TAXATION-TRUST INCOME-TAXABILITY TO PERSON OTHER THAN SETTLOR ON BASIS OF UNFETTERED COMMAND

Petitioner\u27s father, who owned the entire capital stock of a manufacturing corporation, bequeathed a controlling interest therein to his wife and son, in equal shares. The widow transferred her shares in trust to a corporate trustee, the evident purpose being to vest in the son, petitioner here, the power to control the corporation. According to the terms of the trust the income was to be accumulated and added to the corpus for the joint lives of the settlor and petitioner, and after death of settlor to be disposed of according to the directions of petitioner. The shares were to be retained and voting control maintained in the family after petitioner\u27s death, but this clause he later changed to provide for distribution at his death. Overriding all these provisions were the following powers given to the petitioner: (1) absolute power to modify or amend, including power to change beneficiaries and appoint to himself; (2) power to withdraw any part or all of the corpus, or revoke the trust and appropriate the trust property to himself; (3) control over all dealings in the stock by the trustee, and over the voting of the stock by the trustee; (4) power to remove the trustee. At no time during the existence of the trust had any of the income or principal been distributed to any person, and the income tax had been paid by the trustee on a fiduciary return. The Tax Court sustained the commissioner\u27s contention that the income was taxable to petitioner under section 22 (a) of the Internal Revenue Code, the theory being that his powers over the trust property amounted to ownership of the income. The facts that the purpose of the settlor had been to preserve management of the family corporation rather than to bestow economic benefits on petitioner, and that the latter had exercised none of his powers over the income, were not significant. On appeal, held, affirmed. Bunting v. Commissioner of Internal Revenue, (C.C.A. 6th, 1947) 164 F. (2d) 443