Document: 512 U.S. 26114 S.Ct. 2018129 L.Ed.2d 22 UNITED STATES, Petitionerv.Jerry W. CARLTON. No. 92-1941. Supreme Court of the United States Argued Feb. 28, 1994. Decided June 13, Syllabus * As adopted in October 1986, 26 U.S.C. § 2057 granted an estate tax deduction for half proceeds "any sale employer securities by executor estate" to "an employee stock ownership plan" (ESOP). In December respondent Carlton, acting as executor, purchased shares a corporation, sold them that company's ESOP at loss, and claimed large on his return. 1987, was amended provide that, qualify deduction, must have been "directly owned" decedent "immediately before death." Because amendment applied retroactively, if it were incorporated original 1986 provision, Internal Revenue Service (IRS) disallowed Carlton's deduction. The District entered summary judgment against him ensuing refund action, rejecting contention amendment's retroactive application transactions violated Due Process Clause Fifth Amendment. Appeals reversed, holding such rendered unduly harsh oppressive, therefore unconstitutional, lack notice would be retroactively reasonable reliance detriment pre-amendment law. Held: 1987 does not violate due process. Under applicable standard, statute's supported legitimate legislative purpose furthered rational means. See, e.g., Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 717, 729-730, 104 2709, 2717-2718, 81 601. Here, Congress' enacting neither illegitimate nor arbitrary. Section originally intended create incentive stockholders sell their companies employees, but absence decedent-stock-ownership requirement resulted deduction's broad availability virtually any estate, estimated loss Government up $7 billion anticipated revenues. Thus, Congress undoubtedly correct what reasonably viewed mistake provision. There is no plausible acted with improper motive, its decision prevent unanticipated revenue denying those who made purely tax-motivated transfers unreasonable. Moreover, rationally related purpose, since promptly proposing within few months 2057's enactment established modest retroactivity period extended only slightly longer than one year. Appeals' exclusive focus taxpayer's held strict standard. Pp. ____. 972 F.2d 1051 (CA9 1992), reversed. BLACKMUN, J., delivered opinion Court, which REHNQUIST, C.J., STEVENS, KENNEDY, SOUTER, GINSBURG, JJ., joined. O'CONNOR, filed concurring judgment. SCALIA, judgment, THOMAS, Kent L. Jones, Washington, DC, petitioner. Russell G. Allen, Newport Beach, CA, respondent. Justice BLACKMUN Court. 1 provision federal statute limiting recently added sales stock-ownership plans (ESOPs). provided apply had 1986. question presented this case whether violates 2 effected major revisions Code Tax Reform Act 100 Stat. 2085. One addition new timely return after date Act, 22, codified (1982 ed., Supp. IV),1 plan." 2057(b).2 order "before [estate tax] . [was] required (including extensions)." 2057(c)(1). 3 Respondent Jerry will Willametta K. Day, deceased, sought utilize Day died September 29, 1985. Her (after Carlton obtained 6-month filing extension). On 10, used funds purchase 1.5 million MCI Communications Corporation $11,206,000, average price $7.47 per share. Two days later, $10,575,000, $7.05 total thus $631,000 less price. When he under $5,287,000, ESOP. reduced $2,501,161. parties stipulated engaged specifically take advantage 4 January 5, announced "[p]ending clarifying legislation," treat available estates decedents owned immediately death. See IRS Notice 87-13, 1987-1 Cum.Bull. 432, 442. A bill enact introduced each chamber February 26, 1987. 133 Cong.Rec. 4145 4293 (1987). 5 enacted. amended, Omnibus Budget Reconciliation 10411(a), 101 1330-432.3 effective contained enacted 10411(b). 6 ground paid asserted deficiency, plus interest, claim refund, instituted action Central California. He conceded did 2057. argued, however, estate's rejected argument favor States. 7 divided panel Ninth Circuit (1992). majority considered two factors paramount determining process: taxpayer actual or constructive relied court concluded both oppressive unconstitutional. Judge Norris dissented. view, wide latitude congressional authority legislate regulating economic activity. We certiorari, --- ----, 114 55, 126 25 (1993). II 8 This repeatedly has upheld legislation process challenge. Hemme, 476 558, 106 2071, 90 538 (1986); Darusmont, 449 292, 549, 66 513 (1981); Welch Henry, 305 134, 59 121, 83 L.Ed. 87 (1938); Hudson, 299 498, 57 309, 370 (1937); Milliken States, 283 15, 51 324, 75 809 (1931); Cooper 280 409, 50 164, 74 516 (1930). Some decisions stated validity depends upon "retroactive so transgress constitutional limitation." U.S., 147, S.Ct., 126, quoted 568-569, 2077-2078. "harsh oppressive" formulation, "does differ from prohibition arbitrary irrational legislation" applies generally enactments sphere policy. 733, 2719-2720, 601 (1984). standard statutes effect, therefore, same legislation: 9 "Provided means, judgments about wisdom remain province executive branches. 10 "To sure, meet burden faced future effects. 'The aspects legislation, well prospective aspects, test process, justifications latter may suffice former'. But met simply showing itself justified purpose." Id., 2718, quoting Usery Turner Elkhorn Mining 428 1, 16-17, 96 2882, 2893, 49 752 (1976). 11 little doubt curative measure. result, could buying market reselling ESOP, thereby obtaining potentially dramatic reduction (or even elimination of) obligation. 12 It seems clear contemplate applicability when That "incentive employees helped build company rather liquidate, outsiders corporation redeem behalf existing shareholders." Joint Committee Taxation, Proposals: Treatment Employee Stock Ownership Plans (ESOPs), 99th Cong., 2d Sess., 37 (Joint Comm.Print 1985); see also 132 14,507 (1986) (statement Sen. Long) (§ "allow[s] reduce taxes one-half selling decedent's ESOP"). initially 2057, approximately $300 over 5-year period. (1987) Rep. Rostenkowski); id., Bentsen). became evident shortly passage expected much billion—over 20 times greater anticipated—because limited situations Ibid. introducing Senator Bentsen observed: "Congress intend able virtue purchasing certainly anticipate loss." 4294. Without amendment, stated, "taxpayers deductions engaging essentially sham transactions." 13 conclude meets requirements First, created significant loss. targeting representatives deliberately inducing engage transactions. Congress, course, might chosen make through general taxation, choice burdened equally "innocent" taxpayers. Instead, decided transfers. cannot say 14 Second, retroactivity. noted 296, 551-552, "almost without exception" given dates prior enactment. "customary practice" "confined short periods practicalities producing national legislation." 296-297, 552. (1938), Wisconsin income 1935 dividends received 1933. "recent transactions" law "must taken include receipt during year session preceding enactment." 150, 127. effect proposed 15 argues because detrimentally version Although uncontested—and reading appears correct—his alone insufficient establish violation. promise, vested right Code. Stone explained 146-147, 125-126: 16 "Taxation penalty imposed liability assumes contract. way apportioning cost government among some measure are privileged enjoy benefits bear burdens. Since citizen enjoys immunity burden, imposition necessarily infringe ." 17 detrimental principle legislation. An entirely change disturb relied-upon expectations individuals, deemed violative 18 Similarly, we do consider regarding dispositive. despite advance And similar argument, declaring "should regarded taking chances increase result carrying out policy taxation." 23, 327. 19 Court's Nichols Coolidge, 274 531, 47 710, 71 1184 (1927), Blodgett Holden, 275 142, 48 105, 72 206 Untermyer Anderson, 276 440, 353, 645 (1928). Those cases era characterized exacting review approach "has long discarded." Ferguson Skrupa, 372 726, 730, 1028, 1031, 93 (1963). To extent survives, they control here. Untermyer, involved Nation's first gift tax, involving "the creation wholly tax," "authority value assessing constitutionality subsequent amendments bring certain changes operation laws." 568, 2077. novel development embraced transfer occurred years earlier. issue here properly "wholly limited. Nor above stand proposition permitted respect taxes, prohibited taxes. Hemme Milliken, features III focusing exclusively reliance, consistent Clause. 21 ordered. 23 24 unamended allowed taxpayers taxable possible avoid structuring way. laws contain many provisions. 2055 (allowing government, charities, religious organizations). latest series efforts promote ESOPs providing incentives. (partial exclusion interest banks loans); 1042 defer capital gains ESOPs). although "purely transfe[r]," ante, ____, I understand express normative disapproval course action. Day's appropriate seek like all taxpayers, entitled structure affairs comply while minimizing liability. Learned Hand observed characteristic acerbity: "[A] transaction, otherwise exception law, lose immunity, actuated desire avoid, or, choose, evade, taxation. Any arrange shall low possible; bound choose pattern best pay Treasury; there patriotic duty one's Therefore, done here, [the statute], consequence elaborate scheme get rid [estate] was." Helvering Gregory, 69 809, 810 (CA2 1934) (citations omitted), aff'd, 293 465, 55 266, 79 596 (1935). 27 nothing wrong claiming not, answer deprived amending noted, means." General Motors Romein, 503 112 1105, 1112, 117 328 (1992) (internal quotation marks omitted). 28 finds relevant according prominent Members tax-writing committees House, too money reasons served "correct[ing]" "mistake" time. mode analysis proves much. Every touching area previously legislated can said serve fixing perceived problem state affairs—there reason pass all, legislators satisfied old one. subjective motivation passing statute—to known irrelevant context: sufficient exists underlying Cf. FCC Beach Communications, Inc., 508 113 2096, 2102, 124 211 29 Retroactive measures governmental raising revenue. measures, allows body, revision laws, distribute increased costs light present need knowledge sources amounts various classes revision." 149, 127, (1938). For reason, 30 "[i]n statutes, almost Usually 'retroactive' feature portion current calendar enactment, [some been] entire expired apparently confined safely customary practice." (1981) (per curiam). 31 never intimated possesses unlimited power 'readjust rights burdens upset settled expectations.' " Connolly Corp., 475 211, 229, 1018, 89 166 (concurring opinion) (brackets 16, revising point give finality repose. example, tax" 2077-2078, (1986), though surely raise money. consequences commercial relevant, sometimes dispositive, consideration use capital, subject taxation time into them. supra, 125-126. 32 element arbitrariness changing rate transaction subject, our recognized adjustments attempt equalize projected budgetary requirements. every challenge, relatively 562, 2074-2075 (1 month); 294-295, 550-551 (10 months); 501, 310, (1937) month). reach completed 1933; emphasized legislature biannually "at opportunity received." 151, raise, my serious questions. keeping practice (a reflect sensitivity problems raised overreaching), Given precedents retroactivity, concur applying 33 whom THOMAS joins, 34 If thought "substantive process" oxymoron, think bait-and-switch precision concept 'harsh oppressive,' substantive unconstitutionality field see, 125-126, cover meaning $600,000. Unlike "without notice, gives different more legal conduct undertaken statute." 569, 2078. 35 attempts minimize harshness characterizing "a measure," post-legislation history (another oxymoron) show uncontested plain statute, meant am sure treated oppressively should turn oppression was, "curing" own mistake. Even should, went beyond "cure." hit "meant" impose originally, caused expenditures incurred invited earlier become worthless. avoided, credit expenditures. Retroactively disallowing benefit offered, compensating expenses accepting offer, me normal 36 seeks distinguish invalidating pointing rates. eliminating promised reward costly taken, refusing reimburse cost, me, merely imposing past actions. soften impact noting retroactivity." Ante, tax-incentive opposed continuous activity (like earning income), critical event incentive, key timing occurs reliance; renders harsh. reasoning uphold guarantees henceforth valid. muster "rationally Const., Art. I, 8, cl. adds removes increases furthers goal. welcome recognition believe rights, (as says) TXO Production Alliance Resources 509 2711, 2715, 125 366 (1993) (SCALIA, judgment). 38 observing, stark discrepancies between today's identification so-called fundamental family living arrangements, Moore East Cleveland, 431 494, 97 1932, 52 531 (1977) (plurality opinion), abortion, Roe Wade, 410 113, 705, 147 (1973). First most obviously, where respondent's hold onto property issue, upholds interest; whereas other deems strikes down concededly interests, 162, 725, 731. Secondly, pointed retroactive-tax ruling today inconsistent decisions, (1927); (1928), dismisses having "decided 'has discarded.' subjected "exacting review" bad days, wonders principled justifies "discarding" category. continues rely Nichols-Blodgett-Untermyer vintage due-process "fundamental rights" jurisprudence. Roe, 152-153, 159, 729-730 (citing Meyer Nebraska, 262 390, 399, 43 625, 626-627, 67 (1923), Pierce Society Sisters, 268 510, 535, 45 571, 573-574, 1070 (1925)); Griswold Connecticut, 381 479, 483, 85 1678, 1681, 510 (1965) ("[w]e reaffirm cases"). 39 picking choosing accorded protection enough arouse suspicion; categorical inexplicable "economic (even explicitly "property") unquestionably involves policymaking neutral analysis. follow text Constitution, sets forth away, adds, life, liberty, away. syllabus constitutes part prepared Reporter Decisions convenience reader. Detroit Lumber 200 321, 337, 282, 287, 499. repealed 19, 1989. 1989, 7304(a), 103 2352. 2057(e) defined "employer securities" reference 409(l ) Code, term "common issued member controlled group) readily tradable market." )(1) IV). qualifying must, sale, allocated participants allocation accordance rules.

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