Legal Document

370 U.S. 65 82 Supreme Court Reporter 1190 8 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 335 UNITED STATES, Petitioner,v.Thomas Crawley DAVIS et al. Thomas al., Petitioners, versus STATES. Nos. 190, 268. Argued March 28, 1962. Decided June 4, I. Henry Kutz and Harold C. Wilkenfeld, Washington, D.C., for petitioner in Number 190 respondent Converse Murdoch, Philadelphia, Pa., respondents petitioners Mr. Justice CLARK delivered the opinion of Court. 1 These cases involve tax consequences a transfer appreciated property by Davis1 to his former wife pursuant settlement agreement executed prior divorce, as well deductibility payment her legal expenses connection therewith. The Claims upset Commissioner's determination that there was taxable gain on but upheld ruling fees paid wife's attorney were not deductible. 152 Ct.Cl. 805, 287 Federal Reporter, 2nd 168. We granted certiorari conflict Courts Appeals taxability such transfers.2 368 813, 60, 7 21. have decided taxpayer did attorney's 2 In 1954 then made voluntary separation calling support payments minor child addition certain personal wife. Under Delaware law all transferred taxpayer, subject statutory marital rights including right intestate succession upon divorce share husband's property.3 Specifically 'division their property' agreed wife, inter alia, 1,000 shares stock E. du Pont de Nemours & company Mrs. Davis accept this division 'in full satisfaction any claims against husband whatsoever (including way limitation, dower under laws testacy intestacy) * *.' Pursuant above which had been incorporated into decree, one-half year involved, 1955, balance thereafter. Davis' cost basis 1955 $74,775.37, fair market value 500 $82,250. also orally pay expenses, he attorney, $2,500 services concerning matters relative settlement. 3 income described is basically two-step analysis: (1) Was transaction event? (2) If so, how much resulted therefrom? Originally Tax (at time Board Appeals) held accretion could be taxed capital transferor because amount realized obligations indeterminable because, even if benefit ascertainable, nontaxable property. Mesta Commissioner, 42 B.T.A. 933 (1940); Halliwell 44 740 (1941). However, being reversed quick Third Second Circuits, Commissioner Internal Revenue Mesta, 123 986 (C.A.3d Cir. 1941); Halliwell, 131 642 (C.A.2d 1942), accepted position these courts has continued apply views appropriate since time, Hall 9 KF6280 A2 U55 53 (1947); Patino 13 816 (1949); Estate Stouffer 30 1244 (1958); King 31 108 Marshman 269 (1958). reasoned 'realized' measured assumption relinquished equal transferred. matter considered settled until Sixth Circuit, reversing Court, ruled that, although might event, thereby determined impossibility evaluating rights. Marshman, 279 27 (1960). so holding court specifically rejected argument presumed release. This essentially taken instant case. II. 4 now turn threshold question whether issue an occasion taxing stock. There can no doubt Congress, evidenced its inclusive definition taxation, i.e., 'all from whatever source derived, (g)ains derived dealings property,'4 intended economic growth taxed. problem confronting us simply when Should presently assessed or should assessment await subsequent wife? controlling language, provides gains are 'sale other disposition,'5 too general include exclude conclusively issue. Recognizing this, Government argue analogy with transactions more easily classified within without ambient events. asserts present disposition comparable between two co-owners,6 while contends it resembles exchange release independent obligation. Neither disputes validity other's starting point. 5 argues draw distinction interest common-law jurisdiction typical community would commit double sin; differentiation depend 'elusive subtle casuistries possess relevance purposes,' Helvering Hallock, 309 106, 118, 60 444, 450, 84 L.Ed. 604 (1940), create disparities jurisdictions contradiction Congress' policy equality two. taxpayer's analogy, however, stumbles own premise, inchoate do remotely reach dignity co-ownership. interest—passive active—over management Her descendable, she must survive him estate. Upon dissolution marriage only extent deems 'reasonable.' Del.Code Ann. § 1531(a). What 'reasonable' ascertained independently criteria financial condition, needs relation accustomed station life, age health, number children ages, earning capacity husband. See, e.g., Beres Beres, Storey 133, 52 Del. 154 Atlantic 384 (1959). 6 say completely illogical consider shearing off property, we believe contrary reasonable construction. Regardless tags, seems place burden rather than make part owner thereof. context differ significantly alimony. They partake liability effectuation may ultimately result ownership some here, certainly happenstance does equate co-owners. Although admittedly view permit different treatment among several States, past ignored differing effects federal scheme substantive differences systems. E.g., Poe Seaborn, 282 101, 51 58, 75 239 (1930). To sure Congress seen fit alleviate disparity many areas, Act 1948, 62 Statutes-at-Large 110, areas facts life still us. Our interpretation language fortified long-standing administrative practice sounded formalized state lower courts. adopted early 40's Circuits 1947 acquiesced view. rule disturbed Circuit 1960 case, latter assumed otherwise event. Such unanimity representing construction ambiguous statute will lightly put aside. It quite possible notorious wsa relied numerous taxpayers itself, refrained making changes during score years re-enacted same 1954. III. Having point balked, viz., measurement taxpayer. Code defines sale 'excess therefrom over adjusted I.R.C. (1954) 1001(a). 'amount realized' further defined 'the sum money received plus (other money) received.' 1001(b). case 'property received' Claims, following found compute thus impossible determine conclusion erroneous. assumed, think, parties acted at arm's length they judged exchanged. evidence here. Absent readily ascertainable where exchanged hold, Philadelphia Park Amusement 126 F.Supp. 184, 189, 130 166, 172 (1954), values 'of properties arms-length either fact equal.' Accord, General Shoe Corp., (C.A.6th 1960); International Freighting Corporation 135 310 1943). said weakened emotion, tension practical necessities involved negotiations settlements arising therefrom. once recognized consistent purpose statutes rough approximation ignore altogether consequences. Cf. Safe Deposit Trust Co., 316 56, 67, 925, 930, 86 1266 (1942). 10 Moreover, event husband, Claims' leaves up air received. husband,7 indicia 'cost' hands wife.8 Yet therefor, indeterminable, suffer inordinately proving erroneous, Hansen, 360 446, 468, 79 1270, 1360 eliminates problem; calculation determines fixes given figure, 11 Finally, noted taxable, judicial approval practice. See U.S., Page 71, S.Ct., 1193, supra. therefore conclude based date shown erroneous.9 IV. 12 attorney-fee simpler. customary both incurred Here $5,000 earmarked advice One-half went attorney. claimed 212(3) Code, 26 Annotated KF65 U5 212(3), allows deduction 'ordinary necessary determination, collection, refund tax,' entitled deduct entire $5,000. allowed denied like sole here fee; seek review intimate decision As fees, read statute, applicable type expense, himself those appear refund' found, 'considered problems standpoint client alone. Certainly cannot (his) directed plaintiff's Ct.Cl F.2d, 171. conclude, deductible item Reversed affirmed part. 14 FRANKFURTER took cases. 15 WHITE consideration Grace Ethel Davis, party proceedings joint return filed question. accord 1960), contra holdings 1941). (Supp.1960) 512; 1531. realty, dower. §§ 502, 901, 904, 905. 1954, 61(a), 61(a). 1001, 1002, 1002. Any suggestion gift unrealistic. Property negotiated valuable sense term. exceeded released invokes erroneous premise every precisely involves merely raises discussed Part III, infra, 1194. Cases transfers taxes inherently gifts concept contemplation gifts. Merrill Fahs, 324 308, 655, 89 963 (1945); Wemyss, 303, 652, 958 see Harris 340 71 181, 95 111 (1950). interpreting particular provisions find ourselves unfettered considerations ingrained estate statutes. Farid-EsSultaneh 160 812 1947). practice, For discussion difficulties approach, Taylor Schwartz, Aspects Marital Agreements, L.Rev. 19, (1951); Comment, Lump Sum Divorce Settlement Taxable Exchange, U.C.L.A.L.Rev. 593, 601—602 (1961). Section 1012 that: 'The shall except provided subchapter subchapters Contract (relating corporate distributions adjustments), partners partnerships), P losses). *' pass soundness attacks contentions presented Claims.

Classification Label: 11