Burnet v. Wells

289 U.S. 670 (1933)

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Burnet v. Wells

United States Supreme Court
289 U.S. 670 (1933)

Facts

On December 30, 1922, Frederick B. Wells (plaintiff) created three irrevocable trusts, and on August 6, 1923, Wells created two more. The first trust assigned shares of stock of value $100,000 to the Minneapolis Trust Company as the trustee. The income of the trust was to be used to pay annual insurance premiums on a policy for the life of the grantor. Additional income was to be paid to Wells’s daughter. Upon Wells’s death, the trustee was to use the proceeds of the policy to purchase securities belonging to the Wells estate. The trust terminated upon the daughter’s death. For the tax years 1924, 1925, and 1926, Wells did not include the income belonging to the trusts in his gross income. The commissioner of the Internal Revenue Service (IRS) (defendant) determined there was a deficiency, which was limited to the portion of income that was used toward payment of the insurance policies. Wells challenged the deficiency determination. The Board of Tax Appeals upheld the commissioner. The Eighth Circuit reversed and ruled in Wells’s favor, except as to the premiums on accident-insurance policies.

Rule of Law

Issue

Holding and Reasoning (Cardozo, J.)

Dissent (Sutherland, J.)

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