Hastings, Senior Circuit Judge, and Swygert and Cummings, Circuit Judges.
HASTINGS, Senior Circuit Judge.
Howard M. Iber (taxpayer) brought this action against United States of America. He sought refund of federal income taxes in the amount of $11,521.19, and interest, paid by him during the calendar years 1962, 1963 and 1964. The facts were not in dispute and were largely stipulated. There was a bench trial. The trial court entered findings of fact, filed a memorandum decision and judgment was entered thereon adverse to taxpayer and favorable to the Government. After a hearing on taxpayer's motion for reconsideration, the motion was denied and the original decision sustained. Taxpayer appealed. We affirm.
Taxpayer owned certain improved real estate in Illinois for use in the general contracting business. He was president of and a substantial shareholder in C. Iber & Sons, Inc., an Illinois corporation, with its principal office in East Peoria, Illinois. Together with his wife, children and brothers, he was in control of such corporation.
On September 1, 1959, taxpayer leased the above mentioned real estate to the Iber corporation for a term of 132 months at a rental of $475 per month, beginning that date and terminating August 31, 1970.
On February 1, 1960, taxpayer assigned such lease to Commercial National Bank of Peoria, Illinois, as trustee. At the same time, taxpayer entered into a written trust agreement with the trustee. Under this trust agreement the trustee was to accumulate and pay the income received from the leased real estate to taxpayer's two children, then 20 and 17 years of age. The trust had a duration of ten years and one day, after which the subject real estate lease reverted to taxpayer.
There was no agreement between taxpayer and the trustee that their mutual rights and obligations would be other than set forth in the trust agreement. An officer of the trustee bank endorsed for the file a memorandum stating, with respect to the trust in question, "We have no responsibility whatsoever as to the management of the real estate subject to lease, insurance, taxes or the like."
In the written assignment of the subject lease by taxpayer to the trustee, after identifying the real estate and the written lease, the interest assigned was described as:
"* * * all my right, title, interest and claim in and to said written Indenture of Lease for the term and for the purposes described in said Trust Agreement, hereby vesting, and intending to vest, in COMMERCIAL NATIONAL BANK OF PEORIA, Trustee, all the rights, privileges and benefits conferred upon or retained by me in said written Indenture of Lease, excepting, only that I reserve unto myself the rights and privileges described in Paragraph 12 of said Indenture of Lease."
The reservation referred to in Paragraph 12 of the lease was the right to explore and remove any minerals from the leased land.
During the years 1962, 1963 and 1964 all income, being only the rent payable under the lease, was paid to the trust by the lessee Iber corporation. Taxpayer did not report this rent as income for tax purposes; the trustee filed fiduciary returns. However, taxpayer did continue to personally claim deductions for depreciation, real estate taxes and interest on a mortgage to which the lease is subject.
Following an audit of taxpayer's income tax returns for the three years in question, the District Director of Internal Revenue determined that the rental income received by the trust should be taxed to taxpayer, rather than to the trust or its beneficiaries. The resulting income tax deficiencies were assessed against taxpayer. These deficiencies were paid by him on July 11, 1966. The instant litigation followed.
The district court held in substance that taxpayer's assignment of his rights under the lease to a trust for the benefit of his two children was an assignment of future income, rather than a transfer of income-producing property, and that consequently the rent paid under the lease remained taxable to him. Or, as the trial court stated the question for decision: "Did the plaintiff [taxpayer] here convey income-producing property to the trustee or merely his right to income?" In deciding this question adversely to taxpayer, the trial court's conclusion and holding frame the issue on appeal.
At the outset, it appears that taxpayer assigned only rights under a lease for the duration of the trust. At the same time, taxpayer retained not only a reversionary interest in the lease but ...