meaning of Section 1001 (a) (2) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev. Code, § 3797 (a) (3), and similar provisions of subsequent acts.
This case was argued before the court in connection with the trust agreement of Wellington Foundation, Inc., and repeated reference was made also in the argument to the trust agreement of Independence trust shares and Deposited Bank shares -- this for the reason that all of the said cases concern themselves with whether or not the particular trust agreement involved is taxable as an association within the applicable revenue laws.
It seems to me after a thorough examination of the trust agreement in this case as well as that of the Wellington Foundation, Inc., which is substantially similar to the instant one, that this trust should be classified as an association and taxable as such. I am persuaded to this point of view by reason of the fact that in this case, the Trustee had the power to vary the investments, that is he was not confined to the same stock which he had selected for the first unit and since the stocks of all units constitute a single pool in which each contract certificate holder shared, in accordance with his proportion of all the certificates issued, the investment of all contract certificate holders, varied at the will of the trustee. While the trustee was not invested with absolute power to purchase any securities for its portfolio which it desired, and while in the instant case substitution had never actually been made, nevertheless, the existence of the opportunity to substitute under the trust agreement, rather than the exercise of it, seems to me must be controlling and there was sufficient management when coupled with the other duties of the trustee and taken in connection with the powers and duties of the investors and depositors to bring it outside the circumstances of a simple trust.I feel the facts constituting the instant trust agreement fall within the ruling laid down by the court in the case of Commissioner v. North American Bond Trust, 2 Cir., 122 F.2d 545, where the Trustee had a somewhat similar power of substitution with regard to investments, and the court there held that the trust should be classified as an association.
Accordingly, the ruling of the Commissioner of Internal Revenue is sustained and judgment is entered for the defendant.
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