## Facts

- Frederick B. Wells created five irrevocable trusts in 1922–1923.
- Trust income was directed primarily to pay premiums on life insurance policies on Wells’s life; the policy proceeds were structured to benefit relatives and other designated beneficiaries.
- The trusts generally required the trustee to maintain the policies, collect proceeds on Wells’s death, and apply or hold proceeds for beneficiaries; some trusts allowed accumulation of excess income or discretionary distributions.
- For 1924–1926, Wells did not report trust income used to pay life-insurance premiums.
- The Commissioner assessed deficiencies, taxing to Wells the portion of trust income used to pay premiums under § 219(h) of the Revenue Acts of 1924 and 1926.

## Issues

1. Whether § 219(h) permits taxing the settlor on income of an irrevocable trust to the extent the income is used to pay premiums on life insurance on the settlor’s life.
2. Whether applying § 219(h) to income accruing after enactment from trusts created earlier violates the Fifth Amendment as an arbitrary deprivation of property.

## Decision

- The Supreme Court reversed the court of appeals and sustained the deficiencies.
- The Court held that § 219(h) taxes the settlor on trust income used to pay premiums on life insurance on the settlor’s life, even when the trust is irrevocable and beneficiaries are dependents or other designees.
- The Court held the statute constitutional as applied to income accruing after enactment, notwithstanding that the trusts were created before the statute.

## Legal Principles

- Congress may attribute trust income to a taxpayer for income-tax purposes based on practical concepts of benefit and administrability; formal common-law “title” does not control.
- A due process challenge requires showing the attribution is wholly arbitrary—i.e., that Congress treated something as equivalent to ownership where no comparable benefit or privilege exists.
- Income irrevocably applied to maintain life insurance on the grantor’s life for the support of dependents may be treated as conferring sufficient personal benefit to justify taxing that income to the grantor.
- Applying a tax rule to income accruing after enactment from preexisting arrangements is not unconstitutional solely because the arrangement predates the statute.

## Conclusion

The Court upheld taxation of a grantor on irrevocable-trust income used to pay premiums on the grantor’s life insurance, reasoning that Congress may treat such income as the grantor’s when it secures a substantial personal benefit and the rule is not arbitrary under the Fifth Amendment.


Burnet v. Wells, 289 U.S. 670 (1933)