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HOLDEEN v. RATTERREE

September 16, 1958

Jonathan HOLDEEN, Plaintiff
v.
Riley J. RATTERREE, as Late District Director of Internal Revenue, Fulton D. Fields, as Late Acting District Director of Internal Revenue, Defendants



The opinion of the court was delivered by: BRENNAN

The taxability to the settlor of the income of certain trusts is the ultimate problem in this litigation. The year involved is 1945. The statutory basis of taxation is found in Sec. 22(a) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 22(a). The immediate question for decision arises by reason of motions made by both litigants to set aside the verdict of the jury as to special questions submitted to it and to direct the entry of a judgment accordingly. A history of this litigation and the factual background disclosed therein are essential to the disposition of the pending motions and an understanding of this decision.

The action itself is typical. The complaint seeks to recover an amount in excess of $ 100,000 alleged to have been erroneously assessed against the petitioner on account of income tax for the year 1945. The alleged over-assessment results, according to the complaint, from the inclusion in plaintiff's taxable income for that year of the proceeds of five trust instruments not specifically described therein. The amount of said assessment was eventually paid. The necessary preliminary steps to afford jurisdiction in this court are unchallenged. In effect, the claim of error by the Commissioner in making the assessment is put in issue by the answer.

In making the assessment, the Commissioner relied upon two bases. (1) That the trusts in question are void ab initio since the periods of accumulation therein extended from five hundred to one thousand years. (2) That the income of the trusts is taxable to the plaintiff by reason of the ownership and control of the trust corpus retained by him.

 The litigation as conducted involved only the second basis of assessment. Ownership and control were and are the questions involved. Ordinarily the validity of trusts is subject to attack only by parties directly interested therein. Although the defendants have submitted a brief on the question of validity, it would seem more proper to refrain from passing thereon if the problem may be disposed of on other grounds.

 Upon the close of the evidence, which was practically undisputed, the question of the plaintiff's ownership and control of the trust properties was submitted to the jury. The question, as submitted to and answered by the jury, is set out below.

 'Did Jonathan Holdeen possess such control over the property of the trusts mentioned below so that he be considered as substantially the owner of the trust properties for income tax purposes?

 Exhibit C Yes (Yes or No)

 Exhibit 4 Yes (Yes or no)

 Exhibit N Yes (Yes or No)

 Exhibit 7 Yes (Yes or No)

 Exhibit 8 Yes (Yes or No)

 Exhibit 5 Yes (Yes or No)

 Exhibit 6 No (Yes or No)'

 The plaintiff moves to set aside the verdict of the jury as to the answers made which in effect found that he exercised such control over six of the trust properties as to amount to substantial ownership. The defendant likewise moves as to jury's verdict finding absence of such control over the trust property embraced in Exhibit 6. An understanding of the ...


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