## Facts

- James A. Hogle and his wife created irrevocable trusts for their three children whose assets consisted primarily of securities trading accounts operated under Hogle’s direction.
- The Copley Trust (1922) provided that trust property and accretions would be divided among the children on a specified future date and that neither principal nor income could revest in Hogle; Hogle had no power to amend or alter beneficial interests.
- The trust instrument required Hogle to make good trading losses exceeding profits and income returns; such advances were not debts of the trustee or beneficiaries and were repayable to Hogle out of future profits.
- A second trust (1932) similarly used a trading account for the children’s benefit, with earnings derived from securities and commodities trading under Hogle’s direction.
- An earlier federal income tax decision attributed the accounts’ trading profits to Hogle for income tax purposes.
- The Commissioner assessed gift tax deficiencies for 1936–1941 on the theory that, if profits were treated as Hogle’s income, their placement in the trusts necessarily constituted taxable gifts.
- The Tax Court held there were no gift tax deficiencies, and the Commissioner appealed.

## Issues

1. Whether annual trading profits credited to irrevocable trusts for the benefit of Hogle’s children during 1936–1941 constituted taxable gifts by Hogle.
2. Whether income tax attribution of trust trading profits to Hogle required treating the profits as his property transferred to the trusts for gift tax purposes.

## Decision

- The court affirmed the Tax Court’s decision of no gift tax deficiencies for 1936–1941.
- The court held that the trusts’ annual earnings did not constitute gifts by Hogle subject to federal gift tax.
- The court rejected the Commissioner’s argument that income tax attribution of profits to Hogle compelled a finding of a taxable gift.

## Legal Principles

- Gift tax liability requires a transfer of property by way of gift; income tax rules that attribute income to a person do not automatically establish ownership of the underlying accretion for gift tax purposes.
- Where an irrevocable trust precludes reversion of principal or income to the settlor and fixes beneficial interests, profits may belong beneficially to the trust as they arise, leaving no subsequent gratuitous transfer by the settlor.
- A settlor’s investment direction over trust trading, without power to revoke or redirect beneficial interests, is not equivalent to beneficial ownership of trust income for gift tax purposes.
- A loss-guarantee and reimbursement arrangement may allocate risk and create a conditional repayment right without converting trust profits into property first owned by the settlor and then transferred as a gift.

## Conclusion

The court held that the trusts’ trading profits credited for the children’s benefit were not taxable gifts by Hogle because the irrevocable trust terms vested beneficial rights in the trusts as profits arose, and income tax attribution of those earnings to Hogle did not itself establish a donative transfer for gift tax purposes.


Commissioner v. Hogle, 165 F.2d 352 (10th Cir. 1947)