1. A trust formed by the owners of an apartment house under an
agreement conveying title to trustees and providing complete power
in them to manage, control, sell, etc.; with shares of
beneficiaries represented by transferable "receipts," to be
registered; with limited liability and succession and continuity
during the trust period, held
taxable as an "association,"
under the Revenue Act of 1926. Morrissey v. Commissioner,
p. 296 U. S. 344
296 U. S.
2. The limited number of actual beneficiaries and the fact that
the operations did not extend beyond the real property first
acquired did not alter the nature and purpose of the common
undertaking. P. 296 U. S. 365
76 F.2d 651 affirmed.
Certiorari to review the affirmance of a decision of the Board
of Tax Appeals which sustained a tax assessed on the income of a
trust as an association.
Page 296 U. S. 363
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
The question presented is whether the income of the "Lake View
Land Association" for the years 1925 and 1926 was subject to tax as
the income of a trust under § 219 of the Revenue Act of 1926,
] or as the income
of an "association" by virtue of § 2(a)(2) of that Act. [Footnote 2
] The Circuit Court of
Appeals held the taxpayer to be an "association," and affirmed the
decision of the Board of Tax Appeals to that effect. 76 F.2d 651,
652. This Court granted a writ of certiorari. See Morrissey v.
p. 296 U. S. 344
The material facts as found by the Board of Tax Appeals are as
follows: Joseph E. Swanson and Ralph C. Otis, in 1914, acquired a
piece of vacant land in the city of Chicago with the view of
improving it by the erection of an apartment house, the title being
taken by Swanson. An apartment house was built. Subsequently, in
1915, at the suggestion of their attorney, they entered into a
trust agreement for the purpose of carrying the title to the
property. The trust was designated as the "Lake View Land
Association." The first trustees were Ralph C. Otis, Joseph E.
Swanson, and Allen G. Mills. Petitioners set forth the following
summary of the trust agreement, taken from the opinion of the
Circuit Court of Appeals:
"Under the trust agreement, the trustees were given the complete
management and control of the property, to exchange, reconstruct,
remodel, sell, or improve at their discretion or to borrow money
secured by the property. They were authorized to rent suitable
quarters for the transaction of the business of the trust and
Page 296 U. S. 364
assistants as they required. The agreement provided for the
issuance of 'receipts' to evidence the interests of the
beneficiaries, representing 1,000 shares at the par value of $100
each. It was provided that the receipts were evidences of the
ownership of personal property, and not real estate. They might be
transferred by assignment. Originally, one-half of the shares were
issued to Otis and one-half to Swanson, who later transferred their
interests to their wives, who owned the shares during 1925 and
1926. The agreement provided that the trust could sue and be sued;
] that neither the
trustees nor the beneficiaries should be personally liable, and
that all persons dealing with the trustees must look only to the
property of the trust; that it should be terminated at the
expiration of twenty years after the death of the last survivor of
certain named persons or by the trustees in their discretion at any
time before the expiration of the twenty years by selling all the
property held by them as such and distributing the net proceeds of
such sale. The trust had succession, and was not terminated by the
death of a trustee or beneficiary."
The Court of Appeals also stated that
"the trustees of the Lake View Land Association never assembled
in formal meetings, never adopted resolutions or took formal action
with reference to the affairs of the property, kept no minute
books, had no bylaws. They elected no officers and no so-called
board of directors."
The compensation of the trustees was to be fixed by themselves,
but was not to exceed 2 1/2 percent of the gross income of the
trust. After making provision for the payment of outstanding
claims, the net income was to be divided among the beneficiaries
according to their interests, and, on the request of any
beneficiary, the trustees
Page 296 U. S. 365
were to render annual accounts. The trust agreement also made
provision for a written registry of beneficiaries, who could
transfer their interests in a described manner, after having first
offered them to the other beneficiaries.
The renting of apartments, the details of management, and the
distribution of net income were committed to a firm (of which
Joseph E. Swanson was a member) engaged in the business of buying
and selling real estate and managing properties. That firm acted
under the direction of Ralph C. Otis and Joseph E. Swanson, and the
"entire affairs of the Lake View Land Association" were at all
times in their hands.
Applying the governing principles, as set forth in our opinion
in Morrissey v. Commissioner, supra,
we agree with the
Court of Appeals that the trust constituted an association, and was
taxable as such. The limited number of actual beneficiaries did not
alter the nature and purpose of the common undertaking. Nor did the
fact that the operations of the association did not extend beyond
the real property first acquired change the quality of that,
The judgment is
44 Stat. 32.
44 Stat. 9.
Petitioners submit that this provision of the agreement should,
under the law of Illinois, be taken to imply that the trustees
could sue and be sued as individuals, and not "the trust as an