Jack Smith and Rose Mae Smith v. Harry C. Westover, Former Collector of Internal Revenue, and Robert A. Riddell, Director of Internal Revenue

Jack and Rose Mae Smith are husband and wife. Before marriage, Jack Smith had established a successful wholesale shoe business. After marriage, the business was treated as community property. On December 31, 1942, Jack Smith bought out the interest of Rose Mae Smith, giving four promissory notes therefor. On September 29, 1943, two trusts were created for the benefit of the children of Jack and Rose Mae Smith, one in favor of a son then age eleven by Jack Smith and having as trustee, Rose Mae Smith, and the other in favor of a daughter then age three created by the deposit of certain of the promissory notes given by Jack Smith to Rose Mae Smith in the transaction of the previous December. Jack Smith was named trustee of this trust. On the same day, Jack and Rose Mae Smith entered into an agreement whereby Rose Mae Smith purchased from Jack Smith, as her separate property, a thirty per cent interest in the wholesale shoe business which had theretofore been in his sole proprietorship. She paid therefor by delivering two of the notes acquired in her previous sale to him of December 31. On September 30, Jack Smith entered into a written agreement with Jack Smith, as trustee for their…