Court Opinion

ID: 9636916
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:49:26.507983+00
Date Added: 2024-06-11T18:09:51.344964
License: Public Domain

SWAN, Circuit Judge
(dissenting). I am unable to agree with the result reached by my colleagues. Section 202 (a) (2) of the Revenue Act of 1921 attempts to include as ineome of the donee, sustained upon sale *565of the gift, the increment in value which accrued during the time the property was owned by the donor, or by bis predecessor in title if the donor himself received it as a gift. It has been established that Congress may not tax as income what in fact is not income, without apportioning the tax according to the constitutional requirement. Eisner v. Macomber, 252 U. S. 189, 40 S. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570. Property obtained by gift is capital, not income in the hands of the donee upon its receipt. Edwards v. Cuba Railroad, 268 U. S. 628, 45 S. Ct. 614, 69 L. Ed. 1124; United States v. Oregon-Washington, etc., Co., 251 F. 211 (C. C. A. 2). This is expressly recognized by the declaration of section 213 (b) (3) of the Revenue Act of 1921 to the effect that gross income shall not include the value of property acquired by gift, but only the income from such property. But section 202 defines the income from such property as including the increment in value which accrued before tbe donee became owner of the property. This is an attempt to declare to be income of the donee, when realized by sale of the gift, something which was part of the donee’s capital before tbe sale.
In Doyle v. Mitchell Bros. Co., 247 U. S. 179, 38 S. Ct. 467, 62 L. Ed. 1054, Mr. Justice Pitney, speaking for a unanimous court, said: “In order to determine whether there has been gain or loss, and the amount of the gain, if any, we must withdraw from the gross proceeds an amount sufficient to restore the capital value that existed at the commencement of the period under consideration.” It was held that, where the increase in capital value occurred before passage of the taxing act, such increase is not taxable as income upon sale of the property. A similar decision as to the Income Tax Act of 1913 (38 Stat. 114) appears in Lynch v. Turrish, 247 U. S. 221, 38 S. Ct. 537, 62 L. Ed. 1087.
I am unable to see why these eases are not applicable. The period under consideration in determining the gain realized by the taxpayer donee is the period of the donee’s ownership. Only by giving an unreal valuation to tbe capital of the donee, namely, the cost of the gift to the donor or his predecessor in title, is it possible to consider the total gain above such cost as income to tbe donee realized by bis sale. It does not seem to me a sufficient answer to say that the donee accepts the gift with knowledge that Congress has declared it to have this fictitious valuation for income tax purposes. The tax is not an excise on the privilege of accepting the gift; it is an income tax, and the tax payer’s income must be a gain derived from his capital, or Ms labor, or from both combined.
It is my opinion, therefore, that the judgments should be affirmed.