309 U.S. 331 (1940)
In 1934, the respondent declared himself trustee of certain securities which he owned.1 The trust was established for a term of five years, subject to earlier termination upon the death of either the respondent or his wife.2 Under the terms, all net income was to be held for the exclusive benefit of the respondent's wife, with the respondent having absolute discretion to pay over the whole or part of the net income to her.3 Upon termination, the corpus was to revert to the respondent, while any accrued or undistributed net income and proceeds from its investment were to belong to the wife.4
The respondent retained extensive powers during the trust term, including the right to vote the trusteed shares, to sell, exchange, mortgage, or pledge any securities, to invest cash or money without restriction, to collect income, and to compromise claims.5 He could hold property in his own name or others'.6 Extraordinary dividends and enhancements in value were treated as principal.7 An exculpatory clause protected him except for willful breaches, and the wife's interest was protected from her debts and anticipations.8
It was stipulated that the trust was intended to provide security and economic independence to the wife and children, not solely for tax effects.9 The wife had substantial income from other sources, and the trust income was placed in her account and expended on herself, children, and relatives.10 The respondent paid a federal gift tax on the transfer.11 In 1934, all trust income was distributed to the wife, who included it in her individual tax return.12
The Commissioner determined a deficiency in the respondent's 1934 return, asserting the trust income was taxable to him.13 The Board of Tax Appeals sustained the deficiency.14 The Circuit Court of Appeals reversed that decision.15 The Supreme Court granted certiorari due to the importance of the revenue implications from the use of such short-term trusts in reducing surtaxes.16
Whether the respondent may be treated as the owner of the trust corpus for purposes of section 22(a) of the Revenue Act of 1934?17
Section 22(a) of the Revenue Act of 1934 includes among gross income all gains, profits, and income derived from any source whatever. Where the grantor of a short-term trust for the benefit of a family member retains substantial dominion and control over the corpus, the grantor may still be treated as the owner of the corpus for purposes of section 22(a) despite the trust's validity under state law.18
Yes.19 The short duration of the trust, the fact that the wife was the beneficiary, and the retention of control over the corpus by the respondent all lead irresistibly to the conclusion that the respondent continued to be the owner for purposes of section 22(a).20 The respondent retained voting rights over the trusteed shares, the power to sell or pledge securities, and broad investment authority without restriction as to speculative character.21 These powers, combined with the five-year term and reversion of the corpus to the respondent, meant that the trust effected no substantial change in his economic position.22
The income remained within the family group.23 The respondent's control assured that the arrangement would not alter his financial situation in any material way.24
The respondent may be treated as the owner of the trust corpus for purposes of section 22(a) of the Revenue Act of 1934.25
Related opinions on this issue
Joined by Justice Mcreynolds
Justice Roberts dissented.26 He maintained that the majority improperly performed a legislative function by construing the statute to reach income from short-term irrevocable trusts.27 Roberts traced the history of revenue acts from 1916 onward.28
Congress had consistently distinguished between individual income and trust income.29 Specific amendments taxed grantors only in defined circumstances such as revocable trusts under section 166.30 The Treasury had asked that there should also be included in that act a provision taxing to the grantor income from short-term trusts.
Roberts concluded that the statute as written did not authorize taxation of the income to the respondent.31
Whether the failure of Congress to enact specific provisions addressing short-term trusts in the Revenue Act of 1934 precludes application of the general income definition in section 22(a) to the grantor?32
The failure of Congress to adopt specific provisions for short-term trusts does not subtract from the broad scope of section 22(a).33 The general definition of gross income continues to apply, leaving to the triers of fact the determination whether on the facts of each case the grantor remains the owner for purposes of section 22(a).34
No. Although Congress declined to enact the Treasury recommendation for specific treatment of short-term trusts, that choice left the matter to generalized application under the existing broad language of section 22(a) rather than creating an exemption for such arrangements.35 The statute therefore permits taxation of the grantor when the facts show continued ownership of the corpus.36 The respondent's short-term trust with retained powers falls within that scope.37
The failure of Congress to enact specific provisions addressing short-term trusts in the Revenue Act of 1934 does not preclude application of the general income definition in section 22(a) to the grantor.38
Related opinions on this issue
Joined by Justice Mcreynolds
Justice Roberts dissented. He maintained that the majority improperly performed a legislative function by construing the statute to reach income from short-term irrevocable trusts. Roberts traced the history of revenue acts from 1916 onward.
Congress had consistently distinguished between individual income and trust income. Specific amendments taxed grantors only in defined circumstances such as revocable trusts under section 166. Congress did not accept the Treasury recommendation for a provision taxing income from short-term trusts.39
Roberts concluded that the statute as written did not authorize taxation of the income to the respondent.