# Transcript of Record — Helvering v. Grinnell

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Transcript of Record
- **Published:** January 1, 1935
- **Citation:** 294 U.S. 153

## Text

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

~

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

. Le a tr

ms ac

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
I SO cudccansxnwactnemonkendstenatucaecaubicnden
PE inivanincedccsadudiktnbdavhddunnyeeeebaeabatanie 2
Question presented... ...............- wuebdodnetmedecstbes 2
Ne CNN is win errata ckaninites oebiiabmadneaarmaumate 2
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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386009_0157%3A1. Public record. Not legal advice.