## Facts

- Two separate trusts (PW Trust and JW Trust) were administered by independent trustees; both named the same individual (Ella) as current income beneficiary, but their termination terms and remainder beneficiaries differed.
- PW Trust was scheduled to terminate on a fixed date, with corpus to be distributed to Ella (if living) or her issue; JW Trust’s remainder interests and termination depended on survivorship and included Ella’s children.
- Ella had no authority over investment decisions in either trust.
- For the fiscal year ending January 31, 1975, both trusts had substantial capital gains and also held securities with unrealized losses.
- The trustees coordinated transactions in which one trust sold certain loss securities while the other trust purchased them, intending to realize capital losses to offset gains.
- The trades were executed through brokers at market prices (last sale price or midpoint of bid-ask), with customary commissions and formal transfer and recordation.
- After the transactions, each trust retained the securities it acquired and bore subsequent market risk; there was no agreement to reverse the trades.
- PW Trust claimed about $38,259 in capital losses, and JW Trust claimed about $66,244.
- The Commissioner disallowed the losses, asserting the transactions were not bona fide and should be treated as related-party or wash-sale equivalents due to the trusts’ relationship and common beneficiary.

## Issues

1. Whether the cross-trust stock transactions were bona fide sales producing deductible capital losses or were shams lacking economic substance.
2. Whether the losses should be disallowed on a related-party theory by analogy to statutory loss-disallowance or wash-sale rules, despite the transactions not fitting the literal terms of those provisions.

## Decision

- The Tax Court held the transactions were bona fide sales at fair market value.
- The court allowed the claimed capital loss deductions to both trusts.
- The court rejected disallowance by analogy to wash-sale or related-party rules where the statutory language did not reach these trust-to-trust sales.
- Judgment was entered for the petitioners.

## Legal Principles

- Separate trusts are treated as distinct taxable entities even if they share a current income beneficiary, where beneficial interests, remainder beneficiaries, and trust terms materially differ and trustees act independently.
- Tax motivation does not invalidate a transaction if it is executed according to its terms, at fair market value, with genuine transfer of ownership and post-transaction market risk.
- Courts generally will not extend wash-sale or related-party loss-disallowance provisions beyond their statutory scope absent a basis in the enacted text.
- Substance-over-form principles may disregard circular or non-economic transfers, but coordinated transactions are respected when they cause a real change in which entity holds the securities and bears investment risk.

## Conclusion

The Tax Court recognized the cross-trust stock sales as real, market-priced transactions between separate taxable entities and permitted the resulting capital losses, declining to deny deductions based solely on shared family benefit or policy-based analogies to statutory loss-disallowance rules.


Joseph E. Widener Trust v. Commissioner, 80 T.C. 304 (1983)