Court Opinion

ID: 9686011
Source: CourtListenerOpinion
Date Created: 2023-08-24 15:13:54.142028+00
Date Added: 2024-06-11T18:18:12.634162
License: Public Domain

On Rehearing.
In recent communications from plaintiff, the court is asked to reconsider its decision in the above entitled cause handed down on March 31st, 1939, wherein it was held, among other things, that the value for gift tax purposes of an assigned insurance policy is not the cash surrender value, but is the amount it would cost to procure a similar policy from the same insurance company on the date of the gift. Suggested findings of fact and conclusions of law have been presented to the court, but judgment has not as yet been entered.
Plaintiff bases her request for reconsideration upon the fact that at the time the gift was made there was in effect a Treasury Regulation which explicitly stated that the value of an insurance policy for gift tax purposes is its cash surrender value. Article 2 (5)' Treasury Regulation 79. Plaintiff also cites two recent cases, both holding that under Article 2 (5) of Treasury Regulation 79 an irrevocable assignment of a life insurance policy constitutes a gift in the amount of its net cash surrender value. Blaffer v. Commissioner, 5 Cir., 103 F.2d 489, decided April 26th, 1939; Commissioner v. Haines, 3 Cir., 104 F.2d 854, decided June 14th, 1939.
The decision of March 31st, 1939, in the instant case was based solely upon my construction of Sec. 506 of the Revenue Act of 1932, 26 U.S.C.A. § 555, which provides that “if the gift is made in property, the value thereof at the date of the gift shall be considered the amount of the gift.”
Treasury Regulation 79 is now for the first time called to my attention and only Article 2(5) is quoted. However, in considering the request for a reconsideration of my former holding, I have read Treasury Regulation 79 in its entirety. In neither of the above cited cases does it appear that the courts had this regulation before them in its entirety.
Article 1 of the Regulation deals with the imposition of the tax.
Article 2 (a portion of which is here involved) reads as follows:
“Transfers Reached: The statute imposes a tax whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Thus, for example, a taxable transfer may be effected by the declaration of a trust, the forgiving of a'debt, the assignment of a judgment, *269the assignment of the benefits of a contract of insurance, or the transfer of cash, certificates of deposit, or Federal, State or Municipal bonds. Inasmuch as the tax also applies to gifts indirectly made, all transactions whereby property or property rights or interests are donatively passed or conferred upon another, regardless of the means or device employed, constitute gifts subject to tax. In the following examples of transactions resulting in taxable gifts it will be understood that the transactions occurred after the date of the enactment of the statute * * * and were not for an adequate and full consideration in money or money’s worth:
“(1) The transfer of property by a corporation without an adequate and full consideration in money or money’s worth to B is a gift from the stockholders of the corporation to B.
“(2) The transfer of property to B where there is imposed upon B an obligation of paying a commensurate annuity to C is a gift to C.
“(3) The payment of money or the transfer of property to B in consideration whereof B is to render a service to C, is a gift to C or to both B and C, depending on whether the service to be rendered by B to C is or is not an adequate and full consideration in money or money’s worth for that which is received by B.
“(4) Where A creates a joint bank account for himself and B there is a gift to B when he draws upon the account for his own benefit to the amount drawn.
“(5) The irrevocable assignment of a life insurance policy, or the naming of the beneficiary of a policy without retaining any of the legal incidents of ownership therein, constitutes a gift in the amount of the net cash surrender value, if any, plus the prepaid insurance adjusted to the date of the gift.
“(6) Where premiums on a life insurance policy are paid by an insured who has none of the legal incidents of ownership in the policy, and the beneficiary is other than the insured’s estate, each premium payment is a gift in the amount thereof.
“(7) Where A purchases property and has the title thereto conveyed to himself and wife as tenants by the entirety, there is a gift to the wife in the amount of the value of her interest in the property determined in accordance with the law governing the rights of the tenants, the probability of survivorship being determined by tables of mortality.”
It seems to me from a consideration of the title and the text of Article 2 that its sole purpose is to define and give examples of what are taxable gilts. In each subdivision, the subject is followed by the words “is a gift” or “there is a gift,” or “constitutes a gift”, the intent thereof not being to fix the value of the gifts, because that is done by Article 19 of the- Regulation, which is entitled: "Valuation of property” and wherein the value of the various types of property is set out. Nowhere, however, in that section is any rule laid down as to how to arrive at the value of an irrevocable assignment of a life insurance policy, for tax purposes. Subdivision 6 of Article 19 reads: “Intangibles: Intangibles not specifically mentioned in this article should be valued in accordance with the rule laid down in subdivision (1) of this article.”
Subdivision (1) of Article 19 reads: “General. The statute provides that if the gift is made in properly, the value thereof at the date of the gift shall b,e considered the amount of the gift. The value of property is the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell. Where property is sold within a reasonable period after the date of the gift, and it is shown that the selling price reflects the fair market value thereof as of the date of the gift, the selling price will be accepted as the amount of the gift. All relevent facts and elements of value should be considered in every case.”
 The rules of statutory construction require that in construing Treasury Regulations, that the same intent be given to them that the Treasury Department itself intended they should have. In arriving at this intent the court must take into consideration the entire regulation. Article 2 is entitled “Transfers Reached”, and first defines four types of gifts-or transfers, followed by the words "Thus for example, a taxable transfer may be effected by the declaration of a trust,” etc., and again, “In the following examples of transactions resulting in taxable gifts” etc., setting out seven examples, the fifth example being the one here involved. I am of the opinion that the words used in Example 5 cannot be construed as intending to -fix the value of an irrevocably assigned insurance policy for taxable purposes, because that would not *270be in accord with the title of Article 2 which covers “Transfers Reached,” and would also be in conflict with Article 19 of the Regulation which is entitled “Valuation of Property” and logically should govern all questions as to value. Article 2 seems to me as intended to describe every type of transfer and gift upon which a tax might be imposed, and to set out examples of such transfers and gifts.
The Revenue law of 1924, 43 Stat. 313, contained the first gift tax provision, which was repealed in 1926. Six years later, in the Revenue Act of 1932, a tax was again placed on gifts. 47 Stat. 248, 26 U.S.C.A. § 555. Under Section 506 thereof it was provided that “if the gift is made in property, the value thereof at the date of the gift shall be considered the amount of the gift.” Treasury Regulation 79 (containing Article 2 (5) as set out above) was issued in 1932. Section 506 was re-enacted in the Revenue Acts of 1934, 1935 and 1936, and Article 2 (5) of the Treasury Regulation remained the same in 1934 and 1935. However, in 1936 the Regulation was changed by Article 19 (9) which provided that the value of the gift was not “the cash surrender value of the policy, but the cost of the contract.”
In arriving at my original decision I construed Section 506 only, Regulation 79 not having then been called to my attention, and now after a careful consideration of Regulation 79 in its entirety, I see no reason for reversing my decision of March 31st, 1939.