## Facts

- In 1934, Clifford transferred securities into a trust for a five-year term (ending earlier upon the death of Clifford or his wife).
- Clifford named himself trustee and directed that the trust’s net income be held for the exclusive benefit of his wife during the term.
- Clifford retained near-complete control over the trust corpus, including power over its conversion, investment, and reinvestment.
- Clifford retained discretion to accumulate income rather than distribute it currently to his wife.
- The trust corpus would revert to Clifford at the end of the term if the trust did not terminate earlier.
- Clifford paid a federal gift tax on the transfer; his wife reported the trust income on her 1934 return.
- The Commissioner determined the trust income was taxable to Clifford under § 22(a) of the Revenue Act of 1934; the Board of Tax Appeals sustained the deficiency; the court of appeals reversed.

## Issues

1. Whether, under § 22(a) of the Revenue Act of 1934, a grantor who creates a short-term trust for a spouse, serves as trustee, retains extensive control over the corpus, and holds a reversion may be treated as the owner of the corpus so that trust income is taxable to the grantor.

## Decision

- The Supreme Court reversed the court of appeals and reinstated the Board of Tax Appeals’ determination.
- The Court held that federal taxing authorities could treat Clifford as the owner of the trust corpus within the meaning of § 22(a), notwithstanding the trust form.
- The trust income was therefore includable in Clifford’s gross income.

## Legal Principles

- Ownership for federal income tax purposes under § 22(a) turns on the trust’s terms and surrounding circumstances, not state-law formalities of trusts and conveyances.
- Intrafamily trusts in which the grantor is trustee and beneficiaries are within the family group warrant special scrutiny to determine whether the arrangement leaves a single economic unit effectively unchanged.
- A short-term trust with the grantor as trustee, a near-term reversion, and broad powers over corpus and income may leave the grantor’s retained benefits so similar to ownership that the grantor may be taxed on the trust income.
- Congress’s provision for revocable trusts elsewhere in the statute did not exclude short-term trusts from § 22(a)’s broad reach.

## Conclusion

The Court held that a grantor who creates a short-term trust for a spouse but retains substantial control over the trust property and a reversion can be treated as the owner of the corpus under § 22(a), making the trust income taxable to the grantor rather than the beneficiary.


Helvering v. Clifford, 309 U.S. 331 (1940)