Source: https://openjurist.org/312/us/254
Timestamp: 2019-04-21 22:23:04+00:00

Document:
RASQUIN, Collector of Internal Revenue.
Argued Jan. 6, 7, 1941.
Messrs. John G. Jackson, Jr., and Paul B. Barringer, Jr., both of New York City, for petitioner.
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 value3 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. 2 Cir., 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.
That analysis, however, overlooks the nature of the property interest which is being valued. Surrender of a policy represents only one of the rights of the insured or beneficiary. Plainly that right is one of the substantial legal incidents of ownership. See Chase National Bank v. United States, 278 U.S. 327, 335, 49 S.Ct. 126, 127, 73 L.Ed. 405, 63 A.L.R. 388; Vance on Insurance, 2d Ed., pp. 54—56. But the owner of a fully paid life insurance policy has more than the mere right to surrender it; he has the right to retain it for its investment vitues and to receive the face amount of the policy upon the insured's death. That these latter rights are deemed by purchasers of insurance to have substantial value is clear from the difference between the cost of a single-premium policy and its immediate or early cash-surrender value—in the instant case over $135,000. All of the economic benefits of a policy must be taken into consideration in determining its value for gift-tax purposes. To single out one and to disregard the others is in effect to substitute a different property interest for the one which was the subject of the gift. In this situation as in others (Susquehanna Power Co. v. State Tax Commission, 283 U.S. 291, 296, 51 S.Ct. 434, 436, 75 L.Ed. 1042), an important element in the value of the property is the use to which it may be put. Certainly the petitioner here did not expend $852,438.50 to make an immediate gift limited to $717,344.81. Presumptively the value of these policies at the date of the 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.5 Lucas v. Alexander, 279 U.S. 573, 579, 49 S.Ct. 426, 428, 73 L.Ed. 851, 61 A.L.R. 906.
Petitioner, however, argues that cash-surrender value was made the measure of value by Art. 2(5), Treasury Regulations 79, promulgated October 30, 1933, which provided that the '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, 3 Cir., 104 F.2d 854; Helvering v. Cronin, 8 Cir., 106 F.2d 907; United States v. Ryerson, 7 Cir., 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.
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
 v. 
 v. 
 v. 
 Art. 2
 § 506
 v. 
 v. 
 v. 

Art. 19
 Art. 19