Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 57-8

1957-1 C.B. 204

Sec. 676

Sec. 677

IRS Headnote

Where the net income and/or principal of a trust is, in the discretion of the trustee, to be paid to the grantor or applied for his benefit so long as he shall live, the grantor will be treated as the owner of the trust and the income therefrom, including any capital gains realized by the trust, shall be taxable to him even though a reserved power to revoke the trust may be exercised only with the consent of his wife, the surviving income beneficiary of the trust.

Full Text

Rev. Rul. 57-8

Advice has been requested whether the grantor will be treated as the owner of a trust and the income therefrom will be taxable to him where the trust agreement provides (1) that the net income and/or principal of the trust estate is, in the discretion of the trustee, to be paid to the grantor or applied for his benefit so long as he shall live and (2) the grantor has reserved the right to revoke the trust but only with the consent of his wife, the surviving income beneficiary.

Section 671 of the Internal Revenue Code of 1954 states the general rule that, in cases where the grantor or another person is regarded as the owner of any portion of a trust, there shall be included in computing his taxable income and credits those items of income, deductions, and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account in computing the taxable income and credits of an individual.

Section 676(a) of the Internal Revenue Code of 1954 provides that the grantor shall be treated as the owner of any portion of a trust, whether or not he is treated as such owner under any other provision of subpart E, where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse party, or both.

Furthermore, under the general rule contained in section 677(a) of the Code, the grantor shall be treated as the owner of any portion of a trust whose income, without the approval or consent of any adverse party, is or, in the discretion of the grantor or a nonadverse party, or both, may be distributed to the grantor.

Although the power to revoke the trust reserved by the instant grantor may be exercised only with the consent of the surviving income beneficiary of the trust, an adverse party, the provision contained in the trust instrument to the effect that the principal of the trust may be applied by the trustee, a nonadverse party, for the benefit of the grantor is considered to be a power to revest in the grantor, the title to the trust corpus within the purview of section 676(a) of the 1954 Code.

In view of the foregoing, it is held that where the net income and/or principal of a trust is, in the discretion of the trustee, to be paid to the grantor or applied for his benefit so long as he shall live, the grantor will be treated as the owner of the trust and the income therefrom including any capital gains realized by the trust, shall be taxable to him even though a reserved power to revoke the trust may be exercised only with the consent of his wife, the surviving income beneficiary of the trust.