Brief Amicus Curiae — Blair v. Commissioner

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DEC 4 ]g

CHARLES ELMORE

Ci

IN THE

Supreme Court of the United States:

OCTOBER TERM, A. D. 1936.

——$_—

No. 247

EDWARD T. BLAIR. ®

Petitioner,

VS.

GUY T. HELVERING. Commissioner of Internal Revenue,

Respondent.

MOTION AND BRIEF OF AMICUS CURIAE.

| EDWARD N. PERKINS,

Amicus Curiae.

In THE

ee COURT OF THE UNITED STATES,

OCTOBER TERM, A. D. 1936:

No. 247

Epwarp T. Buarr,

Petitioner,

US.

Guy T. Hetvertnc, Commissioner of

Internal Revenue,

Respondent.

af

MOTION FOR LEAVE TO FILE A BRIEF AS

AMICUS CURIAE.

Now comes Edward N. Perkins of 15 Broad Street,

New York City, and moves this Iionourable Court for leave

to file the annexed brief as amicus curiae, the consent of

counsel for the petitioners and that of counsel for the ré-

spondent having been first obtained. The undersigned asks

this leave as counsel for a party whose rights respecting

a still existent state of facts presenting the same questions

here now presented have been adjudicated as between the

Commissioner of Internal Rev enue and himself in a manner

inconsistent with the adjudication here under review, where-

fore said party has substantial interest in the outcome in‘the

present cause. Your petitioner as counsel presented the

cause referred to before the United States Board of Tax

Appeals and before the Circuit Court of Appeals for the

Second Circuit and now seeks opportunity-to endeavour to

corroborate the rights thereby established.

Epwarp N. Perkins,

" 15 Broad Street,

New York, N. Y. -

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ARGUMENT:

7

IT.

III.

IV.

" come taxable to the assignor

The final: decree of the Illinois Court

(record, pages 89 to 91) is conclusive as to’

the petitioner’s rights here concerned, and

therefore is conclusive upon the Government

here since its rights depend on the taxpayer’s

WOE Seyi ntarenungs cose ic,

The effect of the said decree is that the peti-

tioner’s assignee of the petitioner’s former

interest as cestui qué trust is the owner of an

estate or interest productive of. tha income

here concerned

The court below has erred in holding the in-

The distinction is clear and broad between the

present case and those cases including Lucas

v. Earl where assignments of present effect in

form have been held not to divert the accrual

of taxable income because they were in effect

mere anticipatory arrangements relating to

future income

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PAGE

Cases CITED:

17 Columbia Law Review, 475°. ..........0........ 3, 6

Commissioner v. Field, 42 Fed. [2d] 820........ 3, 7

Freuler v. Helvering, 291 U.S. 35.........0...0. 2,4,5

Lucas v. Earl, 281 U.S. 111.................... 3, 6, 7, 9

Maguire v. Trefry, 253 U.S.12 ............ econ 3.6.7

Matter of Stanfield, 1385 N. Y. 292 ............... 3, 6

Poe v. Scaboru, 263 0. &. 101... oo. oc cece cau cess 3, 9

Rosenwald v. Commissioner, 33 Fed. [2d] 423 .... 3,8

Sentor v. Braden, 295 U.S. 422 .................. 3, 6

United States v. Fidelity Trust Co., 222 U.S. 158.. 3, 6,7

Uterhart v. United States, 240 U.S. 598 .......... 2,4

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IN THE

SUPREME COURT OF THE UNITED STATES,

OCTOBER TER\M, A. D. 1936. |

No. 247

a>

Epwarp T. Bua,

Petitioner,

US.

Guy T. Hetvertnc, Commissioner of 3

‘Internal Revenue,

Respondent.

‘

7

4

ON WRIT OF CERTIORARI TO THE UNITED STATES CIRCUIT

COURT OF APPEALS FOR THE SEVENTH CIRCUIT.

BRIEF OF AMICUS CURIAE.

Facts.

Fully adequate statement of the facts upon this par-

ticular record is supplied by ‘the petitioner’s brief~. We

confine ourselves to the statement in general terms of the

point up for decision, as follows: :

‘Edward Tyler Blair, the petitioner, a cestui que

trust, assigned voluntarily ‘‘an interest amounting

“to * * * $9000. in each calendar year *-* * inthe-

“‘net income”’ of the trust thereafter to accrue. The

Appellate Court of Illinois held, and pursuant

_ thereto the Superior Court of Cook County (Illinois)

decreed, binding all parties in interest, -that the

cestui’s interest’ was assignable and that Edward

Tyler Blair validly assigned a ‘‘part of his interest

‘‘in said trust estate’? (R. page 90). Those courts

were courts of competent jurisdiction. The question —

MERINGUE Oa Te ete ae

4

ately EBACE AR HOO Se,

2

here is, whether the $9000. yearly paid to the assignee » «

are nevertheless taxable income to the assignor.

We observe that the Illinois Court’s decree referred ‘to

IS two-folg+#irst, it holds that the interest concerned was

assignable (R. page 90); and, secondly, it holds that the

assignment was a valid assignment of a part of the as-

signor’s interest in the trust estate (R. page 90), so that

the assignor was thereby excluded from the income assigned

which the assignee became entitled to. have directly from the

trustees and in his own right.

SUMMARY OF ARGUMENT.

L.

The state courts of Illinois having jurisdiction have de-

termined the petitioner’s ‘rights, namely, in effect, that the

petitioner-has validly assigned a part of his interest in the

trust estate productive of the income concerned (Peti-

tioner’s Exhibit 17, R. pages 88-91). That determination

is conclusive upon the respondent in the present case

(Freuler v. Helvering, 291 U. S. 35; Uterhart v. United

States, 240 U.S. 598) because a taxpayer whose rights have

been adjudged conclusively as to him by a state court of

competent jurisdiction can have no other rights than those

so adjudged.

| oe

The legal effect of the adjudication of the Illinois Court,

to wit, that the petitioner has parted with the ‘property or

right productive of the income concerned, is that the as-

signee became the owner of that interest or right’ and

therefore the only person to whom the income derived from

it can be taxed, since income cannot be taxed to one who

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3

has no right or relation to it. The thing assigned was an

interest in a beneficial estate, being not the money received

before or after any given time as income, but the legal unit

of right with which the right to the income goes, which is

a property right carrying a title or present right to the

future income from the moment of the assignment. (United

States v. Fidelity Trust Co., 222 U. §. 158; Maguire v.

Trefry, 253 U. 8. 12; Matter of Stanfield, 135 N. Y. 292).

And this is so whether or not the thing assigned be deemed

an equitable estate or a chose in action (Senior v. Braden,

295 U. S. 422; See 17 Col. L. Rev., p. 475).

>

Ill.

' The court below has erred in holding the income con-

cerned taxable to the petitioner, because what was as-

signed was a property right or presently existing chose

-in action, as stated above. Consequently the income con-

cerned belonged to the owner of -the right and had nothing

to do with the assignor who had parted with the right, and

-this is the holding of the Circuit Court of Appeals for the

Second Circuit in Commissioner v, Field (42 Fed. [2d]

820), where the distinction is shown between this case and

a case like Lucas v. Earl (281 U. §. 111),

vy.

The distinction between. a case like the present and such

a case as Lucas v. Earl is perfectly-elear. The basic differ-

ence between the case of an anticipatory attempt to deflect

future ingme, which is Lucas v. Earl, and a case where a

present existing property interest or right passes presently,

may be. illustrated by comparing Rosenwald v. Commis-

stoner (33 Fed. [2d] 423), with the present case. Lucas.

v. Earl was a case of an anticipatory attempt to deflect in-

come, as this court recognizes in Poe v. Seaborn (282 U. S.

CROMARE LL OL OY ORT: WEL

; >

+

101), saying, at page 117, that the attempted assignment

relied upon in Lucas y. Earl was bottomed on the fact that

the income concerned, which was earnings, would be the

husband’s property-in order that the supposed assignment

might be effective; that otherwise the assignment would

have had nothing to operate upon. - Here, the existing

beneficial interest in the trust estate is what the assign-

ment operated upon, whether it be regarded as an estate

or interest in property, or as a complex of choses in action.

e

ARGUMENT.

I.

The decree above referred to of the Illinois Court con-

cludes the parties to it, of whom the petitioner was one,

and therefore concludes the government here since its rights

depend on the taxpayer’s rights. 4

This seems not only self-evident, but settled by Freuler

v. Helvering (291 U.S. 35), and Uterhart v. United States

(240 U. S. 598). In the Uterhart case this court said, as

to the effect on Government’s rights when taxing, of a

state court’s determination of the taxpayer’s rights:

‘It is very properly admitted by the Govern-

ment that the New York decree is in this proceed-

ing binding with respect to the meaning and effect

of the will. The right to succeed to the property

of the decedent depends upon and is regulated by

state law (178 U. S. 41, 57) and it is obvious that a

judicial construction of a will by a state court of

competent jurisdiction determines not ‘only legally

but practically the extent and character of the in-

terests taken by the legatees.’’

_, We observe that similarly a decree of a state court of

competent jurisdiction binding upon assignor and assignee

as well as trustees, as fo the effect of an assignment affect-

ing trust income, determines not only legally but practically

5

the extent and character of the interests taken by the

assignee.

_ In Freuler vy. Helvering (supra) section 219 (d) of the

1921 Act made the ‘‘order’’, if any, governing distribu-

tion, controlling. There was a decree of the California

court directing the trustees to retain certain amounts

against capital depreciation and the controversy related to

those amounts. The argument then centered on whether

that decree was the order controlling distribution within

section 219 (d). This court held that it was. And the

reason is, that that decree did, in fact, control the distribu-

tion concerned. Accordingly this court (at page 44 of the

291st U. 8.) said: :

‘ce @ &

- But, if the order of the state court does

im fact govern the distribution, it is difficult to see

why * * * it should not be effective to fix the amount

of the taxable income of the beneficiaries, * * ia

(Italics ours.)

The decree of the Illinois Court stands as the law of this

case so far as concerns the effect of the assignment. We

apprehend that this court will regard itself as constrained

to hold that on this head the decision of the Appellate Court:

of Illinois is conclusive. |

I].

The effect of the decree of the Superior Court for Cook

County entered pursuant to the decision of the Appellate

Court of Illinois, is that the assignee is the owner of an

estate or interest productive of the income concerned.

_ This decree of the Superior Court: for Cook County is

that the assignment was an assignment of ‘‘a part of the

“interest of said Edward Tyler Blair [the assignor] in

- “said trust estate’’ (R. page 90), and was valid (ibid.) ;

that the assignor’s interest was freely. assignable volun-

7

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Seen ere Beer var eee cae meena tetas mas SED

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tarily (¢iid.). Then the assignee became the owner of that

imterest. An interest in a beneficial estate is ‘‘a vested

life estate in a fund’’; it is ‘‘the legal unit of right? it is

not ‘‘the money received before or after a given moment’’.

| (Per Holmes, J., in United States v. Fidelity Trust Co.,

222 U.S. 158.) The money received goes to the owner of

the interest or ‘‘legal unit of right’’ by virtue of that owner-

ship. That ownership is a ‘‘property right belonging to

‘the beneficiary’’. (Maguire v. Trefry, 253 U. S. 12.)

A bequest, like an assignment, is a transfer of an interest.

= the New York Court of Appeals has expressed it, ‘‘a be-

‘quest of income to a legatee for life must be construed

‘to invest him with a title to such income from thé.date of

“the testator’s demise’’. (Italics ours. Matter of Stanfield,

135 N. Y¥. 292.) | ;

Whether an equitable interest be deemed an ‘‘estate”’

or a complex chose in action (Cf. Stone, J., in Senior v.

Braden, 295 U.S. 422) is not material here, sine the chose

in action is equally a present right quasi “<property”? and

immediately assignable; but the holding of that case is that

it is an estate, and the point was material to the decision of

that case... That equitable choses in action are assignable

will not be questioned. It is common legal knowledge that,

as Dean Stone said at page 475 of the 17th ne aw

Review:

_ ‘Kquitable rights have always — regarded by

courts of equity as freely transferable and, so far as

expedient, they have been likened to legal interests

which could be created or transferred by the cestut

in the same way as the legal owner could create or

transfer rights from his legal ownership.”’

Then, regarding the present petitioner’s position as

cestui as the proprietorship of a complex chose in action,

what he did was to pass the rights presently and irrevocably

to his assignee. What passed was the presently existing as-

signable right or interest. What distinguishes Lucas v.

ae

7

Earl (281 U. S. 111) is precisely the absence of any cor-_

responding fact in that case. (See Commissioner v. Field,

42 Fed. [2d] at page 822, where this is pointed out as quoted

infra. And see infra, -pages 8 and 9.) |

III.

The Com below has erred in holding the income con-

cerned taxable to the assignor.

The reason is, that not future income, but a present

interest, or ‘‘legal unit of right’, passed by the assign-

ment, and the income goes to the assignee by virtue of that

“property right belonging to the beneficiary”’ [assignee],

who had become beneficiary pro tanto.by virtue of the as-

signment. (Quotations from United States v. Fidelity Trust

Co., supra; Maguire v. Trefry, supra.) Therefore the as-

signor had nothing to do with that income and so it can

not be taxed to him. This the Circuit Court of Appeals

for the Second Circuit squarely held in Commissioner v.

Field (42 Fed. [2d] 820). There, in distinguishing the line

of cases dealing with attempts to deflect income by anticipa-

tory dealings with the income, which line of cases culminated

in Lucas v. Earl (281 U.S. 111), Learned Hand, J., said for

the court:

“* * *. These were, however, all cases in which,

though the instrument affected to convey an existing

interest in property, there was none at the time which

the law recognized. We do not understand that,

where there are such, they may not be assigned like

other property, or that, when they have been, the

income is still taxable to the assignor.”’ (Italics

~._ ours.) ;

It is, indeed, hard to see how, where an assignable estate,

interest, or right, which is in present existence as a ‘‘legal

unit of right’’, is presently assigned, the income thereafter

YR A ay 3

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8

accruing .through it, and payable to its then owner, the as-

signee, can be taxed to the assignor. To do that would be

to tax one man in respect of what is another’s; and that,

surely, even if the act assumed to do it, the Due-process

Clause would not admit of.

IV.

The distinction is clear and broad between the present —

case and those cases including Lucas v. Earl where as-

signments of present effect in form have been held not to

divert the accrual of taxable income because they were in

effect mere anticipatory arrangements relating to future

income. —

Rosenwald v. Commissioner, 33 Fed. [2d] 423 may be

compared with the present case for effective illustration.

In the Rosenwald case, the taxpayer had a present property

in the shape of shares of stock. In the present case the tax-

payer had a present property in the shape of a beneficial

estate. In the Rosenwald case the taxpayer had prospec-

tive income in the shape of future dividends. In the present

case the taxpayer had prospective. income in the Shape of

future distributable trust income. In the Rosenwald case

the taxpayer did not assign any share. In the present case

the taxpayer did assign part of his beneficial estate. And

that is the vital difference. The taxpayer in the Rosenwald

case tried to pass the prospective income while retaining

the present property, so that the assignee must receive the

income when it came due under and through his assignor’s

retained right represented by the shares; the dividends

had to be declared on the assignor’s shares in order for

the agsignee’s claim to the income to attach, and the right

of the assignee to the dividends depended on their accruing

upon the assignor’s property. In the present case the tax-

‘payer did not try to pass the prospective income while re-

9

taining the present property, but, on the contrary, parted

with ‘‘a part of the interest of Edward Tyler Blair in

‘‘said trust estate’’, and thenceforth the assignee’s right

to the trust income depended on its accruing upon the

assignee’s property. And this illustrates the basie dis-

tinction underlying all the éases of attempts to dispose

presently of income to fall due later.

This contrast makes it clear that the transaction in the

present case was not an anticipatory arrangement at all,

but.a present deed. In Lucas v. Earl, supra, the importance

of this is shown by the words of this court per. Holmes, J.

There husband and wife mutually agreed that future ac-

quisitions of each including earnings should be the joint

property of both, and it was held that the husband’s earn-

ings thereafter received shou:d be taxed as wholly his in-

come. The contract was binding but executory. The earn-

ings must accrue by virtue of the husband’s rights as em-

ployee in order for the right of the wife to attach. Thus in

Poe v. Seaborn (282 U.S. 101) this court said at page 117,

with reference to Lucas v. Earl:

‘‘The very assignment in that case was bottomed on

the fact that the earnings would be the husband’s

property, else there would have been nothing on which

it could operate.’’

And in Lucas y. Earl, at pages 114 and 115, this is said:

““ * *. There is no doubt that the statute could

tax salaries to those who earned them and provide

that the tax could not be escaped by anticipatory ar-

rangements and contracts h wever skillfully devised

to prevent the salary when paid from vesting even

for a second in the man who earned it. That seems

to us the import of the statute before us and we think

that no distinction can be taken according to the mo-

tives leading to the arrangement by which the fruits

are attributed to a different tree from that on which

they grew.”’

10

In the present case, there was no ‘‘anticipatory arrange-

ment’’ touching income. A present right or interest was

presently transferred. That right or interest was the tree

on which the fruits in question grew. What we are insisting

on is precisely that they be attributed to the tree on which

they grew. The assignee received those fruits, thereby

harvesting them from that tree, which already was his own.

Respectfully submitted,

'* EDWARD N. PERKINS,

Amicus Curiae,

15 Broad Street,

, New York, N. Y.