Source: https://supreme.justia.com/cases/federal/us/312/254/
Timestamp: 2019-04-26 05:49:00+00:00

Document:
1. Under § 506 of the Revenue Act of 1932, which provides that, for the purposes of the gift tax, the amount of a gift is "the value thereof at the date of the gift," the "value" in the case of single premium policies of life insurance, irrevocably assigned simultaneously with issuance, is the cost to the donor, and not the cash surrender value of the policies. P. 312 U. S. 256.
"irrevocable assignment of a life insurance policy . . . constitutes a gift in the amount of the net cash surrender value, if any, plus the prepaid insurance adjusted to the date of the gift,"
applied only to policies upon which current premiums were still being paid at the date of the gift, not to single premium policies. P. 312 U. S. 258.
Certiorari, 311 U.S. 628, to review the reversal of a judgment for the petitioner, 28 F.Supp. 322, in a suit for a tax refund.
In December, 1934, petitioner purchased at a cost of $852,438.50, single premium life insurance policies on her own life in the aggregate face amount of $1,000,000. At substantially the same time, she assigned them irrevocably to three of her children. Her gift tax return listed the policies at their asserted cash surrender value [Footnote 3] of $717,344.81. The Commissioner determined that the "value" of the policies was their cost, and assessed a deficiency which petitioner paid. This is a suit for a refund. Judgment for petitioner in the District Court, 28 F.Supp. 322, was reversed by the Circuit Court of Appeals. 110 F.2d 371.
We agree with the Circuit Court of Appeals that cost, rather than cash surrender value is the proper criterion for valuation of such gifts under § 506 of the Act.
gift was the amount which the insured had expended to acquire them. Cost is cogent evidence of value. And here it is the only suggested criterion which reflects the value to the owner of the entire bundle of rights in a single premium policy -- the right to retain it, as well as the right to surrender it. Cost in this situation is not market price in the normal sense of the term. But the absence of market price is no barrier to valuation. [Footnote 5] Lucas v. Alexander, 279 U. S. 573, 279 U. S. 579.
"irrevocable assignment of a life insurance policy . . . constitutes a gift in the amount of the net cash surrender value, if any, plus the prepaid insurance adjusted to the date of the gift."
The argument is that, under this regulation, the reserve in case of a single premium policy covers the prepaid insurance and represents the entire value of the policy. The regulation is somewhat ambiguous. But, in our view, it applied only to policies upon which current premiums were still being paid at the date of the gift, not to single premium policies. Accordingly, the problem here involves an interpretation of the meaning of "value" in § 506 unaided by an interpretative regulation.
In conflict with the decision below are Commissioner v. Haines, 104 F.2d 854; Helvering v. Cronin, 106 F.2d 907; United States v. Ryerson, 114 F.2d 150, discussed in Paul, Studies in Federal Taxation (3d series) pp. 403, et seq.
Art. 19(9), Treasury Regulations 79, promulgated February 26, 1936, provides that replacement cost at the date of the gift is the measure of value of a single premium life insurance policy.
The government asserts that none of the policies had a cash surrender value prior to the expiration of one year. In view of our disposition of the case, we do not stop to decide whether, in view of the pleadings and the stipulation, that position can be maintained here.
". . . The value of property is the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell. Where the property is sold within a reasonable period after the date of the gift, and it is shown that the selling price reflects the fair market value thereof as of the date of the gift, the selling price will be accepted as the amount of the gift. All relevant facts and elements of value should be considered in every case."
In this connection, it should be noted that Art. 19(1), supra, note 4 did not establish market price as the sole criterion of value.

References: § 506
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Art. 19
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