Court Opinion

ID: 4492847
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:03:37.880003+00
Date Added: 2024-06-11T15:03:58.468433
License: Public Domain

Smith,
dissenting: The petitioner’s only property in the trust fund involved in this proceeding was a right to receive the income thereof during her life. For a valuable consideration she released all claim to one-half of the dividends received on an investment of the fund so long as the investment was held by the trustees in favor of her children. This constituted an assignment of an interest in the property which she owned. In Chase Nat. Bank v. Sayles, 11 Fed. (2d) 948, 955, the court said:
It has long been recognized that equitable interests in property may be assigned by way of gift, that the assignment may be of the whole or a part of the assignor’s interest, and that the only material question is whether the circumstances show a completed transaction — an intention to pass a present interest and such delivery of the subject matter as its nature permits, and that, if they do, the gift is irrevocable. [Citing many cases.]
It is elementary that the incidence of the income tax is upon the one who receives and has the unfettered control and use of income and not upon the one who acts as a conduit to pass the income on to another. The burden of the tax is upon the one who receives the income out of which the income tax may be paid. There are exceptions such as those which make the grantor of a revocable trust liable to tax upon the income of the trust. But none of those exceptions apply here.
The language used by Judge Thomas in O'Malley-Keyes v. Eaton, 24 Fed. (2d) 436; is equally applicable here.
After all, the stark fact is that the plaintiff did not receive this income, and cannot receive this income. To say that she did receive it is to indulge in a deliberate fiction. Suppose that she had never assigned her interest, and suppose, further, that she deliberately declined to accept any income from her greatgrandfather’s estate; could we say that the income was received by her and tax her accordingly, in spite of the fact that we concede that she did not receive it at all? Are we to inject into the law some doctrine of con*1312structive income? If Congress legislated to this effect, the question of its constitutional power might well be raised.
To the same effect see Young v. Gnitchel, 28 Fed. (2d) 789; Shellabarger v. Commissioner, 38 Fed. (2d) 566; Copland v. Commissioner, 41 Fed. (2d) 501; Bettendorf v. Commissioner, 49 Fed. (2d) 173; Nelson v. Ferguson, 56 Fed. (2d) 121.
Van Foss an and McMahon agree with this dissent.