Corliss v. Bowers
Headline: Court upheld federal income tax on trust payments to a wife where the trust’s creator kept power to revoke or modify, letting the government tax income the creator could still control.
Holding: The Court held that when a person who created a trust keeps the power to take back or change trust property, the income paid from that trust can be taxed to that person even if paid to his wife.
- Allows government to tax trust income when the creator keeps power to revoke or modify the trust.
- Means income paid to a spouse can still be taxed to the trust’s creator.
- Affects how families and taxpayers structure transfers to avoid income tax.
Summary
Background
In 1922 a man transferred a fund to trustees to pay the income to his wife for life and then to their children. He expressly kept the power to modify or revoke the trust at any time. Under the Revenue Act of 1924 the government said that if the person who created a trust had the power to take back trust property, the income should be taxed to that person. The man paid the 1924 tax and sued to recover it after lower courts dismissed his claim and the appeals court affirmed, so the case reached this Court.
Reasoning
The Court asked whether the statute could lawfully be applied to someone who had kept the power to reclaim or change the trust. The Justices said taxation cares about who really controls and benefits from income, not formal legal titles. If a person can freely stop payments or take the property back, the income is effectively under his command and may be taxed to him, even if the money is being paid to his wife. The Court treated the reserved power as equivalent to control and upheld the tax.
Real world impact
The decision means people who give assets away but keep the right to alter or revoke that arrangement may still be taxed on the income those assets produce. It affects how families and taxpayers use trusts to shift income and confirms the government’s ability to tax income when the creator retains decisive control. The Chief Justice did not participate.
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