Oppenheimer
v.
Comm'r of Internal Revenue

Tax Court of the United States.Feb 28, 1951
16 T.C. 515 (U.S.T.C. 1951)

Docket No. 19938.

1951-02-28

RUTH W. OPPENHEIMER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Albert R. Mugel, Esq., for the petitioner. Clay C. Holmes, Esq., for the respondent.


Albert R. Mugel, Esq., for the petitioner. Clay C. Holmes, Esq., for the respondent.

1. The petitioner's father created a trust of which the petitioner was one of the two trustees. The petitioner, as trustee, was given the power, in her absolute and uncontrolled discretion, to designate the person or persons in a stated group who were to receive the trust income covered by Article II of the trust instrument, being the income from an undivided two-thirds of trust corpus. As defined in the trust instrument, such group included the petitioner, and also petitioner's mother, provided the father at the time and during the term of such designation was not under a legal duty to maintain or support the mother. At the direction of petitioner, the income was paid over to the mother by petitioner and her co-trustee. Held, that, in effect, the trust income was, through exercise of the trustee's discretion, distributed to petitioner and that she is taxable thereon, under section 162 (c) of the Internal Revenue Code.

2. The petitioner's mother created a trust of which the petitioner was one of the two trustees. The petitioner, as trustee, was given the power, in her absolute and uncontrolled discretion, to designate the person or persons in a stated group who were to receive the trust income covered by Article II of the trust instrument, being the income from an undivided two-thirds of trust corpus. As defined in the trust instrument, such group included the petitioner, and also her father. The petitioner designated her father as the person to receive the income from the trust for the years 1942 and 1943 and it was paid to him. Held, that petitioner's command and control of the income of the trust was as trustee, and not as donee or distributee, and that it was not taxable to her as her income.

3. By the terms of each of the trust instruments, the petitioner was beneficiary for life of the income covered by Article I, being the income from an undivided one-third of trust corpus. Also during her lifetime, she had the right, not as trustee, but personally on demand, to take ‘property of the corpus of the trusts of a value not to exceed twenty-five thousand dollars in any one calendar year.‘ Held, that by reason of said power the petitioner was taxable on income attributable to $25,000 of trust corpus, and further, that upon computation of the amount thereof, the said income is to be allocated one-third as Article I income and two-thirds as Article II income.

4. It was the petitioner's practice to have her income tax returns prepared by an accountant and, upon call from him, to go to his office, sign the return and within the next few days to write a check for the tax and mail it and the return to the collector. Her return for 1943 was prepared by the accountant, and signed by him on February 3, 1944. It was signed by her on February 10, 1944, and she wrote and signed the check on February 15, 1944. The return was stamped ‘Filed‘ in the collector's office as of April 29, 1944. Petitioner did not retain the return in her possession at a date when it would have been too late for it to have reached the collector by mail by March 15, 1944. Held, that the return was timely filed and petitioner is not subject to penalty for not filing the return within the statutory period.

The respondent determined a deficiency of $4,593.07 in the petitioner's income and victory taxes for 1943, and a penalty of $589.77 for failure to file a return within the time prescribed by law. By reason of the forgiveness features of the Current Tax Payment Act of 1943, the computation of the petitioner's 1942 income tax is also involved. The issues presented are the correctness of the respondent's action in determining (1) that the income of a trust created by petitioner's father, Benjamin Weitzenkorn, and of a trust created by petitioner's mother, Daisy R. Weitzenkorn, was taxable to the petitioner, and (2) that the petitioner was subject to a penalty for failure to file a timely return for 1943.

FINDINGS OF FACT.

A portion of the facts was stipulated.

At all times material herein, the petitioner resided in Buffalo, New York, and filed her 1942 and 1943 Federal individual income tax returns with the collector in that city.

The petitioner is the daughter of Benjamin and Daisy R. Weitzenkorn, who for some time prior to 1935, and at all times thereafter material herein, also were residents of Buffalo. During 1942 and 1943, the petitioner was married to Richard H. Ullman, and had a minor son, Richard H. Ullman, Jr., living as her only issue, and continued to be married to Richard H. Ullman until the date of her divorce from him, in 1945.

On or about December 30, 1935, Benjamin Weitzenkorn transferred to petitioner (then Ruth W. Ullman) and Richard H. Ullman, as trustees, certain property consisting of numerous shares of common and preferred stock and corporate and United States Government bonds. On or about the same day, Daisy R. Weitzenkorn transferred to petitioner and Richard H. Ullman, as trustees, certain property consisting of numerous shares of common and preferred stock and corporate and United States Government bonds. Except for the fact that the transfer made by Benjamin Weitzenkorn contained 100 shares more of one of the common stocks, the kind and amount of securities transferred were identical in each instance.

In each of the trust instruments, it was recited that the securities in question were transferred to the trustees in consideration ‘of the love and affection entertained by the Donor for his (her) family, and his (her) desire to provide and secure for them beyond peradventure a proper maintenance and support * * * .‘ Each of the trusts was irrevocable.

Portions of the trust agreement under which Benjamin Weitzenkorn made his transfers are as follows:

Article I

The Trustees shall divide the trust property into three equal shares. They shall invest and reinvest the proceeds of one of said equal shares and apply the income arising from said share to the use of Ruth W. Ullman during her life, and after death to the use of Daisy R. Weitzenkorn, mother of Ruth W. Ullman, during her life, should she survive her said daughter, and should she fail to survive her said daughter, then the trusts hereby created shall terminate, and the corpus thereof shall be distributed as hereinafter provided.

Article II

The Trustees shall invest and reinvest the proceeds of the two remaining shares and apply the income arising therefrom to the use of the lineal descendants or ancestors or both of Ruth W. Ullman for such period or periods and in such proportions during the aforesaid term of the trust as she, the said Ruth W. Ullman, may from time to time in her absolute and uncontrolled discretion as Trustee designate. Anything to the contrary in this article contained, notwithstanding, none of the income arising out of the trust by this article declared shall be paid to the Donor or to any person whom the Donor is under a legal obligation to maintain and support, and the phrase ‘lineal descendants or ancestors of Ruth W. Ullman‘ shall exclude the Donor and any person whom he is legally obligated to maintain or support, but shall include Daisy R. Weitzenkorn (provided the Donor at the time and during the term of such designation is not under a legal duty to maintain or support her) and, in any event, Ruth W. Ullman.

In default of designation, the income arising from the trust acquired by this article shall be applied to the use of the issue, per stirpes of Ruth W. Ullman; and in the event that there should be a period or periods during the aforesaid term of the trust during which there shall be no living issue of Ruth W. Ullman, then upon such default of designation, the income therefrom shall be applied for such period or periods to the use of the beneficiaries for the time being of the trust established under Article I hereof.

Upon the death, resignation or inability of Ruth W. Ullman to act as Trustee, the powers of designation vested in her under the provisions of this article shall vest in her successor Trustee or Trustees.

Upon the death of the survivor of Ruth W. Ullman and Daisy R. Weitzenkorn, the trust hereby created shall terminate and the corpus thereof shall be distributed as hereinafter provided.

Article III

It is the belief of the parties that inherited wealth is often detrimental to the proper development of young people. If, therefore, the Trustees in their absolute and uncontrolled discretion, shall deem it to be for the best interest of any minor child who may be a beneficiary hereunder, they may, but need not, retain and accumulate any part or all of the net income which may hereafter become payable to any such minor, investing and reinvesting the proceeds of the money so retained and accumulated until such minor shall have reached his or her twenty-first birthday or sooner died, at which time it shall be paid over to him or her, if alive, or if dead, to his or her legal representatives; provided, however, that no accumulation shall continue beyond the date that such accumulation be legal, and provided further, however, that should any illegality be found to inhere in the provisions of this article by final judgment or decree of any court of competent jurisdiction, then and in such event, this indenture shall be construed as though the provisions of this article had never appeared therein, and in such event any accumulations shall be forthwith paid over to the person or persons, if alive, for whose benefit they were made, and if dead, to his or her legal representatives.

Article IV

Subject to the foregoing provisions for the division of the trust property into separate shares, the Trustees are not required to effect an actual physical division, but shall be at liberty for convenience of administration to regard the property in their hands as constituting pro rata investments in common of the several distinct shares above provided for until and as the trusts hereby created shall terminate.

Article V

On the death of Ruth W. Ullman and Daisy R. Weitzenkorn, the trusts created by Articles I and II of this indenture shall cease and determine and the corpus shall be distributed as follows:

(a) One-half of the corpus of the trust shall be paid over by the Trustees to such of the lineal descendants or ancestors or both of Ruth W. Ullman as she may by deed or last will appoint, and in default of appointment, to those persons who would be her heirs at law and next of kin under the law then in effect governing descent and distribution at her domicile.

(b) The remaining one-half of said trust shall be paid over by the Trustees to such of the issue of Ruth W. Ullman and to the spouse or spouses of any of her deceased issue as she may by deed or last will appoint, and in default of appointment, to the issue of Ruth W. Ullman per stirpes and not per capita, and in default of issue, to those persons who would be her heirs at law and next of kin under the law then in effect governing descent and distribution at her domicile.

Anything in this indenture contained to the contrary notwithstanding, the Trustees shall pay over to any beneficiary for the time being of the trust created by Article I hereof upon the demand of such beneficiary property of the corpus of the trusts of a value not to exceed twenty-five thousand dollars in any one calendar year. The Trustees may but need not make further distribution of the corpus of the trusts to any beneficiary of the trusts hereby created should they deem such distribution necessary for the proper maintenance and support of such beneficiary.

The corresponding portions of the trust agreement under which Daisy R. Weitzenkorn made her transfers are identical with the foregoing portions of the trust agreement under which Benjamin Weitzenkorn made his transfers, except that the name of the petitioner's father appears where the name of her mother was designated in the Benjamin Weitzenkorn trust agreement, and except the definition of the phrase ‘lineal descendants or ancestors of Ruth W. Ullman, ‘ which in the Daisy R. Weitzenkorn agreement reads:

* * * the phrase ‘lineal descendants or ancestors of Ruth W. Ullman‘ shall exclude the Donor and any person whom he (sic) is legally obligated to maintain or support, but shall include Benjamin Weitzenkorn and, in any event, Ruth W. Ullman.

At no time prior to December 30, 1935, was the petitioner the owner, either actually or constructively, of any part of the property transferred pursuant to the Benjamin Weitzenkorn and Daisy R. Weitzenkorn trust agreements.

The trust agreements have not been revoked, altered or amended, or otherwise terminated. From the inception of the trusts, and throughout the years 1942 and 1943, the petitioner and Richard H. Ullman continued to act as trustees under such agreements and continued to hold the property constituting the principal thereunder, in the city of Buffalo, New York, until the resignation of Richard H. Ullman as trustee on May 29, 1944. Thereafter, Oscar Silverman was substituted as co-trustee in the place of Richard H. Ullman under the terms of the trust agreements.

During 1942, the petitioner designated Daisy R. Weitzenkorn as the person to receive the income for the year 1942, arising from the two-thirds share of the principal of the trust under Article II of the Benjamin Weitzenkorn trust agreement. Also during 1942, the petitioner and Richard H. Ullman transferred and delivered unto Daisy R. Weitzenkorn the amount of $5,212.97, the income for 1942 arising from the two-thirds share of the principal of the trust under Article II thereof.

During 1942, the petitioner designated her father to receive the 1942 income from the two-thirds share of the principal of the trust under Article II of the Daisy R. Weitzenkorn trust agreement. During 1942, petitioner and Richard H. Ullman transferred and delivered unto petitioner's father the amount of $5,212.97, the income for 1942 arising from the two-thirds share of the principal of the trust under Article II thereof.

During 1943, the petitioner made like designations, and she and her co-trustee transferred to her mother and her father the amounts of $4,701.39 and $4,686.02, respectively, as their shares of such two-thirds income.

For each of the years 1942 and 1943, the petitioner and her co-trustee filed timely fiduciary income tax returns for the respective trusts with the collector at Buffalo, New York, showing the income thereof distributable to Daisy R. Weitzenkorn and Benjamin Weitzenkorn, as above set forth. Daisy R. Weitzenkorn and Benjamin Weitzenkorn also filed timely income tax returns reporting the respective amounts as heretofore set forth, as having been received by them.

For each of the years 1942 and 1943, the petitioner filed a timely income tax return for herself. Her 1942 return disclosed the receipt of $2,606.49 from each of the trusts created by her father and her mother, which amounts were the same as shown in the fiduciary income tax returns of the trusts as representing her distributable one-third share of the income of the trusts for 1942. The net income reported by petitioner on her 1942 individual income tax return was $4,206.16. In her 1943 individual income tax return, the petitioner reported an income tax net income of $4,544.33 and a victory tax net income of $5,641.69. In that return she reported the receipt of $2,343.01 from the Daisy R. Weitzenkorn trust and $2,350.68 from the Benjamin Weitzenkorn trust, the same amounts as reported in the 1943 fiduciary income tax returns of the respective trusts as her distributable one-third share of the income of the trusts for 1943.

The 1942 income tax return of Benjamin Weitzenkorn disclosed a net income of $9,379.10, and his 1943 return disclosed an income tax net income of $10,596.81 and a victory tax net income of $11,221.60. The 1942 return of Daisy R. Weitzenkorn disclosed a net income of $5,568.34. Her 1943 return disclosed an income tax net income of $4,339.57 and a victory tax net income of $5,143.24. The net income shown in each instance was after the inclusion of the trust income which had been received in the respective years as heretofore set forth.

In determining the deficiency involved herein, the respondent determined that the entire amount of the income of the trust created by Benjamin Weitzenkorn and of the trust created by Daisy R. Weitzenkorn was taxable to the petitioner, under the provisions of section 22 of the Internal Revenue Code. Accordingly, the respondent increased the net income reported by the petitioner for 1942 by $11,092.61 of which $666.67 represented fiduciary interest on Government obligations and $10,425.94 represented fiduciary income. He also increased the net income reported by the petitioner for 1943 by $9,387.41, representing fiduciary income.

The petitioner's individual income tax returns were regularly prepared by J. P. Hausle, now deceased, of the firm of Amen, Surdam & Company, with an office in Buffalo. It was the petitioner's practice to visit Hausle's office upon notification that preparation of the return had been completed by him, to sign the return, to take it home with her and within the next few days to make out a check for the tax and to mail the check and return to the collector at Buffalo. Preparation of the petitioner's 1943 return had been completed by Hausle and was signed by him as preparer of the return, on February 3, 1944. It was signed by the petitioner on February 10, 1944, and her check for the tax shown thereon was drawn and dated February 15, 1944. The return was stamped ‘Filed‘ by the collector under date of April 29, 1944, and the tax shown was assessed on the May 1944 list. The check was endorsed for collection under date of May 4, 1944.

The petitioner did not retain in her possession the 1943 return at a date when it would have been too late for it to have reached the collector by March 15, 1944.

The respondent determined that the petitioner's individual income tax return for 1943 was not filed within the time prescribed by law and that a penalty of 10 per cent of the tax should be imposed for delinquency in the filing of the return, in accordance with section 291 of the Internal Revenue Code.

The petitioner's income tax return for 1943 was timely filed.

OPINION.

TURNER, Judge:

The question is whether the income covered by Article II of the trusts created by petitioner's father and mother was taxable to her.

The contentions and claims of the parties, both as to fact and law, have in some instances been very loosely made. One contention of the respondent is based on a factual premise that the petitioner received the Article I income of the two trusts by her own appointment, and the contention is that since the appointment of Article II income was likewise within her sole discretion and said article specifically declared that ‘in any event‘ she was to be included in the class of beneficiaries from whom she had the absolute and uncontrolled discretion to select the recipient or recipients of the income, she accordingly had unfettered command over such income, thereby making the income her income, under section 22 (a) of the Internal Revenue Code, and Corliss v. Bowers, 281 U.S. 376. As to Article I income, the short answer is that it is not involved in this case, and further, the petitioner did not, and was not entitled to, receive the income under that article by appointment or through an exercise of discretion by anyone, but received it by specific and unqualified grant of the donors. As to Article II income, it is true that the recipient or recipients thereof were to be selected by the petitioner in her absolute and uncontrolled discretion from among her lineal descendants or ancestors and it was specifically declared that the phrase ‘lineal descendants or ancestors‘ should include ‘in any event, Ruth W. Ullman.‘ It is to be noted, however, that an expressed consideration for the creation of each trust was the desire of the grantor ‘to provide and secure‘ for his or her family ‘beyond peradventure a proper maintenance and support,‘ and that the ‘absolute and uncontrolled discretion‘ granted to petitioner to designate the recipient or recipients of the income was discretion ‘as Trustee.‘ We think it follows, therefore, that in the absence of some further facts requiring a contrary conclusion, the discretionary power of the petitioner was a trust power, and not a donee power, and that she did not have such personal and unfettered command over the income, whether distributed to her or not, as would make the income her income within the meaning of section 22 (a), supra, and under the doctrine of Corliss v. Bowers, supra. Annie Inman Grant, 11 T.C. 178, relied on by the respondent, is not this case. There the power to take the income of the trust was in the taxpayer as the widow and legatee of the testator, and not as trustee. Edgar R. Stix, 4 T.C. 1140, affd., 152 Fed.(2d) 562, is also distinguishable. There the trustees were, by specific grant from the donor, primary beneficiaries of the trust income, and it required affirmative action on their part to take the income from themselves. While there was in them the discretion to pass the income over to their sons, there was no apparent standard or basis upon which exercise of such discretion could be required. The facts here are to the contrary.

It is the claim of the petitioner that regardless of the provisions of the trust instruments, she could not, under New York law, take the Article II income for herself or apply it to her use, and since the Article II income of the Benjamin Weitzenkorn trust was, in fact, distributed to Daisy R. Weitzenkorn, who reported the income so distributed as her income and paid the tax thereon, and the Article II income of the Daisy R. Weitzenkorn trust was, in fact, distributed to Benjamin Weitzenkorn, who reported the income as his income and paid the tax thereon, no part of the income was the petitioner's income or taxable to her. So far as the answer to our question turns on the petitioner's discretionary power to name the recipient or recipients of the Article II income, we are able to follow the petitioner's argument as to the income from the Daisy R. Weitzenkorn trust. We have already stated our conclusion that the petitioner's power to designate the recipients of the Article II income was a power as trustee, and as to the Daisy R. Weitzenkorn trust, Benjamin Weitzenkorn was one of the class of beneficiaries to whom petitioner could in her discretion distribute the income, and, having distributed the income to Benjamin Weitzenkorn, the income was his income, to be reported by him, as it was, under section 162 (c) of the Internal Revenue Code.

The situation is not the same as to the Article II income of the Benjamin Weitzenkorn trust which the petitioner and her husband paid over at petitioner's direction to Daisy Weitzenkorn. Daisy Weitzenkorn was not a member of the class of individuals to whom petitioner had the discretionary power to distribute the Article II income of the Benjamin Weitzenkorn trust. In that trust it was pointedly provided that none of the income should be paid to Benjamin Weitzenkorn, the donor, or to any person whom he was legally obligated to maintain and support. It is true the provision mentioned was followed by a declaration that the phrase ‘lineal descendants or ancestors‘ should include Daisy Weitzenkorn, but the inclusion of Daisy Weitzenkorn as a lineal descendant or ancestor was in turn limited by the words ‘provided the Donor at the time and during the term of such designation is not under a legal duty to maintain or support her.‘ Under the laws of New York, a husband is obligated to support his wife, and by section 51 of the New York Domestic Relations Law, it is provided that ‘a husband and wife cannot contract to alter or dissolve the marriage or to relieve the husband from his liability to support his wife.‘ The inescapable conclusion, accordingly, is that Daisy Weitzenkorn was ineligible to receive the Article II income as beneficiary of the Benjamin Weitzenkorn trust. It does appear, however, that the income was, in fact, paid over to her by petitioner and Richard Ullman, her husband and co-trustee, and that this payment was made at the direction of the petitioner. Such being the facts, the only conclusion apparent to us is that the petitioner, exercising her absolute and uncontrolled discretion as trustee, applied the income to her own use, as Benjamin Weitzenkorn, by specific provision in the trust instrument, provided she might, and then individually gave the money to her mother. Otherwise, we attribute to the petitioner acts in direct violation of the trust powers and duties which she has assumed and claims to have carried out.

Haas v. Haas, 298 N.Y. 69, 80 N.E.(2d) 337.

In support of the proposition that under New York law she could not name herself as distributee of any part of the Article II income, even though she was, by specific words of the trust instrument, named as one of the class to whom she could in her absolute and uncontrolled discretion distribute such income, the petitioner cites and relies on section 141 of the Real Property Law of New York, and on various decisions of the New York state courts, including Rogers v. Rogers, 111 N.Y. 228, 18 N.E. 636; In re Brooklyn Trust Co., 295 N.Y.S. 1007; In re Fowles Will, 222 N.Y. 222, 118 N.E. 611; Stanley v. Payne, 119 N.Y.S. 570; and Lenzner v. Falk, 68 N.Y.S.(2d) 699. With respect to this contention, it is to be noted that section 141, supra, is, by its terms, limited to a power to distribute principal and provides no statutory restriction on a granted power to a trustee to distribute income. Similarly, the cases cited and the New York cases we have been able to examine generally, have to do with a discretionary power to distribute principal, rather than a discretionary power over income comparable to that of petitioner under Article II of the trusts before us. In that connection, however, we think it may be said that trust powers may not be interpreted or exercised by a trustee so ‘as to feather his own nest at the expense of his charge,‘ and the New York decisions do indicate that there may be cases in which there is such conflict of interests as to justify the removal of a trustee, in others the exercise of discretion, in so far, at least, as it relates to the trustee as a beneficiary, must be left to the courts; and in some, the power, by its very nature, requires that it be executed by the trustee in favor of someone other than himself. On the other hand, there is a generally accepted principle that in administering and interpreting a trust, due regard is to be given to the intent of the creator of the trust. Here, the trustor, with definiteness which we think may not be questioned, declared his intent to be that ‘in any event‘ the petitioner was to be one of the group to which she in her absolute and uncontrolled discretion as trustee had the power, also expressly given, to distribute the trust income. On the basis of the cases cited, and those we have examined, we do not think it follows, the facts being what they are, that the New York courts would, in the absence of fraud or abuse of discretion, reject or refuse to approve the acts of the petitioner in administering the trust. Here, however, we are not supervising or controlling the administration of the trust, but are required to determine the tax consequences after the fact, or, to put it differently, the tax effect of what has already occurred. Petitioner took the Article II income of the Benjamin Weitzenkorn trust and gave it to Daisy Weitzenkorn, who was not an eligible beneficiary, and petitioner claims that she was acting ‘as Trustee‘ in so doing. The only way such action can be harmonized with the specific words of the trust instrument, is to say that as trustee she distributed the income to herself and then gave it to her mother. No one has made any point in this case questioning the propriety of her acts, and, the circumstances being as they are, we do not see how petitioner, as the basis for avoiding the tax consequences of her act, can be heard to say that she acted outside her trust powers. We accordingly conclude that the Article II income of the Benjamin Weitzenkorn trust is taxable to petitioner because, in the discretion of the trustee, it was distributed to her. Section 162 (c) of the Internal Revenue Code, supra.

Sec. 141. Capacity to take and execute a power.A power may be vested in any person capable in law of holding, but can not be exercised by a person not capable of transferring real property. A power, vested in a person in his capacity as trustee of an express trust, to distribute principal to himself cannot be exercised by him; if the power is vested in two or more trustees, it may be executed by the trustee or trustees who are not so disqualified; if there is no trustee qualified to execute the power, its execution devolves on the supreme court. (As amended L. 1945, c 843, eff. April 18, 1945.)

See In re Peabody's Will, 96 N.Y.S. 556. In that case the trust was an inter vivos trust providing that the income was to be distributed for the support and maintenance of grantor's children and grandchildren with absolute and unrestricted power in the trustee, grantor's son and a beneficiary, to fix and vary the amounts distributed and to withhold all income ‘from any or more‘ and to apply and distribute the same to others. Any successor trustee was to be named from grantor's ‘lineal descendants.‘ There was no ‘lineal descendant‘ not a beneficiary who was qualified to act. The trustee distributed the income equally among a sister, a brother and himself. Petitioners charged abuse of discretion in distributing the income and asked for construction of the trust and for an accounting. The court held that grantor's wishes as to trustee should prevail and that the trustee was not disqualified because a beneficiary; that it will be presumed that a fiduciary will properly perform his duties, and in the absence of fraud or bad faith he would not be removed and that the action to be taken would turn on the proof. See also In re Block's Will, 60 N.Y.S.(2) 639; In re Haydens Estate, 16 N.Y.S.(2) 122; In re Fortes Will, 267 N.Y.S. 603; In re Cowens state, 265 N.Y.S. 40; and Carrier v. Carrier, 226 N.Y. 114, 123 N.E. 135.

There remains for determination the effect of petitioner's right to take down each year $25,000 from trust corpus. The respondent, citing and relying on Elsie C. Emery, 5 T.C. 1006, affd., 156 Fed.(2d) 728, certiorari denied, 329 U.S. 772, claims that since the petitioner, given time, could take the entire corpus, the entire income from both trusts is her income. That the power and right to take $25,000 from the corpus of the trust, in each and every year, is a donee power, and not a power in trust, is, we think, apparent from the terms of the trust instrument. The petitioner, during her lifetime, was given the right, merely by making demand therefor, to take $25,000 from trust corpus in each calendar year. The right was hers individually and without limitation. In fact, petitioner does not contend otherwise, admitting that by reason of the right she is taxable on the income from $25,000 of the trust corpus each year. It is her claim, however, that since she has already reported the Article I income, and since that income is one-third of the entire income under both Articles I and II, the income which she has so reported is in excess of the income from $25,000 of corpus, and, therefore, no additional amount is to be added to her income by reason of her right to take corpus.

It is well settled that an unqualified right to take and use trust corpus gives to the person holding the right such command over the trust property as to make the income therefrom his income. Jergens v. Commissioner, 136 Fed(2d) 497; Elsie C. Emery, supra; Ella E. Russell, 45 B.T.A. 397; H. S. Richardson, 42 B.T.A. 830, affd., 121 Fed.(2d) 1. We do not agree with the respondent, however, that petitioner's right in the taxable years here involved extended to the entire trust corpus. While her right to take corpus was unqualified, it was limited to $25,000 in each year, and it was not cumulative. On the other hand, we do not agree with the petitioner that the Article I trust income reported by her covers in full the income which was hers by reason of her unqualified right to take corpus. By the terms of the trust instrument, the $25,000 of trust corpus which petitioner had the right to take on demand, in each year, was specifically chargeable to ‘the corpus of the trusts,‘ and not to corpus underlying Article I to the exclusion of Article II, or vice versa. It follows, we think, and we so conclude, that of the income which was hers by reason of her right to take corpus, only one-third thereof may be said to have been reported by her when she reported the income distributed to her by reason of the provisions of Article I. The remaining two-thirds of the income attributable to the $25,000 of corpus which she had the right to take in each of the taxable years was over and above the income received and reported by her as Article I income. The conclusion here reached is of importance only with respect to the Daisy R. Weitzenkorn trust, since we have above concluded, for reasons already stated, that the entire income of the Benjamin Weitzenkorn trust is taxable to petitioner.

For a New York case dealing with the property rights in trust corpus of the holder of an unqualified power to take corpus, see Major v. Major, 163 N.Y.S. 925.

We have no way of knowing what the amount of trust income on $25,000 of trust corpus was in the taxable years here in question, or what its ratio was to the total trust income. There is evidence of record disclosing the total trust income and the securities transferred to the trust are shown by stipulation, but we are not advised as to the value of the trust corpus at the time of transfer or for the years in question. The parties may, however, under Rule 50, make the necessary computations to give effect to the conclusion reached.

The remaining issue is whether the petitioner is subject to the penalty proposed by the respondent for failure to file a timely return for 1943. The respondent contends that the petitioner did not file the return within the time required by law, and that her failure to do so was due to willful neglect. The petitioner claims that her return was timely filed and that she is not subject to the penalty.

In support of his position, the respondent relies on the stamped filing date of April 29, 1944, placed on the return in the collector's office. The petitioner relies on her custom or practice as to the preparation of her returns and the filing of them, together with the check for the tax, immediately or within a short time after preparation, and to the fact that the return was not in her possession on a date when it would have been too late for it to have reached the collector by mail by March 15, 1944.

There is no evidence as to when the return was actually received by the collector. It was signed by petitioner on February 10, 1944, and on February 15, 1944, she drew her check for the tax. These dates are consistent with the petitioner's claim that her return was filed long before the due date. The petitioner made the impression of one who was honest and fair in her testimony. While she could not remember precisely that she personally mailed the return, or had it mailed, she was certain that she followed her usual method in sending it to the collector. She was positive that she did not have the return in her possession on a date too late to enable her to make a timely filing of it. This fact, we think, is persuasive that she timely mailed the return.

In Capento Securities Corporation, 47 B.T.A. 691, affd., 140 Fed.(2d) 382, involving a question similar to that presented here, we said:

In order to show in the instant case that the failure to file timely returns was due to reasonable cause, petitioners could offer proof that the returns had been timely ‘placed in the mails, properly addressed and postage paid,‘ either through the oral testimony of the corporate officer charged with the filing of the returns or through the documentary evidence of the envelopes in which they were mailed. * * * Petitioners were therefore confined in their proof on this issue to the envelopes which would have definitely proved the time when the returns were mailed to the collector and which, in all cases involving a question of whether a return was posted in ample time to reach the collector's office by the due date, should have been ‘preserved by the collector and forwarded to the Commissioner with the return.‘

While the petitioner had the burden of proof on this issue, it appears that she has made a prima facie case. If the return had not been timely mailed, preservation of the envelope by the representatives of the respondent would have been the normal course for them to take. Since the respondent failed to produce the envelope, it may reasonably be assumed, we think, that he did not preserve it because it was of no value as evidence.

From a consideration of the evidence bearing on this issue, we have found as a fact that the petitioner's return was timely filed. Accordingly, we hold that the petitioner is not liable for the penalty proposed by the respondent.

Reviewed by the Court.

Decision will be entered under Rule 50.

VAN FOSSAN and DISNEY, JJ., dissent.