dissenting: The petitioners each made net gifts of $330,-281.25 in 1938 to trusts theretofore created. The gift tax liability of each is:
* * * the excess of—
(1) a tax, computed in accordance with the Rate Schedule hereinafter set forth, on the aggregate sum of the net gifts for such calendar year and for each of the preceding calendar years, over
(2) a tax computed in accordance with the Rate Schedule, on the aggregate sum of the net gifts for each of the preceding calendar years.
Prior to 1938 Libby Rice Farish and W. S. Farish had made gifts to these trusts. The question in issue is the amount of the net gifts made by each to the trusts in the years prior to 1938. The respondent has determined that the amount of the net prior gifts made by Libby Rice Farish was $694,651.13 and by W. S. Farish was $735,462.11. The petitioners contend that the correct amounts of the net prior gifts were $634,651.13 and $670,462.11. The majority opinion holds that the net prior gifts were these amounts plus $10,000 in each instance, or $644,651.13 and $680,462.11, respectively. It holds that the respondent is correct in reducing the specific exemption applicable to prior years from $50,000 to $40,000 in each case, but that the respondent, is not correct in including in the net prior gifts $50,000 and $55,000, respectively, of exclusions from the gifts which were erroneously allowed by the respondent in the proceedings involving gift tax deficiencies of the petitioners for the years 1934 and 1935 settled by the decisions of the Board of Tax Appeals in 38 B. T. A. 638. It holds that by reason of the concession made by the respondent in the settlement of those tax deficiencies the errors therein made must be continued into the year 1938.
I do not think that this is correct. The prior litigation was disposed of by the decisions of the Board of Tax Appeals above referred to. At that time there was much doubt as to whether gifts to a trust which were not to-be enjoyed by the beneficiaries until a future date were gifts of future interests in property. The issue was finally decided by the Supreme Court in United States v. Pelzer, 312 U. S. 399, in 1941. Under the opinion in that case the petitioners would not be entitled to the exclusions allowed.
It seems to me that the net prior gifts in the case of each of these donors must be determined in accordance with the statute which was in effect in the determination of the gift tax liabilities for 1938. The net prior gifts for the purpose of the determination of the tax liabilities for 1938 were not affected by the erroneous interpretation of the statute for prior years. According to the reasoning of the majority opinion an error made, regardless of the amount, in the determination of the net gifts for prior years becomes fixed for all time. I do not think that this is correct. The net prior gifts of these petitioners were in the amounts of $694,651.13 and $735,462.11.
The question as to whether the petitioners were entitled to exclusions from gift tax for 1934 and 1935 was not decided by the Board in the proceedings at 38 B. T. A. 638. The respondent conceded that they were in so far as the determinations of deficiencies in gift tax for 1934 and 1935 were concerned. The decision of the Supreme Court in the Pelzer case conclusively shows that they were not. As I understand it, the petitioners now concede that they were not. Their only contention is that under the doctrine of res adjudieata the correct deficiencies for 1938 may not be found.
I do not think that the doctrine has application to such a situation. The question as to whether the petitioners were entitled to the claimed exclusions for 1934 and 1935 was not considered by the Board at 38 B. T. A. 638. We are here dealing with a different cause of action from that there decided. See Hartford Empire Co. v. Commissioner, supra. The amount of the “net prior gifts” must be determined in accordance with the law as construed by the Supreme Court. The respondent’s determinations should be approved.