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Section 677(a) treats as an owner of a trust a grantor who
retains certain rights to income from the trust. Section 671
provides that the deemed owner of the trust, rather than the
trust, is currently taxed on the trust’s income. The grantor is
considered the owner of the trust or of a portion of the trust
“if he has retained any interest which might, without the
approval or consent of an adverse party, enable him to have the
income from that portion distributed to him at some time either
actually or constructively”. Sec. 1.677(a)-1(c), Income Tax
Regs. An “adverse party” is one who has a substantial beneficial
interest in the trust which would be adversely affected by the
exercise or nonexercise of the power that he, she, or it
possesses respecting the trust. Sec. 672(a).
Pursuant to section 677(a), Textron is considered to be the
grantor of a grantor trust; to wit, the voting trust. Textron
was entitled, subject to the exercise of the trustee’s
discretion, to payments of income from the voting trust equal to
the amounts of cash dividends distributed to the trust by Avdel.
Textron also was entitled to payments from the voting trust of
any money or property received through any other distributions by
Avdel to the trust. Textron also was the only holder of a
beneficial interest in either the income or the corpus of the
voting trust. Given the additional fact that the trustee, the
only other person associated with the trust, was not an “adverse
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