Respondents Brief — Teamsters v. United States

Supreme Court brief1934

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Opinions | OE LEE PS rch KES Wsusawes wens 1

Ce ee oh ay ie oh ake Sino ede ae 2

Questions presented ____-- ey epee ca sss ahd Ree eee Oe epee 2

Statutes and er involved... Se eae nn eceec a one a

DAI. «0 ntinn wn cnd kanes th bina uen sees eee 3

Specification of errors to be urged in No. 873__-__----------~-« 5

Summary of sa caniasiiatirntaiata ce eit oe prey eg rE 5

* Argument: :

I. Under Section 202(a) (2) of the Revenue A€®of 1921, the

basis for determining the gain from the 4ale of the ;

stock hy the trustee was its cost to the grantor_ __.- 8

Il. The gain from the sale by the triistee is not taxable aga -

capital gain under Section 206 of the Revenue Act of

1921, since the property was not held by the taxpayer

for more than two years. .....-.---------- ea ean 17

CI. 0 Soc eng cewenecceeee a eates ide aeetehase 28

DON iax cen s cacennnkbunten thse heh ene stake wun eeee a ame - 20

i CITATIONS : .

Cases:

Anderson v. Wileon, 280 U.8. 20.22. : 2.0220 ene - cen sten va 18

‘Bank of Commerce v. Tennessee, 161 U.S. 134-__..----_-- 24

Bankers Trust Co. v. Commissioner, 24 B.T. A. Dea xcucnsses ~ 16

“Bok v. McCaughn, 42 F. (2d) 616-__~- ameccans see 11

Brewster v.. Gage, 280 U.S. 327_.__..--_-- keg uae 13, 21, 26

Burnet v. Guggenheim, 288 U.S. ag ry erie 5, 10

Burnet v. S. & L. Bldg. Corp., 288 U.S. 406 acken kee kane 14

Caminetti v. United States, 242 U.S. 470_.- 2-2 +2 ee . 19

Commissioner v. New York Trust Co., 54 F. (2d) 463, certio-

rest dended, GBS UB. Gili. xnacndscnacuenes eee a

Commissioner v. Rosenbloom Finance Corp., 66 F. (2d)

556, certiorari denied, 290 U.S. 692.-.-.-.-.--..:.2-.. 11, 13°

Cooper v. United Bates, 06 US: .. t 9

Crooks v. Harraloott, 363 U.S. 66. .2..2.0<cncccccincccas -

Daniel v. , Commannsonar, 16 om 925, affirmed, 45 F.

(3G) GE. ccccncceussannnecuscnense dae eee — |

: Darby-Lynde Co. v. Commniesionsr, Ot F. CO) Oeicknnxsces . 25

DReGunay ¥. Lotera, TOO UB. Brees uin uno nc anvaccennneces 23

Dickey v. mare, 56 F. (2d) 917, certiorari denied, 287 U.S

GOR. nc nnvcrtescnciinssceeeananeseeeee ee ie 14

. (1)

<TR LIS CTE

. . = =

aoe Tele athe ee PRP OT ICT.

Cases®-Continued ‘

. District of Columbia v. Brooke, 214 U.S. 138_-..----.-----

‘Francis v. Commissioner, 15 B.T.A. 13832_2_.-.-__.-_-_--

Hamilton v. Rathbone, 175 U.S. 414__.___-_- jgupoanmuine

Heiner v. Colonial Trust Co., 275 U.S. 232_.____.______- ak

Heiner v. Donnan, 285 U.S. 312._._._-.-.,-------------

Hoffer Oil Corp. v. Commissioner, 27 i. T. x PBecasanses on,

Fiyde v. Shine, 109 U.S. 62... ..:.../.:-.....-.. socal iacovals

Ithaca Trust Co. v. United States, 279°U.S. 151___...----2

Johnson v. Commissioner, 17 B.T.A. 611, affirmed, 52 F. (2d)

Cnc enndeebdnkssUhewesunumthannageebae ca wanm wax

Jordan v. Roche, 228 U.S. 496... 2.22.2. ncn penne tf

Lake County v. Rollins, 130 U.S. 662... .___._- rate & fies

Lynch vy. Alworth-Stephens Co., 267 U.S. 3642_..----_4_--

‘Maillard v. Lawrence, 16 How. 251___---=---.----4.----

McCaughn v. Hershey Chocolate Co., 283 U.S. 488... --_-

McCrory v. Commissioner, 25 .B.T. A. 994, ane C.C.A.

. 5th, decided March 19, 1934_._,: Me aptag ee A, lene ores Bays

McKinney v..Commissioner, tLe ew éeeeeen

Merle-Smith v. Commissioner, 42 F.: (2d) 837, certiorari.

denied, 282 U.S. 897... ....-.--- apa phow=maten ee ta a er ;

Moore v. Tiller,’ 61 F. (2d) 478_..--_,..-.---- eee

New York Trust Co. v. Commissioner, 27 B:T.A. 1127 ____-

Noel v. Parrott, 15 F. (2d) 669, certiorari denied, 273 hata

Old Colony Railroad Co. v. ‘aiesietamie, 284 U.S. 552... ..

Reinecke *v. Northern Trust: Co., 278 U.S. 339____- ikea ic

Rialto Mining Corp. v. Commissioner, 25 B.T.A. 980---*--

Rice v. Eisner, 16 F. (2d) 358, certiorari denied, 273 U.S.

. Ruggtes v. Illinois, 108 U. S. Mi <tinnseces ingadivesinekinn

Russell v. United States, 278 U.S. 181_..$.-----------_--

Scarbrough v. Commissioner, 18 B.T.A. 951. .2.----------

Security Trust Co. v. Commissigner, 65 RY (2d) 877, certi-

rant Gomtee, Bre Wis Gin ne bocce scwcuvsnwcnancs

Shoenberg y. Burnet, 19 B.T.A.. 399, affirmed, 55 F. (2d)

Shwab Vv. Doyle, 258 U.S. 529 Saneaacdens hed PRU ALLE Rela, ke net

Spring City Foundry Co. -v. Commissioner, Nos. 727, 728,

Oct, Term, 1933, decided April 30, 1934. -____-.- Tes

zi,

21,

Steagall y. Commissioner, 24 B.T.A. 1231__...-------__--

Taft v. Bowers, 278 U.S. 470___..._.----- Witskoweulees

Thompson v. Commissioner, 10 B.T.A. 25__-_------------

Thompson v. United States; 246 U.S. 547_.......--._.-.--

‘United States v. Hartwell,6 Wall. 385._........---------

United Statés v. Magnolia Co., 276 U.S. 160_____- teen eR,

United States v. Shreveport Grain & Elevator hi 287 U.S.

Il <

/ é , . ; 4

: fs

| ‘Statutes: Page

Revenue Act of 1921, c. 136, 42 Stat. 227, 229, 232,246: ° -

ee a ae dines @ aw Srl tials ONG I ato wake 29

Sec. 202..4_._.- Pi Awe wbe da akkeedudacedkwieen scans 29

P DE nnesnsink=s abu acsd Bennouus siameene ded 30

Di Neer utda dc cer ee daha ceases dhonwous 31

Revenue Act of 1924, ¢. 234, 43 Stat. 253: * a

: : Seg. 204 (U.S.C., Title 26, See. 935) __------. Dianhes 32

4 Se 319 (U.S.C., (i ot 6 S| | ener 10

*. Reyénue Act of 1926, c. 27, 44 Stat. 9: | a

- / Sec. 208 (U.S.C. App., Title 26; Sec. 939). .2.-:----- 83

- Miseellanes -

f/ yf So. 1, 69th Cong., 1st hin: ~~. Pn tec ceea cata a

F H.Rbp. No. 179, 68th Cong> Ist Sess., p. I6.-...-.----:.° - 14

<i I.T. 1379, I-2 Cumulative, Bulletin: Di ehan chia inn aaeie ox , 18

I.T. 1622, II-1 Cumulative Bulletin 135__-..-_____.---- 14

I.T. 1636, 11-1 Cumulative Bulletin 20_--_- ey ae ee er 14

.T. 1660, II-1 Cumulative Bulletin 36__-_- pee Rau oe

I.T. 1889, I1]-1 Cumulative Bulletin 70_--_-_- heaton 6 ae

S.Rep. No. 398, 68th Cong... Ist Sess., p. 17..-.----- Poegan 15

(5-Rep. No. §2, 69th Cong.; Ist Sess., p. 18_____- Dilan cok 27

Treasury Regulations 62: :

ie Repti eee Me ennihl Sad cow eae ae ese 34

APU Ui eineki eke cc ewes RO eee ge oe a aaa a ae

Bee; Meee ent eet beetle eee te ore cee — 35°

Treasury Regulations 65, Art. 1651__-----------:-+----- 21

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+ Inthe Supreme Court ofthe anited States

OCTOBER TERM, 193%

No. 873 :

Guy T. HELVERING, Com MISSIONER OF INTERNA

; Revenue, petitioner

NEW York ‘Tausr CoMPany, AS TRUSTEE UNDER

_- Trust Indenture, Dated December 24, 1921, by

and between Conrad Henry Matthiessen and said

the New York — ny |

No. 899*

THE NEw York Trust CoMPANY, AS Trvatex UNDER

Trust Indenture, Dated December 24, 1921, by

and between Conrad Henry Matthiessen and said

the’ New York Trust Company, petitioner

Vv. ‘

Guy T. HELVERING, CoMMISSIONER. OF INTERNAL :

_ Revenue

ON WRITS OF CERTIORARI TO THE- UNITED STATES CIRCUIT .

COURT OF, APPEALS FOR-THE SECOND CIRCUIT

BRIEF FOR THE COMMISSIONER

OPINIONS BELOW

The opinion of the Board of Tax Appeals (R.

29-34) is reported in 27 B.T.A. 1127. The major-

| a |

a~ 2

eS °

php Aree i. %.

ity and dissenting opinions of the Circuit Court of

' Appeals (R. 39-42) are reported in 68 F..(2a) 19.

JURISDICTION

The judgment of the Circuit Court of Appeals .

was éntered December 26, 1933 (R. 43). A petition

for a writ of certiorari was filed by the Commis-

sioner on March 17, 1934, and by the New York

Trust Company on March 24, 1934. . Certiorari

was granted April $, 1934 (R. 45). The jurisdic-

tion of this Court is invoked under Section 240 (a)

of the Judicial Code, as amended by the Act of

February 13,.1925.5 | .

"QUESTIONS, PRESENTED caas

Tn 1906, one Matthiessen acquired certain shares

for $141 35. Their cost was greater than their

fair market value on March 1, 1913. Oin December

24; 1921, when the shares had a market value of ;

$577,500, he transferred them to the New York

Trust Company in trust for the benefit of his son.

In 1922 the trustee sold the shares for $603,385.

The questions raised by the two petitions are as

follows:

No. 899

Whether the stock was Required by gift within

the meaning of Section 202 (a) (2) of the Revenue.

‘The Board of’ Tax Appeals originally dismissed this

" proceeding for lack of jurisdiction (20 | B.T.A. 162), but on

the Government’s appeal this order was reversed ‘and the

case Was remanded. for hearing on the merits. ‘ Commis-

sioner Vv. New York Trust Co., 54 F.(2d) 463 (C.C A. 2d),

certiorari denied, 285 U.S S. 556.

Act of 1921, so ‘that the basis is the cost to the

grantor, or whether the basis is the fair market

ralue on December 24, 1921.

: | No. 873

If the cost to the grantor is the basis, whether the

period that the stock was held by the grantor may .

he consideréd in detenffining whether the gain on

the sale by the trustee was t taxable as capital gain

within the meanmg of Section 206 of the Revenue

Act of 1921, which defines capital assets as prep-

erty’ “held by the taxpayer * * * for more

than two years.” «>

STATUTES AND REGULATIONS INVOLVED

pS "es statutes anid regulations. involved are: set

forth in the Appendix, infra, pp. 29-36. - .

‘ STATEMENT - :

The facts foundty the Board of Tax Appeals

(R. 30-31) may be summarized as follows

‘On-April 27, 1906, Conrad Henry Shanthdeneen, a

resident of New York, (R. 6), acquired 6,Q00 shares

of the common stock of the Corn Products Refining:

Company at acost of $141,375. This cost exceeded

the fair market v alue of the stock on Mareh 1, 1915.

(R. 30.) . od Ns

In order to make a settlement for. his son, Mat-

thiessen transferred the stock to the New York -

Trust Company in trust to accumulate the inconre

and pay the accumulations to the son when he be-

came twenty-one, thereafter to pay him the income

yearly until he became twenty-five and at that time

_ Nary. income.

to transfer the shares to him, with remainders over

in the event of his death. The transfer was made

by an irreyoeable deed of trust dated December 24,

~ 1921. On that date the shares had a fair market

value of $577,500. (R. 31.)

During the vear 1922 the New York Trust Com-

pany sold the 6,000 sliares which it held as trustee

for $603,385 (R. 31)" -

In the audit of the trustee’s-return for 1922 the

: Commissioner determined that the cost of the stock

to the grantor and not the fair market value of the~

stock as of December 24, 1921, should be used as a

basis, and held that the gain was not taxable as a

capital gain under Section 206 of the Revenue Act’

of 1921 (infra, pp. 30-31) (R. 5-6,31).

The triistee appealed to the Board, claiming that

the proper basis was the fair market value of the

shares as of the date when they were acquired by

the trustee, and that Section 202 (a) (2) of the

Revenue Act df 1921 was unconstitutional, and in

the alternative, that if that provision.applied, the

tax should be computed under the capital gain pro-

vision (R. 3). The Board sustained the “Commis-

sioner iS determination (R. 34). On appeal to the

Circuit’ Court of Appeals, that court, with one

jvdge dissenting, sustained the Commissione:’s de-

‘termination: as to the proper basis for computing

the amount of the gain, but concluded that the gain —

was taxable as ‘a capital net gain and i: ot as ordi-

_* The grantor’s son Erard Matthiessen had not reached

the age of twenty-one during 1922 (R, 31).

ee eEeEeEeEeEeEeEeEEE eee

a ee ee

. .

SPECIFICATION OF ERRORS TO BE URGED IN NO. 873

The Circuit Court of Appeals erred :

1. In holding that the gain from the sale of the

stock by the respondent . in 1922 was taxable as ©

capital gain within the nieaning of Section 206 of —

the Revenue Act of 1921. ~~ 7 vs

2. In holding that the gain from the sale of the

stock by the respondent i in 1922 was not taxable as

~ ordinary income.

3. In reversing the decision of the Board of Tax

Appeals.

SUMMARY OF ARGUMENT

i T ;

” aden Section 202 (a) - (2) of the Revenue Act

of 1921 (infra, p. 29), which is applicable to “‘prop- -’

erty, acquired by gift’’, the basis for determining

the gain from the sale of the stock by the trustee

was its cost to the grantor. In the present case. —

_the tristee who sold the stock received it by an

irrevocable transfer in trust, which completely

divested the grantor 0 of all ownership of or interest

in the property. The transfer of title from the

donor to the trustee was made by delivery of the

securities and was without consideration. This

was a gift in trust, as distinguished from a gift |

direct, but it was none the less a gift. If there

could have been any doubt on this question, it is -

removed, we submit, by this Court’s decision in

Burnet v.-Guggenheim, 288 U.S. 280.. Since, as it

55110—34——2

was there held, the relinquishment of a power to _

revoke a trust constitutes a gift, it would seem to

follow a fortiori that the er eation of an ir revocable

trust is likewise a gift. :

A gift is a transaction affecting the legal title to”

property. The essentialgrequirements of a gift. —

have been developed at law as distinguished from.

"in equity. Gifts may be beneficial or otherwise;

but if a gratuitous transfer does-not result to the

~ benefit of the transferee, the reasons lie in equity— _

the trahsaction is none the less a‘ gift at law.. :

. The Bureau of Internal Revenue has consistently _

construed the phrase ‘ ‘acquired by gift” to include:

irrevoeable transfers in trust. These rulings have

not been revoked and are still in effect. This long

continued administrative interpretation of the

statute is entitled to. great weight. - )

In the Revenue Aet of 1924, Congress inebadiod

‘a 1 specific provision relating to: transfers in trust.

We submit that in so doing Congress was enacting

into law the.accepted administrative interpretation

in order to remove any possible doubt as to the cor-

rectness of that interpretation.

The gain from the sale by the trustee is not tax-

able as a capital gain under Section 206 of the Rev-

enue Act of 1921 (infra, pp. 30-31). In that section

the term ‘‘capital assets’”’ is defined as property .

* “held by the.taxpayer’’ for more than two years,

In this ease, the trust is the taxpayer, and it is un-

; disputed that the trust’ had not: held the property.

for two years. There is no ambiguity, in the statute. ;

It allows no. room for construction.. |

The conclusion ° that the property sold a the

trustee did ‘not. constitute ‘‘capital assets’’ is not

only required by: the plain text of the statute itself,

but this was the: contemporaneous construction of

the Treasury Department which has been uni-

' formly followed by the Board of Tax*Appeals and

by the courts, until, thee decision of the court below

in the present case; The question was.passed on in

three rulings of the, Treasury Department, be-

ginning in°1921. Thereafter the issue was raised |

before the Board of Tax Appeals, and the Board in ©

- at least six cases reached the. same conclusion.

The same result was reached in two appellate

. courts. The decision of the court below, more than

twelve years after the enactment of the statute,

was the first decision of any court or tribunal to the

contrary. In so doing, we submit that the court .

below. ignored the rule that the plain meaning of

"a — may not be circumvented by ‘‘construc-

tion.’

The rule for which the taxpayer contends was.ex-

pressly adopted in Section 208 of the Revenue Act

of 1926 (infra, pp. 33-34). But sucha change in the

law cannot authorize construction of an earlier Act

not consonant with the language there employed..

Here the change in the statute is contrary to the

* plain language of the earlier law and also to the

—

: Deetce :

uniform administrative construction of that law.

The change shows a recognition of the administra-

tive construction and a desire on the part of Con-

gress to establish a different rule for the future.

Congress could. have made the change retroactive if

it had desired ; but it did not do so.

ARGUMENT. -

I a

UNDER SECTION 202 (a) (2) OF THE REVENUE ACT OF 1921,

THE BASIS FOR DETERMINING THE GAIN FROM THE SALE

OF THE STOCK BY THE TRUSTEE W a ITs COST TO THE

_ GRANTOR

‘Section -202: ia) (2) of tis Reverme ‘Act of 1921

(infra, p- 29) provides that the basis for ascertain-

ing the gain or loss sustained from a sale of prop-

erty shall be the cost of the property, except that—

: In the case of such property, acquired by

gift after December 31, 1920, the basis shall

be the same as that which it would have

in the hands of the donor or the last pre-

ceding =_— by whem it was not acquired.

by gift. - - . |

In the sania ease, the trustee who sold the —

received it by an irrevocable transfer i in trust, which

completely divested the grantor of all ownership of

or interest in the property. The transfer of title

from the donor to the trustee was made by’ delivery

of the securities, and was without consideration.

Clearly, the donor made a gift to someone. The

- trustee received the title, not for,its own benefit,”

but upon a trust for others. In other words, the

gift was not direet toe the inténded beneficiaries, but

to a trustee for. them: It was a gift in trust, as

disting ruished from a gift direct, but it was none the

less a gift, because it was a transfer of the property

by delivery, inter vivos, and without consideration.

If title passed to the trustee at all (and everyone

agrees it did) it must have passed: by gift. No ~

other known legal machinery for. passing title is

applicable to the actual transaction. Since the

- title passed by gift, and passed to the trustee, it -

must follow that the trustee acquired the property

by gift. The transaction was, therefore, covered

by Section 202 (a) (2), supra, since that prevision

is in terms applicable to property. ‘‘acquired by

gift. oe

The basis for determining gain or loss in the case

of purchases of property is prescribed in ‘other

subdivisions of Section 202, and these subdivisions

- show by contrast that the provision involved in this _

case was intended to cover all acquisitions of .prop-

erty without cost. In Taft v. Bowers, 278 U.S. 470,

this Court recognized that the purpose of Congress

in enacting Section 202 (a) (2) was to prevent the

escape fron’ taxation of the increase in value of

property which was possible under earlier statutes

under which an owner of property could tr ansfer it

_to his wife or children, and thus establish a new and

increased basis for measuring the gain upon its"

sale. See also Cooper v. United States, 280 US.

409. And as this Court said in District of Colum-

bia v. Brookey214 U.S. 138, 150, ‘* not only the pur-

pose of a law must be considered, but the means of

its administration—the ways it may be defeated.”

It is obvious that evasion could be accomplished as

readily and as satisfactorily by the donor if he |

transferred his property in trust for his wife or

-. children as if he -made an outright gift to them.

QO It would therefore seem to follow that Congress in-

- ‘ténded the word ‘‘gift”’ in Section 202 (a) (2) to.

inelude. gifts in trust as well as direct gifts. ‘Phe -

mischief is the same in either case, and the lan-

guage used was apt to cover both, for the phrase .

“property, acquir ed by gift” is plainly broad.

enough to include gifts in trust as Well as gifts

direct. | |

If there could have been any doubt on this ques-

tion, it is removed, we submit, by this Court’s deci-

sion in Burnet. v. Guggenheim, 288 U.S, 280; That

case involved Section 319 of the Revenue Act of *

1924 (U.S.C., Title 26, Sec. 1131), imposing a tax © ©

upon ‘‘the transfer by a resident by gift *'* *.

: of any pxéperty. wherever situated, whether made

P direetly or indirectly, * * *.’’? This Court held ©

that the surrender of the power to revoke a re

vocable deed of trust constituted 4 transfer of the

property by gift and was’thus subject to the tax.

Since the relinquishment of a power to revoke a

trust constitutes a gift, it would seem to follow a

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“fortiori that the creation of an irrevocable trust is.

likewise a gift.’ ‘2

*This conclusion is supported by many other cases

in which gratuitous transfers of progr ty in trust

have been held to be gifts. Thus, in Moore v. Tiller,

61 F. (2d) 478 (C.C.A. 5th), the seik said (p. 479):

The manifestation of an intention to make

a-present gift to another, and, in. ,con-

summation of this intention, delivery ot thé’

‘property to or for the use of the intended

donee, or some act indicating a renunciation

of dominion in,favor of the intended donee,

are essentials of a gift, — inter vivos

or causa mortis. * * ‘(Italics ours. )

eihitiee language is found in Bok vy. M cCau ghn, 42

F. (2d) 616, 618°(C.C.A. 3d). Sd ‘also Ithaca

Trust Co, v. United States, 279 U.S. 151.

We submit that there is no merit in the argument.

of the-trustee’ that it did not acquire. the property

. by gift within the mez aning: of the statute because it”

did not receive theultimate beneficial] interest in:

the property.’ Apart from’ the considerations

*In Reinecke v. Northern Trust Co., 278 U.S. 339, 346, 347,

"348, this Court. repeatedly referred to transfers in trust as |

gifts.» And in Heiner y, Donnan, 285 U.& 12, 320, this

Court said, in, stating the facts, that “ me 4 by complete

and irrevocable gift intag. vivos, transferred without consid-

eration certain securities to trustees for his four children.”

*The ultimate beneficial. interest in the property of a

. . . . . . 7. . :

corporation is in its stockholders and not‘in the corporation

itself. Nevertheless property transferred to the corporation

without: consideration is acquired by the corporation by gift

for tax purposes. Commissioner v. Rosenbloom Finance

Corp., 66 F. (2d) 556 (C.C.A. 8d), certiorari denied, 290

USS. 692. inlet

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és

horse LIPOMA FES tT aD '

, 4,

‘already advanced, this argument ignores the fact

that wider both Section 2 (9) and Section 219 of

the Act (infra, pp. 29, 31-32), the trust is the tax-

-payer, and the trustee is simply charged w ith the

"duty of making the return. Ina trust such as this,

where the income is to be accumulated anid: the trust

alone is’ taxed on the income during the period of

accumulation, the trust (through the agency of the

{ rustee) represents all the interests in the property.

Admittedly*the trust is regarded as a unit for the

purpose of taxing the gain’ from the sale of the

property. Just as the sale by the trustee is a-sale

of the property itself and not.of separate interests °

-in it, so the acquisition by the trustee is an acquisi-

tion of the property. .Though the trustee did ‘not -

‘receive the beneficial interest, it did acquire: the -

legal title, and it acquired that title by gift. The

taxpayer's argument makes the statute. applicable

‘only to the sale of the beneficial interest; but- the

statute itself makes no such limitation. The tax-

payer’s argument on this point,dt would seem fair

to wer falls within this Céurt’s language in Lynch :

», Alworth “Stephens Co$ » 267 _— 364, 370, where

it uae

And the plain, obvious, and rational meaning

of a statute is alway% to be preferred to any:

curiots, harrow, hidden sense that nothing

but the exigency of a hard case and -thé in-

genuity and study of an aeute and powerful

intellect would discover. / &

A similar arguinent was advanced and ‘ejected _

in ene Trust Co. v. Commissioner, 65 F. (24) ~

877° (C. C.A. 6th), certiorari denied, 290 U.S. 686,

where it was held ‘that a testamentary trustee ac-

quires the property by bequest or devise as of the

date of the decedent’s death, so that the basis is

the fair market value at that time. Since a testa-

. mentary trustee acquires property by bequest or

devise, though the bequest or devise is for the ulti-

mate benéfit of beneficiaries and not for the trustee,.

-.it would seem to follow that.the trustee acquired

the property in this case by gift, although the gift

“was not for its own: benefit.

A gift is a transaction affecting the legal tit e to

property. The essential requirements of a gift

_ have been developed at law, as distinguished from

in.equity. A gift is merely a voluntary transfer

. of property by one to another without considera-

tion, and effectuated thr ough delivery either of the

property or of a deed: representing the property.

Commissioner V. Rosenbloom Finance Corp., 66 F.

(2d) 556 (C. C.A. 3d), certiorari denied, 290 U.S.

692; Nocl v. Partott, 15 F. (2d) 669 (C.C.A. 4th),

certiorari denied, 273 U.S. 754. Gifts may be bene- .

ficial or otherwise ; but if a gr ‘atuitous transfer does

not result to the benefit of the transferee, the rea-

sons lie in equity—the tr ansaction is none the less.

a gift at law. °

Th®Bureau of Internal Revenue has consistently,

construed the. phrase ‘‘aequired by gift’? to include

irrevocable transfers in trust. See I.T. 1379, I-2

Cumulative Bulletin vad uly—Deceniber 1922) 41

55110—34——8 Z

' 14 ~*

{transfer by will); I.T. 1636, II-1 Cumulative

_ Bulletin (January—June 1923) 20; I.T. 1622, II-1

Cunulative Bulletin (January-June 1923) 135.

~ These rulings have not been revoked and are still

in effect. This long-continued adininistrative in-

terpretation of the statute is entitled to great

weight. . Brewster v. Gage, 280 U.S. 327; Me-

—Caughn v. Hershey Chocolate Co., 283 U.S. 488. |

In the court below it was argued that since Con-

gress in enacting the Revenue Act of 1924 included

a specific provision concerning the basis to be used

in measuring gain in the case of property trans-

| ferred in trust (Section 204 (a) (3); infra, pp. 32-

| 33), it must be assumed that the law prior to that

| time was different. We submit that in view of the

fact that the administrative rulings under fhe Reve-

nue Act of 1921 were to the same effect as the new

provision, it is more reasonable to assume that Con-

gress was enacting into law the accepted inter-

’ pretation of existing law in order ‘to remove any

possible doubt as to the correctness of that inter--

pretation. Jordan v. Roche, 228 U.S, 486, 445-446 ;

~ Merle-Smith v. Commissioner, 42 F. (2d) 837, 842

(C.C.A. 2d), certiorari denied, 282 U.S. 897;

Dickey v. Burnet, 56 F. (2d).917 (C.C.A. 8th), cer-

tiorari denied, 287 U.S. 606. See also Burnet v.

S. & L. Bldg. Corp., 288 U.S. 406. |

The statement of the Ways and Means Committee

of the House of Representatives in regard to the

change in the law was as follows (House Rep. No.

179, 68th Congress, Ist Sess., p. 16):

Section 204:

law which corresponds to paragraph (3).

This paragraph applies the same principles

_ to transfers to a trustee as is applied‘in para-

graph (2) to gifts, and provides that where

property was acquired after December 31,

1920, by. a transfer in trust, the basis for

determining the gain or loss from its-sale

- shall be the sanie as it would be in the hands

of the grantor. |

° Senate. Rept? No, 398, 68th’ Cncige ess, Ist Sess.,

p. 17, is‘as follows:

‘Phere is no provision in the.existing law

# division (a). According to this- paragraph,

the basis for determining gain or loss from

the sale or other disposition of property ac-

quired after: December 31, 1920, by a volun-

tary transfer in trust, is the same as it would

be in the hands of the grantor, following the

principle laid down in paragraph (2) as to

gifts. If the transfer in trust resulted in

~ the recognition ‘of a taxable gain or a de-

ductible loss to the. grantor, then this basis

7 will be increased or decreased accordingly:

These statements give no indication that Con-

gress was intending to change the law as it had

been interpreted by the Bureau; they are equally -

consistent with the view that. Congress intended

only to make clear in the statute what had ian:

fore been left to interpretation. The situation is

- somewhat similar to that involved in Rice v. Eisner,

. (1) There is no provision in the existing

* Seeceerresceree iets

WENGE" ‘

16 F. (2d) .358, 360 (C.C.A. 2d), certiorari denied,

273 U.S. 764: |

“

The trustee relies upon the decisions of the Board —

of Tax Appeals in Francis vy. Commissioner, 15

B.T.A. 1332, and Bankers Trust Co. v. Commis- .

sioner, 24 B.T.A. 10. The Board distinguished —

both of these cases in its decision in the present case,

‘anid we submit, correctly. In the F’ rancis case there

was no gift of the pr operty after December 31, 1920,

and Section 202 (a) (2) of the RevenueAct-of 1921 .

only applies to property acquired by gift after that

date. In the Bankeys Trust case the transfer was :

not absolute and irrevocable, for by its terms the

grantor reserved an interest in the income and upon

the happening of certain events the principal would

return to His estate. Such a transaction obviously

falls far short of the common law —— for

a gift. ici

In the pr esent case the frust was irr evocable and .—

the grantor reserved no inter est of any kind in the

income or in the principal of the trust _property.

The gift was as completé when the trust was created

as it would ever be. The transaction constituted

not a purchase but a transfer without considera-

tion, that is, a gift; and Section 202 (a) (2) a

quired that the increment in the value of the stoi

during the period that it was held by the grantor

should be included in the gain from the sale.

——— se ee eee

{

}

ane

THE GAIN FROM THE SALE, BY THE TRUSTEE IS NOT |

TAXABLE AS A CAPITAL GAIN UNDER SECTION 206 OF

THE REVENUE ACT OF 1921, SINCE THE PROPERTY WAS

NOT HELD BY THE TAXPAYER, FOR MORE THAN TWO °

YEARS

Section 206 of the ee Act of 1921 hates.

p. 30) provides that the net gain | from the sale of

capital assets may be taxed at the rate of 12%%

instead of at the ordinary rates, and provides that

the term ‘‘capital assets’? as used in the section

shall mean—

property acquired and held by the taxpayer

for profit or investment for more than two

years (whether or not connected with his

trade or business),,.*. * *.

In Section 2 (9) of the Act the term “taxpayer”

defined as including—

any person, trust or estate subject to a tax

imposed’ by this Act ;

By Section 219 of the same Act it is arn

(a) That the tax imposed by sections 210

ma 211 shall apply to the income of estates ~

r of any kind of property — in trust,

ra ne tol

..* : * * * . &

(3) Income held.for future distribution

under the terms of the will or trust; * * *

* a * . *

fe) In cases under -paragraphs (1), (2),

or (3) of subdivision (a) * * * the

- tax shall be Ynposed. upon the net income of

the estate or trust and shall be paid by the

maeeery,.* *- *.

When these provisions of the statute are applied

to the facts of this case, we submit that there can

be no possible doubt as to their meaning and appli-

eation. There is ho dispute as to the facts. A trust

“was created on December 24, 1921, with the New

York Trust Co, as trustee. By the terms of the

trust, the trustee was directed to collect the income.

and accumulate it until Erard A. Matthiessen

should reach the age of 21 years. ‘Erard Matthies-

sen had not reached the age of 21 during the year

-: 1922, the tax year in question (R. 31). The trust

was, therefore, one under which the income was

‘held for future -distribution’’ under Section

219 (a) (3) of the statute. Under paragraphs (a)

and (¢c) of Section 219, the income of such a trust

was expressly subjected to the tax imposed by See-

tions 210 and 211 of the Act. Under Section 2 (9),

the trust was, therefore, expressly defined as the

‘*taxpayer.’’ Anderson V. Wilson, 289 U.S. 20, 27..

Since it is undisputed that the trustee ‘in this case

had not held’the property for two.years, it must

follow that the taxpayer had not held the property

for two years, and thus that the property in ques-

tion did not. constitute ‘apital assets”’.as that term)

is defined in Section 206 of the Revenue Act of

1921. | ae et ae

. There is no ambiguity in the statute; its terms

are clear. The statute provides no exception of

any sort; it allows no room for. construction. As

PANES BARRA A Se Sohal BES ATRL ON air RRS SB elds RG OS NORTH dR a

. ‘ ‘

“Wall. 385, 396:

| 19 |

this Court said in United States v. Hartwell, 6

If the language be clear it is conclusive.

There can be no construction where there 1 is

nothing to construe.

This Court has recently applied this rule in United

States v. Shreveport Grain & Elevator Co., 287

U.S. 77,83. See also Ruggles v. Illinois, 108 US.

526, 534; Lake County v. Rollins, 130 U.S. 662,

670-671; Hamilton v. Rathbone, 175 U.S. 414, 419;

Caminetti v. United States, 242 U.S. 470;.Thomp-

son v. United States, 246 U.S. 547, 551.5 ‘* Where

the statute contains no exception, the courts carmot

ereate one.’ Hyde v. Shine, 199 U.S. 62, 78. To

do so ‘*would be to enact a law under the pretense

of construing one.’ Heiner v. Donnan, 285 US.

312, 331. |

The conclusion that the property. sold by the

trustee in this case did not constitute ‘capital

assets’? is not only required by the plain text of the

statute itself, but this was the contemporaneous

construction of the Treasury Department which |

has been uniformly followed by the’ Board: of Tax -

Appeals and by the courts, until the decision of the

>In Hamilton v.Rathbone, supra, this Court said (p. 419) :

~ But where the Act is clear upon its face, and when standing

alone it is fairly susceptible of but one construction, - that

construction must be given to it.” And in Thompson v.

United States, supra, this Court said (p. 551) : “The inten-

tion of the Congress is to be sought for primarily in t

Janguage used, and where this expresses an intention reagon-

ably intelligible and plain it must be accepted without

modification by resort to construction orsconjecture.”

90 a :

court below in the present ¢ ise, ‘The question arose

in the Treasury Department. yery shortly after the

enactment of the Revenue Act of 1921. It was first

passed upon jn IT. 1379, 1-2 Cumulative Bulletin

(July- December 1922) 41, which was promulgated

inl July 1922, during the tax year in question in this

vase. That ruling involved stock which had been

given toa trust company. in-trust, and the question

passed on was precisely thre same as that raised

here. It was held that |

Section 206 of the Revenue Act of 1921

. has no application, because the securities

have not been held by the trustee for a period

of two years prior to the sale. |

The same question was also direetly involved in LT.

1660, II-1 Cumulative Bulletin (January—June.

1923) 36, which was promulgated before the trustee a

‘in this case filed its return. -That ruling involved —

‘a . * | 7 ’

facts substantially the same as those here, so far as

e the present case is concerned. Its ‘holding is in the

es , . .

a following terms:

e Held, the date of acquisition of the stock

rE _ for the purposes of Section 206 of the Act, if

the stock cqnstitufed a gift inter vivos,

a \ was the date upon which the gift was made ;

sy OM ee Therefore, as the stock had not

| been held for more than two years prior to

“. its sale, the taxpayer will not be permitted

to treat the amount of profit derived fr om

the-sale as capital gain. |

: A similar ruling was made in I.T, 1889, ITI-1 Cu-

Z mulative Bulletin (January-June 1924) 70, where

Y 2il

the question at issue was the date of acquisition of

stad acquired by will." net

-This construction of the statute received legisla-

tive approval when Congress reenacted the defini- .

tion of capital assets in the Revenue Act of 1924

without change. See Section 208 (a) (8) of the-

Revenue Act of 1924. The administrative con-

struction, therefore, being %e ontemporaneous, and

having been acce pted by © ‘ongress in the reenact-.

-ment of the statute, should be given the force and

effect of law. MeCaughn v. Hershey Chocolate Co.,

283 U.S. 488 ; Brewster v. Gage, 280 U.S. 327. This

is especially tr ue where the departmentat practice

merely carries into effect the plain and unambigu-

-ous terms of the statute itself.

Following the administrative construction.of the

statute in the Treasury Department, taxpayers

raised the issue before the Board of Tax Appeals,

and the Board itvat least six cases reached the same

conclusion.” The same result was reached in two

"Artic he i651 of Re ‘sideline 62 (/nfra, pp. 35-36), under

the Revenue Act of jou, and Article 1651 of Regulations 65,

under the Revenue Act of 1924, define the term ¥ capital

assets ’,1n the language of the statute, as property “ held by -

the faxpayer ” for more than two years. '

7 McHinney.-v. Commissioner, 16 B.T.A. ing Johnson v.

Commissioner, 17 B.T.A. 611, affirmed, 52 (2d) 726

, (CCA, ~— Shoenbery v. Commissioner, = BT. A. 399,

affirmed, 55 F. (2d) 543 (App.D.C.) ; Steagall vy. Commis-

sioner, 24 B.T.A..1231; MeCrory v. Commissioner, 25 B.T.A.

. 994, affirmed’ without consider ation of this point, C.C.A. 5th,

— decided March 19. 1934; New York Trust Co. v. Commis-

sioner, 27 B.T,A. 1127 (the present case).

z yreEerent A hee

OO AOA BIG ABA NT,

. . a

. . °

99 #

ead

appellate courts before whom taxpayers brought

these decisions of the Board for review. Johnson

v. Commissioner, 52 F. (2d) 726 (C.C.A. 3d);° - 3

Shoenberg Vv. Burnet, 55.F. (2d) 543 (App.D.C.).-

These courts rejected the argument that a donee |

may consider the time that the donor held the prop-

erty in “order to bring himsélf within the two- ~year,

requirement of Section 206, én the ground that tlie

donee must usé the donor's basis in measuring his.

loss. In the Johnson case the court said (p. 727) :

‘Indeed, the words used by Congress in see-

J -, tion 206 are so plain that there is no ‘all for

construction or con jee ture.

The court also pointed out that See tions 202, relat-

ing to the basis for determining gain or tiss, and

Section 206, defining the phrase ‘capital askets’’,

have no necessary relation, and that the provisions .

of the one section aré Wholly independent of —

provisions of the other.

The decision of the court below, more than twelve

“SpE T Brain

i . years after the enactment of the statute, and with

: one judge dissenting (R: 42), was the first decision

t of any court or tribunal holding that the time dur- -

x fg ing which the property was held by the grantor may

. : be added to the time _during which it was held by

: the trustee for the purpose of measuring the two-

year period provided in Section 206.° In reaching

4 , this result, the majority of’the court below made .

no mention of’ the contenrporaneous and uniformly

e continued administrative construction, nor of the

: : . unbroken line of decisions of the Board of Tax Ap-

‘ . ~“ .

peal. It expressly onmied (R. 40) that the tax-

payer ‘‘did not ‘hold’ the property for .two years

in the usual sense.” It held, nevertheless, that the

: trustee must be “tres ated as though he had”’ held

the property for two years (R. 41). This conclu-

sion 1S apparently based largely on the ground that

the contrary result ‘seems to us an extremely im-

probable one for Congress to have intended”

(R: 40). But the court’s concession that the trustee

had not held the property for two years ‘‘in the

usual sense”? seems to be fatal to the.result which

it reached. This Court has repeatedly held that the

words of a statute must: be given their ‘usual, ordi-

nary and everyday’ meaning.’’ Old Colony Rail-

road Co. ¥. Commissioner, 284 U.S. 552, 561. See

also Lynch v. Alworth-Stephens Co., 267 U.S. 364,

370s DeGanay Vv. Lederer, 250 U.S. 376, 381 ; ; Mail-

lard v. Lawrence, 16 How. 951, 961. And this Court

has also held that the plain meaning of a statute

‘

may not be circumvented by ‘‘construction’’ merely

because ‘‘hard and objectionable or absurd conse-

quences, which probably were not within the con-

templation of the framers, are produced by an act

of legislation. y 4 rooks v. Harrelson, 282 U.S. 55,

60. In the latter case this Court also alt OF: 61):

7 ie unless the Constitution be violated, Con-

eress may select the subjects of taxation anid

qualify them differently as it sees fit; and if

it does so in. plain terms, as it has done here, .

it is not within the province of the court to

_modify the law by construction.

This rule is as applicable in favor of the Govern-

ment as against it, especially where as ‘here the stat-

utory. provision in question is one of exemption as

to which all doubts must be resolved against the

taxpayer, Bank of Commerce v. Tennessee, 161

U.S. 154, 146; Heiner v. Colonial Trust Co., 275

U.S. 232, 235. | 4

| The conclusion that the word ‘“‘taxpayer”’ as used

| iu Section 206 means the trustee in this case and.

“not the trustee together with the donor (whe is not

subjected. to any tax on the transaction) is-fortified

: by another group of cases. In Section 204 (ce) of

‘the Revenue Act. of 1924 it is provided that ‘‘in the

case of mines, oil and gas wells, discovered by the

taxpaver after February 28, 1913”’, the basis for

depletion shall be the fair market value of the prop-

erty at the date of discovery or within thirty days

' thereafter. It has been contended ital ceases

that this prevision is applicable where the discov-

erer of the oil well or mine turns if-over to a core

_ poration in return for all the stock of the corpora-

tion. Where such a transfer is made, no gain or

. loss is recognized, afal the transferee takes as its

~ basis for determining gaim or loss the basis of the

“transferor. Section 203 (b) (4) of the Revenue

; Act of 1924. The argument made is that since the

transferee takes the transferor’s basis, it must be

regarded as standing in the shoes of the transferor, |

and, is, therefore, entitled to a depletion allowance

based: on discovery. *'The argument is, therefore,

substantially the same as that advanced in the pres-

a os 9

ent case. It bien: however, been. uniformly rejected.

Darby-Lynde Co. v. Commissioner, 51 F. (2d) 32

(€.C.A. 10th) ; Rialto Mining Corp. v. Commission-

er, 25 B.T.A. 980; Hoffer Ou Corp. v. Commissioner,

97 B.T.A. 98. The same contention has been ad-

vancéd and similarly rejected where-the taxpayer

in question (as the trustee here) is a donee, and

therefore takes his. donor’s ‘basis. Thompson v.

Commissioner, 10 B.Ta. 25; McKinney v. Commis- |

sioner, 16 B. T.A. 804; Daniel v. Commissioner, 16

B.T.A. 925, affirmed on other grounds, 45 F. (2d)

58 (CO. A. 5th); Scarbrough v. Commissioner, 18

B.T. Aw 951; McCrory v:.Commissioner, 25 B.T.A. |

994, affirmed on other grounds, C,C.A. 5th, decided

March 19, 1934.

In the court below the taxpayer relied almost

solely on the fact that the rule for which it con: |

tends was expressly adopted in Section 208 of the

Revenue Act of 1926 (infra,-pp. 33-34). In that

Act, the cree sentence was added to the defini-

tion of the term “capital assets”:

In determining the period for which ‘the tax-

payer has held property however acquired

there shall be included the period for which

such property was held by any other person,

if under the provisions of section 204 such

‘property has, for thé purpose of determin-

ing gain or loss from a sale or exchange, the

same basis.in whole or in part in his hands as |

it would have in the hands of such other per-

son. .

26 .

This change in the law was referred to in the opin-

ion of the court below: (R. 40). But this change

‘introduced into the Act of 1926 can not authorize

construction of the earlier one not consonant with

the language there employed.”? Russell vy. United

States, 278 U.S. 181, 188. The situation seems in-

distinguishable from that involved in Spring City

Foundry Co. v. Commissioner, Nos, 727, 728, Octo-

ber Term, 1933, decided April 30, 1934, where this

Court said: no

We think the fair import of this’ provision,

as contrasted with the earlier one, is that the

Congress, recognizing the signifi ‘ance of the

existing: provision and its appropriate con-

struction by the Treasury: Department, de-

liberately intended a change in the law.

See also Schwab-v. Doyle, 258 U.S, 529, 536; Brew-

ster v. Gage, 280 U.S. 327, 337. :

~ We are not unmindful that we have argued in

Point I above that the change in the statute there

involved represented no change in the law but

merely enacted into law the administrative. inter-

pretation -of the. earlier statute. The argument

‘there is in no Way inconsistent with our position

here. There the change in the text of the statute

Was in precise accord with the administrative in-

terpretation of the prior law. Here the change in

the statute is contrary to the administ ‘ative con-

struction of the prior law as well as to its plain lan-

guage: It shows a recognition of the adfninistra-

tive. construction by Congress and a desire on the

part of Congress to change the law for the future. .

Congress could have made the change retroactive

if it had desired to do so; but it did not. Congress

must, therefore, have intended a change in enacting

the present provision, and this is confirmed by the

committee reports. In House Report No. 1, 69th

Congress, Ist Sess., the House Committee on Ways

and Means said’ (p. 7):

The same question arises in the case of prop-

erty received by gift after December 31,

1920. The amendment provides that the pe-

riod in which the property was held by the

donor shall be added to the period in which

the property was held by the donee in deter-

mining whether or not the property so re-

ceived falls within the capital gain or loss

section. | -s

To the same effect ‘is Senate Report No. 52, 69th

Congress, Ist Sess., p. 18. . These reports show that

the committees of Congress referred to the pro-

Vision as an ‘amendment.’ hey furnish no basis

for the contention that Congress desired that Sec-

tion 208 (a) (8) of the Revenue Act of 1926 should.

be given retroactive effect. In the absence of such

~ an intention, the new provision has no effect on

‘ases arising under the earlier Act. United States’

v. Magnolia Co., 276 U.S. 160,

There is consequently no support, either in the

terms ofthe statute itself, in its administrative con- +

struction, or in the change introduced in the 1926

- Act for the construction which the Circuit Court of

Appeals has placed upon the statute. Since the

se)

property here in question was not held by the tax-

payer for more than two years, the gain from the

transaction must be treated as an ordinary gain and

not as a capital gain. |

CONCLUSION

The decision of the Circuit Court of Appeals on.

the first issue should be affirmed, and its decision

on the second issue should be reversed.

Respectfully submitted.

| J. Crawrorp Bias,

Solicitor General,

Frank J. WIDEMAN,

Nn aes Assistant Attorney General.

: CRWIN N. GRISWOLD,

1 James W. Morris; “

HELEN R. Caross>

Special Assistants to the Attorney General.

~ May 1934. | 24

~eneieneet —— Se ee

aekigh Rianne bite dat ders ana Se Bite CAMP pa

APPENDIX

STATUTES AND REGULATIONS INVOLVED |

REVENUE ACT OF 1921, C. 136, 42 STAT. 227, 229, 232, 246

Sec. 2. That when used in this Act— -

* % * . * . *

(9) The terin ‘taxpayer’? includes any person,

trust or estate subject to a tax imposed by this Act ;

Srec..202. (a) That the’ basis for ase Maining the

vain derived or loss sustained from a sale or other

disposition of property, real, personal, or mixed,

acquired after February 28, 1913, shall be the cost

of such property : except that—

* 5 * % *

(2) In the -case of Suish property, acquired by

eift atter December 31, -1920. the ‘basis shall be_

the same as that which it would have in the hands

of the donor or the last preceding owner by whom

it Was tot acquired by gift. If the facts necessary

to determine such basis are unknown to the donee,

‘the Commissioner shall, if possible, obtain such

facts from such donor or last preceding owner, or

any other person cognizant thereof. If the Com-.

missioner finds»sit impossible to obtain such facts,

the basis shall’ be the value of such property as

found by the Commissioner as of the date or ap-

proximate date at which, according to the best

information the Commissioner is able to obtain,

such property was acquired by such donor or iast

preceding owner. Inthe case of such property ac-

: (29)

*d.)

“e

quired by gift on or before December 31, 1920, the

basis for ascertaining gain or loss from a sale or

*ther disposition thereof shall be the fair market

price or value of such property at the time of such

acquisition 3 | ‘ |

* e. ' * . *

or Joss sustained from the sale or other disposition,

of property, real, personal, or mixed, acquired. be-

fore March 1, 1913, shall be the same as that pro-

vided by subdivision (a); but— * “*) *) >

Src. 206. (a) That for the purpose of this title:

(1) The term ‘teapital gain means taxable gain

td from the sale or exchange of capital assets con-

E- | stummmated after: December 31,1921;

* . * Ss * _*

(6) The term ‘capital assets’? as useél in this

section means property acquired and held by the

~ taxpayer for profit or investmeént for more than

two vears Cwhether or net connected with his trade’

or business), but does not include property held for

; the personal use or coustunption of the taxpayer

or his: family, or stock in trade of the taxpayer or

other property of a kind which would properly be

included in the inventory of the taxpayer if on

hand at the close of the taxable year. :

(b) ‘In the case of any taxpaver (other than a

corporation) who for any taxable vear derives a

capital net gain, there shall (at the election of the ?

taxpaver) be levied, collected and paid, in lieu of

the ‘taxes imposed by sections 210 and 211 of this

tithe. a tax determined as follows:- |

A partial tax shall first be computed upon the

basis of the ordinary net Income at the rates and in

* 2 Vie A tas SPAS ee NETS

31 9

-the manner provided in sections 210 and 211, and

the total tax shall be this amount plus 12) per

contum of the capital net gain; but if the taxpayer

elects to be taxed’ under this section the total tax

shall in no such ease be less than 125 per centum of

she total net income, The total tax thus determined

shall be computed, collected and paid in the same

manner, at the same time, and subject to the same:

yrovisions of law, including enalties, as other

]

taxes under this title.

or trust, the proper part of each share af the net ime

conie Which consists, respectively, of ordinary net

income and capital net gain,:shall be determined

under rules and regulations to be preser ‘ibed by the

Commissioner with the approval of the Secretary,

and shall be separately shown in the return of the

partnership or estate or trust, and shall be taxed to

the member or beneficiary or to the estate or trust

as prov ided in sections 218 ‘and 219, but at the rates

and in the me umer “provided in sinintim daieaaaal (hb) of

this section,

Src. 219) (a) That the tax imposed hy sections

210 and 211 shall apply to the income of estates or

of any kind of property beld m trust, ineludine—

(3) Income held for future distribution under

the terms of the will or trust; and

x * x x *

(hb) The fiduciary shall he responsible for mi viking

the return, of income fer the estate or trust for

which he acts. * * *

of subdivision (a) or in any other case w thi sub-

ge.

*)e)

.% Om

division (2) of this section except paragraph (4)

thereof the tax shall be imposed upen the net in-

come of the estate or trust and shall be paid hv the

— fiduciary, exeept that in determining the net income

of the estate of any deceased person during thé

per iod of administration or se ‘ttlement- fhere may be.

deducted the amount of any income properly paid —

or credited to any legatee, herr, or other beneficiary,

Insuch eases the estate or trust shall, for the pur-

poseof the normal tax, be allowed the same credits

asare allowe “ul to single persons under section 216.

REVENUE ACT OF. 1024, C244, 45 SIPARP, 2535

See. 204, (a) The basis for determining the gain

or loss from the sale or other disposition of prop-

erty acquired after February 28, 1913, shall be the

‘vost of such property; except thai -

~ * * x. *

(2) If the property was acquired by gift after’

December 31, 1920, the basis shall be the same as it

would be in the hands of the donor or the Last pre-

ceding owner iv whom it Was net acquired by gift.

If the facets necessary to determine suche basis are |

unknown to the donee, the Commissioner shall, if

possible, obtaiwsuch facts from such donor or last

preceding owner or any other person cognizant

thereof. Tf the Commissioner finds it’ impossible

to obtain sueh tacts, the basis shall be the fair mar- .’

ket Value af such property as found by the Com-

missioner as of the date or approximate date at

Which, accotding to the best information that’ the

Comuotssioner is able to obtain, such property Was

acquired by such donor or last preceding owner ;

= --~° =~ > or

ae a PS

*>*)

(3) If the property was acquired after December

31, 1920, by a transfer in trust (other than by a

transfer in trust by bequest or devise) the basis

shall-be the same as it-would be in the hands of the

vrantor, inereased in the amount of gain or de-

ereased in the amount of loss recognized to the

erantor upon such transfer under the law appli-

cable to the year in which the tkansfer was: made.

The provisions’ of this pardgraph shall not apply

to the aequisition of such prope vty interests as are.

specified in subdivision (¢) or (ce) of section 402 of

the Revenue Act of 1921 or in ene ea (c), (d),

or (1) of section 302 of this Act. (ULS.C., Title 26, 7

See. 935. ) a — aa

REVENUE ACTOR 19265 C. 27, 44 STAT. 9

Src. 208s (a) For the purposes of this tithe—

. * * * * *

(8) ee “capital assets’? means property

held by the taxpayer for more than two years

(whether or not connected with his trade’or busi-

ness), but does not include stock in trade of the

taxpayer or other property of a kind which would

properly be included in the inventory of the tax-

payer if of hand at the close of the taxable year,

or property held by the taxpa¥er primarily for

sale in the course of his trade or business. In deter-

niining the period for which the taxpayer has held

property received oi an exchange there shall be

meluded the period for which he held the property

exchanged, if under the provisions of section 204

the property received has, for the purpose of de-

termining gain or Joss from a sale,or exchange, the

same hasis in whole or in part in his hands as the

’ t :

property exchanged. In determining the period

for which the taxpayer has held property however

~aequired there shalf be included the period for

‘which such property was held by any other person,

if under the provisions of section 204 stich property

has, for the purpose of determiding gain or loss

from a sale or exchange, the same basis in whole

or in part in his hands as it would have inthe hands

of such other person. In determining the period

tor which the taxpayer has held stock or secugities

received upon a distribution where no @ain is rec:

ognized to the distributee under the provisions of

subdivision (¢) of section 203 of this Act or of the

Reverte Act of 1924, there shall be included the

period for which he held the stock or securities in

the distributing corporation prior tothe receipt of

the stock or securities upom such distribution,

TREASURY REGULATIONS 62, UNDER THE REVENUE ACT OF

Ta |

Mer. 1562. Sale of property acquired by gift

after December 31, 1920.— In computing the @ain

or loss from the sale or other disposition of, prop-

erty acquired by, gift subsequent toy December 31,

19200 the basis Ahall be the same as it woukd have

in the hands oKthe donor or the last preceding

owner by whom it Was not acquired by gift. This

basis in the hands of the donor or last preceding

owner by whom it was not acquired by gift shall be

determined under the provisious of artiele 1561

and the taxable gain or deductible loss from the

sale or exchange shall be computed in accordance

therewith * * * | :

Art. 1503. Sale of properly acquired bir gift on

or before December 31, 1920, or by bequest, devise,

‘as

bo ae

Pee Tie,

or inheritance.—In computing the gain or loss from

the sale or, other disposition of property acquired

by gift on or before December 31, 1920, or by be-

quest, devise, or inheritance, the basis shall be the

fair market price or value of such property at the

{ime of acquisition, The term “property acquired

by bequest, devise, or inheritance” as used herein

includes (a) sucli property interests as the tax-

payer has received as the result of a transfer, or

creation of a trust, in contemplation of or intended

to take effeet in possession or enjoyment at or after

death, and (>) sueh property interests as the tax-

paver has received as the result of the exercise by

person of-a general power of appointiuent (1).

by will, or (2) by deed exccuted in contemplation of

or intended to take effect in possession or cn joy-

ment at orafter his death. Sce further section 402

(¢) and (¢) and Regulations 63, articles 17-21, 24

and 25. Tn the case of property acquired by gift,

bequest, devise, or inheritance, prior to Mare 1,

1913, the taxable, gain or deductible loss from the

Sale or other disposition thereof:shall be computed

in accordance with article 1561, * * *

Arr. 1651, Definition and illustration of capital

net gain.—(a) Section 206 applies only to sales or

exchangcs of capital assets consumated after De-

cember 31, 1921. It provides that any taxpayer

other than a.corporation may, if he so desires, state

separately in his return his net gain on sales or ex-

changes of capital assets and pay on such ee

net gain (as defined. and limited in the section) ¢

flat tax of 1242 percent in lieu of the tax he cada

otherwise pay on such income under sections 210°

and 211. @n his net income from other sources,

termed “ordinary net income” in this section, he +

*yy?

would be taxed under those sections. If, however, '

he elects thus to segregate his capital net gain, his

total tax on the agerégate amount of both kinds of

income must be atleast 121% percent thereof. The

term ‘capital assets”? is defined to mean propérty -

of any kind whatever acquired and held by the tax-

A paver for profit or investment for more than two

vears, Whether or not connected with his trade or

business, not inefuding property (for example, a.

dwelling): held for the personal use or consump-

tion of the taxpayer or his family, or stock in trade

of the taxpayer or other property of a kind prop-

i erly included in an inventory. * * *

U S$ SOVERNMENT PRINTING OFFICE: 1934

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.