Wayne Hugh Easley Trust v. Commissioner

This matter is here on petition for review of the decision of the Tax Court. All of the facts were stipulated and as taken from the stipulation were summarized by the Tax Court as follows:

The petitioners herein, the Wayne Hugh Easley Trust (hereinafter sometimes referred to as Trust No. 1) and the Roger Kent Easley Trust (hereinafter sometimes referred to as Trust No. 2) were created on October 1, 1940, by separate written Declarations of Trust of the same date executed by W. H. Easley and Margaret A. Easley as settlors. Since that date and throughout the period here involved, each petitioner has been a duly existing trust under the provisions of the respective Declarations of Trust and under and by virtue of the laws of the State of California. Since the creation of the trust and throughout the period involved, W. H. Easley has been the duly qualified and acting trustee of each petitioner-trust.

During the period here under review, each petitioner-trust kept its books of account and filed its income tax returns on the calendar year basis and on the cash method of accounting. Such returns were filed with the collector of internal revenue for the first collection district of…

(dissenting).

When the Commissioner wrote the letter, Exhibit J, enclosing the “Consent to Credit” set out in the court’s opinion, he must have considered that he was proposing something which the addressee, the trustee, had a lawful right to do, namely, to apply the sums refunded to the trust, upon his own obligation on the deficiency assessed against him as grantor. I cannot think the Commissioner was in this suggesting a breach of trust by Easley. He must have thought, as do I, that it was perfectly proper for Easley to make this application.

And if it was appropriate thus to apply the principal of these refunds to Eas-ley’s personal tax liability, it was likewise proper for him to make a similar application of the checks for interest on these refunded amounts. This he did, as the opinion shows, by endorsing the checks and applying them, as far as they would go on his own interest obligation. It is impossible, logically or as a matter of law, to distinguish this right to apply the payments of principal, as the Commissioner suggested, from the right to apply the interest in like manner.

The right so to do stems from the fact that it is apparent that it was never Easley’s…