Court Opinion

ID: 9640222
Source: CourtListenerOpinion
Date Created: 2023-08-22 17:01:23.404741+00
Date Added: 2024-06-11T18:10:28.427791
License: Public Domain

AUGUSTUS N. HAND, Circuit Judge
(dissenting).
While I am by no means confident about what ought to be the decision of this appeal, I am on the whole inclined to differ with the view of the majority of the court. Justice Cardozo remarked as to the power of the settlor in Burnet v. Guggenheim, 288 U.S. 280, 284, 53 S.Ct. 369, 370, 77 L.Ed. 748:
“He was free at any moment, with reason or without, to revest title in himself, except as to any income then collected or accrued. As to the principal of the trusts and as to income to accrue thereafter, the gifts were formal and unreal. They acquired substance and reality for the first time in July, 1925, when the deeds became absolute through the cancellation of the power.”
In the case at bar the settlor parted with all beneficial interest in the corpus when he created the trust and under his reserved power could only make appointments by will in certain conditions or modify the trusts in favor of new beneficiaries without revesting anything in himself. In *957Burnet v. Guggenheim the settlor is said to have retained complete control of the property for his own benefit and for that reason to have made no gift until he renounced his right to retake possession of the res.
The Gift Tax Act of 1932, § 501 (b), 26 U.S.C.A. § 550 (b), provides that: “The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect.” The tax would clearly apply to a trust under which those taking a remainder interest were by its terms contingent. It seems to me to make no difference that the settlor in the present case can shift these interests according to his future will instead of leaving them to be determined by contingencies provided for in the deed of trust.
Subdivision (c) of section 501 of the Gift Tax Act of 1932 (26 U.S.C.A. § 550 note) was a part of the act as originally passed. It provided that:
“The tax shall not apply to a transfer of property in trust where the power to re-vest in the donor title to such property is vested in the donor, either alone or in conjunction with any person not having a substantial adverse interest in the disposition of such property or the income therefrom, but the relinquishment or termination of such power (other than by the donor’s death) shall be considered to be a transfer by the donor by gift of the property subject to such power, and any payment of the income therefrom to a beneficiary other than the donor shall be considered to be a transfer by the donor of such income by gift.”
Subdivision (c) only excluded from taxation property transferred in trust where the settlor had reserved a power to revest title in himself and had not relinquished the power. I think that under that subdivision all other transfers in trust were made by implication subject to gift taxes and came directly within the sweeping language of subdivision (b). While subdivision (c) was repealed by section 511 of the Revenue Act of 1931, 48 Stat. 758, the repeal, according to the Report of the Committee of the Senate and House, was only because “the principle expressed in that section is now a fundamental part of the law by virtue of the Supreme Court decision in the Guggenheim Case.” Consequently as a matter of congressional interpretation subdivision (b) is to be read as if subdivision (c) was still a part of the act. In addition to this, the Treasury Regulations interpret the act as reaching such a trust as we have here and the literal terms of the statute seem to justify them.
For the foregoing reasons, I think the judgment ought to be reversed and the complaint dismissed.