*263 Decision will be entered under Rule 50.
Petitioner's decedent, the sole owner of the formula of a yeast compound and of its trade-mark, organized a Georgia corporation and divided its shares between himself and his wife, retaining for himself 51 percent. He thereupon made a contract with the corporation under which it was given exclusive use of the formula and trademark for five years and was to pay him in return a continuing royalty measured by 10 percent of the net sales of all its products sold under the trade-mark. A few months later, in December 1934, he assigned a half interest in this royalty contract to his wife, retaining his full interest in the formula and trade-mark, and paid gift taxes on the transfer. The respondent seeks to tax the full royalty income to petitioner's decedent from 1935 until his death in 1939. Held, that decedent's assignment of the royalty contract was not to be considered "for all substantial and practical purposes" as a completed gift, by reason of his retained control over the contract through his control of the other party to the contract, the corporation, and the income from the contract was therefore taxable in full to him. Harrison v. Schaffner, 312 U.S. 579;*264 Helvering v. Clifford, 309 U.S. 331.
*417 The respondent has found deficiencies in decedent's income tax for 5 years in the following amounts:
| 1935 | $ 27,996.59 |
| 1936 | 52,972.65 |
| 1937 | 13,822.42 |
| 1938 | $ 44,498.25 |
| 1939 | 28,386.28 |
| Total | 167,676.19 |
Other issues having been waived or stipulated, the only one before us is whether the decedent's assignment of a one-half interest in a certain contract to his wife, the executrix and petitioner, was invalid so as to require the inclusion of its proceeds in his income for the taxable years. The facts, which were stipulated for the most part, may be summarized as follows:
FINDINGS OF FACT.
J. G. Dodson died on May 8, 1939.He filed income tax returns for the years 1935 to 1938, inclusive, with the collector for the district of Florida, and his executrix filed an income tax return for the decedent covering the period from January 1 to May 8, 1939, inclusive, with the collector for the district of Georgia.
In his will decedent named his wife, Clara May, his executrix, and after*265 its probate, she qualified and has acted as such.
Item 2 of decedent's will is in the following words:
Should my wife, Mrs. Clara May Dodson, survive me, I devise and bequeath to her all of my property of every kind and description I may die seized of, whether real, personal or mixed and wheresoever situated, and whether now owned or hereafter acquired.
J. G. Dodson, the decedent, was originally a druggist. Sometime before 1920 he interested himself in the manufacture and sale of proprietary remedies and in due course developed a number of these, including a compound called "ironized yeast," which he perfected in 1921. During that time and for a short period thereafter he operated as an individual proprietor. In March 1922, however, he organized a *418 corporation called Ironized Yeast Co. to take over the manufacturing and selling of "ironized yeast" and others of his products. At that time all the assets of the sole proprietorship were transferred to the corporation except the formula and trade-mark covering "ironized yeast." This corporation operated until April 30, 1929, when all the assets were turned over to J. G. Dodson, the sole stockholder. On January 1, 1930, he*266 formed a partnership with his wife to carry on the business and did so in this form until the organization of the "Ironized Yeast Co., Inc.," a Georgia corporation, on May 14, 1934, when the partnership ceased to manufacture and sell ironized yeast, and the corporation began to do so under the contract set out below. On its organization decedent acquired 51 percent of its stock and his wife, Clara May, the remainder. It was in the years around 1934 that decedent was acquiring his wealth and he did not want to be personally liable for the large advertising contracts.
On May 15, 1934, decedent entered into a royalty contract with the "Ironized Yeast Co., Inc.," which is incorporated by reference, and under which he licensed the corporation to use the trade-mark on the following conditions:
Now Therefore, in consideration of One Dollar ($ 1.00) to him paid, receipt of which is hereby acknowledged and of the mutual covenants herein, the party of the first part hereby agrees to license and does license the party of the second part for the period of five (5) years to use exclusively the trade-mark "Ironized Yeast" in connection with products containing iron and yeast among other ingredients, *267 together with all of the good-will appurtenant to the said trade-mark, and all other attributes of the said goodwill.
The party of the second part [the corporation] hereby covenants and agrees to pay unto the said party of the first part, his heirs, executors, administrators or assigns, a continuing royalty from the sale of all products sold under the trade-mark "Ironized Yeast" it being expressly understood that the said royalty shall attach to any said product that may be at any time sold by the said party of the second part in tablet form or in solid, granular, powdered, liquid, capsule, pill, lozenge, mixed or composite form of preparation; it being further expressly understood that the party of the second part agrees that during said period no product containing yeast in any quantity or proportion as an ingredient, either singular or in combination with iron or with any other substance shall be sold except under the said trade-mark "Ironized Yeast", and that the said royalty shall attach to any such product sold. Said royalty shall be 10% of the net sales of the second party of all products sold under the trade-mark "Ironized Yeast," or as aforesaid. The account of the party*268 of the first part shall be credited monthly with the said royalty upon the sale and delivery of all of the products sold to any jobber, wholesale dealer, or other purchaser direct from the party of the second part upon the sales of the preceding month.
* * * *
It is mutually covenanted and agreed by and between the parties hereto that upon the termination of five years the party of the second part is given the option to make the first acceptance of an offer to renew the license herein for a further period of five years, upon such terms and conditions as shall be fixed by the party of the first part.
*419 On December 1, 1934, J. G. Dodson made an assignment to C. M. Dodson (the same person as Clara May Dodson) of one-half of his royalty interest in the above contract, in the following terms:
Now, Therefore, to all whom it may concern, be it known that for and in consideration of the sum of One Dollar ($ 1.00) to me in hand paid, the receipt of which is hereby acknowledged, and in consideration of love and affection, I, the said J. G. Dodson, have sold, assigned and transferred, and by these presents do sell, assign and transfer unto my beloved wife, C. M. Dodson, her legal representatives, *269 heirs and assigns, the undivided one-half part of the whole of all of my right, title and interest in the said certain contract dated May 15, 1934, entered into by me with the said Ironized Yeast Company, Inc., and the said undivided one-half part to be held and enjoyed by the said C. M. Dodson for her own use and behoof and for the use and behoof of her legal representatives, heirs and assigns, with the present right to receive and collect direct one-half of the proceeds of the said contract as they shall become due and payable, to the full end of the term of the said contract, as fully and as entirely as the same would have been held and enjoyed by me had this assignment not been made.
On the same day as the assignment, the "Ironized Yeast Co., Inc.", consented in writing to the above assignment, by J. G. Dodson, its president, the corporate act being duly attested by a notary public.
During this entire period and until it was sold by Dodson's executrix after his death, he or his executrix was the sole owner of the formula under which ironized yeast was manufactured and at all times he or his executrix claimed to be the owner of the trade-mark "Ironized Yeast." The formula and*270 trade-mark were sold by the executrix for $ 1,000,000, and they were valued on the Federal estate tax return at that figure.
On or about March 15, 1935, J. G. Dodson made a gift tax return on Form 709, in which he reported the gift as follows:
An undivided one-half part of J. G. Dodson's whole right, title and interest in a certain contract dated May 15th, 1934, expiring May 14th, 1939, under which the said J. G. Dodson has licensed the use of the trade-mark "Ironized Yeast" to the Ironized Yeast Company, Inc. upon payment of a certain royalty based upon sales.
The donee named in the return was C. M. Dodson, wife of the donor; the date of the gift was given as December 1, 1934; and the value of the gift was given as $ 156,700.02. At the time this return was filed J. G. Dodson paid to the Commissioner a gift tax in the sum of $ 3,735.50 on account of the gift reported. On July 24, 1935, the revenue agent at Atlanta, Georgia, after an examination of the return, recommended that the value be increased from $ 156,700.02 to $ 170,735.85 and that a deficiency in gift taxes in the sum of $ 1,237.33 be assessed. On November 16, 1935, a 30-day letter was mailed to J. G. Dodson in which *271 the net value of the total gifts as shown in the return for the year 1934 was increased to $ 193,713. On or about May 18, 1936, J. G. Dodson and the Commissioner agreed upon a redetermination of the value of the gift, which was fixed at *420 $ 168,095.40, and on which a deficiency of gift taxes in the sum of $ 740.70 was assessed. Within a short time thereafter this deficiency, with interest at 6 percent per annum from March 15, 1935, was paid by J. G. Dodson. No part of this gift tax or of this deficiency has ever been refunded to J. G. Dodson or to his estate and no claim for refund has ever been filed by him or by his estate. On March 15, 1935, C. M. Dodson, the wife of the donor, filed with the Commissioner a donee's information return of gifts for the calendar year 1934 in which she reported the gift above at a value of $ 156,700.02.
C. M. Dodson, as the executrix of J. G. Dodson, made an estate tax return to the collector for the district of Georgia and reported a net taxable estate of $ 2,901,320.91 and computed an estate tax of $ 912,141.57, of which $ 176,836.24 was payable to various states. She deducted as a claim against the estate the sum of $ 156,218.12, which*272 was then the principal amount of the deficiencies of income taxes proposed to be assessed against the estate for the years 1935 to 1939, with interest to the death of the decedent. In this return it was expressly denied that the income tax deficiencies were owed by the estate, but it was recited that the revenue agent proposed to assess them. Upon audit the Commissioner disallowed this deduction and assessed a deficiency accordingly, which has been paid. This disallowance was made, as explained in the revenue agent's report, because the matter was still in litigation before the Board of Tax Appeals, and, whenever its decision should be given, adjustment would be made to allow a proper deduction. Additional deficiencies in estate taxes were agreed to by the petitioner and have been assessed, the petitioner reserving the right to file a claim for refund of such estate taxes as might be properly refundable because of the accrual of additional income taxes if found due as a result of this proceeding and provided the statute of limitations shall not have run at the date of the filing of this stipulation, May 12, 1942, against the filing of any claim for refund not in excess of the *273 deficiency in estate tax of $ 194,071.03 paid on April 6, 1942, to the collector.
The following is a correct statement of certain parts taken from the income tax returns of J. G. and Clara M. Dodson:
| J G. Dodson | ||||
| Tax | ||||
| So-called | liability | |||
| Net income | royalties | Other | shown by | |
| Year | per return | included | income | income tax |
| return | ||||
| 1934 | $ 172,587.48 | $ 75,342.55 | $ 97,244.93 | $ 71,249.62 |
| 1935 | 108,768.79 | 49,932.59 | 58,836.20 | 31,731.22 |
| 1936 | 134,614.42 | 49,043.18 | 85,571.24 | 49,552.77 |
| 1937 | 111,064.33 | 12,972.29 | 98,092.04 | 34,237.92 |
| 1938 | 171,437.86 | 81,867.18 | 89,570.68 | 71,952.38 |
| 1939 | 158,792.90 | 131,510.71 | 27,282.19 | 58,849.49 |
| Clara M. Dodson | ||||
| 1934 | 74,483.25 | 3,073.51 | 72,409.74 | 19,390.30 |
| 1935 | 63,880.21 | 49,907.14 | 13,973.07 | 13,992.09 |
| 1936 | 92,754.94 | 48,795.71 | 43,959.23 | 29,477.42 |
| 1937 | 62,147.47 | 22,294.22 | 39,853.25 | 14,081.45 |
| 1938 | 106,633.16 | 68,362.86 | 38,270.30 | 38,100.56 |
| 1939 | 68,766.15 | 38,853.68 | 29,912.47 | 16,754.76 |
*421 OPINION.
A summary of the factual situation will make the legal problem here presented more salient. Decedent was a druggist who developed a formula for "ironized yeast", on which he registered*274 a trade-mark. For several years he himself sold this compound, but in 1922 he organized a corporation to make and sell it. This corporation continued in business until 1929, when he took over, as sole stockholder, all its assets and again ran the business as an individual until 1930, when he formed a partnership with his wife to make and sell the yeast. This partnership lasted until May 14, 1934, when he again set up a corporation to carry on the business, dividing its stock between himself and his wife and retaining for himself 51 percent of the shares. At all times decedent was the sole owner of the formula for the manufacture of ironized yeast and the trade-mark. The day after the organization of the corporation in 1934 he entered into a royalty contract with the corporation whereby he licensed the corporation to use the formula and trade-mark for five years, renewable for a like period, in return for 10 percent of the net sales. Then he made the transfer to his wife here brought into question. That was on December 1, 1934, some six months after he had again taken the corporate form. By this transfer he gave his wife a one-half interest in the licensing contract. He reported*275 it to the Commissioner and paid a gift tax computed on a valuation of the gift at $ 168,095.40. The formula was sold after decedent's death by his executrix for $ 1,000,000.
Respondent contends that this assignment was an "anticipatory arrangement," a disposition of decedent's income which would prevent it when paid from vesting in the person who earned it; that all that the decedent assigned to his wife was an interest in income to be received in the future, and that decedent had control over the disposition of the entire income received under the license contract even after his assignment of one-half of it to his wife because of his control of the corporation, the respondent relying, to sustain this last proposition, on .
To sustain his proposition that the assignment here in question was an "anticipatory arrangement" covering only an interest in future income and therefore would not prevent the income when paid from being taxed to the assignor, respondent cites ; *422 ; ;*276 ; and . He particularly stresses the "trend" indicated by this line of decisions and the language used in the opinions in the last three cited cases, rather than the specific holdings on the facts presented. As we have indicated, he also contends that the question here presented should be considered in the light of , and in this contention he finds support in the citations of the Clifford case by the Supreme Court in the opinions in the Horst case and the Schaffner case.
The petitioner, on the other hand, rests his contention upon a neatly constructed legal syllogism, each proposition in which is buttressed by pertinent authority. This may be paraphrased as follows: while the assignment of income does not relieve the assignor of tax thereon, nevertheless, if the assignment or gift is one of income-producing property, the income therefrom is taxable to the assignee or donee as the owner of the property from which the income is derived and thus the true owner of the income; *277 the royalty contract in question here was income-producing property separate and distinct from the trademark which was the subject of the contract; and, since the assignment or gift of a one-half interest in this contract was the assignment or gift of income-producing property, it necessarily follows that the income derived therefrom is taxable not to the donor or assignor, but to the donee or assignee. Petitioner relies upon ; ; ; ; ; affd., ; ; and , and, with great emphasis, upon , recently cited with approval in .
Respondent argues that the language*278 and legal concepts implicit in the recent opinions of the Supreme Court in the Horst, Eubank, and Schaffner cases call for a reexamination of the whole question of "anticipatory arrangements" and require the overruling of such cases as It is true that new approaches and new concepts have been introduced into the law of taxation by the three opinions of the Supreme Court above referred to, and it therefore follows that lower courts find it more difficult to lay down with certainty the rules of law by which the questions in this field are to be solved. Cf. , wherein Hutcheson, J., advises, under similar circumstances, that "until the Supreme Court has spoken authoritatively on the question, they [the lower courts] would do best to decide the questions posed with as little bewordling and as few reasons as possible."
*423 We have read carefully, and with respect, the opinions of the Supreme Court relied upon by respondent, and find nothing therein which directly and explicitly contravenes the propositions advanced by the petitioner to *279 the effect that the donee and not the donor of income-producing property is taxable on the income derived therefrom, and that a royalty contract is property.
However, we do find in the last paragraph of the latest opinion of the Supreme Court on this general subject (the Schaffner case) a definite limitation on this rule based upon the concept of the Clifford case. There the present Chief Justice says: "* * * we leave it to future judicial decisions to determine precisely where the line shall be drawn between gifts of income-producing property and gifts of income from property of which the donor remains the owner, for all substantial and practical purposes. Cf. " (Italics supplied.)
Assuming in petitioner's favor, without deciding, that the royalty contract, which provided for reimbursement to decedent for the use of the trade-mark, was income-producing property, separate and distinct from the trade-mark itself, nevertheless, we are of the opinion that under the peculiar facts of the instant case decedent remained "for all substantial and practical purposes" the owner of the royalty contract and that the *280 sole purpose intended and accomplished by the assignment of a one-half interest therein to his wife was to give her one-half of the income therefrom. See The only two parties to the royalty contract were decedent and a corporation which he controlled. Even after he had assigned a one-half interest in the contract to his wife, he and his controlled corporation could have modified or abrogated the contract at any time by mutual consent (which, under the circumstances, was equivalent to unilateral action on his part). There is nothing in the record here to suggest that this power was limited by any rights of creditors of the controlled corporation. By reason of this power over the contract, we conclude that for all substantial and practical purposes he remained the owner of the contract, and that the only substantial and practical result of the assignment in question was a gift to his wife of the income derived from the contract so long as decedent wished the contract to exist unmodified.
Upon this issue we decide in favor of respondent.
Respondent has conceded that, in the event deficiencies in tax are found to be due*281 from the decedent's estate herein, then interest accruable at the date of decedent's death upon such deficiencies will be allowed as deductions, pursuant to the case of .
Decision will be entered under Rule 50.