or is, at the time the trust is created, an unascertained member of a class.
It seems to me that there is no way of making a consistent and workable whole out of this group of enactments except by reading Sec. 167(a) (1) as applying to only the last clause of Sec. 161(a)(1) and by reading that clause as limited to accumulated income in which the distributee has a vested interest.
Taxation is a practical matter from the taxpayer's point of view as well as from the government's. The desirability of certainty so far as it can reasonably be obtained, and the power of the government to write the tax laws as it desires, has given rise to the rule of strict construction for taxing statutes -- a rule, it must be said, frequently ignored, largely because of the entirely understandable temptation to circumvent elaborate schemes for tax avoidance.
In the present case, the fact is that on December 31 of each of the years 1932 to 1934, the trustee did not and could not know for whom they held the income which has been taxed to the plaintiff. Whether the grantor can properly be called an unascertained person or a person having a contingent interest, it seems to me, makes very little difference. In fact, when the subject is pursued, it is by no means easy to draw a line between the two. However, the difference, if any, is unimportant. The plaintiff concedes that, this being a taxing statute, the intention of Congress in using the words governs, and that the decisions of the State of Pennsylvania defining contingent interests are only indirectly relevant.
I have not discussed the legislative history of the statutes because I find that it throws very little light upon the rather narrow question of interpretation now before us. The first of the predecessors of Sec. 161 appears in the Revenue Law of 1916. It was put there to supplement the Law of 1913, which did not tax trusts as separate entites and hence did not reach income to be accumulated for unborn or unascertained persons. Smietanka v. First Trust & Savings Bank, 257 U.S. 602, 42 S. Ct. 223, 66 L. Ed. 391. These enactments, however, were more than mere stopgaps. They expressly declare the general taxability of trust income, specifically but not exclusively enumerating certain kinds of income, only the first of which meets the decision in the First Trust & Savings Bank case, supra. Consistent with the general scheme of recognizing trusts as separate taxable entities, the acts provide that the trustee shall be the primary taxpayer. The only genuine exceptions are those contained in Secs. 166 and 167, 26 U.S.C.A. Int.Rev.Code, §§ 166, 167, the counterpart of which first appeared in the Revenue Law of 1924. Income currently distributed is still to be returned by the trustee, but the amount of income so distributed may be taken by him as a deduction and the tax paid by the beneficiary.
I have examined the committee reports in connection with the various acts, but the only general conclusion that one can draw is that Congress was frequently concerned with tax avoidance, and from time to time amended the law to meet cases which existing statutes were admittedly inadequate to reach. This, however, is no warrant for this court to take over the task of catching up with the taxpayer.
The conclusion is therefore reached that the income involved in this suit is not taxable to the plaintiff under the provisions of Sec. 161 and 167.
The government, however, argues that evey if the income is not reached by these sections, it is taxable to the grantor, as his own, within the broad definition of income in Sec. 22(a) of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, page 487, and cites several decisions, particularly Helvering v. Clifford, 309 U.S. 331, 60 S. Ct. 554, 84 L. Ed. 788. It is not to be denied that in the trusts in the present case the grantor retained a substantial measure of the rights that go to make up ownership. However, I do not think that the principle of disregarding the separate trust entity where beneficial ownership and control remain with the grantor is to be extended much further than it was in Helvering v. Clifford, supra, and it would have to be extended a great deal further to reach these trusts. The trust in Helvering v. Clifford, supra, was a short term trust with the corpus reverting to the gtantor at its termination. There were also other important attributes of ownership retained by the grantor more striking than in the present case, but I think that that one is sufficient to distinguish the two cases. The Treasury regulations upon the subject, which, the government contends, have been sanctioned by re-enactments of the law after their original adoption, provide, as the first of the criteria given to determine the real ownership, "the fact that the corpus is to be returned to the grantor after a specific term." It is unnecessary to pursue the subject further. Congress has shown no intention to disregard the trust entity. On the contrary, it has been carefully preserved and defined as a subject of taxation.
Findings and Conclusions.
The facts are found as stipulated.
In addition I affirm all the defendant's requests for findings of fact.
Conclusion of Law.
1. The income from the trusts in suit is taxable to the trustees and no part of it is taxable to the grantor.
The defendant's first request is affirmed. All the other defendant's requests for conclusions of law are denied.
Judgment may be entered for the plaintiff in the amount claimed, with interest and costs.
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