to lend to himself, as an individual, large sums of money for personal and business reasons. As trustee he also loaned money to a partnership composed of himself and his two brothers. We are unable to say from an examination of the several accounts offered in evidence that interest was paid on any of these loans, although petitioner insists it was. Petitioner in his individual return claimed no deduction for interest paid in any of the years here involved. The fiduciary returns filed by J. E. Beggs, trustee, included interest received in gross income of the trusts for some of the years here involved, but the sums reported in those years*222 bear no relation to the sums claimed to have been paid as interest by petitioner and the Beggs Bros. partnership. On this state of the record, we are unable to find as a fact that any interest was, in fact, paid by petitioner and by his partnership on the various loans to them.
Premiums on four policies taken out by petitioner on his own life were paid out of the trust income from 1938 through 1941. These policies were not assigned to the trusts, but petitioner merely considered it proper for the trusts to pay the premiums on these policies, inasmuch as the beneficiaries of the trusts were also beneficiaries under the policies. Petitioners now concede that under the provisions of *1064 section 167 (a) (3) the portion of the trust income so used is includible in their income for those years. In addition, trust income was used to pay premiums on other policies which were not irrevocably assigned to the trust by petitioner. We think these circumstances are factors to be considered along with other indicia of ownership in determining taxability under section 22 (a).
Another factor may also be observed relative to the disposition of the trust income. In all of the years here*223 involved income in amounts determined by the trustee was used for the support, education, and maintenance of the minor children of petitioner, although there is no provision in the trusts authorizing the use of trust funds for this purpose. Petitioners now concede the propriety of including the income so used in their community income under the rule of , as modified by section 134 of the Revenue Act of 1943. The 1943 amendment, however, does not operate to exclude the discretionary use of income in discharge of the parental obligation from all consideration. Such power still remains one of the factors to be considered among others in determining the applicability of section 22 (a). .
Moreover, the ranch lands which petitioner transferred to the trust were continually used in petitioner's business, or that of a partnership of which he was a member.
Upon all of these facts, we are of the opinion that petitioner has retained such controls, and has actually enjoyed such direct economic benefits as to justify treating him as the continuing owner of *224 the property transferred in trust, and so taxable on the income thereof. This, we think, is true even though the trust instruments do not spell out the retained controls and economic benefits lodged in petitioner. On this point the respondent is sustained. ;.
The second point concerns the correctness of the 5 percent penalty determined by respondent for delinquency in filing the returns for the year 1937. The returns were due March 15, 1938. An extension was granted by the respondent upon request to April 15, 1938. The returns were actually filed April 19, 1938. Section 291 of the Revenue Act of 1936 provides that in case of any failure to file a return within the time prescribed by law or regulation, a 5 percent penalty shall be added to the tax for each 30 days of delinquency, not exceeding 25 percent in the aggregate, unless the failure is shown to have been due to reasonable cause and not to willful neglect. No reason at all has been advanced for the delay in filing the returns for 1937. Therefore, we must sustain the Commissioner in his determination.
*225 Decisions will be entered under Rule 50.
Footnotes
1. There is some confusion in the record as to the exact amounts in this account, but the table sufficiently illustrates the dealings between the trust and the Beggs Bros. partnership.↩