Document: 36 L.Ed.2d 528 93 S.Ct. 1713 411 U.S. 546 UNITED STATES, Petitioner,v.Douglas B. CARTWRIGHT, as Executor of the Estate Ethel Bennett. No. 71—1665. Argued Jan. 16, 1973. Decided May 7, Syllabus Shares in mutual funds can be 'sold' by shareholder only back to fund and at a set redemption price. Treas.Reg. § 20.2031—8(b), requiring that such shares valued for federal estate tax purposes current public offering ('asked') price, which is determined adding load or sales charge net asset value, clearly inconsistent with Investment Company Act 1940, therefore invalid. Pp. 550—557. 2 Cir., 457 F.2d 567, affirmed. Sol. Gen. Erwin N. Griswold petitioner. Ralph J. Gregg, Buffalo, N.Y., respondent. Mr. Justice WHITE delivered opinion Court. 1 The Internal Revenue Code 1954 requires that, purposes, 'value' all property held decedent time death included gross estate. 26 U.S.C. 2031. By regulation, Secretary Treasury has open-end investment companies, funds, are their price 'asked' date death. on Tax 20.2031—8(b) (1963). question this case presents whether determination reasonable context market shares. At her 1964, Bennett owned approximately 8,700 three regulated 54 Stat. 789, amended, 15 80a—1 et seq.1 1940 seeks generally regulate publicly companies engaged investing securities. Open-end 'dominate' industry. 1966 SEC Report 43. Unquestionably, unique characteristic they permitted, under Act, continuously public, but required prepared redeem outstanding any time. 80a—22(e). 'bid' may receive fractional value per share fund's assets redemption. 80a—2(a)(32). In contrast, initially offers its includes not sale, also fixed 'sales load' assessed principal underwriter who acts an agent marketing 80a—2(a) (35).2 Sales loads vary within limits from fund, paid funds' underwriters; charges do become part fund.3 ranged seven eight percent one 3 Private trading virtually nonexistent.4 Thus, given time, statutory scheme created being sold two distinct prices. Initial purchases made load. But shareholders 'sell' statutorily defined bid 4 Respondent executor decedent's On return, he reported amounted about $124,400. Commissioner deficiency based upon his valuation asked pursuant 20.2031—8(b).5 Valued basis, were worth $133,300. $3,100, including interest, filed timely claim refund, and, when was denied, commenced refund action Federal District Court ground unreasonable. agreed respondent Regulation 323 F.Supp. 769. Appeals 567. We granted Government's petition certiorari, 409 840, 61, 34 79, because conflict among circuits.6 5 recognize business administering laws Nation. Congress delegated task Treasury, 7805(a), regulations promulgated authority, if found 'implement congressional mandate some manner,' must upheld. United States v. Correll, 389 299, 307, 88 445, 449, 19 537 (1967). See Bingler Johnson, 394 741, 749—751, 89 1439, 1444, 22 695 (1969); South Texas Lumber Co., 333 496, 501, 68 695, 698, 92 L.Ed. 831 (1948). principle framework judicial analysis; it does displace it. find contested regulation unrealistic unreasonable, affirm judgment Appeals. 6 implementing 2031, general Regulations fair 'The would change hands between willing buyer seller, neither compulsion buy sell both having knowledge relevant facts.' 20.2031—1(b). buyer-willing seller test nearly old income, estate, gifts taxes themselves, challenged here.7 Under test, clear had ordinary corporate stock listed exchange, could have obtained date, being, Treas. Reg. 20.2031—2(b), mean highest lowest quoted selling prices day. urges similar treatment accordingly, measured death, hope obtain been sold. 7 Respondent's argument ring common sense it, maintains reflect pay, inasmuch obligation whenever offered. According Government, buyers sellers market. Therefore, market, appropriate basis valuation. central difficulty unrealistically bifurcates To sure, stated But, original purchases, purchasers aware duty willingly enter into sale transactions nonetheless. As Judge Winner correctly observed Hicks States, 335 474, 481 (Colo.1971): 8 'Viewing contract light meets every 'willing seller' definition usually applied value. buyer' fully informed person agrees shares, agreeing them fund—the available repurchaser—at sells plus charge, less charge. That It up dealing arm's length.' 9 thus properly viewed final step voluntary transaction seller. matter law, holders cannot fund. never fund; used public—and even then receives merely directly underwriter. short, realize buyer—will pay teeth fact, purports assign offer. 10 support Regulation, Government stresses many types taxed values above those realized during actual sale. For example, without taking account brokerage commission order stock. contend approach inappropriate should anticipated fees. operates entirely different fashion. element cost incurred hypothetical purchase already If carried over situation, traded $100 valued, now is, at, say, $102, representing fee buying day pay. hardly need said method least long-established practice appear odds basic notions embodied Code.8 Wells Commissioner, 50 T.C. 871, 880 (1968) (Tannenwald, J., dissenting). 11 Even assumed somehow privately held, there still so are, important respects, subject restrictive agreement (such first-refusal right specified price). With respect stock, provided marketplace control. Rather, long restriction bona fide one, restricted stockholder accordance terms restriction. 20.2031—2(h). Outstanding likewise restriction, noted. 571. Those statute, see no valid justification disregarding reality connected ownership 12 nevertheless argues 20.2031 8(b) reasonably 'bundle rights' transferred shares.9 argument, heavy reliance placed Court's decisions Guggenheim Rasquin, 312 254, 61 507, 85 813 (1941); Powers 259, 509, 817 Ryerson, 260, 479, 819 (1941), cash-surrender single-premium life insurance policy did necessarily represent taxable gift purposes.10 Guggenheim, lead case, taxpayer purchased policies aggregate face million dollars $852,000 shortly thereafter, gave children. $717,000—admittedly amount donor donees receive, surrendered. policies, upheld valuation: 'the owner more than mere surrender it; retain virtues insured's these latter rights deemed substantial difference immediate early . ..' U.S., 257, 509. Because 'entire bundle policy' difficult give realistic to, deferred Commissioner's permitted cost: 'Cost cogent evidence value.' Id., 258, observed, F.Supp., 773, quite unlike particularly policyowner's full Moreover, present analogous difficulties day, commercial turning financial pages newspaper. Obviously, 'investment virtues' prospects capital gains dividends. true security. Nonetheless, singled out holdings replacement cost—which 'brokers' commissions'—while other shareholdings regard commissions. 13 nature demonstrated comparing no-load funds. argued differences related interests Indeed, imply, real distinction imposes initial not.11 noload while further illustrate, consider each share. died before either appreciated, after changed Although $100, redeemed amount, require new A results differing identical supported something transparent analogy insurance. 14 normally 'Treasury sustained unless unreasonable plainly revenue statutes.' S.Ct., 698. here not, face, technically 2031 Code, manifestly most elementary provisions regulates. Cf. L. E. Shunk Latex Products, Inc. 18 940 (1952). surely intended interpreted manner. measure agree Tannenwald, very outset dispute 20.2031-8(b), 'it follow (the Commissioner) choice alternatives, where alternative chosen unrealistic. situation embodying unreasonable.' T.C., 878 (dissenting opinion). 16 ordered. 17 Judgment STEWART, whom THE CHIEF JUSTICE REHNQUIST join, dissenting. This narrow issue law regarding certain assets—shares company 'mutual fund'—for tax. turns single law: Regulations, provides specific valuing represents implementation legislation enacted Congress. 20 December 4, Mrs. testate leaving, several thousand separate Each managed firm known Investors Diversified Services, Inc., Securities Exchange Commission 1940. return respondent, Bennett's executor, so-called 'net value,' entitled, issuer. calculated daily issuing company, equivalent total addition serving gauge issued, employed determining will offer general, 'load.' varying percentage sold, fluctuates size purchase. maximum allowable 7% 8%, minimum 1%. 21 Upon receipt respondent's acting 20.2031—8(b),* deficiency, contending member acquire would, course, encompass applicable Such expressly prescribed noted above. sole us constitutes exercise power prescribe 'all needful rules' proper enforcement laws, 7805, inherently statute 537; 695. facts presented I say invalid, dissent decision outset, well note rule prevails our laws. 20.2031—1(b), includable shall CFR 2031—1(b). 23 applying shares—a which, doubt, led promulgate 20.2031—8(b)—is once issued disposition buyers' sellers.' noted, practical means disposing acquired redemption, sort described (26 1(b)), since party purchasing company) absolute tendered, alternative, wishes liquidate holdings, 24 faced problem establishing equal inherent worth. doing so, chose treat dispositive question. promulgating might rationally considered 'on demand' incident 25 demand,' them; done possessed normal dividend associated investments, dividends accrued toward additional below addition, contracts involved here, exchange Inc.—without paying usual rights, redemptive otherwise, determine what constraints, open And, earlier, although exists investor, perfectly exist prior issuance. took fairly reflective adopted 8(b), render 27 invalid grounded arguments. First, says, excess can, matter, equally taxation passing despite fact sum fees dispose cash stead. attack amounts whole system Tax, am ready hold long-accepted basically 28 second places higher registered similarly assumes security, parity reasoning, stockbroker purchaser view, entitled allegedly comparable consideration brokers' commissions arriving purposes. 20.2031—2(b). 29 superficial appeal, relies exact one. marketable securities pays surcharge whatever. traditional securities, investor. exist, doubtless bound exactly like exists, simply provide readily identifiable standard circumstances, establish criteria totality benefits asset. providing regularly closely akin us. 813. 30 Given peculiar characteristics arguable chosen. decide. '(We) sit committee revision perfect administration courts, prescribing rules enforcement' Code. 7805(a). area limitless factual variations, province make adjustments." 306—307, 449. 750, 1445. 31 reverse sustain validity Regulation. 2,568.422 Mutual, own name, 2,067.531 trustee daughter. 2,269.376 Stock Fund, 1,869.159 Selective thorough discussions operations Public Policy Implications Growth, H.R.Rep.No.2337, 89th Cong., 2d Sess. (1966) (hereinafter Report); Special Study Markets, c. XI, Open-End Companies (Mutual Funds), H.R.Doc.No. 95, pt. 88th 1st (1963) 1963 Study). number 'no-load funds'; cases same. 58—59. (IDS), itself company. IDS serves manager management 80a—15. 96—97 explained follows: 'Mutual exchanges over-the-counter through underwriter, computed twice portfolio subtracting liabilities, dividing result outstanding. commission, commonly referred load,' ranging 7.5 8.5 paid, 8.1 9.3 invested. few however, 'no-load' repurchased small fee. pricing system, apparent, entire borne exclusively itself. differs from, closed-end 'at market' exchange-listed portion shares.' (Footnote omitted.) 873 (1968), aff'd sub nom. Ruehlmann 418 1302 (CA6 1969), cert. 398 950, 90 1869, 290 (1970); 42; 96. reads, part, '(b) Valuation openend (1) (commonly fund') share, adjusted reduction acquiring valued. absence affirmative showing effect last presumed '(2) paragraph apply estates decedents dying October 10, 1963.' 1963, T.D. 6680, Fed.Reg. 10872, years confusion Department Justice. opinion, 769, 777. corresponding 25.2512—6(b). supra, six judges affirmed Sixth Circuit (1966), (1970). companion Howell 414 45 (CA7 1969). Davis 460 769 (CA9 1972), aff'g 306 949 (CDCal.1969). 474 (Colo.1971), appeal pending Tenth Circuit, 72—1360. 63 Relating 1921, Art. (1922 ed.) ('The criterion circumstances existing .'); 105 (of 1939), 81.10 (1942). Whatever situations 20.2031—1(b) use standardized retail sufficient reasons given, situations. rarely hurt 20.2053—3(d)(2) permits deduct enumerated expenses. terms, applies necessary' (Emphasis added.) event, inapplicable altogether kind heir legatee. coincidence 20.2031—8, deals '(v)aluation annuity we Winner: cross-breed trust simple expedient discussing paragraphs regulation.' 482. 51—59. * text insofar reads .' There Gift import. 25.2512-6(b).

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