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HELVERING V. STUART, 317 U. S. 154 (1942)

U.S. Supreme Court

Helvering v. Stuart, 317 U.S. 154 (1942)

Helvering v. Stuart

No. 49

Argued October 23, 1942

Decided November 16, 1942*

317 U.S. 154


1. In resisting a taxpayer's petition for redetermination of deficiencies, the Commissioner of Internal Revenue may invoke before the Circuit Court of Appeals on review, and in this Court by certiorari, provisions of the Revenue Law which were not relied on or adduced in his answer to the taxpayer's petition. P. 317 U. S. 159.

2. Section 166 of the Revenue Act of 1934, in providing that the income from a trust shall be taxable as income of the grantor

"where at any time the power to revest in the grantor title to any part of the corpus

Page 317 U. S. 155

of the trust is vested in any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom,"

intends that the question whether such power is so vested by the trust instrument shall be determined by the construction and legal effect of the instrument under the state law. P. 317 U. S. 161.

3. Section 167 of the Revenue Law of 1934, in providing that,

"where any part of the income of a trust may, in the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such part of the income, be distributed to the grantor . . . , such part of the income of the trust shall be included in computing the net income of the grantor,"

intends that whether such a distribution is permissible under the trust instrument shall be determined by the state law. Upon the question whether, under the law of Illinois, in a trust deed for the benefit of the donor's children, a provision purporting to empower a majority of three trustees (the donor's wife, and brother) to amend the deed by changing the beneficiaries and in other respects could be applied to revest the property in the donor, this Court accepts the reasoned judgment to the contrary of the Court of Appeals whose circuit embraces that State. P. 317 U. S. 161.

4. If reasonably avoidable, this Court should not undertake first-instance determinations of rules of local law. P. 317 U. S. 164.

5. It would not be an arbitrary, or unreasonable, or even an unlikely, holding on the part of the courts of Illinois to conclude that, under the terms of the trusts involved here, equity ought to and would prevent the wife and brother of the donor, claiming, as trustees, authority to change the beneficiaries under the provisions of the indenture, from vesting the property in themselves or in the donor or in others for the benefit of themselves or the donor to the detriment of the present beneficiaries. P. 317 U. S. 164.

6. On the assumption that, under such a trust deed, the Illinois law forbids the vesting of the res in the donor by act of the trustees, within the intendment of § 166 of the Revenue Act of 1934, so also it would be impossible for the trustees to accumulate the income for the donor or to distribute it to him directly within the intendment of § 167. P. 317 U. S. 166.

7. Under the Illinois law, the power to amend which could not be exercised by the trustees in favor of the donor could not be exercised in favor of his creditors. P. 317 U. S. 166.

8. Under §§ 22(a) and 167 of the Revenue Act of 1934, where there is a trust directing and empowering the trustees to devote so much of the net income as to them shall seem advisable to the education,

Page 317 U. S. 156

support, and maintenance of the donor's minor children, the possibility of the use of the income to relieve the donor pro tanto of his parental obligation causes the entire net income to be taxable as income of the donor. Douglas v. Willcuts, 296 U. S. 1. P. 317 U. S. 167.

124 F.2d 772 reversed in part, affirmed in part.

Certiorari, 316 U.S. 654, to review two judgments of the court below, reversing decisions of the Board of Tax Appeals, 42 B.T.A. 1421, sustaining deficiency income tax assessments.

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