Source: https://www.chanrobles.com/usa/us_supremecourt/308/39/case.php
Timestamp: 2020-08-14 02:04:21
Document Index: 208971466

Matched Legal Cases: ['§ 501', '§ 319', '§ 322', '§ 302', '§ 315', '§ 510', '§ 321', '§ 219', '§ 219']

7. A stipulation purporting to reveal the administrative practice in applying the gift tax law held too vague and indefinite to afford basis for a judicial construction of the statute. P. 308 U. S. 49. chanrobles.com-red
This and its companion case, Rasquin v. Humphreys, post, p. 308 U. S. 54, present the single question of statutory construction whether, in the case of an inter vivos transfer of property in trust, by a donor reserving to himself the chanrobles.com-red
The order of the Board of Tax Appeals sustaining the tax was affirmed by the Court of Appeals for the Third Circuit, 103 F.2d 81, which followed the decision of the Court of Appeals for the second circuit in Hesslein v. Hoey, supra, in which we had denied certiorari, 302 U. S. 756. In the Hesslein case, as in the Humphreys case now chanrobles.com-red
In ascertaining the correct construction of the statutes taxing gifts, it is necessary to read them in the light of the closely related provisions of the revenue laws taxing transfers at death, as they have been interpreted by our decisions. Section 319 et seq. of the Revenue Act of 1924, 43 Stat. 253, 313, reenacted as § 501 et seq. of the 1932 Act, 47 Stat. 169, imposed a graduated tax upon gifts. It supplemented that laid on transfers at death, which had long been a feature of the revenue laws. When the gift tax chanrobles.com-red
The rationale of decision in both cases is that "taxation is not so much concerned with the refinements of title as it is with the actual command over the property taxed" (see Corliss v. Bowers, 281 U. S. 376, 281 U. S. 378; Saltonstall v. Saltonstall, supra, 276 U. S. 261; Burnet v. Guggenheim, supra, 288 U. S. 287), and that a retention of control over the disposition of the trust property, whether for the benefit of the donor or others, renders the gift incomplete until the power is relinquished, whether in life or at death. The rule was thus established, and has ever since been consistently followed by the Court, that a transfer of property upon trust, with power reserved to the donor either to revoke it and recapture the trust property or to modify its terms chanrobles.com-red
There is nothing in the language of the statute, and our attention has not been directed to anything in its legislative history, to suggest that Congress had any purpose to tax gifts before the donor had fully parted with his interest in the property given, or that the test of the completeness of the taxed gift was to be any different from that to be applied in determining whether the donor has retained an interest such that it becomes subject to the estate tax upon its extinguishment at death. The gift tax was supplementary to the estate tax. The two are in pari materia, and must be construed together. Burnet v. Guggenheim, supra, 288 U. S. 286. An important, if not the main, purpose of the gift tax was to prevent or compensate for avoidance of death taxes by taxing the gifts of property inter vivos which, but for the gifts, would be subject in its original or converted form to the tax laid upon transfers at death. [Footnote 1] chanrobles.com-red
Section 322 of the 1924 Act provides that, when a tax has been imposed by § 319 upon a gift the value of which is required by any provision of the statute taxing the estate to be included in the gross estate, the gift tax is to be credited on the estate tax. The two taxes are thus not always mutually exclusive, as in the case of gifts made in contemplation of death, which are complete and taxable when made, and are also required to be included in the gross estate for purposes of the death tax. But § 322 is without application unless there is a gift inter vivos which is taxable independently of any requirement that it shall be included in the gross estate. Property transferred in trust subject to a power of control over its disposition reserved to the donor is likewise required by § 302(d) to be included in the gross estate. But it does not follow that the transfer in trust is also taxable as a gift. The point was decided in the Guggenheim case, where it was held that a gift upon trust, with power in the donor to revoke it, is not taxable as a gift because the transfer is incomplete, and that the transfer, whether inter vivos or at death, becomes complete and taxable only when the power of control is relinquished. We think, as was pointed out in the Guggenheim case, supra, 288 U. S. 285, that the gift tax statute does not contemplate two taxes upon gifts not made in contemplation of death, one upon the gift when a trust is created or when the power of revocation, if any, is relinquished and another on the transfer of the same property at death because the gift previously made was incomplete. chanrobles.com-red
There are other persuasive reasons why the taxpayer's contention cannot be sustained. By §§ 315(b), 324, 43 Stat. 312, 316, and more specifically by § 510 of the 1932 Act, the donee of any gift is made personally liable for the tax to the extent of the value of the gift if the tax is not paid by the donor. It can hardly be supposed that Congress intended to impose personal liability upon the donee of a gift of property so incomplete that he might be deprived of it by the donor the day after he had paid the tax. Further, § 321(b)(1), 43 Stat. 315, exempts from the tax gifts to religious, charitable, and educational corporations and the like. A gift would seem not to be complete, for purposes of the tax, where the donor has reserved the power to determine whether the donees ultimately entitled to receive and enjoy the property are of such a class as to exempt the gift from taxation. Apart from other considerations, we should hesitate to accept as correct a construction under which it could plausibly be maintained that a gift in trust chanrobles.com-red
Nor do we think that the provisions of § 219(g) of the 1924 Act have any persuasive influence on the construction of the gift tax provisions with which we are now concerned. One purpose of the gift tax was to prevent or compensate for the loss of surtax upon income where large estates are split up by gifts to numerous donees. [Footnote 2] Congress was aware that donors in trust might distribute income among several beneficiaries, although the gift remains so incomplete as not to be subject to the tax. It dealt with that contingency in § 219(g), which taxes to the settlor the income of a trust paid to beneficiaries where he reserved to himself an unexercised power to "revest in himself title" to the trust property producing the income. Whether this section is to be read as relieving the donor of the income tax where the power reserved is to modify the trust, except for his own benefit, we do not now decide. If Congress, in enacting it, undertook to chanrobles.com-red
Petitioner urges that chanrobles.com-red
Such a stipulated definition of the practice is too vague and indefinite to afford a proper basis for a judicial decision which undertakes to state the construction of the statute in terms of the practice. Moreover, if we regard the stipulation as agreeing merely that the legal chanrobles.com-red
But the record here shows that no such practice was recognized as controlling in 1935, when the present case first received the attention of the Bureau. On February 21, 1935, the Assistant General Counsel gave an opinion reviewing at length the facts of the present case and the applicable principles of law, and concluded on the reasoning and authority of the Guggenheim and Porter cases that the gift was not complete and taxable until the relinquishment in August, 1924, of the power to modify the trust by the selection of new beneficiaries. In April, 1935, the matter was reconsidered and a new opinion was given which was finally adopted by the assistant secretary who had intervened in the case. This opinion reversed the earlier one on the authority of the Guggenheim case. It was at pains to point out that, in that case, the Court had held that the relinquishment of the power of revocation was a taxable gift, but it made no mention of the fact that there, unlike the present case, there was no power of modification which survived the relinquishment of the chanrobles.com-red
But courts are not bound to accept the administrative construction of a statute regardless of consequences, even when disclosed in the form of rulings. See Helvering v. New York Trust Co., 292 U. S. 455, 292 U. S. 468. Here, the practice has not been revealed by any published rulings or action of the Department on which taxpayers could have relied. The taxpayers in the present cases are contending chanrobles.com-red
The very purpose sought to be accomplished by judicial acceptance of an administrative practice would be defeated if we were to regard the present practice as controlling. If a practice is to be accepted because of the superior knowledge of administrative officers of the administrative needs and convenience, see Brewster v. Gage, 280 U. S. 327, 280 U. S. 336, there is no such reason for its acceptance here. The Government, by taking no position, confesses that it is unable to say how administrative need and convenience will best be served. If, as we have held, we may reject an established administrative practice when it conflicts with an earlier one and is not supported by valid reasons, see Burnet v. Chicago Portrait Co., 285 U. S. 1, 285 U. S. 16, we should be equally free to reject the practice when it conflicts with out own decisions. A change of practice to conform to judicial decision, such as has occurred since the decision in the Hesslein case, or to meet administrative exigencies, will be accepted as controlling when consistent with our decisions. @ 296 U. S. 354. Here, we have an added, and we think conclusive, reason for rejecting the earlier practice and accepting the later. The earlier, because in sharp conflict with our own decisions, as we have already indicated, cannot be continued without the perpetuation of inconsistency and confusion comparable to that of which the Government asks to be relieved by our decision.