*701 A trust created for the purpose of effecting the sale of lots in a subdivision was an association taxable as a corporation.
*391 The Commissioner concluded that the petitioner was taxable as a corporation and determined the following deficiencies, together with penalties for failure to file returns required by law:
| Year | Deficiency | Penalty |
| 1928 | $1,705.67 | $426.42 |
| 1929 | 2,840.31 | 710.08 |
| 1930 | 1,691.85 | 422.96 |
*392 The sole issue for decision by the Board is whether the petitioner was an association taxable as a corporation during the years in question. The petitioner waives all other assignments of error and concedes that it has established no defense to the deficiencies and penalties determined by the Commissioner except the defense that it was taxable as a trust rather than as an association.
FINDINGS OF FACT.
D. S. Komiss, a retail merchant of Chicago, acquired title to about 200 acres of unimproved land in Cook County, Illinois, several years prior to 1928. He paid about $273,000*702 for the land. He obtained an undisclosed part of the purchase price from his wife and his niece with the understanding that they were to have an interest in the land and in any profits which might be derived from the land in proportion to their contributions of parts of the purchase price. Komiss originally intended to hold the land as an investment, but later he decided to try to sell it. He had the land plotted, and made arrangements with a real estate salesman named Shepard to take charge of the sale of the lots into which the property had been subdivided. The subdivision was known as "Shepard's Michigan Avenue No. 2 and No. 3."
Komiss conveyed the property by warranty deed dated June 25, 1927, to the Chicago Trust Co., as trustee, under an instrument dated June 25, 1927, between the following parties: "D. S. Komiss, Party of the First Part, hereinafter called the 'Beneficiary,' and Stanley F. Shepard, doing business as Stanley F. Shepard & Company, hereinafter called the 'Manager,' Party of the Second Part, and the Chicago Trust Company, a corporation organized and existing under the laws of the State of Illinois, as Trustee, hereinafter called the 'Trustee,' Party of the*703 Third Part." Shepard, as manner, agreed to act as agent in the sale of the lots. The Chicago Trust Co. agreed to hold the property in trust according to the declaration of trust made by Komiss.
Article I of the declaration of trust is as follows:
The Trust shall be known as SHEPARD'S MICHIGAN AVENUE ADDITIONS, being Trust Number Two Thousand Thirty (2030), and the object shall be the acquisition, management, improvement and disposition of the said premises and of such other property as may be acquired from time to time for the benefit of the parties to this Trust Agreement, and a division of the profits, avails and proceeds of the said Trust property, in accordance with the terms of this Indenture.
The manager was given exclusive power and authority to sell lots for cash or on the installment plan at not less than the prices set forth in an exhibit attached to the deed of trust. A form of contract for the sale of the lots to be signed by the trustee was specified. The *393 manager was to erect suitable sales offices on the property. He was to receive as compensation for his services a commission of 45 percent of the full purchase price for which each lot should be*704 sold. He was to make a full weekly report to the trustee and pay over all moneys received by him in excess of his commission. He was permitted to make a 10 percent discount for cash in the sale of lots. He had the right to increase the price at which the lots would be sold. "The agency of the Manager" was to continue for a period of five years from the date of the instrument, provided his sales equaled certain minimum requirements. The trustee had power to appoint a new manager under certain circumstances. The manager agreed that he and his salesmen and employees would comply with the law relating to real estate brokers and salesmen.
The interest of the beneficiary under the trust was declared to be only an interest in the net avails or proceeds and not an interest in land. It was to be assignable or salable in whole or in part. The trustee could call upon the beneficiary for funds for certain purposes when funds were not available. When the beneficiary and those entitled under him had received all moneys payable to him under the trust, his interests were to cease and the manager was to succeed to them.
All contracts for the sale of lots were to be signed by the trustee, *705 all payments for lots, except initial payments, were to be made to the trustee, and the trustee was to make conveyance of each lot as it was paid for. The trustee was to apply the moneys received by it in accordance with the trust instrument. It was to retain 3 1/2 percent of the gross sales price, exclusive of the initial payment, to cover its expenses and compensation. Individual lots were to be released from the lien of encumbrances in the total amount of $120,613.67, and the encumbrances were to be reduced by payments from the trustee. The trustee was to pay taxes. After the above mentioned indebtednesses had been paid by the trustee, it was to pay all other moneys coming into its hands to the beneficiary until such time as it had received $550,000. Additional amounts coming into the hands of the trustee were to be paid to the manager as additional compensation.
The trust was to continue for five years unless sooner terminated, and at the termination all of the trust property was to be transferred by the trustee to Komiss or the manager, as their interests might appear.
The instrument was executed by all parties to it above named. The same parties entered into a supplemental*706 agreement on June 25, 1927, and they entered into an amendment on November 15, 1927. The provisions of the supplement and amendment need not be set forth at this time.
*394 The parties proceeded to carry out their agreements. Shepard erected a sales office on the premises and began to make sales. No additional property was ever conveyed to the trustee. Komiss received $3,000 from the trustee under the agreement in 1928. He was also called upon by the trustee to pay $5,000 to the trustee in 1929. Shepard disappeared in 1929 or 1930 and no successor has ever been appointed. Komiss never transferred any of his beneficial interest in the trust. The record does not disclose whether or not improvements to the property were made at any time.
The trust was an association taxable as a corporation within the meaning of section 2(a)(2) of the Revenue Act of 1926 and section 701(a)(2) of the Revenue Act of 1928.
OPINION.
MURDOCK: Recent decisions of the courts indicate that this trust is an association taxable as a corporation within the meaning of those terms as used in the Revenue Acts of 1926 and 1928. *707 ; ; ; ; . In the latter case the court said:
* * * the Supreme Court indicates very clearly in , that little consideration should be given to the form of organization under which the trust is operated, but rather that the true rule is that purpose and actual operation of the trust should be controlling in determining whether or not the trust shall be classified as an association for tax purposes.
The Supreme Court, in the Morrissey case, clearly indicated also that a trust created as a convenient method by which persons become associated for dealings in real estate, the development of tracts of land, and the sale of properties are differentiated from the ordinary trust and are associations taxable as corporations. The present trust was "created to enable the participants to carry on a business*708 and divide the gains which accrue from their common undertaking." "These attributes make the trust sufficiently analogous to corporate organization to justify the conclusion that Congress intended that the income of the enterprise should be taxed in the same manner as that of corporations."
Counsel for the petitioner points out that Mr. Chief Justice Hughes, in his opinion in the Morrissey case, said that "'Association' implies associates", and counsel argues that in the present case Komiss had no associates, since he was the sole beneficiary. However, the fact was developed on cross-examination that the wife and niece of Komiss had contributed substantial parts of the purchase price of the *395 lands. Komiss could not remember how much they had contributed, and he was vague as to just how they were interested. But we think it is proper to conclude from a consideration of his entire testimony, that his wife and his niece had interests in the land which persisted, at least as beneficial interests under the trust, even though Komiss was named as the sole beneficiary in the trust instrument. Thus the evidence shows that his wife and his niece were benficiaries although*709 not named as such in the trust instrument. Even if this were not so, nevertheless, Shepard was an associate of Komiss in the joint undertaking. He was to furnish services rather than land. But he certainly associated himself with Komiss and the trustee in a joint undertaking in such a way as to bring this case within the cases above cited. Furthermore, he was a beneficiary under the trust. The petitioner cites the case of , but that case is distinguishable from the present case on its facts. The petitioner also cites , but that case was decided before the Supreme Court decided the four cases upon which the present decision is based.
Decision will be entered for the respondent.