Irvine v. Commissioner

JAMES IRVINE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Irvine v. Commissioner Docket No. 104587. United States Board of Tax Appeals 46 B.T.A. 246; 1942 BTA LEXIS 886; February 4, 1942, Promulgated *886 1. Petitioner, a man of mature age with adult children by a first marriage, created a trust as part of an antenuptial agreement with his second wife, a woman of mature age with an adult child by a first marriage, the income to be paid to her for her use in purchasing clothing and for any other use which she might choose. Petitioner agreed to furnish necessaries other than clothing to his wife from his own income, and in consideration of the establishment of the trust the wife surrendered all community rights to petitioner's property and income. Held, under facts, only that part of the income of the trust used by the wife for her maintenance is taxable to petitioner. 2. Petitioner made a contribution to the Society of California Pioneers. Held, under the facts, this Society was an organization coming within the provisions of section 23(o), Revenue Act of 1936. 3. Petitioner owned certain preferred stock of X corporation which was called for retirement by the corporation as part of a plan of recapitalization which eventuated in an expansion of the company's capital structure. Held, this was a partial liquidation as defined by section 115(i), Act of 1936 (L. B. Coley,45 B.T.A. 405);*887 held, further, under the facts, petitioner is taxable on the entire compensation paid him during taxable year. Arthur H. Kent, Esq., for the petitioner. T. M. Mather, Esq., for the respondent. KERN *246 This proceeding involves a deficiency in petitioner's income tax for the year 1937 determined by respondent in the amount of $20,189.02. Four issues are here presented for our determination: First, whether the amount of $18,000 representing income of a trust set up by petitioner for his second wife, which amount was paid to her by the trustee in the taxable year, is includible in petitioner's taxable income; second, whether the amount of $3,300 representing a contribution made by petitioner to the Society of California Pioneers is deductible as a contribution as provided in section 23(o) of the Revenue Act of 1936, for purposes of computing petitioner's net income; third, whether the entire gain of $4,253.97 resulting from the redemption of stock in the Tidewater Associated Oil Co. was realized from a partial liquidation and, therefore, wholly taxable, or was realized on the sale of a capital asset, subject to the provisions of section*888 117 of the Revenue Act of 1936; fourth, whether petitioner, a resident of a community property state, is taxable on the entire compensation paid him in the taxable year for services rendered *247 in that year, or on only one-half ($7,215). A fifth issue raised by the taxpayer in his petition, relating to deductibility of legal expenses, has been abandoned by the petitioner. The deficiency notice disallowed a further contribution of $100 on the ground that it was neither an ordinary or necessary business expense nor a contribution of the type referred to in section 23(o), Revenue Act of 1936. Petitioner has not contested this last determination. A partial stipulation of facts has been filed by the parties and we find these facts to be as stipulated. At the hearing herein certain testimony was given. The pertinent facts stipulated and the facts found by us from such testimony are as follows: FINDING OF FACT. James Irvine, the petitioner, is a resident of San Francisco, California. His income tax return for the taxable year was filed with the collector of internal revennue for the first district of California. Trust Income Issue. On January 27, 1931, the*889 petitioner and Katherine Brown White executed an antenuptial agreement. Petitioner was then a widower with two married sons and a granddaughter living. The granddaughter was the offspring of petitioner's only daughter, then deceased, and had been living with petitioner ever since her mother's death. Katherine Brown White had been divorced from her husband in 1922 and had custody, in 1931, of her only child, a son, who was 19 years of age and a student of the University of Oregon. Petitioner and Mrs. White were desirous that their marriage should create no financial discord between petitioner's then existing family and Mrs. White and her son. Petitioner was a man of many business affairs, including agricultural, oil, real estate, and railroad investments, and had amassed a very large estate, estimated by himself and Mrs. White at the time to be worth approximately twenty million dollars. Petitioner has been actively engaged in agriculture for over 50 years. He operated several such properties, some of which he owned individually and others were owned by corporations of which petitioner was president and majority stockholder. All but one of these properties has been financially*890 profitable. He gave a great deal of time to their management and operation and has maintained books and records showing investment in, cost of operation, and profits derived from these ventures. In 1931, when contemplating this second marriage, petitioner was very active in the operation of his business enterprises and believed that he would amass considerable further properties as the result thereof. *248 In view of these facts, and as a component part of the antenuptial agreement, a trust agreement was drawn up and executed by the petitioner as settlor, the Anglo-California Trust Co. as trustee, and Mrs. White as beneficiary. Prior to the execution of these two documents, petitioner and Mrs. White discussed the latter's future needs with respect to clothing, pin money, and the like, and Mrs. White estimated that $500 a month would probably be satisfactory for these purposes. The executed agreements contain, inter alia, the following provisions: WHEREAS, the party of the second part [Mrs. White] is possessed of only a small amount of property, and derives therefrom only a small income; and WHEREAS, the said parties are planning to be married in the near*891 future * * * and have agreed upon the settlement as herein stated, and the party of the second part [Mrs. White] has stated repeatedly, and hereby states, to the party of the first part [petitioner], that she does not desire to have or to become possessed of any interest in the property the party of the first part now has, or in any thereof, but that she wishes the party of the first part hereafter to continue, as heretofore, to have the full right, liberty and authority over his said property, as his sole and separate property, as he has heretofore, in all respects, and that after the marriage of the parties hereto the party of the first part shall continue to have in respect to said property, and the rents, issues and profits thereof, the same full right, liberty and authority of control and disposition, to the same extent in all respects as he would have if he were not married, to use, enjoy, manage, convey, mortgage, grant, alienate, give away and in any manner dispose of all and every and any part of his said property, the rents, issues and profits thereof; and WHEREAS, it is recognized that the party of the first part by virtue of his experience, energy and ability, is*892 likely to have and acquire hereafter, from time to time, a large amount of property during the marriage of the parties hereto, which would be deemed community property of the marriage, but that the party of the second part does not desire to have any interest in such property whatsoever, * * * to the end that there shall be at no time any community property of the said marriage of the parties hereto, but all * * * property, however acquired by him during the said marriage, together with the rents, issues and profits thereof, shall be deemed his sole and separate property, unaffected by any community rights arising from said marriage in favor of the party of the second part; and WHEREAS, the party of the second part is willing to receive and accept the provisions hereinafter set forth for her maintenance and support in place and stead and in full satisfaction of any rights she might have by virtue of marriage in the property now owned by the party of the first part, or any thereof, and in lieu * * * of any community rights * * *; and WHEREAS, it is the wish of the party of the first part to make such allowance as will be satisfactory to the party of the second part and adequate*893 for her support and maintenance during her life; and WHEREAS, * * * it has been deemed by each fair * * * and adequate to make the provisions hereinafter set forth for the support and maintenance of the party of the second part, and she hereby expresses * * * approval * * *, * * * (1) *249 It is hereby agreed, and the party of the first part hereby covenants and guarantees to the party of the second part, that she shall * * * be paid, during her life, the sum of $1,500 per month, or so much thereof as she may desire * * * for her sole and individual use as she may see fit, without the necessity of accounting therefor to anyone, said sum to cover her requirements for pin money and the like, including her personal expenses for clothing and the like, but not including any household expenses of any kind, traveling expenses, medical expenses, taxes, automobile expenses, or other matters, it being understood that the party of the first part will provde a suitable home at his expense, and maintain the same, * * * and the party of the first part is to assume the burden of expenses in all respects, with the exception as aforesaid, arising during the marriage of the parties. *894 The agreement stated that Mrs. White believed she would require no more $500than per month for the purposes of the trust, but that she should not be restricted to such amount and could, in her discretion, demand up to $1,500 each month. The agreement then stated that a trust had been set up that day from which the monthly payments were to be made. The income from the trust corpus would probably, at first, be insufficient to make the payments in full out of income, it was stated, so the agreement further provided: Until such time as the income of the trust becomes adequate, as aforesaid, for the purpose of making the said monthly payments, the party of the first part hereby agrees and assumes the duty to make the said monthly payments to the party of the second part, but not as advances, and first party shall have no right of repayment. Then followed provisions for Mrs. White's benefit in case petitioner predeceased her without the trust corpus yet producing sufficient income from which to make the monthly payments, also provisions for exchange of any or all of the trust corpus by petitioner upon the consent of all parties, and replacement upon demand of impaired or shrunken*895 trust assets by petitioner. Petitioner also guaranteed to add to corpus in the event that, once sufficient, the trust income became insufficient for the trust purposes, and to pay to Mrs. White the deficiency in income in the interim. Any income produced by the trust corpus and not used for the purposes above mentioned was to be accumulated and become part of the corpus. Then followed the following provision: It is hereby distinctly understood and agreed * * * that should the party of the second part predecease the party of the first part, then * * * said trust shall thereupon end and all the property thereof shall go to and belong absolutely to the party of the first part; but should first party predecease second party, then, and in that event, said trust shall thereupon end all the property thereof shall go to and belong absolutely to the party of the second part. Then followed certain provisions clearly immaterial to the questions before us and a reiteration of Mrs. White's renunciation of any *250 property rights in or to petitioner's estate in consideration of the execution of the trust. In addition there appears the following proviso: Whenever the party of*896 the first part requests the party of the second part to sign any paper or document dealing with the property of the party of the first part, she agrees to sign the same. Attached to the agreement was the trust indenture, which discloses that the trust corpus consisted of 990 shares of stock and bonds in the face amount of $65,000. The trustee is, by the indenture, directed to carry out the terms of the agreement above set out and prohibited from selling or exchanging any trust property without first obtaining the written consent of petitioner and Mrs. White, and, before investing any accumulated income, petitioner's written consent was a prerequisite. It was further provided in the trust instrument that: The said trustor [petitioner], with the consent of said beneficiary [Mrs. White], shall have the right at any time he may see fit, and without being required to give any reason therefor, to remove the trustee, or any successor trustee, and to require the trustee, or any successor trustee hereunder, to resign, and in that event the trustor, with the consent of the beneficiary, shall appoint, in place and stead, another trustee or trustees, to serve and act hereunder with*897 all the rights powers and duties, obligations and limitations herein prescribed. Any appointment of trustee hereunder shall be evidenced by written instrument, signed by said trustor and beneficiary, and delivered to the trustee or trustees hereunder. Furthermore, said trustor, with the consent and approval of said beneficiary, hereby reserves the right and power to revoke this trust in whole or in part, or to modify or change the terms hereof in any way and to any extent, any such revocation or modification to be evidenced by a written instrument signed by said trustor and said beneficiary and delivered to the trustee or trustees hereunder. On August 17, 1935, petitioner and Mrs. White, then his wife, entered into a supplemental agreement, whereby the petitioner was discharged from certain of the foregoing obligations in consideration of the addition to the trust corpus of 40 shares of the capital stock of the Irvine Co., a West Virginia corporation. It was set forth in this supplemental agreement that the then corpus of the trust was insufficient to produce the monthly payments of $1,500 above referred to and petitioner desired to be relieved of his personal obligation under*898 this state of facts. Therefore, it was agreed: 1. Forty (40) shares of the capital stock of the Irvine Company * * * are hereby added to said corpus * * *. 2. The party of the second part accepts the foregoing addition of said shares to said corpus in full discharge of the promises and obligations of the party of the first part contained in said antenuptial agreement, with respect to monthly payments, and with respect to adding or transferring other and future property and securities, whether to be made or done during the life of the party of the first part or as a claim against his estate. *251 3. In all other respects and details, the rights of the parties hereto, as set forth in said antenuptial agreement, are hereby ratified, confirmed and continued in effect. 4. If, at any time hereafter, it should be claimed or asserted, by or through or on behalf of the Commissioner of Internal Revenue * * *, that the whole or any part of the addition of shares hereinabove set forth is subject to Federal Taxation as a "gift", then this supplementary agreement shall be subject to rescission from the beginning, at the option of either party hereto. On December 15, 1937, petitioner*899 and his wife entered into a second supplemental agreement whereby provision 4, supra, of the first supplemental agreement was eliminated and the first supplemental agreement was ratified with this change. In a deficiency notice dated April 13, 1938, the Commissioner for the first time determined that the transfer of August 17, 1935, involved a gift, taxable as such, and subsequently the petitioner paid a substantial gift tax on account of the transfer under the first supplemental agreement. In addition, petitioner made a gift, or gifts, in the total amount of $5,000 to his wife within the year 1937. The cash receipts and disbursements of petitioner's wife within the taxable year were as follows: CASH RECEIPTS Irvine Trust $18,000.00 Transfer from Savings Bank 2,000.00 Gift from petitioner 5,000.00 Interest on bonds 300.00 Repayments of advances (Lee St. property) 2,115.05 Sundry reimbursements 673.35 Total cash receipts 28,088.40 CASH DISBURSEMENTS To son $14,587.17 To niece 1,304.73 To sister 720.00 Clothing and other personal items 4,807.98 Christmas and other presents 1,130.36 Charity 226.50 Advances (Lee St. property) 1,148.93 Sundry advances 631.31 Horses and horse shows 2,337.56 Dogs 97.05 Perfume and jewelry 439.46 Miscellaneous 870.19 28,301.24 Bank balance, Jan. 1, 1937 $380.82 Excess of cash disbursements 212.84 Bank balance, Dec. 31, 1937 167.98 *900 *252 Charitable Contribution Issue. Petitioner, in the taxable year, made contributions in the amount of $3,300 to the Society of California Pioneers, which society was organized in August 1850 and was first incorporated January 28, 1863, under the then existing laws of the State of California. Its corporate existence was subsequently extended by certificates dated February 11, 1884, and October 31, 1922, filed pursuant to section 287 of the Civil Code of the State of California. The original certificate of incorporation stated the purposes and functions of the society to be as follows: That it is designed to be, and is, a moral, beneficiary, literary and scientific association, and that its objects are: To cultivate social intercourse and form a more perfect union among its members, and create a fund for charitable purposes in their behalf. To collect and preserve information connected with the early settlement and subsequent conquest of the country. To form such libraries and cabinets, and to pursue such literary and scientific objects as the said Board of Directors may, from time to time, determine, and in all appropriate matters to advance the interests*901 and perpetuate the memory of those whose sagacity, energy and enterprise induced them to settle the wilderness, and become the founders of a new state. The constitution of the society in article one reiterates these purposes, with one minor change, i.e., instead of the preservation of information concerning the "subsequent conquest" of the country, the term "subsequent history" is used. To be eligible for membership one must have been a resident of California prior to January 1, 1849, or be a male descendant of a member with such qualification. This entitles an individual to first class membership. For second class membership the applicant must have been a resident of California prior to January 1, 1850, or the male descendant of a member with the latter qualifications. Honorary members may be admitted without qualification. Life members paid $110 and were exempt from further payments in the nature of dues. Contributing members, over 18, paid a $10 initiation fee and dues of either $5 or $6 per annum, the amount being dependent on their place of residence. The bylaws provided for a pioneers' relief fund for relief of "worthy members needing aid." This fund was provided*902 to take care of "pioneers" only. To be classed as a "pioneer" one must be a member of the society and have resided in California prior to 1850. In 1933 only one such member was alive. He died in 1938 and, since his death, there are no further beneficiaries to receive relief payments. The society's hall, Pioneer hall, in San Francisco is maintained out of funds contributed to the society. The bylaws of the society *253 as revised to January 1, 1926, had, among other provisions, one which prohibited card playing except in rooms set aside for that purpose and prohibited smoking except in the billiard and card rooms and in two office rooms. The society maintains a library and gallery in the hall, containing maps, pictures, prints, books, diaries, and other material relating to the history of the State of California. The bylaws provide for nonresident visitors' cards at a member's request and also provide that any visitor shall have the privilege of the hall if accompanied by a member. The library and gallery have always been open to the public and no admission fees have been charged. The society once published a magazine known as "The Quarterly", the publication of*903 which was discontinued in 1933, due to lack of funds. The directors meet regularly once a month, and the members meet annually in July for election of officers and at various other times at the call of the directors. At the latter type of meeting, committee reports are presented and ordinarily a short talk is given by some member on a subject pertaining to California history. Aside from these meetings the society has no social activities. The approximate membership of the society is 450 members. The society owns one building, in addition to its hall, from which rents are collected; but the society is a nonprofit organization. The following figures indicate annual income of the society and the amount of annual relief payments to "pioneers": Fiscal year Income Relief [1930] $45,935.37 $2,100 [1931] 50,537.30 1,800 [1932] 38,345.91 1,375 [1933] 33,371.38 [1934] 32,041.46 [1935] 9,215.65 [1936] $8,209.49 $900 [1937] 8,339.99 [1938] 15,818.11 [1939] 6,828.54 [1940] 6,959,82 The Commissioner advised the society on February 3, 1938, that it was not exempt from taxation under the provisions of section 101(6) of the Revenue*904 Act of 1936, 1 but was exempted by the provisions of subsection (9) of the same section. *254 Stock Redemption Issue. Petitioner owned certain 6 percent preferred stock of the Tidewater Associated Oil Co. That company, in a prospectus dated January 1, 1937, offered to the holders of the company's outstanding 626,221 shares of 6 percent preferred stock the right to exchange*905 each share of such stock for one share of $4.50 preferred stock and $2 in cash, subject to allotment. The 6 percent preferred stock certificates held by petitioner had a par value of $100 per share. The new $4.50 preferred stock was to be without par value. Out of a total authorization of 873,779 shares, 500,000 shares of the new stock were subject to this exchange option. By the terms of its offer, the company was obligated to call for redemption on April 1, 1937, any shares of the 6 percent preferred stock not exchanged, at $105 per share plus accrued dividends. The shares thus redeemed, purchased, or otherwise acquired by the company could not be reissued. The same prospectus also offered to its common stockholders of record on January 29, 1937, the right to subscribe, subject to allotment, at $103 per share plus accrued dividends, for such shares of the $4.50 preferred stock as were not issued under the offer of exchange. The prospectus also stated that the company had entered into underwriting agreements with certain firms and corporations whereby the latter agreed to purchase from the company the $4.50 preferred stock offered to the preferred and common stockholders*906 and not taken by the latter. The price to the underwriters was set at $103 per share plus accrued dividends to the date of delivery and payment subject to certain conditions, including, inter alia, the condition that the company should pay the sum of $27,500 toward reimbursement in part of the underwriters' expenses. For the purpose of redeeming the 6 percent preferred stock shares the company used a portion of the net cash proceeds from the sale of the new $4.50 preferred stock and a $40,000,000 issue of 15-year 3 1/2 percent sinking fund debentures, with accrued dividends being paid from treasury funds. Petitioner did not take advantage of this offer of exchange, and, accordingly, his 6 percent preferred stock was called for redemption on April 1, 1937, at $105 per share plus accrued dividends. The gain realized by petitioner on this redemption was reported by him on his income tax return as a capital gain subject to the provisions of section 117 of the Revenue Act of 1936. Community Property Issue. During the year 1937 petitioner received salary income in the amount of $14,430, but reported only one-half this amount in his income *255 tax return. The*907 other half was reported by his wife in an individual return. OPINION. Trust Income Issue. KERN: The first issue for our consideration is whether the amount of $18,000 representing income of an antenuptial trust set up by petitioner for his second wife, which amount was paid to her by the trustee in the taxable year, is properly includible in petitioner's taxable income. Respondent argues, first, that the income is taxable to the petitioner under the provisions of section 167 of the Revenue Act of 1936. 2 Our findings of fact, supra, disclose that, although the petitioner did possess during the taxable year the power to revoke, alter, amend, or modify the trust agreement, nevertheless, this power was effective only if the wife, the sole beneficiary of the trust, joined with petitioner in the exercise of the power. We are not concerned with any income in excess of $18,000 which may have been earned by the trust corpus in the taxable year, but merely with the $18,000 which the instrument made subject to the wife's demand and which she, in fact, received during the taxable year. If section 167 is applicable, then it must be held that the $18,000, or some part of it, *908 could have been distributed to or was held or accumulated for future distribution to the petitioner in the discretion of petitioner alone, or in conjunction with a person not having a substantial adverse interest. That petitioner alone could not revoke or amend the instrument we have found as a fact. The question, then, narrows down to whether the wife had a substantial adverse interest. If so, then section 167 is inapplicable, since her consent was necessary to any modification, alteration, or revocation of the instrument, without which none of the $18,000 could have been either distributed to or held for the petitioner. It is difficult to conceive how the wife's *256 interest under the trust could be considered as not being a substantially adverse one. She relinquished all of her community rights as part of the quid pro quo for the execution of the trust instrument. If she consented to receive less in any year than the $18,000 made subject to her command by the instrument, she would be cutting off her principal source of income. It is possible to visualize a situation where a wife might be willing to turn over her life interest in a trust to her husband because*909 she knows that under state law governing maintenance and support and dower rights she will have equivalent or greater rights enforceable against her husband and his property. Here, however, the trust instrument together with the agreement between petitioner and his wife, specifically provided that the trust income was to be in addition to necessary support, except for clothes allowance and pin money, and by the same instrument the wife relinquished her community property rights. Clearly, here the wife had an adverse interest. Consequently, section 167 is inapplicable. See Jane B. Shiverick,37 B.T.A. 454, and cases therein cited; Commissioner v. Betts, 123 Fed.(2d) 534. *910 We are aware that in Altmaier v. Commissioner, 116 Fed.(2d) 162, the Circuit Court of Appeals for the Sixth Circuit held that under the facts presented therein the wife of the settlor was not a person having a substantial adverse interest. The court, in reaching this conclusion, relied upon the doctrine of "the normal consequences of family solidarity" which the court felt was the basis of the decision in Helvering v. Clifford,309 U.S. 331, which we discuss at greater length infra.3 The facts in that case, however, differed substantially from those present here. There the husband and wife had been married for some time prior to the creation of the trusts involved and three children had been born to the union. The picture there presented was one of "family solidarity." In the instant proceeding the trust was created before the marriage of the parties and as part of an antenuptial agreement entered into by a widow and widower of mature age, each of whom had a child or children by a former marriage. It can not be said with any sense of realism that there was such a family solidarity existing between the parties to this contract at*911 the time it was executed and prior to their marriage as to have as one of its normal consequences at that time a unity of economic interests resulting in the beneficiary's interests being identical rather than adverse to those of the settlor. *257 Respondent's next argument is that the provisions of section 166 of the Revenue Act of 1936 4 cover the situation. For the reasons set out above, however, we judge this section to be inapplicable, also. The first supplementary agreement did give to the petitioner the option of revoking the supplementary agreement which, by its terms, added certain securities to the corpus of the trust. But this option was exercisable only*912 if the Commissioner's office asserted that the whole or any part of the addition to corpus was subject to the Federal gift tax. Thus there was a condition precedent to exercise of the option, a condition over which petitioner had no control. Since the Commissioner's office did not assert a gift tax liability until after the taxable year, this option was never exercisable within the taxable year. And, as to the rest of the trust corpus, the consent of the wife was necessary to any revocation. The next argument of respondent is based upon the rationale of *913 Helvering v. Clifford, supra, and cases thereunder. As we have already indicated, we do not consider that doctrine herein applicable because of the great variance of the factual situation. Here the trust was not set up as a method of tax evasion. It is not a short term trust; nor is it gratuitous. The wife-to-be renounced her community interest by acceptance of the provisions of the trust. The petitioner, as settlor, although he could direct reinvestments and could, with his wife's consent, substitute trustees, did not have at his command the use of the trust corpus. And this was not a "temporary reallocation of income within an intimate family group." At the time this trust was created there was as yet no such "intimate family group" and the facts disclose that one of the reasons for setting up this trust was the fear that the subsequent family relations might not be intimate. It is apparent that the petitioner did not intend this diversion of income to be temporary; everything about the preliminary negotiations and the agreement itself points to permanency. The trust was created prior to marriage and was to last until the marriage was dissolved by death. *914 The fourth argument of respondent is that the trust income here in controversy was used to pay a legal obligation of the petitioner and is, therefore, taxable in its entirety to petitioner under the rule of Douglas v. Willcuts,296 U.S. 1. Neither that case nor any cases *258 subsequently decided on the same basis covers this situation, however, in the manner urged by respondent. In most of that line of cases the settlors created the trusts to completely discharge continuing personal legal obligations to support, and the divorce courts approved and confirmed the trusts in their decree on that basis, subject to powers of modification. Here the petitioner's legal obligation to support his wife was not discharged by the execution of the trust, nor was it attempted to be. The trust instrument specifically points this out. As originally written there was, indeed, a self imposed and continuing personal obligation to see that petitioner's wife received $1,500 monthly for clothes, pin money, and the like. But the first supplemental agreement of 1935 put an end to petitioner's personal obligation on this score by the addition to corpus and the specific provision*915 that the wife accepted the addition in full discharge of the promises and obligations of the petitioner in the antenuptial agreement with respect to monthly payments. Thus, the rule of Helvering v. Leonard,310 U.S. 80, is not applicable. The mere fact that the preamble to the antenuptial agreement states that "it has been deemed by each fair, just, equitable and adequate to make the provisions hereinafter set forth for the support and maintenance of the party of the second part" does not ipso facto make the trust a maintenance trust. This was pointed out by the Board in Herbert G. Goulder,39 B.T.A. 670; reversed on another point, 123 Fed.(2d) 686. See Fidelity Union Trust Co. v. Kelly, 102 Fed.(2d) 333. Any ambiguity on this score is adequately cleared up by the later provisions of the agreement. Nor can it be concluded, as respondent urges, that the terms of the agreement restricted the wife's application of the income to such an extent that petitioner is taxable thereon. The agreement states it is to be "for her sole and individual use as she may see fit, without the necessity of accounting therefor*916 to anyone, said sum to cover her requirements for pin money and the like, including her personal expenses for clothing and the like, but not including * * *." The 1931 antenuptial agreement could not and did not change the subsequent marital status of petitioner and his present wife, although it could and did maintain the status of petitioner's future earnings as separate property instead of community. Van Dyke v. Commissioner, 120 Fed.(2d) 945. Petitioner has submitted in evidence a showing of the wife's use of this money in the taxable year. With the exception of the expenditures for clothing, perfume, and jewelry, and those denominated "miscellaneous", there are no expenditures therein which could normally be considered within the scope of support due a wife from her husband. Most of the income of the trust was spent by the *259 beneficiary on her son by a prior marriage, for whose support petitioner was under no obligation. Petitioner concedes that the continuing obligation to support a wife, arising by operation of law as an incident to the marital status, could not be discharged under California law by an inter vivos agreement. Civil*917 Code of California, secs. 174, 175. Petitioner submits that the measure of petitioner's liability herein is the amount of trust income actually applied by the wife for purposes which fall within the scope of petitioner's continuing marital obligation of support, citing Hudson v. Jones,22 Fed.Supp. 938; M. F. Tiernan, Trustee,37 B.T.A. 1048; Meredith Wood,37 B.T.A. 1065; and Ingraham v. Commissioner, 119 Fed.(2d) 223. Since there is an express provision in the trust deed requiring the beneficiary to apply part of the income of the trust to the satisfaction of an obligation of the settlor, that part of the income of the trust which is applied to such a purpose is taxable to the settlor. In view of the respondent's determination herein, the burden of showing what part of the trust income was not so applied is upon petitioner. Commissioner v. Grosvenor, 85 Fed.(2d) 2; Stuart v. Commissioner, 124 Fed.(2d) 772. To the extent that the wife spent the trust income for clothing and other personal items ($4,807.98) and for perfume and jewelry ($439.46), the husband's duty*918 to supply money for these items was lessened. The agreement specifically provided that the wife should buy these things out of trust income, and it may, therefore, be concluded that the trust was an attempt to relieve petitioner of his legal obligation to this extent. There may be some difference of opinion as to whether perfume and jewelry are such necessary items as to be included within the scope of "support and maintenance." Considering the means and the station in life of the parties hereto, we feel justified by custom and social usage to consider these items, under the facts of this case, to be "necessaries." To the extent that the trust income was used for these purposes, the petitioner is taxable for the income of the trust. The item of expenditure denominated "miscellaneous" was not fully explained by petitioner's witness, an accountant. He testified that to the best of his knowledge it did not include sums relating to the beneficiary's personal apparel, but that it included "a number of checks to 'cash', which may or may not have been spent for apparel." We can not conclude on the record that this item did not include sums spent in satisfaction of petitioner's legal obligations, *919 and, therefore, the amount thereof ($870.19) should also be taxable to petitioner. Since there is no showing that any of the $5,000 gift made by petitioner to his wife in the taxable year actually went for this purpose, we, therefore, must consider that these expenditures were made wholly from trust income. *260 Charitable Contribution Issue. The deduction of $3,300 here claimed was disallowed because the contribution was deemed by the Commissioner not to have been made to the type or class of organization specifically referred to in section 23(o) of the Revenue Act of 1936. To meet the test provided by that section, it must appear that: (a) The donee is a corporation, or trust, or community chest, fund or foundation; (b) The donee was organized exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals; (c) The donee is operated exclusively for the purposes set forth in (b) supra; (d) No part of the net earnings of donee inures to the benefit of any private shareholder or individual; and (e) No substantial part of the donee's activities is carrying on propaganda, or otherwise*920 attempting to influence legislation. Unless all of the conditions set forth above can be met by the donee, taxpayers may not deduct contributions made thereto from gross income pursuant to section 23(o)(2). The crucial question of this issue is whether the Society of California Pioneers meets requirements (b) and (c) of the test set forth above, or, in other words, whether it was "organized exclusively for * * * charitable, scientific, literary, or educational purposes" and was operated exclusively for such purposes. Respondent contends that the society can not meet these requirements because of its social aspects and relies upon the fact that one of the purposes expressed in its certificate of incorporation and constitution was "to cultivate social intercourse and form a more perfect union among its members", and also upon the fact that section 23 of the bylaws of the society, as revised January 1, 1926, makes reference to card playing, a billiard room, a card room, and the issuance of visitors' cards. Testimony on this issue was given by two witnesses - the petitioner and the secretary of the society. The secretary testified that the main purpose of the society was "to*921 gather and collect material pertaining to the history of California. That means maps and books and pictures and prints and diaries and memoirs and everything pertaining under the general head of Californiani." These were housed in the library and gallery of the society, which were always open free to the public. She further testified that the society had no social activities other than monthly meetings of the directors and an annual meeting of the members, who also met at other times at the call of the directors. These were "short meetings, usually to hear reports of members of committees and the directors and to have ordinarily one *261 short talk from some member, usually on some subject pertaining to California history." She further testified that no portion of the funds of the society were spent for social activities. There was no cross-examination of this witness. The petitioner testified that he had been a member of the society for 50 years, that the meetings were such as described by the secretary, and that there had not been any social activities in connection with the meetings. He was not cross-examined upon this issue. *922 In George E. Turnure,9 B.T.A. 871, 874, we said: Practically all religious and educational associations and some charitable organizations make use of social or athletic features, but only as means to an end. Unless the social feature predominates such organizations are none the less exclusively religious, educational or charitable. The general or predominant purpose is principally to be considered. In that case it was held that the social aspects did not predominate in the organization in question. In the case of Alfred T. Davison,21 B.T.A. 251, it was held that, where members of a college fraternity were also members of a literary society which maintained a hall for literary exercises connected with the dwelling house of the fraternity, the literary society was predominated by the social aspects of the fraternity and therefore the rule in the Turnure case did not apply. On the record presented in this proceeding we are of the opinion that the social aspects of the society were incidental and subordinate to the predominant scientific, literary, and educational purposes of the organization, i.e., the collection and exhibition of material*923 having to do with the early history of the State of California and research in that history by members of the society. Therefore, on the authority of George E. Turnure, supra, we decide this issue in favor of petitioner. Stock Redemption Issue. Respondent argues that the gain of $4,253.97 realized on the redemption of petitioner's stock by the Tidewater Associated Oil Co. is taxable under section 115(c) of the Revenue Act of 1936 as a gain realized on partial liquidation. Petitioner, on the other hand, asserts that it is a gain on the sale or exchange of a capital asset, subject to the provisions of section 117 of the same act. The crucial question to be considered is whether the stock of petitioner was retired and completely canceled. If so, there was a statutory partial liquidation, as that term is defined in section 115(i), 5 for purposes of the application of section 115(c). All the *262 preferred stock in the instant proceeding was either received by the company pursuant to the exchange offer or the later redemption. And it was specifically provided that this stock was not subject to reissue. These being the material facts, we must decide*924 the issue in favor of respondent. Amelia Cohen Trust v. Commissioner, 121 Fed.(2d) 689; Benjamin R. Britt,40 B.T.A. 790; Salt Lake Hardware Co.,27 B.T.A. 482. Petitioner argues that a distinction should be drawn between a situation wherein a certain class of stock is retired and no further stock issued in its place, and the instant situation where the retirement of all the 6 percent preferred stock was an integral part of a refinancing plan which actually contemplated and resulted in a substantial expansion of the company's capital. We do not believe a valid distinction on these lines can be made for the present purposes. L. B. Coley,45 B.T.A. 405. Community Property Issue. It is undisputed that the antenuptial agreement entered into in 1931 is binding on the parties. *925 By this agreement the status of any future salaries earned by the petitioner was, in advance, decided by the parties to be the separate property of petitioner, free from any claim thereto as community income which might otherwise be made by the wife-to-be. Such agreements are recognized as valid and binding by the California courts. Wren v. Wren,100 Cal. 276; and, accordingly, it is obvious that salary earned subsequent to the antenuptional agreement is petitioner's separate property and therefore is taxable to him alone. W. S. Van Dyke, supra; Helvering v. Hickman, 70 Fed.(2d) 985. We, accordingly, affirm the Commissioner's determination on this issue. Decision will be entered under Rule 50. Footnotes 1. SEC. 101. EXEMPTIONS FROM TAX ON CORPORATIONS. The following organizations shall be exempt from taxation under this title - * * * (6) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation; * * * (9) Clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net earnings of which inures to the benefit of any private shareholder. ↩ 2. SEC. 167. INCOME FOR BENEFIT OF GRANTOR. (a) Where any part of the income of a trust - (1) is, or 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 may be, held or accumulated for future distribution to the grantor; or (2) 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 disttibuted to the grantor; or (3) is, or in the discretion of the grantor or of any person not havng a substantial adverse interest in the disposition of such part of the income may be, applied to the payment of premiums upon policies of insurance on the life of the grantor (except * * *); then such part of the income of the trust shall be included in computing the net income of the grantor. (b) As used in this section, the term "in the discretion of the grantor" means "in the discretion of the grantor, either alone or in conjunction with any person not having a substantial adverse interest in the disposition of the part of the income in question." ↩ 3. It is interesting to note that the Congress, in considering the Revenue Act of 1941, did not require the filing of a joint return by husband and wife and thus recognized, by legislation, such a doctrine of "family solidarity." We do not discuss the imputation implicit in any holding that a wife is not a person having an interest substantially adverse to her husband, to the effect that by reason of economic subserviency or other considerations a married woman does not have full legal independence. ↩ 4. SEC. 166. REVOCABLE TRUSTS. Where at any time the power to revest in the grantor title to any part of the corpus of the trust is vested - (1) in the grantor, either alone or in conjunction with any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom, or (2) in any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom, then the income of such part of the trust shall be included in computing the net income of the grantor. ↩ 5. SEC. 115. DISTRIBUTIONS BY CORPORATIONS. * * * (i) DEFINITION OF PARTIAL LIQUIDATION. - As used in this section the term "amounts distributed in partial liquidation" means a distribution by a corporation in complete cancellation or redemption of a part of its stock, * * * ↩