Court Opinion

ID: 4483694
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:14.560517+00
Date Added: 2024-06-11T15:04:10.769433
License: Public Domain

Black, </., dissenting: It seems clear enough that the gift tax is imposed in the year when the gift becomes complete. Burnet v. Guggenheim, 288 U. S. 280. In the instant case the petitioner and his wife in 1922 created the Copley trust, which was irrevocable, for the benefit of their three children. The trust was to consist of a trading account, to be operated under the direction of petitioner. No property was transferred to the trust in 1922. No gift tax law was in effect in 1922, but if there had been one in effect at that time no gift tax could have been imposed upon petitioner and his wife upon the creation of these trading accounts because any gifts thus made, from the point of view of substance, were inchoate and imperfect. It was only in later years when petitioner actually operated these trading accounts and they ripened into actual fruit represented by large profits that the inchoate and imperfect gifts made back in 1922 became complete. It seems to me that the court in Hogle v. Commissioner, 132 Fed. (2d) 66, correctly characterized the fruits which arose from the operation of these margin accounts in the following language: * * * The income thus created and the profits thus realized were not merely income accruing from the corpus of the Trust or from capital gains realized from disposition of corpus, but were profits earned through trading on margins involving the exercise of personal skill and judgment of Hogle, and were in substance personal earnings of Hogle. The amount of trading on margins which Hogle was to carry on for the Trust was wholly in his discretion. He could trade little or much or not at all for the benefit of the Trust as he saw fit. Thus, he exercised practical control over what portion of income from his personal efforts in trading on margins should accrue to the Trust. Hogle allocated to the Trust in each of the taxable years in question such portion of his personal efforts in trading on margins as he saw fit. In substance, he gave to the Trust in each of those years the profits derived from a designated portion of his individual efforts. It amounted in each of those years to a voluntary assignment of a portion of his personal earnings. * * * It is true, of course, that the foregoing language of the court was used with reference to the imposition of the income tax under section 22 (a) and would not necessarily control the incidence of the gift tax. However, I think it correctly characterizes what was done for the purpose of the imposition of the gift tax as well as that of the income tax. The majority opinion in the instant case lays much stress on the fact that, once the profits were earned from the operation of the margin accounts by petitioner, they belonged to the trusts and could not be recalled nor deflected in any manner by petitioner. That is undoubtedly true, but it is, in my opinion, no answer to the issue that the gifts of the earnings in these margin accounts were not complete until the respective years when such profits were earned. The court in Hogle v. Commissioner, supra, took note of the fact that it was not until the years that earnings from the margin accounts were realized that they fell into corpus. On that point the court said: On the other hand, after the earnings which arose from trading on margins passed to the trust they became part of the corpus of the trust and were no longer within Hogle’s control. Once they fell into corpus, the rights of the beneficiaries thereto and to the income therefrom were irrevocable. * * * In considering the issue which we have here for decision, it should be borne in mind that the Commissioner is making no contention that the earnings of the trust corpus, as such, such as interest and dividends, were the subject of gifts in any of the years which we have before us. All that the Commissioner seeks to tax as being the subjects of gifts in each of the taxable years are the earnings from these margin accounts, and in this, I think, he is correct for reasons I have already endeavored to explain. What I have said with reference to the Copley trust, created in 1922, seems to be equally applicable to the Three trust, created in 1932, and there is no necessity for repetition. For the reasons above stated, I respectfully dissent from the majority opinion. Leech, Hill, Kern, and Opper, JJ., agree with this dissent.