*838 The entire income of an irrevocable trust was taxable to the grantors under section 167(a)(2) of the Revenue Act of 1934, where the income was distributable among the members of a family, including the grantors, at the absolute discretion of the father, who could receive nothing himself.
*518 The Commissioner determined a deficiency of $5,915.01 in the income tax of Henry A. Loeb for the year 1934 and a deficiency of $7,006.99 in the income tax of Carl M. Loeb, Jr., for the year 1934. He also determined an overassessment in the tax of Carl M. Loeb, Jr., for 1933 under circumstances which give the Board jurisdiction for that year also. The issue is whether the Commissioner erred in including in the income of these petitioners the income of a trust of which they were the grantors.
FINDINGS OF FACT.
Carl M. Loeb had created a trust, or trusts, for his four children prior to 1918. He and his wife were trustees. A share of the corpus was distributable to each child in the discretion of the trustees after the child*839 reached majority, but was to be distributed not later than when the child reached forty. Carl told his sons Carl, Jr., and Henry in 1928 that the shares of Margaret and John had been distributed to them several years previously, and thereafter the remaining trust corpus had increased to such an extent that the shares left for Carl, Jr., and Henry were much larger than the shares distributed to Margaret and John, so he requested Carl, Jr., and Henry to create a trust of their shares to benefit their mother, their sister, their brother, and themselves. Carl, Jr., and Henry were then of age. They received their shares of the old trust and used that property to create a new trust.
The new trust was created on January 16, 1929. They made their father the sole trustee and provided that he should pay the income of the trust at the end of each year to one or more of the following beneficiaries in such proportions as he in his absolute discretion might choose:
(1) Adeline L. Loeb, wife of Carl and mother of the grantors
(2) Margaret L. Kempner, sister of the grantors
(3) John L. Loeb, brother of the grantors
(4) Carl M. Loeb, Jr.
(5) Henry A. Loeb the grantors
or the surviving*840 descendants of any of the above who should die during the continuance of the trust.
The trustee was given possession and control of the trust corpus.
The trust was irrevocable and was to continue until the death of the father, when the corpus was to be divided equally among the three brothers and their sister. A successor trustee could be appointed under certain circumstances, but he was required to distribute the annual income equally among the three brothers and their sister.
*519 The trust continued through 1935 and during that period the distributions of annual income were as follows:
| 1929 | 1930 | 1932 | 1934 | 1935 | |
| Adeline | $40,560.90 | $15,362.00 | $24,892.22 | $52,550.92 | |
| Margaret | 20,000.00 | 52,550.92 | |||
| John | $39,791.05 | ||||
| Carl, Jr | 79,582.11 | ||||
| Henry | 79,582.11 | 5,000.00 | 52,550.91 |
No distributions were made of any income for 1931 and 1933.
Carl M. Loeb, his wife, their daughter Margaret, and their son John each had a substantial estate created by Carl M. Loeb. The following table shows their income for 1933 and 1934.
| 1933 | |||
| Income | Capital losses | Total | |
| Carl | $209,232.23 | $144,115.09 | $65,117.14 |
| Adeline | 6,066.38 | 41,629.77 | -35,563.39 |
| Margaret | 20,987.89 | 14,049.90 | 6,937.99 |
| John | 162,071.18 | 253,216.62 | -91,145.44 |
| 1934 | |||||
| Income | Capital gains | Capital losses | Trust distribution | Total | |
| Carl | $152,448.98 | $10,550.80 | $162,999.78 | ||
| Adeline | 6,184.46 | $5,324.25 | $24,892.22 | 25,752.43 | |
| Margaret | 14,932.47 | 3,884.92 | 20,000.00 | 38,817.39 | |
| John | 112,672.30 | 28,654.46 | 141,326.76 |
Margaret and John were married and lived apart from their parents. Carl M. Loeb always maintained his family upon a scale of living consistent with his means. He paid annual rent for summer and winter homes during 1933 and 1934 in the amount of $17,000. The living and household expenses of Loeb and his wife exceeded $25,000 annually in addition to the rent. The distributions received by Adeline and her separate income were used to defray all household and personal expenses except rent.
The income of the trust for the years 1933 and 1934 was as follows:
| Year | Ordinary income | Dividends | Capital net loss |
| 1933 | $31,769.79 | $33,957.00 | $72,392.72 |
| 1934 | 36,129.53 | 31,464.98 |
*520 The Commissioner in determining the deficiencies included one-half of the above items in computing the income of the two grantors.
All facts stipulated are incorporated*842 herein by this reference.
OPINION.
MURDOCK: The question for decision is whether the income of the trust is all taxable to the two grantors under section 167(a)(2) of the Revenue Act of 1934, which provides that "where any part of the income of a trust 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." All of the income of this trust could be distributed to the grantors in the discretion of the trustee. The case turns upon whether the trustee had "a substantial adverse interest in the disposition of" the income.
The petitioners' first argument is that the trustee was "the virtual owner of the trust property" by reason of his broad powers over it. He was not to receive any of the income or corpus for himself under any circumstances. His wife was to receive none of the corpus. His powers were those of a trustee, not of an owner. The petitioners state that a far more important power was his power to distribute the income to his wife and their*843 other children to the exclusion of the grantors. They argue that he had a legal duty to support and maintain his wife and he owed a strong moral duty to his children, both of which he could and did relieve himself of by distributing trust income to them to the exclusion of the grantors. It is difficult to follow this argument in so far as it relates to the children, since the grantors were also his children. While he could and did make distributions to his wife, who used the money for household and personal expenditures, still she was not required to use that money to support and maintain herself and the distributions to her did not relieve him of his legal obligation to maintain and support her. He might reason logically that the more money he gave her from the trust the less she would demand from his own pocket. But that possibility did not give him a substantial interest in the distribution of the trust income adverse to that of the petitioners.
The petitioners say that there is no case precisely in point and none authoritatively defining "adverse interest." Cases like *844 , which arose under a prior act, in which the words "substantial adverse interest" did not appear, are not in *521 point. . Those cases in which the person exercising the discretion was also a beneficiary or a person with a not too remote possibility of benefiting are distinguishable, since such persons clearly have a substantial adverse interest. Cf. ; ; . A decision more nearly in point is that in The petitioner there created a trust and named her mother as one of the trustees. The trustees were to pay the grantor $1,000 annually, but larger sums and parts of the corpus could be paid to her with the consent of the trustees. The instrument could also be altered with the consent of the trustees. The corpus was to be distributed in accordance with the will of the petitioner or as if the petitioner had died interestate, in case she left no will. The Commissioner included all of the*845 income of the trust for 1932 and 1933 (far in excess of $1,000) in the income of the grantor. The question was whether the mother had a substantial adverse interest. The mother, a widow, was not named as a beneficiary, but the petitioner argued that her mother had a substantial adverse interest because she could, if destitute, demand support of the petitioner and enforce her demand by an order to the trustees to distribute more than $1,000 to the petitioner and, also, she had a contingent interest in that she was among the petitioner's intestate successors. The Board held that the mother did not have a substantial adverse interest. The argument made by the present petitioners is fundamentally the same and the interest of their father is not much less remote. The personal interest which he might have had in making distributions to his wife and their other two children rather than to the two grantors is too remote to qualify as a substantial adverse interest within the meaning of section 167(a)(2).
The petitioners also argue that the above provision of the statute was intended to be applied only in case the trust income was actually distributed to the grantors and, if not so*846 construed, it is unconstitutional. It would be completely ineffective in carrying out the intent of Congress if it applied only in case the income was actually distributed to the grantors. Cf. ; The statute assesses the tax according to what may be done under the trust. ; . We are not convinced that it is unconstitutional. Cf. ; ;
Decision will be entered under Rule 50.