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Brainard v. Commissioner

United States Court of Appeals for the Seventh Circuit
91 F.2d 880 (1937)


Facts

In 1927, Brainard orally declared his intention to impose a trust on any future profits he earned from trading stock in 1928 for the benefit of his wife, children and mother. He also made himself, rather than the trust beneficiaries, financially responsible if he incurred losses from trading stock in 1928. After Brainard earned profits from trading stock in 1928, he took $10,000 of the profits as a trustee’s fee and held the remaining profits in trust for his wife, children and mother. Brainard declared the $10,000 trustee’s fee on his taxes, but the not the portion of the profits he held in trust. The beneficiaries did however report on their respective tax returns the shares of the profits that Brainard held for their benefit. The question before the court was whether Brainard’s oral declaration in 1927 established a trust at that time so that the profits earned in 1928 were reportable on the beneficiaries’ tax returns, or whether the trust did not exist until it was funded with the profits that Brainard earned in 1928 and accordingly the profits were reportable on Brainard’s tax return.

Rule of Law

Issue

Holding and Reasoning (Sparks, J.)

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