Respondents Brief — DuPont v. Commissioner

INDEX

Page

te cae aCht Koen eso t es pclae Oped cx eee 1

IE a hese ie CR Ro Ott eme an eum wed eee uaa 1

EN OPIN oon hs ae enc cna n sme eekeweas cea 2

Statutes and regulations involved_____._.._________________. 2

EEG Sie Sate ho a nen en awe gees am cue emianes 2

Summary of Argument____.___.______- Me Rs SE eS URIS i 4

INN Soc ce matinee seen knee cn nt cdk ee acuceunwns onkeun 6

I. Section 219 (h) of the Revenue Acts of 1924 and 1926

is constitutional when applied to irrevocable trusts _ 7

II. Section 219 (h) of the Revenue Acts of 1924 and 1926

may be constitutionally applied to the income of

property held in trust where the grantor of the trust

reserves the right to retake the property after three

years unless he dies before that time______________ 8

III. The petitioner is taxable on the income of the trusts for

the year 1926 under Section 219 (g) of the Revenue

PI eens eae ees ed ce a eal aly 14

RUNNIN ahiatas ON eg ce enue ee ec eee 16

Appendix (Statutes and regulations involved) _______________- 17

CITATIONS

Cases:

Commissioner v. Wells, No. 792, October Term, 1932_____ 5, ¢,. 82

Corltes v. Bowers, 281 U.S. 376_....................- ae 15

Dahnke-Walker Co. v. Bondurant, 257 U.S. 282__________ 7

Dickey v. Burnet, 56 F. (2d) 917, certiorari denied, 287

Aa ak nek cain coh on a tes Meee een YS 10

Kiem v. United States, 283 U.S, 231..................... 12

Lang v. Commissioner, No. 595, October Term, 1932, de-

RE IE OO I igre ohne eck ccionconsdaucenin 14

Leydig v. Commissioner, 43 F. (2d) 494_________________. 10

Meee Ws a, Bai oc ene nn ee 11

Neu v. Commissioner, 27 BTA. 33... ........- =: | 13

Parker v. Routzahn, 56 F. (2d) 730, certiorari denied, 287

Sa MEE Se Ske ie nee en ere ae 10

Swe ¥. HOMNIN, Zae Ue POR. wt, 13

Porter v. United States, 52 F. (2d) 1056_______.__________ 10

Reinecke v. Northern Trust Co., 278 U.S. 339_-

172217—33——_1 (I)

CITATIONS—Continued

Cases—Continued

Reinecke v. Smith, No. 601, October Term, 1932, decided

ND Bt) Biikent csp orncdansptesscn sees cnnenssans

Rosenwald v. Commissioner, 33 F. (2d) 423, certiorari

ET SR ha tabs e ted tbnccnosamisrnsaxene

Tile +. United Rites, 204 US. 27... ...--. 2-22 22---.

Third National Bank v. White, 287 U.S. 577

United States v. Looney, 29 F. (2d) 884__--.-------------

Van Meter v. Commissioner, 61 F. (2d) 817__---------- a2

Ward v. Commissioner, 58 F. (2d) 757

Statutes:

Revenue Act of 1924, c. 234, 43 Stat. 253:

See. 210 (U.8.C., Title 26, See. 9561). ....--......- r

Sec. 211 (U.S.C., Title 26, Sec. 952)

See. 219 (U.B.C., Tithe 2%, See. 960) .....-.-..-.-.--

Sec. 302 (c) (U.S.C., Title 26, Sec. 1094)

Revenue Act of 1926, c. 27, 44 Stat. 9:

Sec. 219 (U.S.C.App., Title 26, Sec. 960)

i

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Inthe Supreme Court of the Gnited States

OctToBER TERM, 1932

No. 791

IRENEE DU PONT, PETITIONER

¢.

Davip BurNET, COMMISSIONER OF INTERNAL

Revenue

ON WRIT OF CERTIORARI TO THE UNITED STATES CIRCUIT

COURT OF APPEALS FOR THE THIRD CIRCUIT

BRIEF FOR THE RESPONDENT

OPINIONS BELOW

The opinion of the Board of Tax Appeals

(R. 14-15) is reported in 20 B.T.A. 482. The opin-

ion of the Circuit Court of Appeals (R. 21-27) is

reported in 63 F. (2d) 44.

JURISDICTION

The judgment of the Circuit Court of Appeals

was entered January 6, 1933 (R. 27). The petition

for a writ of certiorari was filed March 20, 1933,

(1)

9

and was granted March 27, 1933 (R. 28). The jur-

q isdiction of this Court is invoked under Section

: 240 (a) of the Judicial Code as amended by the Act

4 of February 13, 1925.

QUESTION PRESENTED

Whether Section 219 (h) of the Revenue Acts of

1924 and 1926 may be constitutionally applied to

the income of the trusts involved in this case.

peepee Maas # ise aise,

STATUTES AND REGULATIONS INVOLVED

Pie ek rte sh a,

The statutes and regulations involved are set

forth in the Appendix, infra, pp. 17-19.

STATEMENT

Sa ee Cree a Cc

The facts found by the Board of Tax Appeals

(R. 12-14) may be summarized as follows:

On September 18, 1923, the petitioner created

nine trusts for the benefit of his wife and children

tEAM Es Kl Mier

deans

under the terms of which he transferred to the

trustee 830 shares of 7 per cent preferred stock of ;

the Christiana Securities Company, a Delaware

corporation, and thirty-two insurance policies on :

his life. The trusts were irrevocable for their dur-

ation of three years with provisions for further

AL BRN apne Raed ec ko:

extension upon notice by the settlor to the trustee.

Pests

Two such notices were given and the trusts were

extended at least to December 18, 1932. They were

in force and effect during the taxable years in-

volved; the policies were then in effect, and all of

the beneficiaries of the trusts were living (R.

12, 14).

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By the trust instruments the trustee was made

the owner of the insurance policies and it was pro-

vided that if the trusts terminated prior to the

petitioner’s death, all interest in the policies would

vest in certain named beneficiaries. The petitioner

is not one of such beneficiaries and he retains no

right to change the beneficiaries. He has no right

to surrender the policies for their cash-surrender

value or to borrow money on them. There is no

provision under which title to the policies could

revest in him either at his own discretion or that

of him jointly with anybody else (R. 12-13).

If the petitioner should die prior to the termina-

tion of the trusts, the proceeds of the life-insurance

policies are to become a trust fund in the hands of

the trustee, designated as the Primary Trust Fund.

The net. income from this fund and the fund itself

would be distributed to the beneficiaries named in

the trust agreements and not to the petitioner or

his estate (R. 13).

As to the shares of stock transferred under the

trust agreements, the trustee receives the dividends

thereon and applies this income after deducting

taxes, governmental charges, and incidental ex-

penses, including its commissions, to the payment

of the premiums on the policies of life insurance for

the period of the trusts, or so long as the petitioner

lives, whichever is shorter (R. 13).

If the trusts terminate prior to the petitioner’s

death, these securities and any income not paid out,

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all of which is designated the Secondary Trust

Fund, are to be transferred to the petitioner. If

the petitioner dies prior to the end of the trusts,

this fund is to be distributed to the nine children

or their issue in the manner specified and no part

thereof is to be distributed to the petitioner’s

estate (R. 13).

During the year 1924, dividends from securities

transferred to and held by the trustee (Wilmington

Trust Company ), amounting to $50,422.40, were re-

ceived by the trustee and, pursuant to the terms of

the trusts, were used to pay insurance premiums.

During the years 1925 and 1926 dividends in the

amounts of $50,370.10 and $50,422.40, respectively,

were received from securities held by the trustee.

These dividends also were used to pay premiums on

the life-insurance policies (R. 13-14).

The Commissioner of Interval Revenue asserted

deficiencies against the petitioner for 1924, 1925,

and 1926 as the result of including the dividends

thus applied in the petitioner’s gross income for

those years. The Board of Tax Appeals sustained

the Commissioner’s determination and upon appeal

the Circuit Court of Appeals affirmed the Board’s

decision.

SUMMARY OF ARGUMENT

I

Section 219 (h) of the Revenue Acts of 1924 and

1926 is constitutional when applied to irrevocable

trusts. The argument on this question is the same

as that presented at pp. 9-21 of the Government's

brief in Commissioner v. Wells, No. 792, October

Term, 1932, and need not be repeated here.

II

Section 219 (h) of the Revenue Acts of 1924 and |

1926, when applied to the income of property held

under a trust indenture which reserves the right

to retake the property after three years unless the

settlor dies before that time, does not offend the

Constitution. Because of his right to retake the

property after three years, the settlor retains a sub-

stantial interest in the trust fund which affords suf-

ficient constitutional basis for the tax upon the in-

come derived therefrom. In effect the trusts in this

case Were nothing more than a setting aside of fu-

ture income without a complete and unqualified

transfer of the property producing that income.

The petitioner merely ‘‘postponed his command”’

over the trust property. The transfer was incom-

plete and for estate-tax purposes the trust property

could have been included in the settlor’s estate if he

had died within the period of the trusts. If Con-

gress could impose death duties upon the transfer

of the settlor’s interest in the trust property upon

his death, it could tax the income to him during

his life.

We believe therefore that Congress did not ex-

ceed its power in providing that the tax on the in-

come of property must be paid by the grantor of

the property who retains to himself so great an

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interest in it. And this is especially true where

the income is applied pursuant to the direction of

the grantor and for his purposes.

Ifl

Even though it be held that Section 219 (h) may

not constitutionally be applied to all the income in

question in this case, the tax asserted for the year

1926 may nevertheless be sustained under Section

219 (g) of the Revenue Act of 1926 (infra, p.

19). Income for that vear is plainly within the

terms of Section 219 (g). The limitation on the

settlor’s control of the trust property was only

temporary, and wholly expired within the taxable

year.

ARGUMENT

Section 219 (h) of the Revenue Act of 1924

(infra, p. 19), provided that—

where any part of the income of a trust is

or may be applied to the payment of prem-

iums upon policies of insurance on the life of

the grantor * * * such part of the in-

come of the trust shall be included in com-

puting the net income of the grantor.

Section 219 (h) of the Revenue Act of 1926 was

the same.

The petitioner raises no question regarding the

interpretation of this provision. He does not

argue that Section 219 (h) is not applicable to irrev-

ocable trusts or that it is not applicable to such

trusts created before June 2, 1924, when this pro-

7

vision was first enacted. On the contrary, the peti-

tioner’s sole argument is that Section 219 (h) is

unconstitutional.'

I

SECTION 219 (h) OF THE REVENUE ACTS OF 1924 AND 1926

IS CONSTITUTIONAL WHEN APPLIED TO IRREVOCABLE

TRUSTS ’

In the Government’s brief in Commissioner v.

Wells, No. 792, October Term, 1932, it is contended

that Section 219 (h) of the Revenue Acts of 1924

and 1926 is constitutional when applied to the in-

come of insurance trusts which are irrevocable and

under the terms of which the settlor has for-

ever parted with title to the fund. For the rea-

sons there advanced, which need not be repeated

here, we contend that Section 219 (h) is constitu-

tional when applied to the trusts involved in this

case.

If the Government prevails in the Wells case,

the decision there will be conclusive here. If the

tax involved in the Wells case is not sustained, we

submit that the statute must nevertheless be upheld

in its application to the trusts here involved under

which substantial property interests were reserved

to the settlor. Cf. Dahnke-Walker Co. v. Bon-

durant, 257 U.S. 282, 289. Our reasons for this eon-

tention, which need not be considered unless the

*In the Government’s brief in Commissioncr v. Wells,

No. 792, October Term, 1932, it is argued (p. 8) that Sec-

tion 219(h) is applicable to irrevecable trusts and (pp. 22-

23) that it is applicable to trusts created before June 2. 1924.

172217—33——2

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taxpayer prevails in the Wells case, are presented

below.

II

SECTION 219 (h) OF THE REVENUE ACTS OF 1924 AND 1926

MAY BE CONSTITUTIONALLY APPLIED TO THE INCOME

OF PROPERTY HELD IN TRUST WHERE THE GRANTOR

OF THE TRUST RESERVES THE RIGHT TO RETAKE THE

PROPERTY AFTER THREE YEARS UNLESS HE DIES

BEFORE THAT TIME

The trusts involved in this case were created

September 18, 1923. They were not final, complete,

and unqualified dispositions of property leaving

no literest in the grantor, for, although they were

‘irrevocable for their duration’’, they continued

only until December 18, 1926 (R. 12). If the

grantor was living at that time,® he had the option

to extend the trusts for a further period of three

Years but it was provided that if he did not choose

to extend the period “the securities and any in-

come not paid out * * * are to be transferred

to the petitioner’? (R. 13). In other words, the pe-

titioner created trusts which were to last for three

years, during which time part of the income was to

be used for the purpose of paying premiums on in-

surance on his own life. At the end of any tri-

*The chance of the petitioner’s dying within the three-

year period was very small, so that the transfers were for

practical purposes the same as if they had been for three

years without qualification. If we assume that the petitioner

was 47 years old when the trusts were created (it is stated

in Who's Who that Irenee du Pont was born December 21,

1876), the probability that he would survive for three more

years according to the American Men Table of Mortality

was 0,9710625, or over 97%.

ae wy DO. RA SN OFAN PO ABA ARON ONT RED Yin PM MM POTS PED —

ennium, the trusts were to terminate unless ex-

tended by the settlor, and the principal of the trust

fund, together with any unexpended income, re-

vested absolutely in the grantor. Thus the settlor

retained a substantial interest in the trust prop-

erty quite apart from the benefit which he derived

in having the income applied to pay the premiums

on insurance on his own life. In substance and

effect it was as if he had established a trust for his

life, reserving power to revoke it upon the expira-

tion of each triennium after its creation.

The petitioner seems therefore to be in error in

stating in his brief (p. 7) that **The petitioner was

in no sense a beneficiary of the trusts’’, and (p. 9)

that the petitioner ‘had no interest in the corpus”

of the trusts. Similarly the statement on p. 12 of

the petitioner’s brief that ‘*the income was not de-

rived from a corpus in which the petitioner had

9

any rights during the taxable years’? and the in-

ference on p. 18 that the transfers were an ‘‘abso-

lute gift”? seem unfounded. The petitioner retained

at all times an interest in the property which was

very substantial in extent, an interest which was

transferable during the years in question, and

which could have been protected. in equity if the

trustee had failed in any way to recognize it. This

interest in the property continued throughout the

taxable years here involved. We submit that the

petitioner was not deprived of his property with-

out due process of Jaw in being required to pay a

tax on the income derived from property in which

ALO PCLT HT EMCI OD at |

eyaeton

10

he retained so great an interest. It was not an

arbitrary, capricious, or unreasonable exercise of

legislative power to require the paynient of such

a tax when the income was applied pursuant to the

directions of the settlor and for his purposes.

The trusts in this case were in effect nothing but

a setting aside of future income without a complete

and unqualified transfer of the property producing

that income. It has frequently been held that such

a transfer of f-ture income from property is not

effective to prevent the income of the property

from being taxed to the owner of the property,

Parker v. Routzahn, 56 F. (2d) 730 (C.C.A. 6th),

certiorari denied, 287 U.S. 606; Rosenwald v. Com-

misstoner, 33 F. (2d) 423 (C.C.A, 7th), certiorari

denied, 280 U.S. 599; Dickey v. Burnet, 56 F. (2d)

917, 920 (C.C.A. 8th), certiorari denied, 287 U.S.

606; Van Meter v. Commissioner, 61 F. (2d) 817,

818-819 (C.CLA. 8th); Ward v. Commissioner, 58

F. (2d) 757 (C.CLA. 9th); Leydig v. Commissioner,

43 F. (2d) 494, 496 (C.C.A. 10th) ; Porter v. United

States, 52 F. (2d) 1056, 1057 (C.Cls.). As the court

below said (R. 25), the petitioner merely ‘*post-

poned his command’? over the trust property.

If the owner of property may put its income

beyond the constitutional power of Congress to tax

it to him by providing through a trust that the

income shall be paid for a period of three years to

another and that the property shall then revert to

him, he would be equally immune from taxation

1]

if he established a trust renewable from year to

year or month to month, and the provisions of See-

tion 219 (g) as well as Section 219 (h) would be

unconstitutional in their application to the income

from such trusts. Plainly, such trusts amount to

nothing more than anticipatory dispositions of the

future income of property in which the grantor

retains substantial ownership. To hold that Con-

gress may not constitutionally tax such income to

the person who creates the trust and who retains

so great an interest in the trust property would

obviously facilitate evasion. Ct. Lucas v. Earl, 281

U.S. 111.

That the relation which the petitioner retained

to the trust property was close enough to support

the tax in question is shown by decisions of this

Court under the estate tax statutes. In Reinecke v.

Smith, No, 601, October Term, 1952, decided April

10, 1933, this Court said that—

the same considerations as to ownership and

control affect the power to impose a tax on

the transfer of the corpus and upon the

Income,

Under the rule thus announced, considerations

as to ownership and control of the trust property

sufficient to sustain the power of Congress to re-

quire inclusion of the property in the petitioner’s

estate for estate tax purposes must be accepted as

sufficient to sustain the constitutionality of a Fed-

eral tax upon the income from the fund.

a]

Ads dhs? ee |

PORE IGE NLD BOLE POLE EIRENE A Lai A BS nb oe

12

We cannot doubt the power of Congress to tax

the ro fund as part of the settlor’s estate in ease

of liis death during the life of the trusts. The trust

property was transferred to the trustee for a period

of three vears only. If the petitioner died within

three vears, the property was to be distributed by

the trustee to named persons. If he survived the

three-year period, the property became his abso-

lutely. The transfer was thus plainly within

Section 302 (¢) of the Revenue Act of 1924 as

applied by this Court in Alein v. United States,

283 U.S. 231. There, a husband transferred prop-

erty to his wife for life with the provision that if

he died before she did the property should be hers

absolutely. Here, the property was transferred

upon trusts for three years with the provision that

if the grantor died within that period the transfers

should be absolute. As in the Klein case (p. 234),

“the death of the grantor was the indispensable

and intended event’? which was necessary to make

effective the ultimate transfer of the trust prop-

erty to the beneficiaries. The transfer would also

be taxable under the rule applied to revocable

trusts in Reinecke v. Northern Trust Co., 278 U.S.

339. The only difference between the cases is that

there the power to revoke was continuous while

here it was periodically recurring—a difference in

control which, we believe, is not sufficient to

require different results. See also Tyler v. United

a erste Feo — ES AF A mone HREERE N yee

13

States, 281 U.S. 497; Third National Bank v.

White, 287 U.S. 577.

The transfers here were plainly testamentary in

form and in substance. For the reasons stated

above, in addition to the reasons presented on the

similar question at p. 12 of the brief for the

Government in Commissioner v. Wells, No. 792,

October Term, 1932, we believe that the trust prop-

erty would have been taxable as a part of the

grantor’s estate if he had died while the trusts

were in effect.

In view of the fact that the trusts in this case

amounted to nothing more than anticipatory ar-

rangements disposing of the future income of prop-

erty, Without any similar disposition of the prop-

erty itself, and that the transfers would have been

taxable as a part of the grantor’s estate had he died

within the period, we believe it is plain that Con-

gress did not exceed its power in providing that the

income from the property should be taxed to the

grantor.

For the most part, the petitioner ignores in his

brief the effect of the substantial interest which he

retained in the trust property. Two cases (Nail v.

Commissioner, 27 B.T.A. 33; United States v.

Looney, 29 F. (2d) 884 (C.C.A. 5th) ) are, however,

cited in support of the proposition that ‘‘income

should be taxed to the holder of the present estate

rather than to the holder of the future estate’’

(Br. 17-18). But these cases are plainly inap-

SORTS PR YRS ATT IN ROT NNR —

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14

plicable here. They relate solely to the construc-

tion of the provisions of the statute relating to the

taxation of income in ordinary cases (Sections 210

and 211), where, as this Court has held, ‘owner-

ship’’ of the income is the principal test. Poe vy.

Scaborn, 282 U.S. 101, 109. But no question of

construction is involved here. The sole issue

‘aised is that of the constitutionality ot Section

219(h), which admittedly provides that the income

shall be taxed as the Commissioner has taxed it.

In view of all the cireumstances it seems plain

that Congress is not prevented by the Constitution

from taxing the income to the petitioner whether

he ‘owned’ the income or not.”

Lil

THE PETITIONER IS TAXABLE ON THE {NCOME OF THE

TRUSTS FOR THE YEAR 1926 UNDER SECTION 219 (g) OF

THE REVENUE ACT OF 1926

Even if it be held that Section 219 (h) may

not constitutionally be applied to the income in

question in this case, the tax asserted by the Com-

* The petitioner's confusion of the issues of construction

and coust/tutionality seems also apparent in the reliance

placed on Section 501 of the Revenue Act of 1932 (Br. 19-

20). We believe it is obvious that no provision of the Rey-

enue Act of 1932 can affect the constitutionality of a statute

passed in 1924. Moreover, the petitioner's illustrations fail

to show any “ capriciousness ~ even under the Revenue Act

of 1982. A tax on the creation of an irrevocable trust and

on the income from it are distinct, and Congress may impose

both if it chooses. Cf. Lang v. Commissioner. No. 595, Octo-

ber Term, 1932, decided April 10, 1933.

AL RTE NES SOROS colt

15

missioner for the year 1926 may nevertheless be

sustained under Section 219 (g) of the Revenue

Act of 1926 (infra, p. 19). This section provides

that—

Where the grantor of a trust has, at any

time during the taxable year, * * * the

power to revest in himself title to any part

of the corpus of the trust, then the income

of such part of the trust for such taxable

year shall be included in computing the net

income of the grantor.

It was within the power of the petitioner to

revest in himself title to the entire corpus of the

trust property during the year 1926. The trusts

by their terms were to last only until December 18,

1926, and the petitioner then had the option to

extend them for a further three-year period. Un-

less he exercised this option the securities and any

accumulated income became the petitioner’s prop-

erty free of the trusts (R. 13).

The situation is, therefore, plainly within the

terms of Section 219 (g), and we do not believe

that there can be serious question of the constitu-

tionality of this provision as applied to the income

for 1926. The validity of Section 219 (g) has

been upheld in Corliss v. Bowers, 281 U.S. 376,

and in Reinecke v. Smith, No. 601, October Term,

1932, decided April 10, 1933. The only distine-

tion between those cases and this is that the

settlor’s power (subject in the Smith case to the

consent of another) was continuous throughout the

Er ce |

ever wa AP ee |

16

taxable year while here the power was effective

only at one period of time within the taxable year.

We do not believe that this distinction is signifi-

eant. The limitation on the settlor’s control over

the trust property was only temporary, and wholly

expired within the taxable year. We believe that

it cannot be said that Congress has no power under

the Constitution to tax the income of property

to a person who has power within the year to take

the property for himself.

CONCLUSION

The decision of the Cireuit Court of Appeals is

correct and should be affirmed.

Respectfully submitted.

THomas D. THACHER,

Solicitor General.

{| Sewat Key,

. Heten R. Cartoss,

Special Assistants to the Attorney General.

| Erwin N. Griswotp,

Attorney.

May 1933.

——

: ei “4

APPENDIX

STATUTES AND REGULATIONS INVOLVED

Revenue Act of 1924, ¢. 234, 43 Stat. 253, 264, 265,

275:

Sec. 210. (a) In lieu of the tax imposed

by section 210 of the Revenue Act of 1921,

there shall be levied, collected, and paid for

each taxable year upon the net income of

every individual (except as provided in sub-

division (b) of this section) a uormal tax

* * *, (U.S.C., Title 26, Sec. 951.)

Src. 211. (a) In lieu of the tax imposed

by section 211 of the Revenue Act of 1921,

but in addition to the normal tax imposed by

section 210 of this Act, there shall be levied,

collected, and paid for each taxable year

upon the net income of every individual a

surtax as follows: * * * (U.S.C., Title

26, Sec. 952.)

Sec. 219. (a) The tax imposed by Parts I

and IT of this title shall apply to the income

of estates or of any kind of property held in

trust, including—

(1) Income accumulated in trust for the

benefit of unborn or unascertained persons

or persons with contingent interests, and

income accumulated or held for future dis-

tribution under the terms of the will or

trust;

(2) Income which is to be distributed cur-

rently by the fiduciary to the beneficiaries,

and income collected by a guardian of an

infant which is to be held or distributed as

the court may direct;

(17)

18

(3) Income received by estates of de-

ceased persons during the period of admin-

istratio.. or settlement of the estate; and

(4) Income whieh, in the discretion of the

fiduciary, may be either distributed to the

beneficiaries or accumulated.

(b) Except as otherwise provided in sub-

divisions (g) and (h), the tax shall be com-

puted upon the net income of the estate or

trust, and shall be paid by the fiduciary. The

net income of the estate or trust shall be

computed in the same manner and on the

same basis as provided in section 212, except

that—

* * * * *

(2) There shall be allowed as an addi-

tional deduction in computing the net income

of the estate or trust the amount of the in-

come of the estate or trust for its taxable

year which is to be distributed currently by

the fiduciary to the beneficiaries, and the

amount of the income collected by a guard-

ian of an infant which is to be held or dis-

tributed as the court may direct, but the

amount so allowed as a deduction shall be in-

cluded in computing the net income of the

beneficiaries whether distributed to them or

not. Any amount allowed as a deduction

under this paragraph shall not be allowed as

a deduction under paragraph (3) im the

same or any succeeding taxable vear;

(3) In the case of income received by

estates of deceased persons during the

period of administration or settlement of the

estate, and in the case of income which, in

the discretion of the fiduciary, may be either

distributed to the beneficiary or aceumu-

lated, there shall be allowed as an additional

deduction in computing the net income of

the estate or trust the amount of the income

of the estate or trust for its taxable year

19

which is properly paid or credited during

such year to any legatee, heir, or beneficiary,

but the amount so allowed as a deduction

shall be included in computing the net in-

cone of the legatee, heir, or beneficiary.

* * * * *

(g) Where the grantor of a trust has, at

any time during the taxable year, either

alone or in conjunction with any person not

a beneficiary of the trust, the power to revest

in himself tithe to any part of the corpus of

the trust, then the income of such part of

the trust for such taxable vear shall be in-

cluded in computing the net income of the

grantor.

(h) Where any part of the income of a

trust may, in the discretion of the grantor

of the trust, either alone or in conjunction

with any person not a beneficiary of the

trust, be distributed to the grantor or be held

or accumulated for future distribution to

him, or where any part of the income of a

trust is or may be applied to the payment of

premiums upon policies ef insurance on the

life of the grantor (except policies of insur-

ance irrevocably payable for the purposes

and in the manner specified in paragraph

(10) of the subdivision (a) of section 214),

such part of the income of the trust shall be

included in computing the net income of the

grantor. (U.S.C., Title 26, Sec. 960).

Section 219 of the Revenue Act of 1926 (U.S.C.

App., Title 26, Sec. 960) is identical with Section

219 of the Revenue Act of 1924, quoted above.

Extracts from the pertinent Treasury Regula-

tions and from the reports of Congressional Com-

mittees are set forth at pp. 35-39 of the Govern-

ment’s brief in Commissioner v. Wells, No. 792,

October Term, 1932.

U.S. GOVERNMENT PRINTING OFFICE: 1933