Before MCLAUGHLIN, STALEY, and HASTIE, Circuit Judges.
MCLAUGHLIN, Circuit Judge.
The only issue before us is whether the income of a trust (created by the petitioner's father in 1927) over and above the amounts payable thereunder to petitioner's sister, is includible in the taxpayer's gross income for the taxable year 1943.The Tax Court held that it was. The taxable year 1942 is involved by reason of the Current Tax Payment Act of 1943, 26 U.S.C.A. Int. Rev. Acts, page 385, which provides that he income and victory tax for the tax year of 1943 depends on the income of the calendar years 1942 and 1943.
Most of the facts are stipulated and the balance are established by the evidence at the Tax Court hearing. Petitioner is fortyeight years old. He was born in Pittsburgh, Pennsylvania. For the last fifteen years he has been active there in philanthropic and community affairs. On November 11, 1927, his father, Leon Falk, executed a deed of trust with himself as donor and his brother, Maurice, as trustee. Leon Falk died October 20, 1928 without having terminated the trust. Maurice Falk served as trustee until his death March 18, 1946. Since that time his successor trustee, Fidelity Trust Company of Pittsburgh, has so served. During the period from the creation of the trust until his death, Leon Falk, as empowered by the deed of trust, directed his brother as trustee to pay from the income of the trust estate a total of $23,250 to certain charitable, benevolent and educational institutions. Those monies were duly paid. From the date of the death of his father to the date of the death of Maurice Falk, it appears that the petitioner, as authorized by the trust, directed certain charitable and philanthropic payments to be made from the trust estate. Those payments were made and, exclusive of certain payments to the University of Pittsburgh, totalled $318,004.31. They were deducted by the trust estate from its gross income during the respective years in which the contributions were made.In 1943 the trust estate paid out a total of $51,318.75 to various charitable, benevolent and educational institutions. All of those payments were at the written direction of petitioner. The amount of the payments was deducted by the trust estate from its 1943 gross income.The Tax Court upheld the Commissioner in determining that the net income of the trust (which excluded certain sums paid petitioner's sister) was to be included in petitioner's income and that the above mentioned disbursements constitute gifts to charity by the petitioner under his voluntary designations.
The governing language of the November 11, 1927 deed of trust is Article Second which provides:
"Second: The Trustee shall pay over the dividends, interest and income from the trust estate, remaining after payment thereout of the expenses of maintenance, taxes or other proper disbursements, as follows:
"1. To Marjorie Falk, the daughter of the Donor, there shall be paid annually in quarterly instalments, as near as may be, such portion of said income as the Donor in his lifetime and Leon Falk, Jr., the son of the Donor, after the death of the Donor, shall from time to time in writing direct; provided, however, that after the death of the Donor the amount so paid shall not be less than Five Thousand Dollars per year. The payments so to be made to said Marjorie Falk shall be made each year until the trust is terminated.
"2. To such charities and benevolences, charitable, benevolent and educational institutions as the Donor in his lifetime, and as Leon Falk, Jr., after the death of the Donor shall, from time to time in writing, designate, there shall be paid such portion of said income as the Donor in his lifetime and Leon Falk, Jr., after the Donor's death shall direct, each year until the trust is terminated.
"3. To Leon Falk, Jr., the son of the Donor, there shall be paid annually all of said income which shall not be paid to said Marjorie Falk and to Charitable, benevolent and educational purposes as aforesaid. The payments so to be made shall be made each year until the termination of the trust."
By Paragraph 3 of the Second Article of the trust, the taxpayer was to receive its annual income less payments of at least $5,000 a year to his sister and less any payments directed by him to be paid to charities and benevolences, charitable, benevolent and educational institutions designated by him in writing in accordance with Paragraph 2 of the Second Article. There is no language in the article or in the agreement making it mandatory on the taxpayer to give anything to charity, etc. or even to make specific designations of a particular charity. There is not the slightest ambiguity about Article Second. It is impossible to construe Paragraphs 2 and 3 with a reasonable regard for their rational meaning and to arrive at the conclusion that they obligated the taxpayer to designate the type of charity and benevolence as mentioned in Paragraph 2 and to then direct that sums certain be paid them under the trust.
The taxpayer does not possess all of the incidents of ownership but within the exception provided for of disbursements to his sister, he does have practical control of the trust income. As Judge L. Hand said in Stix v. Commissioner, 2 Cir., 152 F.2d 562, 564, "All else he might withhold, and whatever more he chose to give, he gave out of his own." See also Mallinckrodt v. Nunan, 8 Cir., 146 F.2d 1, certiorari denied 324 U.S. 871, 65 S. Ct. 1017, 89 L. Ed. 1426. Under the wording of the trust deed we are unable to find that the petitioner had a duty to designate "charities, benevolences, charitable, benevolent and educational institutions" in writing and to direct specific payments to them of trust income. Such designation n(d direction was left to the absolute discretion of the petitioner. With the exception of mandatory payments to his sister, he was unfettered in his control of the trust income. This is ample to bring it within his own taxable income under Section 22(a) of the Internal Revenue Code, 26 U.S.C.A. § 22(a). Corliss v. Bowers, 281 U.S. 376, 50 S. Ct. 336, 74 L. Ed. 916; Helvering v. Clifford, 309 U.S. 331, 60 S. Ct. 554, 84 L. Ed. 788; Helvering v. Horst, 311 U.S. 112, 61 S. Ct. 144, 85 L. Ed. 75; Helvering v. Eubank, 311 U.S. 122, 61 S. Ct. 149, 85 L. Ed. 81; Harrison v. Schaffner, 312 U.S. 5798 61 S. Ct. 759, 85 L. Ed. 1055; Commissioner v. Tower, 327 U.S. 280, 66 S. Ct. 532, 90 L. Ed. 670; Lusthaus v. Commissioner, 327 U.S. 293, 66 S. Ct. 539, 90 L. Ed. 679; Commissioner v. Sunnen, 333 U.S. 591, 68 S. Ct. 715, 92 L. Ed. 898.
Petitioner relies largely upon our decision in Funk v. Commissioner, 3 Cir., 185 F.2d 127, 131. There, the taxpayer was given the authority in her discretion to pay all or part of the trust income to her husband or herself in accordance with their "needs", of which she was to be the sole judge with the balance of the income, if any, to be added to principal. We held, in Judge Kalodner's fine opinion, 185 F.2d at page 131, that the use of the word "needs" effectively distinguished the case from the Stix and Mallinckrodt opinions, supra, and "* * * confined the trustee to limits objectively determinable, and any conduct on her part beyond those limits would be unreasonable and a breach of trust; * * *." Also in Funk, if there were no need of the taxpayer or her husband for all or part of the trust income, that income did not go to the taxpayer as in the matter before us, but to the principal of the trust. Plainly, the Funk decision is inapplicable to the instant problem where there is no circumscription of the petitioner's discretion; where he has no obligation under Article Second to make any of the kind of payments referred to in the trust and where if he does not make such payments, the income, less payments to his sister, is his own.
The above conclusion is not contrary to Pennsylvania law. It is, in fact, fortified by a line of opinions cited to us by petitioner, in each of which, though the charitable beneficiaries were not specified by name, the extent of the charitable gift was either certain, or as Judge Kalodner said in the Funk case, was "objectively determinable". Thus what was to go to charity in Re Anderson's Estate, 269 Pa. 535, 537, 112 A. 766, was "said residue" of testator's estate; in Re Thompson's Estate, 282 Pa. 30, 32, 127 A. 446, 447, it was "All the rest, residue and remainder of my estate, real and personal * * *"; in Re Jordan's Estate, 329 Pa. 427, 428, 197 A. 150, it was "a certain part" of her estate; in Re Funk Estate, 353 Pa. 321, 322, 45 A. 2d 67, 68, 163 A.L.R. 780, after certain legacies, it was "After all debts the rest" to be given to some worthy cause or institution. Here we have no such situation. Nor was there present in any of those cases cited by the taxpayer the other all important element of the matter before us, namely, that in the event petitioner did not designate charities or benevolences as detailed in the agreement and direct payments to them, the income went to him.
Petitioner also argues that a constructive trust should be imposed under the particular facts. This is based, primarily, upon certain statements with respect to the trust made to petitioner by his father and agreed to by petitioner. The testimony of the petitioner concerning these was accepted by the Tax Court. The son testified that the father told him that "He wanted me to carry on his charities * * *. He wanted his current charities carried on and he wanted the family tradition of giving to be continued." Petitioner testified that he promised to carry out the desires that his father indicated. He ...