Guggenheim v. Commissioner

Murdock,

dissenting: The Commissioner has held the petitioner liable for a gift tax on the theory that on July 13,1925, the petitioner made a transfer by gift of the then corpus of the two trusts, because on that date he relinquished his retained power of revocation. The Court of Claims sustained the Commissioner in a parallel case. Means v. United States, 39 Fed. (2d) 748; certiorari denied, 282 U. S. 849. Now the Board, employing and approving the reasoning of the Court of Claims in the Means case, again sustains the Commissioner. The Board and the Court of Claims rely upon Saltonstall v. Saltonstall, 276 U. S. 260; Chase National Bank v. United States, 278 U. S. 327, and Reinecke v. Northern Trust Co., 278 U. S. 339, and the reasoning of the Supreme Court in deciding those cases. In my opinion the Board and the Court of Claims have not given due- consideration to the fact that the solution of the only question presented in these cases depends upon a proper interpretation of the statutes to see whether or not the gift-tax provisions impose a tax under the facts.

In the three Supreme Court cases relied upon, the court took occasion to point out in each that there was no question of statutory construction, and a constitutional question only was involved.

In Saltonstall v. Saltonstall, supra, the Supreme Court accepted the state court’s interpretation that a tax had been clearly imposed *1189and it considered only the right of the legislative branch of the state government to impose such a tax. It held that a reserved power of appointment left the transfer incomplete and subject to tax.

In Reinecke v. Northern Trust Co., supra, there were seven trusts involved, which the court divided into two groups; one of two trusts, and the other of five. The decision of the court in regard to the two trusts is relied upon in the prevailing opinion of the Board. Section 401 of the Revenue Act of 1921 imposed a tax upon the transfer of the net estate. Section 402 (c) provided that there should be included in the gross estate all property “ to the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust * * * intended to take effect in possession or enjoyment at or after his death (whether such transfer or trust is made or created before or after the passage of this act).” The two trusts had been created before the passage of any statute imposing an estate tax. In these two trusts the settlor had reserved to himself the income for life and on his death the income of each was to be paid to a designated person until the termination of the trust, with remainders over. The settlor reserved to himself alone a power of revocation of the trusts. The only question which the Supreme Court considered was whether or not the taxing statute, if applied to these two trusts, was unconstitutional and void, because retroactive, within the ruling of Nichols v. Coolidge, 274 U. S. 531, in which it had held that a similar section of the 1918 Act was retroactive and unconstitutional as applied to transfers completed by the creation of trusts prior to the enactment of any such taxing statute. The court held:

A transfer made subject to a power of revocation in the transferor, terminable at bis death, is not complete until bis death. Hence section 402, as applied to the present transfers, is not retroactive since bis death follows the passage of the statute. For that reason stated more at length in our opinion in Chase National Bank v. United States, supra, we hold that the tax was rightly imposed on the transfers of the corpus of the two trusts ⅜ * *.

The court considered that these two trusts were intended to take effect in possession or enjoyment at or after the decedent’s death and thus they were covered by a specific provision of the statute. The only question was whether this provision could be constitutionally applied to trusts of this kind.

In the Chase National Bank case the only question involved was the constitutionality of section 401 as supplemented by that part of section 402 (f) of the Revenue Act of 1921 which provided that the value of the gross estate should include all property “to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life.” Section 401 imposed a tax upon the *1190transfer of the net estate of every decedent. The Supreme Court said:

The tax is plainly imposed by the explicit language of sections 401 and 402 (f) if those sections are constitutionally applied.
* * # * ⅜ ⅜ *
The precise question presented is whether the termination at death of that power and the consequent passing to the designated beneficiaries of all rights under the policies freed of the possibility of its exercise may he the legitimate subject of a transfer tax * ⅜ *. [Italics supplied.]

In that case the decedent had taken out several insurance policies on his own life, aggregating $200,000. In each he named his wife as beneficiaiy, but reserved to himself the right to change the beneficiary. He made no change up to the date of his death. The court held:

Such an outstanding power residing exclusively in a donor to recall a gift after it is made is a limitation on the gift which makes it incomplete as to the donor as well as to the donee, and we think that the termination of such a power at death may also he the appropriate subject of a tax upon transfers. [Italics supplied.]

Thus it appears that in each of these cases there were specific provisions clearly imposing the tax and the only question was whether these provisions were constitutional. Here the question is quite different. There is no express provision which clearly covers the present situation, and we are asked to hold that the general provision is sufficient. Cf. Tyler v. United States, 281 U. S. 497. If in the last two cases section 401 had stood alone without the specific provisions of section 402, a question like ours could have been raised. But section 401 did not stand alone and this question was never presented to the Supreme Court. In my opinion we can not decide the question of statutory interpretation here presented on authority of these decisions of the Supreme Court on a totally different question.

But it is argued that the reasoning of the Supreme Court in these three cases is decisive of the present controversy. I do not think so. It was only necessary for the Supreme Court to hold in each that the transfer was not complete until the termination of the power of revocation. The specific provisions were therefore not unconstitutional. Anything further which the court may have said was dieta which it is free to disregard if it ever has to decide the present case.

The petitioner is willing to concede that Congress had the power to impose a tax which would apply to a case such as this one. But the principal question which he raises is, Has Congress done so? He claims that there is at least doubt whether the words used should be interpreted as covering the present situation.

In section 819 of the Revenue Act of 1924, as amended by section 824 of the Revenue Act of 192G, a tax was “ imposed upon the trans*1191fer by a resident by gift during such calendar year of any property wherever situated, whether made directly or indirectly.” The act further provided that the amount of the gift to be taxed would be the fair market value of the property at the date of the gift. That the act taxes some transfers which occur through the medium of trusts must be conceded, in view of the provisions of subdivisions (a) (2) and (b) (1) of section 321. I will concede, for the sake of argument, that the logical time to tax a transfer such as was made here would be at the termination of the power. See, however, section 322. The petitioner assumes that “ transfer by gift ” as used in these acts includes trusts created after the passage of the Revenue Act of 1924. But, he- argues, it should not be applied where, as here, a trust was created prior to the passage of the Revenue Act of 1924 and the only thing that happened thereafter was the termination of a power to alter, amend, or revoke by voluntary relinquishment. He reasons that Congress had in mind “ relinquishment of powers to revoke trusts ” and distinguished such relinquishments from transfers by gift by providing for both where it so intended; in the estate-tax title of the Revenue Act of 1924 there appeared a new provision specifically including in the gross estate the value of property with respect to which the decedent had created a trust and reserved any power to himself to alter, amend, or revoke (section 302 (c)); no such elaboration appears in the gift-tax provision; if necessary in one place, it is necessary in the other (see also sections 402 (c) of the Revenue Acts of 1918 and 1921 and section 302 (c) of the Revenue Act of 1924, in all of which transfers, on the one hand, and creations of trusts on the other, are separately provided for); when the statute is read as a whole and the language of various sections is compared, it is clear that Congress did not intend the gift-tax provision to cover a case where in the year in question there was only a relinquishment of a power to alter, amend, or revoke a trust theretofore created; and, futhermore, since the relinquishment of the power to alter, amend or revoke a trust is not ordinarily regarded as a transfer of property by gift, the language of the statute must be clear if such an act is to be within the scope of the gift tax (cf. section 219 (g) of the Revenue Act of 1924). The Commissioner has failed to reply to these arguments of the petitioner, and the Board fails to dispose of them adequately. I think they have considerable persuasive force. Cf. Reinecke v. Gardner, 277 U. S. 239.

Mr. Justice Holmes, in speaking for one-half of the court in regard to the same provisions which we are here considering, said “ The Act should be read as referring only to transactions taking place after it was passed * * Blodgett v. Holden, 275 U. S. 142. The creation of this trust was a transaction which took place prior to the passage of the Act. The trust was valid even though the creator *1192retained the power to alter, amend or revoke it. Stone v. Hackett, 12 Gray 227; Farmers’ Loan & Trust Co. v. Bowers, 29 Fed. (2d) 14; Hibbard, Spencer, Bartlett & Co., 5 B. T. A. 464. “ The right to revoke, unexercised, is a dead thing. Its presence in a deed does not alter the character of the instrument or estate granted.” In re Dolan's Estate, 279 Pa. 582. Power of revocation does not affect the legal title to the property. After the relinquishment of this power the trust was no more effective than formerly. Cf. J. T. Fargason, 21 B. T. A. 1032. Here the grantor did not retain the income to himself for life as in the Saltonstall and Beinecke cases, supra. The Act taxes a “transfer” “by gift” “of any property.” The relinquishment affected no physical transfer, no change in possession, and no change in the legal or equitable title to the trust res. The holder of the power was not technically the owner of the trust property at the time he relinquished the power. The power itself “ is not a property right nor an interest in property.” Farmers’ Loan & Trust Co. v. Bowers, supra. Cf. Jones v. Clifton, 101 U. S. 225. Technically, the relinquishment did not transfer but rather extinguished something. Cf. In re Hall’s Estate, 99 N. J. L. 1; affd., 100 N. J. 405. Thereafter, that which had vested could never be divested, the gift could no longer be recalled. Here only one thing happened after the passage of the Act, the relinquishment of the power. It was at most but the final step of the grantor. Alone and separated from the steps previously taken it certainly did not transfer anything. It merely completed the shifting of the economic benefits which had been at least partially accomplished prior to 1924. If the Act be held to impose a tax upon such a transaction, it must be read as referring not only to that part of the transaction which took place after it was passed (the relinquishment), but also to that part which took place before it was passed (the creation of the trust). But the Act applies only to transfers made during the taxable year.

Tax provisions must be strictly construed, and if there be doubt as to a proper construction, that doubt must be resolved in favor of the taxpayer. Gould v. Gould, 245 U. S. 151; United States v. Merriam, 263 U. S. 179; Reinecke v. Northern Trust Co., supra. The language used must be reasonably construed, but may not be extended by implication or otherwise. Smietanka v. First Trust & Savings Bank, 257 U. S. 602. The statute should be read as a whole. Hellmich v. Hellman, 276 U. S. 233. Yague or doubtful interpretations may never serve to impose a duty upon a citizen, but clear and express words are required for that purpose. Isham v. United States, 17 Wall. 496; Hartranft v. Wiegmann, 121 U. S. 609. Not only could Congress have easily expressed more clearly an intention to tax upon the termination of a power to revoke, but when it has had such an *1193intention it has usually expressed it more clearly. Notwithstanding the administrative construction adopted by the Treasury Department, I think that there is at least doubt as to whether the gift-tax provisions, strictly construed and giving to the words used their ordinary meaning, impose a tax on the transfers here in question. Cf. United States v. Field, 255 U. S. 257. That doubt should be resolved in favor of the taxpayer.

Matthews and GoodRich agree with this dissent.