Floyd G. Paxton and Grace D. Paxton v. Commissioner of Internal Revenue

The Paxtons appeal a decision of the Tax Court, 57 T.C. 627 , upholding the Commissioner’s determination that they were taxable on part of the income of a trust they had established because it was a grantor trust as defined in §§ 671-677 of the Internal Revenue Code. Jurisdiction of this appeal is given by 26 U.S.C. § 7482 . We affirm.

All relevant facts were stipulated to the Tax Court. On August 3, 1967, Floyd G. Paxton created the F. G. Paxton Family Organization (the trust); he and his wife Grace transferred to it their entire interest in the Kwik-Lok Corporation (Yakima), a manufacturing firm of which they owned 86.38%, as well as a small assortment of other assets including their home. In return, they received Certificates of Interest for 4319, or 86.38%, of the 5000 Units of Interest in the trust. Two sons, together with their wives, and the plant manager of a controlled subsidiary also contributed Kwik-Lok stock to the trust, and received certificates for the remaining 681 units. Son Jerre Paxton received 192 units or 3.84%. By September 30, 1967, the trust owned all Kwik-Lok’s stock and had issued all the Certificates of Interest.

The trustees initially…

dissenting:

I agree with the majority that the 3.84 percentage interest Jerre Paxton now holds is modest enough to be “insignificant”. We should not, however, ignore the actuarial probabilities that children will outlive their parents. If Jerre should outlive his parents, his interest is likely to jump to 28.19 per cent. In the reasonable expectation that he will eventually come into nearly a third of the estate, young Paxton might well assume a conservationist role as trustee. A holding action is in his long-range best interest. Accordingly, I would agree with the taxpayer that Jerre’s interest is adverse. If this conclusion is one that Congress finds counterproductive in terms of the revenue, then it is up to Congress to plug the loophole.

I would reverse.

520 F.2d 923 75-2 USTC P 9607 Floyd G. PAXTON and Grace D. Paxton, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. No. 72-2408. United States Court of Appeals, Ninth Circuit. July 8, 1975. Peter M. Lind (argued), Bellevue, Wash., for petitioners. Scott P. Crampton, Asst. Atty. Gen. (argued), Tax Div., Dept. of Justice, Washington, D. C., for respondent. OPINION 1 Before CHOY and GOODWIN, Circuit Judges, and BURNS, * District Judge. 2 BURNS, District Judge. 3 The Paxtons appeal a decision of the Tax Court, 57 T.C. 627 , upholding the Commissioner's determination that they were taxable on part of the income of a trust they had established because it was a grantor trust as defined in §§ 671-677 of the Internal Revenue Code. Jurisdiction of this appeal is given by 26 U.S.C. § 7482 . We affirm. 4 All relevant facts were stipulated to the Tax Court. On August 3, 1967, Floyd G. Paxton created the F. G. Paxton Family Organization (the trust); he and his wife Grace transferred to it their entire interest in the Kwik-Lok Corporation (Yakima), a manufacturing firm of which they owned 86.38%, as well as a small assortment of other assets including their home. In…