*1176 Petitioner executed an instrument wherein he declared himself to be holding securities in trust to receive the income and pay it over to his wife. The so-called trust was to continue for one year; its objects were to reduce petitioner's income tax and provide for the personal expenses of his wife in lieu of an allowance he had theretofore given her. Petitioner retained title to the securities, kept them in his safe-deposit box and collected the income, which he paid over to his wife. Held that the instrument does not create a valid subsisting trust which will be recognized for tax purposes and the income from the securities is taxable to petitioner.
*38 The respondent determined a deficiency in petitioner's income tax for the year 1930 in the amount of $1,342.05. The only issue is whether the respondent erred in including in petitioner's income the interest and dividends from securities which petitioner received and paid over to his wife pursuant to an instrument in which he declared himself to be a trustee as to those securities for the benefit*1177 of his wife.
FINDINGS OF FACT.
Petitioner, an individual, on or about May 27, 1930, executed an instrument which provided, as far as material here, as follows:
I, BENJAMIN F. WOLLMAN, residing at Chatham Hotel, Vanderbilt Avenue and 49th Street, Borough of Manhattan, City, County and State of New York, do hereby state and declare that I hold in trust the securities mentioned and described on the list attached hereto and marked "Exhibit A", to receive the income thereof and pay the same to my wife LUCILLE L. WOLLMAN, hereinafter called "beneficiary", monthly, during the continuance of this trust.
This trust shall continue for one year from June 1st, 1930, i.e., to and including the 31st day of May, 1931, except as hereinafter provided.
* * *
I shall have the right, as Trustee hereunder, at any time to sell or exchange any or all of the property constituting the principal of this trust, and to invest and reinvest the proceeds of said property and the principal of the trust fund in such property, securities or investments as I shall deem proper, without regard to any limitations imposed by law. Any gain realized on the sale or exchange of any trust property and any dividends*1178 paid in stock shall constitute a part of the principal of the trust.
I shall have the right to hold or keep any stocks at any time constituting the principal of this trust registered in my individual name. I shall have the right to keep any property at any time constituting the principal of this trust in my individual safe deposit vault or in such place of safekeeping as I deem proper.
I shall have the right to receive and collect the interest, dividends, income and profits of the trust, and the proceeds of any trust property that is sold, in my own individual name, and to keep any money belonging to this trust, whether principal or income, in my own individual account, but shall remain indebted to the trust for all such money until the same is properly disbursed by me in accordance with this trust agreement.
In the event of the death of myself or said beneficiary prior to May 31st, 1931, this trust shall immediately terminate, and the principal of the trust property and any accrued income thereon, whether collected or uncollected by me, which has not been actually paid to the beneficiary, shall revert to me, if I be living, or in case of my death to my estate.
IN WITNESS*1179 WHEREOF, I have hereunto set my hand and affixed my seal this day of May, One thousand nine hundred and thirty.
[Signed] BENJAMIN F. WOLLMAN (LS).
Mrs. Wollman's acceptance was noted on the instrument as follows:
I, Lucille L. Wollman, hereby accept the foregoing trust made for my benefit. Dated, New York May , 1930.
LUCILLE L. WOLLMAN (LS)
*39 Both petitioner and Mrs. Wollman acknowledged their signatures to the above instrument before a notary public on May 27, 1930.
On "Exhibit A" referred to in the instrument some 50 or 60 blocks of stocks and bonds are listed. The securities listed were held by petitioner in his own safe-deposit box, but separated from his other securities. The stocks were registered in petitioner's name. Dividends on the stocks were received by petitioner and deposited in a bank account in the name of petitioner as trustee. No funds other than income from the securities here involved were handled through this account. The income from these securities was paid to Mrs. Wollman at least monthly during 1930. It was returned by her in her income tax return for 1930. The respondent has added such income to the income returned by petitioner.
*1180 Petitioner's reason for segregating the securities as above described and paying the income to his wife was "to not pay too much income tax." Prior thereto petitioner had given his wife an allowance and it was understood that the income from the securities set aside by petitioner was to be in lieu of the allowance. During the remainder of 1930 petitioner gave his wife additional sums from time to time. Neither the income from the securities nor the additional amounts which petitioner gave his wife were used by her to pay for room and board. Those items were paid by petitioner. His wife paid her other expenses, including cost of clothes.
OPINION.
ARUNDELL: Petitioner claims that the instrument of May 27, 1930, created a valid trust, irrevocable within the year 1930, and that the income from the trust property was taxable to the beneficiary under section 162(b) of the Revenue Act of 1928. The respondent has taxed the income to the petitioner on the ground that the so-called trust was not a genuine trust transaction.
The statute is concerned with genuine trusts, and a proper administration of it permits inquiry into the motives prompting creation, the relation of the*1181 parties, and other circumstances surrounding the transaction. In , it is said:
After all the word "trust" as used in section 219 of the Revenue Act of 1918, can hardly have been intended to comprehend every instance in which a trust is recognized in equity. A trust ex maleficio, a resulting trust or a constructive trust are examples of trusts which do not fit into the frame of the statute. A trust, as therein understood, is not only an express trust, but a genuine trust transaction. A revenue statute does not address itself to fictions.
In , the Court, speaking of trusts for the benefit of wife or kin, said: "The relation between the parties, the tendency of the transfer to give relief from obligations that are *40 recognized as binding by normal men and women, will be facts to be considered. * * * We do not go into their bearing now."
The reason for petitioner's setting aside securities and paying the income to his wife, as testified to by petitioner was "to not pay too much income tax." It further appears from petitioner's testimony that the income was to be*1182 paid to his wife in lieu of the allowance he had theretofore given her for personal expenses. He continued thereafter to give her sums of money from time to time, but not at regular times or as a stated allowance.
It thus appears that the petitioner is attempting to do indirectly what he can not do directly, namely, to deduct from his income the the expense of supporting his wife. The Revenue Act of 1928 specifically prohibits the deduction of "personal, living, or family expenses." Sec. 24(a)(1). Obviously deductions so clearly prohibited are not to be allowed in some other guise unless the taxpayer can bring himself clearly within other provisions of the statute which support his claim.
Petitioner argues that section 162(b) governs his case and sanctions his claim. As pointed out above, the statute is concerned with genuine trusts and not with all cases where a resulting or equitable trust might be declared by a local court. It might, for instance, in this case be declared upon suit by Mrs. Wollman that petitioner's retention of title to the securities was for her benefit. But for Federal tax purposes we think his retained interest and powers were so substantial that*1183 the securities may properly be regarded as his property and the income taxable to him. The Supreme Court in , recently said:
Decisions of this court declare that, where taxing acts are challenged, we look not to the refinements of title but to the actual command over the property taxed - the actual benefit for which the tax is paid.
Also, in :
Government in casting about for proper subjects of taxation is not confined by the traditional classification of interests or estates. It may tax, not only ownership, but any right or privilege that is a constituent of ownership. [Cases.] Liability may rest upon the enjoyment by the taxpayer of privileges and benefits so substantial and important as to make it reasonable and just to deal with him as if he were the owner, and to tax him on that basis.
In the case before us the petitioner retained title to the securities, kept them in his possession, received the income, and in every way enjoyed "privileges and benefits so substantial and important as to make it reasonable and just to deal with him as if he were the owner." "Here the grantor*1184 did not divest himself of title in any permanent or definitive way, did not strip himself of every interest in the subject matter of the trust estate." .
*41 While the cases cited deal with situations where the statute specifically directed the taxing of trust income to the grantor, the language of the Supreme Court seems to us broad enough to indicate that the general provisins of the statutes will support the taxation of income to the grantor where he retains powers as broad as in this case. The revenue acts tax the income "of" every individual. "The use of the word 'of' denotes ownership." . Bearing in mind that taxation is not to be controlled by refinements of title (cf. ; ), it is difficult to see wherein the petitioner here parted with the ownership of his securities so as to escape taxation on the income. They continued to stand in his name; they were kept in his possession; he had the right to sell or exchange and reinvest "without regard to any limitations*1185 imposed by law"; he had the right to keep in his individual account any income or proceeds of any sale and as to any such moneys his liability was to be that of a debtor rather than that of a fiduciary. All of these extensive powers were expressly reserved to petitioner. The line that separates petitioner's rights under these powers from those of complete ownership is too faint to be distinguishable.
We are of the opinion, and so hold, that the execution of the instrument of May 27, 1930, did not create a valid subsisting trust so as to relieve petitioner of liability for tax on the income from the property described in the instrument.
Decision will be entered for the respondent.