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144 Opinion of the Court.

raent to § 2 (10) M sought to conform the act to the prevailing practice as to the bankruptcy court's exercise of its appellate jurisdiction over referees' orders.15 We do not think § 39 (c) was intended to be a limitation on the sound discretion of the bankruptcy court to permit the filing of petitions for review after the expiration of the period. The power in the bankruptcy court to review orders of the referee is unqualifiedly given in § 2 (10). The language quoted from § 39 (c) is rather a limitation on the "person aggrieved" to file such a petition as a matter of right."

The review out of time of the Commissioner's orders is then a matter for the discretion of the District Court. As that court was of the opinion it was "without jurisdiction" by virtue of § 39 (c), its discretion was not exercised. However, as we are of the view that the petitions for rehearing were not supported by adequate facts justifying a reexamination of the bases for the orders of August 13 and September 7,1940, and no others are alleged, and that therefore the District Court should not have entered into an out of time review of these original orders, there is no reason for a reversal of the judgments. The Commissioner upheld the petitions for rehearing against a motion

14 Section 2 (10) gives the bankruptcy court jurisdiction to "consider records, findings, and orders certified to the judges by referees, and confirm, modify, or reverse such findings and orders, or return such records with instructions for further proceedings. 52 Stat. 842. Whereas the subsection formerly read "consider and confirm, modify or overrule, or return, with instructions for further proceedings, records aDd findings certified to them by referees." 30 Stat. 545.

"H. Rep. No. 1409, supra, p. 19; S. Rep. No. 1916, 75th Cong., 3d Sess., p. 11, compare Committee Print, H. R. 12889, supra, p. 11.

"Thummess v. Von Hoffman, 109 F. 2d 291; In re Albert, 122 F. 2d 393; Boyum v. Johnson, 127 F. 2d 491, 497, see Biggs v. Mays, 125 F. 2d 693, 696; In re Loring, 30 F. Supp. 758, 759. Contra, In re Pfister, 123 F. 2d 543, 548; In re Parent, 30 F. Supp. 943. Compare 2 Collier on Bankruptcy (14th ed. 1940) §§ 39.16, 39.20; 8 Remington on Bankruptcy, supra, § 3705.

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Syllabus. 317 U.S.

to dismiss because they were out of time. He thereupon heard and passed upon the petition's merits as bases for rehearings. His reasons for refusing to open the original orders complained of are adequate and amply supported by the record. The appraisal was made and the time of stay fixed pursuant to the debtor's motion, he was represented by one or more counsel at each meeting, had opportunity to present evidence, and stipulated to the perishable character of the property ordered sold. See the last paragraph of division II.

IV. On account of debtor's motion, requesting the running of the moratorium of three years from April 26,1940, the day of his adjudication in bankruptcy under 75 (s), we do not consider the correctness of a stay of less than three years under other circumstances. In this instance it was correct.

Affirmed.

HELVERING, COMMISSIONER OF INTERNAL REVENUE, v. R. DOUGLAS STUART.#

CERTIORAEI TO THE CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT.

No. 49. Argued October 23, 1942.—Decided November 16,1942.

1. In resisting a taxpayer's petition for redetermination of deficiencies, the Commissioner of Internal Revenue may invoke before the Circuit Court of Appeals on review, and in this Court by certiorari, provisions of the Revenue Law which were not relied on or adduced in his answer to the taxpayer's petition. P. 159.

2. Section 166 of the Revenue Act of 1934, in providing that the income from a trust shall be taxable as income of the grantor "where at any time the power to revest in the grantor title to any part of the corpus

* Together with No. 48, Helvering, Commissioner of Internal Revenue, v. John Stuart, also on writ of certiorari, 316 U. S. 654, to the Circuit Court of Appeals for the Seventh Circuit. Argued October 22 and 23, 1942.

154 Syllabus.

of the trust is vested in any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom," intends that the question whether such power is so vested by the trust instrument shall be determined by the construction and legal effect of the instrument under the state law. P. 161.

3. Section 167 of the Revenue Law of 1934, in providing that "where any part of the income of a trust 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 distributed to the grantor; .. . such part of the income of the trust shall be included in computing the net income of the grantor," intends that whether such a distribution is permissible under the trust instrument shall be determined by the state law. Upon the question whether, under the law of Illinois, in a trust deed for the benefit of the donor's children, a provision purporting to empower a majority of three trustees (the donor's wife, and brother) to amend the deed, by changing the beneficiaries and in other respects, could be applied to revest the property in the donor, this Court accepts the reasoned judgment to the contrary of the Court of Appeals whose circuit embraces that State. P. 161.

4. If reasonably avoidable this Court should not undertake firstinstance determinations of rules of local law. P. 164.

5. It would not be an arbitrary or unreasonable or even an unlikely holding on the part of the courts of Illinois to conclude that under the terms of the trusts involved here, equity ought to and would prevent the wife and brother of the donor, claiming, as trustees, authority to change the beneficiaries under the provisions of the indenture, from vesting the property in themselves or in the donor or in others for the benefit of themselves or the donor, to the detriment of the present beneficiaries. P. 164.

6. On the assumption that under such a trust deed the Illinois law forbids the vesting of the res in the donor by act of the trustees, within the intendment of § 166 of the Revenue Act of 1934, so also it would be impossible for the trustees to accumulate the income for the donor or to distribute it to him directly, within the intendment of § 167. P. 166.

7. Under the Illinois law, the power to amend which could not be exercised by the trustees in favor of the donor could not be exercised in favor of his creditors. P. 166.

8. Under §§ 22 (a) and 167 of the Revenue Act of 1934, where there is a trust directing and empowering the trustees to devote so much of the net income, as to them shall seem advisable, to the education, Opinion of the Court. 317 U. S.

support and maintenance of the donor's minor children, the possibility of the use of the income to relieve the donor, pro tanto, of his parental obligation, causes the entire net income to be taxable as income of the donor. Douglas v. Willcuts, 296 U. S. 1. P. 167. 124 F. 2d 772, reversed in part; affirmed in part.

Certiorari, 316 U. S. 654, to review two judgments of the court below, reversing decisions of the Board of Tax Appeals, 42 B. T. A. 1421, sustaining deficiency income tax assessments.

Assistant Attorney General Clark, with whom Solicitor General Fahy and Messrs. Sewall Key, L. W. Post, and Valentine Brookes were on the briefs, for petitioner.

Messrs. Herbert Pope (in Nos. 48 and 49) and George I. Haight (in No. 48) argued the cause, and Messrs. Benjamin M. Price and William D. McKenzie were with them on the briefs, for respondents.

Mr. Justice Reed delivered the opinion of the Court.

These petitions for certiorari bring here the liability of each respondent for increased income taxes for the years 1934 and 1935. A deficiency was determined by the Commissioner for each year because of the taxpayers' failure to include in their return income from various trusts previously created by them for the benefit of their children.

The taxpayers are brothers, residents of Illinois. In 1930 John Stuart, the respondent in No. 48, created one trust for each of his three children: Joan, Ellen and John. Later, in 1932, R. Douglas Stuart, the respondent in No. 49, created such trusts for each of his four children: Robert, Anne, Margaret and Harriet. The trusts were much alike. They were made in Illinois and specifically provided that they were to be governed by the laws of that state. The three children of John were all of age 154 Opinion of the Court.

by January 1, 1934. None of the children of Douglas were of age during either of the taxable years.

By the creation of the trusts, each taxpayer transferred to three trustees certain shares of the common stock of the Quaker Oats Company, of which respondents were respectively president and first vice-president. The trustees named in each instrument were the taxpayersettlor, his wife and his brother. The trusts created by John thus had John, his wife and Douglas as trustees, and those created by Douglas had Douglas, his wife and John as trustees.

The trustees were given the power and authority of "absolute owners" over the handling of the financial details of the respective trusts. They were freed from liability or responsibility except such as were due to actual fraud or willful mismanagement.

In the trusts created by R. Douglas Stuart for his minor children, the trustees were directed to "pay over to [the beneficiary] so much of the net income from the Trust Fund, or shall apply so much of said income for his education, support and maintenance, as to them shall seem advisable, and in such manner as to them shall seem best, and free from control of any guardian, the unexpended portion, if any, of such income to be added to the principal of the Trust Fund. When the said [beneficiary] shall attain the age of twenty-five years, the Trustees shall pay over and deliver to him one-half of the Trust Fund; and they shall pay over to him in reasonable installments the income from the remaining one-half of the Trust Fund until he shall attain the age of thirty years, when they shall pay over and deliver to him the remainder of the Trust Fund."

In the trusts created by John Stuart for his adult children, the directions were that the trustees should for fifteen years "pay over and distribute, in reasonable in

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