Source: https://www.legalcrystal.com/case/97828/merrill-vs-fahs
Timestamp: 2017-06-22 18:45:41
Document Index: 273673052

Matched Legal Cases: ['§ 503', '§ 731', '§ 503', '§ 1002', '§ 303', '§ 503', '§ 804', '§ 503']

Merrill Vs Fahs - Citation 97828 - Court Judgment | LegalCrystal
Save as PDF Add a Tag Add a Note Semantics Visualize Merrill Vs. Fahs - Court Judgment	LegalCrystal Citationlegalcrystal.com/97828CourtUS Supreme CourtDecided OnMar-05-1945Case Number324 U.S. 308AppellantMerrillRespondentFahsExcerpt:.....the treatment of the relinquishment of such rights, not donative in intent or effect, as "money's worth" consideration for property transferred. it seems to us clear that, with the judicial history of the difficulties in estate and gift taxes as to the transfer of marital rights when congress expressly provided that relinquishment of dower, curtesy, or other statutory estate was not "consideration" for estate tax purposes and left the gift tax provision without such a limitation, it intended that these rights be accorded a different treatment under these sections. this has been the determination of the tax court. [
Merrill v. Fahs - 324 U.S. 308 (1945)
1. By § 503 of the Revenue Act of 1932, transfers of property are relieved from the gift tax to the extent that they are made for an "adequate and full consideration."
in the case of a transfer of property pursuant to an antenuptial agreement, that the relinquishment of marital rights cannot to any extent constitute "adequate and full consideration." P.
324 U. S. 312
2. Provisions of the federal gift and estate tax statutes are to be construed harmoniously and, where obvious reasons do not compel divergent treatment, identical phrases concerning the same subject matter are to be given identical construction. P.
324 U. S. 313
323 U. S. 66
, to review the reversal of a judgment of the District Court for the taxpayer, 51 F.Supp. 120, in a suit for a refund of gift taxes.
Commissioner v. Wemyss, ante,
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
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;
10 Fla. 258;
125 Fla. 709, 170 So. 846. The parties married, and the agreement was fully carried out.
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.
This case, unlike the
case, does not come here by way of the Tax Court. No aid can therefore be drawn from a prior determination by the tribunal specially entrusted with tax adjudications. (
Griswold, The Need for a Court of Tax Appeals (1944), 57 Harv.L.Rev. 1153, 1173.) But, like the
case, this case turns on the proper application of § 503 of the Revenue Act of 1932, 47 Stat. 169, 247, 26 U.S.C. § 1002. In the interest of clarity, we reprint it here:
cents, and that any attempt to translate it into "money's worth" was "mere speculation bearing the delusive appearance of accuracy."
. We shall go at once to the main issue.
The guiding light is what was said in
308 U. S. 44
: "The gift tax was supplementary to the estate tax. The two are
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, allowed deductions from the value of the gross estate of claims against the estate to the extent that they were
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
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 contemplation
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,
300 F. 961,
and see McCaughn v. Carver,
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.
304 U. S. 356
. When the gift tax was reenacted in the 1932 Revenue Act, the restrictive phrase "adequate and full consideration" as found in the estate tax was taken over by the draftsman.
with respect to the estate tax.
Commissioner v. Bristol,
121 F.2d 129;
Sheets v. Commissioner,
95 F.2d 727.
We believe that there is every reason for giving the same words in the gift tax the same reading. Correlation of the gift tax and the estate tax still requires legislative intervention.
Commissioner v. Prouty,
115 F.2d 331, 337; Warren, Correlation of Gift and Estate Taxes (1941), 55 Harv.L.Rev. 1; Griswold, A Plan for the Coordination of the Income, Estate and Gift Tax Provisions (1942), 56 Harv.L.Rev. 337. But to interpret the same phrases in the two taxes concerning the same subject matter in different ways where obvious reasons do not compel divergent treatment is to introduce another and needless complexity into this already irksome situation. Here, strong reasons urge identical construction. To hold otherwise would encourage tax avoidance.
Commissioner v. Bristol, supra,
121 F.2d at 136; 2 Paul, Estate and Gift Taxation (1942) p. 1118. And it would not fulfill the purpose of the gift tax in discouraging family settlements so as to avoid high income surtaxes. H.Rep. No. 708, 72d Cong., 1st Sess., p. 28; S.Rep. No. 665, 72d Cong., 1st Sess., p. 40. There is thus every reason in this case to construe the provisions of both taxes harmoniously.
Estate of Sanford v. Commissioner, supra.
. Whether the transferor of the sums paid for the release of dower and other marital rights, received adequate
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. [
51 F.Supp. 120. Its determination, we think, also makes it clear that the husband's estate
received practical advantages of value in excess of the cost paid.
See Henderson v. Usher,
125 Fla. 709, 727, 170 So. 846.
The question of the taxability as gifts of transfers to spouses in consideration of the release of marital rights had been a matter of dispute in courts before the passage of the Revenue Act of 1932, § 503, 47 Stat. 169, 247. [
] Congress, in the 1932 act, § 804, declared that a transfer of marital rights should not be "consideration in money or money's worth" under the estate tax provisions. Thus, Congress put beyond any question the liability of transferors for estate taxes where marital rights were the consideration for the transfer. On the other hand, in the same 1932 Revenue Act, the language of the gift tax section, § 503, did not have a provision forbidding the valuation of marital rights. Consequently, Sec. 503, as interpreted by Regulation 79, Act. 8, permits the treatment of the relinquishment of such rights, not donative in intent or effect, as "money's worth" consideration for property transferred. It seems to us clear that, with the judicial history of the difficulties in estate and gift taxes as to the transfer of marital rights when Congress expressly provided that relinquishment of dower, curtesy, or other statutory estate was not "consideration" for estate tax purposes and left the gift tax provision without such a limitation, it intended that these rights be accorded a different treatment under these sections. This has been the determination of the Tax Court. [
Transfers for a consideration in money or money's worth.
-- Transfers reached by the statute are not confined to those only which, being without a valuable consideration, accord with the common law concept of gifts, but embrace as well sales, exchanges, and other dispositions of property for a consideration in money or money's worth to the extent that the value of the property transferred by the donor exceeds the value of the consideration given therefor. However, a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is
at arm's length, and free from any donative intent) will be considered as made for an adequate and full consideration in money or money's worth. A consideration not reducible to a money value, as love and affection, promise of marriage, etc., is to be wholly disregarded, and the entire value of the property transferred constitutes the amount of the gift."
300 F. 961;
McCaughn v. Carver,
79 Ct.Cl. 268, 6 F.Supp. 440.
Bristol v. Commissioner,
42 B.T.A. 263;
Jones v. Commissioner,
1 T.C. 1207;
Wemyss v. Commissioner,
2 T.C. 876, 881.