Upon Petition for Review from the United States Board of Tax Appeals.
Before BUFFINGON, DAVIS, and THOMPSON, Circuit Judges.
This is a petition for review of a decision of the Board of Tax Appeals. The facts hereinafter stated were stipulated and are set forth substantially as found in the petitioner's brief:
On December 24, 1913, Charles Henry Sanford, by a single trust indenture created certain trusts naming Guaranty Trust Company of New York as Trustee, and on that date and at various times thereafter transferred certain property to the Trustee. Of these trusts, four alone are here involved, the "Sarita E. Barclay Trust", the "Frances G. Phipps Trust", the "Herbert S. Ward Trust" and the "Colville H. S. Barclay Trust". These four named beneficiaries were alive and in being on August 21, 1924. The trustee was directed to dispose of the income and ultimately the principal of the different trusts to the named beneficiaries in accordance with the provisions of the trust indenture.
The trust indenture of December 24, 1913, contained, among others, the following provision: "The party of the first part (Sanford), however, reserves the right to terminate or modify any or all of the trusts herein created by a suitable instrument in writing executed under his hand and seal and duly acknowledged as a deed of real estate is required to be acknowledged under the laws of the State of New York and filed with the party of the second part." (Guaranty Trust Company of New York).
Under the power reserved in this provision, Sanford from time to time executed certain supplemental trust indentures amending the provisions of the trusts. Of these, only two are material, namely, the indenture dated November 26, 1919, and the indenture dated August 21, 1924.
By the supplemental indenture of November 26, 1919, Sanford surrendered the power to terminate and to revest in himself all or any part of the income or corpus of the trusts, reserving only a power to modify the trusts in other respects, such as, for example, the power to change beneficiaries. Thus in the supplemental indenture of November 26, 1919, after reciting the powers reserved in the original indenture quoted above and the desire of the settlor to modify such "above-quoted provision", the indenture of November 26, 1919, provided:
"Now, Therefore, the party of the first part does hereby modify the same so that the said clause shall read as follows:
"'The party of the first part, however, reserves the right to modify any or all of the trusts herein created by suitable instruments in writing executed under his hand and seal and duly acknowledged as a deed of real estate is required to be acknowledged under the laws of the State of New York, and filed with the party of the second part; but this right of modification, however, shall in no way be deemed or construed to include any right or privilege in the party of the first part to withdraw principal or income from any trust created by this instrument.'"
Sanford's powers in respect of the trusts lay in this condition for some five years. On August 21, 1924, by a supplemental indenture executed on that date, Sanford surrendered and renounced all the remaining powers over the trusts. Thus the indenture of August 21, 1924, after reciting certain paragraphs of the trust indenture as amended, including the above quoted paragraph in the supplemental indenture of November 26, 1919, provided that such recited paragraphs -
"are hereby revoked and in their place and stead the following terms shall apply and govern as to each and every trust created hereunder, to wit:
"7. The party of the first part hereby renounces all rights to further modify the terms of the said trusts or any of them and does hereby surrender all such rights reserved to him by the indenture of December 24th, 1913, and by the various indentures supplemental thereto."
Sanford did not file a gift tax return for 1924. He died in 1928 and the administrator of his estate, after a revenue agent had raised the question as to whether the surrender in 1924 of the power to modify the trusts subjected the transfer to a gift tax at that time, filed a gift tax return with the Collector of Internal Revenue for the District of New Jersey. The property held by the trustee on August 21, 1924, was listed in the return, but the administrator, on behalf of the estate, ...