United States v. O'Malley
383 U.S. 627 (1966)

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U.S. Supreme Court

United States v. O'Malley, 383 U.S. 627 (1966)

United States v. O'Malley

No. 127

Argued January 24-25, 1966

Decided March 23, 1966

383 U.S. 627

Syllabus

Decedent created five irrevocable trusts, each of which allowed the trustees, of whom he was one, discretion to pay the beneficiary trust income or to accumulate it, in which case it became a part of the trust principal. The Commissioner of Internal Revenue included in decedent's gross estate both the original principal of the trusts and the accumulated income added thereto, on the ground that the power retained by decedent to pay out or accumulate the income of the trusts constituted a power to designate the persons who would possess or enjoy the income under §811(c)(l)(B)(ii) of the Internal Revenue Code of 1939, which deals with the includability in the gross estate of property involved in certain inter vivos transfers. Respondents, the executors, paid the estate tax deficiency and brought this refund action, contending in part that accumulated trust income, since not part of the property "transferred" at the time of the creation of the trust, did not come within that statutory provision, and should not be included in the decedent's gross estate. The District Court found the original corpus includable in the estate (a holding not challenged here), but excluded the portion of the trust principal representing accumulated income. The Court of Appeals affirmed.

Held: The grantor, by virtue of the original inter vivos transfer and the exercise of the right reserved in the trust instrument to retain trust income as part of the trust principal, rather than disburse it, made a "transfer" of accumulated income within the meaning of §811(c)(1)(B)(ii). The "transfer" requirement of that provision was therefore met, as well as the requirement for retention of the power to determine who would enjoy the income from the transferred property; the accumulated income was therefore properly included in the grantor's gross estate. Pp. 383 U. S. 630-634.

30 F.2d 930 reversed.

Page 383 U. S. 628

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