*907 The income from trusts and accounts set up by a stock broker for his children held properly within his gross income under section 22(a), Revenue Acts of 1934 and 1936.
*122 The Commissioner determined income tax deficiencies of $6,911.17 for 1934, $8,300.38 for 1935, $118,531.47 for 1936, and $151,483.20 for 1937. Petitioner assails the determination that the income of trusts and trading accounts established by him for his children and of contracts assigned to them is taxable to him.
FINDINGS OF FACT.
Petitioner is a resident of Salt Lake City, Utah, and filed his income tax returns for the years 1934-1937 with the collector for the district of Utah.
*123 He and his wife, Mary C. Hogle, have three children: Mary Katharine Hogle McTernan, born June 5, 1911; James E. Hogle, born September 16, 1912; and George H. Hogle, born April 10, 1915.
In 1911, petitioner purchased a seat on the Salt Lake Stock Exchange; in 1914, began a local brokerage business under the name of "J. A. Hogle*908 & Company"; in 1917, expanded his activities after taking over the Salt Lake City branch of Logan & Bryan; and in 1919, made his wife an equal partner. She never became active in the business, but contributed to the partnership some securities which petitioner had given her in 1918 and placed in a trading account in her name. The partnership engages in the stock and bond brokerage business, with principal office at Salt Lake City and branch offices at New York, Los Angeles, and elsewhere. Its income is derived from sale commissions and interest on accounts.
1. On October 7, 1922, petitioner, his wife, and Ed. S. Brooke executed an instrument, designated an "irrevocable trusteeship", whereby Brooke agreed "to act as said trustee" for petitioner's then minor children.
2- IT IS UNDERSTOOD and agreed that this is a trading account in stocks, bonds and/or real estate, managed and operated under the direction of James A. Hogle for the benefit of his three children, they to share from the profits and benefits thereof in the following proportion:
| Mary Catherine Hogle | One-fifth (1/5) interest |
| James Edward Hogle | Two fifths (2/5) interest |
| George Hollister Hogle | Two-fifths (2/5) interest |
*909 said profits and benefits, if any, to be divided severally in those specified proportions on April 15, 1945.
3- IT IS AGREED that any losses resulting from the transactions entered into for this account, which shall exceed the profits and various income returns thereof, shall be made good by said James A. Hogle and it is understood and agreed that any such losses shall not become an indebtedness of the trustee of said three minor children, but it is agreed, however, that any such losses made good by said James A. Hogle shall be returned to him out of the first profits that accrue in any further transactions.
In case petitioner "should incorporate his real estate holdings" or the partnership, he could require the trustee to transfer trust assets for bonds or stocks in any such corporation, and could name the secretary or treasurer of the transferee as successor trustee. Upon petitioner's death, trading was to cease, and "all other agreements, circumstances, and conditions of this trusteeship shall be assumed and devolve upon" petitioner's wife if living; otherwise upon his executor. In case of a beneficiary's death, his benefits and rights were to pass to the surviving children; *910 in case of the last surviving child's death, to petitioner's wife; and if she should be dead, to the children's living children.
*124 Petitioner drew the instrument without consulting an attorney. On the day of its execution, October 7, 1922, he caused a trading account to be opened with and on the books of the partnership, in the name of "Ed. S. Brooke, Agent", and at his direction a short sale of 1,000 shares of Tintic Standard Mining Co. was made that day and covered by purchases on October 10 of 600 shares and on October 21, 1922, of 400 shares, at a profit of $209.91. There were no further transactions during 1922, and after an interest credit of $2.08 by the partnership, the account, on December 31, 1922, showed a credit balance of $211.99. Purchases and sales were made in and for the account during succeeding years, and resulted in the following gains and losses "after considering dividends and interest":
| Year | Gains |
| 1923 | $1,865.06 |
| 1924 | 7,338.20 |
| 1925 | 136,812.15 |
| 1926 | 22,580.22 |
| 1927 | 221.07 |
| 1928 (loss) | -8,047.52 |
| 1929 (loss) | $143,451.09 |
| 1930 | 9,557.37 |
| 1931 | 15,278.24 |
| 1932 | 8,207.50 |
| 1933 | 8,350.20 |
| 1934 | 8,983.62 |
| 1935 | $2,162.31 |
| 1936 | 42,601.43 |
| 1937 | 118,345.06 |
| 1938 | 43,466.24 |
| 1939 | 17,843.67 |
| 1940 | 42,219,28 |
*911 This trading account has been treated by the partnership like the account of any other customer.
On February 5, 1927, George H. Copley, petitioner's brother-in-law, was substituted for Brooke as trustee under a trust instrument otherwise like the former, and the account was thereafter designated the Copley trust account. At the end of 1927 it showed a balance of $157,122.04, representing accumulated profits from completed transactions after deduction of insurance premiums and income taxes attributable to the account and paid out of the fund. In 1928 and 1929 securities were transferred to it by book entries made at petitioner's direction from the individual accounts carried with the partnership by him and his wife, respectively, and from a joint account carried by them together. The Copley account was short in respect of the shares transferred; the transferor accounts were long. The transfers were in fact made to cover short sales. These were as follows:
| Date | Shares transferred | Cost to transferors | Short sale price | Value at transfer |
| 6/18/28 | 51,600 Tintic Standard | $146,983.81 | $662,584.87 | $744,588.00 |
| 6/21/28 | 6,975 Silver King Coalition Mines | 18,821.38 | 47,112.50 | 78,990.63 |
| 4/25/29 | 100 Utah Copper | 10,425.00 | 8,674.60 | 15,050.00 |
| 4/25/29 | 3,000 Amer. Smelting & Refining Co | 183,922.50 | 167,055.00 | 313,500.00 |
| 4/25/29 | 600 Kennecott Copper | 23,180.00 | 49,978.50 | 51,600.00 |
| 4/25/29 | 1,847 Park Utah Cons. Mining Co | 10,618.67 | 12,262.53 | 18,931.75 |
| 4/25/29 | $10,000 Brazil 4's, (bonds) | 3,627.50 | 3,761.70 | 3,627.50 |
*912 *125 Of the shares transferred, 10,000 Tintic Standard and 1,165 Silver King Coalition Mines were drawn from petitioner's account; 5,100 Silver King Coalition Mines from the wife's account, and the remainder from the joint account. After the transfers, the Copley account was short 600 shares of Tintic Standard, 300 shares of American Smelting, Refining & Mining Co., and 1,200 shares of Park Utah. None of the securities transferred was at any time in the name or custody of petitioner or his wife, and, with immaterial exceptions, all securities listed on the books of the partnership as belonging to them and to customers stood in the name of a nominee of the partnership and were in an employee's custody or held by a correspondent in Salt Lake City or New York. There was no transfer of a certificate evidencing ownership to the trustee, but charges and credits to trading accounts on the partnership's books.
From December 31, 1927, to December 31, 1929, the balances of the Copley account as shown on the Copley trust books were as follows:
| Dec. 31, 1927 | Balance | $157,122.04 |
| June 18, 1928 | 51,600 sh. Tintic Standard | 146,983.81 |
| June 21, 1928 | 6,975 sh. Silver King Coal'n | 18,821.38 |
| Life insurance premiums paid | -1,362.20 | |
| 1928 | Net loss, trading account | -8,047.52 |
| Dec. 31, 1928 | Balance | 313,517.51 |
| April 25, 1929 | $10,000 Brazil bonds | 3,627.50 |
| Do | 100 sh. Utah Copper | 10,425.00 |
| Do | 3,000 sh. Am. Sm. & Ref'g | 183,922.50 |
| Do | 600 sh. Kennecott Copper | 23,180.00 |
| Do | 1,847 sh. Park Utah | 10,618.67 |
| Life insurance premiums paid | -1,262.30 | |
| 1929 | Net loss, trading account | -143,451.09 |
| Dec. 31, 1929 | Balance | 400,577.79 |
*913 The net asset or liquidating value of this account was minus $668,838.02 on December 31, 1927; minus $786,835.61 on December 31, 1928, and $363,132.76 on December 31, 1929.
During 1923-1934 the partnership disbursed $11,280.48 for premiums on insurance policies covering petitioner's life, under which his three children were beneficiaries, and also disbursed $20,807.29 for the children's school expenses, and charged them to the Copley account. Petitioner was unaware of these charges. On December 31, 1940, the amounts were credited on the partnership books to the Copley account; the school expenses were charged to petitioner's account with the partnership as a personal withdrawal and the *126 amount of the insurance premiums was charged to the children's accounts: $4,512.19 to each son and $2,256.10 to the daughter. The only other disbursements from the Copley account since it was opened have been for taxes. Its long and short position was as follows:
| Dec. 31 | Purchases long | Sales short |
| 1924 | $19,955.17 | $180,587.42 |
| 1925 | 67,495.43 | 467,319.41 |
| 1926 | 6,327.59 | 1,413,497.69 |
| 1927 | 739,169.01 | 2,942,940.65 |
| 1928 | $788,986.89 | $3,474,614.45 |
| 1929 | 343,423.46 | 773,605.00 |
| 1930 | 405,409.61 | 24,887.50 |
*914 A separate set of account books has been kept for "George H. Copley, Trustee", which conforms with the account on the partnership's books. The cost of the securities transferred to the Copley account from accounts of petitioner and his wife has been used to compute gain or loss, such cost having been credited to the beneficiaries' accounts and the excess of the short sale credit balances over such cost, to the profit and loss account. The Copley trust books show the net asset or liquidating values of the trading account and its debit or credit balances with the partnership at the end of the year as follows:
| December 31 | Liquidating Value | Debit | Credit |
| 1933 | $473,627.35 | $9,640.88 | |
| 1934 | 507,446.54 | $53,763.06 | |
| 1935 | 564,311.35 | 51,650.25 | |
| 1936 | 663,046.24 | 282,811.98 | 6,049.84 |
| 1937 | 801,679.96 | 366,000.64 | |
| 1938 | 752,104.40 | 14,217.76 | |
| 1939 | 765,838.58 | 597,969.88 | 14,685.84 |
| 1940 | 745,008.70 |
In 1927 petitioner and his wife discussed trust policy and intended gifts with Copley, the trustee. Copley moved to Imlay, Nevada, in 1928, and thereafter made occasional trips to Salt Lake City. The trust's tax returns and trading sheets were mailed to him. *915 He signed the returns and mailed them back, but did nothing about the trading or any other trust matter. Petitioner alone has directed the trust's business operations.
Prior to 1932 James E. and George H. Hogle each reported twofifths of the taxable net income of the Copley trust on their individual income tax returns; Mary Katharine Hogle reported one-fifth. As a result of the Commissioner's determination that the income attributable to the trading account was not distributable by the trustee, the income for 1932 and succeeding years has been reported and the tax paid by the trustee. The taxable net income attributable *127 to the trading account, on which the tax was so paid, was as follows: 1934, $5,757.36; 1935, $255.37; 1936, $35,873.57; 1937, $93,541.35. The Commissioner included these amounts in petitioner's income for the respective years.
2. On October 15, 1932, petitioner and his wife executed an "irrevocable trusteeship" with George H. Copley, J. C. Johnson, and W. G. Seley, as trustees, agreeing "that this is a trading account in stocks, bonds and/or real estate, managed and operated" under petitioner's direction for the benefit of his children. Mary*916 Katharine's share was one-fifth and that of each son two-fifths. Profits and income were to be used for a beneficiary at the discretion and direction of petitioner and at least two trustees, or, in case of petitioner's death or disability, with the approval of all surviving trustees. Trading was to be conducted under the name "Three Trust Account," receipts and disbursements were to be credited and debited to the individual beneficiaries, and "any profits, benefits, income, securities and/or real estate remaining in each or any of these three accounts on April 15th, 1950, shall be divided severally to each of said three children" as his account shall indicate due him.
It was agreed that losses from the account's transactions should "be made good" by petitioner but "at the option of any two trustees" should be returned to him out of the first profits from further transactions; that if petitioner should "incorporate his real estate holdings" or the partnership, he could require the trustees to exchange trust assets for securities of the new corporation. A trustee could be removed and his successor appointed by petitioner and the other two trustees. Upon petitioner's death, trading*917 was to cease, and "all other agreements, circumstances, and conditions of this trusteeship shall be assumed and devolve upon the three trustees named herein or their successors." In case of a beneficiary's death without issue before April 15, 1950, his benefits and rights were to pass to the surviving children; in case of their deaths, to petitioner's wife. In case a beneficiary should die leaving issue, his issue should share equally in his interest.
Petitioner drew the above instrument without consulting anyone, after a revenue agent had called to his attention that distributions to beneficiaries could not be made under the Copley trust. J. C. Johnson, one of the trustees, was manager of the partnership's Salt Lake City office; W. E. Seley, another trustee, was then working with George H. Copley, the third trustee, in a local firm, and was later employed as the partnership's auditor. Both are still employees of the partnership.
Prior to executing the latter agreement, petitioner caused a trading account to be opened with and on the books of the partnership in *128 the name of "Three Trust Account," and at his direction 700 shares of Silver King Coalition Mining Co. *918 were purchased for the account at $2 a share and charged to it on April 8, 1932, 300 shares on April 9, and 2,200 shares on April 13. During the year eight additional shares purchases were made; no sales occurred. On December 31, 1932, the account held 6,821 shares in five different corporations, having a cost of $21,449.43; interest of $323.79 was charged to it; dividends of $230 were credited, and its net asset or liquidating value of $4,021.86. Thereafter the account's purchases and sales resulted in the following gains, as shown on its books "after considering interest and dividends":
| 1933 | $4,056.17 |
| 1934 | 9,115.02 |
| 1935 | 22,764.03 |
| 1936 | 125,142.20 |
| 1937 | $61,411.05 |
| 1938 | 92,304.33 |
| 1939 | 26,447.65 |
| 1940 | 26,246.44 |
As of the end of the year its debit balances on the partnership's books, the cost of securities and commodities (grain) held by it, the market value of the securities and commodities, and its net asset or liquidating value, were as follows:
| December 31 | Debit balance | Cost | Market value | Liquidating value |
| 1932 | $21,653.22 | $21,449.43 | $25,267.50 | |
| 1933 | 281,438.22 | 285,400.60 | 307,030.00 | $25,591.78 |
| 1934 | 538,841.61 | 551,919.01 | 591,085.48 | 52,243.87 |
| 1935 | 576,396.40 | 612,237.83 | 940,313.92 | 363,917.52 |
| 1936 | 369,561.91 | 530,545.54 | 1,374,910.98 | 1,005,349.07 |
| 1937 | 289,047.75 | 511,442.43 | 721,780.83 | 432,733.08 |
| 1938 | 178,004.51 | 492,703.52 | 702,650.18 | 524,645.67 |
| 1939 | 307,410.64 | 493,483.05 | 633,632.58 | 326,221.94 |
| 1940 | -8,595.88 | 203,722.97 | 214,265.53 | 222,861.41 |
*919 To meet the requirements of the New York Stock Exchange in respect of margins during 1933 and 1934, petitioner pledged with the partnership, which had the use of a partner's exchange seat, a sufficient amount of his personally owned securities to margin properly the three trust account.
The three trust account has been treated by the partnership like the account of any other customer. None of the trustees has ever directed purchases or sales of securities by it; petitioner alone has directed its business operations. A separate set of account books has been kept for trustees of the three trust account, which conforms with the account on the partnership's books. On these books the net earnings or profits were carried in an account entitled "Profit & Loss" until 1935; during that year the credit balance in the account was transferred to accounts of the individual beneficiaries, as follows: Mary Katharine Hogle, $2,615.48; James E. Hogle, $5,230.96; George *129 H. Hogle, $5,230.96; and at the end of each subsequent year the net earnings or profits have been so credited to the individual accounts in the proportion of each one's interest. No withdrawals of earnings or profits*920 were made until June 24, 1939. The following amounts were then withdrawn and charged to the individual accounts: Mary Katharine Hogle, $30,000; James E. Hogle, $60,000; George H. Hogle, $60,000. The withdrawals were effected by debits to the three trust account on the partnership's books and credits to the individuals' personal accounts with the partnership. James E. and George H. Hogle were then equal partners with petitioner and his wife; Mary Katharine Hogle had withdrawn from the partnership on May 31, 1939.
For 1933 and for 1934, an income tax return was filed by the trustees in which the net income attributable to the three trust account was reported, and the tax shown thereon to be due was paid. For 1935, 1936, and 1937, the trustees filed a fiduciary income tax return in which the taxable net income attributable to the three trust account was shown as distributed or distributable to the three beneficiaries. For 1935 and subsequent years, the beneficiaries reported in their returns their respective distributable shares of the net income of the three trust account, as reported on the fiduciary return, and paid the tax shown thereon to be due.
The three trust account's*921 taxable net income was $5,094.08 in 1934, $9,756.41 in 1935, $86,602.07 in 1936, and $60,842.93 in 1937. The Commissioner included these amounts in petitioner's income for the respective years.
3. On November 23, 1917, an account was opened at petitioner's direction on the partnership books in the name of Mary Katharine Hogle, and a second account in the name of James E. Hogle. Each account was credited with $100, described as a "check." The $100 was debited to cash. A $100 4 percent Liberty bond was purchased in each account on February 18, 1918, $2 interest was credited on May 15, and numerous other small credits for cash, checks, and interest were entered between then and December 31, 1932. On that date each account contained $150 in Liberty bonds and credit balances which included some interest credited by the partnership. The balance in the account of Mary Katharine Hogle was $1,407.01; of James E. Hogle, $696.79.
On May 9, 1918, an account was opened at petitioner's direction on the partnership books in the name of George H. Hogle, and was credited with $20, described as a "check." The $20 was debited to cash. On the same day the account was charged with $47.65, *922 the cost of a $50 4 percent Liberty bond. On June 10, 1918, there was a *130 further credit of $29.20, representing the proceeds from the sale of thrift stamps, and numerous other small credits for cash, checks, and interest were entered between then and December 31, 1932. On that date the account contained $200 in Liberty bonds, and a credit balance of $492.96, which included some interest credited by the partnership.
On January 1, 1933, the account of Mary Katharine Hogle was credited with $5,000; on May 22, 1933, the accounts of James E. and George H. Hogle were each credited with $5,000; corresponding debits were entered in petitioner's personal account with the partnership. On December 31, 1933, the accounts' credit balances were as follows:
| Account | Liberty bonds | Credit balance |
| Mary Katharine Hogle | $150 | $6,532.41 |
| James E. Hogle | 150 | 6,018.17 |
| George H. Hogle | 200 | 5,652.83 |
During 1934-1937, the following credits were made in each of the children's accounts with corresponding debits to the personal account of petitioner or his wife with the partnership:
| Date | Credit | Account debited |
| Jan. 6, 1934 | $5,000 | Petitioner's. |
| May 7, 1934 | $25,000 | Do. |
| Dec. 31, 1934 | $5,000 | Do. |
| Feb. 15, 1935 | 45 sh. U.S. Smelting, Refining & Mining Co | Do. |
| Nov. 12, 1935 | 358 sh. U.S. Smelting, Refining & Mining Co | Do. |
| June 10, 1935 | 100 sh. Utah Fire Clay | Wife's. |
| Aug. 21, 1935 | 800 sh. Silver King | Do. |
| Do | 100 sh. Continental Can | Do. |
| Dec. 27, 1935 | 1,500 sh. Silver King | Do. |
| Dec. 31, 1935 | $12,000 | Do. |
| Feb. 14, 1936 | $5,000 | Petitioner's. |
| Dec. 21, 1936 1 | $5,000 | Wife's. |
| Mar. 4, 1937 | $5,000 | Petitioner's. |
| Do | $5,000 | Wife's. |
As of the date of the book entry, the aggregate market value of the securities debited to petitioner's account was approximately $114,000; to his wife's account, $111,000. On May 27, 1936, the accounts of Mary Katharine and James E. Hogle were each debited with $5,000 and corresponding credits entered in the account of George H. Hogle. All the credits were described as gifts on the partnership's books. Petitioner reported the amount with which his account was debited in 1934 as a gift and paid a gift tax thereon. He and his wife reported as gifts the respective amounts with which their accounts were debited in 1935, and paid gift taxes thereon.
*131 Petitioner's personal capital account on the partnership's books disclosed debit balances at the end of the year, as follows:
| 1932 | $286,409.33 |
| 1933 | 176,917.81 |
| 1934 | 250,676.95 |
| 1935 | $300,234.36 |
| 1936 | 234,147.97 |
| 1937 | 54,275.31 |
The partnership's indebtedness on bank loans at the end of the year, as shown by its books, was as follows:
| 1932 | None |
| 1933 | $700,663 |
| 1934 | 1,580,000 |
| 1935 | $1,765,000 |
| 1936 | 2,030,000 |
| 1937 | 2,114,000 |
*924 During 1935-1940, the children made the following withdrawals from the accounts in their respective names:
| Year | Mary Katharine Hogle | James E. Hogle | George H. Hogle |
| 1935 | $1,062.31 | $849.39 | $701.25 |
| 1936 | 4,114.27 | 6,557.90 | 1,867.58 |
| 1937 | 13,682.95 | 24,715.52 | 21,698.90 |
| 1938 | 12,694.32 | 23,922.90 | 17,711.01 |
| 1939 | 12,390.32 | 20,708.14 | 13,670.31 |
| 1940 | 11,555.62 | 49,763.32 | 20,335.99 |
At the end of 1940 the net asset or liquidating value of Mary Katharine Hogle's account was $235,503.18; James E. Hogle's, $140,791.42; George H. Hogle's, $173,205.04.
A separate set of books is kept for each of the children, and his account with the partnership is carried therein. The net income of each account, consisting of interest, dividends, capital gains and, in 1937, underwriting commissions, was as follows:
| Account | 1934 | 1935 | 1936 | 1937 |
| Mary Katharine Hogle | $1,154.68 | $2,368.37 | $8,407.52 | $12,828.26 |
| James E. Hogle | 1,141.31 | 2,359.60 | 8,495.72 | 13,078.25 |
| George H. Hogle | 1,132.36 | 2,018.26 | 8,697.40 | 12,943.33 |
| Total | 3,428.35 | 6,746.23 | 25,600.64 | 38,849.84 |
Each child reported and paid income tax on the net income of his respective*925 account for the years indicated. The Commissioner included such income in the income of petitioner for the several years.
4. On April 22, 1936, a trading account was opened on the partnership books under the name of "Miss Mary Katharine, James E. and George H. Hogle, Special." The three children were equal partners with their parents. At petitioner's direction, 100 shares of United States Smelting, Refining & Mining Co. were thereupon purchased for $8,820 with partnership funds and without deposit of any margin, *132 and the cost was charged to the special account. On April 27, 1936, 500 more shares of this stock were likewise purchased for the account at a cost of $43,300 and this cost was also charged to the special account. There were no other purchases or sales in it. In 1936 it was credited with dividends of $2,400 and debited with $1,398.06 interest charged by the partnership on the debit balance; in 1937 dividends of $1,200 were credited and interest of $502.85 charged.
On April 14, 1937, the account carried the 600 shares of United States Smelting, Refining & Mining Co., and showed a debit balance of $50,420.91. On that date it was closed by a debit of one-third*926 of its debit balance, or $16,806.97, and a credit for 200 shares of the stock in it to the personal account of each child on the partnership's books. The shares are still held in their personal accounts. There was no prior withdrawal. The Commissioner included in petitioner's income for 1936 and 1937 $1,000.94 and $697.15, respectively, representing the excess of the dividend credits over the interest charges in the account.
Petitioner's purpose in establishing the Copley trust, the three trust account, and the accounts in his children's names was to build estates for the children and provide them with independent means in case misfortune should overtake him or his business. His wife approved of this purpose and willingly cooperated in carrying it out. Transfers of property to the trusts and accounts were made at petitioner's direction and the children sometimes did not know of them until later. Petitioner alone directed all business operations of the trusts and most business operations of the accounts. After coming of age, a child has sometimes ordered a purchase or sale in his account, after consultation with petitioner. In ordering purchases and sales, petitioner selected*927 the account to which the transaction should be attributed, giving consideration to the relative standing of the accounts in an effort to strengthen the weaker. Financial transactions of all members of petitioner's family and of his mother's estate are carried on the partnership's books, and an account is also carried on them for each of many other partnerships and ventures in which petitioner is interested. Formerly the partnership made an annual distribution of profits, but since the two sons became partners - James in 1934, George in 1936 - earnings have been allowed to accumulate, except that Katharine withdrew $50,000 upon retiring from the partnership at the time of her marriage in 1939. Petitioner owns a substantial amount of property besides his interest in the partnership, and transferred some of this to the trusts.
5. On April 30, 1937, petitioner made a contract to purchase from the Rico Argentine Mining Co., a Utah corporation, up to 900,000 of newly authorized shares to be issued by it which were not purchased *133 by its shareholders on or before June 9, 1937, and to pay 10 cents a share therefor on or before June 24, 1937. The company agreed to sell and*928 also to transfer to petitioner 100,000 full paid shares held in its treasury on execution of the contract. Under date of April 29, 1937, petitioner made an agreement with his children, Copley as trustee, and the Bonneville-on-the-Hill Co., a land-holding corporation of which petitioner was sole shareholder, which recited that petitioner had underwritten an issue of 900,000 shares by Rico Argentine, and provided that each child obligate himself to purchase 10 percent and the trustee and the Bonneville-on-the-Hill Co. each to purchase 30 percent of the Rico Argentine shares which would otherwise be purchased by petitioner. In consideration, petitioner agreed to deliver to each child 10,000 shares and to the trustee and corporation each 30,000 shares of the Rico Argentine treasury stock when received by him. The 900,000 shares were offered on May 10, 1937, to the Rico Argentine shareholders, who subscribed for 389,379. Petitioner was called upon to purchase the remaining 510,621. Pursuant to his instructions, Rico Argentine issued certificates for that number to J. C. Johnson, petitioner's nominee; the purchase price was paid by the partnership's check for $51,062.10, dated June 14, 1937, and*929 each of the accounts of petitioner and the three children on the partnership books was charged with 10 percent of this price, and the accounts of the Bonneville-on-the-Hill Co. and George H. Copley, trustee, were each charged with 30 percent. On June 16, 1937, the 510,621 Rico Argentine shares were entered on the partnership's office ledger and posted to the several accounts: 10 percent each to those of petitioner and the three children; 30 percent to that of the Bonneville-on-the-Hill Co.; and 30 percent to George H. Copley, trustee. On June 11, 1937, Rico Argentine issued one certificate for 100,000 of its shares to J. C. Johnson, petitioner's nominee; it was entered on the office ledger of the partnership, and posted to the same accounts in the same proportions. The market value of a Rico Argentine share was 10 cents.
On their income tax returns for 1937 each of those to whom the 100,000 shares were credited on the partnership's books reported as income the market value of the number credited to him. The Commissioner included $10,000, representing the aggregate value of these shares, in petitioner's income for 1937.
OPINION.
STERNHAGEN: The issue in this proceeding*930 grows from the determination by the Commissioner that the income of the Copley trust, of the three trust account, of the accounts for the children, and of the Rico Argentine commission, is all within the petitioner's gross *134 income. The petitioner contends as to all that it did not "belong" to him and is therefore not the subject of his tax liability. His argument is upon the familiar pattern in which emphasis is placed upon a nice regard for the limits of his power over the accounts and the income to prove that his power, control, use, and satisfaction are less than legal ownership. But this pattern is no longer sufficient to overcome the tax. Much more in substance must be demonstrated before the creator and controller of such a trust, account, or similar legal edifice can separate himself from the tax upon the income to which it is so closely related.
The general rationale of , now provides the supreme standard by which such cases are to be judged. That decision, considering a "temporary reallocation of income within an intimate family group", admonishes that "technical considerations, niceties of the law*931 of trusts or conveyances, or the legal paraphernalia which inventive genius may construct as a refuge from surtaxes should not obscure the basic issue." "No one fact is normally decisive, but all considerations and circumstances of the kind mentioned are relevant."
The petitioner has retained and exercised over the subject of the trusts and accounts such dominion and control that for purposes of the income tax he has not divested himself of such ownership of income as is the basis of the tax. See ; certiorari denied, ; ; ; cf. ; . See Pavenstedt, The Broadened Scope of Section 22(a): The Evolution of the Clifford Doctrine, Yale Law Review, Dec. 1941. The petitioner had ample income for the needs of himself and family; the children were beneficiaries and the income remained in the family, which was harmonious; petitioner's control over the accounts was essentially the same as without*932 the alleged trust arrangements, the "trustees" being completely subject to his direction by the terms of the arrangement as well as by reason of their subordinate relation to him. The fact that the stated period during which the arrangements were to be effective was longer than the five year term of the trust in the Clifford case is of slight consequence in view of the petitioner's sweeping power throughout their existence to direct trading and reinvestment. If the accounts and their interim income and profits had been wiped out by trading at petitioner's direction, his liability is difficult to state.
It is held that the income in all the accounts is properly part of petitioner's gross income for the respective years, and the Commissioner's determination is sustained.
Decision will be entered for the respondent.
Footnotes
1. May 27, 1936, in the case of George H. Hogle's account. ↩