*787 Petitioner, as legal guardian for his children, sold in 1927 certain shares of stock belonging to them and in 1927 and 1928 invested the proceeds in shares of stock of Deere & Co., which he sold for them at a profit in 1928. Income tax returns were filed for the children in 1928 and in each was reported the profit realized upon the sale of the shares. Held, that the petitioner is not liable to income tax upon the profits as income of his own.
*230 This is a proceeding for the redetermination of a deficiency in income tax for 1928 in the amount of $16,064.97. The petitioner alleges that the respondent has erroneously added to his reported gross and net income for 1928 certain profits from the sale of stock belonging to his children.
FINDINGS OF FACT.
In 1925 the petitioner, a resident of Davenport, Iowa, and a member of the investment brokerage firm of Priester, Quail & Cundy, gave 150 shares of the common stock of Central States Power & Light Corporation to each of his five minor children, all of whom were under 10 years of age, and had the*788 certificates therefor made out in their respective names. He kept the certificates for them in an envelope, with a notation on the outside that these belonged to the children, in a safety deposit box until the latter part of 1927. At the time the gifts were made there was no idea on the part of any one that the stock would *231 be sold then or even in the near future. The idea was that the shares would not be sold, but left to increase in value, and it was hoped that the income therefrom would produce a fund for the education of the children.
In September 1927 certain parties wanted to acquire all of the shares of stock of the Central States Power & Light Corporation and entered into a contract with the investment firm of which the petitioner was a member for the purchase of all the preferred and common stock of the corporation, agreeing to pay $125 for each share of common stock as follows: $5 per share on execution of the contract; $20 per share on October 15, 1927; $30 per share on November 15, 1927; $30 per share on December 31, 1927; and $40 per share on February 15, 1928, with interest at 6 percent per annum on all deferred payments from October 15, 1927. The investment*789 firm then arranged for the purchase of all of the stock of the corporation from its stockholders and retained the first payment of $5 per share as its fee in negotiating the sale.
The shares of stock belonging to and standing in the names of the five minor children of the petitioner were not in shape for transfer without the appointment of a guardian for them and authority obtained by such guardian to sell their shares. Accordingly, application was made to the District Court of Scott County, Iowa, for the appointment of a guardian for the property of each of the children on February 10, 1928, and on the same date petitioner was appointed and duly qualified as such guardian. On February 24, 1928, the guardian filed an inventory, listing the 150 shares of common stock of the Central States Power & Light Corporation as belonging to each of the children, and on February 27, 1928, the guardian filed his application for authority to sell the shares in accordance with the offer theretofore made, and on March 5, 1928, was duly authorized to sell them. The petitioner completed the sale by endorsement and transfer of the certificates and received final installment of the proceeds on March 8, 1928. *790 He had previously received for his wards' account certain of the proceeds as they were payable under the offer to purchase in anticipation of securing the necessary authorization in the guardianship proceeding. The amounts received by the guardian for his wards and the dates thereof are as follows:
| October 17, 1927, $20 per share payment | $15,000.00 |
| November 17, 1927, $30 per share payment | 22,612.50 |
| March 8, 1928, Balance of $70 per share | 53,400.00 |
| Total | 91,012.50 |
These payments were made by checks which were made out identically with the certificates in the names of the several children. These funds were all invested in Deere & Co.'s common stock.
*232 In the application to the court to sell, the petitioner as guardian asked for authority to reinvest the proceeds of the sale in other stocks and securities and to buy and sell generally in such investments. At the time he expected and represented that he would carry this on through the formation of a corporation, the shares of the capital stock of which would be owned by the minors along with their father and mother, and at the same time that he was authorized to sell the stocks initially held he*791 secured authority to invest in the stock of Priester Investment Co., the corporation to be formed to buy, sell, hold, own, and deal in investment securities.
The petitioner first deposited the first two installments of the purchase price for his wards' shares in the children's bank accounts, but later withdrew these funds and deposited them in his own checking account and then drew his checks on this account therefor and used the funds on November 28, 1927, for the purchase of 200 shares of the common stock of Deere & Co. through his own brokerage account with Harris, Winthrop & Co. The total cost of the first purchase was $48,260. On November 25, 1927, in anticipation of the purchase of the stock, he made a deposit of $48,200 with his brokers, using the $37,612.50 of funds he had previously received for his children and making up the difference between that amount and $48,200 by advancing the same for the children in anticipation of further installment payments. The certificates for these shares were delivered to the petitioner on November 30, 1927. He deposited them in his safety deposit box in the same envelope from which he had taken the Central States Power & Light Corporation*792 certificates which belonged to his children. This envelope had a notation on it that its contents belonged to the children. The petitioner did not have any shares of Deere & Co. common stock of his own at that time, nor thereafter through 1928. The petitioner had made only one purchase and one sale of securities during the months of August, September, and October 1927 (made in September), and the purchase of the Deere & Co. stock was the only transaction that the petitioner had during the month of November 1927 in his brokerage account.
The next purchase of Deere & Co. common stock was on January 10, 1928, when 100 shares were bought for the account of the children for $23,010. On January 12, 1928, the guardian bought another 100 shares at a total cost of $23,830, and on January 18, 1928, he bought two separate lots of 50 shares each, one costing $11,902.50 and the other $11,915, all for the account of the guardianship of the five minors. To pay for these he deposited $13,000 on January 11, 1928, with the brokers, advancing the money himself in anticipation of the payments that remained to be made for the account of the children's *233 stock in Central States Power & *793 Light Corporation. On March 8, 1928, when the petitioner received $53,400 as the last payment on the Central States stock on account of the children, he used the same to make part of a $60,000 payment on the same day to his credit in the brokerage account of Harris, Winthrop & Co., which then enabled him to draw down the 300 shares of common stock of Deere & Co. purchased during the month of January, and certificates for these shares were then delivered to him on March 21, 1928. These certificates were then put in the safety deposit box where the others were being kept and in the same envelope marked for the children's account. The certificates delivered were street certificates in various names and were not in the name of the petitioner.
At the time of the approval by the court of the sale of the shares of Central States Power & Light Corporation and the giving of authority to reinvest in stocks and other securities in March 1928, the petitioner mentioned to the court that he had already purchased these shares of Deere & Co. common stock for the account of the minors and asked whether this was satisfactory under the circumstances, and the judge orally approved the same at the*794 time.
The petitioner did not complete the organization of Priester Investment Co. as contemplated at that time, but carried out his transactions for the minors after March 8, 1928, without putting them through a separate corporation. He used his own brokerage account with Harris, Winthrop & Co. for all transactions. This was because the brokers objected to carrying an account with him as guardian but advised purchasing the stock for the children through his own account and using the children's funds to pay for it. They expressly stated to him that they preferred not to accept a check signed on the guardianship account.
The next transaction of Deere & Co. stock was the purchase of 100 shares for the account of the children at a cost of $35,045 on April 10, 1928. This was carried on a margin account with practically all of the purchase price being supplied by Harris, Winthrop & Co. at that time. Petitioner also purchased for the account of the children 100 shares on April 18, 1928, for $36,045, 100 shares on April 24, 1928, for $35,045, and 100 shares on April 25, 1928, for $34,040. At that time to margin these purchases he took a certificate for 100 shares of Deere & Co. *795 stock, previously purchased for and set apart to the minors, out of his safety deposit box and delivered it to Harris, Winthrop & Co. as collateral for the aforesaid transaction. At the end of April 1928 the brokerage account was long 500 shares of Deere & Co. common stock, which included those that had been purchased and those that had been redelivered from his safety deposit box. *234 He made his first sale of Deere & Co. stock on June 4, 1928, selling a total of 100 shares for $39,851. The proceeds of the sale were left in the account with Harris, Winthrop & Co. Subsequently, purchases of 700 more shares of Deere & Co. common stock were made in 1928 and sales of 1,000 shares were made within the same year. These transactions were handled in substantially the same manner as the previous ones, purchases being made against the margin then in the account or by depositing additional shares as shown, and the proceeds of sales were left to repurchase additional shares of Deere & Co. stock or to repay the advances of Harris, Winthrop & Co. There was always sufficient margin in the account to carry the Deere & Co. stock and also sufficient margin to carry all other stock without*796 having to apply any of the Deere margin to the other securities, or the margin for any other securities to the Deere & Co. stock.
The petitioner delivered 100 shares from those of the children in his safety deposit box to the brokers on September 19, 1928, another 100 shares on November 3, 1928, and another 100 shares on November 22, 1928. At the end of the year the guardian made his accounting based on the transactions had during the year with his account for each ward, computing the total profit on all sales as $81,411 (now conceded to have been $99,106), and crediting one fifth of such amount to each child's account. He returned this profit in the income tax return for 1928 of each child and income tax was paid for each child as shown by the return. On December 31, 1928, the five children were still long 400 shares of Deere & Co. stock, of which 300 shares were in the Harris, Winthrop & Co. account and the other 100 shares were in the safety deposit box for the children's account. These were closed out in 1929.
The petitioner bought no other shares of Deere & Co. stock during the whole of the period from November 1927 to the end of the year 1928. He confined his purchases*797 and sales for his children to Deere & Co. stock. The object in view in restricting transactions of the children to Deere & Co. stock was that it simplified his bookkeeping and eliminated the possibility of a mistake by having the account mixed up. Besides these purchases and sales for his children's account, petitioner also carried on similar transactions for others, particularly other members of his family, through his personal account with Harris, Winthrop & Co. Not only was the profit from the Deere & Co. stock credited at the end of the year 1928 to his account with each minor upon his books, but he also kept a securities record showing the securities belonging to the members of his family and others for whom he individually made investments, which showed, at the time the transactions were had, that he carried these purchases *235 to the credit of his children. On August 4, 1930, the petitioner made his first report as guardian to the District Court of Scott County, Iowa, in which he reported the profit as he computed it which he had made for the children for the year 1928 by his dealings in Deere & Co. stock, which report was on the same day duly approved by the court. *798 The guardian made a second report to the court, carrying his accounts forward on December 20, 1933, which was also approved the same day. The assets of the guardianship are still intact.
OPINION.
SMITH: If the shares of Deere & Co. purchased by petitioner in 1927 and sold in 1928 constituted the separate property of the petitioner's children it follows that the profit realized from the sales constituted taxable income of the children. The petitioner asserts that the issue in this proceeding is primarily a question of the ownership of Deere & Co. stock. This is obviously correct. The respondent contends that the petitioner and not the children was the owner of the stock. He contends that there was no valid gift of Central States Power & Light Corporation stock or the proceeds of the sale thereof by the petitioner to his children. He reaches this conclusion by claiming the petitioner had the power to recant or retract the gift at any time and that in fact he did recant it.
In ; *799 , the court stated:
* * * Where a gift is made to an infant, even by the father himself, and the father takes possession of the property, he holds as natural guardian, and the possession is the infant's. * * *
In , it is said:
* * * What shall constitute the essential delivery, possession or control, must depend always on the circumstances of each case and the environment of the parties. * * *
This is particularly true in the case of minors who, because of tender years, may be incapable of managing the property. In such a case the parent making the gift may receive delivery and exercise control for the minors as their natural guardian. See . In that case the respondent determined that certain brokerage accounts which the taxpayer established in 1925 in the names of his three minor daughters, who were 8, 14, and 16 years of age in that year, were in effect trading accounts of the taxpayer and not of his daughters. The taxpayer managed the brokerage accounts but always treated the securities therein as the separate property of his daughters. We*800 held that the income derived from the brokerage accounts owned and operated by the tax payer *236 in the names of his minor daughters was in fact income of the daughters and was not taxable to the taxpayer. In our opinion we stated:
The petitioner here was the natural and legal guardian of his minor daughters and his possession and control of the subject matter of the gifts constituted possession and control by the daughters. The gifts will not be defeated because of such fact, if there was a bona fide intention to give. On this point the law presumes that the transfer of property or money to a minor child by the parents is a gift. * * *
We think there can be no question but that the evidence in this proceeding indicates an intention on the part of the petitioner to make a gift to each of his minor children of 150 shares of Central States Power & Light Corporation common stock. To effect the gift the petitioner had the shares of stock made out in the name of each of his minor children. In order to make sale of those shares it was necessary for him to obtain the permission of the court having jurisdiction therein to order the sale of the shares. In the light of these*801 circumstances we can not doubt that the proceeds of the sale of the stock constituted the property of the minor children. All that was done by the petitioner with respect to the proceeds was consistent with the theory that the proceeds from the sale of the stock belonged to the minor children and nothing that was done is consistent with a view that the petitioner used those proceeds in the purchase of Deere & Co. stock for his own benefit.
The evidence further shows that the brokerage concern through which the petitioner dealt objected to opening an account with the petitioner as guardian for his minor children. The petitioner thereupon made purchases of Deere & Co. stock for his children through his own brokerage account. The profits from the sale of those shares were all credited to the accounts of the minor children and were not taken by the petitioner as profits belonging to himself.
The question before us is whether the profits from the sale of the Deere & Co. stock were profits of the minor children of profits of the petitioner. Petitioner accounted for the profits as guardian and trustee for his children. We are of the opinion that the purchase and sale of the Deere*802 & Co. shares through the brokerage account and on margin carried in the name of the petitioner is no bar to the claim of the petitioner made herein. All of the purchases and sales of this stock were for the guardianship accounts, and all purchases and sales were earmarked as being for the account of the children.
The action of the respondent in taxing the profits from the sale of Deere & Co. stock to the petitioner is reversed.
Reviewed by the Board.
Judgment will be entered under Rule 50.