## Facts

- Hilton W. Goodwyn, Sr. practiced law, worked as a real-estate broker, and acquired significant property interests over many years.
- Beginning during his lifetime, Goodwyn transferred numerous properties to multiple inter vivos trusts created for family members and other beneficiaries.
- Trustees for the various trusts included Goodwyn and close relatives (such as his brother, wife, and brother-in-law); over time, some trustees were replaced with individuals described as independent (including, for example, the law librarian for the Virginia Supreme Court).
- The trust instruments did not expressly reserve to Goodwyn any formal right or power to control the beneficiaries’ enjoyment of trust income or principal.
- Despite the absence of reserved powers, from the inception of the trusts until shortly before his death in 1962, Goodwyn in fact ran the trust enterprise: he directed management and investment activity, decided when properties would be bought and sold, moved property between trusts, and determined when (and whether) distributions would be made to beneficiaries.
- Goodwyn maintained the books and records for the trusts in a centralized manner and did not keep separate books for each trust; as a result, some beneficiaries did not learn of the trusts until they began receiving funds.
- Fiduciaries were told to come sign tax returns and other documents, and they generally signed as requested without meaningful review or independent decision-making.
- The Commissioner determined federal income-tax deficiencies (and additions to tax) for multiple pre-death years, asserting that income nominally reported by the trusts should be included in Goodwyn’s taxable income (and, where applicable, in the income of related parties such as his widow).

## Issues

1. Whether income generated by property held in the inter vivos trusts was taxable to Hilton W. Goodwyn, Sr. because he exercised actual control over trust management, investments, and distributions, even though the trust instruments did not give him an express retained power to control beneficial enjoyment.
2. Whether the Commissioner’s determined income-tax deficiencies and additions to tax for the years at issue should be sustained based on how the trusts were operated and reported.

## Decision

- The Tax Court largely sustained the Commissioner’s determinations.
- The court attributed the trust-related income to Goodwyn for the years at issue because the trusts, as administered, did not operate with genuine independence from his direction.
- Resulting deficiencies (and related additions to tax) were sustained to the extent reflected in the court’s findings, with final amounts to be settled through the court’s computation process.

## Legal Principles

- Federal income tax turns on who, in substance, controls property and the enjoyment of the income it produces; formal title and drafting are not controlling when actual conduct shows continued dominion by the transferor.
- A taxpayer cannot avoid income tax through assignments or transfers where he continues to control how income is earned, managed, or distributed.
- Nominal trustee arrangements do not prevent attribution of income to the transferor when trustees do not exercise real fiduciary judgment and instead follow the transferor’s directions as a matter of course.
- Centralized administration, commingled or non-segregated trust records, beneficiary unawareness, and routine signing of returns without review are facts that may support treating purported trusts as ineffective income-shifting devices for income-tax purposes.

## Conclusion

Because Goodwyn exercised continuing, real-world control over trust investments, property transactions, administration, and distributions, the Tax Court treated the trust structure as ineffective to shift taxable income away from him and sustained the Commissioner’s income-tax deficiencies and related additions to tax, subject to final computation.


Estate of Hilton W. Goodwyn, 35 T.C.M. (CCH) 1026 (1976)