Source: https://www.chanrobles.com/usa/us_supremecourt/285/312/case.php
Timestamp: 2020-07-11 10:44:13
Document Index: 197111480

Matched Legal Cases: ['§ 302', '§ 1094', '§ 1200', '§ 319', '§ 301', '§ 1200', '§ 302']

Certificate from the Circuit Court of Appeals upon an appeal from a judgment of the District Court against the Collector on a claim for refund of taxes alleged to have been illegally exacted. 48 F.2d 1058. chanrobles.com-red
This case is here on a certificate from the Circuit Court of Appeals for the Third Circuit. On March 1, 1927, John W. Donnan, by complete and irrevocable gift inter vivos, transferred without consideration certain securities to trustees for his four children, and, also without consideration, advanced a sum of money to his son. He died on December 23, 1928, less than two years after the gifts and advancement were made. The Commissioner of Internal Revenue included in the gross estate of decedent the value of the property transferred, and imposed a death transfer tax accordingly, on authority of the clause in § 302(c) of the Revenue Act of 1926, c. 27, 44 Stat. 9, 70 (U.S.C. Supp. V, Title 26, § 1094), which, without regard to the fact, provides that such a transfer made within two years prior to the death of the decedent shall "be deemed and held to have been made in contemplation of death within the meaning of this title." [Footnote 1] chanrobles.com-red
Knowlton v. Moore, 178 U. S. 41, 178 U. S. 56-57. The value of property transferred without consideration and in contemplation of death is included in the value of the gross estate of the decedent for the purposes of a death tax, because the transfer is considered to be testamentary in effect. Milliken v. United States, 283 U. S. 15, 283 U. S. 23. But such a transfer, not so made, embodies a transaction begun and completed wholly by and between the living, taxable as a gift (Bromley v. McCaughn, 280 U. S. 124), but obviously not subject to any form of death duty, since it bears no relation whatever to death. The "generating source" of such a gift is to be found in the facts of life, and not in the circumstance of death. And the death afterward of the donor in no way changes the situation; that is to say, the chanrobles.com-red
There is no doubt of the power of Congress to provide for including in the gross estate of a decedent, for purposes of the death tax, the value of gifts made in contemplation of death, and likewise no doubt of the power of that body to create a rebuttable presumption that gifts made within a period of two years prior to death are made in contemplation thereof. But the presumption here created is not of that kind. It is made definitely conclusive -- incapable of being overcome by proof of the most positive character. Thus stated, the first question submitted is answered in the affirmative by Schlesinger v. Wisconsin, 270 U. S. 230, and Hoeper v. Tax Commission, 284 U. S. 206. The only difference between the present chanrobles.com-red
The Schlesinger case has since been applied many times by the lower federal courts, by the Board of Tax Appeals, and by state courts, [Footnote 2] and none of them seems to have been at any loss to understand the basis of the decision -- namely, that a statute which imposes a tax upon an assumption of fact which the taxpayer is forbidden to controvert is so arbitrary and unreasonable that it cannot stand under the Fourteenth Amendment. chanrobles.com-red
In substance and effect, the situation presented in the Hoeper case is the same as that presented here. In the chanrobles.com-red
@ 84 U. S. 326.
The presumption here excludes consideration of every fact and circumstance tending to show the real motive of the donor. The young man in abounding health, bereft of life by a stroke of lightning within two years after making a gift, is conclusively presumed to have acted under the inducement of the thought of death equally with the old and ailing who already stands in the shadow of the inevitable end. And, although the tax explicitly is based upon the circumstance that the thought of death must be in impelling cause of the transfer (United chanrobles.com-red
The government makes the point that the conclusive presumption created by the statute is a rule of substantive law, and, regarded as such, should be upheld, and decisions tending to support that view are cited. The chanrobles.com-red
If a legislative body is without power to enact as a rule of evidence a statute denying a litigant the right to prove the facts of his case, certainly the power cannot be made to emerge by putting the enactment in the guise of a rule of substantive law. chanrobles.com-red
And see Reinecke v. Trust Co., supra at p. 278 U. S. 347. It is significant that the repeal of the gift tax referred to was made by the same act (c. 27, § 1200(a), 44 Stat. 9, 125) which contains the provision here in question. The tax is imposed upon the transfer of the net estate, but it is first necessary to ascertain the value of the gross estate, and the statute provides that this is to be determined by including, among other things, the value of any interest in property of which the decedent has at any time made a transfer in contemplation of his death. The statute requires that this value shall be determined as of the time of the decedent's death, without regard to the value of the gift when received. The event upon which the tax is made to depend is not the transfer of the gift, but the transfer of the estate of the decedent. The tax falls upon the estate, and not upon the gift, and is computed not upon the value of the gift, but by progressively chanrobles.com-red
And it follows that the present provision, written in almost identical terms, is in plain conflict with the Fifth Amendment. The provisions of the statute referred to in the preceding paragraph of this opinion necessarily condition the tax, however it be characterized. chanrobles.com-red
I think the tax involved in this and its companion case, Handy v. Delaware Trust Co, post, p. 285 U. S. 352, is in all respects chanrobles.com-red
As a further measure for preventing avoidance of the tax by gifts inter vivos, Congress, in 1924, adopted the gift tax, §§ 319-324 of the Revenue Act of that year, chapter 234, 43 Stat. 253, 313-316. That it was adopted as a measure to prevent avoidance of the estate tax sufficiently appears from the fact that the graduated rates and exemptions of the tax were the same as in the case of testamentary transfers, §§ 301(a), 319, 303(a)(4), 321(a)(1), [Footnote 2/1] and from the fact that, in the Revenue Act of 1926, chanrobles.com-red
Because of inequalities and inconvenience, expense and other difficulties in its operation and administration, the gift tax was repealed by § 1200(a) of the Revenue Act of 1926, 44 Stat. 125, [Footnote 2/2] and, as a result of ten years' experience in the administration of the estate tax, and particularly of the provision taxing gifts in contemplation of death, the present provision of § 302(c) of the Revenue Act of 1926, 44 Stat. 70, was added, which operates to impose the tax on all gifts made within two years of death, regardless of the purpose or motive of the donor. The Ways and Means Committee of the House of Representatives, in its report recommending this legislation (House Report No. 1, 69th Congress, 1st Sess., p. 15), pointed out that the tax on gifts in contemplation of death had been ineffective in its practical administration, with a great loss of revenue to the government in consequence, and that "the difficulty of enforcement will be even more serious in view of the repeal of the gift tax." It stated without qualification that the amendment was one imposing the tax on all gifts made within two years of death, and said that "the inclusion of this provision will prevent most of the evasion and is the only way in which it can be prevented." [Footnote 2/3] chanrobles.com-red
At the outset, it is to be borne in mind that gifts inter vivos are not immune from federal taxation. Whatever doubts may formerly have been entertained, it is now settled that the national government may tax all gifts chanrobles.com-red
That question was not answered by Schlesinger v. Wisconsin, 270 U. S. 230. If it had been, this case could and doubtless would be disposed of per curiam on the authority of that one. This case comes to us after ten years of experience in the administration of the estate tax, an experience which was not available, or at least not presented, in the Schlesinger case. There, all gifts made within six years of death were taxed. Here, only those within two years of death are within the statute. There, the tax was a succession tax, and so was a burden on the right to receive, Leach v. Nichols, 285 U. S. 165, and necessarily payable by the donee, but at rates and valuations prevailing at the time of the donor's death. Here, the tax was upon the transfer effected by the donor's gift after the enactment of the statute, and is payable from the donor's estate at the same rates and values as though it had passed at his death. It burdens the estate of the donor before distribution exactly as does the estate tax. New York Trust Co. v. Eisner, 256 U. S. 345; Leach v. Nichols, supra. In the Schlesinger case, the Court declared (p. 270 U. S. 240) that the gifts were "subjected to graduated taxes which could not properly be laid on all gifts or, indeed, upon any gift without testamentary character." chanrobles.com-red
Here, a graduated tax imposed by Congress on gifts inter vivos is not forbidden, Bromley v. McCaughn, supra, and the case is not one where A.'s property is taxed to enable the government to collect lawful charges against B. Here, A.'s gift, which may be lawfully taxed, is, in this instance, taxed because it removes property from the operation of another tax, which, but for the gift, would be applied to the property at A.'s death. Concededly there is nothing in the Federal Constitution or laws which necessarily precludes taxation of gifts at the same rate and value as if they had passed at the donor's death, rather than at the rate and value prevailing at the time of the gift. The tax upheld in Bromley v. McCaughn, supra, taxed all gifts inter vivos at the same rates and with the same exemptions as in the case of testamentary transfers. In Milliken v. United States, 283 U. S. 15, 283 U. S. 20, a selected class of gifts inter vivos, which were not testamentary, although made in contemplation of death, were so taxed as a part of the donor's estate. See Phillips v. Dime Trust & Safe Deposit Co., 284 U. S. 160. In Tyler v. United States, 281 U. S. 497, we upheld taxation, as a part of the donor's estate, of another selected class of gifts inter vivos, estates by the entirety donated by one spouse for the benefit of both, although the gift was not testamentary, and neither title, possession, nor enjoyment passed at death. Similar taxation of gifts made inter chanrobles.com-red
It is, I think, plain, then, that this tax cannot rightly be held unconstitutional on its face. These gifts inter vivos, not being immune from taxation, and the obvious and permissible purpose of the present and related sections being to protect the revenue derived from the taxation chanrobles.com-red
It is evident that the practice of disposing of property by gift inter vivos, if generally adopted, would, regardless of the age or motive of the donor, defeat or seriously impair the operation of the estate tax, and that the practice would be encouraged if such gifts, made shortly before the death of the donor, were left free of any form of taxation. That in itself would be a legitimate ground for taxing all gifts at the same rates as legacies, as was done by the gift tax; but, since the object is to protect the revenue to be derived from the estate tax, the government is not bound to tax every gift without regard to its relation to the end sought or the convenience and expense of the government in levying and collecting it. It may aim at the evil where it exists, and select for taxation that class of gifts which experience has shown tends most to defeat the estate tax. This Court has held explicitly that the Fourteenth Amendment does not forbid the selection of subjects for one form of taxation for the very reason that they may not be readily or effectively reached by another tax which it is the legislative policy to maintain. Watson v. State Comptroller, 254 U. S. 122, 254 U. S. 124-125. And, since the imposition of the one tax is induced by the purpose to compensate for the loss of the other, the effect in accomplishing this result may itself be the basis of the selection of subjects of taxation. St. John v. New York, 201 U. S. 633; 214 U. S. 150; Shevlin-Carpenter Co. v. Minnesota,@ 218 U. S. 57, 218 U. S. 69.
The gifts taxed may, in some instances, as the present opinion states, bear no relation whatever to death except that all are near death. But that all do have an intimate and vital relation to the policy of taxing the estates of decedents at death cannot be gainsaid, for what would chanrobles.com-red
Since Congress has power to make the selection if the facts warrant, we cannot say a priori that such facts do not exist, or that, in making the selection which it did, Congress acted arbitrarily or without the exercise of the judgment or discretion which rightfully belong to it. Stebbins v. Riley, 268 U. S. 137, 268 U. S. 143. As was said in @ 25 U. S. 270, it is but a proper
It is evident that the estate tax, if not supplemented by an effective provision taxing gifts tending to defeat it, would, to a considerable extent, fail of its purpose. The tax on gifts made in contemplation of death, devised for this purpose, has been upheld by this Court, Milliken v. United States, 283 U. S. 15, but the difficulties of its successful administration have become apparent. The donor of property which would otherwise be subject to heavy taxes at his death does not usually disclose his purpose in making the gift, even if he does not conceal it. He may not, and often does not, analyze his motives or determine for himself whether his dominating purpose is to substitute the gift for a testamentary disposition which would subject it to the tax, see Milliken v. United States, supra, p. 283 U. S. 23; United States v. Wells, 283 U. S. 102, or chanrobles.com-red
In 20 cases involving gifts of approximately $4,250,000, the government was successful. [Footnote 2/7] In 3, it was partially chanrobles.com-red
In 56 of the total of 78 cases decided against the government, the gifts were made within two years of death. In this group of 56 donors, two were more than ninety years of age at the time of death; ten were between eighty and ninety; twenty-seven were between seventy and eighty; six were between sixty and seventy; six were between fifty and sixty, and only one was younger than fifty. [Footnote 2/10] There was one gift of $46,000,000, made within two months of death by a donor seventy-one years of age at death; [Footnote 2/11] one of $36,790,000, made by a donor over eighty, who consulted a tax expert before making the chanrobles.com-red
gift; [Footnote 2/12] one of over $10,400,000, made by a donor aged seventy-six, six months before death; [Footnote 2/13] and one by a donor aged seventy-five at death, in which the tax assessed was over $1,000,000. [Footnote 2/14] There was one other in excess of $2,000,000; [Footnote 2/15] 5 others largely in excess of $1,000,000; [Footnote 2/16] 4 others in excess of $500,000; [Footnote 2/17] 18 in excess of $250,000; [Footnote 2/18] and 14 in excess of $100,000. [Footnote 2/19] The value of the gifts was not shown definitely in 3 cases; [Footnote 2/20] 12 involved gifts totalling chanrobles.com-red
In many of the cases, notably those in which large amounts were involved, the gift was substantially all the donor's estate. In the others, the addition of the amount chanrobles.com-red
The present tax, if objectionable, is not so because motive or intention of the donor is not made the basis of the classification. It is not so because it does not tend to prevent or compensate for the evil aimed at. It is not so because the revenue leak will not be effectively stopped by including in the estate tax all gifts made within two years of death. Legislation to accomplish that end, and reasonably adapted to it, cannot be summarily dismissed as being arbitrary and capricious. Nor can it be deemed invalid on the assumption that Congress has acted arbitrarily in drawing the line between all gifts made within two years of death and those made before. Congress cannot be held rigidly to a choice between taxing all gifts or taxing none, regardless of the practical necessities of preventing tax avoidance, and regardless of experience and practical convenience and expense in administering the tax. Even the equal protection clause of the Fourteenth chanrobles.com-red
As all taxes must be levied by general rules, there is a still larger scope for legislative action in framing revenue laws, even under the Fourteenth Amendment, with its guaranty of equal protection of the laws. The legislature may grant exemptions. Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283, 170 U. S. 300; Hope Natural Gas Co. v. Hall, 274 U. S. 284, 274 U. S. 289; Missouri v. Dockery, 191 U. S. 165. It may impose graduated taxes on gifts, inheritances, or on income. Bromley v. McCaughn, 280 U. S. 124; Knowlton v. Moore, 178 U. S. 41, 178 U. S. 109; Brushaber v. Union Pacific R. Co., 240 U. S. 1, 240 U. S. 25. See also chanrobles.com-red
The purpose here being admittedly to impose a tax on a privilege -- that of making gifts inter vivos -- to the extent that its exercise substantially impairs the operation of the tax on estates, it was for Congress to say how far that impairment extends and how far it is necessary to go in the taxation of gifts either to prevent or to compensate for it. Unless the line it draws is so wide of the mark as palpably to have no relation to the end sought, it is not for the judicial power to reject it and substitute another, or to say that no line may be drawn. chanrobles.com-red
The objection that the gifts are taxed as a part of the donor's estate, and at the same rates and on values as of the donor's death, has no more force than that made to the selection for taxation of gifts made within two years of death. Since the basis of the tax is that it compensates for the drain on the estate tax, and since it is paid by the donor's estate, which would otherwise be compelled to pay the estate tax on transmission at death, the whole object of the tax on the gifts would be defeated if levied on another basis. In determining the reasonableness of a tax which, like this one, is levied in lieu of another, it is, of course, necessary to consider all the statutes affecting the subject matter. Interstate Busses Corp. v. Blodgett, 276 U. S. 245; Farmers' & Mechanics' Savings Bank v. Minnesota, 232 U. S. 516, 232 U. S. 529. Where the very purpose and justification of the one tax is that it is compensatory for the loss of the other, it is no objection that the one is made the exact equivalent of the other, thus avoiding inequality which, under some circumstances, might be objectionable. See General American Tank Car Co. v. Day, 270 U. S. 367. No one has yet indicated precisely in what way this method of measuring the tax works any greater injustice or hardship than the tax on estates. It is certainly not greater where, as here, the tax is paid from the estate of the donor who, regardless of his age, in giving away his property after the statute was in force, took his chances that death within two years would bring it into his estate for taxation, where it would have been if the gift had not been made. See Milliken v. United States, supra, p. 283 U. S. 23-24. A very different case would be presented if the taxed gift were made before the enactment of the taxing statute and many years before the death, as in Frew v. Bowers, 12 F.2d 625, 630. [Footnote 2/26] See Nichols chanrobles.com-red
Mather v. McLaughlin, 57 F.2d 223; Pohlman v. United States, not reported; Apperson v. Thurman, not reported; Beltzhoover v. Donald, not reported; Safford v. United States, 66 Ct.Cls. 242; Romberger v. Commissioner, 21 B.T.A.193; Moore v. Commissioner, 21 B.T.A. 279; Lavelle v. Commissioner, 8 B.T.A. 1150; Boggs v. Commissioner, 11 B.T.A. 824; White v. Commissioner, 15 B.T.A. 470; Jaeger v. Commissioner, 16 B.T.A. 897; Fidelity-Philadelphia Trust Co. v. Commissioner, 17 B.T.A. 910; Vaughan v. Riordan, 280 F.7d 2.
Root v. United States, 56 F.2d 857; Molton v. Sneed, not reported; Owen v. Gardner, not reported; Cromwell v. Commissioner, 24 B.T.A. 461; Appeal of Kaufman, 5 B.T.A. 31; Schulz v. Commissioner, 7 B.T.A. 900; Davis v. Commissioner, 9 B.T.A. 1212; Goldman v. Commissioner, 11 B.T.A. 92; Gaither v. Miles, 268 F.6d 2; Appeal of Richardson, 1 B.T.A. 1196; Appeal of McDonald, 2 B.T.A. 1295; Appeal of Hillenmeyer, 2 B.T.A. 1322.
The total value of these gifts, exclusive of realty, was $6,707,056. Tesdell v. United States, not reported; Mason v. United States, 17 F.2d 317; Tips v. Bass, 21 F.2d 460; Smart v. United States, 21 F.2d 188; McCaughn v. Carnill, 43 F.2d 69; Phillips v. Commissioner, 7 B.T.A. 1054; Stein v. Commissioner, 9 B.T.A. 486; Baum v. Commissioner, 21 B.T.A. 176; Appeal of Spofford, 3 B.T.A. 1016; Hausman v. Commissioner, 5 B.T.A.199; Fleming v. Commissioner, 9 B.T.A. 419; Brehmer v. Commissioner, 9 B.T.A. 423; Hicks v. Commissioner, 9 B.T.A. 1226; Wolferman v. Commissioner, 10 B.T.A. 285; Illinois Merchants Trust Co. v. Commissioner, 12 B.T.A. 818; Bishop v. Commissioner, 14 B.T.A. 130; Fincham v. Commissioner, 16 B.T.A. 1418; Hunt v. Commissioner, 19 B.T.A. 624; Siegel v. Commissioner, 19 B.T.A. 683; Polk v. Miles, 268 F.1d 5; Fidelity & Columbia Trust Co. v. Lucas, 7 F.2d 146; Appeal of Starck, 3 B.T.A. 514.