Respondents Brief — Gwinn v. Commissioner

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FILE COPY

CORRECTED Cor (

No. 31

Inthe Supreme Court of the United States

OcToBER TERM, 1932

J. H. Gwixn, BENEFICIARY OF THE ESTATE OF M, A.

GWINN, DECEASED, PETITIONER

v.

Davin BuRNET, COMMISSIONER OF INTERNAL

REVENUE

ON A WRIT OF CERTIORARI TO THE UNITED STATES CIRCUIT

COURT OF APPEALS FOR THE NINTH CIRCUIT

BRIEF FOR THE RESPONDENT

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MRNAS oo sn enone cme ce eeuccasccmmepmebunronn 2

Statutes and regulations involved_-_--._._------------------- 2

2

3

RMR NE DANIO So. ne ick omen nwaeae case ncescesce

Argument:

I. The statute requires the inclusion in the decedent’s

gross estate of the value of his interest in the joint

NN eee ek Contin cue ae ce penn one es 7

II. This Court has already rejected the petitioner’s

contentions based on the fictions of the local law _- 9

III. During the lifetime of the decedent it was within

his power to sever the joint tenancy and thus to

destroy the right of survivorship; the termination

of this power on the decedent’s death is the proper

subject of the estate tax_.........----.-------- 11

IV. The decedent’s death brought about the shifting of

the economic benefits of property, and this event,

having taken place after the enactment of the

taxing statute. is properly the subject of the estate

Mite eet er eee waa eR eee eee Sees 18

Id poe SO Ca ees et oS aero mi 28

Appendix—Statutes and regulations involved____-......------ 29-40

CITATIONS

Cases:

Bowditch v. Commissioner, 23 B. T. A. 1265__..---------- 24

eer Us Deen, Uo a Ware) ©... 8. Sen ne on ee wenn ns 26, 27

Chase National Bank v. United States, 278 U.8.327_ 5, 15, 16, 18, 22

Commerce Union Trust Co. vy. Commissioner, 21 B. T. A. 174_- 24

Coolidge v. Long, 282 U.S. S62...-.........-=-.--.-< 19, 24, 25

Dennis v. Commissioner, B. T. A., decided October 6, 1932 -- 24

Dos v. Commissioner, 16 B. T. A. 427... ...-.-.-.-----..- 26

Emery v. Commissioner, 21 B. T. A. 1038_-__------------ 24

Garrison v. Commissioner, 21 B. T. A. 904___------------ 24

Grandin v. Heiner, 56 F. (2d) 1082, certiorari denied, 286

RE se eG Seu eh ae ee een eee ne can 23

enn vy. eer, 266 Wal: 495... -. -...- --<.--- 225. 11

Sere. meant, SO ROA, 208... cos eee ce cnn 11

Griswold v. Commissioner, 23 B. T. A. 635_-------------- 24

Gurnsey, Estate of, 177 Cal. 211_....------------- 4, 9, 10, 12, 27

145279—32——-1 qd)

SE HEEL OL SO OT PINE LP TNE Ee LE Ms EL Te EY ME IS IIE RNS ONE a RR gS

Cases—Continued. Page

Hilborn v. Soale, 44 Cal. App. 115---------------------- 12

Klein v. United States, 283 U. S. 231__.-.--------------- 6, 22

Knoz v. McElligott, 258 U. 8. 546__... .--------------- 6, 25, 26

Lee v. Commissioner, 57 F. (2d) 399, certiorari denied, 286

Ri aC Oboe ea cee ae one ona etas enka fasme ca keen 23

Levy v. Commissioner, 25 B. T. A. 1174_---------------- 24

Lynch v. Congdon, 1 F. (2d) 183.....-------.----------- 26

Mastick v. Commissioner, 18 B. T. A. 428_..------------- 26

MoRelwad, Rider a, Zai-W.. F. 26... -22-0-240.----- 28

Mercantile-Commerce National Bank v. Commissioner, 21

AS og Akh, Sea aa eee ae yr oer ear core Pe 24

Morton v. Commissioner, 23 B. T. A. 236__----.--------- 24

Nichols v. Coolidge, 274 U. S. 531...--------------.--- 8, 19, 24

Phillips v. Dime Trust Co. 284 U. 8. 160_---.-.-----.--- 8,22

Putnam v. Commissioner, 21 B. T. A. 205..-------------- 24

Te Wal Or, AOS WEIR, 20a eos en een ci eee nce ae ne 28

Reinecke v. Northern Trust Co., 278 U. S. 339___- 5, 16, 18, 22, 24

Robinson v. Commissioner, 21 B. T. A. 13873__-_-------- 24

Saltonstall v. Saltonstall, 276 U. S. 260__..--------- 5, 14, 18, 22

Slocum v. Commissioner, 21 B. T. A. 169__------------- - 24

Stratton v. United States, 50 F. (2d) 48, certiorari denied,

Be A OR Sb ccs <a e hace nba ew aden sxe eneetceens 23

Tax Commission v. Hutchison, 120 Ohio St. 361_--------- 28

Third National Bank & Trust Co. v. White, 45 F. (2d) 911,

affirmed, 58 F. (2d) 1085, certiorari granted, No. 202,

RIOLO DON OM, CMOB Ss chee cde mckiuen neces ccnnecceces 23

Tyler v. United States, 281 U. S. 497__- 4, 6, 8, 9, 10, 19, 20, 21, 24

Untermyer v. Anderson, 276 U. 8. 440_-.---------------- 19

Walker v. Grogan, 283 Fed. 530, affirmed, 300 Fed. 1004,

certiorari denied, 266 U. S. 608___._--.--------------- 26

Williams v. Hensman, 1 Johns. & H. 546__-------------- 13

United States Statutes:

Revenue Act of 1916, c. 463, sec. 202 (c), 39 Stat. 756, 777_ 29

Act of March 3, 1917, c. 159, sec. 300, 39 Stat. 1000, 1002_ 29

Revenue Act of 1917, c. 63, sec. 900, 40 Stat. 300, 324____- 29

Revenue Act of 1918, c. 18, sec. 402 (d), 40 Stat. 1057, 1097- 29

Revenue Act of 1921, c. 136, sec. 402 (d), 42 Stat. 227, 278- 30

Revenue Act of 1924, c. 234, 43 Stat. 253, 304 (U.S. C.,

Title 26, Sec. 1094)—

Pat on oo eaten won co eke wh SG otasaawae < 31

ORO SUE sty aa can wane ead dumetebe ve vaca 32

Revenue Act of 1926, c. 27, 44 Stat. 9 (U. S. C. “App. ?

Title 26, sec. 1094)—

RI Cee ci ie kes ea ees ewe ee Sr wae 32

RNR ea ail Bia caer ln oh ik reds coe 32

Revenue Act of 1928, c. 852, 45 Stat. 791__.-.-_---------- 32

California Statutes:

California Civil Code, sec. 683__....--------..--.------- 11

California Code of Civil Procedure, sec. 752_...._-- .- .--- 12

I

Miscellaneous: Page

2 Blackstone, Commentaries, 185-186__________________ 13

Freeman, Cotenancy and Partition (2d ed.), secs. 29-33___ 13

House Report No. 844, 68th Congress, Ist Sess., p. 25_____ 33

Senate Report No. 398, 68th Congress, Ist Sess., p. 35____ 32-33

1 Tiffany, Real Property (2d ed.), 637-640_........______ 13

Treasury Regulations 37, Articles 27 and 28__...__._____ 38

Treasury Regulations 63, Articles 23 and 24__...._______ 38

Treasury Regulations 68, Articles 22 and 23____..________ 33-36

Treasury Regulations 70 (1926 ed.), Articles 22 and 23____ 36

Treasury Regulations 70 (1929 ed.), Articles 22 and 23____ 36-37

Treasury Decision 3951 (VI-1 Cum. Bul. ME ied 39

Treasury Decision 4248 (VII-2 Cum. Bul. ens ite 37

Treasury Decision 4293 (IX-2 Cum. Bul. See 40

Treasury Decision 4294 (IX-2 Cum. Bul. oh a 37

Treasury Decision 4295 (IX-2 Cum. Bul. a 38

pyr ee

Inthe Supreme Court of the Wnited States

OctToBER TERM, 1932

No. 31

J. H. Gwinn, BENEFICIARY OF THE Estate or M, A.

Gwinn, deceased, petitioner

v;

Davin BurRNET, COMMISSIONER OF INTERNAL

Revenue

ON A WRIT OF CERTIORARI TO THE UNITED STATES CIRCUIT

COURT OF APPEALS FOR THE NINTH CIRCUIT

BRIEF FOR THE RESPONDENT

OPINIONS BELOW

The opinion of the Board of Tax Appeals (R.

13-18) is reported in 20 B. T. A. 1052. The opin-

ion of the Circuit Court of Appeals (R. 32-39) is

reported in 54 F. (2d) 728.

JURISDICTION

The judgment of the Circuit Court of Appeals

was entered January 5, 1932. (R. 40.) <A petition

for rehearing was denied on February 23, 1932.

(R. 41.) A petition for a writ of certiorari was filed

March 29, 1932, and was granted May 16, 1932.

(R. 45.) The jurisdiction of this Court rests on

Section 240 (a) of the Judicial Code as amended by

the Act of February 13, 1925.

(1)

2

QUESTION PRESENTED

Whether, in computing the Federal estate tax

of a decedent who died October 5, 1924 (which

tax was consequently governed by Section 302 of

the Revenue Act of 1924), one-half of the value

of certain property held by the decedent and the

petitioner as joint tenants under a joint tenancy

created in June, 1915, may constitutionally be in-

cluded in the gross estate.

STATUTES AND REGULATIONS INVOLVED

The statutes and regulations involved are set

forth in the Appendix, infra, pp. 29-40.

STATEMENT

The Board of Tax Appeals found the facts as

stipulated by the parties. (R. 11-13.) They may

be summarized as follows:

The petitioner is the beneficiary of the estate of

M. A. Gwinn and is in actual or constructive posses-

sion of the property of the decedent, who died

October 5, 1924. (R. 11.)

In June, 1915, the decedent and the petitioner,

while residing in California, acquired certain prop-

erty as joint tenants, with the right of survivor-

ship and not as tenants in common, and the de-

cedent and the petitioner contributed equal amounts

of property to the estate in joint tenancy so created

by them. (R. 12.)

In computing the value of the gross estate of

the decedent, the respondent determined the value

3

of all of the property held as joint tenants by the

decedent and the petitioner and then included in

the gross estate of the decedent half of the value of

the property so held. (R. 11.) No effort was made

to include anything other than the decedent’s half

of the total estate held in joint tenancy. (R.

11-12.)

It is agreed between the parties that if the Com-

missioner was not justified in including half of the

value of the property so held as joint tenants, there

has been an overpayment of estate tax in the

amount of $2,172.16, and that if half of the value

of the property held as joint tenants is properly

subject to the estate tax, there is a deficiency in the

amount of $719.61.

Upon these facts the Board of Tax Appeals held

that half of the value of the property held in joint

tenancy by the decedent and the petitioner must

be included in the decedent’s gross estate for Fed-

eral estate tax purposes, and entered its order that

there is a deficiency in Federal estate tax in the

sum of $719.61. The Circuit Court of Appeals for

the Ninth Circuit affirmed the decision of the

Board of Tax Appeals.

SUMMARY OF ARGUMENT

I

Section 302 (e) of the Revenue Act of 1924 pro-

vides that there shall be included in the gross estate

of a decedent the value “of the interest therein

held as joint tenants by the decedent and any other

Cot.

+

person.’’ Section 302 (h) makes this provision ap-

plicable to all joint tenancies, whether they are

created ‘‘before or after the enactment of this Act.”’

The sole question involved in this case is whether

this clearly expressed intention of Congress violates

the ‘‘due process’’ clause of the Fifth Amendment.

II

The petitioner devotes a large part of his brief to

the contention that under the law of California no

change occurs in the title of a joint tenant on the

death of his cotenant. This argument is based on

the fictions of the local law announced in Estate of

Gurnsey, 177 Cal. 211.

In Tyler v. United States, 281 U. S. 497, this

Court considered exactly the same contention, made

with respect to a tenancy by the entirety, and

expressly rejected it.

iit

The property in question was held by the de-

cedent and the petitioner as joint tenants under a

tenancy which was created in 1915. Although sur-

vivorship is a necessary element of a joint estate, it

is familiar law that a joint tenancy may be severed

in any one of several ways. A severance termi-

nates a joint estate, and with the termination the

right of survivorship ceases. California decisions

and statutes show that a joint tenancy in that State

may be severed (1) by a conveyance of all or part

of the interest of a joint tenant, or (2) through

proceedings brought for the partition of the inter-

FERN RA ete i Ee: epee out neers ex oR

5

est of a tenant, or (3) by the involuntary alienation

of the interest of one tenant through bankruptey

proceedings or on execution.

Thus it is plain that under the law of California

one joint tenant has the power at any time during

his life to sever the joint tenancy and thus to de-

stroy the right of survivorship. And it is likewise

plain, under numerous decisions of this Court, that

the cessation of this power, which was an event

which occurred after the enactment of the Revenue

Act of 1924, was a proper occasion for the imposi-

tion of an estate tax. Saltonstall vy, Saltonstall,

276 U. S. 260; Chose National Bank vy. United

States, 278 U.S. 327; Reinecke v. Northern Trust

Co., 278 U.S. 339.

From the time of the creation of the joint ten-

ancy until the time of the death of the decedent _

in 1924, the half of the property which it is now

sought to tax was entirely in the decedent’s control,

and he might at any time have transferred it or

otherwise have severed the joint tenancy, thus ter-

minating the right of survivorship, without which

the present petitioner would not have acquired the

interest. The existence of this power in the dece-

dent made the transfer to the petitioner incomplete

until the decedent’s death with respect to the half

of the property now in question. That the termi-

nation at the decendent’s death of the right to exer-

cise this power is an appropriate subject of the

estate tax is clearly established by the decisions of

this Court just cited.

145279—32

9

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—_ —"

. EDF SE ISLET SOUR IN HERR Od NLS RESIST Na

—— IRE RONEN SN eS ogee fet a PONG gT eect Baad eek i aA a ?

6

IV

The decedent’s death brought about the shifting

of the economic benefits of property, and this event,

having taken place after the enactment of the tax-

ing statute, is properly the subject of the estate tax.

In Tyler v. United States, 281 U. 8. 497, this Court

upheld the constitutionality of an estate tax laid on

property held by the decedent as a tenant by the

entirety. The grounds on which the decision in

this case is based make it clear that the application

of the taxing statute to a joint tenancy created

before September 8, 1916, is not a retroactive appli-

eation and that it is valid under the Constitution.

In its opinion in the Tyler case, the Court stated

that the death of a tenant by the entirety was the

‘“‘venerating”™ source resulting in the ‘bringing

into being or the enlargement of property rights,”

and that if Congress chose to place a tax upon such

a result there was nothing in the Constitution

which prevented it. See also Klein v. United

States, 283 U. S. 231. The ripening and comple-

tion of the economic benefits to the survivor does

not occur until the death of the decedent. Upon

the happening of that event the tax is imposed and

no question of retroactivity is involved.

The decision in Knoz v. McElligott, 258 U.S. 546,

is not inconsistent with the respondent’s position

in the instant case, for in that case one-half of the

jointly owned property was taxed, and there is no

effort in the present case to tax more than one-half

of the value of the property held jointly by the

ue SERRE Mem patton .

Sa a le Nats 7 rer eee - —

RETELLING AI TOOTS IRS EN Bea DG /AN ae EY ett

7

decedent and the petitioner. Furthermore, Knoz y.

McElligott involved only a question of construction,

which is not present in the instant case, for Section

302 (h) of the Revenue Act of 1924 (infra, p.

32) expressly provides that Section 302 (e), re-

lating to joint tenancies, shall apply to tenancies

Whether made or created ‘before or after the

enactment of this Act.”

ARGUMENT

I

THE STATUTE REQUIRES THE INCLUSION IN THE DE-

CEDENT’S GROSS ESTATE OF THE VALUE OF HIS INTEREST

IN THE JOINT TENANCY

Section 302 of the Revenue Act of 1924 (infra,

Pp. 31-32), which was in effect at the time of the

decedent’s death, provides that the value of the

8Toss estate of a decedent shall include—

the value at the time of his death of all

property, real or personal, tangible or jn-

tangible, wherever situated—

* * * * *

(e) To the extent of the interest therein

held as joint tenants by the decedent and any

other person, * * * 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: * * *#

By Section 302 (h) this provision is specifically

made applicable to all joint tenancies whether they

a he rer SESE eee SIESPM

— PEE ES REL ERNE NIN SRN ae EIN NEI 25 ya se 9amtoy LPO VISE rE .

NOC Ie z oa ass ;

8

are created ‘‘before or after the enactment of this

Act.”’

The petitioner contends (Br. 55-61) that the

word ‘‘before’’ used in Section 302 (h) should be

interpreted or construed to mean only that period

before June 2, 1924, which is after September 8,

1916. But the words ‘‘before or after’’ are all-in-

clusive and admit of no limitation or qualification.’

This Court has already decided the question; in

Nichols v. Coolidge, 274 U. S. 531, the words

‘‘whether such transfer or trust is made or created

before or after the passage of this Act,’’ used in

Section 402 (c) of the Revenue Act of 1918, were

held to make the statute applicable to a transfer

made in 1907. The petitioner states (Br. 61) that

Phillips v. Dime Trust & Safe Deposit Co., 284

U. S. 160, supports his contention ‘‘by implica-

tion.’? The Phillips case involved no such question

and made no such construction by implication or

otherwise.

1 The petitioner refers to Treasury Decision 4248 (infra,

p. 37), which was in effect from November 23, 1928, to July

3, 1930. ‘This regulation made the statute applicable only to

joint ownerships “ created subsequent to September 8, 1916.”

But this qualification of the language of the statute was not

based upon a construction of its provisions; it was the Com-

missioner’s expression of his view at that time that the

statute could not constitutionally be applied to joint ten-

ancies created before that date. After this Court’s Cecision

in Tyler v. United States, 281 U. S. 497, the regulation was

amended so as to include all joint tenancies.

——

9

The sole question involved in this case, there-

fore, is whether this clearly expressed intention of

Congress violates the ‘‘due process’’ clause of the

Fifth Amendment.

IT

THIS COURT HAS ALREADY REJECTED THE PETITIONER'S

CONTENTIONS BASED ON THE FICTIONS OF THE LOCAL

LAW

The petitioner devotes a large part of his brief

to the contention that the property in question can

not be taxed because (Br. 9) under the law of Cali-

fornia ‘‘the title to the joint property does not pass

to and vest in the survivor, upon the death of his

cotenant, but * * * each is seized of the whole

estate from the first, and no change occurs in his

title on the death of his cotenant.”’ This argument

is based on the fictions of the local law announced

in Estate of Gurnsey, 177 Cal. 211, and similar

cases,

The basis for this argument, in the language of

the court below (R. 34), ‘has been completely over-

turned”’ by decisions of this Court. In Tyler v.

United States, 281 U.S. 497, this Court considered

exactly the same contention, made with respect to

a tenancy by the entirety, and expressly rejected it.

In its opinion this Court said (pp. 501, 503) :

The decisions of the courts of Maryland

and Pennsylvania follow the common law

and are in accord in respect of the character

and incidents of tenancy by the entirety. In

legal contemplation the tenants constitute a

DMR a INC, SLANG AE PRE ILS

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10

unit; neither can dispose of any part of the

estate without the consent of the other; and

the whole continues in the survivor. In

Maryland, such a tenancy may exist in per-

sonal property as well as in real estate.

These decisions establish a state rule of

property, by which, of course, this court is

bound. Warburton v. White, 176 U.S. 484,

496.

* * * * *

According to the amiable fiction of the

common law, adhered to in Pennsylvania and

Maryland, husband and wife are but one per-

son, and the point made is, that by the death

of one party to this unit no interest in prop-

erty held by them as tenants by the entirety

passes to the other. This view, when ap-

plied to a taxing act, seems quite unsub-

stantial. The power of taxation is a funda-

mental and imperious necessity of all gov-

ernment, not to be restricted by mere legal

fictions. Whether that power has been prop-

erly exercised in the present instance must

be determined by the actual results brought

about by the death, rather than by a consid-

eration of the artificial rules which delimit

the title, rights and powers of tenants by

the entirety atcommonlaw. * * *

The decision in the Tyler case thus makes it plain

that there is no merit in the petitioner’s oft-re-

peated contention tkat this Court is bound by the

fictions of local law announced in Estate of Gurn-

sey, 177 Cal. 211, supra.

vm ae PS ELS EPS PLING LATE IN IONE NTE LOIN ISIN i a PANES OT te PON

11

Til

DURING THE LIFETIME OF THE DECEDENT IT WAS WITHIN

HIS POWER TO SEVER THE JOINT TENANCY AND THUS TO

DESTROY THE RIGHT OF SURVIVORSHIP; THE TERMINA-

TION OF THIS POWER ON THE DECEDENT’S DEATH IS THE

PROPER SUBJECT OF THE ESTATE TAX

The property in question was held by the de-

cedent and the petitioner as joint tenants, under a

tenancy which was created in 1915. (R. 12.)

Section 683 of the California Civi] Code, as it was

in effect in 1915 and until after the death of the

decedent, provided that—

A joint interest is one owned by several

persons in equal shares, by a title created by

a single will or transfer, when expressly de-

clared in the will or transfer to be a joint

tenancy, or one granted or devised to execu-

tors or trustees as joint tenants.

One of the incidents of a joint tenancy is the right

of survivorship. Greer y. Blanchar, 40 Cal. 194.

Although survivorship is a necessary element of

a joint estate, it is familiar law that a joint tenancy

may be severed in any one of several ways. <A

severance terminates the joint estate, and with the

termination the right of survivorship ceases. This

is established by the decisions of the California

courts and by California statutes, as well as at com-

mon law.

At least three methods of effecting the severance

of a joint tenancy are clearly illustrated by Cali-

fornia decisions ov statutes: (1) In Green v. Skin-

eee BI ote Be OPT Sy a

OL LSE LN LOLS ALO LS I IEL SOUR CLE AI AE A siiiiiiniiia

NRE, SAE 2S AIO PTH RS PEN Tea ¥ es BS

—

12

ner, 185 Cal. 435, 438, the Supreme Court of Cali-

fornia declared:

It is the law that a joint tenancy may be

severed and ended by a conveyance by one

of the tenants of his share.

(2) Section 752 of the California Code of Civil

Procedure provides that any joint tenant may bring

an action for the partition of his interests. Parti-

tion, of course, destroys the right of survivorship.

And (3), in Hilborn v. Soale, 44 Cal. App. 115, it

was held that an involuntary alienation of the in-

terest of one tenant severed the tenancy and de-

stroyed the right of survivorship. The court said

(p. 117):

The execution sale of the interest of Wil-

son A. Soale to the plaintiff here severed the

joint tenancy, and left plaintiff and de-

fendant Carl B. Soale tenants in com-

ite. 9 Fe *,

It is thus plain that under the law of California

one joint tenant has the power at any time during

his life to sever the joint tenancy and thus to de-

stroy the right of survivorship.’ And it is like-

2In Estate of Gurnsey, 177 Cal. 211, 215, the Supreme

Court of California declared: “ The joint tenancy referred

to in the Civil Code (sec. 683), and here involved, is the

estate known as such at common law.”

Common-law authorities establish that there are,at least

five ways in which a joint tenancy may be te: (1) By

a conveyance by one of the joint tenants of ‘all or a part

of his interest; (2) by mutual agreement between the coten-

ants; (3) by a course of dealing which intimates “ that the

ERE RWS PRA LIE OO ea etm SAR eR ty werER HELI Sattar CO (SR 2 NS oy Beda ogee Pe eRe ROTa SRE EATEN pA iN: —

13

wise plain under numerous decisions of this Court

that the cessation of this power, which was an event

which occurred after the enactment of the Revenue

Act of 1924, was a proper occasion for the impo-

sition of an estate tax.

No effort has been made in the present case to

tax any portion of the property except the one-

half interest held by the decedent in the joint

tenancy. Until the decedent’s death this interest

was at all times subject to the decedent’s power to

sever the joint tenancy. This power was held by

the decedent entirely independently of any action

on the part of the petitioner or anyone else.’ It

was within the decedent’s power voluntarily and at

any time to sever the joint tenancy by conveyance

of either all or a part of his interest to a third

person or by instituting partition proceedings. It

was not until the decedent died without exercising

this power that the petitioner had any certainty of

acquiring the other half of the joint property, and

it is only this half of the property upon which the

tax is laid. The parallel between the situation thus

interests of all were mutually treated as constituting a ten-

ancy in common” (Williams y. Hensman, 1 Johns. & H.

546, 557); (4) by partition proceedings brought by one or

more of the joint tenants; and (5) by involuntary aliena-

tion of the interest of one of the joint tenants, through bank-

ruptcy or on execution. See 2 Blackstone, Commentaries

185-186; Freeman, Cotenancy & Partition (2d ed.), Secs.

29-33; 1 Tiffany, Real Property (2d ed.), 637-640.

* The petitioner’s statement (Br. 50) that in order to

“sever the joint tenancy he must secure the consent of his

cotenant ” is without support either in law or fact.

145279323

HER BUREAU EET AEN BEE ROL REN

14

involved in this case and that presented where a

power of appointment or a power of revocation

ceases on death is almost exact. In both of the lat-

ter situations this Court has held that an estate tax

may validly be levied, although the original trans-

fer of the property subject to the power of appoint-

ment or the power of revocation was made many

years before the enactment of any estate tax law.

In Saltonstall v. Saltonstall, 276 U. 8. 260, it

appeared that on various dates between 1905 and

1907, before the passage of any estate or succession

tax law, property was transferred on trust with the

provision that on the death of the settlor it should

be paid to the plaintiffs. The trust instrument pro-

vided that its terms might be changed and the trust

terminated in whole or in part by the settlor with

the concurrence of the one trustee. After the crea-

tion of the trusts but before the death of the settlor,

the legislature of Massachusetts enacted a statute

taxing ‘‘the transfer of property passing to anyone

on the exercise of a power of appointment or the

failure to exercise 1t * * *.”’ (276 U.S. 269.)

The constitutionality of this statute was attacked

on the ground that it deprived the plaintiffs of

property without due process of law because it

taxed them on an interest they had already re-

ceived before the enactment of the taxing Acts. It

was contended that the plaintiffs had vested inter-

ests or remainders subject only to being divested by

the exercise of the reserved power, which never hap-

pened, and that as their remainders vested before

—

15

the enactment of the taxing statute they could not

constitutionally be made subject to the tax. This

Court held that the tax could constitutionally be

imposed, saying (p. 271):

And so the property passing to the bene-

ficiaries here was acquired only because of

default in the exercise of the power during

the denor’s life and thus was on his death

subject to the state’s power to tax as an in-

heritance.

A similar question was considered by this Court

in Chase National Bank vy. United States, 278 U.S.

327. It was there held that the proceeds of insur-

ance policies on the decedent’s life, paid for by the

decedent and taken out prior to the passage of the

applicable Act but after 1916, might constitutionally

be included in the Sross estate in determining the

Federal estate tax when the insured reserved the

right to change the beneficiary. This Court ob-

served that (p. 334)—

until the moment of death the decedent re-

tained a legal interest in the policies which

gave him the power of disposition of them

and their proceeds as completely as if he

were himself the beneficiary of them.

The cessation at death of this power was held to

be a proper ground for including the value of the

property in the measure of the estate tax. This

Court said (p. 338) ;

Termination of the power of control at

the time of death inures to the benefit of

— ——— OEE AE RATE NT BINT: AY TA IL THY NEE NC RIT CONAN PM TI

a

16

him who owns the property subject to the

power and thus brings about, at death, the

completion of that shifting of the economic

benefits of property which is the real sub-

ject of the tax, * * *. And the non-exer-

cise of the power may be as much a disposi-

tion of property testamentary in nature as

would be its exercise at death, Bullen v. Wis-

consin, 240 U. S.625; * * *,

On the same day on which the decision in Chase

National Bank v. United States, supra, was an-

nounced, this Court decided Reinecke v. Northern

Trust Co., 278 U.S. 339. In that case it appeared

that the decedent had created two trusts, among

others, one in 1903 and one in 1910. In these two

trusts the income was reserved to the settlor for

life, and on his death the income was to be paid to

a designated person with remainders over. By the

terms of each of the two trusts there was reserved

to tne settlor alone a power of revocation of the

trust. The decedent died in 1922. It was held

that on his death the value of the property compris-

ing these two trusts might constitutionally be in-

cluded in the measure of the estate tax, although

the trusts had originally been created long before

the passage of any Federal estate tax law. This

Court said (p. 345) :

As to the two trusts, it is argued that

since they were created long before the pas-

sage of any statute imposing an estate tax

the taxing statute if applied to them is un-

constitutional and void, because retroactive,

« 08 Vr ey ” or

EOE OS HR TOE art ing, Ope regen? TURELIN POUP NTA AUR mS AR ORK ye iL ROO RAL HL RgACS EIRE

17

within the ruling of Nichols v. Coolidge, 274

U. 8. 531, In that case it was held that the

provisions of the similar Sec. 402 of the 1918

Act, 40 Stat. 1097, making it applicable to

trusts created before the passage of the act

was in conflict with the Fifth Amendment

of the federal Constitution and void, as re-

spects transfers completed before any such

statute was enacted. But in Chase National

Bank v, United States, decided this day,

ante, p. 327, the decision is rested on the

ground, earlier suggested with respect to the

Fourteenth Amendment in Saltonstall vy.

Saltonstall, 276 U. 8. 260, 271, that a trans-

fer made subject to a power of revocation in

the transferor, terminable at his death, is not

complete until his death. Hence See, 402, as

applied to the present transfers, is not re-

troactive, since his death followed the pas-

sage of the statute. For that reason, stated

more at length in our opinion in Chase Na-

tional Bank v. United States, supra, we hold

that the tax was rightly imposed on the

transfers of the corpus of the two trusts and

as to them the judgment of the court of

appeals should be reversed.

From these cases it is clear that property which

remains subject to the control of a person during

his lifetime, and passes to another at his death only

because he has not exercised a power which he

might freely have exercised at any time during his

life, may constitutionally be made subject to the

estate tax in effect at the time of that person’s

death, regardless of when the estate was originally

18

created. In the present case it is true that the

joint tenancy was created in 1915. But from the

time of its creation until the time of the death of

the decedent in 1924 the half of the property which

it is now sought to tax was entirely in the decedent’s

control, and he might at any time have transferred

it, or otherwise have severed the joint tenancy, thus

terminating the right -of survivorship, without

which the present petitioner would not have ac-

quired the interest. The existence of this power in

the decedent made the transfer to the petitioner

incomplete until the decedent’s death with respect

to the half of the property now in question. That

the termination at the decedent’s death of the right

to exercise this power is the proper subject of the

estate tax is clearly established by the decisions of

this Court in Saltonstall v. Saltonstall, Chase Na-

tional Bank v. United States, and Reinecke v.

Northern Trust Co., supra.

IV

THE DECEDENT’S DEATH BROUGHT ABOUT THE SHIFTING

OF THE ECONOMIC BENEFITS OF PROPERTY, AND THIS

EVENT, HAVING TAKEN PLACE AFTER THE ENACTMENT

OF THE TAXING STATUTE, IS PROPERLY THE SUBJECT

OF THE ESTATE TAX

The decedent’s death in the present case occurred

in 1924, after the enactment of the Revenue Act of

1924. This event was the ‘‘generating source”’ of

enlarged property rights in the petitioner; and we

submit that it was thus the proper subject of an

estate tax for this reason, as well as for the reason

= I RE ey

19

advanced in Point III of this brief, namely, that

until the death of the decedent it remained wholly

within his power to determine whether the peti-

tioner would or would not acquire the interests to

which he has in fact succeeded.

In Nichols v. Coolidge, 274 U. 8. 531, this Court

enunciated the rule that Congress may not consti-

tutionally exact an estate tax on property which

was finally transferred before the enactment of the

taxing statute. Similar principles were later ap-

plied in Untermyer v. Anderson, 276 U.S. 440, and

in Coolidge v. Long, 282 U. 8. 582, in both of which

it was held that taxing statutes violated a “due

process”’ clause of the Constitution.

But in the present case the event which is taxed

is the ‘‘shifting of the economic benefits of prop-

erty,’’ which takes place on the decedent’s death,

after the enactment of the taxing statute. In

Tyler v. United States, 281 U. §. 497, this Court

upheld the constitutionality of an estate tax laid on

property held by the decedent as a tenant by the

entirety. In that case the tenancy was created

after the passage of the applicable taxing statute, so

that the actual decision is not necessarily control-

ling here. But we submit that the grounds on

which the decision in the Tyler case is based make it

clear that the application of the taxing statute to a

joint tenancy created before September 8, 1916, is

not a retroactive application and that it is valid

under the Constitution.

Ss ERIM iia er

——

20

In its opinion in the Tyler case this Court stated

that the death of a tenant by the entirety was the

‘*generating source’’ resu!ting in ‘‘the bringing into

being or the enlargement of property rights’’ and

that if Congress chose to place a tax upon such a

result there was nothing in the Constitution which

prevented. The Court then said (pp. 503-504) :

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 value of such rights.

* * * * *

Taxation, as it many times has been said,

is eminently practical, and a practical mind,

considering results, would have some diffi-

culty in accepting the conclusion that the

death of one of the tenants in each of these

eases did not have the effect of passing to

the survivor substantial rights, in respect of

the property, theretofore never enjoyed by

such survivor, Before the death of the hus-

band (to take the Tyler case, No. 428) the

wife had the right to possess and use the

whole property, but so, also, had her hus-

band; she could not dispose of the property

—

21

except with her husband’s concurrence ; her

rights were hedged about at all points by the

equal rights of her husband. At his death,

however, and because of it, she, for the first

time, became entitled to exclusive possession,

use and enjoyment; she ceased to hold the

property subject to qualifications imposed

by the law relating to tenancy by the en-

tirety, and became entitled to hold aud enjoy

it absolutely as her own; and then, and then

only, she acquired the power, not theretofore

possessed, of disposing of the property by

an exercise of her sole will. Thus the death

of one of the parties to the tenancy became

the “generating source”’ of important and

definite accessions to the property rights of

the other.

These extracts from the opinion in the Tyler case

make it clear that death, the event which is the

occasion for the imposition of the tax, is the gen-

erating source of the enlargement of property

rights in the survivor. This is an event which takes

place after the passage of the taxing statute re-

gardless of when the tenancy was created. In the

present case the decedent’s death was the event

which made the shifting of the full benefits of

ownership’ to the petitioner complete and effective

and secured to him the sole possession and enjoy-

ment of the property unburdened by the decedent's

rights. Until his death the decedent retained a

dominion over the property equal in all respects to

that of the petitioner. Under the decision in the

Tyler case this ripening of property rights is a

22

proper subject for the imposition of a tax. See

also Phillips v. Dime Trust Co., 284 U.S. 160.*

A similar question was considered in Klein v.

Umited States, 283 U. 8S. 231. There it appeared

that prior to the passage of the applicable revenue

law, but after 1916, a husband had conveyed a life

estate to his wife with the provision that she should

take the remainder in case he should die before she

should. It was held that on the death of the hus-

band the value of the remainder might constitu-

tionally be included in the measure of the gross

estate. Im reaching this result this Court said

(p. 234) :

It is perfectly plain that the death of the

grantor was the indispensable and intended

event which brought the larger estate into

being for the grantee and effected its trans-

mission from the dead to the living, thus sat-

isfying the terms of the taxing act and justi-

fying the tax imposed. Compare Tyler v.

United States, 281 U. 8S. 497.

See also Saltonstall v. Saltonstall, 276 U.S. 260,

Chase National Bank v. United States, 278 U. 8.

327, and Reinecke v. Northern Trust Co., 278 U.S.

339, which are discussed in Point III of this brief.

The principles announced by this Court in the

decisions just referred to have been applied not

* The petitioner seems to think his position finds support

in Phillips v. Dime Trust Co., supra. See his brief, pp.

34, 55, 67. But a reading of that decision makes it plain

that the present question was expressly left undecided. The

reasoning of the case lends direct support to our views.

a oe

23

only by the court below in the present case but also

by several other of the lower Federal courts in cases

presenting similar questions, Thus in Grandin y.

Heiner, 56 F. (2d) 1082, the Cireuit Court of Ap-

peals for the Third Circuit held that the proceeds

of insurance policies were subject to the Federal

estate tax when the decedent retained the power to

change the beneficiary, although the policies were

taken out many years prior to the enactment of the

Revenue Act of 1916. This Court denied a petition

for a writ of certiorari, 286 U. S. 561. In Lee v.

Commissioner, 57 F. (2d) 399, the Court of Ap-

peals of the District of Columbia held that prop-

erty passing under a general power of appointment

Was subject to the Federal] estate tax although the

power was created in 1891. This Court denied cer-

tiorari, 286 U. 8.563. The same result was reached

by the Circuit Court of Appeals for the First Cir-

cuit in Stratton v. United States, 50 F. (2d) 48,

certiorari denied, 284 U. S. 651, where the powers

in question were all created prior to September 8,

1916. And in Third National Bank & Trust Co. v.

White, 45 F. (2d) 911, affirmed without opinion,

58 F. (2d) 1085 (C. C. A. Ist), certiorari granted

October 17, 1932 (No. 202, October Term, 1932), it

was held that property held by a decedent as a ten-

ant by the entirety may be made subject to the estate

tax although the tenancy was created before Sep-

tember 8, 1916. The Board of Tax Appeals has

uniformly reached the Same result since the deci-

, Rc SABES RESTO acer as eag:

= ee ‘

——

24

sion of this Court in the Tyler case.’ See also

Emery v. Commissioner, 21 B. T. A. 1038; Griswold

v. Commissioner, 23 B. T. A. 635.

It would seem to follow from these decisions that

the date of the creation of the tenancy is imma-

terial. The ripening and completion of the eco-

nomic benefits to the survivor does not occur until

the death of the decedent. Upon the happening of

that event the tax is imposed and no question of

retroactivity is involved.

In Nichols v. Coolidge, 274 U. S. 531, #2-Retmecte

Vv NorthernLerustCo, 278-68-339--with respect

to the ‘‘five trusts” and in Coolidge v. Long, 282

U. S. 582, this Court held that when a trust was

created before the enactment of any taxing statute

and no power of revocation was reserved, the mere

coming into possession of a vested remainder could

not constitutionally be made the subject of an estate

or succession tax. But it is plain from the lan-

guage used by the Court in its opinion in Coolidge

v. Long that these decisions are applicable only to

the situation where death brings about no more than

the coming into possession of an estate which had

5 Slocum vy. Commissioner, 21 B. T. A. 169; Commerce

Union Trust Co. v. Commissioner, 21 B. T. A. 174; Putnam

v. Commissioner, 21 B. T. A. 205; Garrison v. Commissioner,

21 B. T. A. 904; Mercantile-Commerce National Bank v.

Commissioner, 21 B. T. A. 1347; Robinson v. Commissioner,

21 B. T. A. 1373; Morton v. Commissioner, 23 B. 'T. A. 236;

Bowditch v. Commissioner, 23 B. T. A. 1266; Levy v. Com-

missioner, 25 B. T. A. 1174; Dennis v. Commissioner,

B. T. A., decided October 6, 1932.

25

already irrevocably vested in the remainderman.

Thus, in Coolidge vy. Long, the Court said (pp. 597,

599) :

Neither the death of Mrs. Coolidge nor of

her husband was a generating source of any

right of the remaindermen, * * *

No Act of Congress has been held by this

court to impose a tax upon possession and

enjoyment, the right to which had fully

vested prior to the enactment.

But in the present case the result of the death

of the decedent was not simply the coming into

possession by the petitioner of an estate which he

already owned irrevocably. Until the death of the

decedeut the petitioner had no interest in substance

in the decedent’s share of the joint tenancy, except

the possibility of survivorship, which it was within

the decedent’s power at any time to terminate.

Thus, it is clear that death in the present case was

not merely the occasion for the coming into pos-

session of an already vested remainder, but was the

“generating source” of new rights, and was conse-

quently the proper subject of an estate tax regard-

less of the time when the tenancy was created.

In Knox v. M cElligott, 258 U. 8. 546, it appeared

that the decedent and another became joint tenants

of certain property in 1912. The decedent died in

1917, and his executors included in the return of the

Federal estate tax on his estate the value of one-

half of the jointly owned property. Thereafter

the Commissioner of Internal Revenue added to

oo

26

the estate the one-half of the value which had not

been included in the original return. This Court

held that the one-half of the value of the property

which had not been included in the original estate

tax return was not subject to the estate tax.

It is plain that there is nothing in Knoz v. Mc-

Elligott which is inconsistent with the respondent’s

position in the instant case. For in that case one-

half of the jointly owned property was taxed, and

there is no effort in the present case to tax more

than one-half of the value of the property held

jointly by the decedent and the petitioner. (R.

11-12.) Furthermore, Knoz v. McElligott involved

only a question of construction, which is not pres-

ent in the instant case, for Section 302 (h) of the

Revenue Act of 1924 (infra, p. 32) expressly

provides that Section 302 (e), relating to joint

tenancies, shall apply to tenancies whether made or

created ‘‘before or after the enactment of this Act.’’

There was no such provision in Section 202 of the

Revenue Act of 1916 (infra, p. 29) which was be-

fore the Court in Knoz v. McElligott.’ For similar

reasons the decisions in Carter v. English, 15 F.

(2d) 6 (C. C. A. 9th), and Lynch v. Congdon, 1 F.

® A case which is in all respects similar to Know v. McEIli-

gott is Walker v. Grogan, 283 Fed. 530 (E. D. Mich.), af-

firmed, Grogan v. Walker, 300 Fed. 1004 (C. C. A. 6th), certio-

rari denied, 266 U. S. 603. Similarly, Doe v. Commissioner.

18 B. T. A. 427, and Mastick v. Commissioner, 18 B. T. A.

428, arose under the Revenue Act of 1918, which contained

no provision corresponding to Section 302 (h) of the Reve-

nue Act of 1924.

_ . = Tie eS

27

(2d) 133 (0. C. A. 8th), are not in point. They

arose under the Revenue Act of 1916, which con-

tained no provision making the tax applicable to

joint tenancies created before September 8, 1916,

Furthermore, Carter v. English, supra, was based

on certain theoretical conceptions of State law con-

cerning the nature of joint tenancy, derived from

Estate of Gurnsey, 177 Cal. 211. As we have

pointed out in Point IT of this brief above, such an

argument has already been rejected by this

Court.

The regulations of the Treasury Department

have not been uniform as to the question now

under consideration. At first the Department ap-

plied the statute to all tenancies whenever created.

Regulations 68, issued under the Revenue Act of

1924, merely copied Section 302 (h) of that Act

(infra, pp. 33-36). In 1928 Treasury Decision 4248

(infra, p. 37) was promulgated, providing that the

taxing statute did not apply to joint tenancies cre-

ated before September 8, 1916, and a similar pro-

vision was included in Article 22 of Regulations 70

(1929 ed.), which was promulgated March 23, 1929,

under the Revenue Act of 1926, as amended by the

Revenue Act of 1928 (infra, pp. 36-37). But, on

July 3, 1930, after the decision of this Court in the

Tyler case, Treasury Decisions 4294 and 4295

(infra, pp. 37-38) were promulgated. These Deci-

sions revoked the earlier ruling and expressly -pro-

vided that all joint tenancies were subject to the

(. = PT IOS ae ee s PSR, & SE

_, sees AMET IOEY POTN

oo

28

tax regardless of the time when they were created.

These regulations are still in effect.

The question here involved has been considered

by several State courts, which have held that on the

death of a joint tenant a State inheritance tax

statute might constitutionally be applied to tax half

the value of property held in joint tenancy, even

though the estate was created before the passage of

the taxing Act. Matter of McKelway, 221 N. Y.15;

Tax Commission v. Hutchison, 120 Ohio St. 361;

Will of Ray, 188 Wis. 180.

CONCLUSION

The decision of the court below is correct and

should be affirmed.

Respectfully submitted.

THoMAS D. THACHER,

Solicitor General.

G. A. YOUNGQUIST,

Assistant Attorney General.

SEWALL Key,

Special Assistant to the Attorney General.

Erwin N. GRIswo_p,

Attorney.

OcToBER, 1932.

APPENDIX

STATUTES

The Revenue Act of 1916 (Act of September 8,

1916, ¢. 463, 39 Stat. 756, 777-778) in Title IT

(Estate Tax) provided in part:

Sec. 202. That the value of the gross es-

tate 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 :

* & * * *

(c) To the extent of the interest therein

held jointly or as tenants in the entirety by

the decedent and any other person, or de-

posited in banks or other institutions in their

Joint names and payable to either or the sur-

vivor, except such part thereof as may be

shown to have originally belonged to such

other person and never to have belonged to

the decedent.

* * ” * *

Section 300 of the Act of March 3, 1917, e. 159,

39 Stat. 1000, 1002, and Section 900 of the Revenue

Act of 1917 (Act of October 3, 1917, ¢. 63, 40 Stat.

300, 324), increased the rates of the estate tax, but

made no other changes in this tax.

The Revenue Act of 1918 (Act of February 24,

1919, ¢. 18, 40 Stat. 1057, 1097) in Title IV (Estate

Tax) contained the same provision except.that it

was renumbered to be Section 402 (d).

(29)

~~ cg

30

The Revenue Act of 1921 (Act of November 23,

1921, c. 136, 42 Stat. 227, 278) in Title IV (Estate

Tax) provided in part:

Src. 402. That the value of the gross es-

tate 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 depos-

ited in banks or other institutions in their

joint names and payable to either or the sur-

vivor, 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 prop-

erty was acquired, is shown to have been at

any time acquired by such other person from

the decedent for less than a fair considera-

tion in money or money’s worth, there shall.

be excepted only such part of the value of

such property as is proportionate to the con-

sideration 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 decedent and spouse, or where so ac-

quired by the decedent and any other person

as joint tenants and their interests are not

otherwise specified or fixed by law, then to

the extent of one-half of the value thereof:

The

31

Revenue Act of 1924 (Act of June 2, 1924 ¢.

234, 43 Stat. 253, 304) in Title TIT (Estate Tax)

provided in part:

SEc. 302. The value of the 8YOSS estate of

the decedent Shall be determined by inelud-

ing the value at the time of his death of all

property, real oy Personal, tangible op in-

tangible, wherever situated—

* * * * *

(e) To the extent of the interest therein

held as joint tenants by the decedent and any

other person, or as tenants by the entirety

by the decedent and Spouse, or deposited,

With any Person carrying on the banking

business, in their joint names and payable to

of the value of such property as is propor-

tionate to the consideration furnished by

such other Person: Provided further, That

where any property has been acquized by

gift, bequest, devise, or Inheritance, as a

Value thereof, or, where so acquired by the

32

of the value of a fractional part to be deter-

mined by dividing the value of the property

by the number of joint tenants;

aa * > ~ *

(h) Subdivisions (b), (¢), (d), (e), (f),

and (g) of this section shall apply to the

transfers, trusts, estates, interests, rights,

powers, and relinquishment of powers, as

severally enumerated and described there-

in, whether made, created, arising, existing,

exercised, or relinquished before or after the

enactment of this Act. (U.S. C., Title 26,

Sec. 1094.)

In the Revenue Act of 1926 (Act of February 26,

1926, c. 27, 44 Stat. 9, 70-71; U.S. C. App., Title 26,

See. 1094) in Title III (Estate Tax), Section 302

(e) is the same as Section 302 (e) in the Revenue

Act of 1924, set out above, except that in the two

places in which it appears the phrase ‘‘a fair con-

sideration”’ is replaced by the phrase ‘‘an adequate

and full consideration’’; and Section 302 (h) is the

same in the two Acts, except thet in the Revenue

Act of 1926 the words ‘‘ Except as otherwise specifi-

cally provided therein’ are inserted at the begin-

ning of the subsection.

No changes were made in this provision by the

Revenue Act of 1928 (Act of May 29, 1928, ec. 852,

45 Stat. 791) or by the Revenue Act of 1932 (Act of

June 6, 1932, Publie No. 154).

CONGRESSIONAL COMMITTEE REPORT

REVENUE ACT OF 1924

In the Report of the Committee on Finance, fen-

ate Report No. 398, 68th Congress, 1st Session, it

was said (p. 35):

33

Sec. 302 (e): The provisions of the House

bill and the existing law have been reworded

to secure greater clarity.

Sec. 302 (h): This subdivision provides

that the property interests which are in-

cluded in the gross estate for purposes of

the estate tax are those enumerated in this

section, whether such interests were created

or arose or were relinquished before or after

the enactment of this act.

A similar provision is included in subdivi-

sion (c) [relating to trusts] of section 402 of

the existing act [Revenue Act of 1921]. It

has seemed desirable to extend this provision

expressly to the other property interests set

forth in this section.

In the Confeience Report, House Report No. 844,

68th Congress, 1st Session, it was said (p. 25):

The provision of the House bill with ref-

erence to that part of the gross estate made

up of property held by the decedent as a

joint tenant or as a tenant by the entirety

has been reworded for purposes of

clarity. * * *

REGULATIONS UNDER THE REVENUE Act oF 1924 anp

SUBSEQUENT AcTs

Regulations 68, promulgated March 26, 1925, un-

der the Revenue Act of 1924, provided in part:

_ ART. 22. Property held jointly or as ten-

ants by the entirety.—The foregoing provi-

sions of the statute extend to joint owner-

ships, wherein the right of survivorship ex-

ists, and specifically reaches property held

jointly by the decedent and any other per-

son or persons, or by the decedent and spouse

as tenants by the entirety, or deposited with

any person or institution carrying on a

34

banking business in the name of the de-

cedent and any other person and payable to

either or the survivor, provided the de-

cedent contributed towards the acquisition

of the property so held or deposited, or ac-

quired it by gift, bequest, devise, or inheri-

tance. The statute applies to all classes of

property, whether real or personal, where

the survivor takes the entire interest therein

by right of survivorship, and no interest

therein forms a part of the decedent’s es-

tate for purposes of administration. It does

not include property held by the decedent

and any other person or persons as tenants

in common.

Art. 23. Taxable portion.—The entire

value of such property is prima facie a part

of the decedent’s gross estate, but as it is not

the intent of the statute that there should

be so included a greater part or proportion

thereof than is represented by an outlay of

funds, which, in the first instance, were de-

cedent’s own, or more than a fractional part

equal to that of the other joint owner where

neither had parted with any consideration

in its acquirement, facts, which in a given

ease bring it within any one of the excep-

tions enumerated in the statute, may be

submitted by the executor.

Whether the value of the entire property,

or only a part, or none of it, enters into the

make-up of the gross estate, depends upon

the following considerations: (1) So much

of the property (whether the whole, or a part

thereof) as originally belonged to the other

joint owner, and which at no time in the past

had been received or acquired by the latter

from the decedent for less than a fair con-

sideration in money or money’s worth, forms

no part of the decedent’s gross estate. (2)

35

Where the facts are otherwise the same as

in (1), but the decedent paid to such other

joint owner a consideration for the interest

by him (the decedent) acquired in the prop-

erty, then such portion of the value of the

property, proportionate to the consideration

so paid, constitutes a part of the gross estate.

(3) Where the property, or a part thereof,

or a part of the consideration wherewith it

was acquired, had at any time been acquired

by the other joint owner from the decedent

as a gift, or for less than a fair considera-

tion in money or money’s worth, then such

portion of the value of the entire property,

proportionate to the consideration, if any,

which in the first instance was paid from

such other joint owner’s own funds, forms

no part of the gross estate. (4) Where the

property was acquired by the decedent and

his or her surviving spouse as tenants in the

entirety by gift, will, or inheritance, then but

one-half of the value of the property becomes

a part of the gross estate. (5) Where ac-

quired by the decedent and the other joint

owner as joint tenants by gift, will, or inheri-

tance, and their interests are not otherwise

specified, or fixed by law, then one-half only

of the value of the esnigeaag is a part of the

gross estate; or, where so acquired by the

decedent and two or more persons, and the

interests of the several joint tenants are not

otherwise determinable, then the decedent

and the other joint tenants surviving him

shall each be deemed the owner of an equal

fractional part, and the value of one only of

such fractional parts is to be included in the

gross estate.

The following are given as illustrative:

(a) Where the decedent furnished the en-

tire purchase price, the entire property

36

should be included in the gross estate; (b)

where the decedent furnished a part only of

the purchase price, only a corresponding

portion of the property should be so in-

cluded; (c) where the decedent, prior to the

acquisition of the property by himself and

the other joint owner, gave the latter a sum

of money which later constituted such other

joint owner’s entire contribution to the pur-

chase price of the property, the entire value

of the property should be included; (d)

where the other joint owner, prior to the ac-

quirement of the property, received from

the decedent, for less than a fair considera-

tion in money or money’s worth, property

which thereafter became, as such, or in a

converted form, part of the purchase price

of the property, the value of the property to

be included is to be reduced proportionately

to the consideration furnished by the other

joint owner in the original transaction; (e)

where the decedent furnished no part of the

purchase price, no part of the property

should be included; (f) where the decedent

and spouse acquired the property by will as

tenants by the entirety, one-half of the value

of the property should be included.

Articles 22 and 23 of Regulations 70 (1926 ed.),

promulgated August 24, 1926, under the Revenue

Act of 1926, are the same as Articles 22 and 23 of

Regulations 68 set out above.

Articles 22 and 23 of Regulations 70 (1929 ed.),

promulgated March 23, 1929, under the Revenue

Act of 1926, as amended by the Revenue Act of

1928, are the same as Articles 22 and 23 of Regu-

lations 68 set out above, except that the first sen-

tence of Article 22 of Regulations 70 (1929 ed.)

reads as follows:

—_— eset

ate ORE BO ASSN ia ARCO MOR MRR ea i

37

The foregoing provisions of the statute ex-

tend only to joint ownerships based on the

right of survivorship and created subsequent

to September 8, 1916.

Treasury Decision 4248 (VII-2 Cumulative Bul-

letin 358-359), promulgated November 23, 1928,

provides:

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER

OF INTERNAL REVENUE,

Washington, D. C.

To Collectors of Internal Revenue and

Others Concerned:

Article 22 of Regulations 68 and 70 is

hereby amended by adding thereto the fol-

lowing sentence:

The statute applies only to joint owner-

ships based on the right of survivorship and

created subsequent to September 8, 1916.

D. H. Buair,

Commissioner of Internal Revenue.

Approved November 23, 1928.

A. W. MELLon,

Secretary of the Treasury.

Treasury Decision 4294 (IX-2 Cumulative Bul-

letin 425), promulgated July 3, 1930, provides:

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER

OF INTERNAL REVENUE,

Washington, D. C.

To Collectors of Internal Revenue and

Others Concerned:

The last sentence of article 22 of Regula-

tions 68, added thereto by Treasury Decision

4248, is amended to read as follows:

The statute extends to joint ownerships

wherein the right of survivorship exists, re-

—

38

gardless of when such joint ownerships were

created.

Rost. H. Lucas,

Commissioner of Internal Revenue.

Approved July 3, 1930.

A. W. MELLON,

Secretary of the Treasury.

Treasury Decision 4295 (IX-2 Cumulative Bul-

letin 426), promulgated July 3, 1930, provides:

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER

OF INTERNAL REVENUE,

Washington, D. C.

To Collectors of Internal Revenue and

Others Concerned:

Article 22 of Regulations 70 (1929 Edi-

tion) is hereby amended by substituting in

lieu of the first sentence thereof the follow-

ing:

The foregoing provisions of the statute

extend to joint ownerships wherein the right

of survivorship exists, regardless of when

such joint ownerships were created.

Rost. H. Lucas,

Commissioner of Internal Revenue.

Approved July 3, 1930:

A. W. MELLon,

Secretary of the Treasury.

REGULATIONS UNDER Acts PREVIOUS TO THE REVE-

NUE Act oF 1924

Articles 27 and 28 of Regulations 37 (Revised

January, 1921), promulgated January 31, 1921,

under the Revenue Act of 1918, and Articles 23 and

24 of Regulations 63, promulgated July 27, 1922,

under the Revenue Act of 1921, are the same, so far

as the present question is concerned, as Articles 22

TR ae a

39

and 23 of Regulations 68 set out above, supra,

pp. 33-34. These Regulations have been twice

amended by Treasury Decisions which are set out

below.

Treasury Decision 3951 (VI-1 Cumulative Bul-

letin 314-315), promulgated December 29, 1926,

provides :

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER

OF INTERNAL REVENUE,

Washington, D. C.

To Collectors of Internal Revenue and

Others Concerned:

Article 27 of Regulations No. 37 (revised

January, 1921), and article 23, Regulations

0. 63, are hereby amended to read as

follows: f

“Property held jointly or as tenants by

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 ten-

ancy, or a tenancy by the entirety, created

subsequent to the passage of the Revenue

Act in force and effect at the time of the de-

cedent’s death. This class of property in-

cludes all interests, whether in real or per-

sonal property, where the survivor takes the

entire property by right of survivorship, and

consequently the decedent’s interest therein

forms no part of his estate for purpose of

administration. It does not include inter-

ests held as tenants in common where the

interest of each tenant passes free from any

right of survivorship.

‘The following are examples of this class:

Real estate held by joint tenants; real estate

held by husband and wife (known as an es-

tate by the entirety) ; money deposited in a

Se FUME AEE L IIIT BE ORM TOOL AN BK GIO BIT SRE Da ee Bg PLATED i

40

bank or trust company in the joint names of

the decedent and another and payable to

either or the survivor; and, in general, all

securities and other personal property,

where the title thereto was vested in the de-

cedent and one or more other persons,

subject to the right of survivorship.”

These amendments apply only to the es-

tates of decedents who died prior to the effec-

tive date of the Revenue Act of 1924.

D. H. Buatr,

Commissioner of Internal Revenue.

Approved December 29, 1926.

A. W. MELLON,

Secretary of the Treasury.

Treasury Decision 4293 (IX-2 Cumulative Bul-

letin 425), promulgated July 3, 1930, provides:

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER

OF INTERNAL REVENUE,

Washington, D. C.

To Collectors of Internal Revenue and

Others Concerned:

Article 27 of Regulations 37 (revised

January, 1921), and article 23, Regulations

63, as amended by Treasury Decision 3951,

are hereby amended by striking out the fol-

lowing sentence:

“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 effect at the time of the

decedent’s death.”’

Rost. H. Lucas,

Commissioner of Internal Revenue.

Approved July 3, 1930:

A. W. MELLon,

Secretary of the Treasury.

U.S. GOVERNMENT PRINTING OFFICE: 1932

Siete

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