Brainard v. Commissioner

Facts

In December, 1927, the taxpayer, having decided that conditions were favorable, contemplated trading in the stock market during 1928. He consulted a lawyer and was advised that it was possible for him to trade in trust for his children and other members of his family. Taxpayer thereupon discussed the matter with his wife and mother. Taxpayer agreed to assume personally any losses resulting from the venture, and to distribute the profits, if any, in equal shares to his wife, mother, and two minor children. During 1928 taxpayer carried on the trading operations contemplated and at the end of the year determined his compensation at slightly less than $10,000, which he reported in his income tax return for that year. The profits remaining were then divided in approximately equal shares among the members of his family, and the amounts were reported in their respective tax returns for 1928. The amounts allocated to the beneficiaries were credited to them on taxpayer’s books, but they did not receive the cash, except taxpayer’s mother, to a small extent.