*1177 Under the terms of the trust instrument here involved it is held that only a single trust estate with three beneficiaries was created and in existence in the taxable year.
*125 The respondent has determined deficiencies in income tax for the years 1924, 1925 and 1926 in the respective amounts of $276.61, $9,267.12 and $1,701.61. For their causes of action the petitioners allege that:
(1) The respondent erroneously combined the income of three separate trusts and asserted tax liability against the trustees as if there were a single trust.
(2) The respondent erroneously fixed the petitioners' distributive share of the profits from the partnership of Staley and Wynne at $16,361.51, although the operation of such partnership resulted in a loss for the taxable year 1926.
(3) The respondent erroneously disallowed a loss sustained by the petitioners upon the disposition of the interest of the trust in the partnership of Staley and Wynne.
FINDINGS OF FACT.
J. C. Wynne and J. E. Hall are the duly qualified and acting trustees of the trust*1178 estates of Richard C. Staley, Joseph H. Staley *126 and James I. Staley, Jr. Such trust estate is still in existence, all the beneficiaries are still minors, and there is no reason to terminate the trust under its terms.
In the year 1919, J. I. Staley and Delia Staley, his wife, executed a declaration of trust which, except omitted land descriptions and other matter not regarded as material to the issue, was as follows:
That we, J. I. Staley and Delia H. Staley, husband and wife, and also composing the firm of J. I. Staley & Company, of Wichita County, Texas, being the owners of the hereinafter described property, and being desirous of creating a trust in said property for the benefit of our children hereinafter named:
DO HEREBY, for and in consideration of the sum of Ten Dollars ($10.00) to us cash in hand paid by P. P. Langford and J. A. Staley of Wichita Falls, Texas, the receipt of which is hereby acknowledged and confessed, TRANSFER, SELL AND CONVEY unto the said P. P. Langford and J. A. Staley, as Trustees, for the uses and purposes hereinafter set out, the following described property, to-wit:
* * *
TO HAVE AND TO HOLD the said property unto the said P. P. *1179 Langford and J. A. Staley, Trustees, and their successors or substitutes in this trust for the following uses and purposes, to-wit:
This conveyance is made to said Trustees for the use and benefit of the following named persons and in the following portions, to-wit:
A 1/3 interest to our son Joseph Hardin Staley;
A 1/3 interest to our son James Irven Staley, Jr.;
A 1/3 interest to our son Richard Carr Staley.
The trustees herein named, and their successors or substitutes in this trust, are hereby given the power to sell and convey all or any part of the trust estate at any time they shall see fit, acting jointly, and upon such terms and conditions as to them shall seem proper; and the power to make all contracts of any kind or character for the management and operation of the trust estate; with the power also to re-invest all or any portion of the proceeds from the sale of the trust estate or income from the operation of same in any other property that the said trustees shall select and on such terms and considerations as to them shall seem proper. It being the intention of the donors herein to vest the trustees and their successors and substitutes with full power and discretion*1180 to manage and operate the trust estate as they would their own, hereby exacting of them that they act faithfully and account honestly to the beneficiaries and to the trust estate for all properties and moneys belonging to such estate.
This trust shall continue as to the interest of each beneficiary until such beneficiary reaches the age of twenty-one years.
Upon the arrival of each beneficiary at the age of twenty-one years, the trustees shall then turn over to such beneficiary his portion of said estate and from that time such beneficiary shall own said property and be free to dispose of same as he shall see fit.
In the event of the death of either beneficiary before reaching the age of twenty-one years, then such beneficiary's interest in said estate shall pass to the surviving beneficiaries in equal portions, or if only one surviving beneficiary, then to such survivor, and shall be held in trust until such survivor or survivors reach the age of twenty-one years. In the event of the death of all of *127 such beneficiaries before they reach the age of twenty-one years, then said trust estate shall pass to and descend to the heirs of such beneficiary as shall last*1181 survive, according to the statutes of Descent and Distribution then in effect in the State of Texas. None of the restrictions or directions contained in this paragraph are intended, however, to prevent any of said beneficiaries from disposing of his interest in said estate by will as he shall see fit.
* * *
The net income from the trust estate shall be added to the corpus of the estate.
Any children which may be born to the said J. I. Staley and wife during their wedlock shall share equally, share and share alike, under this trust, with the children named herein, and under the same terms.
* * *
In each of the taxable years the trustees made a fiduciary return on Form 1041, reporting all the income received by them and reporting that one third of such went to each of the beneficiaries. In each of the years one third of the income of the trust was reported as the individual income of each of the several beneficiaries on Form 1040 and the taxes shown to be due on such returns were duly paid. Upon audit of such returns the Commissioner determined the deficiencies here in controversy and as his basis for parts of such deficiencies advised the petitioners as follows:
After*1182 considering all of the evidence submitted at the conference held at the office of the Internal Revenue Agent in Charge at Dallas, Texas, under date of November 9, 1928, relative to the tax liability of Mr. and Mrs. J. I. Staley, 1200 Staley Building, Wichita Falls, Texas, this office holds that the income of the Staley Trust is taxable as an entity for the years 1924 to 1926, inclusive, under the provisions of section 219(a)(1) of the Revenue Act of 1926, and similar provisions of the Revenue Act of 1924. The trust deed indicates that there is no provision for the distribution of the income to the beneficiaries except the distribution to be made at the time the trust estate of each beneficiary is terminated.
OPINION.
LANSDON: At the hearing the petitioners abandoned issue No. 3 and the respondent admitted as to issue No. 2 that he had erroneously overstated the income of the trust estate in 1926 in the amount of $4,829.44. The effect of this admission will be included in the recomputation of tax liability for such year under Rule 50.
The only issue now remaining for consideration is the proper method of taxing the income of the trust estate in each of the taxable years under*1183 review. Originally the trustees reported such income as if it were annually distributable to the beneficiaries under the terms of the trust instrument. Since it is obvious that such instrument contains no provisions for the distribution of any part of the income of the trust annually, that position has been abandoned and the *128 petitioners now contend that the intention of the trustors and the effect of the trust instrument were to create three separate trusts to be administered by a single body of trustees. Counsel argues at length that one third of the corpus of the trust vested in each of the beneficiaries upon the execution of the deed and that as a necessary consequence the income from each one third was taxable to the beneficiary in whom one third of the corpus was so vested or taxable separately to the trust.
It may be true, as argued by the petitioner, that several trust estates in which each of the beneficiaries has a vested interest can be created by a single instrument and administered by a single body of trustees, but in any event the terms of the instrument must be construed to determine its effect and the intention of the trustors. In the instant proceeding*1184 the instrument purports to create only a single trust and the language thereof is so clear and specific that neither analytical construal nor discussion and application of rules of law are required in order to decide what we think is a plain question of fact. There is nothing in the instrument to indicate that any present title to any part of the corpus vested in any of the petitioners at the date of execution. On the contrary it does expressly provide that:
Upon the arrival of each beneficiary at the age of twenty-one years, the trustees shall then turn over to such beneficiary his portion of the said estate and from that time such beneficiary shall own said property and be free to dispose of the same as he shall see fit. [Italics supplied.]
It is obvious that this language is contrary to the theory that title to one third of the corpus vested in each beneficiary at the date of the execution of the trust. If the beneficiaries had a vested interest in their several parts of the corpus from the first it was not necessary to provide that ownership should date from the twenty-first birthday.
The instrument further provides that any children born to the trustors during*1185 the life of the trust shall share alike with the children named therein. Also there is a further provision that if either of the named beneficiaries should die during the trust period, his interest shall pass to the survivors. These provisions certainly indicate that the trustors did not intend to vest any definite share of the corpus in any one of the beneficiaries as of the date of the execution of the trust, but did intend to create a single trust to be re-formed and continued in the event of certain contingencies which were particularly specified. In our opinion only one trust estate was created by the instrument in question. On this issue the determination of the respondent is affirmed.
Decision will be entered under Rule 50.