*784 1. TRUST REVOCABLE AFTER TAXABLE YEAR. - Section 166 of the Revenue Act of 1934 applies where the grantor retained the right to revoke the trust after the close of the year 1934.
2. TRUST INCOME - TAXABLE TO GRANTOR. - Income of trusts taxable to grantor who had extensive control over and benefit from trusts, following Benjamin F. Wollman,31 B.T.A. 37">31 B.T.A. 37, William C. Rands,34 B.T.A. 1107">34 B.T.A. 1107, and Warren H. Corning,36 B.T.A. 301">36 B.T.A. 301.
3. DEDUCTION - LOSSES - SALES TO CLOSELY OWNED CORPORATION. - A minority stockholder realized a deductible loss from the sale of securities to the corporation.
*1120 The Commissioner determined the following deficiencies in income tax against the decedent:
| Docket No. | Year | Amount |
| 84319 | 1932 | $18,754.45 |
| 84319 | 1933 | 15,607.17 |
| 86966 | 1934 | 6,320.39 |
*1121 He also held that 50 percent additional was due for fraud under section 293(b) of the Revenue Acts of 1932 and 1934, but now concedes, *785 because of the death of the decedent, that the additional amount can not be collected. The Commissioner conceded another issue and the petitioner has likewise conceded one. This leaves for decision by the Board two issues - first, whether the income of six trusts created by the decedent should be included in the decedent's income during the three years, and, second, whether the petitioner is entitled to a deduction for 1932 of $36,996.11 representing losses on the sale of securities.
FINDINGS OF FACT.
Andrew C. O'Laughlin died on December 3, 1936. His executor has been made a party to this proceeding. The decedent, his brother John, and their cousin, Charles J. O'Laughlin, owned a little more than 50 percent of the outstanding common stock of the O'Laughlin Securities Co. Those three men had been discussing the question of how they could retain for the O'Laughlin family control of the O'Laughlin Securities Co. They had advice of tax counsel at that time. They finally decided in the latter part of 1931 to accomplish their purpose through the means of trusts, and on December 31, 1931, each executed certain declarations of trust which were in general similar. Each transferred*786 to the trust or trusts created by him the stock of the O'Laughlin Securities Co. which he owned.
The decedent at that time executed six declarations of trust, which were designated by the name of the principal beneficiary of each, as follows:
The Susan O'Laughlin Trust
The Mary Jane O'Laughlin Trust
The Ellen Elizabeth Curry Trust
The Michael O'Laughlin Trust
The James Francis O'Laughlin Trust
The Jennie O'Laughlin Trsut
Jennie O'Laughlin was the widow of the decedent's deceased brother Mathew. The other principal beneficiaries named were the decedent's brothers and sisters. The decedent's brother John was named in each instrument as the beneficiary of one-seventh of the corpus and of one-seventh of the income.
The decedent transferred to the trusts certain stocks and bonds. A list of those securities was made a part of each trust instrument and the corpus of each was to consist of a one-sixth interest in the stocks and bonds listed. Twenty-three thousand seven hundred and seventy-five shares, representing about 40 percent of the common stock of the O'Laughlin Securities Co., worth in excess of a million *1122 dollars at that time, were included in the*787 stocks transferred by the decedent to the trusts.
The decedent was named as trustee in each trust instrument and a bank was named as seccessor trustee. The bank was consulted at the time the trusts were created, received executed copies of all the trust instruments, and assigned trust numbers to each.
Each trust instrument provided in considerable detail that the trustee should have extremely broad and extensive powers in the management and control of the trust property. His choice of securities for investment of the trust funds was unrestricted, as were the manner and terms of sale. He was authorized to determine what constituted corpus and what constituted income of the trusts. The instrument empowered the trustee "to deal with the trust estate, and every part thereof, subject to the limitations and restrictions herein imposed, in all respects as though the trustee were the absolute owner thereof." "No enumeration of special powers by any of the provisions of this Declaration of Trust shall be construed to limit any grant of general powers to the Trustee contained in, conferred by, or reasonably to be implied from, any other of the provisions of this Declaration of Trust. *788 " He could maintain margin accounts with brokers on behalf of the trusts, make joint investment of the trust funds with other funds held by him, deal with the trust property in his individual name without designating himself as trustee or disclosing the fact that he was acting as trustee, and lend money to or borrow money for the trust in his individual name and at the same time be held harmless from all liabilities connected therewith, for which purpose he was given a lien on the trust estate superior to all rights of the beneficiaries. He was allowed to deal with himself as he would with a third person.
Each instrument contained a statement that it was to be irrevocable until after the end of the calendar year 1934. The decedent had the right to revoke each trust instrument after 1934, and upon revocation all property in the trust, including corpus and income, was to be his.
The decedent's brother John and his cousin, Charles J. O'Laughlin, were named advisory trustees in the instruments executed by the decedent. Each instrument provided that the income of the trust was to be distributed monthly to the several beneficiaries unless the advisory trustees jointly instructed*789 the decedent as trustee to accumulate the trust income. The advisory trustees executed and delivered notices to the trustee on January 15, 1932, directing him to accumulate the income of each trust. No income had been distributed prior to that time. No income of the trust was ever distributed up to the time of the decedent's death.
*1123 The decedent kept a separate book showing the trust transactions up to December 31, 1935. The trust transactions after December 31, 1935, were entered in the decedent's personal records. The records indicate that separate transactions were not made for each separate trust, but each transaction was made for the benefit of all six trusts. The decedent commingled the trust funds with his personal funds during the entire period of his trusteeship. The decedent, at the time of his death, was indebted to the trust in the amount of $55,115.22. He had loaned for the trusts $49,000 to the O'Laughlin Co., successor to the O,'Laughlin Securities Co., and $20,000 to the Consumers Co. He was president of both corporations.
The net income of the six trusts during the years here involved was as follows:
| 1932 | $35,189.44 |
| 1933 | 50,986.40 |
| 1934 | 28,280.56 |
*790 The First National Bank, as executor, following the death of the decedent, transferred the assets of the trusts to itself as successor trustee under an order of the probate court, and is now administering the six trusts as successor trustee.
The Commissioner, in determining the deficiencies, included the trust income in the income of the decedent.
The decedent sold the following special assessment bonds to the O'Laughlin Co. on December 31, 1932.
| Date acquired | Name | Special assessment number | Par value |
| 1930 and 1931 | Village of Maywood | 353 | $61,691.68 |
| July 1930 | do | 355 | 25,200.00 |
| 1930 and 1931 | Village of Riverside | 63,047 | 20,800.00 |
| Nov. 14, 1931 | do | 251 | 2,744.21 |
| Total | 110,435.89 |
The bonds had cost the petitioner $108,779.35. He received in payment for the bonds promissory demand notes of the purchaser in the total amount of $72,000.56. The notes bore interest at 6 percent per annum. They were worth their face value. The corporation received the bonds, entered the transaction on its books, and thereafter received the interest payments on the bonds. There was no agreement, express or implied, relating to the repurchase of the securities*791 by the decedent. He never reacquired them. The price received by the petitioner for the bonds was the equivalent of the fair market value of the bonds at the time.
The decedent purchased other special assessment bonds from the O'Laughlin Co. on May 1, 1933. The purchase price which the decedent *1124 paid for those bonds was $75,367.68. That was a fair price for the bonds at that time. The decedent in part payment for the bonds returned to the corporation the notes of the corporation in the amount of $72,000.56 which he had received on December 31, 1932, in the transaction above described, together with accrued interest on the notes and a small amount of cash.
The decedent in his income tax return for 1932 claimed a deduction of $4,184.80 as an ordinary loss and $32,811.31 as a capital loss from the sale of the special assessment bonds to the O'Laughlin Co. on December 31, 1932. The Commissioner disallowed those deductions. The transaction was a bona fide sale, resulting in the realization of loss by the decedent.
Facts stipulated by the parties not already expressly found as facts are hereby made a part of these findings by this reference.
OPINION.
MURDOCK: *792 The Commissioner has taxes the income of the six trusts to the grantor, the decedent in this case. The petitioner contends that no part of the income of the trusts in taxable to the decedent. It seems obvious that the income of the trusts for the year 1934 is taxable to the decedent under section 166 of the Revenue Act of 1934. That section is entitled "Revocable Trusts" and provides that "where at any time the power to revest in the grantor title to any part of the corpus of the trust is vested - (1) in the grantor * * * then the income of such part of the trust shall be included in computing the net income of the grantor." The decedent, the grantor, of these trusts, had the power to revest in himself title to all of the corpus of the trusts after the close of 1934. That is, he had the power to revoke the trusts after 1934, and upon revocation the corpus and the income of the trusts would revest in him. The situation falls squarely within the above quoted statutory provision. Cf. .
Section 166 of the Revenue Act of 1932 differs from section 166 of the Revenue Act of 1934 in that it relates only to trusts where the grantor has*793 the power to revest title to a part of the corpus in himself "during the taxable year." The first issue as it relates to the years 1932 and 1933 must be decided under the provisions of the Revenue Act of 1932. Section 166 of that act does not apply, since the decedent did not have the power to revoke the trusts within either of the taxable years 1932 or 1933.
Sections 167 of the Revenue Acts of 1932 and 1934 are entitled "Income for Benefit of Grantor," and provide that there shall be included in computing the net income of the grantor such part of the income of the trust as "is, or in the discretion of the grantor or of *1125 any person not having a substantial adverse interest in the disposition of such part of the income may be, held or accumulated for future distribution to the grantor." The income of the trusts in question not only could be but was accumulated from the very inception of the trusts up to the date of the decedent's death. The trust instruments provided that the income could be accumulated if the advisory trustees directed the trustee to accumulate it. The advisory trustees on January 15, 1932, about fiffteen days after the creation of the trusts and*794 before any income was ready for distribution, advised the trustee to accumulate the income. That income was retained by the trustee until after the close of 1934, and thereafter the decedent, by revoking the trusts, could have had all of that income for his own. Section 167 applies unless the discretion to accumulate was in one having an interest adverse to that of the grantor. It is contended that John J. O'Laughlin, the brother of the decedent and one of the advisory trustees, had a substantial adverse interest in the disposition of the income of the trusts, since he was to receive one-seventh of the income of each trust. The trust instruments created by the decedent would indicate that John J. O'Laughlin had a substantial adverse interest to that of the decedent, at least in the disposition of one-seventh of the income of each trust. But there is other evidence which has a bearing on that point.
The parties were considering the tax consequences of their acts on December 31, 1931, and had advice of counsel in that connection. Six separate trusts instead of one trust were used, upon the advice of counsel. One reason for that decision might have been the expected saving in*795 taxes. The trust instruments provided that John J. O'Aughlin should have a one-seventh interest in the income and corpus of each. A separate trust for him would have accomplished almost the same result, except for his "adverse interest" in all of the trusts. If there was any reason for the selection of the particular method used, other than an attempt to bring the trusts within the provisions of section 167, such other reason has not been disclosed in this record. Taxpayers are not to be penalized, of course, for selecting a method which results in less tax than might have been due under some other method. Nevertheless, the foregoing circumstances need not be disregarded in the decision of this case. Cf. . Apparently the only function of the advisory trustees during the life of the grantor was to direct the trustee to accumulate the income. No reason appears for giving the advisory trustees authority to decide about accumulations except the purpose of avoiding the application of section 167. John J. O'Laughlin testified that he had no understanding or agreement with the decedent whereby he and his cousin Charles would direct*796 *1126 accumulation of the income from the decedent's trusts. However, the explanation given for the prompt direction to accumulate the income is not at all convincing. Furthermore, John J. O'Laughlin testified that the trusts which he and his cousin created at the same time that the decedent created the trusts here in question were drawn pursuant to the same general plan and were along the same general lines as those of the decedent. It may be that the decedent was a beneficiary and an advisory trustee in the John J. O'Laughlin trust. The conclusion might be drawn fairly from this entire record that the interest of John J. O'Laughlin in the distribution of the income from the trusts was not actually a substantial adverse interest when compared to that of the decedent. However, the respondent does not particularly press this point and the evidence in regard to the other trusts is not clear. For these reasons and for the further reason that there is another ground for the decision, it will not be rested upon the application of section 167.
There was little real substance to these trusts as they were worked out by the parties, and enen if the trusts do not fall fairly*797 within the provisions of section 167, nevertheless, the income of those trusts is taxable to the decedent on principles set forth in the following decisions of this Board: ; ; and The Board held in each of those cases that the income of a trust was taxable to the grantor because the trusts were lacking in substance and left in the grantor substantial rights and interests in the trust property as well as rather complete powers of control over and management of the trust property. The grantor could thus use the trust property in many ways for his own benefit and had the "substance of enjoyment" of it. The Government is not required to tax trusts as separate taxable entities where the terms of the trust instrument and the manner of conducting the trusts indicate that they are not entitled to be distinguished from the grantor for tax purposes. The control which the decedent in the present case had over the trust property was as great as, if not greater than, that enjoyed by the grantors in some, or all, of the above cited cases. He retained practically*798 complete dominion and control over all of the property listed as trust property, including the income. It does not appear that he transferred any of the securities to his name as trustee. Although he could not distribute the trust income to himself under the terms of the trust instrument during the years 1932, 1933, and 1934, he managed, with the assistance of the advisory trustees, to keep that income intact during all of those years until he had a right to revoke the trust. He could get not only the income but also the corpus by revoking the trust. He died in December 1936, without ever having revoked the trust and without ever having distributed any of 1127 *1127 the income of the trust. Thus during the years 1935 and 1936, up until the time of his death, he had the power to revoke the trusts and to take the accumulated income and principal thereof for his own. It is immaterial that he did not exercise this power. The important thing is that he had it. The three cases mentioned were cited and relied upon by the respondent in his brief. The petitioner has not even attempted to distinguish those cases. The Commissioner did not err in taxing to the decedent the income*799 of the trusts for the years 1932, 1933, and 1934.
The sale of the bonds by the decedent to the corporation was bona fide and gave rise to the deductible losses claimed by the petitioner. The decedent was the most important officer of the corporation and owned a large minority of the stock of the corporation. Nevertheless, the disposition which he made of the bonds was complete, final, and for a fair consideration. He retained the note of the corporation which he received in payment for the bonds and he later used that note to purchase other bonds from the corporation, but there is nothing about those circumstances to justify the Commissioner's action in disallowing the losses.
Decision will be entered under Rule 50.