Citations
- 220 F. Supp. 30
Full opinion text
CAMPBELL, Chief Judge.
Edward H. Fabrice (hereinafter referred to as “Fabrice”) died a resident of Illinois on October 13, 1949. Prior to his death Fabrice had created five irrevocable trusts naming himself and two other persons as co-trustees. The trust instruments were identical except for the names of the beneficiaries and the property transferred. Fabrice’s daughter Janet was the beneficiary of two of the trusts, his daughter Lorraine was beneficiary of two others and his wife was to receive the benefit from the fifth trust.
During his lifetime Fabrice orally leased, occupied and paid rent to his daughters for three Wisconsin farms beneficially owned by them. The daughters owned the farms by virtue of conveyances made to them by Fabrice. As a tenant Fabrice erected certain buildings and other improvements on the farms, for which he took depreciation deductions on his federal income tax returns.
After the death of Fabrice and the filing of his federal estate tax return, the Commissioner of Internal Revenue determined his estate tax liability should have been $80,726.36. The estate tax return having showed no such tax due, a deficiency of $80,726.36 was assessed, The items added to Fabrice’s gross estate by the Commissioner were as follows:
Of the $313,741.16 added by the defendant to Fabriee’s gross estate, $186,-141.16 represents property acquired by the trustees from income generated by the trusts subsequent to their creation.
In August 1954 plaintiffs paid to the Director of Internal Revenue the amount of the claimed deficiency together with interest of $16,774.49, or a total of $97,-500.85. In August 1956 plaintiffs filed a claim for refund of the $97,500.85 with interest thereon. The District Director disallowed this claim in April 1957, whereupon in May 1957 plaintiffs filed a protest. In September 1957 the Office of the Regional Commissioner sent to plaintiffs a notice of formal disallowance of their claim.
Three separate questions are presented by the above facts: (1) Was Fabrice’s •right, as a co-trustee, to distribute or ■accumulate income of the trusts governed by a definite external standard and thus not a power to designate the persons who would possess or enjoy the income •as set forth in Title 26 U.S.C. § 811(c) (1) (B) (ii) and (d) (1) ? (2) Is income derived from the transferred property subsequent to the transfer excludable from the above mentioned statutes ? (3) Did Fabrice maintain “possession or •enjoyment” of the farm improvements as contemplated by Title 26 U.S.C. § 811 (c) (1) (B) (i)?
I now consider the first issue; whether Fabrice’s power to distribute or accumulate the income of the trust brought the trust within the terms of § 811(c) (1)