Transcript of Record — Helvering v. Grinnell

i I LLL LALA PL WIDE EPL LEA ie AB een

*

4 HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR

(j) At the time of Annie Stone’s death and prior thereto the

trustee of the trust property was a resident of the State of New

York.

(k) The Commissioner included in the gross estate of the de-

cedent, Annie Stone, the value of the trust property at the time of

her death.

(6) The petitioner prays for relief from the deficiency asserted

by the respondent in the following particulars:

(a) That this Board may determine that the trust property re-

ferred to in subdivision (g) of paragraph (5) above is not a part

of the gross estate of the decedent, Annie Stone, subject to the

Federal estate tax.

7 (b) That this Board may determine that the deficiency as-

serted by the respondent is excessive by $6,061.15.

Wherefore, petitioner prays that this Board may hear and rede-

termine the deficiency herein alleged.

BerNnHARD KNOLLENBERG,

Counsel for Petitioner,

25 Broadway, New York, N. Y.

[Duly sworn to by E. Morgan Grinnell, jurat omitted in printing.]

8 Exhibit A to petition

Office of Commissioner of Internal Revenue

Address reply to Commissioner of Internal Revenue and refer to

MT-ET-C1.-2439-CW. District of 3rd New York. Estate of

Annie Stone. Date of death—September 24, 1927.

Treasury DeparTMENT,

Washington, May 23, 1930.

E. Morgan Grinnewi, Executor,

Estate of Annie Stone,

910 Park Avenue, New York, New York.

Sir: The Bureau has examined the protest filed on behalf of the

above-named estate against the tentative findings set forth in the

letter addressed to the executor by this office under date of October

15, 1929. The deficiency in Federal estate tax hereby determined

amounts to $9,628.78, and is fully explained in the attached state-

ment consisting of two pages, showing the action of the Bureau

with respect to the protest.

9 In accordance with the provisions of title III of the Reve-

nue Act of 1926, you are allowed sixty days from the date of

the mailing of this letter (not counting Sunday as the sixtieth day)

within which to file a petition with the United States Board of Tax

Appeals for a redetermination of the deficiency. Any such petition

must be addressed to the United States Board of Tax Appeals,

_ —— jit : , <P nit A aN “J

HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR

Earle Building, Washington, D. C., and must be mailed in time to

reach the said Board within the 60-day period prescribed.

Where a taxpayer has been given an opportunity to file a petition

with the United S’ates Board of Tax Appeals and has not done so

within the 60 da,s prescribed, and an assessment has been made,

or where a taxpayer has filed a petition and an assessment in accord-

ance with the decision, which has become final, has been made, the

unpaid amount of such assessment must be paid upon notice and

demand from the collector of internal revenue. No claim for abate-

ment can be entertained.

If you acquiesce in this determination and do not desire to file

a petition with the United States Board of Tax Appeals, you are

requested to execute the enclosed form 890, waiving (1) your right

to file a petition with the United States Board of Tax Appeals and

(2) the restrictions on the assessment and collection of such defi-

ciency, and to forward it to the Commissioner of Internai Revenue,

Washington, D. C., for the attention of the Estate Tax Division,

Miscellaneous Tax Unit. In the event that you acquiesce in only a

part of the determination, the enclosed form of weiver should

10 be executed with respect to the amount of the deficiency to

which you agree.

Respectfully,

(Signed) Rost. H. Lvcas,

Robt. H. Lucas,

Commissioner.

Enclosures :

Statement,

Waiver—Form 890.

The protest is directed against the following items:

Gross estate

Powers of appointment Returned pene tin Determined

Value of property over which the decedent had a power of appoint-

ment created by the will of John O. Stone, a $0. 00 | $75, 764.26 | $75, 764. 26

The decedent, under the provisions of the will of her father, John

O. Stone, received a life interest in a portion of his residuary estate

witl. the right to appoint that portion generally by her last will

and testament. It was provided in said will of John O. Stone that

in default of the execution of the power by Annie Stone that said

portion was to go to her next of kin.

11 The decedent, Annie Stone, having died without issue pro-

vided under paragraph five of her will as follows:

“All the rest, residue, and remainder of my estate, both real and

personal, of every kind and description and wheresoever situated,

including whatever property or money I am allowed to dispose of by

PTO TD ST gee -

sehen Oca SBS i Sil IOAN LISI AAA AE LANDS BE

6 §HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR

will under the will of my dear father, the late Dr. John O. Stone.

of the city of New York, L give, devise, and bequeath in equal

shares to my dear sisters Ellen J. Stone and Sarah J. Grinnell, the

latter the wife of E. Morgan Grinnell, to have and to hold the same

to them, their heirs, executors, administrators, and assigns forever,”

By an instrument in writing executed February 28, 1928, the sisters

of Annie Stone renounced their right to receive the property under

paragraph five of her will but elected to take this property under

the provisions of the will of their father, John O. Stone. It is the

contention of the estate that on account of this election the sisters

received this trust property not by virtue of an exercise of a power

of appointment vested in Annie Stone, but as remaindermen under

the will of their father, John O. Stone, the creator of the power,

and therefore the value of this property should not be included in

the estate of Annie Stone for Federal estate tax.

The question of the taxability of such a power was before the

United States Board of Tax Appeals in the case of Edward J,

Hancey, executor of the will of Marie C. Howe v. The Commissioner

of Internal Revenue. In an opinion promulgated by the

12 United States Board of Tax Appeals on September 25, 1929,

and reported in 17 B. T. A. 464, it is held that notwithstand-

ing the election by the beneficiaries to accept the property as re-

maindermen under the will of the original donor of the power,

nevertheless the value of the property is taxable for Federal estate

tax as part of the gross estate of the donee since the donee of the

power had exercised her right to appoint by the provisions of

her will.

In view of the foregoing no adjustment is being made under this

schedule.

Deductions Returned rentatively

Jeter “

determined Determined

ri PEE Eee hee hes eslieteson sua #20, 000. 00 | $2.5, 000. 00 $20, 403. 13

Miscellaneous a iministration expenses... . -- ae] 1,620, 88 | 1, 620. 8S , 120. 88

rene OT CPUNINIEN Sv ecudacscrussusaueesuss iveden xe os 3, 517. 14 3, 517. 14 | 25, 005. 03

It is apparent from the evidence submitted by the estate that

deduction should be allowed in the amounts indicated in the ce-

termined column. The total of the tentative deductions is therefore

being increased in the sum of $25,292.02. _

The following computation shows the Federal estate tax liability

of this estate, which is hereby made final:

Gross estate. .._.......-.-.- ghia war kodesecdes sine ssoeue $1, 154, 638.81 | $1,300, 497.69 | $1, 300, 457. 69

ds cel otk we dc eadsvsaddeasaduswees« seueuana’ we 160, 355. 58 159, 808. 10 185, 100. 12

Net estate....... peuuciesidewnstvecsees iawusasueke 994, 283. 23 1, 140, 649. 59 1, 115, 357. 57

Mattoo. ts eue cous aeveasGce iiss eecsaxeaxses 45, 099. 53 5Y, 751. 97 57, 728. 61

I Se eee eee Erna odin d ub saa gu aeenkestalekecentosincees 11, 652, 14 9, 628. 78

—_ - : ; {

B wrens m ee ee

HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR 7

The deficiency bears interest at the rate of six per centum per

annum from one year after decedent’s death to the date of

13 assessment, or to the thirtieth day after the filing of a waiver

of the restrictions on the assessment, whichever is the earlier.

The record indicates that the estate is claiming credit on the basis

of the return in the sum of $38,479.86. The evidence on file shows

that the estate is entitled to credit in the sum of $38,364.33. The

claim fo. credit is therefor being disallowed in the sum of $115.53.

In addition to the deficiency and interest, there should be paid to

the collector of internal revenue any undischarged returned tax and

interest due to the disallowance of credit.

Before United States Board of Tax Appeals

[Title omitted. ]

Answer

Filed Aug. 7, 1930

The Commissioner of Internal Revenue, by his attorney, C. M.

Charest, general counsel, Bureau of Internal Revenue, in

14 answer to the petition of the above-named taxpayer, admits

and denies as follows:

(1) Admits the allegations contained in the paragraph of the peti-

tion numbered (1).

(2) Admits the allegations contained in the paragraph of the

petition numbered (2).

(3) Admits so much of the paragraph of the petition numbered

(3) as alleges that the taxes in controversy are estate Gixes, but

denies that the amount in controversy is $6,061.15, as alleged in the

paragraph of the petition numbered (3).

(4) Denies that the determination of the deficiency tax is based

upon errors as alleged in the paragraph of the petition numbered

(4).

(5) (a) Admits so much of subparagraph (a) of the paragraph

of the petition numbered (5) as alleges that the decedent, Annie

Stone, died on September 24, 1927, but denies every other allega-

tion contained in subparagraph (a).

(b), (e), (d), (e), (f). and (g). Admits the allegations contained

in subparagraphs (b), (¢), (d), (e), (f), and (g) of the paragraph

of the petition numbered (5).

(h) Denies the allegations contained in subparagraph (h) of the

paragraph of the petition numbered (5).

(i), (j), and (k). Admits the allegations contained in subpara-

graphs (i), (j), and (k) of the paragraph of the petition numbered

(5).

ROT NOt” PE ye ane ES

Be we me art 4

Ach eizon eee EE a” Se TRO re eee he en wR ee eared eee 0S NAS I Bin lh ———ici

8 HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR

(6) Denies each and every allegation contained in the petition

not hereinbefore specifically admitted or denied.

15 Wherefore, it is respectfully prayed that the determination

of the Commissioner be approved.

(Signed) C. M. Crarest,

C. M. Charest,

General Counsel,

Bureau of Internal Revenue.

Of counsel:

Lewis S. PENDLETON,

Special Attorney,

Bureau of Internal Revenue.

EGS/Imh-8/1/30.

Before United States Board of Tax Appeals

Docket No. 49401

KE. Morgan Grinnewy, As Executor or tHe Estate or ANNE STone,

Petitioner

v.

CoMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Harry J. Rudick, Esq., for the petitioner.

P. A. Bayer, Esq., for the respondent.

Memorandum opinion

Vaw Fossan: In this case we are asked to set aside a deficiency

of $6,061.15 in estate taxes. The matter was submitted for

16 decision on the pleadings supplemented by certain documents.

The only issue involved is whether certain pfeperty over

which the decedent had and exercised a general power of appoint-

ment was properly included in the taxable estate.

The decedent, Annie Stone, a resident of the United States, died

on September 24, 1927. She had a general power of appointment,

exercizable by will over certain property which originally formed

part of the estate of her father, John O. Stone. The said John O.

Stone died a resident of the State of New York in 1876 and by his

will, duly probated in 1876, he created for the benefit of the present

decedent, Annie Stone, a trust fund from which she was to receive

the income during her lifetime, and over the principal of which she

was to have a general power of appointment. The pertinent pro-

visions of John O. Stone’s will were as follows:

“ Fifth. All the residue of my estate, real and personal, whatsoever

and wheresoever, including the reversion of the house no. 27 West

23rd Street, or the proceeds thereof upon the termination of my

wife’s life estate, I give, devise, and bequeath unto my executors,

_ — _—

. A . A Ad 46 ote

or_r~ Wi ELLs Stee a tly Vie Ps ae LOL AE LR SAE AI Tk 1 Saal tae

HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR 9

hereinafter named, and the survivor of them and their successors

lawfully to be appointed, in trust and to, for, and upon the uses fol-

lowing, that is to say, to divide the same into as many shares as

there shall be children of mine surviving me or who shall have died

before me leaving issue surviving me, to keep the whole thereof well

and safely invested so that it may produce a regular income,

17 with power from time to time as occasion may require to

change the investment of the same or any part thereof, and to

apply the income of each share until the child for whom that share

is designated shall attain the age of twenty-one years, to the suitable

maintenance and education of such child, and from and after the

time when each of my children who shall survive me shall attain

the age of twenty-one years, to apply to her use for life the income

of the share set apart to her as aforesaid upon her sole and separate

receipt free from all control, claim, or obligation of any husband she

may have, and upon the death of my children respectively their

respective share of my estate shall go and be applied to such persons

and such uses as they respectively may appoint by last will and

testament, and in default of such ap’ointment their respective shares

of my estate shall go and belong to their children or issue respec-

tively. by right of representation, or in default of such issue to

their next of kin, and as respects the shares of my said residuary

estate set apart for the issue of children of mine who shall have died

before me to apply the income of each such share to their education

and maintenance during minority and to pay over or transfer to

each of such issue upon attaining or who shall have attained the

age of twenty-one years, his or her share in full.”

John O. Stone was survived by his widow (who died many

18 years before the death of the present decedent), and by his

three daughters, Annie Stone (the present decedent), Ellen

J. Stone, and Sarah J. Grinnell, his only children, heirs at law and

next of kin. Pursuant to the provisions quoted above, one-third

of John O. Stone’s residuary estate was held in trust for the benefit ;

of the present decedent, Annie Stone, during her lifetime, subject to :

the provision that the principal of such trust fund on her death

should be paid over “to such persons, and for such uses” as she

might “appoint by last will and testament, and in default of such

appointment ”, to her issue, or in default of such issue, to her next

of kin.

Annie Stone, the present decedent, died unmarried and without

issue, and left as her sole next of kin, her sister, the said Ellen J.

Stone, and Sarah J. Grinnell. By her will the said Annie Stone left

the residue of her estate “including whatever property or money

I am allowed to dispose of by will under the will of my dear father,

the late Dr. John O. Stone, of the city of New York”, in equal

shares to her two sisters, the said Ellen J. Stone and Sarah J. Grin-

nell. The pertinent provisions of said will of Annie Stone were

as follows:

Ne Seah eatin we

aT

10 HELVERING, COMR., VS. E. MORGAN GRINNELL, BXECUTOR

“Fifth, All the rest, residue, and remainder of my estate, both

real and personal, of every kind and description and wheresoever

situated, including whatever property or money I am allowed to

dispose of by will under the will of my dear father, the late Dr.

John O. Stone, of the city of New York, I give, devise, and bequeath

in equal shares to my dear sisters Ellen J. Stone and Sarah

19 J. Grinnell, the latter the wife of E. Morgan Grinnell, to

have and to hold the same to them, their heirs, executors,

administrators, and assigns forever.”

At the time of Annie Stone's death, the value of the property

left in trust for her life under the fifth paragraph of her father’s

will and over which she had a general power of appointment was

$7564.26.

In February 1928 Ellen J. Stone and Sarah J. Grinnell executed

an instrument of election, whereby they renounced their right to

receive said property under the fifth paragraph of the decedent

Annie Stone’s will and elected to take such property under the fifth

paragraph of the will of their father, John O. Stone. The pertinent

language of said certificate of election was as follows:

* Now, therefore, we. the undersigned, Elen J. Stone and ‘sarah

J. Grinnell, being the surviving sisters of said Annie Scone, de-

ceased, and her only next of kin, do hereby severally elect to take

directly from said John O. Stone under the provisions of his will,

the title to the property heretofore held in trust for the said Annie

Stone, deceased, instead of under the exercise of the power of ‘ap-

pointment given to the said Anme Stone by the will of her father,

said John ©. Stone, exercised by said Annie Stone by the fifth

article of her said will.”

The said certificate of election was filed in the Surrogates

20 Court of the County of New York (State of New York) in

connection with the accounting of the trustees of John ©.

Stone; and pursuant to same it was ordered and decreed by the saic

Surrogates Court as follows:

“And it further appearing from the instrument of election filed

‘herewith that Ellen J. Stone and Sarah J. Grinnell, the beneficiaries

of the will of Annie Stone, deceased, and appointees under exercise

of the power of appointment therein made, have elected to take

under the terms of the will of said decedent, John O. Stone, as

remaindermen of the trust for said Annie Stone, deceased, instead

of as appointees under her will, it is hereby further

“ Ordered, adjudged, and decreed that the payments heretofore

made to them as remaindermen of said trust as set forth in the ae-

count, be and the same hereby are ratified and confirmed, and that

the balance of principal of said trust if any remaining after making

payments hereinabove provided for be paid over in equal shares to

said Ellen J. Stone and Sarah J. Grinnell.”

Bie cS : . “ ot nha ae a sae ani cine wee re tae MB Ca) atts ADS

HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR 11

At the time of Annie Stone’s death and prior thereto the trust

property in question was physically located in the State of New

York and the trustee of the trust property was a resident of the

State of New York. ;

Petitioner on brief admits that this case comes within the rule

laid down in Edward J. Hancy, Exec., 17 B. T. A. 464. He con-

tends, however, that in the Hancy case the Board erred in its

21 conclusion. The Hancy case has been cited by the Board as

authority in numerous later decisions and it stands as the con-

sidered judgment of the board. See Mary M. Lee, Executrix, 18

B. T. A. 251, affd. C. A. D. C. 57 Fed. (2d) 399, certiorari denied

9286 U. S. 563: Bank of New York and Trust Co., Executor, 21

B. T. A. 197: Cortland F. Bishop, Executor, 23 B. T. A. 920; Joseph

Walker Wear et al.. Executors} 26 B. T. A. 684. Certain observa-

tions made in the last cited case are equally pertinent here:

“ Petitioners concede that the power was a “ general power.” It

is established by the facts that it was exercised. The exercise of

the power brought the case within the wording and intent of the

Federal tax statute and justified the respondent’s action. * olan

“Nor are we disturbed or hindered in reaching the above conelu-

sion because in a case arising under the same documents It was de-

cided by the Orphans’ Court of Philadelphia County that the at-

tempted exercise of the power of appointment was a nullity and the

award should have been made to the distributees under the will of

Thomas Potter. Whatever may have been the effect of this decision

in the local administration of the estate, and it would seem that

under the facts it was of no effect, the only announced reason for

amending the earlier decision being to bring the parties within the

rule announced in Estate of Helen M. W. Grant, 13 B. T. A.

22 174. this decision is not conclusive of the question before us.

The Board of Tax Appeals is a Federal tribunal engaged in

deciding questions presented under the Federal taxing acts. Though

there are certain restricted situations in which the local may be con-

trolling, in the present case we are not so confined. The statute

which we are here interpreting was enacted by the Congress of the

United States to meet certain situations and achieve certain results.

As has been said by the Supreme Court, ‘the act of Congress has

its own criteria’, and in determining whether or not there has been

a transfer under the Federal statute we must look to the interpreta-

tions adopted by the Federal courts and tribunals.” See Edward

J. Hancy, supra; Chase National Bank v. United States, 278 U.S.

327; Pennsylvania Co., etc., v. Lederer, supra; Fidelity Philadelphia

Trust Co. v. McCaughn, 34 Fed. (2d) 600.

~~. Decision will be entered for the respondent. Ata

‘Enter: _

Entered May 5, 1933.

TNT SIRI RR aaa Gare Ra

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AT ORS HI

.

ee A RSA CAICE Ae

12 HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR

23 Before United States Board of Tax Appeals

Washington

Docket No. 49401

E. Morcan GrinNELL, as Executor or THE Estare or ANNIE Stone,

petitioner

v.

CoMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Decision

Pursuant to the determination of the Board, as set forth in its

memorandum opinion entered May 5, 1933, it ts

Ordered and decided: That there is a deficiency of $9,628.78 in

estate taxes.

Enter:

Entered May 10, 1933

[ SEAL] (Signed) Ernest H. Van Fossan,

Member.

24 Before United States Board of Tax Appeals

[ Title omitted. }

Petition for review

Filed May 25, 1933

E. Morgan Grinnell, as executor of the estate of Annie Stone,

deceased, hereby petitions for the review of the decision of the United

States Board of Tax Appeals rendered on the 10th day of May,

1933, which approves a deficiency of $9,628.78 in the estate tax pay-

able by the decedent’s estate.

I

STATEMENT OF NATURE OF CONTROVERSY

1. On May 23, 1930, the respondent mailed to the petitioner a notice

of a deficiency of $9,628.78 in the Federal estate tax on the estate of

Annie Stone, hereinafter referred to as the decedent. Of this alleged

deficiency $6,061.15 was based on a ruling of the respondent that

certain property over which the decedent had a power of

25 appointment was required to be included in her gross estate

for the purpose of computing the tax.

2. Thereafter, within sixty days of May 23, 1930, the petitioner

filed with the United States Board of Tax Appeals a petition

requesting the redetermination of the said deficiency. Said peti-

tion, after alleging the jurisdictional facts, alleged that the Com-

caine athe iy a nan eg Poa le

ee eed

HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR 13

missioner erred jin including in the gross estate of the decedent

$75,764.26, representing the value at the date of decedent’s death

of certain property over which the decedent had a power of a»-

pointment. The said property originally formed part of the estate

of decedent’s father, John O. Stone, who died in 1876, a resident

of New York. By his will he created a trust of the property, giv-

ing the decedent the income therefrom for her life and a general

power of appointment over the remainder, exercisable by will. In

default of the exercise of the power, the property was to pass to de-

cedent’s next of kin. The decedent by her will purported to exer-

cise the power in favor of the same persons who would take in the

event of a default in the exercise of the power. The said persons

renounced their right to receive the property as appointees under

the will of the decedent and elected instead to take it as remainder-

men under the will of decedent’s father, the donor. The Commis-

sioner of Internal Revenue included the property in the decedent’s

gross estate on the ground that it represented “ property passing

under a general power of appointment exercised by the decedent by

will.” (Sec. 302 [f] of the Revenue Act of 192€.) All of these

facts were alleged in the petition.

26 3. Thereafter the respondent filed: with the said Board of

Tax Appeals his answer to the afore-mentioned petition. The

said answer admitted the jurisdictional facts and substantially all of

the other facts, but denied error.

4. The cause being at issue under the rules of practice of the said

Board of Tax Appeals upon the filing of the answer duly came on

for hearing on January 17, 1933, at New York, New York, before

Hon. Ernest H. Van Fossan. At the hearing the matter was sub-

mitted for decision on the pleadings, supplemented by certain docu-

ments. Thereafter on May 5, 1933, the said Board rendered a mem-

orandum opinion and decided that the decedent had exercised the

power of appointment and that the property subject thereto was

properly included in the taxable estate. The said memorandum

opinion contained a statement of the facts based on the pleadings

and documents, the relevant portions of the documents being given

‘n said statement of facts. On May 10, 1933, the Board rendered its

final order of redetermination, approving the deficiency as deter-

mined by the respondent.

II

DESIGNATION OF COURT OF REVIEW

The petitioner being aggrieved by the said opinion, decision, and

order, and being an inhabitant of the city and State of New York,

desires a review in accordance with the provisions of the Rev-

27 enue Act of 1926, by the United States Circuit Court of Ap-

peals for the Second Circuit, within which circuit is located

the office of the collector of internal revenue to whom said petitioner

made the estate tax return and paid the estate tax.

r

f

*

= = . — ese i

14 WELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR

Ill

ASSIGNMENTS OF ERROR

The petitioner, as a basis for review, makes the following assign-

ments of error:

1. The Board of Tax Appeals erred in holding that. the decedent

exercised the power of appointment.

2. The Board of Tax Appeals erred in holding that the property

subject to the power should be included in the decedent’s taxable

estate.

3. The Board of Tax Appeals erred in not determining that the

alleged deficiency should be reduced by $6,061.15.

Wherefore, your petitioner prays that the United States Circuit

Court of Appeals for the Second Circuit may review the said deci-

sion, opinion, and order and reverse and set aside the same and

that the clerk of the United States Board of Tax Appeals be directed

to transmit and deliver to the clerk of the said court certified copies

of all and every of the documents necessary and material ‘o the

presentation and consideration of the foregoing petition for

28 review, as required by the rulings of said court and statutes

made and provided.

(S.) Bernuarp Kno tvenpera,

Attorney for Petitioner,

25 Broadway, New York, N. Y.

[Duly sworn to by Bernhard Knollenberg, jurat omitted in

printing. |

29 Before United States Board of Tax Appeals

[ Title omitted. ]

Statement in lieu of statement of evidence

Filed June 22, 1933

This proceeding was submitted for decision on the pleadings, sup-

plemented by certain documents. All of the facts necessary to the

determination of the present appeal are contained in the memo-

randum opinion of the Board.

Dated, June 15th, 1933.

BerNHARD KNOLLENBERG,

Counsel for Petitioner.

E. Barrett PrerryMan,

Counsel for Respondent.

a ee a

RAGAN DDE Ae Te IA ALI POOR Cla EE RN sit La

HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR 15

30 Before United States Board of Tax Appeals

[Title omitted. ]

Praecipe for record

Filed June 22, 1933

To the CLERK or THE UnitTED States Boarp or Tax APPEALS:

You will please prepare and, within sixty days from the date of

the filing of the petition for review in the above entitled case, trans-

mit to the Clerk of the United States Circuit Court of Appeals

for the Second Circuit certified copies of the following documents:

1. The docket entries of proceedings before the United States

Board of Tax Appeals in the case above entitled.

2. Pleadings before the Board.

3. Memorandum opinion and decision of the Board.

4. Petition for review.

31 5. Statement in lieu of statement of the evidence.

The foregoing to be prepared, certified, and transmitted,

as required by law and the rules of the United States Cireuit Court

of Appeals for the Second Circuit.

Bernuarp KNOLLENBERG,

Bernhard Knollenberg,

Attorney for Petitioner.

JUNE 21, 1933.

32 [Clerk's certificate to foregoing transcript omitted in print-

ing. |

33 In United States Circuit Court of Appeals for the Second

Circuit

No.

E. Morgan Grinnewi, Executor or tue Estate or ANNIE STONE,

petitioner

Vv.

CoMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Motion for substitution

Comes now the above-named petitioner and moves the court that

Guy T. Helvering, Commissioner of Internal Revenue, be substi-

tuted for David Burnet as respondent herein, and in support of

said motion respectfully shows:

i

f

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16 HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR

1. That the resignation of said David Burnet, who was Commis-

sioner of Internal Revenue when the petition for review in this

proceeding was filed, was duly accepted and he ceased to be such

officer on May 15, 1933.

2. That Guy T. Helvering was duly appointed and confirmed as

Commissioner of Internal Revenue to succeed the said David Bur-

net; that he qualified as such officer and entered upon the duties

of said office on June 6, 1933, since which date the said Guy T,

Helvering has been and now is Commissioner of Internal Revenue.

3. That there is a substantial need for contmuing and maintain-

ing this proceeding and obtaining an adjudication of the questions

involved, for otherwise the order of the United States Board of Tax

Appeals herein sought to be reviewed will become final and the right

to have the legality thereof determined will be extinguished.

This motion is made pursuant to the provisions of section 11 of

the act of February 13, 1925, c. 229, 43 Stat. 941 (U.S. C., title 28,

sec. 780).

Dated June 7, 1933.

BERNHARD KNOLLENBERG,

Attorney for Petitioner.

The undersigned, attorney for Guy T. Helvering, Commissioner

of Internal Revenue, hereby expressly consents to the substitution

sought by the above motion.

Sewatt Key,

Sewall Key,

Special Assistant to the Attorney General,

Attorney for Guy T. Helvering,

Commissioner of Internal Revenue.

In United States Circuit Court of Appeals

Order of substitution

Upon motion of the petitioner, expressly consented to by Guy

T. Helvering, Commissioner of Internal Revenue, it is hereby or-

dered that said Guy T. Helvering, as such officer, be and he hereby

is substituted for David Burnet, former Commissioner of Internal

Revenue, and that this proceeding be so continued and maintained.

Wo. Parkin, Clerk.

Dated July 15, 1933.

Seoo_™

HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR 17

34 In United States Circuit Court of Appeals for the Second

Circuit

No. 120. October term, 1933

Argued April 10, 1934. Decided April 30, 1934

EK. Morcan Grinnewt, as Executor or THE Estate or ANNIE STONE,

Deceased, petitioner-appellant

Vv.

CoMMISSIONER OF INTERNAL REVENUE, RESPONDENT-APPELLEE.

I EP Ie a

Appeal from the Board of Tax Appeals.

Before Manton, Swan, AND Avcustus N. Hann, Circuit Judges.

The Commissioner of Internal Revenue determined a deficiency

in estate tax against the estate of Annie Stone, who died on Septem-

' ber 24, 1927, a resident of Connecticut. /From an order of the Board

of Tax Appeals affirming such determination, the taxpayer E. Mor-

gan Grinnell, as executor of the will of Annie Stone, appeals.

Reversed.

Bernhard Knollenberg, of New York City (Allen E. Foster and |

Harry J. Rudick, both of New York City, of counsel), for petitioner-

appellant. |

Frank J. Wideman, Asst. Atty. Gen., and Sewall Key and John

MacC. Hudson, Sp. Assts. to Atty. Gen., for respondent-appellee. :

Opinion

Aveustus N. Hann, Circuit Judge:

The question involved upon this appeal is whether a trust fund

created by the will of John O. Stone, who died in 1876, a resident

of New York, over which his daughter Annie Stone, who died Sep-

tember 24, 1927, had a power of appointment by will, should be

included in her gross estate for the purpose of determining the

federal estate tax.

The devolution of the property in question is governed by article

fifth of the will of John O. Stone. Under that article the testator

bequeathed his residuary estate to his executors in trust to divide

the same into as many shares as he should leave children him sur-

viving and to apply the income of each share to the life use of the

child for whom it was set apart. In disposing of the remainder

interests, he provided that:

fu 6 dias AS wc nln TTT

18 HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR

“ Upon the death of my children respectively their respective share

of my estate shall go and be applied to such persons, and such uses

as they respectively may appoint by last will and testament, and in

default of such appointment their respective shares of my estate

shall go and belong to their children or issue respectively, * * *

and in default of such issue to their next of kin. * * *”

John O. Stone left him surviving his wifé, Catherine C. Stone,

who died many years before the death of Annie Stone, and his three

daughters Annie Stone, Ellen J. Stone, and Sarah J. Grinnell, who

were his only children, heirs at law, and next of kin. Annie Stone,

the decedent, died unmarried, without issue, and left as her sole

next of kin, her sisters, Ellen J. Stone and Sarah J. Grinnell. The

value of the property left in trust for the life of Annie Stone under

article fifth of her father’s will, and over which she had the power

of appointment at the time of her death, was $75,764.26. She died

on September 24, 1927, a resident of the State of Connecticut, leav-

ing a will which was admitted to probate January 4, 1928, in which

she provided as follows: &

“Fifth. All the rest, residue and remainder of my estate both

real and personal, of every kind and description and where-

35 soever situated including what property or money I am

allowed to dispose of by will under the will of my dear father,

the late Dr. John O. Stone, of the city of New York, I give, devise,

and bequeath in equal shares to my dear sisters Ellen J. Stone and

Sarah J. Grinnell, the latter the wife of E. Morgan Grinnell, to

have and to hold the same to them, their heirs, executors, admin-

istrators, and assigns forever.”

The property over which Annie Stone had a power of appoint-

ment was physically located in the State of New York, and at the

time of her death, and prior thereto, the trustee thereof was a

resident of that State.

In February 1928 Ellen J. Stone and Sarah J. Grinnell executed

an instrument of election whereby they renounced their right to

receive their shares of the trust fund, theretofore held for the life

of Annie Stone, under the fifth article of the will of their father,

John O. Stone.

The Commissioner included in the gross estate of the decedent,

Annie Stone, the value of the trust property at the time of her

death over which she had assumed to exercise the power of appoint-

ment given her by her father’s will, and accordingly found a tax

deficiency against her estate of $9,628.78. Her executor petitioned

the Board of Tax Appeals for a redetermination of the deficiency

in the estate tax upon the estate of Annie Stone by excluding the

value of the trust property from her gross estate. The Board

affirmed the action of the Commissioner and fixed the deficiency at

$9,628.78.

The effect of the bequest under the will of John O. Stone, who

died a resident of New York, and of the attempted exercise of the

mPa DE TE, | ee et)

HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR 19

power of appointment over the trust estate created thereby for the

life use of his daughter Annie Stone, is determined by the law of New

York. Restatement of the Law of Conflict of Laws, §§ 283, 307,

and 328, American Law Institute.

Under the New York law, Ellen J. Stone and Sarah J. Grinnell,

who were the next of kin of Annie Stone, had the right of election

and might accept title either as appointees under the power which

she attempted to exercise, or as remaindermen under the will of

John O. Stone. As Judge Vann said in Matter of Lansing, 182

N. Y. 238, 245, 74 N. E. 882, 884, about a testamentary power exer-

cised in favor of the same person who would take title if it had not

been exercised :

“An appointee under a power has the right of election, the same

as a grantee under a deed. ‘It is essential to the legal operation

of a deed that the grantee assents to receive it. It cannot be imposed

upon him, and there can be no delivery without an acceptance.’

Jackson v. Dunlap, 1 Johns. Cas. 114, 116, 1 Am, Dec. 100; Jackson

v. Phipps, 12 Johns. 418. He can accept the title tendered or reject

it. in his discretion. It cannot be forced upon him against his

will. He cannot be compelled to receive additional evidence of title

when he does not want it, and does not need it because his title is

perfect without it. His consent«is necessary before the attempt to

exercise the power becomes binding upon him the same as consent is

necessary in making a contract or agreement.”

In Matter of Lansing, supra, the facts closely resembled those here.

There the appointee chose to take under the original will and not

under the exercise of the power, and the Court of Appeals held that

the trust estate which passed to her was not subject to the New

York transfer tax because the death of the original testator from

whom the property arose was prior to the enactment of a Transfer

Tax Act and the property passed under his will and not by virtue

of the exercise of the power. The court remarked at page 245 of

182 N. Y., 74 N. E. 882, 884:

“While the situation was subject to change under the power of

appointment, no change was made. Although the power was eXer-

cised in form, her title was perfect without it. and she derived no

benefit from it. The power was to ‘dispose of the remainder, and

the remainder was not disposed of, but continued where it was. The

attempt to execute the power was not effective, because it did nothing.

The exercise of a power which leaves everything as it was before

is a mere form with no substance.” Cf. Potter’s Estate, 13 Pa. Dist.

& Co. R. 667.

In the case at bar the next of kin of Annie Stone had executed

an instrument of election in writing whereby they renounced their

right to take under the power and elected to receive their share of

the trust fund under the will of their father. They held a remainder

interest in the capital of the trust estate which was alienable, de-

visable, and descendible under the New York law. It might have

OO a ee

—

20 HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR

been divested and diverted to other persons by an effective exercise

of the power, but was not. Matter of Lansing, supra, is pre-

36 cisely in point unless section 302 of the Revenue Act of 1926

(26 U. S. C. A., § 1094) contains language which may dif-

ferentiate it from the New York Transfer Tax Act (Consol. Laws,

c. 60, § 220 et seq.). But we can discover nothing in the revenue act

indicating that a fund appointed to the same persons who would

take in remainder under the will of the donor, if the power were

not exercised, is to be included in the estate of the person exercising

the power or passes under the latter’s will to appointees who are

unwilling to accept the appointment.

Section 301 (a) of the Revenue Act of 1926 (26 U. S.C. A.

§ 1092) imposed an estate tax upon the transfer of the net estate

of every decedent dying after its enactment, and section 302 (f) of

the act (26 U. S. C. A., § 1094 (f) provided that. in valuing the

gross estate, there should be included the value at the time of death

of all property “passing under a general power of appointment

exercised by the decedent (1) by will.”

The trust estate here did not pass under the power of appointment

for the reason that the appointees elected in writing to renounce

their bequests under the will of Annie Stone and to take as remain-

dermen under their father’s will, and for the further reason that,

under the New York law, which governed the passage of title:

“The attempt to execute the power was not effective, because it did

nothing. The exercise of a power which leaves everything as it was

before is a mere form, with no substance.” Matter of Lansing, 182

N. Y. 238, 243, 74 N. E. 882, 884.

In Wear v. Commissioner, 65 F. (2d) 665, the Court of Appeals

of the Third Circuit held that property bequeathed under a general

power of appointment to the same persons who would have taken

in remainder, had the power not been exercised, for purposes of

Federal estate taxes, “ passed” under the power and accordingly

must, by section 302 of the Revenue Act of 1926, be included in the

gross estate of the person exercising the power, and this, though the

law of Pennsylvania, like that of New York, treated the property

as passing under the will of the donor. In Lee v. Comgnissioner,

61 App. D. C. 33, 57 F. (2d) 399, the Circuit Court of Appeals of

the District of Columbia reached the same conclusion, as did the

Third Circuit Court of Appeals in the later case of Wear v. Com-

missioner, 65 F. (2d) 665. In Wear v. Commissioner, Judge Wool-

ley said, at page 667: }

“Death, with an exercise of the power in their favor, was the

event that wrought the change. Then their estate, theretofore con-

tingent upon the nonexercise of the power against them, became

vested, like the interest of a beneficiary of a policy of life insurance

becomes vested upon the death of the insured without exercising a

reserved right to change the beneficiary, the value of which must,

under the cases, be included in the gross estate of the insured for

Sx” TO |e er SL Ten are SERPS SE eS ar) ete oe en we _— Aoki

HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR 2]

purposes of taxation. Chase National Bank v. United States, 278

U. S. 327, 49 S. Ct. 126, 73 L. Ed. 405, 63 A. L. R. 388. The gen-

erating source of the change was the death of the donee without

action adverse to them. That, too, was the generating source of

the tax. And such a tax, we hold, the Federal Government, under

its sovereign power to levy taxes, may lawfully impose upon the

exercise of a power effecting such a change, to be determined by

actual results thereby brought about rather than by consideration

of rules which define and limit title of property, Tyler v. United

States, 281 U. S. 497, 503, 50 S. Ct. 356, 74 L. Ed. 991, 69 A. L. R.

758, and to be measured (rather than determined) by the value of

the property passing. * * *”

With all deference to the high authority of Judge Woolley and

of the other judges of the Courts of Appeal of the Third Circuit

and the District of Columbia, we feel constrained to differ with the

conclusions they reached. It is conceded that the revenue act

would not have imposed an estate tax upon the transfer if the

remainder had vested in possession without an attempted exercise

of the power of appointment. Therefore, it hardly seems right to

say that: “ The generating source of the change was the death of

the donee without action adverse to them. That, too, was the gen-

erating source of the tax.” Such reasoning would require the impo-

sition of a tax under the act even though Annie Stone had died

intestate, though the statute furnishes no warrant for taxation

under such circumstances. The argument of the opinion in Wear v.

Commissioner is concerned mainly with the constitutional authority

of the Government to tax property where the source of the transfer

was the death of the donee of a power “ without action adverse” to

persons having interests derived under the will of the donor. We

need not differ with the conclusion that it might be taxed, but we

think it was not taxed by an act directed only at property

37 “passing under a general power of appointment” because

there was no such property here. The appointees not only

declined to take the gift, but the appointment when exercised in

favor of the same persons who would take irrespective of it was

“a mere form with no substance” which the law of New York

that regulates the passage of title has refused to recognize. Matter

of Lansing, 182 N. Y. 238, 243, 74 N. E. 882. In a tax statute espe-

cially, such’ a doubtful imposition involving as it does an extension

of the statute to cover powers of appointment, having no effective

import, should not be sanctioned. Crooks v. Harrelson, 282 U. S.

55, 51 S. Ct. 49, 75 L. Ed. 156.

It is argued that there was a shifting of economic benefits on

the death of Annie Stone, which was the real subject of the tax,

and that the taxation of insurance policies over which a decedent

retains control during his life requires taxation here. Chase Na-

tional Bank v. United States, 278 U. S. 327, 49 S. Ct. 126, 73 L. Ed.

405, 63 A. L. R. 388. Likewise taxation of the interest of one of

ae

Se ee

22 HELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR

the spouses when property held by them as tenants by the entirety

passes to the survivor is thought to furnish an analogy to the pres-

ent situation. Tyler v. U nited States, 281 U.S. 497, 50'S. Ct. 356,

74 L. Ed. 991, 69 A. L. R. 758.) But in each of those cases the statute

expressly covered the subject matter sought to be taxed and the

question was not one of interpretation, but of constitutional power.

Here we find no warrant for holding that the interests which Ellen

J. Stone and Sarah J. Grinnell took upen the death of Annie Stone

passed under the power of appointment. Accordingly, they did not

fall within the terms of section 302 of the Revenue Act of 1926 and

should not have been included in her gross estate for purposes of

the estate tax.

The order of the Board of Tax Appeals is reversed.

38 In United States Circuit Court of Appeals, Second Circuit

E. Morcan GriINNELL, As EXecuror, ETC.. PETITIONER

vs.

COMMISSIONER OF INTERNAL REVENUF, RESPONDENT

Judgment

Filed May 7, 1934

Appeal from the United States Board of Tax Appeals.

This cause came on to be heard on the transcript of record from

the United States Board of Tax Appeals, and was argued by counsel.

On consideration whereof, it is now hereby ordered, adjudged, and

decreed that the order of said United States Board of Tax Appeals

be, and it hereby is, reversed.

It is further ordered that a mandate issue to the said Board in

accordance with this decree.

Wa. Parkin, C/o rk.

39 | File endcorsement omitted. |

40 {Clerk’s certificate to foregoing transcript) omitted in

printing. |

41 Supreme Court of the United States

Order allowing certiorari

Filed October &, 1934

The petition herein for a writ of certiorari to the United States

Circuit Court of Appeals for the Second Circuit is granted. And

it is further ordered that the duly certified copy of “the transcript

of the proceedings below which accompanied the petition shall be

treated as though filed in response to such writ.

e—e——

4ELVERING, COMR., VS. E. MORGAN GRINNELL, EXECUTOR 23

{| Endorsement on cover:| File No. 38,896. U.S. Cireuit Court of

Appeals, Second Circuit. Term No. 268. Guy T. Helvering, Com-

missioner of Internal Revenue, petitioner, vs. E. Morgan Grinnell,

as Executor of the Estate of Annie Stone. Petition for a writ of

certiorari and exhibit thereto. Filed August 7, 1934. File No, 265

O. T. 1934.

en ae ae

U.S. GOVERNMENT PRINTING OFFICE: 1934

- PETITION FOR A

WRIT OF

~ CERTIORARI

Page

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PE inivanincedccsadudiktnbdavhddunnyeeeebaeabatanie 2

Question presented... ...............- wuebdodnetmedecstbes 2

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ie snsiendninencitund nob amaeenind osu deae ee teed aaa 3

Specification of errors to be urged----.......-.-.------.---- 5

Bebaneen Sar ting The Wo occ cccnncuctenecsactenwouees 6

CITATIONS

Cases:

Bishop v. Commissioner, 23 B.T.A. 920_..........-..-__- 8

EE F.. Ta, Te Ga Wictéwteckntedannctwencuce 9

Chase Nat. Bank v. United States, 278 U.S. 327__________- 9

Hancy v. Commissioner, 17 B.T.A. 464___._.._.___________ 8

Helvering v. New York Trust Co., No. 873, October Term,

WE Levcenssdconbsaieuseninnaae 10

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

Uae: Ciicvennsrnacshtdesededsebeaandinneaadianane 6,7

Mass. Mutual Life Ins. Co. v. United States, 288 U.S. 269_- 11

Ozawa v. United States, 260 U.S. 178_.._......_________- 10

Pennsylvania Co. for Ins. on Lives, etc. v. Lederer, 292 Fed.

Ge twansnqucwssmmsbdtdiswsnanbedadudsodaionne 8

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

Geet Wee ieccccumawinssoadanmaeuenn acters 8

Tyler v. United States, 281 U.S. 497_............-.--.-.- 7,9

United States v. Dakota-Montana Oil Co., 288 U.S. 459___- 1

Wear v. Commissioner, 65 F. (2d) 665______.____________ 6,7

Statute:

Revenue Act of 1926, c. 27, 44 Stat. 9:

Sec. 302 (U.S.C. App., Title 26, Sec. 1094)__..._____- 2

Miscellaneous:

H.Rep. No. 767, 65th Cong., 2d Sess., pp. 21-22________- 9

Treasury Regulations 37, Art. 30................._____- 10

Treasury Regulations 63, Art. 25..........._____________ 11

Treasury Regulations 68, Art. 24__.......______________ 11

(I)

76977—34

— — ee eee

Inthe Supreme Court of the nited States

OcToBER TERM, 1934

No. —

Guy T. HELVERING, COMMISSIONER OF INTERNAL

Revenue, petitioner

Vv.

E. Morcan GRINNELL, AS EXECUTOR OF THE ESTATE

of Annie Stone

PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES CIRCUIT COURT OF APPEALS FOR THE SECOND

CIRCUIT

The Solicitor General, on behalf of the Commis-

sioner of Internal Revenue, prays that a writ of

certiorari issue to review the judgment of the Cir-

cuit Court of Appeals for the Second Circuit,

entered in the above-entitled case May 7, 1934, re-

versing the decision of the Board of Tax Appeals.

OPINIONS BELOW

The opinion of the Cireuit Court of Appeals

(R. 33) is reported in 70 F. (2d) 705. The memo-

randum opinion of the Board of Tax Appeals

(R. 15-22) is not reported.

(1)

2

JURISDICTION

The judgment of the court below was entered

May 7, 1934 (R. 38). The jurisdiction of this

Court is invoked under Section 240 (a) of the

Judicial Code, as amended by the Act of February

13, 1925.

QUESTION PRESENTED

May the value of property over which the de-

cedent by will exercised a general power of appoint-

ment be included in her taxable estate, when she

appointed the property to the same persons who

would have taken under the will of the donor if the

power had not been exercised and the appointees

expressly elected to take under the will of the donor

and not under the appointment ?

STATUTE INVOLVED

Revenue Act of 1926, c. 27, 44 Stat. 9:

Sec. 302. The value of the gross estate of

the decedent shall be determined by includ-

ing the value at the time of his death of all

property, real or personal, tangible or intan-

gible, wherever situated—

* * * + *

(f) To the extent of any property passing

under a general power of appointment exer-

cised by the decedent (1) by will, or (2) by

deed executed in contemplation of, or in-

tended to take effect in possession or enjoy-

ment at or after, his death, except in case of

a bona fide sale for an adequate and full con-

sideration in money or money’s worth; and

* * * * ~

3

(h) Except as otherwise specifically pro-

vided therein subdivisions (b), (¢), (d), (e),

(f), and (g) of this section shall apply

to the transfers, trusts, estates, interests,

rights, powers, and relinquishment of pow-

ers, as severally enumerated and described

therein, whether made, created, arising,

existing, exercised, or relinquished before or

after the enactment of this Act.

(U.S.C.App., Title 26, Sec. 1094.)

STATEMENT

The facts as found by the Board of Tax Appeals

(R. 16-20) may be summarized as follows:

The decedent, Annie Stone, died September 24,

1927, a resident of the United States. John O.

Stone, her father, died in 1876, a resident of New

York, leaving a will whereby he devised the residue

of his estate to executors in trust to divide into as

many shares as there were children surviving him,

or who may have died leaving issue surviving him,

and to keep the same invested so as to produce a

regular income. The income from the shares set

apart for each child was to be applied to her main-

tenance and education until she reached twenty-

one years of age and thereafter to her use for life.

Upon the death of each child her share of the estate

was given to such persons and such uses as she

might appoint by will and in default of appoint-

ment her share was given to her children or issue

and in default of issue to her next of kin.

POOP MRE we ore

ETT, PORTA ae

’

ai ee IE Orr ts

Deed te, 6 eS to in

DE se tet RIMES 5 te

eter Awe Do *

ee ee

le Ott ETT SF me le EO te A

+

John O. Stone was survived by his widow (who

died many years before the present decedent) and

three daughters, Sarah J. Grinnell, Ellen J. Stone,

and Annie Stone (the present decedent), his only

children, heirs at law and next of kin. Under the

will of John O. Stone, one-third of his estate was

held in trust for the benefit of the decedent during

her life, and upon her death was distributable to

such persons and for such uses as she might ap-

point by will, and in default of appointment, to her

issue and in default of issue to her next of kin.

The sole next of kin surviving Annie Stone, the de-

eedent, who died without issue, were her sisters,

Ellen J. Stone and Sarah J. Grinnell. By her wil!

the decedent gave, devised, and bequeathed all the

residue of her estate, including her share of ber

father’s estate over which she had the power of ap-

pointment, to her sisters in equal shares. The

value of the share of her father’s estate left in trust

for the decedent and over which she had a general

power of appointment was $75,764.26 at the date of

her death.

The decedent’s sisters, by writing filed with the

Surrogate’s Court elected to take the share of their

father’s estate left in trust for the decedent under

the will of their father and not under the appoint-

ment made by the decedent in her will.

The Commissioner determined that the share of

the decedent’s father’s estate left in trust for her

and appointed by her to her sisters should be in-

4)

cluded in her gross estate and accordingly asserted

a deficiency in estate taxes of $9,628.78. The Board

of Tax Appeals sustained the determination of the

Commissioner. The Circuit Court of Appeals for

the Second Circuit reversed.

SPECIFICATION OF ERRORS TO BE URGED

The Circuit Court of Appeals erred:

1. In holding that the property appointed by the

decedent by her will, under the general power con-

ferred by the will of her father, did not pass under

the exercise of the power within the meaning of

the Revenue Act and, therefore, should not be in-

cluded in her taxable estate.

2. In not holding that the property over which

the decedent by will exercised the general power of

appointment conferred by the will of her father,

passed under the exercise of the power within the

meaning of the Revenue Act and, therefore, must

be included in her taxable estate, notwithstanding

the property was appointed to the remaindermen

under the donor’s will and they expressly elected

to take from the donor rather than under the

exercise of the power.

3. In holding that the law of New York is con-

trolling in determining whether property ap-

pointed under a general power exercised by will to

the same persons who would have taken in default

of the exercise of the power, passes under the

exercise of the power within the meaning of the

Federal Estate Tax Act.

AN ae ety lla IE ,: |

6

4. In reversing the decision of the Board of Tax

Appeals.

REASONS FOR GRANTING THE WRIT

1. The decision below in holding that the prop-

erty did not pass under the exercise of the general

power of appointment within the meaning of the

Federal Estate Tax Act merely because it was ap-

pointed to the remaindermen under the donor’s

will, is in direct conflict with Wear v. Commis-

stoner, 69 F. (2d) 665 (C.C.A. 3d), and Lee v. Com-

missioner, 57 F. (2d) 399 (App.D.C.), certiorari

denied, 286 U.S. 563.

Respondent here conceded below that a tax on

*‘property passing under a general power of ap-

pointment exercised by the decedent”’ is constitu-

tional, and he further conceded that the power in

the instant case is a general one and that it was

exercised. His contention was that the property

had not ‘‘passed under’’ the exercise of the power.

The court below expressly recognized the conflict

suggested above, where it said (R. 36):

In Wear v. Commisisoner, 65 F. (2d) 665,

the Court of Appeals of the Third Circuit

held that property bequeathed under a gen-

eral power of appointment to the same per-

sons who would have taken in remainder,

had the power not been exercised, for pur-

poses of Federal estate taxes, ‘‘passed’’

under the power and accordingly must, by

Si tat ete A AL SRN LOO BE onthe

7

section 302 of the Revenue Act of 1926, be

included in the gross estate of the person

exercising the power, and this, though the

law of Pennsylvania, like that of New York,

treated the property as passing under the

will of the donor. In Lee v. Commissioner,

61 App.D.C. 33, 57 F. (2d) 399, the Circuit

Court of Appeals of the District of Colum-

bia reached the same conclusion, as did the

Third Circuit Court of Appeals in the later

case of Wear v. Commissioner, 65 F. (2d)

oe.

With all deference to the high authority

of Judge Woolley and of the other judges of

the Courts of Appeal of the Third Cireuit

and the District of Columbia, we feel con-

strained to differ with the conclusions they

reached. * * *

In the Wear case, supra, the court pointed out

that the tax is imposed not upon the property but

upon the transmission of or the privilege to trans-

mit property, and stated the question of transmis-

sion to be not whether there has been strictly a

transfer but whether the death has brought into

being or ripened for the recipients valuable prop-

erty rights not theretofore possessed.

In the Lee case, supra, where the nature of the

tax as expounded in Tyler v. United States, 281

U.S. 497, 503, also is referred to, the court, in hold-

ing that property appointed in the exercise of a

general power by will must be included in the

donee’s taxable estate although the appointee is the

8

remainderman under the donor’s will, said that,

since the donee of the power could have defeated

the interest of the named devisee under the will of

the donor, the exercise of the power in favor of such

devisee at least confirmed title in him, and thus was

the generating source of the title.

The decision below also seems in conflict with

the principle controlling in Stratton v. United

States, 50 F. (2d) 48 (C.C.A. 1st), certiorari de-

nied, 284 U.S. 651. It does not definitely appear

from the report of that case that the appointees of

the property were remaindermen under the will of

the donor, but this very point was urged in peti-

tioning for certiorari in that case. (No. 303, Octo-

ber Term, 1931, Petition and Brief in Support, pp.

36-38 ; Brief in Opposition, pp. 6, 7.)

The decision below also is directly contrary to

the decisions in Pennsylvania Co. for Ins. on Lives,

etc. v. Lederer, 292 Fed. 629 (E.D.Pa.) ; Bishop v.

Commissioner, 23 B.T.A. 920; and Hancy v. Com-

missioner, 17 B.T.A. 464.

2. The decision below is erroneous and nullifies

the manifest purpose and intent of the statute.

The court held that because title to the property

passed, under the law of New York, to the appoint-

ees from the donor and not from the donee of the

power the property did not pass under the exercise

of the power of appointment and, therefore, was not

within the statute. The conclusion of the court is

based upon the state rule respecting the passage of

title to property subject to a general power of ap-

9

pointment and a strict application of the literal

language of the statute; and the court’s conclusion

in these respects conflicts with the principle estab-

lished by this Court in Burnet v. Harmel, 287 U.S.

103, 109-110, and Tyler v. United States, 281 US.

497, 503.

The estate tax is imposed upon the power to

transmit or the transmission of property at death,

and the question . . every case is not whether there

has been a transfer in the strict sense, but whether

the death has brought into being or ripened for the

survivor (the recipients of property) valuable

rights not theretofore possessed. The tax is not

limited to transfers of property passing directly

from the decedent, but includes as well property

the completed transfer or passing of which depends

upon or relates to the death of the decedent. Tyler

v. United States, supra, and Chase Nat. Bank v.

United States, 278 U.S. 327. The statutory pro-

vision here involved was incorporated in the Act

in aid of the purpose to reach all transfers effected

by the death of the decedent.

The Revenue Act of 1918 was the first statute

expressly requiring property passing under a gen-

eral power of appointment exercised by will to be

included in the donee’s estate, and the report of the

Committee on Ways and Means referring thereto

(H.Rep. No. 767, 65th Cong., 2d Sess., pp. 21-22)

clearly shows that Congress deemed the donee of a

general power of appointment over property to be

the substantial owner thereof for the purposes of

10

the estate tax, and intended that such property

should be included in the donce’s estate when the

power is exercised by will.

The court below in construing the statute disre-

garded this clear Congressional purpose and intent

and in so doing violated a cardinal principle of

statutory construction, as established by decisions

of this Couct. In Helvering v. New York Trust

Co., No. 873, October Term, 1933, decided May 28,

1934, this Court, quoting from Ozawa v. United

States, 260 U.S. 178, 194, said:

It is the duty of this court to give effect to

the intent of Congress. Primarily this in-

tent is ascertained by giving the words their

natural significance; but if this leads to an

unreasonable result, plainly at variance with

the policy of the legislation as a whole, we

must examine the matter further. We may

then look to the reason of the enactment,

and inquire into its antecedent history, and

give it effect in accordance with its design

and purpose, sacrificing, if necessary, the

literal meaning in order that the purpose

may not fail.

3. The decision below is contrary to and nega-

tives the consistent departmental interpretation of

the statute and administrative practice. Article 30

of Regulations 37, promulgated under the 1918 Act,

specifically provided that ‘‘property appointed

under a general power should be included in the

estate of the appointor, although the persons to

whom the appointment was made would have taken

the property had the power not been exercised.

_ —a—

11

* * *? Substantially identical regulations were

promulgated under the Revenue Acts of 1921 and

1924 which contained provisions identical with that

of the 1918 Act. (Article 25, Regulations 63;

Article 24, Regulations 68.) No similar provision

was contained in Regulations 70, promulgated un-

der the Revenue Act of 1926, but the omission

seems to have been inadvertent or possibly such a

provision was considered unnecessary. The pro-

vision of the Revenue Act of 1926 is substantially

identical with that of the preceding Acts. The re-

enactment of the pertinent statutory provision of

the 1918 Act without change in the 1921, 1924, and

1926 Acts in view of the administrative interpre-

tation of the statutes prior to 1926 would seem to

indicate legislative approval of the Department’s

construction. United States v. Dakota-Montana

Oil Co., 288 U.S. 459, 466; Massachusetts Mutual

Life Insurance Co. v. United States, 288 U.S. 269,

273.

If permitted to stand the decision below must of

necessity result in much confusion and uncertainty

in the administration of an important provision of

tiie revenue laws. A decision by this Court in the

present case is essential to dispel this confusion

and uncertainty.

Wherefore, it is respectfully submitted that this

petition for a writ of certiorari should be granted.

J. CRAWFORD Biaas,

Solicitor General.

Avaust 1934.

U.S. GOVERNMENT PRINTING OFFICE: 1934