Helvering v. Reynolds

Mr. Justice Douglas

delivered the opinion of the Court.

Respondent’s father died in 1918, leaving him a remainder interest in a testamentary trust, an interest which the court below found to be contingent under North Carolina law. He received his share of the trust, including securities, from the trustee on April 4, 1934. Some of the securities so distributed had been received by the trustee from the decedent’s estate and others had been purchased by the trustee between 1918 and 1934. During the year 1934 respondent sold some of the securities in each group. In computing his gains and losses he used as the basis the value on April 4, 1934, when he received the securities from the trustee. The Commissioner determined that the proper basis under the Revenue Act of 1934 (48 Stat. 680) was the value, of the securities at the time of decedent’s death in the case of those then held by decedent and their cost to the trus*430tee in the case of those which the trustee had purchased. The Board of Tax Appeals sustained the Commissioner. 41 B. T. A. 59. The Circuit Court of Appeals reversed. 114 F. 2d 804. We granted the petition for certiorari (exclusive of. the question whether the remainder was vested or contingent under the law of North Carolina) because of a conflict among the circuits.1

Sec. 113 (a) (5) of the 1934 Act provided: “If the property was acquired by bequest, devise, or inheritance, or by the decedent’s estate from the decedent, the basis shall be the fair market value of such property at the time of such acquisition.” The government places considerable stress on Maguire v. Commissioner, ante, p. 1; Helvering v. Gambrill, ante, p. 11;. and Helvering v. Campbell, ante, p. 15, decided under the 1928 and 1932 Acts, in sup- • port of its contention that as respects securities owned by decedent the proper basis was their value at his death even though respondent’s interest was then contingent. And it also relies on Treasury Regulations 86, promulgated under the 1934 Act, Art. 113 (a) (5)-l (b) of which provided that “all titles to property acquired by bequest, devise, or inheritance relate back to the death of the decedent, even though the interest of him who takes the title was, at the date of death of the decedent, legal, equitable, vested, contingent, general, specific, residual, conditional, executory, or otherwise.” Respondent, on the other hand, urges that the phrase “at the time of such acquisition,” when it was included in the 1934 Act, had acquired by construction a definite meaning which excluded contingent remainders, and therefore that Congress must be presumed to have used those words in that sense. In that connection he points out that the phrase *431“at the time of such acquisition” had appeared in the 1921, 1924, and 1926 Acts2 and that certain office decisions of the Treasury,3 and certain decisions of the lower federal courts4 under those acts, made prior to the enactment of the 1934 Act, had held that a beneficiary did not acquire property when his interest was merely contingent. Respondent emphasizes that the legislative history of the 1934 Act shows no mention of the prior administrative and judicial treatment of contingent fe-mainders and makes no complaint with the practice of the bureau or with the decisions. He insists that the words “acquired” or “acquisition” are not vague or ambiguous words but mean to obtain “as one’s own,” as held in Helvering v. San Joaquin Fruit & investment Co., 297 U. §. 496, 499. By these arguments and related ones, respondent seeks to demonstrate that the earlier rule had become embedded in the law so that it could be changed not by administrative rules or regulations but by Congress, alone. On the basis of such reasoning and the difference in wording between the 1934 Act and the 1928 and 1932 Acts, he seeks to distinguish the Maguire, Gam-brill, and Campbell cases. 'And since Art. 113 (a) (5)-1 (b) was promulgated on.February 11, 1935, respondent insists that to make it applicable to transactions occurring in 1934 would be to give it a retroactive effect contrary to Helvering v. R. J. Reynolds Tobacco Co., 306 U. S. 110.

Respondent’s position is not tenable. We are not dealing here with a situation where the meaning of statutory *432language is resolved by reference to explicit statements of Congressional purpose. Maguire v. Commissioner, supra ; Helvering v. Campbell, supra. Here, the Committee Reports 5 on the 1934 Act are wholly silent as to whether a taxpayer has acquired property within the meaning of § 113(a)(5) at a time when he has obtained only a contingent remainder interest. And we need not stop to inquire whether, in absence of the Treasury Regulations under the 1934 Act, the administrative construction of “acquisition” under the earlier Acts was of such a character (Higgins v. Commissioner, 312 U. S. 212) and the prior judicial decisions had such consistency and uniformity that Congressional reenactment of the language in question was an adoption of its previous interpretation, within the rule of such cases ás United States v. Dakota-Montana Oil Co., 288 U. S. 459. That rule is no more than an aid in statutory construction. While it is useful at times in resolving statutory ambiguities, it does not mean that the prior construction has become so embedded in the law that only Congress can effect a change. . Morrissey v. Commissioner, 296 U. S. 344, 355. And see Murphy Oil Co. v. Burnet, 287 U. S. 299. It gives way before changes in the prior rule or practice through exercise by the administrative agency of its continuing rule-making .power. Helvering v. Wilshire Oil Co., 308 U. S. 90, 100-101. Nor is Art. 113(a) (5)-l(b) of the Regulations' condemned by Helvering v. R. J. Reynolds Tobacco Co., supra. That .case turned on its own special facts. The transactions there in question took place at a time when a regulation was in force which expressly negatived any tax liability. The regulation remained outstanding, for a long time and was followéd by several reenactments of the statute. About five years after the transactions in question took *433place, the prior regulation was amended so as to impose a tax liability. There are no such circumstances here. No relevant regulation was in force at the time respondent sold the securities in 1934. The regulation here in question was promulgated under the very Act which determines respondent’s liability. The fact that the regulation was not promulgated until after the transactions in question had been consummated is immaterial. Cf. Manhattan General Equipment Co. v. Commissioner, 297 U. S. 129. The magnitude of the task of preparing regulations under a new act may well occasion some delay. To hold that respondent had a vested interest in a hypothetical decision in his favor prior to the advent of the regulations, would introduce into the scheme of the Revenue Acts refined notions of statutory construction which would, to say the least, impair an important administrative responsibility in the tax collecting process.

Hence the regulation governs this case if the word “acquisition” as used in § 113 (a) (5) was susceptible of this administrative interpretation. We think it was. However unambiguous that word might be as respects other transactions (Helvering v. San Joaquin Fruit & Investment Co., supra), its meaning in this statutory setting was far from clear as respects property passing by bequest, devise, or inheritance. The definition of “acquisition” contained in the regulation is not a strained or artificial one. Admittedly, the date of death would be the prope: basis if respondent’s interest under the testamentary trust had been a vested remainder. But even a vested remainderman does not have, all of the attributes of ownership. So the test in this type of case is not whether respondent had full enjoyment of the property prior to the delivery of the securities to him, but whether he earlier had acquired an interest which ultimately ripened into complete ownership. Respondent has become the taxpayer because he has obtained full ownership of *434the property and has sold it. The tax is on gains, if any, realized by him in that transaction. Hence, as we indicated in the Maguire and Campbell cases, to carry into that computation the value of the property at the time the taxpayer had only a contingent remainder interest in it is not to tax him bn values which he never received. The statute as thus interpreted “merely provides a rule of thumb in alleviation of a tax which would be computed by reference to the entire amount of the original inheritance were it to be based on cost to the'taxpayer.” Helvering v. Campbell, supra, p. 22. As stated by Judge Arant in Augustus v. Commissioner, 118 F. 2d 38, 43, the regulation was an “apt interpretation to make this part of the statute fit efficiently and consistently into the scheme of the revenue system as a whole.” See Maguire v. Commissioner, supra.

Respondent’s suggestion that the regulation does not cover this case will not stand analysis. It has a broad sweep and embraces all interests which have their origin in a bequest, devise, or inheritance.

For the reasons stated, the proper basis as to the securities owned by the decedent was their value at his death.

There remains the question as to the proper basis for securities purchased by the trustee. In the Maguire■ case we held that “cost” was the proper basis as provided in § 113 (a) of the 1928 Act, sinc'e securities purchased by a trustee were not “acquired ... by will” within the meaning.of § 113 (a) (5) of that Act. While § 113 (a) (5) of the 1934 Act substitutes “acquired by bequest, devise, or inheritance” for “acquired either by will or intestacy” in the 1928 Act, that change does not call for a result different from that reached in the Maguire case. For the reasons there stated, w:e hold that as respects securities purchased by the trustee the proper basis is the cost to him. That makes it unnecessary to examine the validity of the holding of the court below that Art. 113 (a) (5)-*4351 (d) of the Regulations6 is inapplicable because decedent did not die before March 1,1913.

Reversed.

Opposed, to the decision below are Van Vranker, v. Helvering, 115 F. 2d 709; Cary v. Helvering, 116 F. 2d 800; Archbold v. Helvering, 115 F. 2d 1005 — all from the Second Circuit; and Augustus v. Commissioner, 118 F. 2d 38, from the Sixth Circuit.

Sec. 202 (a) (3), Revenue Act of 1921 (42 Stat. 229); § 204 (a) (5), Revenue Act of 1924 (43 Stat. 258); § 204 (a) (5), Revenue Act of 1926 (44 State, 14).

O. D. 727, 3 Com. Bull. 53 (1920); G. C. M. 10260, XI-1 Cum. Bull. 79, 80 (1932).

‘See, for example, Pringle v. Commissioner, 64 F. 2d 863; Hopkins v. Commissioner, 69 F. 2d 11. Cf. Lane v. Corwin, 63 F. 2d 767.

H. Rep. No. 704, 73d Cong., 2d Sess., pp. 27-28; S. Rep. No. 558, 73d Cong., 2d Sess., pp. 34-35.

“Property acquired before March 1,1918; reinvestments by fiduciary. — If the decedent died before March 1,1913, the fair market value on that date is taken in lieu of the fair market value on the date of death, but only to the same extent and for the same purposes as the fair market value on March 1,1913, is taken under section 113 (a) (14).

“If .the property is an investment by the fiduciary under a will (as, for example, in the case of a sale by a fiduciary under a will of property transmitted from the decedent, and the reinvestment of the proceeds), the cost or other basis to the fiduciary is taken in lieu of the fair market value at the time when the decedent died.”