Emery v. Commissioner

*1040OPINION.

ARUndell:

The first two questions are questions of fact. As to the stock in the Chicago Rawhide Mfg. Co., the evidence shows, and we have so found, that Mary Allen Emery was the owner of 189 shares which the respondent included in the decedent’s gross estate. As to the preferred stock in Central Leather Co., there was much confusion and doubt in the testimony and we are unable to say that the respondent erred.

As to the issue of law raised on the third point, that is, the taxation of the property held in joint tenancy, section 402(d) of the Revenue Act of 1921, provides:

That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated—
* * * * * * *
(d) To the extent of the interest therein held jointly or as tenants in the entirety by the decedent and any other person, or deposited in banks or other institutions in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than a fair consideration in money or money’s worth: Provided, That where such property or any part thereof, or part of the consideration with which such property was acquired, is shown to have been at any time acquired by such other person from the decedent for less than a fair consideration in money or money’s worth, there shall be excepted only such part of the value of such property as is proportionate to the consideration furnished by such other person: Provided further, That where any property has been acquired by gift, bequest, devise, or inheritance, as a tenancy in the entirety by the ciecedent and spouse, or where so acquired by the decedent and any other person as joint tenants and their interests are not otherwise specified or fixed by law, than to the extent of one-half of the value thereof.

Since the hearing in this proceeding, the Supreme Court has decided the case of Tyler v. United States, 281 U. S. 497, in which the constitutionality of the foregoing provision was upheld in a case involving tenants by the entireties, as well as the principle that there should be included in the gross estate of the decedent the entire value of property held as tenants by the entirety by the decedent and his spouse, where no part of such property originally belonged to, or was paid for by, the surviving spouse and where the estates were “ created after the passing of the applicable Act.” In view of this decision, wo think it clear that in the case at bar there was an enlargement of property rights ” to the survivor through the death of the decedent in a sense which would require the inclusion in the gross estate of the decedent of at least one-half of the value of the property held by him and his spouse at his death as joint tenants. The property here involved was located in Illinois where the common law conception of joint tenancy prevails (Mette v. Feltgen 148 Ill. *1041357; 36 N. E. 81, and Deslauriers v. Senesac, 331 Ill. 437; 163 N. E. 327), and one of the elements of such a tenancy is that while there is a “ present estate in all the joint tenants, each being seized of the whole,” (Partridge v. Berliner, 325 Ill. 253; 156 N. E. 352), each joint tenant has a legal right of severance which may be exercised at any time by either tenant prior to his death and thus defeat the right of the survivor in the interest of the other joint tenant. (Thompson on Eeal Property, vol. 2, p. 929, and authorities therein cited.) In Tyler v. United States, supra, the court said:

The question here, then, is not whether there has been, in the strict sense of that word, a “ transfer ” of the property by the death of the decedent, or a receipt of it by right of succession, but whether the death has brought into being or ripened for the survivor, property rights of such character as to make appropriate the imposition of a tax upon that result (which Congress may call a transfer tax, a death duty or anything else it sees fit), to be measured, in whole or in part, by the valug of such rights.

Obviously, the death of one of two joint tenants thus becomes the “ generating source ” which would require the imposition of a tax on the estate of the decedent on account of the one-half of property held in joint tenancy which prior to the death of the decedent could have been severed by the decedent, but which at the death of the decedent ripens into complete ownership for the survivor and wdiere, as was apparently true in the case at bar, there had been no contributions toward the acquisition of, or prior ownership in, such property by the survivor. Cf. Chase National Bank v. United States, 278 U. S. 327, and Reinecke v. Northern Trust Co., 278 U. S. 339.

Our next question is whether the other one-half of the property held in joint tenancy which vested in the survivor upon the creation of the joint tenancy and as to which a right of severance existed on the part of the survivor may be included in the gross estate of the decedent when such tenancy was created prior to the passing of the applicable act under which the estate tax is being imposed. This can not be said to have been answered in Tyler v. United States, supra, for the reason that the estates there involved were not only tenancies by the entirety rather than joint tenancies, but more particularly were estates created after the passing of the applicable act. We are of the opinion, however, that our question has in effect been answered in Knox v. McElligott, 258 U. S. 546. The foregoing case dealt with a situation involving section 202(c) of the Revenue Act'of 1916, as amended'by the Revenue Act of 1917, in which the provision with respect to the taxation of joint property, in so far as here material, was not unlike that contained in the corresponding provisions of the Revenue Acts of 1918 and 1921. The joint tenancy there in question was created prior to the effective date of the ap*1042plicable act and the court held that this statute could not be given a retroactive effect and that the one-half of the jointly owned property which vested in the survivor upon the creation of the joint tenancy and as to which a right of severance existed on the part of the survivor throughout the existence of the joint tenancy should not be included in the gross estate of the decedent for estate-tax purposes. In so holding the court reversed the Circuit Court and quoted with approval from the District Court as shown in the following paragraphs:

But this contention was the alternative of the contention which plaintiffs in error also made, that the Act of September 8,1916, as amended, was not intended to have retrospective operation. And this was the decision of the District Court, the court saying: “ It is true section 201 provides that the tax is imposed upon the transfer of the net estate of 1 every decedent dying after the passage of this act ’; but the assumption must be that this relates to estates thereafter created and not to then existing property.” And the court added: “At the time the statute was passed Cornelia Kissam’s interest belonged to her.”
The court further observed: “ From the structure of the act to say that the measure of the tax is the extent of the interest of both joint tenants is, in effect, to say that a tax will be laid on the interest of Cornelia in respect of which Jonas had in his lifetime no longer either title or control.” The court rejected that conclusion and denied to the acts of Congress retroactive operation. To this the Circuit Court of Appeals was opposed and reversed the judgment based upon it.

A distinguishing feature in the facts of the foregoing case from the case at bar might well be said to be that the joint tenancy was there created in 1912, when no act was in effect which provided for the taxation of the transfer of such property for estate-tax purposes,, whereas in the case at bar the joint tenancy was created in 1920 when an act was in effect similar to that existing when the decedent died, but we are of the opinion that a distinction on this ground is not justified in view of the reasoning advanced in the decision. The language used was that at the time the applicable statute was passed “ Cornelia Kissam’s [the survivor’s] interest belonged to her,” and that a retroactive operation should not be given to the statute on account of an “interest of Cornelia [survivor] in respect of which Jonas [decedent] had in his lifetime no longer either title or control.” The court further cited Shwab v. Doyle, 258 U. S. 529, as authority for its decision, in which the following statements are made with respect to the retroactive application of a somewhat similar statute:

If Congress, however, had the purpose assigned by the Commissioner, it should have declared it; when it had that purpose, it did declare it. In the Revenue Act of 1918 (Comp. St. Ann. Supp. 1919; § 6336 3/4c) it reenacted section 202 of the Act of September 8, 1916, and provided that the transfer or trust should be taxed, whether “ made or created before or after the passage of ” the act. And we cannot accept the explanation that this was an elucidation of the act of 1916, and not an addition to, as averred by defendant, but regard the act of 1918 rather as a declaration of a new purpose; not the *1043explanation of an old one. But, granting the contention of the defendant has plausibility, it is to be remembered that we are dealing with a tax measure, and whatever doubts exist must be resolved against it.

The foregoing comment is likewise pertinent in the situation before us, for the reason that the provision with which we are concerned does not expressly make it retroactive, though retroactive provisions were inserted in the Eevenue Acts of 1924 and 1926 (section 302(h)).

The position which we have outlined above is also consistent with the interpretation formerly given to the provision in question by the Commissioner in Treasury Decision 3951 (amending article 23, Regulations 63, under the Revenue Act of 1921, and issued on December 29, 1926) which reads in part as follows:

Property hold, jointly or as tenants 5y the entirety. — The statute provides for the inclusion in the gross estate of interests held jointly by the decedent and any other person or persons and of estates by the entirety. This provision applies only to a joint tenancy, or a tenancy by the entirety, created subsequent to the passage of the Revenue Act in force and eifect at. the time of the decedent’s death. * * ⅜

However, apparently on the theory that Tyler v. United States, supra, overruled Knox v. McElligott, supra, the foregoing Treasury Decision was amended on July 3, 1930, by Treasury Decision 4293 by striking therefrom the second sentence thereof quoted above. For reasons already stated, we see no inconsistency between the two cases.

In view of the foregoing, we are of the opinion that since the joint tenancy was created prior to the act in effect when the decedent died and since the applicable act is not made specifically retroactive, only one-half of the value of property held jointly by the decedent and his wife should be included in the gross estate of the decedent subject to the estate tax. See also Walker v. Grogan, 283 Fed. 530, and Hannah M. Spofford, Administratrix, 3 B. T. A. 1016.

Reviewed by the Board.

Judgment will be, entered under Bule 50.