Source: https://caselaw.findlaw.com/us-supreme-court/324/308.html
Timestamp: 2019-04-22 19:03:13+00:00

Document:
See 324 U.S. 888 , 65 S.Ct. 863.
Messrs. Sam R. Marks and Harry T. Gray, both of Jacksonville, Fla., for petitioner.
This is a companion case to Commissioner v. Wemyss, No. 629, 324 U.S. 303 , 65 S.Ct. 652.
On March 7, 1939, taxpayer, the petitioner, made an antenuptial agreement with Kinta Desmare. Taxpayer, a resident of Florida, had been twice married and had three children and two grandchildren. He was a man of large resources, with cash and securities worth more than $5,000,000, and Florida real estate valued at $135,000. Miss Desmare's assets were negligible. By the arrangement entered into the day before their marriage, taxpayer agreed to set up within ninety days after marriage an irrevocable trust for $300,000, the provisions of which were to conform to Miss Desmare's wishes. The taxpayer was also to provide in his will for two additional trusts, one, likewise in the amount of $300,000, to contain the same limitations as the inter vivos trust, and the other, also in the amount of $300,000, for the benefit of their surviving children. In return Miss Desmare released all rights that she might acquire as wife or widow in taxpayer's property, both real and personal, excepting the right to maintenance and support. The inducements for this agreement were stated to be the contemplated marriage, desire to make fair requital for the release of marital rights, freedom for the taxpayer to make appropriate provisions for his children and other dependents, the uncertainty surrounding his financial future and marital tranquillity. That such an antenuptial agreement is enforceable in Florida is not disputed, North v. Ringling, 149 Fla. 739, 7 So.2d 476, nor that Florida gives a wife an inchoate interest in all the husband's property, contingent during his life but absolute upon death. Florida Statutes 1941, 731.34 F.S.A.; Smith v. Hines, 10 Fla. 258; Henderson v. Usher, 125 Fla. 709, 170 So. 846. The parties married, and the agreement was fully carried out. [324 U.S. 308, 310] On their gift tax return for 1939, both reported the creation of the trust but claimed that no tax was due. The Commissioner, however, determined a deficiency of $99,000 in taxpayer's return in relation to the transfer of the $300,000. Upon the Commissioner's rejection of the taxpayer's claim for refund of the assessment paid by him, the present suit against the Collector was filed. The District Court sustained the taxpayer, 51 F.Supp. 120, but was reversed by the Circuit Court of Appeals for the Fifth Circuit, one judge dissenting. 142 F.2d 651. We granted certiorari in connection with Commissioner v. Wemyss, supra, and heard the two cases together. 323 U.S. 686 , 65 S.Ct. 40.
We put to one side the argument that in any event Miss Desmare's contingent interest in her husband's property had too many variables to be reducible to dollars and [324 U.S. 308, 311] cents, and that any attempt to translate it into 'money's worth' was 'mere speculation bearing the delusive appearance of accuracy.' Humes v. United States, 276 U.S. 487, 494 , 48 S.Ct. 347, 348. We shall go at once to the main issue.
The guiding light is what was said in Estate of Sanford v. Commissioner, 308 U.S. 39, 44 , 60 S.Ct. 51, 56: 'The gift tax was supplementary to the estate tax. The two are in pari materia and must be construed together.' The phrase on the meaning of which decision must largely turn-that is, transfers for other than 'an adequate and full consideration in money or money's worth'-came into the gift tax by way of estate tax provisions. It first appeared in the Revenue Act of 1926. Section 303(a)(1) of that Act, 44 Stat. 9, 72, 26 U.S.C.A. Int.Rev. Acts, page 232, allowed deductions from the value of the gross estate of claims against the estate to the extent that they were bona fide and incurred 'for an adequate and full consideration in money or money's worth.' It is important to note that the language of previous Acts which made the test 'fair consideration' was thus changed after courts had given 'fair consideration' an expansive construction.
The first modern estate tax law had included in the gross estate transfers in contemplation of, or intended to take effect in possession or enjoyment at, death, except 'a bona fide sale for a fair consideration in money or money's worth.' Section 202(b), Revenue Act of 1916, 39 Stat. 756, 777. Dower rights and other marital property rights were intended to be included in the gross estate since they were considered merely an expectation, and in 1918 Congress specifically included them. Section 402( b), 40 Stat. 1057, 1097. This provision was for the purpose of clarifying the existing law. H. Rep. No. 767, 65th Cong., 2d Sess., p. 21. In 1924 Congress limited deductible claims against an estate to those supported by 'a fair consideration in money or money's worth,' 303(a)(1), 43 Stat. 253, 305, employing the same standard applied to transfers in con- [324 U.S. 308, 312] templation of death, H. Rep. No. 179, 68th Cong., 1st Sess., pp. 28, 66. Similar language was used in the gift tax, first imposed by the 1924 Act, by providing, 'Where property is sold or exchanged for less than a fair consideration in money or money's worth' the excess shall be deemed a gift. Section 320, 43 Stat. 253, 314, 26 U.S.C.A. Int.Rev. Act, page 81.
The two types of tax thus followed a similar course, like problems and purposes being expressed in like language. In this situation, courts held that 'fair consideration' included relinquishment of dower rights. Ferguson v. Dickson, 3 Cir., 300 F. 961; and see McCaughn v. Carver, 3 Cir ., 19 F.2d 126; Stubblefield v. United States, 6 F.Supp. 440, 79 Ct.Cl. 268. Congress was thus led as we have indicated to substitute in the 1926 Revenue Act the words 'adequate and full consideration' in order to narrow the scope of tax exemptions. See Taft v. Commissioner, 304 U.S. 351, 356 , 58 S.Ct. 891, 894, 116 A.L.R. 346. When the gift tax was re- enacted in the 1932 Revenue Act, the restrictive phrase 'adequate and full consideration' as found in the estate tax was taken over by the draftsman.
To be sure, in the 1932 Act Congress specifically provided that relinquishment of marital rights for purposes of the estate tax shall not constitute 'consideration in money or money's worth.' The Committees of Congress reported that if the value of relinquished marital interests 'may, in whole or in part, constitute a consideration for an otherwise taxable transfer (as has been held so), or an otherwise unallowable deduction from the gross estate, the effect produced amounts to a subversion of the legislative intent ....' H.Rep. No. 708, 72d Cong., 1st Sess., p. 47; S. Rep. No. 665, 72d Cong., 1st Sess., p. 50. Plainly, the explicitness was one of cautious redundancy to prevent 'subversion of the legislative intent.' Without this specific provision, Congress undoubtedly intended the requirement of 'adequate and full consideration' to exclude relinquishment of dower and other marital rights [324 U.S. 308, 313] with respect to the estate tax. Commissioner v. Bristol, 1 Cir., 121 F.2d 129; Sheets v. Commissioner, 8 Cir., 95 F.2d 727.
This case differs from Commissioner v. Wemyss, No. 629, 324 U.S. 303 , 65 S.Ct. 652. Whether the transferor of the sums paid for the release of dower and other marital rights, received ade- [324 U.S. 308, 314] quate and full consideration in money and money's worth is a question of fact. The agreement recites that the parties contemplate marriage and provides that the trust shall be set up only in the event of and following the marriage. Petitioner was obligated to create the trust upon consideration of the relinquishment of marital rights and did so, and hence this is not a case involving marriage alone as consideration. Through the tables of mortality, the value of a survivor's right in a fixed sum receivable at the death of a second party may be adequately calculated. By adopting present value as the accepted future value, the uncertainty inherent in fluctuations of an estate's value is theoretically eliminated. The trial court thus found the present value of the release of the taxpayer's estate from the wife's survivorship rights largely exceeded the amount paid by the taxpayer and that the transactions between the parties were made in good faith for business reasons and not an attempt to evade or avoid taxes. Thus the District Court findings bring this transaction within the express language of the applicable Treasury Regulation. 2 Merrill v. Fahs, D.C., 51 F.Supp. 120. Its determination, we think, also makes it clear that the husband's estate [324 U.S. 308, 315] received practical advantages of value in excess of the cost paid. See Henderson v. Usher, 125 Fla. 709, 727, 170 So. 846.
In our view this judgment should be reversed.
The CHIEF JUSTICE and Mr. Justice DOUGLAS join in this dissent.
[ Footnote 1 ] Treasury Regulation 79 (1936 ed.) Art. 8 is inapplicable. To find that the transaction was 'made in the ordinary course of business' is to attribute to the Treasury a strange use of English.
[ Footnote 3 ] Ferguson v. Dickson, 3 Cir., 300 F. 961; McCaughn v. Carver, 3 Cir., 19 F.2d 126; Stubblefield v. United States, 6 F.Supp. 440, 79 Ct.Cl. 268.
[ Footnote 4 ] Bristol v. Commissioner, 42 B.T.A. 263; Jones v. Commissioner, 1 T. C. 1207; Wemyss v. Commissioner, 2 T.C. 876, 881.

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