## Facts

- In 1918, Edward Mallinckrodt, Sr. created an irrevocable trust naming a corporate trustee and his son, Edward Mallinckrodt, Jr., as co-trustees.
- After specified obligations were satisfied, the trust required an annual $10,000 payment from net income to Mallinckrodt Jr.’s wife during their joint lives.
- The remaining annual net income was payable to Mallinckrodt Jr. upon request; if not requested, it was added to corpus at year-end.
- By unanimous action of the trustees, principal could be distributed to Mallinckrodt Jr. upon his request, and the trust could be terminated during his life with all assets distributed to him.
- Mallinckrodt Jr. held a testamentary power of appointment over trust property; if not exercised, the trust continued for his widow and children.
- For 1934–1935, only the $10,000 annuity was distributed; the wife reported it as income, and the trust reported and paid tax on undistributed income.
- For 1936–1937, at Mallinckrodt Jr.’s request, trustees made certain payments to charities and to a separate trust for his wife; he did not report additional trust income.
- The Commissioner determined deficiencies for 1934–1937, treating the trust’s undistributed net income (beyond the wife’s annuity) as taxable to Mallinckrodt Jr.; the Tax Court upheld the deficiencies.

## Issues

1. Whether the trust’s undistributed income for 1934–1937 was taxable to the trust as income accumulated for future distribution, or to Mallinckrodt Jr. as beneficiary.
2. Whether the income was taxable to Mallinckrodt Jr. under the Revenue Acts’ trust distribution provisions (including income “to be distributed currently”).
3. Whether, regardless of trust distribution provisions, Mallinckrodt Jr.’s powers over income and corpus made him the effective owner such that the income was taxable to him under § 22(a).

## Decision

- The Eighth Circuit affirmed the Tax Court’s deficiency determinations.
- The court held the undistributed trust income was taxable to Mallinckrodt Jr., not the trust, for 1934–1937.
- The court relied principally on § 22(a), concluding Mallinckrodt Jr.’s powers gave him command over the trust’s income and property equivalent to ownership.
- The court also treated the beneficiary’s right to take the residual income upon request as consistent with taxing the income to him rather than as trust-accumulated income.

## Legal Principles

- Income is taxable to the person who has the power to enjoy it; choosing to leave income in a trust does not avoid tax when the taxpayer can take it at will.
- Under § 22(a), a beneficiary may be taxed as the owner of trust income when retained powers and rights provide effective dominion over income and corpus.
- A beneficiary’s annual right to demand residual net income, combined with trustee powers to invade principal and terminate the trust in the beneficiary’s favor, supports treating undistributed income as the beneficiary’s taxable income.

## Conclusion

Because Mallinckrodt Jr. could obtain the trust’s residual income each year on request and, as co-trustee, could access principal and even end the trust and take all assets, the court treated him as the effective owner of the trust’s economic benefits and taxed the undistributed income to him under § 22(a) for 1934–1937.


Mallinckrodt v. Nunan, 146 F.2d 1 (8th Cir. 1945)