The opinion
Hill, J., dissenting: In the Both case, cited and relied on in the majority opinion, the notes in question were valueless at the time of Roth’s death and were so returned for estate tax purposes. Some years thereafter the executors of Roth’s estate received payment of the notes in full. The Circuit Court of Appeals held that there was realized gain to the estate in the amount of such payment and that such gain was taxable. The factual situation and the legal question in that case are not comparable to those of the instant case.
In the instant case the legacy had a maximum potential value of $400,000 at the time of decedent’s death, realizable in ten annual payments. The legacy was of dollars, payable in dollars in the amounts a,nd as directed in the contract. Every dollar of each annual payment made to petitioner was received by her as part of the legacy. The legacy was not paid by the testamentary transfer of the contract for such payment.
The commuted value of the legacy did not limit the amount of the legacy to such value. If the money received by petitioner under the terms of the contract was income, it must represent realized appreciation of the legacy. But the legacy did not and could not appreciate. Obviously there were no rents, issues, or profits arising from or out of the legacy, for every payment received by petitioner in accordance with the contract was received as legacy and not as an accretion to it or as an issue from it.
In legal theory the commuted present value of an obligation is equivalent to the face value of such obligation payable over a period of future years or at a long deferred future date. The converse is likewise true. But commutation to present value of long term payments of a legacy does not alter the amount or character of the legacy when and as paid under the testamentary. terms therefor. In the instant case the value of the legacy was progressively determined by payments thereon as and when paid. The total value of the legacy was determinable only upon the payment of the last yearly installment thereof and such value was, of course, the sum of all the payments made in compliance with the testamentary provisions for such payments.
The majority holds that all payments received by petitioner under the terms of the legacy which were in excess of the commuted value thereof were not received as legacy. Such holding carries its own negation, since it is an incontestable fact that every such payment had its exclusive origin and authorization in the legacy.
For the purposes of the estate tax upon decedent’s estate it was necessary to determine the value of the property in the legacy as of the date of decedent’s death, but we are not here concerned with determining a basis of the legacy to petitioner, since there has been no sale or other disposition of it by her. It is a generally accepted legal principle that the payment of an obligation is not a disposition of it within the meaning of the taxing statutes, dictum to the contrary by the Circuit Court of Appeals for the Second Circuit in the Both case notwithstanding.
I am unable to agree with the majority holding. In my opinion it is speciously artificial and wholly unrealistic.
Van Fossan, J., agrees with this dissent.