Housman v. Commissioner of Internal Revenue

L. HAND, Circuit Judge

(dissenting).

I agree that in fact ño trust arose; the phrase, “he left it entirely up to petitioner to do the right thing by the boys”, made the whole arrangement too vague. If the taxpayer’s will was to be controlled in any way whatever, it was to no greater extent than that if at any time she was disposed not to do what she thought “the right thing”, she would overcome that disposition. True, everyone does not always justify his conduct even to himself, but this compulsion appears to me too evanescent and shadowy to support a legal interest. Besides, the evidence is lacking that the testator acted in reliance upon the promise. However, I cannot escape the conclusion that the taxpayer’s promise was given in consideration of the son’s surrendering whatever rights he got under the putative trust, or as next of 'kin. He had announced an intention to break the will, on the theory, I suppose, that it was conditional upon recognition of the trust, and there was certainly a dispute in existence; moreover, it was a bona fide dispute. His surrender of his claim was a valid consideration for the compromise. Post v. Thomas, 212 N.Y. 264 , 106 N.E. 69 ; Schnell v. Perlmon, 238 N.Y. 362 , 144 N.E. 641 , 34 A.L.R. 1023 ; In re North Babylon Estates, Inc., 2 Cir., 30 F.2d 372 ; Restatement of Contracts § 76(b). Indeed the Board presupposed as much, but went on the theory that they must weigh the value of the consideration in money or money’s worth. That was before Lyeth v. Hoey, 305 U.S. 188 , 59 S.Ct. 155 , 83 L.Ed. 119 , 119 A.L.R. 410 , had been decided, and I cannot read the opinion in that case otherwise than as holding that, quoad taxes, promises made in compromise of an alleged right are not in exchange for its surrender, but merely affirm and liquidate it. I cannot see what difference it makes whether the question arises over a gift tax or an income tax, or in what respect the difference of facts between Lyeth v. Hoey and the case at bar makes any difference in the resulting duties. For this reason it seems to me that these payments must be regarded as the income of a trust, or of an “inheritance”; for the son was demanding either one or the other. It does not matter which it was, because in either case the payments were not gifts. I should not be satisfied, however, to dispose of the matter on this record; the Board clearly supposed that quite different considerations governed the result from those which do govern it, as I believe. I would send it back for a rehearing in which more might be learned than appears from the very spare record now before us.