Reinecke v. Smith, 289 U.S. 172 (1933)

Reinecke v. Smith

No. 601

Argued March 22, 23, 1933
Decided April 10, 1933
289 U.S. 172

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Syllabus

Section 219(g) of the Revenue Act of June 2, 1924, provides:

Where the grantor of a trust has at any time during the taxable year, either alone or in conjunction with any person not a beneficiary of the trust, the power to revest in himself title to any part of the corpus of the trust, then the income of such part of the trust for such taxable year shall be included in computing the net income of the grantor.

Held:

1. A trustee is not a "beneficiary" of the trust within the meaning of the statute. P. 174.

2. The provision is not arbitrarily retroactive, since it applies not to transactions consummated before its passage, but to the income accruing after the effective date of the Act, January 1, 1924. P. 175.

3. The same considerations as to ownership and control affect the power to impose a tax on the transfer of the corpus and upon the income. P. 175.

4. Where a settlor of a trust vests the power to modify or revoke it in himself and the trustee, the trustee is under no fiduciary obligation to the cestui que trust to refrain from exercising the power, and the situation in that regard is as though it were vested in the grantor jointly with a stranger to the trust. P. 176.

5. To tax the income of such a trust to the settlor while he and the trustee jointly retain the power to revoke or modify the trust is consistent with the Fifth Amendment, and helps to make the income tax system complete and consistent and prevent evasions. P. 177.

61 F.2d 324 reversed.

Certiorari, 288 U.S. 596, to review the affirmance of a recovery from the Collector of money collected as taxes from the respondents’ testator.