Dodge v. Commissioner

ROBERT G. DODGE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Dodge v. Commissioner Docket Nos. 63404, 70509. United States Board of Tax Appeals 29 B.T.A. 632; 1933 BTA LEXIS 909; December 26, 1933, Promulgated *909 The petitioner, under a trust established by the will of his father, had an equitable life interest therein consisting of the right to receive one third of the income of the fund after the death of his mother, who died in 1921. On September 13, 1929, the petitioner "for valuable consideration" assigned to each of two daughters for life one twelfth "of the income of the residuary trust under the will of Elisha P. Dodge [his father] accruing from September 1, 1929, to the date of my death." Payments pursuant to the rights assigned were thereafter made by the trustees to the assignees, the first payment to each daughter on November 20, 1929, including $65.46 which had been collected by the trustees prior to the date of the assignments. Held, that the $130.92 representing the proportionate part of the distributions made on November 20, 1929, to the assignees which had been collected by the trustees prior to the execution of the assignments, constituted taxable income of the petitioner for 1929; held, further, that the amounts paid to the assignees which were accumulated subsequent to the assignments did not constitute taxable income of the petitioner; R. Ammi Cutter,*910 Esq., for the petitioner. assignments did not constitute taxable income of the petitioner. SMITH *632 In these proceedings, consolidated for hearing, the petitioner seeks a redetermination of deficiencies in income tax for 1929 and 1930 of *633 $174.36 and $1,901.20, respectively. The point in issue is whether the petitioner is liable to income tax in respect of certain payments made by the trustees of a trust fund to the petitioner's daughters under certain assignments executed by him on September 13, 1929. FINDINGS OF FACT. The petitioner is a resident of Boston, Massachusetts. By item nine of the will of Elisha P. Dodge one half of the residue of his estate was left to trustees in trust to pay the income to petitioner's mother during her life, and after her death to pay the income in quarterly payments to the three sons of Elisha P. Dodge, one of whom was the petitioner, in equal shares during their respective lives. Elisha P. Dodge died in 1902 and his will was duly approved and the trust estate set up. His widow, the petitioner's mother, died in 1921. Thereafter, the three sons of Elisha P. Dodge, all of whom are still alive, became*911 entitled to the income of the trust during their lives, each receiving one third. On September 13, 1929, the petitioner executed the following assignment: Know all men by these presents that I, Robert G. Dodge, of Boston, Massachusetts, for valuable consideration do hereby assign and transfer to my daughter Katharine G. Dodge, of said Boston, for her natural life one-twelfth (1/12) of the income of the residuary trust under the will of Elisha P. Dodge accruing from September 1, 1929, to the date of my death; the income thus transferred being one-fourth (1/4) of that to which I am now entitled under the provisions of said will. Witness my hand and seal this 13th day of September, 1929. [Signed] Robert G. Dodge (SEAL) On the same date he executed a like assignment in favor of his daughter, Eleanor C. Dodge. At the time of the assignments the petitioner's two daughters were both over 21 years of age and held professional positions. They did not live in the petitioner's household. The petitioner, by the assignments, desired to provide each daughter with an independent income apart from her professional income which would enable her to live in greater comfort than would*912 have been possible on the basis of her own earnings. At the time of the assignments two other daughters of the petitioner were living in his household and were then and still are dependent upon him for support and for the expenses of their education. The petitioner made no assignments to them. The petitioner's four daughters, under the provisions of item nine of the will of Elisha P. Dodge, have a contingent equitable interest in the remainder of the trust fund; for at the death of the petitioner, if they survive him, they together will take an interest in the fund or its income at least equal to the present proportionate share of the petitioner and his two older daughters. *634 The petitioner gave notice of the assignments to the trustees of the trust fund, who were then, and still are, the petitioner himself, his brother Laurence P. Dodge, and one Henry B. Little. He also gave notice of the assignments to the two assignees. Since the date of the assignments the trustees have paid one quarter of one third of the income of the trust fund directly to each of the petitioner's two daughters. Petitioner duly filed his income tax returns for 1929 and 1930, but did not*913 include therein as part of his income that portion of the income from the trust fund which was paid to his two daughters. The respondent in his notices of deficiency has added to the income reported by petitioner the amounts paid over to his two daughters in 1929 and 1930 on the theory that the petitioner was liable to income tax thereon. The last distribution of income by the trustees under the will of Elisha P. Dodge Prior to September 13, 1929, the date of the assignments, was on August 22, 1929, on which date the trustees distributed to the beneficiaries of the trust as of that date all the income of the trust fund then in their possession. During the period from August 22 to September 13, 1929, inclusive, the total amount which the trustees received on account of income was $785.50. On November 20, 1929, the trustees distributed to the then beneficiaries under the trust the total income received during the period from August 22 to November 20, 1929, inclusive, amounting to a total of $5,200.32. Of this sum one twelfth, or $433.36, was distributed directly to the petitioner's daughter, Katharine G. Dodge, and one twelfth, or $433.36, to the petitioner's daughter Eleanor*914 C. Dodge, a total direct distribution to these daughters of $866.72. One sixth of the sum of $785.50 is $130.92, which last named amount represents the total distribution made to the two daughters of income from the trust fund which was received by the trustees prior to the execution of the assignments. OPINION. SMITH: If the assignments made by the petitioner on September 13, 1929, were valid assignments, the decision in this case is ruled by our opinion in . We there held that an assignor of portions of her right to receive income from a trust fund was not liable to income tax in respect of income paid to the assignees after the execution of the assignments. We held, however, that the assignor was liable to income tax in respect of income which had been accumulated by the trustees prior to the date of the execution of the assignments. Consonant with that opinion, we hold that the petitioner is liable to income tax upon $130.92 of the amounts distributed to the petitioner's assignees in 1929. *635 The respondent contends that the instruments by which the petitioner purported to assign fractional parts of his interest*915 in the trust fund were not sufficient in law. The basis for this contention is that they were not under seal. We are of the opinion that there is no merit in this contention. The exhibits show that the assignments are under seal, and recite that they are under seal. But, even if no seal had been upon the instruments, they would have been under seal for, by statute in Massachusetts, an instrument, if it recites that it is under seal, has the effect of a sealed instrument, whether a seal has been placed upon it or not. See G.L. Mass. (Tercentenary ed. 1931), ch. 4, § 9 A (St. 1929, ch. 377, § 2). Reviewed by the Board. Judgments will be entered under Rule 50. STERNHAGEN and SEAWELL dissent.