Brief for the Respondent — Fondren v. Commissioner

Supreme Court brief1945

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Inthe Supreme ourt of the Waited States

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Fu 1 FP. FoNpren anv rae Estare o¢ W. W. Fow

DREN, Decrasen, Evia F. Foxpies, INoePe NEN.

MXECUTRIX, PETITIONERS

COMMISSIONER OF INTtRNaL” River

BRIEF FOR THE RESPONDENT

INDEX

Opinions below

Jurisdiction

Question presented

Statute and regulations involved aE

Statement. —- > ‘

Summary of argument nw Se

Argument: The interests given in the present case were future

interests ‘ , ~

Conclusion bd fe

CITATIONS

Cases:

Allen v. Commissioner, 3°T. C. 844

Commissioner v. Brandegee, 123 F. 2d 58 : 10,

Commissioner v. Gardner, 127 F. 2d 929

Commissioner v. Glos, 123 F. 2d 548_ -

Commissioner v. Phillips’ Estate, 126 F. 2d 851

Commissioner v. Taylor, 122 F. 2d 714, certiorari denied,

314 U.S. 699 9,

Gommissioner v, Wells, 132 F. 2d 405

Disston v. Commissioner, 144 F. 2d 115 9, 10,

Fisher v. Commissioner, 132 F. 2d 383 13,

French v. Commissioner, 138 F. 2d 254

Helvering v. Amer. Dental Co., 318 U.S. 322 :

Helvering v. Blair, 121 F.2d 945

Helvering v. Hutchings, 312 U.S. 393

Helvering v. Northwest Steel Mills, 311 U.S. 46

Howe v. United States, 142 F. 2d 310

Hutchings-Sealy Nat. Bank v. Commissioner, 141 F. 2d 422

Kinney v. Anglim, 43 F. Supp. 431, appeal dismissed, 127 F.

2d 291_... 12,

Nicholson v. Commissioner, 3 T. C. 596

Richardson v. Commissioner, decided November 30, 1943

Roberts v. Commissioner, 2 T. C. 679

Roberts v. Commissioner, 143 F. 24 657

Ryerson vy. United States, 312 U.S. 405. *

Scherer v. Commissioner, 3 T. C. 776

Sensenbrenier v. Commissioner, 134 F. 2d 883

Smith v. Commissioner, 131 F. 2d 254

(lo

20295- 44-1

MON te

. 16

3,19

oe’

Cases—Continued. Page

Smith, Estate of, 23 Cat. App. 2d 383.-..... 6, 19 -

Stoll v. Commissioner, decided August 7, 1944 eae 10

United Statea v. Pelzer, 312 U. 8. 399........5 ©... 8

United Stai-s v. Ryan, 284 U. 8. 167... EP hee A 12

Weathers v. Commissioner, decided Lanier 21, 1943. __. 1

Welch v. Paine, 120 F. 2d 141_. 0. ee pee Ge

Welch v. Paine, 130 F. 24 990... sila alco bap He sou sins mek ia

White v. Winchester Club, 315 U. 8. 32. NPE a> RN Ra 12

Winterbotham v. Commissioner, 46 B. in Oe Cheeks ule 12

Wisotzkey v. Commissioner, decided August 10, 1944... __ 16, 17

Statutes:

Revenue Act of 1932, ¢. 209, 47 Stat. 189:

See. 501...._.. ; nt AE ps - 14

Sec. 504..___. eye pen ee

Ns WEaatink bed D dtss cake Aa citi deo eck 14

™ Revenue Act of 1938, ¢. 289, 52 Stat. 447, See. 505. - 11,15

aig Act of 1942, ¢ 619, 56 Stat. 798, $° 454 (26 U.

. Supp. IIT, See. 454) o ; Spr SK papas a 15

Misce Pes rus: :

H. Rep. No. 70%, 72d Cong., Ist Sess., p. 29 (1939-1 Cum.

Bull. (arg 2) 457). __. eee YO

H. Rep. No. 2333, 77th Cong,., 2d Sess, p. 37. Si patomenal 15

8S. Rep. No. 1567, 75th Cong., 3d Sess., p. 41 (1939-1 Cum.

Bull. (Part 2) 779)... . doonae eat 1

8. Rep. No. 1631, 77th Cong., 2d Seas., Pp. 243. AIDS, ie 12

Treasury Regulations 79 (1936 Ed.), Art. 11... aes: 3

Inthe Supreme Gourtof the Wnited States

OcronerR Term, 1944

No. 88

Euia F. Foxpren anv tHE Estate or W. W. Fown-

DREN, Deceasep, ELLA F. Fonpren, INDEPENDENT

EXeCUTRIX, PETITIONERS

COMMISSIONER OF INTERNAL REVENUE

ON WRIT OF CERTIORARI TO THE UNITED STATES CIRCUIT

COURT OF APPEALS FOR THE FIFTH CIRCUIT

BRIEF FOR THE RESPONDENT

OPINIONS BELOW

The opinion of the Tax Court (R. 28-36) is

reported at 1 T. C. 1036. The opinion of the Cir-

euit Court of Appeals (R. 71-78) is reported at

141 F. 2d 419.

JURISDICTION

The judgment of the Circuit Court of Appeals

was entered March 3, 1944. (R. 78.) The peti-

tion fer a writ of cértiorari was filed May 19,

1944, and was granted on October 9, 1944. The

jurisdiction of this Court is invoked under See-

(1)

)

tion 240 (a) of the Judicial Code as amended by

the Act of February 13, 1925,

QUESTION PRESENTED

In 1937 the taxpayer and her husband made

gifts to each of seven trusts which they had

previously established in favor of seven minor

grandchildren, Each trust instrument provided

that the corpus and accumulated income were to

be distributed in portions as the beneficiary

reached the ages Jo, 50, and 35 vears, and also

that, if necessary, the trustee Was to provide for

the support, Inaintenance, and education of the

beneficiary, using only the income of the trust if

that were sufficient. The question is whether the .

gifts were of future interests within the meaning

of Section 504 (b) of the Reveine Act of 1952, so

that the $5,000 exclusion otherwise allowable with

respect to each gift must be denied.

STATUTE AND REGULATIONS INVOLVED

Revenue Act of 1932, ¢. 209, 47 Stat. 169:

Sree. 004. Nev GIrrs.

(a) General Defiittion—The term “net

vifts’’ means the total amount of gifts made

during the calendar vear, less the dedue-

tions provided in section 505.

(b) Gifts Less Than 85 ,000.—In the case

of gifts (other than of future interests in

property) made to any person by the donor

during the calendar year, the first $5,000 of

such gifts to such persén shall not. for the

aeihioeso .

ne “

purposes of subsection (a), be meluded in

the total amount of gifts made during such

year.

Treasury Regulations 79 (1936 Ed.) :

Art. 11. Future interests in property.—

No part of the value of a gift of a future

interest may be excluded in’ determining

the total amount of gifts made during the

calendar year. ‘*Future interests’? is a

legal term, and includes reversions, re-

mainders,. and other interests or estates,

Whether vested or contingent, and whether

or not supported by a particular interest

or estate, which are limited to commence in

Use, Possession, or enjoyment at some future

date or tinte, * * *

STATEMENT

The taxpayer, on her own behalf and also as

executrix of her husband's estate, petitioned the

Tax Court to redetermine deficiencies found by

the Commissioner in the gift taxes of the taxpayer

and her husband for 1937, The facts were stipu-

lated (R. 42-64), and as stipulated were adopted

as the findings of fact of the Tax Court (R. 29).

They may be summarized as follows:

During 1935, 1936, and 1937 the taxpayer and

her husband executed seven trust instruments, one

in favor of each of their seven grandchildren.

(R. 30.) On or about Deeember 2, 1937, the tax-

paver and her husband each made a gift to each

trust of LOO shares of Humble Oil & Refining

Company stack having a fair market value at that .

time of $59.75 a share. (R. od.) On their gift

tax returns for 1937 the taxpayer and her hus-

band each claimed the statutory exclusion of

£5,000 for each of his seven gifts, reported a tax-

able gift to each trust of $975, and paid gift taxes

on the basis reported. (R. 33.) The Commis-

sioner determined that the gifts in trust consti-

tuted gifts of future interests in property against

Which no exclusions are allowable, and he accord-

ingly disallowed the exclusions. (R. 34.)

The Tax Court found that the gifts made by the

taxpayer and her husband to the trust estates

were gifts of future interests (R. 34) and sus-

tained the Commissioner's determinations of de-

ficiency.. The Circuit Court of Appeals affirmed

the Tax Court's decision (R. 78).

None of the grandchildren was over six years

of age Tt the time the trust Was created for him.

All were living when this proceeding was heard.

ach trust instrument made W. W. Fondren

trustee. Upon his death in 1939, the taxpayer

succeeded to the trusteeship and has since admin-

istered each trust as trustee. (R. 30.)

So far as here pertinent, the provisions of the

seven trust instruments are the same. (R. 30.)

The trusts are absolute and irrevocable and the

grantors neither received nor retained any inter-

est in the estate or the benefits accruing there-

from. (R.33, 58.)

The stated purpose in creating each trust is “to

provide for the personal comfort, support, main-

tenance and welfare of’ each grandchild. (R.57.)

The trust is to continue until the beneficiary at-

tains the age of 35, but 25° of the corpus and

accumulations, if any, are to be delivered to the

vrandchld when he or she attains the age of 25.

33.¢, when he or she attains the age of 30, and

the remainder when he vr she attains the age of

35. (R.55.) If the beneficiary dies leaving issue

before termination of the trust, the trust estate

is to be held and administered for the benefit of

the issue and delivered shere and share alike when

the youngest of such issue attarms the age of 21.

If the beneficiary dies without issue before term-

nation of the trust, successor beneficiaries are

provided for by the trust instrument, or the trust

estate descends to the heirs of the successor bene-

ficiaries under the laws of the State of Texas.

CR. 32, 56.)

Article Three of the trust instrument provides

(R. 31-32, 54-55):

Out of the trust estate hereby created and

as the same may hereafter be augmented

and increased by gifts from the Grantors,

by either of them as herein provided for,

or from any other source whatsoever, the

Trustee shall previde for the support,

—“ maintenance and education of our said

Grandson, for Granddaughter as the case

nay be] using only the income of said es-

tate for that purpose if it be sufficient. If

it be necessary to use any of the corpus of

the estate for that purpose and in the judg-

ment of the Trustee it is best to do so, said

Trustee may make advancements out of the

corpus of said trust estate for such purpose

for the benefit of our said Grandson.

It is contemplated, however, that our said

Grandson will have other adequate and suf-

ficient means of support, and that it will

not be necéssary to use either the income

or the corpus of the trust estate hereby

created to properly provide for his educa-

tion, maintenance and support; and, if the

income from the trust estate be not needed

for these purposes, then all of the income

from said trust estate not so needed shail

be by the Trustee passed to capital account

of said trust estate, and shall be and become

a part of said trust estate, it being our

hope that all of the earnings and ineome of

said trust estate during the period of this

Trust may be used to augment the trust es-

tate and be delivered to our said Grandson

at the periods herein provided for. It is

expressly provided, however, that our said

Grandson shall be properiv maintained,

educated and supported, and if it be neces-

sary to use all of the income and even all

of the corpus of the trust estate hereby

ereat@éd and all augmentations thereof. it

shall be the duty of the Trustee to see that

this obligation shall be properly and rea-

sonably discharged.

*\ + = * *

rae ee

a ta cle ell

The trust funds are not to be liable for obliga-

tions of the beneficiaries. A beneficiary may not

anticipate his or her interest in the trust fund

created for him and the fund may not be reached

by judgment creditors or others having elaims

against the beneficiary. (R. 32-33, 57-58.)

At all times subsequent to the creation of the

trusts, the parents of the named beneficiaries have

adequately “and sufficientty provided for the sup-

port, maintenance, and education of their children.

As a result, no part of the trust income or corpus

has been distributed or used for the benefit, sup-

port, maintenance, oF education of any of the

beneficiaries of the seven trusts. (R. 34.)

SUMMARY OF ARGUMENT

Pyjor to a recent decision of the Cireuit Court

of Appeals for the Third Cireuit, overruling its

own earlier decision, the rule had become well

s¢ttled that a gift in trust te acctimulate income

and to pay the corpus and agcumulations to the

beneficiary at a future timecis a gift of a future

interest, as to both income and corpus, even

though the accumulation is to continue only dur-

ing the disability of the beneficiary and even

though the trustee may be authorized to pay the

income or corpus to the beneficiary if in his

Judgment it. should become necessary to do so for

the beneticiary’s maintenance, education or sup-

port. The rule has apparent confirmation in Con-

620295.—44—_-2

gressional re-enactment of the provisions per-

mitting exclusions with respect to gifts in trust,

after the rule had been uniformly applied in a

number of Circuit Court of Appeals’ decisions.

The rule, moreover, is a correct appheation of

decisions of this Court, which establish that the

interest taken by the veneficiary rather than the

interest parted with by the donor is controlling.

Under those decisions the question turns solely

on whether the beneficiary takes a present right

to the use, possession or enjoyment of the thing

given. Unless the donee can require payment

from the trustee presently, it is not material that

the donee may have present rights of a character

Which a court of law or equity will recognize,

nor do present expectancies of future payment

constitute such ‘enjoyment’ as to render a gift

a present one. Under the trusts in the present

ease it was expressly contemplated that ihe bene-

ficiaries would have other and adequate means

of support, and the trustee wa: dot to pay over

corpus or income to the benefitfaries except in

the uncertain contingencies that the heveficiaries

would need money for the designated purposes

which would not be fortheoming from their

parents who had the primary duty of support,

The contention that under the Commissioner's

theory no gift to minors could be made, other

than one of a future interest, is Without sub-

stance. Gifts to minor beneficiaries are placed

EEE

on an equality with gifts to adults by applying

to hoth the principle that a right to receive the

vift only upon the exercise of discretion is a gift

of a future interest.

ARGUMENT

THE INTERESTS GIVEN IN THE PRESENT CASE WERE

FUTURE INTERESTS

Until recently the term ‘‘future interests’’ as

it relates to the present type of case had been

uniformly apphed and had a settled meaning in-

dicated by the decisions of this Court in Ryerson

\. United States, 312 U.S. 405, and United States

V. Pelzer, 312 U.S. 399. The only Cireuit Court

of Appeals decision which departs from the uni-

form applieation of the rule is that in Disston v.

Commissioner, 144 F.2d 115 (CG. C. A. 3d), Judge

Biggs dissenting, which overruled the same court’s

prier decision in Commissioner Vv. Taylor, 122 FB.

Yd TIA, 715, certiorari denied, 314 U.S. 699. The

Disston case is pending in this Court upon peti-

tion Sor a writ of certiorart filed on behalf of

the Commissioner on October 12, 1944, No, 589.

luxcept for the deeision in the Disston case the

Cirenit Courts of Appeals have uniformly held

that a gift in trust to accumulate income and

pay the eorpus and aceumulations to the bene.

fwlary at a future time, is a gift of a future in-

terest, as to both income and corpus, notwith-

standing that the trustee may have diseretion to

pay the income or corpus to the beneficiary if it

should become necessary to do so for his mainte-

nance, education or support or upon some similar

contingency. The same rule has been applied

whether the donees were minors or adults. Welch

V. Paine, 120 F. 2d 141 (C. ©. A. Ist); Commis-

stoner V. aylor, 122 F22d, 714, 715 (C. C. A. 3d),

certiorar’ denied, 314 U.S. 699: Commissioner

Vv. Brandegee, 123 F. 2d 58 (C. C. A. Ist); Com-

missioner V. Phillips’ Estate, 126 F.2d 851 (CLC,

A. 5th) ; Commissioner v. Gardner, 127 F. 2d 926

(C. C. A. 7th): Weleh v. Paine, 130 F. 24 990

(C. C. A. ist): Commissioner Vv. Wells, 132 F. 2d

405 (C. C. A. 6th): Freneh vy. Commisstoner, U8

F. 2d 254 (C. C. A. 8th): Roberts V. Commissioner,

143 F. 2d 657 (C. C. A. oth), petition for cer-

tiorari filed by the taxpayer October 6, 1944;'

Howe \. United States, 142 F. vd Sl (CC, CL A,

ith), petition for certiorari tiled by che taxpayer

September 6, L944; Hutchings-Scaly Nat. Bani,

V. Commissioner, IAL FP. 2d doe (C. C. A, Sth):

Helvering \. Blair, 121 F.2d 945 (0. U. A. 3a).

The Tax Court has applied the same rule in eases

like the ptesent case in six decisions in the past

year alone.’

' The discretionary aspect of the duties of the trustee in the

Roberts case appears more fully in the opinion of the Tax

Court, 2 T. C. 679, 687,

* Allen v. Commissioner, 3'T. C. 844 (decided after Disstor

v. Commissioner, supra, and disagreeing with the conclusion

there reached): Scherer vy. ¢ ‘ommiasoner, 3'T. C. 776, 791:

Nicholson v. ¢ ‘ommissioner, 3'T. C. 596, 601: Stoll v. Commis-

Moreover, the rule has apparent confirmation

by Congress. In Section 505 of the Revenue Act

of 1938, &. 289, 52 Stat. 447, Congress amended

Section S04 (b) of the 1932 Act, supra, te with-

draw the $5,000 ex .usion entirely from gifts in

trust. This aetion was occasioned by the facet

that the Board of Tax Appeals and several of

the Federal courts had decided, prier toe this

Court’s contrary decision in Helvering v. Hutch-

mgs, 312 UL S. 393, that the trust entities were

the donees, a result which mvolved serious pos.

sibilities of tax avoidance. The exelusion, re-

duced to 83,000, was restored to gifts in trust in

the Revenue Act of 1942, 6 619, 56 Stat. "798.

Section 454, for the reason that the decision -in

Helvering \. Hutchings, supra, removed the pos-

voner, decided Angust 7. 144 (1945-1944 POH Tax Court

Memorandum Decisions Service, par. 44.261): Richardson v.

‘ ommissioner, decided November 30, 1943 (id... par. 45,496) ;

Weathers v. Commissioner, decided September 21, 19428 (id...

par, 45,428).

The Senate Finance Committee, with which the amend.

nent origimated, stated (S. Rep. Ne. 1567, Tith Cong., 3d

Sess. p. 4 (1989-1 Cum. Bull. (Part 2) 779) >:

“The committee is also proposing an amendment by which

the exclusion would not apply te gifts in trust. The Poard

#06 Tax Appeals and several of the Federal courts have held,

with respect to gifts in trust, that the trust entities were the

donees and on that account the gifts were of present armel pot

of future interests. The state e. as thus construed, affords

ready means of tax avoidance, since a donor may create any

nhimber of trusts in the same vear in favor of the same bene-

hoary with a $5,000 exclusion applying to each trust, whereas

the gifts, if made otherwise than in trust, would in no case

; be subject to more than a single exclusion of $5,000.~

‘ 12

sibility of gift tax avoidance of which Congress

had been apprehensive.t.. The Revenue Act of 1942

was approved on Oct6ber 21, 1942, after Circuit

Courts of Appeals had uniformly decided in Welch

Vv. Paine, 120 F.2d 141, and the Taylor, Brandeqee

Phillips’ and Gardner cases, supra, that a

trustee's discretionary power to distribute income

does not render the cift of the income a present

interest. This also had beet the conclusion of

the Board of Tax Appeals, for example in Win-

terbotham v. Commissioner, 46 Bb. T. A. 972. In

relation to a subject with respect to which judicial

decisions had caused so much concern, it must

be supposed that Congress was aware of the

decisions and confirmed their result. United

States v. Ryan, 284 U.S. 167; ef. White v. Win-

chester Club, 315 U.S. 32, 40, |

The decisions in Smith y. Commissioner, 131 FF. (

2d 254 (C. C. A. 8th): Sense nbrenner Vv. Commis-

stoner, 134 F.2d 883 (°C. OC. A. ith): and Kinney H

Vv. Anglin, 43 F. Supp. 431 (N. D, Cal.), appeal

dismissed on stipulation, 127 F. 2d 291 (C. C. ‘A.

9th) (Pet. Br. 25-24, 36-37), are not departures

*S. Rep. No. 1631, 77th Cong. 2d Sess. p. 245;

“Since the Supreme Gpnrt has decided. in Melr ring \,

Hutchings (312 U.S. 365 (1941) kethat the beneficiaries of

the trust rather than the trustee or thd trust are the donees

of a gift in trust, it is no longer necessary to discriminate

against gifts in trust by disallow ng the exclusion in such

cases (except in cases of gifts of futtré interests in property )

to prevent gift tax avoidance through the device of multipl-

trusts for the same beneficiary.”

from the general rule stated above. In the Kin-

ney and Sensenbrenner cases the income was to

be paid over currently or quarterly without any

discretion in the trustee to withhold. For that

reason the Ainney case held the gift to be of a

present interest. In the Sensenbrenner case the

Government conceded the gift to be of a present

interest with respect to the income because the

income Was to be disbursed currently for the bene-

ficiaries, and the court held the gift to be of a

future interest with respect to the corpus, as the

Government contended. In the Smith case the de-

cision rested upon the holding that the benefici-

aries were entitled to the immediate use and en-

Joyment of the trust income.’ bis is evident

from the same court’s later decision in French v.

Commissioner, supra, hoiding that a future inter-

est Was involved where the trustee had discretion

to accumulate or distribute the income. In the

latter case the court stated, at page 258, that

there was no such provision for the trustee’s dis-

cretion in the Smith case.

We believe that the decision in Disston v. Com-

missioner, 144 F.2d 115 (C. C. A. 3d), is based

This view was based upon the court's conception of the

(lominant purpose of the settlor and is of questionable valid-

ity. The case has been criticized as resting “on an insecure

foundation.” Fisher v. Commissioner, 132 F. 2d 383, 386

(©. C. A, 9th). However, notwithstanding doubt concern-

ing the validity of the court’s premise, the conclusion was

based upon the application of the legal principle for which

we contend.

upon a misapprehension of tite term **futtfre inter-

ests” and the background of its use in) Section

W4 uv) &f the Revenue Act of 1932.

Section 501 of the Act imposes a tax upon gifts,

the amount of which is determined under See

tion 502 by computing the tax of the sum of the

het gifts made by the donor in the calendar vear

and preceding vears, and deducting from that tax

a tax computed upon the sum of the net gifts made

In the preceding vears.. The donor is given a

specific exemption of $50,000 under Section 505

(a) (1), which he may allocate against his gifts

from year to year as lie sees fit until the exemp

tio is exhausted. Iy copiputing his ‘net gifts’

for any calendar year the donor deducts so much

of the specitic exemption as he claims for that

year, together With the amount of vifts to charity

and for other purposes permitted in Section 305

(a) (2). He is also entitled, under Section 504

Bae to the exclusie here in issue of the first

$5,000 of the gift made te any donee during the

calendar vesr, other than one of future Interests

In pioperty.

The Purpose of theeexeluston is situply to avoid

the burden of recording and reporting humerous

;

small gifts, which would be dispreportionate to

the amount of revenues produced. The amount

of the exclusion is Higde sufficiently large to cover

INoot cases of wedding and Christmas vifts and j

¥.

alse-occasional gifts of relatively small amounts.

15 °

H. Rep. No. 708, 72d Cong., Ist Sess.. p. 29°

(1939-1 Cum, Bull. (Part 2) 457). The amount

of the exelusion was reduced to $4,000 in’ the

Revenue Act of 1938, ©, 289, o2 Stat. 447, Section

WD, before its reduction to 83,000 in the Revenue

Act of 1942, Section 454, supra. The report of the

House Committee veiating to the latter Act indi-

eates that the exclusion would be abolished com-

pletely except for the administrative difficulties

wich would.arise if that were done.’ In short,

the legislative purpose in permitting the exelusion

sugges(s tio reason for abandoning with respect

to it the ordinary canon that tax exemptions are

hot to be extended by construction. #Helve ring V.

Northwest Steel Mills, SUL U.S. 46, 49; Heivering

Vv. American Deatal Co, 315 US. 822, 329-330.

It should be observett that while the appre-

hended difficulty of valuing future niterests as to

each donee and determining the number of even-

thal donees suggested the need for different treat-

ment of future imterests, the class thus treated is

het limited to imstanees in which this diffeulfy

arises, Congress vealized that the difficulty would

"HL. Rep. No, 2333, 77th Cong., 2d Sess., p. ot:

“Since this is an annual exclusion ¢not exhaustible as is

the specific exemption) and is not lifiited to any number of

donees, it is possible to distribute property of large aperegate

valne over a period of years, free notlonly of gift tax but of

estate tax as well. While administrative difficultie prevent

the abolition of the exclusion, your committee recagnmend

that it be reduced to $3,000."

not be presented in all the cases which were covered

by the rule enacted, for the committee reports use

the qualifying phrase ‘tin many instances’? (H.

Rep. No, 708, supra). The statutory exception is in

general language and thus ineludes al} gifts of

‘future interests in property.”” Fisher v. Com-

misstoner, 132 F. 20.383 (C. C. A. 9th) ; Commis-

stoner V. Glos, 123 F. 2d 548 (C. C. A. 7th): Welch

v. Paine, 120 F. 2d 141 (C. C. A. Ist). Aceord-

ingly, the opinion in the Disston case, insofar as it

rests upon the fact that the identity of the donees

and the value of the gifts were not affected by the

trustee’s discretionary power in that case, rests

upon an erroneous ground. Nor is there anything

in the term ‘future interests” or in the purposes

of the exclusion to suggest that interests conferred

upon minor beneficiaries are ‘“futnre’’ for that

reason er are different from the same interests

. ma te .

when conferred upon others. This \is recognized

by the Third Circuit aa Wisotzkey v. Commis-

res: ee /

“In point of fact. there is no method of evaluating any

suppositious present rights of the beneficiaries in the present

type of case, As stated by Judge Biggs. dissenting. in Disston

Vv. Commissioner, supra, p. 120:

“s * * the trustees are the judges (in the first instance )

of how much of the income from the gift [and here, how much

of the corpus] is to be expended for the immediate benefit of

the minors. That amount might be much or little as justified

by the circumstances of the particular minor involved and it

is Impossible to determine the value of the present right or

even to allocate it to the first $5,000 in value of the gift.

See Melvcring v. Blair, 2 Cir..121 F. 2d 945, 947."

sioner, decided August 10, 1944 (1944 P-H, par.

62,695), after the Disston case, in which a trust

involving a mandatory accumulation of income

throughout the beneficiary’s minority was held

to be a gift of a future interest.

The majority opinion in the Disston case calls

attention to.the exclusive nature of the donees’ in-

terest under the trusts there involved. The dis-

senting opinions of Judge Waller in the instant

case and in Hutehings-Scaly Nat. Bank Vv. Commeis-

stoner, 141 F. 2d 422 (C. C. A. Sth), stress the

conclusion that the gifts were absolute since both

the income and the corpus were irrevocably dedi-

cated to the named donees. This factor alone is

not controlling, however. I/utchings-Sealy Nat.

Bonk v. Commissioner, supra, It was held not to

be controlling in the Wisotckey case, where, in the

event of the death of a beneficiary, his trust’ was

to be administered for the benefit of his heirs or

assigns.’ The decision in Helvering v. Hutchings,

supra, holdin: that the beneficiaries, rather than

the trust, are the donees of a gift in trust, neces-

sarily implies that the character of the gift as

“present”? or “future’’? must be determined as of

the time when the beneficiaries, rather than the

trust, Come into possession of the gift. The fact

~The present case is different ‘pon its facts from the

Disston case in that here the rigiits of the named donees, in

the event of their death, might pass to successor beneficiaries

(R. 32. 56) rather than to the heirs or representatives of the

named donees.

thet the gift is irrevocable has no significance,

Under this Court’s decisions in the Ryerson and

Pelcer cases, supra, an interest piainly is not a

present miterest for tax purposes merely because

the donee has vested rights which will be recog-

nized by a court of law or equity, for there is the

further requirement that he have a right to present

Use, possession, or enjoyment. Commissioner y.

Brandegee, 123 F.2d 58 (Cl CLA. Ist); Welch v.

Pame, 130 F, 2d 990 (C. C. A. Ist). Further-

mare, the Ryerson and Pelzer cases make it clear

that the economic satisfaction which the donee

inay derive from knowing that he will receive

valuable property in the future is not the kind |

of present ‘enjoyment’? which would make the

gift one of a ‘present’ interest.

As both of the courts below have held (R.

BO, T3-TH), there is no merit in the taxpayer's

position that the trustee here had no diseretion

(Br. 32-37). It is particularly evident from

Article 3 of the trusts (R. 54455) that neither

the ineome nor the corpus was likely to be re-

ceived by the beneficiaries immediately. Their

Use, possession, or enjeyment could not begin

until the happening of future contingencies—the

beneficiaries must come to need money for their

education, maintenance and support, and the other

means of suppert which the grantors expressly

contentpiated must fail. Nor as there validity to

the contention that the trustee here is in. the

same position as a guardian under state law.

cee ered

RE oO AMANO SE

any Pa ise,

SUE WRT ene rie

The trustee was empowered to withhold payments

during the minority of a beneficiary under cir-

cumstances, falling short of need, which might

call upon a guardian to purchase advantages for

his ward through the expenditure of income or

principal belonging to the ward. Mareover, re-

gardless of the extent of the trustee's discretion,

the future and contingent nature of the interest of

the beneficiaries is evident fronv_the fact that

whereas a chiid’s estate or his parent is primarily

charged with the burden of his support, distribu-

tion of the trust estate could not be compelled

untess these primary sources failed. Welch v.

Paine, 130 F. 2d 990, 992 (CL. CL AL Ast); Estate

of Smith, 23 Cal. App. 2d 383.

It is not true, as suggested in the dissenting

opinion im the court below, that under the Com-

missioner’s theory there would be no other way

to make a gift to a minor than through the crea-

tion of a future interest. Even if this were true,

there would still be no valid reason tor treating

a future interest as a present interest. But the

proposition is unsound. <A gift of a present in-

terest is possible even by means of a trust. See

Fisher v. Commissioner, 132. F. (2d) 383 (CL. €,

A. 9th), and Kinney v. Auglim, 43 F. Supp. 431

ON. D. Cal.), appeal dismissed on stipulation, 127

F. Pd 291 (C. C. A. 9th), in whieh the trustees

were to pay the income to the parents of the

nunor beneficiaries and the gifts of Income were

treated as present gifts.

Gifts to minor beneficiaries are placed on an

equatity with gifts to adults by applying to both

the principle that a right to receive the gift only

upon the exercise of a trustee’s discretion is a

gift of a future interest.

CONCLUSION

We submit that the decision below correctly

follows the established rule and that the judgment

should be affirmed.

Respectfully submitted.

, CHarLes Fany,

Solicitor General.

SaMUEL O. CiarK, JR,

Assistant Attorney General.

SEWaLL Key,

... J. Louis Monarcn,

» Ropert KOERNER,

Special Assistants to the Attorney General.

DECEMBER 1944.

& 6 GOVERNGERT PRiBTIBE OFPICE: 1906

—— ee eS Se Pere a

SUPREME COURT OF THE UNITED STATES.

No. 88.—-OcToBER Term, 1944.

Ella F. Fondren, and the Estate of)

W. W. Fondren, Deceased, et al.,

‘Petitioners,

On Writ of Certiorari to

the United States Cir-

cuit Court of Appeals

for the Fifth Cireuit.

2S.

Commissioner of Internal Revenue.

(January 29, 1945.]

Mr.

In 1955, 1936 and 1937 petitioner, Ella F. Fondren, and her

husbangys fee deceased, created seven separate irrevocable trusts,

each in favor of a grandchild of tender years, and each of them

nade gifts tc to each trust of corporate stock having the fair market

value of $5,975. The donors made gift tax returns for 1937,

claiming the statutory exclusion of $0,000 for each gift, and ae-

Justice RutLepar delivered the opinion of the Court.

cordingly reported taxable gifts for each trust of $975. Gift taxes

were paid on this basis.

The Commissioner made defici ‘eney assessments, disallowing the

exclusions on the ground that the gifts were of ‘future interests

moproperty’” within the meaning of the Revenue Act of — e,

<9, 47 Stat. 169, and Treasury Regulations 79 (1936 ed)! 1 he

Tax Court upheld the Commissioner, the edses being consolidated

‘or hearing and decision. 1 T. C. 1086. The Cireuit Court of

Seuaed affirmed the Tax Court's decision, one iat dissenting.

141 F, 24 419. Certiorari was granted, 323 U.S , because of

the importance of the question as aifeeting the tne of gifts

made for the benefit of minor children and ‘because of alleged or

app arent conflict with deci ‘isifns of other courts.”

! The statute is as follows:

“Re 504. Net Gifts.

ta 8) \"Weneral Definition —The term ‘net gifts’ means the total amount

of Rifts made during the jealerdar year, less the deductions provided in see-

‘um 508,

b) Gifts Lees Than $5,000 —In the ense of gifts (other than of future

interests in property) made to any oe by the donor during the ealendar

veur, the first #5000 of such gifts to such person shall not, for the purnoses

y sui ‘section (a), be included in the total amount of gifts made during such

~vear.

The pertinent part of the Regulation ia quoted in the text below.

? The petition alleged conflict with Smith vr. Commissioner, 131 F. 2d 254

-. C. A, Sth); Sensenbrenner v. Commissioner, 134 F. 2d 883 ((. CA.

ith); and Kinney 2. Anglim, 43 F. Supp. 451 (N. D. Calif.). Cf. also

2 Fondren et al. vs. Commissioner of Internal Revenue.

The sole issue is whether the gifts were of ‘‘future interests”

within the meaning of the statute and the reguiation, The latter

provides : 4

Art. ll... ‘'Future interests’’ is a legal term, and includes

reversions, remainders, and other interests or estates, whether

vested or contingent, and whether or not supported by a par-

ticular interest or estate, which are limited to commence in use,

possession, or enjoument at some future date or time... . | Em-

phasis added }

Upon the facts the issue turns on whether the interests acquired

by the minor beneficiaries were ‘‘limited to commence in use, pos.

Session, vn rsh at some future date or time.”’ — v.

United States, 312 U.S. 405; United States v. Pelzer, 312 U.S. 399.

Under these ocetoss it is not enough to bring the aes

into foree that the donee has vested rights. In addition he must

have the right presently to use, possess or enjoy the property.

These terms are not words of art, like ‘‘fee’’ in the law of seizin,

United States y. Pelzer, supra at 403, but connote the right to

substantial present economic benefit. The question is of time. not

jghen title vests, but when enjoyment begins. Whatever puts the

(barrier of a substantial period between the will of the beneficiary

Son pesioe now to enjoy what has been given him and that enjoy-

ment makes the gift one of a future interest within the meaning

of the regulation.

Accordingly, it has been held that if the income of a trust is

required to be distributed periodically, as annually, but distribu.

tion of the corpus is deferred, the gift of the ir-ome is one of a

present interest, that of the corpus one in futuro. Fisher v. Com

missioner, 132 F. 2d 383; Sensenbrenner v. Commissions r; 134 F

2d 883. A fortiori, if income is to be accumulated and paid over

with the corpus at a later time, the entire gift is of a future in

terest.’ although upon specified contingency some portion or al!

of the fund may be paid over earlier4 The contingency may be

the exercise of the trustee’s diseretion, either absolute or con

Disston v. Commissioner, 144 F. 24 115 (C. C. A. 3d). The decision. one

judge dissenting, overruled the prior decision in Commissioner r, Taylor, 122

F. 2d 714, cert. denied, 314 U.S. 699. A petition for writ of certiorari was

filed in the Dissten case on October 12, 1944, and now is pending.

3 Welch v. Paine, 120 F. 24 141; Commissioner rv, Taylor, 322 F. 2a 714,

715, eort. denied, 314 U. 8. 699; Commissioner rv, Brandegee, 123 F. 24 5s;

Commissioner v. Philips’ Estate, 126 F. 2d 851; Commissioner v. Gardner

127 F. 2d 929; Welch v. Paine, 130 F. 2d 990; Commiasioner rv. Welle 132

F. 2d 405; French v. Commissioner, 138 F. 2d 254: Roberts r. Commissioner,

143 F. 2d 657; Mowe v. United States, 142 F, 2d 310; Hutchings-Sealy

4 Tbid,

——

}

Fondren et al. vs. Commissioner of Internal Revenue. ”

tingent.° It may also be the need of the beneficiary, not existing

when the trast or gift takes effect legally, but arising later upon

anticipated though unexpected conditions, either to create a duty

in the trustee to pay over or to permit him to do so in his dis-

eretion.® +

In the light of these principles and decisions, it is necessary to

consider the terms of the trusts and the*cireumstances in which the

gifts were made. The trust instruments were substantially uni-

form except for variations in the names of the beneficiaries and,

in ease of death, their successors ir interest. The trusts were

irrevocable, the donors retaining no beneficial interest in the es-

tates. Each instrument named the denor, W. W. Fondren, as

trustee, and Ella F. Fondren, the other donor, as successor trustee.

They reserved the rights as donors to remove any trustee, except

Mr. Fondren, and to name snecessor trustees. Subjeet to these

reservations and the directions set forth below, the “trustee was

viven substantially complete control.

The trusts’ stated purpose was ‘‘to provide for the personal

comfort, support, maintenance, and welfare’’ of the grandchildren.

But from the explicit recitals of the instruments,7 as well as the

evidence, including a stipulation, it is clear that the parents of

each child were so situated that, when the gifts were made. they

were fully able to provide for and educate him. And, from the

Same recitals, it is clear there was little reason to believe that any

parent would not continue se until the child’s majority. Accord-

ingly, in each instance, the trust was to continue until the child

shonld attain the age of thirty-five. Hence also the income was

to be accumulated, except upon the contingencies specified helow,

and each beneficiary was to receive 25 per cent of the corpus and

accumulations at age twenty-five, 3313 per cent at age thirty,

and the remainder at age thirty-five. .

Aware of the uncertainties of our world, however, the donors

directed in Article 3:

. |The Trustee shall provide for the support, maintenance and

edueation of our said Grandson, using only the income of said

estate for the purpose if it be sufficient. If it be necessary to use

iny of the corpus of the estate for that pnrpose and in the judg-

ment of the Trustee it is hest ta da so, said Trustee may make ad-

5 Welch ». Paine, 120 F. 24 141: Cormiesioner r. Taylor, 122 F. 2d 714, 715,

cert. denied, 314 U. S. 699; Commissioner r. Brandegee, 123 F. 24 58; Com

vissioner t, Philiips’ Estate, 126 F. 24 851: Commissioner +. Gardner, 127

F. 2d 929; Winterbotham v. Commissioner, 46 B, T. A. 972; ef. Ryerson ¢.

Mnited States, 312 U. S. 405, 408,

*C?. authorities cited note 3 supra.

7 Cf. ihe recitals quoted in the text below

4 Fondren et al. vs. Commissioner of Internai Revenue.

vancements out of the corpus of said trust estate for such purpose

for the benefit of our said Grandson.

It is contemplated, however, that our said Grandson will have

other adequate and sufficient means of support, and that it wil!

not be necessary to use either the income or the corpus of the trus!

estate hereby created to properly provide for his education, main

tenance and support; and, if the income from the trust estate be

not needed for these purposes, then all of the income from sai!

trust estate not so needed shall be by the Trustee passed to capita!

account of said trust estate, and shall be and become a part of

said trust estate, it being our hope that ail of the earnings and in

come of said trust estate during the period of this trust may be

_--tised to augment the trust estate and be delivered to our said

Grandson at the periods herein provided for. It is expressly pro-

wided, however, that our said Grandson shall be properly main

tained, educated and supported, and’ if tt be necessary to use ail

of the income and even all of the corpus of the trust estate hereby

ereated and all augmentatiofms thereof, it shall be the duty of the

Trustee to see that this obligatwn shall be properly and reason

ably discharged... {Emphasis added}

in view of the apparently-conflicting terms of this artlele for

use of the corpus, the exact scope of the trustee's discretion is by

no means clear. But this need not be determined. Whether the

disposition is in his judgment entirely, as the first clause indi

cates, or under the second is so only with reference to how much

of the fund may be needed,* the trustee cannot act in any case

to apply corpus or income for the support, maintenance and edu

eation of the benefiviary until necessity arises.

Under the particular facts, this requirement is important in

two respects. [It is, as petitioners urge, a limitetion upon the

trustee's diseretion. His power is not uneonfined. Even though

the existence and amount of need may be in the first instance for

his determination, it does net follow that. need existing. the trustee

arbitrarily could refuse to make the application. The ease there-

fore is not ene in which present enjoyment is dependent upon ar

exercise of the trustee's absolute diseretion.

—— =

* Petitioner presents the case as if no discretion whatever were vested

in the trustee as to making the payments over. However, in the first pro

vision for use of the corpus such use is authorized ‘‘if it be necessary

and in the judgment of the Trustee it is best to do so’’; in the other pro-

vision the duty imposed, ‘‘if it be necessary to use all of the income and even

all of the corpus.’’ is one ‘‘to see that thia obligation chall be properly and

reasonably discharged.’’ If the first clause limits the second, the trustee ’s

discretion is bounded only hy what he thinks ‘‘it is best:to do,’’ and in any

event under the latter his duty is only to see that the obligation is ‘‘ properly

and reasonably’’ discharged. Presumably also’the trustee wou'd have- some

room for judgment en whether particular circumstances would umount to

necessity and particular measures would be required to meet it.

ee ats

Eas ae

Fondren et al. vs. Commessroner of Internal Revenue. 5

but this dies not show, as petitioners seem to think, that the

minor beneficiaries had, at the moment of the vilt, a present right

vf enjoyment. It rather shows the contrary—that their right was

not absolute and immediate, but was conditioned, during minority

and afterward until the times specified for distribution, upon a

eontingeney which might never arise. That contingency, by the

expheit terms of the trust, was the existence of need which was

then nonexistent and, in the stated contemplation of the donors,

was not likely to oceur-in'the future, at any rate during the child's

minority. The cireamstances surrounding the donors and the

donees confirm these recitals. “The-ease is one therefore in which

the gift, if presently vested, made enjoyment contingent upon the

securrence of future events, not only uncertain, but by the re-

citals of the instrument itself improbable of oeeurrence. The

gifts consequently were of ‘‘future interests in property’? within

the meaning of Section 504(b).

Petitioners’ contrary argument, apart from the misconception

that legal vesting of the interest without more satisfies the statute.”

rests chiefly upon considerations arising from the legislative his-

tory and from the facet that gifts for the benefit of children under

leval disability to manage their own property must make pro-

vision for its control by trustees or otherwise.

Special stress is placed on the fact that each gift was made to

or for the benefit of a specifically named beneficiary then in esse

ait for a definite amount. As the Pelzer opinion noted, 312 U. S.

at 403, the committee reports recommending the legislation stated :

“The exemption being available only in so far as the donees are

ascertainable, the denial of the exemption in the case of gifts of

future interests is dietated by the apprehended diftieulty, in many

instances, of determining the number of eventual donees and the

Values of their respective gilts.’ (Emphasis added.) And in

the Pelzer case the Court found that the viit involved these diffi-

ulties. as well as postponement of enjoyment to the happening of

a future uncertain event, since the right of enjoyment was con-

tingent in any event upon the beneitelaries’ surviving the ten year

period specified fer acenmulation of income. 312 U.S. at 404.

“Several of petitioners’ statements of their contentions ignore the con.

“ingeney upon which enjoyment is deferred in this ease, namely the occurrence

&* some future time of the need or necessity of the beneficiary which would

bring the trustee's power or duty to provide for support or maintenance from

“he trast fund into play. It is not necessary te note these contentions specifi-

caly further than to say, in addition to what has been said already, that

) 48sume us the answer to it the very issue in the case.

_ YH. Rep. No. 708, 72d Cong., Ist Sess., 29; 8. Rep. No. 665, 72d Cong.,

sesa., 4].

o Fondren et al. vs. Commissioner of Internal Revenue.

Both conclusions would seem applicabie in this case, the ely

difference being that the period of postponement, which the ber:

ficiaries must survive before enjo\¥ment begins, is indefinite rather

than for a specified time. That is true in any case where th:

length of the period is governed by a eontingeney. But the regu

lation, adopted almost in the language of the committee reports,"

does not limit the denial of the exemption to instances where y+

deferment of enjoyment is at all events for a period which is

definite and certain. Cf. Commissioner yv. Glos, 1223 F. 2d 542,

090, Clearly the statute is not to be applied differently, to grant

or deny the exemption, if there is postponement, merely because’

in one ease the period is under any eventuality for a certain,

specified length of time, whereas in another it is of uncertain or

indefinite length. Thetimportant thing js the certainty of pos’

*ponement, not certainty of the len2th of its duration.

Furthermore, if there is postponement, the exemption is denied!

Whether or not the administrative difficulties anticipated in the

committee reports inhere in the partieular gift. Commission:

Vv. Glos, supra; Welch v. Paine, 120 F. 2d 141.) Those reports

Specifically state these difficulties are present ‘‘in many instanees.”’

But they also state that ‘‘the term ‘future interests in property’

refers to any interest or estate, whether vested or eontingent, lim-

ited to commence in possession or enjoyment at a future date.’

They thus contemplate, as does the regulation framed in similar

terms, vested as weil as contingent interests and estates. And

there is nothing to indicate: that gifts to specified donees in esse

and in definite amounts are to be excluded from the denial. if by

the terms of the gift enjoyment is deferred to a future time

Again, the crucial thing is postponement of enjoyment, not the

fact that the beneficiary is specified and in esse or that the amour’

of the gift is definite and certain.’

The considerations, which petitioners advance to support their

position, from the minority of the beneficiaries and their cons:

quent legal disability to manage and control their property are

intermingled with others relating to the motives of the donors i:

11Cf. text at note i2 infra. 7

12 Cf. note 10 supra.

13 The absence of these factors is relevant as showi

that postponement exists and therefore the exemption aes not apply. Their

presence does not show that there is no postponenfnt or that the exemption

applies. The administrative difficulties relating fo these matters ‘‘in many

instances’’ were reasons for denying the exemptipn. They do not and were

not intended to encompass the full scope of mn, to all As ‘he atatute ex

more clears

tended the exemption, ‘‘in the specified amount,ito all gifts, whether larg’

’

bondre neta. vs. Com missioner of Inte rnal Re venue. 7

making the gifts. It js said that their purpose was to proviie

for the “‘comfort, support, maintenance and welfare.”’ including

education, of the grandchildren; that the latter were incapable

ot taking over the management and eortro! of the property ; that

accordingly it was necessary for some arrangement to be made

for vesting this power in trustees or othens capable of exercising

it; that the trustees were given no power to withhold either in-

come or corpus in case of need; and consequently the whole fund

became availabie to the beneficiary for his maintenance “‘imme-

‘diately upon the consummation of the gift,’’ sc that he was vested

at once with the right of present enjovment as fully as any child

of tender years could be and in no way differently, taking account

of lus dusability, than auy owner of property by title in fee simple

So far as the’ argument Jurns on the motive of the donors, it

nay be answered that the statute and the regulation make no such

test. If motive has bearing, it is only by reason of its effect upon

the element of time and whatever relation may be given, by the

particular terms of the gift, to it and the disclosing of a purpose

‘o provide for or against immediate enjoyment. The statute in

this respect purports to make no @istinction between gifts to

minors and gifts to adults. If there is deferment in either case

the exemption is denied. Consequently in this ease the donors’

laudable desire to make provision for their grandchildren in case

ot future need cannot nullify: the deferment which the recited

absence of present need, coupled with the terms of the trust,

brought about. Again, contingency of need in the future is not

identical with the: fact of need presently existing. And a gift

efeetive only for the former situation is not effective, for purposes

o rehef from the tax, as if the latter were specified, whether

the donee is an adult or a minor.

Upon the facts, furthermore, the trasts hardly ean be taken as de-

signed primarily for the periods covered by the children’s minor-

ity. They did not terminate with the ending of that period. The

graduated seale of paymenis, beginning at age twenty-five and

*nding at thirty-five, together with the prohibition of payment

*arlier except in ease of necessity, shows principal coneern for a

period of adult life. And, from the fact that this would be the

period when the grandchildren normally would be assuming family

or small, ‘made to any person,’ ** Helvering rv. Hutchings, 312 1. & 392 397,

*) it denied the exemption to all yifts, whether large or small, vested or con-

Tugent, made to any person, whether specified and in ease or ascertainahle

oniv in the future. and whether for a specitic or a presentiv unascertainable

amount, if the gift is one of a ‘‘future interest in property,’’ that is, one

as to which enjoyment is postponed to some future time.

8 Fondren ct al. vs. Commissioner of Internal Revenue.

responsibilities of their own, the inference well might be drawn

that the chief purpose was to give aid and some security in that

time. The contingent provision, in case of earlier need, canpot

be taken therefore to represent the donors’ primary concern as

expressed in the instruments. Uf. Fisher v-Commuissioner, 102

FP. 2d 383. 386. But, whether se or not, in the partieular ciren

stanees that need was but a contingency to be realized, if at

in the'fature. And, until realized the contipgeney stood squarely

in the way of any child’s receiving a single dollar from the fu

Finally it is urged that unless these gifta are to be taken as cor.

ferring the right to immediate enjoyment. no gift for the hene*t

of a ehild of tender years ean be so regarded since in any sv

case “‘some competent person must be the primary judge as to t

necessity and extent of reasonable requirements of the beneficiars

The argument is appealing, in so far as it seeks to avoid in

suting to Congress the intention to ‘* penalize gifts to minors merely

}

wealse the legal disab lity of their vears precludes them for a

time from receiving their ineome in hand ecurrently.”’ Cf. Disston

Commisstorer, 144 Fo 2d 115, 119.) But we think: it is not

applicable in the faets of this case, since by the terms of the trusts

and the faets recited in the instruments none of the fund, whether

income or corpus, could be applied immediately for the child's us

or enyovment

It does not foll mw, ais petitioners say, that if the exen

tion does not apply in this ease it ean apply in no other made

for a minor's benefit, Whenever provision is made for immediate

pplication of the fund for such a purpose, whether of incom:

if corpus, the exemption applies. Whether, in the case of a ¢

requiring such an application of the income. but providing

retention of a corpus no more than reasonably sufficient to p:

duce the income required for this purpose and to insure its co

tinued payment during minority, the donation would fall with»

the exemption, as to corpus as well as income, is a ‘uestion 1

presented on this record and therefore not determined.

The regulation has received the construction now reaffirmed

with substantial consisterey. The statute. with the meaning thus

settled, has been reenacted by Congress.'* The eorstruetion shor

be followed until Congress sees fit to change It.

The judgment is

4 firme!

14 Congress withdrew the exclusion, as to gifts in trust, in the Regence

Act of 1938, ¢. 289, 52 Stat. 447, § 505, amending § 5C@4(b) of the 1932 Act

But it was restored, though reduced to $3,000, by the Revenue Act of 144!

619, 56 Stat. 798, §454,

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.