to August 6, 1929. This gift and assignment was unconditional; it was complete; it was bona fide; it vested the title to the same in Clara T. Rockwell. The plaintiff, after said gift and assignment, had no further title in said bonds and life insurance, and from the date of said gift and assignment, the plaintiff has had no right or control of said property or the income therefrom.
III. The plaintiff did not, and does not, have any interest, control or direction in the trust property or trust created by his wife.
IV. The plaintiff is entitled to judgment against the defendant and an order for the entry thereof may be submitted by counsel.
This is an action for the recovery of additional income taxes and interest thereon paid by the plaintiff to the defendant for the taxable years 1938, 1939 and 1940. The question for decision is: Was the income assessed as the income of the plaintiff his income, or was it the income of his wife or from a trust created by her.
Defendant contends that under the Revenue Act of 1938 and the Internal Revenue Code, as amended, that the income assessed as income of the plaintiff was properly assessed to him and is taxable. This Act reads, in part, as follows:
'Sec. 22. Gross income.
'(a) General definition.
"Gross income' includes gains, profits, and income derived * * * from any source whatever.' 26 U.S.C.A.Int.Rev.Code, 22(a).
'Sec. 167. Income for benefit of grantor.
'(a) Where any part of the income of a trust --
'(3) is, or in the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such part of the income may be, applied to the payment of premiums upon policies of insurance on the life of the grantor (except policies of insurance irrevocably payable for the purposes and in the manner specified in section 23 (o), relating to the so-called 'charitable contribution' deduction); then such part of the income of the trust shall be included in computing the net income of the grantor.' 26 U.S.C.A.Int.Rev.Code, § 167(a)(3).
Treasury Regulations 101, provide:
'Art. 167-1. Trusts in the income of which the grantor retains an interest. -- (a) Scope -- Section 167 prescribes that the income, or any part of the income, of certain trusts shall be taxed to the grantor, not because the grantor has retained a certain interest in the corpus of the trust (as in section 166), but because of his retention of a certain interest in the income of the trust. This article deals with the taxation of such income. The term 'income', as used in this article, means any part or the whole of the income of the trust.
'(b) Test of taxability to the grantor. -- The test prescribed by the Act as to the sufficiency of the grantor's retained interest in the trust income, resulting in the taxation of such income to the grantor, is whether he has failed to divest himself, permanently and definitively, of every right which might, by any possibility, enable him to have such income, at some time, distributed to him, either actually or constructively. Such a distribution to the grantor occurs within the meaning of section 167 if the income is paid to him or to another in obedience to his direction or if the income is applied in payment of premiums upon policies of insurance on the grantor's life.'
The family of the plaintiff consisted of the husband and wife and five children. The plaintiff suffered some financial reverses in the year 1919. At the time of making the gift to his wife, his financial condition was such that he desired to make a gift to her for the protection of his wife and his family, so as to protect them in event that he suffered thereafter any financial reverses. Plaintiff's wife, at the time of making the gift, owned property of her own. She had an income which sometimes was more and sometimes less than his. The plaintiff, at the time of making the gift owned, inter alia, the $ 100,000 in bonds and $ 500,000 in life insurance (in which his wife was the beneficiary). This insurance and bonds the plaintiff gave to his wife absolutely without any condition, limitation or qualification whatever. Subsequent to the making of the gift the wife, of her own volition, conveyed said bonds and insurance to a trustee, which trust provided for a payment of the premiums on the life insurance, the expenses of the trust and the balance to plaintiff's wife during her lifetime, and to lineal descendants after her death. The principal of the trust could also be used to pay premiums on the insurance policies. The plaintiff had no interest in the income of the trust. Previous to the creation of said trust, he had permanently and definitively divested himself of the trust property and of any interest therein or control or direction thereof.
The gift from plaintiff to his wife being absolute, without restriction or reservation of any interest in the property given, or any control or direction thereof thereafter, vested the complete title to said property in the wife. The subsequent trust created by her was created without any agreement or control or direction of the plaintiff; consequently, the income received from the bonds which were given and which were the subject of the trust was not income of the plaintiff but was income of the trust estate and said income was not taxable as income of the plaintiff.
The cases cited by the defendant are all distinguishable. Probably the case principally relied upon is Whiteley v. Commissioner, 3 Cir., 120 F.2d 782. The facts are much different from the case now before us, and said case was decided upon the facts as they were found to be therein. I am, therefore, of the opinion that judgment sould be entered for the plaintiff, with costs.
Let an order for judgment be prepared in accordance with the foregoing findings of fact, conclusions of law and this opinion.
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