Source: https://supreme.justia.com/cases/federal/us/318/176/
Timestamp: 2019-04-21 10:54:49+00:00

Document:
1. Under an irrevocable transfer of properly in trust, the income was to be paid to the grantor's wife for life; upon her death, the corpus was to go to the grantor, if living, or, if not, to the wife's heirs. Concededly, the wife's life interest was subject to the federal gift tax. Held that the remainder interest, less the value of the grantor's reversionary interest, was subject to the gift tax imposed by §§ 501, 506 of the Revenue Act of 1932. P. 318 U. S. 180.
2. The gift tax under the Revenue Act of 1932 amounts in some instances to a security for the payment eventually of the federal estate tax; it is in no sense double taxation. P. 318 U. S. 179.
value of, "a remainder . . . subject to an outstanding life estate" are consistent with the purpose of the Act. P. 318 U. S. 180.
4. In a case such as this, where the grantor has neither the form nor substance of control over the trust property, and never will have unless he outlives his wife, it must be concluded that the grantor has relinquished economic control over the trust property, and that the gift was complete except for the value of his reversionary interest. P. 318 U. S. 181.
Certiorari, 317 U.S. 617, to review the reversal of a judgment, 40 F.Supp. 19, ordering a refund of a federal gift tax.
The question here is the extent of the petitioner's liability for a tax under §§ 501, 506 of the Revenue Act of 1932, 47 Stat. 169, which imposes a tax upon every transfer of property by gift, "whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. . . ."
by her, to her intestate successors under applicable New York law. The petitioner, under protest, paid a gift tax of $71,674.22, assessed on the total value of the trust principal, and brought suit for refund in the district court. Holding that the petitioner had, within the meaning of the Act, executed a completed gift of a life estate to his wife, the court sustained the Commissioner's assessment on $322,423, the determined value of her life interest, but the remainder was held not to be completely transferred, and hence not subject to the gift tax. 40 F.Supp. 19. The government appealed, and the Circuit Court of Appeals reversed, ordering dismissal of the petitioner's complaint on the authority of its previous decision in Herzog v. Commissioner, 116 F.2d 591. We granted certiorari because of alleged conflict with our decisions in Helvering v. Hallock, 309 U. S. 106, and Estate of Sanford v. Commissioner, 308 U. S. 39. In these decisions, and in Burnet v. Guggenheim, 288 U. S. 280, we have considered the problems raised here in some detail, and it will therefore be unnecessary to make any elaborate resurvey of the law.
The taxpayer's principal argument here is that, under our decision in the Hallock case, the value of the remainder will be included in the grantor's gross estate for estate tax purposes, and that, in the Sanford case, we intimated a general policy against allowing the same property to be taxed both as an estate and as a gift.
This view, we think, misunderstands our position in the Sanford case. As we said there, the gift and estate tax laws are closely related, and the gift tax serves to supplement the estate tax. [Footnote 1] We said that the taxes are not "always mutually exclusive," and called attention to § 322 of the 1924 Act, there involved (reenacted with amendments in § 801 of the 1932 Act), which charts the course for granting credits on estate taxes by reason of previous payment of gift taxes on the same property. The scope of that provision we need not now determine. It is sufficient to note here that Congress plainly pointed out that "some" of the "total gifts subject to gift taxes . . . may be included for estate tax purposes, and some not." House Report No. 708, 72d Cong., 1st Sess., p. 45. Under the statute, the gift tax amounts in some instances to a security, a form of downpayment on the estate tax which secures the eventual payment of the latter; it is in no sense double taxation, as the taxpayer suggests.
Unencumbered by any notion of policy against subjecting this transaction to both estate and gift taxes, we turn to the basic question of whether there was a gift of the remainder. The government argues that, for gift tax purposes, the taxpayer has abandoned control of the remainder, and that it is therefore taxable, while the taxpayer contends that no realistic value can be placed on the contingent remainder, and that it therefore should not be classed as a gift.
"The terms 'property,' 'transfer,' 'gift,' and 'indirectly' [in § 501] are used in the broadest sense; the term 'property' reaching every species of right or interest protected by the laws and having an exchangeable value. [Footnote 4]"
The gift tax was passed not only to prevent estate tax avoidance, but also to prevent income tax avoidance through reducing yearly income, and thereby escaping the effect of progressive surtax rates. House Report No. 708, 72d Cong., 1st Sess., p. 28; Brandeis, J., dissenting in Untermyer v. Anderson, 276 U. S. 440, 276 U. S. 450; Stone, J., dissenting in Heiner v. Donnan, 285 U. S. 312, 285 U. S. 333.
It has been suggested that the congressional plan relating the estate and gift taxes may still be incomplete. See, e.g., Griswold, A Plan for the Coordination of the Income, Estate, and Gift Tax Provisions etc., 56 Harv.L.Rev. 337; Magill, The Federal Gift Tax, 40 Col.L.Rev. 773, 792; Kauper, The Revenue Act of 1942: Estate and Gift Tax Amendments, 41 Mich.L.Rev. 369, 388, and see Commissioner v. Prouty, 115 F.2d 331, 337; Higgins v. Commissioner, 129 F.2d 237, 239.
2 Paul, Federal Estate & Gift Taxation, Chap. 17; Schuyler, Powers of Appointment and Especially Special Powers: The Estate Taxpayer's Last Stand, 33 Ill.L.Rev. 771; Leaphart, The Use of the Trust to Escape the Imposition of Federal Income & Estate Taxes, 15 Corn.L.Q. 587.
Senate Report No. 665, 72d Cong., 1st Sess., p. 39; House Report No. 708, supra, p. 29.
Treas.Regulations 79 (1936 Ed.) Arts. 2, 3, 17, 19. Cf. Commissioner v. Marshall, 125 F.2d 943, 945.
The conclusion reached here is in accord with that of the several Circuit Courts of Appeal which have considered the problem: Commissioner v. Marshall, 125 F.2d 943; Commissioner v. Beck's Estate, 129 F.2d 243; Commissioner v. McLean, 127 F.2d 942; Helvering v. Robinette, 129 F.2d 832, aff'd, post, p. 318 U. S. 184. Hughes v. Commissioner, 104 F.2d 144, and see the cases cited in Note 2 supra.
v. Hallock, 309 U. S. 106. But the decisions in Burnet v. Guggenheim, 288 U. S. 280, and Sanford v. Commissioner, 308 U. S. 39, to which the court adheres, require a reversal in view of the ruling in the Hallock case.
The first of the two cases ruled that a transfer in trust, whereby the grantor reserved a power of revocation, was not subject to a gift tax, but became so upon the renunciation of the power. The second held that, where the grantor reserved a power to change the beneficiaries, but none to revoke or to make himself a beneficiary, the transfer was incomplete, and not subject to gift tax. At the same term, in Porter v. Commissioner, 288 U. S. 436, the court held that, where a decedent had given property inter vivos in trust, reserving a power to change the beneficiaries but no power to revoke or revest the property in himself, the transfer was incomplete until the termination of the reserved power by the donor's death, and hence the corpus was subject to the estate tax.
When these cases were decided, the law, as announced by this court, was that where, in a complete and final transfer inter vivos, a grantor provided that, in a specified contingency, the corpus should pass to him, if living, but, if he should be dead, then to others, the gift was complete when made, he retained nothing which passed from him at his death, prior to the happening of the contingency, and that no part of the property given was includable in his gross estate for estate tax. McCormick v. Burnet, 283 U. S. 784; Helvering v. St. Louis Union Trust Co., 296 U. S. 39; Becker v. St. Louis Union Trust Co., 296 U. S. 48. So long as this was the law, the transfer might properly be the subject of a gift tax, for the gift was, as respects the donor, complete when made.
an estate tax. Thus, the situation here presented was placed in the same category as those where the grantor had reserved a power to revoke or a power to change beneficiaries. By analogy to the Guggenheim and Sanford cases, I suppose the gift would have become complete if the donor had, in his life, relinquished or conveyed the contingent estate reserved to him.
In the light of this history, the Sanford case requires a holding that the gifts in remainder, after the life estate, create no gift tax liability. The reasoning of that decision, the authorities, and the legislative history relied upon, are all at war with the result in this case. There is no need to quote what was there said. A reading of the decision will demonstrate that, if the principles there announced are here observed, the gifts in question are incomplete, and cannot be the subject of the gift tax.
It will not square with logic to say that, where the donor reserves the right to change beneficiaries, and so delays completion of the gift until his death or prior relinquishment of the right, the gift is incomplete, but where he reserves a contingent interest to himself, the reverse is true -- particularly so if the criterion of estate tax liability is important to the decision of the question, as the Sanford case affirms.
by resort to higher mathematics beyond the ken of the taxpayer, exhibits the artificiality of the Government's application of the Act. This is well illustrated in the companion cases of Robinette and Paumgarten, infra, p. 318 U. S. 184. Such results argue strongly against the construction which the court adopts.

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