Helvering v. Clifford

309 U.S. 331 (1940)

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Nature of the Case

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Facts

P created a trust for five years with himself as trustee. All net income of the trust was to be held for the exclusive benefit of his wife. The trust would terminate earlier on the death of either his wife of P. On termination of the trust, the entire corpus was to go to P while all accrued and undistributed net income any proceeds of such income was to go to his wife. During the running of the trust, P was to pay over to his wife the whole or such part of the net income that in his absolute discretion he might determine. During the five-year period, P had full power to exercise all voting rights of any trustee shares and to sell mortgage or pledge any of the securities within his absolute discretion and to invest the proceeds in any manner he sees fit. Extraordinary cash dividends were to be treated as principal and not income. There was an exculpatory clause for P's benefit related to willful and deliberate breaches of duty as trustee. P paid taxes on the gift transfer, and during 1934 all the income was distributed to his wife, and that was included on her return. The IRS claimed that the income was P's and taxable to him. The Tax Board affirmed, and the circuit court reversed, and the Commissioner appealed. The Supreme Court granted certiorari.