Brief for theRespondent — Helvering v. Hallock

Supreme Court brief1940

Ask Donna

What actually matters in this document.

Text

’ \

° E

* %? >

. 7 a

' « ‘ °

= *

; .

? —

» * . 3 ee

ae é

- ‘

e °

. * , ;

. @- .

. , : E ,

e .

= .

z . * y .

e .

: : “WES '

~ \

> ‘ ‘

Sy .

F ’

e _ :

. “

= .

. ° se

~ ye

. ’ ; . a?

~ Cd Ww

2 / ¢ ; ae

id e 7

’ -

. ‘

. . °

s .

. .

° .

€

. . ? $ .

G ;

. - »

c ‘°

z .

. ‘ re

oo : 5

VT = + a

e .

si a 7 °

. .

° . J

. ° ‘ » .

. $

* -

. °

. . :

es .

. .

had

° .

A ‘ .

rs ° r

ig -

‘ > *.

> - ~~

A e f ‘

. * «

: : .

. «

‘

‘ A °

“ pie ww ww erst fica - Saprens Sout e.”

< , ween ;

‘Nos. 110-112. .

Th the Supreme Court of the Uni

OCTOBER TERM 1939.

WOne CROPLEY

| GUY T. HELVERING, Commissioner of Internal Revenue,

Petitioner,

Vs.

MARY Q. HALLOCK and CENTRAL UNITED NATIONAL

BANK OF CLEVELAND, Trustees, |

hae .. | Respondents.

atl

GUY T. HELVERING, Commissioner of Internal ‘Revere,

| Petitioner,

vs.

MARY Q. HALLOCK, EXECUTRIX, Estate of Henry Hallock,

deceased, ;

_ Respondent.

GUY T. HELVERING, Commissioner of Internal Revenue,

Petitioner,

: 9 vB.

S. H. SQUIRE, Superintendent of Banks of the State of Ohié in’

Charge of Liquidation of The Union Trust-Company, Successor of

The First Trust and Savings Company, Trustee, Cleveland, Ohio,

Respondent.

Ow, Waits or CERTIORARI TO THE UNITED eaves CigkcvuIT

; Court or APPEALS FOR THE Srxta Criecvirt.

000 ap pe oe

7 BRIEF FOR RESPONDENTS.

see

pa STEWakT,

Wa ker H. Nyez, So

1 Asuiey M. Van Duzer, '

| Counsel for Respondents 1 in Cases Wee.

110 and 111.

at W. H. Anwar,

Coumaet for Respondent i 7) > Case No. 112.

a. ;

Tue Gates LecaL Pvsiisnina Co., OLEVELAXD, OHIO -

Nature of Cases..... Lacie sede Bike keea te een ‘anaes

Opinions in Case................0.c0e0ee. ivicasaeew es

Question Presented.............:..... aie os ie

‘Statement ‘of ee eG a lode wa 0's oe en ;

YC aN

—— (

Summary of Argument. Pie ces loos éobes

Argument ......... al ceceeharaek Lobes cueeennewes

oI. These. Cases Are Governed by Helvering v. St.

Il.

cee,

- Louis Union Trust Company‘and Becker v. St.

Louis Union. Trust Company. Those. Decisions

Are Sound and Do Not Conflict with Klein 0.

United hs Vee ee kee

The Doctrine That Transfers Like Those in the —

St. Louis Union Trust Co. Cases Are Not Testa-

mentary as a Matter of Statutory Interpretation

Accords With the Principles Settled by All Other —

Decisions of This Court..............eeccecses

(a)

All decisions of this Court and the prior deci-

sions of other courts and the Board of Tax

Appeals in cases where there was a possibil-

ity of reverter accord with the decisions in

‘the St. Louis Union. Trust Company; cases.

(b)

The basie principles of the other decisions of

this Court interpreting Section. 302(c)’ sup-

port the St. Louis Trust Company decisions,

‘and the overruling of the latter would mean .

the disapproval of the settled doctrines of

those other decisions.............. aa ale bie 6

tutionality of the statute is involved, the

‘death of the grantor may effect some change

in'the quality of the remainder interests with-

out resulting in a testamentary transfer with-

in the scope of the statute..... eeeena ores ;

10°

I. A Possibility of Reverter Is Not Such a Property

Interest that Its Obliteration by the Death of

the Grantor Effects that Transfer of Property or

of Economie Benefits W hich i is the. Subject of the.

the Setatlie Dae... «ces vcckvce ss Sache seseeusdes? 31

IV. Whether the Effective Administration of the Es- ©

tate Tax Law Requires the Application of Sec-

‘ tion 302(c) Advocated by the Government is a

Matter for Congressional Action Exclusively, and

(Congress Has Indicated its Satisfaction with the

‘Section as Heretofore Construed........ Ae BE

V. This Court’s Decisions ‘Applying the Doctrine of -

Stare Decisis Are Persuasive in Favor of Ad-. |

herence to the St. Louis Trust Company Cases.. “41 —

Congress has power to amend Section 302(c). 47

TABLE OF AUTHORITIES.

Amoskeag Trust Co. v. Field, 10 Fed. Sup. 635...... 21.

Bailéy v. Us 8s, 27 F. Sup. 617.00. 6 cc. cece eee cee MOAT

Matter of Barstow, 230 App. Div. (N. Y.) 371; 244. N.

YS. 588; affirmed 256 N. Y. 647................ « 2

Becker v. St. Louis Union Trust Co., ose ie tree |

We pars caesar rue eme cua 3, 4, 11, 12

Bingham v. United States, 296 U.S. 211........., 19, 20, 46

| Blakeslee v. Smith, 26 F. Supp. 28......-. Bene 46

» Bonney v. Commissioner, 29 B. T. A. 45.... hae 21,33

Boston Store v. American Gramaphone Co., 246 U.S.8 4.

Branch v. Cemetery Assn., 11 0. C. SEREESS. See 32

Brenham v. German American Bank, 144 U. 8.173... 45

_ Bryant v. Commissioner, 36 B. T. A. 669..... Wamcies 47, 5)

Burnet v. Chicago Portrait Co., 285 U.S.1........++5. 39

* Burnet v. Coronado Oil de: Gas Co., 285 U.S. 393. .... 41, 44

Burnet v: : Guggenheim, | 288 U.S. 280............... . 40

Burnet. v. Northern Prust Company, 41 F. (2d) 732,

283 U.S . 782. ; Cee nciuud de Uaaee easy eaeeNtaen 6, 26, 36

Burnet v. Wells, 289 U, S. G70. 2... cece cece ewecces 29

Chase National Bank v. United waits 278 U. s, 327.

Si cde aUhaehs cone cakauneenaeareceeea 1s 00 eddy DO, 31

CLE. 1. Railroad v. Industrial iain 28 U.S. .

MU Seed cueoceddnecncsen cee cieceucseessuens 1. 40

Commissioner v. Svea. 87 F.. (2ay Eee _ 47

* Commissioner v. Grosse, 100 F. (2d) 37...... Serre 33, 46

- Commissioner v. Kaplan, 102 F. (2d) 329.....:..... 46.

Commissioner v. Schwarz, 74 Fed. (2d) 712....6.. 6.6 50

‘oolidge v. Long, 262.0. 8. 56Z....:. ctswelieneues 14, 30

Copper Queen Consolidated esined Co. v. Aries, —

US ATE cece eee eee oped aesecccecesees 38

~ Corliss v. Bowers, 981 U.S. 376. 2...6000. a

Corning v. Commissioner, 104 F, (2d) 329.....4...+6- 46.

Duke v. Commissioner, 23 B. T. A. 1104 (affirmed 62 F.

_ (2d) 1057 and by equally divided’ court, 290 U. S.

ce, eee ern arte error r veveneiies 21

Dunham v. Cnnmndaias 26 B. ee Serre re

Erie R. Co. v. Tompkins, 304 U.S. "SERRE ior ot aeRO 44

Fairfield v. Gallatin County, 100 U. S. 47.. se eeees . oe

Gazzam. v. Lessee of Phillips, 20 Howard 372. piace ae

Gilpin &, Williams, 25 O. S. 288. ....2...000cce reece es 32

Harley v. Commissioner, 295 U. S. 216.'...... Chesca ae

Hasset vr.’ Welch, 308 U.S. 303... 0.0.2... 000000 20, 36, 38

Hecht v. Malley, 265 U. 8. 144.0... 6.000200 0 Peers 39

~ Leiner v. Donnan, 285 U. 5 :) Veo 23.

Helvering v. Bullard, 303 U.S. 297......6.c00.00. oe

Helvering v. Duke, 290 U. 8. 591.2... 0.005005 ie

Helvering v. Producers Corp., 303 U. 8. 387........

Helv ering v, St. Louis Union Trust Co., 296 U. S. 39 7

a CANT SEs ARS SSE Url eS ee 3, 4, 10, 12 » 16,2 22

ovuecite: v. Toombs, 18 Wall. 648............. booae ae

Industrial Trust Co. v. United States, 296 U. s. 220..... <J9

| Jeager v. Cininidddner, 33: B. b < See 2 ae 50

3 Ker mer. United States, 283 U, S. 231.10, 12, 13, 15, 17,19, 50

Kneeland, 34 B. ee Dr ee rere 2 gh Pe 47

Knowlton v. Moore, 178 U. S. SR eociaces . ¥

Lee v, C.& O. Ry., 260 U.S. 658....0. Lecce gece eee: 42

| In Re Lowengart ’s Estate, 160 Ore. 118......... : oes 2b:

Mackay v. Commissioner, 94. F. (2d) 558...:......... 47

- Mason v. Eldred, 6 Wall. 231... 2.....5 26. ..eeeeeeeees 42

| Massachusetts Mutual Life v. United 1 States, 288 U: S. .*.

ae se Woe baba cues ese ee 39

May vi Heiner, 43 Fed. (2) '277, 281 0. S: ae

Saas eae gt eee aae ard eee y's Ta 18, 19,25, 26, 31, 36 °

McC seuiiah vr. Burnet, 283 U. S. 784, 13 B. T. A. 423 °

SHA he cf SSO OOPS 6,518, 19, 26, 36 —

McCormick v. Voimininsiones: 13 B. T. A. 423; (reversed

43 F. “a 277; Cireuit Court of Appeals rev ersed

283 U. S. 784)..... SOP ee OPEC heer rr eee 2

| John T. H. Mitchell, 37 B.D. ALL... ccceeccc nee ke AT

Morsman v. Burnet, 44 F. (2d) ain 283 U. S. 788.

SS ee ea ee ee ees, jc

Murphy Oil Ba v. Burnet, 281 ie. eae 2 2 ceseee 39\

Myers v. Magruder, 15 F. Sup. 488......0. se espeeees ra

National Bank v. Matthews,.98 U.S. 621............42,43

gp *

National Bank- v. W hitney, 103 U.S. 99. Torrey -,42, 43, 46

— Needles v. Needles, 7 OS. “432 vehi sdeveed¥eevonss es &

Nichols v., Bradléy, 27 F, (2d) 47. ...0000000000eee 21, 33

"Nichols v. Coolidge, 274 U. 8. 531........ easeeseicane

| Nicholson v. U. S., 25 F. Sup. Me acicelicn ae 47

Old’ ‘Colony Test C0. v. U.S, 154", Sup. 417, 422-3... 47

7 Ota Mission Portland Cement Co. v Helvering, 293 .

in Oke.) Pee ee 39

Peabody v. Commissioner, 24 B. T..A, 787.:...:. vee ae (21

_ _Porter v. Commissioner, 288 U. S. 436............ 006. 30 .

maou v. Humphreys, No. 37 (U.S. see Ct., present

+ WORM) cL cccwccdeccveccescessesvereeseses tessqu Sl

- Reinecke -v. Netthon Trust Company, 278 U. S. 339

| seageregecesenccerperemsceees ene eGy 14, 23, 25-26, 31

Robe rts v. Lewis, , Aer ret eee eat G-

Rosen v. U. S., 245 U. 8. 467:.. 0. 6.saebeeseedereess 42

Rothensies v. Cassell, 103 F. (2d) 834.......... ‘ap 0éa:-

bp St, Louis Trust Company cases....... sete eees 3 et passim”

‘Saltonstall v. Saltonstall, 276 U. 8.260. is... .000eeee: 30

Sanford v. Commissioner, Docket No. 34 (U.S i.

, Ct. present term) . is dee heeeeeenaebe :8, 98, 31, 39, 40

Shukert v. Allen, 273 U. &.: 545e ie EP ee 23, 24, 26,28

Swift v. Tyson, 16 Peters 1......++++++ 04 euenaad ‘ae

Tait v. Safe: Deposit & Trust Co., 74 E-42d) 851. . 21,33 .

. Taylor v, Commissioner, 27 B. T. A. 220 hiehies ay S aiel ae

Trust Company v. Commissioner, 27 B. T. A..972..... * 50

Trust Company v. Field, 10 F. Sup. 635......... ‘sweee OO

Fyler v, United States, 281 U. 8. 497......++. aasiea 30

Union Trust Company v. U. S., 54 Fed. (24) 152...... 50

United States v. Jacobs, 306 U. 8. 363..... 2.6. .066 .28, 30.

OB. 0 Whit, Gh CPB ie saci cncicess eee

U. 8..r. Nichols, 92 F. (2d) 704. 9.0.4... eulaniieaaa ae

U.S. rv. Phelps, 107 U.S. 320.. POL PE ee eT re 42

_ United Statés v: Raynor, 302 U.S. 540...... 0.0005. 45

Vidal v. Gerard’ s Executors, 2 Howard REE ee

I ‘allace v’. Commissioney, 27 B. T. A. 902 (affirmed —

. Without opinion, 71 F. (2d) 1002; certiorari denied,

See Sie IE bvan ixachus venncasseenssbvenwees 21

Wheeler v. Cominissioner, 20 B.-T. A. 695.......4..24,33

W *hite v. Poor, 296 U. | Sr re i nkvnees — 36

| Texts. }

Gray on the Rule against Perpetuities, at Section 108. . 16

XXXVII Harvard Law Rev ew, page See 45

. Nature ie Judicial Proce’ ss (Cardozo) page 146...... 45

' . Restate ment of the Law of Preperty—Future Inte rests.

(Parts. 1 and 2) at page 52D. ..... cece ccdeceoes 1d

_ Restate ment of the Law of Property, Section 157. . 1

Thompson on Real Property, Vol. III, See, 2112, p.176 17

Tiffany on Real Prope rty, 2nd Ed., Vol. I, See. 93,’ p.

Ee saveen ts Fes HERD aReh Ooh Cd ebetede cc neuron 17

! Statutes

Revenue Act of 1918: Sor }

ee Coc ccckcenssdeseusbassthoutes _ 23

Revenue Act of 1926: ae ee ee

_ Section 302(¢)..... he eens 1, 3, 6, 7, 8, 19, 20, 22, 28, 29,

. ar see ia - 31, 33, 34, 36, 37, 39, 47, 48, 49, 50

Section 302(d)....... Nckwbdwecehens ne oe ceo ely Gay OO

~ Reyenue Act of 1936 : Bs pa | < )

Section 302(d)...-..cccecceeseess ee eeeeceeees 7:

Section 805. .1........6- eeveeevereesivewese ——

Revenue Act of 1937... gaye wedes Ses qeee bra Pere ..7, 36

Revenue Act of 1988........:...000.00- aemekconseds 7, 36

"Revenue Act of 1930.:..0....0,2ccccececuepuececsees 7,36

Internal Revenue Code: | ao

Section 811(c)..... between eeeee iocuca ese cis =, 38 °

- Miscellaneous.

House Committee Report on Section 805 of the Reve- ae

) nue Act of BIRD. cae svwccciesces OS ee ER oe 35

House Committee Report on H. R. 19793 Seer naenes 3)

Treasury Regulations 80, Artie 17,005 oecceceees 37, 38

}

Nos. 110-112.

In the Supremé Court of the United States

. OCTOBER TERM 1939, — ac:

GUY : 2 HELVERING, Commissioner of Internal Revenue,

Petitioner,

VS.

MARY Q. HALLOCK and CENTRAL UNITED NATIONAL

_ BANK OF CLEVELAND, Trustees,

» Respondents,

uy T. HELVERING, Commissioner of Internal Revenue

>. Petitioner,

Wie’

MARY Q. HALLOCK, EXECUTRIX, Estate of Henry Hallock,

deceased,

Respondent.

GUY T. HELVERING, Commissioner of Internal Revenue,

, Petitioner,

Vs. : as

S. H. SQUIRE, Superintendent of Banks of the State of Ohio in

Charge of Liquidation of .The Union Trust Company, Successor of

The First Trust and Savings Company, Trustee, Cleveland, Ohio,

Respondent.

Ox Ww RITS OF CERTIORARI TO THE UNITED States CIRCUIT

Cour RT OF APPEALS FOR THE E Sixt Circuit.

— FOR RESPONDENTS.

NATURE OF CASES.

These cases, which for practical purposes may be.con-

sidered as one, involve the question -of the taxability, under -

‘Section a02(c) of the Revenue Act of 1926 as amended, of.

2°

“the remainder interest! in an alimony trust created 1 oy

Henry Hallock on September 3, 1919.

The cases originated by appeals to the-Board of Tax |

Appeals from deficiency estate tax assessments. The Com-

* ~ missioner had levied the assessment not only against Mary

_Q. Hallock, the. Executrix, Case No: 111, but also against.

the Trustees of an insurance trust as transferees, Case No.

- 110, and against the trustee of the alimony trust as trans-

feree, Case No. 112 (R. 13, 7, 19).

The basic legal question is fully presented in case No.

111, in which the Executrix is Respondent.and no separate

' . discussion of the other two cases is necessary.

The Board of 'fax Appeals determined that no tax was

due and accordingly set the deficiencies aside (R. 37, 46-

‘. 47). Upon petition for review the Cireuit Court of-Ap-

peals affirmed. Petitions for writs of certiorari filed by

_ the Commissioner were granted on October 9, 1939.

OPINIONS IN CASE.

The opinion of the Board of Tax Appeals (R. 37) is

reported in 34 B. T. A. 575. The opinion of the Cireuit ~

Court. of Appeals (R. 70) is reported in 102 F. (2d) 1. ° 4

— » Both “decisions were unanimous. &

QUESTION PRESENTED.

The sole question presented ? is whether the remainder .

interest (or some lesser interest) in the alimony : trust,

1In the Cireuit Court of Appeals the Commissioner aban-

doned the claim, earlier. asserted, that the, life interest created

by the trust was to be included in the gro¥s estate.

* Both before the. Board of Tax Appeals and in his brief in

the Cireuit Court of Appeals the petitioner also élaimed that

the Executrix was not entitled to deduct certain indebtedness of

the decedent in exeess of the appraised value of the probated

assets of the estate. This assertion is now abandoned.

similar in all essential respects to the trusts involved in

Helvering v. St. Louis Union Trust Co., 296 U. S. 39, and

" Becker v. St. Louis Union Trust Co., 296 U. S. 48, ghould —

now be held taxable as part of the grantor’s gross é¢state ©

_ under Section 302(c) merely because of the existence of a

possibility of reverter such as existed in those cases.

STATEMENT OF CASE.

The facts, as stipulated and as found by the Board of

_ Tax Appeals (R. 28 et seq., 37 et seq.), are as follows:

- Henry Hallock died testate on October 10, 1932, a resi- |

dent of Cleveland, Ohio. His widow, Mary Q. Hallock, was

appointed Executrix of his estaté by the appropriate pro-

bate court. a ee ais :

On September 3, 1919,-decedent entered into a separa-

tion agreement with his then wife, Anne Lamson Hallock,

which provided for the payment to-her of $500.00 per month

as alimony and for the creation of a trust to produce and

sécure this sum -(Ex. B-to Stipulation, R. 33-35). On the

same day he created a trust of 884 shares of 7% preferred -

stock of The Ohio Rubber Company, of which trust the Su-

* perintent of Banks of Ohio: had become trustee. at the gran-

‘ tor’s death as successor to the original trustee (Ex. A to

Stipulation, R. 30-33). The total preferred dividend called

for by the stock amounts to $6,188.00 annually, which would

he sufficient to meet the- payment of $6,000.00 per year to the

wife and leave $188.00 per year for the expenses and com-

—pensation of the Trustee (R» 29, 39). The trust agreement

provided..that the net income of the trust, not exceeding

$6,000.00 per annuni, should be paid to Anne Lamson Hal-

lock for life and that when she should die the trust should *

terminate and the fund be delivered to the settlor Henry

Hallock if then living, but that if he should not then be

living, the fund should be paid and delivered to the children

of Henry and Anne Lamson Hallock. The trust was subject

4 |

to termination or alteration only by the written consent of

the settlor and the life beneficiary. Clause “<< of the

trust instrument, making provision as aforestated, is shown

below.!

| Anne Lamson Hallock secured the viemeiatiied divorce. ”

in October of 1919 (R. 42). She was sixty-three years old

on the. date of’ decedent’s death (R., 42), is, still living,

has not remarried and the trust is still in effect (R. 42, 54).

- SUMMARY OF ARGUMENT.

(a) The instant cascs are controlled by Helvering r.

St. Louis Union Trust Company, 296 U. S. 39, and Becker

v. St. Louis Union Trust Company, 296 U. S. 48, and not

by Klein v. United States, 283 U. S. 231. ‘The St. Louis

Trust Company cases are sound. Those eases differentiate,

* for estate tax purposes, between, on the one hand, property

rights possessed or enjoy ed by a decedent during life an®

passing at his death, and, on the other hand, mere possi:

bilities of possession or enjoyment which aay never occur

and are in no aspect subject to the grantor’s control. This |

™*C. Tf and when Anne Lamson Hallock shall die, then and

in such event and thereupon the within trust ‘shall. terminate

and said Trustee shall and will pay Party of the First Part if

he then be living any accrued income, then remaining in said

trust fund and shall and will deliver forthwith to Party of the

First Part, the principal of the said trust fund. If and in the

event said Party of the First Part-shall not be living then and in

such event payment and delivery over shall be made to, Levitt

Htallock and Helen Hallock, respectively son and daughter of

the Party of the First Part, share and share alike. If and in the

event either said Levitt Hallock or Helen Hallock shall at such

time be dead, the share which would have gone to him or her if

living, shall go to the children‘of such deceased child and if

there be no such children living, then said entire ineome and

principal shall -be oe to that child of Henry Hallock then liv-

ing.

(\ distinction is well founded in the law and-even whén ap-

plied to the practical subject of federal taxation is “ no

"sense an impractical refinement. — J

_(b) The St. Louis Trust Company cases do not con-

“flict with the Klein case. Klein kept the reversion vested

in himself, and gave his wife only a conditional estate, sub-

ject to the condition precedent thai he should predecease

her. .His death accomplished a transfer by immediately

vesting the entire property in her, in possession and enjoy-

ment.’ The transfer was in.effect as testamentary as if the

grantor had made it by will.

. Ineach St. Louis Trust Company case the grantor re-.

tained no reversion, but only a contingent reversionary in-

terest—a possibility of reverter over which he had no con-

trol—the destruction of which by the death of the grantor.

did not effect the transfer of property to the remainder-

man. The remainders were vested subject only to defeas-

ance by the happening of a condition subsequent. The

transfers were complete w hen made and in no aspéct were

substitutes for testamentary disposition.

It is unsound to say that these are differences only in

terminology-or that they have no substantial practical con-

sequences or that they mean that taxability is made to turn

upon the ingenuity of the conveyancer. In only a limited

sense does a grantor have a choice between a form of con-

-veyance which creates a taxable result and one which does

not. If he chooses the latter he-must create property inter-

ests of entirely different character than if he chooses: the —

_ former and, as a result of such choice, must relinquish the

possession of his property and all rights of ownership.

(a) All decisions of this Court and the prior decisions

of other courts and the Board of Tax Appeals in cases

where there was a possibility of reverter accord with the

w&.

decisions in the St. Louis Trust Company cases.

(b) To overrule the St. Louis Trust. Company cases

would mean to disapprove the settled doctrines of the other

decisions of this Court interpreting Section 302 (c) and the

abandonment of the present. conception of the statute. Such

decisions include Shukert v. Allen, 273 U. S.- 345; Reinecke

vu. Northern Trust Company, 278 U- S. 339; May v. Meiner,

281'U. S. 238; Burnet v. Northern T faye onan ape 283 U.

S. 782; Morsman vt. + Burnet, 283°U. S. 783 and McCormick

. Burnet, 283 U. S. 784, in all of which the deaths of the

oe acelin reserved rights or interests of far

more consequence than a possibility of reverter.,

Petitioner’s argument that even if nothing passed from

“the grantor at his death, the transfer should be regarded as

testamentary and henee taxable if death in any manner

affeets the character or quality of the rights of any beneti--

ciary, is not supported by reason and is contrary. to the )

tests of taxability established by the foregoing and all other

decisions ef this Court. °

bility of reverter may effect a limited change in the charac-

ter or quality of a remainder might well be a factor for con-

sideration if the constitutionality of. a statute appropriate-

ly worded to tax the transfer were challenged. But in a

case of statutory interpretation the. taxpayer is entitled

to have the meaning of the statute determined with regard

to the legal nature ‘of the interests created and the mere

fact that the death of the grantor may cause some technical

or unsubstantial change in the nature of the remainder doe-

not warrant the holding of the transfer to be testamentary :

within the intendment of Section 302 (ce). -This proposition

finds implied support in all constitutional cases decided by

this Court in which the statutory phrase was involved,

when considered in connection with the cases which merely

‘interpret the statute. :

Til. eee HI

A possibility of reverter is not such a property inter-

st that its obliteration by the death of the grantor effects

that transfer of property or of -economie benefits which is

the subject of the estate tax. The termination ofa possi-

hility. of reverter by the death of the grantor differs from

the similar termination of a power of* revocation or to ...

designate beneficiaries. A possibility of reverter is entircly

hevond the control of the grantor and is not an incident of

ownership in the property. It is but an expectaney, the

extinguishment of which transfers no interest in property

' “to any one.

The Congressional and administrative action since the

St. Louis Trust Company decisions demonstrates that, Con-

yress does not desire that transfers subject to possibilities

of reverter be taxed as testamentary. White v. Poor, 296

\. S. 98, which ‘was decided on the same day as the Sf.

Lows Trust Company cases held that the transfer. there

involved was not taxable under Seetion 302 (d) of the Reve-

nue Act of 1926. By the Revenue Act of 1936 Congress im-

mediately changed this result by prospectively amending

Section 302 (d). This alone shows acquiescence by Con-

gress in the interpretation of Section 302 (¢) by the St.

Lapis Trust ( ‘ompany decisiéns. Furthermore, Section 302

1459, although the 1937 act was passed for the expressed

purpose of preventing tax av oidance;'

Whenever pai has eis with the result of

decisions interpreting Section 302. (¢), amendments have

promptly followed, as illustrated by the alinost instant

amendment of the section .to avoid the result of ‘cases hold-

ing tlie section inapplicable to irrevocable transfers where

the grantor.had retained a life interest in the i income.

In 1937, Article 17 of Treasury Regulations 80 was

amended to conform to the St. Louis Trust Company deei-

sions. On February 10, 1939, while the amended regulation

was in effect, all of the internal revenue laws were codified

and Section 302 (c) was reenacted as Section 811 (ce). Thus

it is to be presumed that the construction is satisfactory to

Congress and that the reenactment of the statute carries

such construction with it. The disapproval of the St. Louis

Trust Company cases would therefore be contrary to the

actual intention which must now be ascribed to Congress. .

’ Transfers like those in the St. Louis Trust Company

" cases, where a grantor parts with all control over his prop-

‘erty, ought to be subject to the gift tax. The gift tax law,

however, does not contemplate two taxes upon gifts not

made in contemplation of death. Sanford vr. Commission: 1,

Docket No. 34 at this term.

3 v. |

‘ : , vee , A.

Assuming that the doctrine ef St, Louis Trust Company

cases should no longer be approved by the Court, the doc

trine of stare decisis as developed by this Court strongly —

indicates that those cases should not be overruled. ©The

problem calls for the exercise of judicial diseretion and —

many factors should be taken into account.

Granting the desirability of a flexible approach un-

fettered. by earlier determinations where constitutiona!

questions are involved, nevertheless a more rigid applica- ©

tion of the doctrine of stare decisis is called for in cases

of statutory interpretation: In the latter situation Congress

may correct any result. regarded by it-as disadvantageous.

Petitioner’s argument that the allegedly wrong result of the

St. Louis. Trust Company cases cannot be met by Congres-

sional action is without merit. Congress : could, if it de-

-sired, accomplish taxability in many ways.

‘Another factor is the widespread reliance upon the

principles heretofore laid down by this Court. Not only

have business affairs been conducted in-the light of those

principles, bit this Court’s decisions have been followed ex-_

tensively by inferior courts and by the Board of Tax Ap-

peals.

Other cogent factors arguing in favor rel a rigid ‘ath

cation of stare decisis are the Congressional action and in-

action following those decisions considered in the light of

a known Congressional willingness to amind when it he-

lieves a decision by this Court to result disadv antageously

to the publie revenues; and the codification of the revenue

laws following the amendment to the Commissioner’s regu-

lations. See Section 1V immediately ante.

F Similarly, in considering whether to ‘exercise its dis-

cretion in favor of an adherence to the St. Louis. Trust Com-

pany cases the Court is entitled to take into account the rule -

- that substantial doubts are to be resolved in, favor of the

- taxpayer. This rule is frequently.applied where there. has

_ been no authoritative decision by this Court and should all

the more be applied where this Court ‘has spoken and is

being urged to change its view rather than aw ait Congres- .

sional action. /

10: “,

ARGUMENT. -_

THESE CASES ARE GOVERNED BY HELVERING v. ST.

LOUIS UNION TRUST COMPANY AND BECKER v. ST.

‘ LOUIS UNION TRUST COMPANY. THOSE DECISIONS ARE

SOUND AND DO NOT CONFLICT WITH KLEIN v. UNITED

2 STATES. | y

Petitioner contends in his brief, as he did in the Cir-

cuit Court. of Appeals, that the Hallock Trust is distin-.

guishable from those in the St. Louis Trust Com pan y cases

and that the case at bar i is controlled. by Klein v. United

- States, 283 U. S. 231. In the second part of his brief he

urges that in any event the St. Louis Trust Company casts

conflict with the Klein case and should be overruled. — It is

our contention that not only is there no valid distinction

between the Hallock Trust and the St. Louis Trust Com-

pany cases, but that the decisions ‘in those cases are sound

and’do not conflict with-the Alein case.

° (a) It.is submitted that the St. Louis Trust Company

_ cases are eminently sound in principle and, as will here-

after be shown, are in accord with and required by the

earlier fundamental determinations of this Court.

In effect the St. Louis Trust Company cases decide

that the statute was intended to levy a tax on true prop-

ert rights possessed or enjoyed by: decedent during life

and passing to others at his death, but that it does not tax

mere possibilities which are not accompanied with a pres-

ent right of possession or enjoyment and which are in no

aspect. subject to the grantor’s control., The distinction

between true propeMy interests and: mere possibilities

is real and is in no sense an impractical refagment.

so Helveriag vr. St.’ Louis Union Trust Company de-

. eedent had created a trust the net income of w hich was to

be paid to his daughter during her life, with remainder over

to named persons. The trustee was given discretionary

eee

power to terminate the trust, upon. the exercise of which the

estate was to revert to the grantor. The indenture further

provided that if grantor’s daughter should predecease him

the trust should terminate and the trust estate be delivered

to the grantor to be his absolutely. “In its essence the latter

provision is identical with the Hallock trust. In that trust.

- Mrs. Hallock, about to secure a divorce, was the life tenant,

with remainder over to her children. Similarly, if the life

tenant, Mrs. Hallock, should predgcease Mr. Hallock the

-trust was to terminate and the trust estate was to become

Mr. Hallock’s.absolutely. The parallel in legal principle is

clear: |

Except for the fact that there were no remainders to

third persons, the trust involved in Becker ‘v. St. Louis —

Union Trust Company is not only identical in legal effect

with the Hallock Trust, but strikingly similar in phrase

ology. In that case the grantor declared that he held cer-..

tain property in trust for a named person. . The trust

agreements then provided (296 U. S. p. 50): 3

—‘*(a’) If said beneficiary should die before my death, .

, then this trust estate shall thereupon revert to me and .

become mine immediately and absolutely, or (b) if I cs

should die before her:death, then this property ‘shall

thereupon become hers immediately and absolutely and

be turned over to her and in either case this trust shall . .

cease.”’

The principal basis of the distinction attempted is the

claim that the remainders. of the Hallock children are: con-

tingent ‘remainders which would vest only upon the hap-

_ pening of a condition precedent and therefore the grantor

retained a vested reversion, subject to being divested by ie

the happening of a condition subsequent. Granting these

premises, the distinction would be established, for it is true

that in the St, Louis Trust Company cases the grantor ..

‘left in himself no power to resume ownership, possession

or enjoyment except upon a contingency Py the ‘nature of

a condition subsequent, the ‘occurrence of which was en-

tirely fortuitous so far as any control, design or volition on

his part was concerned.’’ (Helvering v. St. Louis Union

Trust. Company at p. 43° of 296 U. S.) It is only neces-

. sary, however, to set the language of Clause “C”’ of the:

Hallock Trust opposite the above quoted provisions from

the. trust agreement. in Becker v: St. Louis Union Trust

Company to see that there is no distinction either in sub-

stance or in-form. '

_ (b) Although part of petitioner” 's brief enemies to be

_ directéd to the proposition that the St. Louis Trust Com-

pany cases and the instant case are distinguishable, his

* principal argument is that those cases are in conflict with

Klein v. United States, 283 U. S. 231. It is submitted that ©

' the distinction between the cases, is fundamental.

The Alein case. was examined in Helvering v. St. Louis

Union Trust Company and was thus distinguished in the —

opinion of the Court, at page 45 of 296 U. S.:

“The case of Klein v. United States, 288 U.S. 231,

which is strongly relied upon by the Government, does’

. hot support its position. There the grantor, 15 months

prior to his wife's death, conveyed to his wife by deed

a life estate in certain lands. But in the event that she

survived the grantor ‘and in that case only’ she was

to take the lands in fee simple. The effect of this deed,

we held, was that only a life estate was vested, the re-

mainder. being - retained by the grantor; and whether

that should ever become vested in the grantee depend-

ed upon the condition precedent that the grantor die

during the life of the grantee. The grantor having

died first, his death clearly effected a transmission of

» the larger estate to the grantee. But here the grantor

parted with the title and all beneficial interest in the

property, retaining no right, with respect to it which

would pass to anyone as a result of his death. Unlike

the Klein case, where the death was the generating

source of the title, here, as the court ‘below said; the .

trust instrument and not the death was the generating

source. The death did not transmit the ~~ but

destroyed it:’’

The Government’s argument i is that despite the distine-

tion so made by this Court, the trusts‘in the St. Louis Trust °

Company cases were, as was the conveyance in the Klein

case, substitutes for testamentary disposition within the

intendment of the statute.

The difference between the Klein and the Ste] Louis

’ Trust Company cases is-obvious and can readily be seen

’ without resort to fine distinctions of real property law. with

reference to the nature of the estates created. But if it is

~ necessary to consider this difference legalistically, it is

submitted that from this approach also it is fundamental. oe

The most.simple and practical distinction is whether

the grantor, as in the Klein case, retained until his death

the ownership, or a substantial incident of ownership, of his

property, which passed to another as a result of, his death

or whether, as'in the St. Louis Trust Company cases, he

completely divested himself of control, possession or en-

joyment, reserving the mere, and at times remote, possibili-

ty of resuming those incidents of ownership upon the hap-

pe ning of some event over which he-had no legal or prac-

tical control, which possibility passed to no one as a result

of his death.

Klein was completely unwilling to give up the posses-

sion, control or enjoyment of his property. After the grant

of the life estate, his deed merely said in effect—‘if my

wife shall survive me, I give her my property in fee.

_simple:’? The advantages of the fee simple title so retained

remained in Klein as well as the burdens which. ac-

company those advantages. His deed: gave to his wife

nothing but_a fee simple estate upon a condition and .

14 44

‘effectively postponed the date of the passing of his prop-

erty to her until his death by keeping the reversion vested

in himself and providing that it should pass to his’ wife,

_ not’ presently,. but if she should survive him ‘and in

_ that case anly.?’ His death did far more than to effect.a

mere technical change in the nature-of his wife’s contingent

remainder. It causéd the immediate vesting of ‘the entire

property in her in present. possession and enjoyment. It .

".was, in effect, more than a substitute for testamentary

_-disposition ;.it was virtually as much of a testamentary dis-

position as if he had.giyen ‘his reversion to his wife by

will, 2 ae | 7 |

e ‘the. problem is dealt with by considering the legal

nature of the estates or interests créated, the answer ‘is

the same. By his deed Klein retained a vested reversion

‘in his property and gave-to his wife at most a contingent

remainder, which ‘vested not only in interegt but-also in

Possession at his death. In the Hallock. pa ‘and those

involved in the ‘St. Louis Trust Company cases the grant-

ors had no reversion, but only an interest of far less

Jegal and actual consequenée—a possibility of reverter;

while the interests of the remaindermen which were:

ercated by the trust-instruments were vested subject to

divestiture by the happening of a condition subsequent.

The death of-ihe grantor made the remainders indefeasible

by putting an end to the’ condition Subsequent, but did not

_transmute a conditional estate into one vested in possession

‘as it did .in the Alein case. Neither the: possibility of

-reverter nor any real incident of ownership of property

‘passed to anyone. See Mr. Justice Roberts’ dissenting

opinion in Coolidge v. Long, 282 U. S. 582 at p. 629, re-

ferring to Reinecke v. Northern Trust Company, 278 ¥.

S. 339:

Nts Ee LC ee ea aaa

‘‘Repeatedly throughout the opinion the passage

of the.control, posséssion and enjoyment of the prop-

erty is referred to as the touchstone of the incidence of

. the tax.”

——The Gov ernment contends that the interest retained by ©

Mr. Hallock was far more substantial than ‘‘a mere pos-

sibility of reverter.’’ If this be true as to the Hallock trust,

_ so is it as to those of which the St. Louis Union Trust Com-

pany was: trustee. A question is raised in the Government’s

brief as to what the Court meant by the term ‘‘ possibility of

reverter’”’ in the St. Louis Trust Company cases. It does

not appear that this doubt existed in. either: the majority

or the dissenting opinions in. those cases. The term is

defined in the Restatement of the Law of Property—Fu-

~ ture Interests (Parts 1 and 2). at page 525, as—‘‘any re-

versionary interest which is subject to a condition preced- °

ent,” and it is clear from the Restatement that it may be an‘

interest in either real or y«isonal property. See also Sec-

tion 157 of the Restatement of the Law of Property, particu-

larly pages 541, 542, 557 and 558, where are stated principles

of the classification of remainders, from which it appears

‘clearly that the remainders in the instant ease and the .

St. Louis Trust Company cases were vested subject to de-

_ Teasance_upon the happening. of. a condition subsequent.

It is claimed that the difference between the Alein and

‘ St. Lowis Trust Company eases is only the difference be-

tween a vested remainder subject to being divested and a’

contingent remainder and that this is a difference primarily

in terminology which has.no substantial practical conse-

quences. As a corollary it is stated that Congress could

not have intended tax consequénces to turn upon the in-

kenuity of the conveyancer who is free to draft an instru-

ment either way without affecting the jo quant of the es tes

bei ‘ing created.

# .

The truth of this as to Congressional intent may be

conceded, as may also the general proposition that ‘‘in de-

termining whether a taxable transfer becomes complete

only at death we look to substance, not to form.’’ (See dis-_

- senting opinion in Helvering v. St. Louis Union Trust Com-

pany, p. 47 of 296 U.S.) It is also true that the question

of ‘the nature of estates created by a conyeyance, whether

they are vested or contingent, may sometimes turn upon the

form or order of language employed. .

But it does not follow that the question whether the

transfer is taxable ean ever, in any proper sense; be said

- to depend upen' the conveyancer’s choice of language. The

ultimate test is whether the conveyance operates as a trans-_

fer intended to take effect at death or is a substitute for.

testamentary disposition. Whether it so operates may, at

times, turn upon whether the remainders. it er reates are

vested or contingent. And, of course, there is a choice in

the use of a form of lfnguage which in one case will create

a vested remainder and in the other a contingent one. But

if the grantor directs the draftsman to. exercise his choice

in such a way as to create estates of a character which make

the transfer non-taxable, the grantor must pay for it in

some other way, for example, by giving up any substantial

rights i in his property.

‘Cray on the Rule against Perpstuition, at. Section 10s:

‘Whether a remainder is Vested or contingent depends upen

the language employed. If the conditional element is _incor-

porated into the description of, or into the gift to the remainder-

man, then the remainder is. contingent; but if, after words giving

a vested interest, a clause is added divesting it, the remainder

is vested. Thus on a devise to A.. for life, remainder to his

children, but. if any child dies in the lifetime of A. his share te

zo to those who survive, the share of each child is vested, subject

to be divested by its death. But on a devise to A. for life, re-

fnainder to such of his children as survive him, the rémainder is

contingent.’’

me Pe

This may be illustrated by the example on page 19 of

the Government’s brief. It is there suggested.that in the

Klein case the conveyance might just as easily have been-

phrased—‘‘to my wife in fee, but if she dies before I-do,

then to me.’? So it might, but it is submitted that the

further statement that such a change would create interests

‘that are identical in quality with those actually present ih

the Alein ease is incorrect. For under the supposed form

of conveyance the grantor parts with the real incidents of

ownership of his property. ‘All advantages of ownership,

such as the right to rents, the right of action for waste or

the right to proceeds of condemnation, would be in the

grantee, while if the conveyance takes the general form of

the language which “was actually used in the Klein case,

these important incidents of ownership, as well as many

others,.are retained by the grantor and they pass to the

grantee upon his death.’ :

In a case of statutory interpretation it is not to be pre-

‘sumed that Congress did not intend its language to be con--

strued with the aid of established principles of law govern-

ing the nature or quality of future interests. Even if these

principles may be called technical, they are not merely

formal. Only by referring to them may substantial ulti- _.

mate questions be determined. Moreover, the reality of the

distinction between contingent and vested interests is not.

destroyed by alluding to it as archaic or by pointing to its

feudal origin.. Many important substantive legal principles

are rooted in the past but now have a content applicable to

present day conditions.

! See Tiffany on Real Property, 2nd Ed., Vol. I, See. 93, p. 336;

Thompson on Real Property, Vol. 111, See. 2112, p. 176.

“2

. , II. ads

THE DOCTRINE THAT TRANSFERS LIKE THOSE IN THE

8ST. LOUIS TRUST COMPANY CASES ARE NOT TESTA.

MENTARY AS A MATTER OF STATUTORY INTERPRETA.

TION ACCORDS WITH THE PRINCIPLES SETTLED BY ALL

OTHER DECISIONS OF THIS COURT.

(2) All decisions of this Court and the prior decisions of ;

other courts and the Board of Tax Appeals in cases

where there was a possibility of reverter accord with

the decisions in the St. Louis Trust Company cases.

The first similar case to reach this Court was Me-—

Cormick v. Burnet, 283 U. S. 784. In that case, in addition

to a retained life interest in the income, there was a possi-

bility of reverter of the principal to the grantor in case she

should survive the other beneficiaries. The Board of Tax

Appeals held the trust not subject to the estate tax.' While

the case was pending in the Circuit Court of Appeals, May

v. Heiner, 281 U.S. 238, was decided. The Cireuit Court .

of Appeals regarded the case as controled by May v-:

Heiner so far as the grantor’s life estate was concerned,

but nev ertheless reversed the decision of thé Board in a

rather vague opinion holding that the existence of the possi-.

bility of reverter was one factor showing that the transfer ©

wis intended to take effect in possession or enjoy ment at

ur after the grantor’s death.? s |

- According to the record, Me brick. v. Burnet was ad-

vanced on the docket of this Court for argument after the

Alcin-case, upon motion by the Government, which stated

that fethi cases involved a related ‘question. The decision

- 113 BLT. A. 423.

243 Fed. (2) 277.

of the Circuit Court of Appeals was reversed per curiam

on the authority of May v. Heiner. Although nothing was

said in the opinion about the question now under consider- —

ation, it seems clear that it must have been considered and-

that the Klein case was — as inapplicable. Peti-

tioner’s brief, pages 21 and 22; argues that the effect of the

possibility of reverter in the McCormick case was not passed

upon. Although petitioner states that the McCormick case

was argued upon the same day as the Klein. case, he does:

- not comment upon the important fact-that this came about

at the Government’s instance and. through its representa-

tion that it involved questions akin to those involved in the

Klvin case. This fact, plus the fact that the lower court's

opinion turned upon the effect of the possibility of reverter

shows clearly that the issue was before the Court and clear-

ly presented to it and must, therefore, be taken to have

been decided. As is pointed out in Bingham v. Bhited

States, 296 U. S. 211, matters pertinent to an issue before

the Court, shown by the record and which were clearly pre-

Se nted to the Court, are to be taken as covered by the deci-

sion though not mentioned i in the opinion. .

Although the question might have been regarded as

decided by the McCormick case, it soon arose again in

Helvering v. Duke, 290 U. S. 591, in which the decisions of

the Board of Tax Appeals and the Cireuit Court’ of Ap-

peals holding the transfer not-taxable under Section 302 te)

were affirmed by an equally divided court.

. About a month after the St. Louis Trust oii de-

. cisions they were followed in Bingham v,United States,

246 U. S. 211, and Industrial Trust Co. v. United States,

296 U. S. 220, which held that insurance policies taken out

by decedents on their own lives: prior to the passage of the

estate tax law and irrevocably payable to the beneficiaries,

99 -

directly or by assignment, were not subject to the estate |

tax, despite provisions that if the beneficiaries did not sur-

vive the decedents, the proceeds would go to the estates

of the decedc ats. The opinion of the Court.in Bingham v.

United States, said that the Si. Louis Trust Company eases

had established’ the principle that the title and possession °

_ of the beneficiaries were fixed by the terms of the policies

‘and assignments, beyond the power of the insured to affect ;

that no interest passed to the beneficiaries as: the result,

of the death of the insured, which death merely put an end

to the possibility that the predecease of his wife would give

u different direction to the payment of the policies. |

‘One of. the transfers held tion-taxable in Hassett 1.

Welch, 303 U.S. 303, on the groutid that the amendment to

Section 302(¢) by the Joint Resolution of March 3, 1931,

does not operate retroactively, provided that the property

woukl revert to the grantor should she survive her son.

Apparently the Government did not see fit to raise the con- —

tentions made in the case at. bar and it seems. that the S’.

Louis Trust Company cases were_tacitly. assumed to be

controlling.” Had: the Court been of the opinion that the

possibility of reverter rendered the transfer faxable as one

to take effect in possession or enjoyment at death, i.e, that-

the SY. Louis Trust ¢ ‘ompany cases Were incorrectly de-

cided, the decision would have been favorable to the Gov

ernment despite the Court's holding that the ‘joint resolu.

tion could not operate retroactively. | ‘

Prior to the St. Louis Trust Company decisions the

question whether the retention of a possibility of reverter —

makes an inter, riros transfer, otherwise absolute, one in-

tended to take effect at or after the death of the grantor, .

had been before the Board of Tax Appeals and the Federa!

Courts frequently and substantially all of these decision=

21 ;

were in favor of the taxpayer.’ (For decisions of the Fed-

eral Courts and the Board following the St. Louis Trust _—

C um pany cases, see pp. 46 and 47, infra.) .

Petitioner’s brief, at pages 25 and 26, cites certain

‘state court deeisions, particularly In Re Lowengart’s Es-

tate, 160 Ore. 118. Even were the case at. bar one of first

impression, the cited cases could not be regarded as per:

suaxive, because of the differénce between a transfer tax

and a succession tax, alluded to by petitioner. That this

difference was regarded by the court in the Lowengart ease.

as creating a controlling distinction from the St. Louis

Trust C ompany cases is shown by the following wagenge

‘from the opinion : ;

‘*Notwithstanding some language in the opinion in

the Helrering case from which a different implication.

might be drawn, we think that the attempt to attach ©

controlling significance to that decision here rests, upon

the failure to give due weight to the-distinction between |

a-tax on the transfer, such as the federal estate tax,

and a tax on Son cunnenenet, ‘such as the Oregon in-

heritance tax.’? (Citing Reinecke: v. Northern Trust

. Company and dissenting opinion in y ‘volidge v. Long,

supra.) :

' McCormick v. Commissioner, 13 B. T. A. 423; (reversed 43

~ F. (2d) 277; Cireuit Court of Appeals reversed 283

U.S. 784); ;

‘Duke v. Commissioner, 23 B. T. A. 1104 (affirmed 62 F.

- (20057 and by equally divided court, 290 U. S. 591) ;

ins Peabody v . Commissioner, 24 BK. T. A. 787;

Taylor v. Commissioner, 27 B. T. A. 220; .

Wallace v. Commissioner, 27 B..T. A. 902 (affirmed with-

out opinion, 71 F. (2d) 100?; certiorari denied, 293 U.-

Ss. 600) ;

Bonney v. Commissioner, 29 B. T. A. 45;

Nichols v. Bradley, 27 F. (2d) 47; none

Tat v. Safe Deposit & Trust Co., 74 F. (2d) 851; :

Amoskeag Trust Co. v. Field, 10 Fed. Sup. 635;

Wheeler v. Commissioner, 20 B..T. A. 695 ;

_ Dunham v. Commissioner, 26 B. T. A. 286.

| > 3 ~

When a state court, hoWever, holds a transfer subject

to a possibility of reverter not to be one intended to take

effect at death under a succession tax law, this very differ- -

ence betw een a transfer tax and a succession tax lends great

strength to such a decision. It was so’ held in Matter of

_ Barstow, 230 App. Diy. (N. Y.) 371; 244 N. Y. S. 588; af:

‘firmed 256 N. Y. 647. ‘This.case is particularly noticed in

_the opinion. of the court in Helvering v.. St. Louis Union

Trust Company, and no further comment is made upon it,

_except to quote the foltowing from the opinion:

| “As stated by Chief Justice Cardozo in the Schmid. .

‘lapp ease, supra: ‘In Matter of Craig (97 App. Div.

289, 89 N. Y. S. 971, affirmed 181 N. Y. 551, 74 N. FE.

*1116) the remainder was contingent, but the contin-

geney was not dependent on the will of the donor, and

the right as against him was already perfect’and‘ |

complete.’ ”’ e

_(b); The basic principles of the dther decisions of this Court

| Satonpenting Section 302(c) support the St. Louis Trust

' Company decisions, and the overruling of the latter

would mean the Genpyreral of the settled doctrines of

those other decisions.

All of the other decisions of this Court ary ae

the statutory phrase “intended to take effect in possession

or enjoyment at or after his death,’’ support the principle

of the S#. Louis Trust Company cases, some of. them, we

submit, to such an extent that if’ those cases were over-

ruled, this would virtually amount to the disapproval of

the accepted and well-founded doctrines of these other

cases, and the complete overturn of present qommenpess

of the statute.

| In general these cases all rest en thé concept that

what is taxed by the estate tax law is the transmission of or

power to transmit property from the dead to the living;

that death is the generating source from which the taxing

power takes its being, and that in order to sustain the tax

the death must have brought about the completioncef the .

shifting of the economic benefits of property which is the ~

real subject of the tax. Heiner v. Donnan, 285 U. 8. 312;

Chase National Bank v. United States, 278 U. S. 327; Knowl-

ton v. Moore, 178 U. S. 41.

The earliest ease involving solely the interpretation of

the words ‘‘intended to take effect in possession or enjoy- _

ment at or after his deatir’’-is Shukert v. Allen, 273 U. S.

545, in. which the effect of Section 402 (c) of the Revenue

Act of 1918 was under consideration. It was there held .

that a conveyance of securities made before the decedent’s

death in trust to accumulate the income until a distant date -

specified and then to divide the fund among his children,

vested the interests of the children when executed and did

not fall within the statutory language. ‘The Court said that

the transfer ‘was immediate and out and out, leaving no

interest remaining in the grantor, and that the interests

“of the children were vested as soon as the instrument was

executed,-even though those interests might have been

divested as to any one of them in‘favor of his issue, if any,

or of the surviving beneficiaries, if he died before the termi-

nation of the trust.

The effect of the statutory language next ¢ came before |

the Court in Reinecke v. Northern Trust Company, 278

U. S. 339.- Two. of the seven trusts in that case were

revoeable by the settlor alone and were held subject to the

estate tax upon the grounds set forth in Chase National

Bank «. United States, 278 U. S. 327, decided on the same

date. In the other five trusts there was no power of revoca-

tion in the settlor acting alone, but life interests in the in-

come were created in beneficiaries other than the settlor, _

terminable, as to one trust, five years after the settlor’s

death or upon the death of the designated beneficiary, should ~

she survive that date, and as to the other four trusts, five

years after the settlor’s death or on the death of the

respective life tenants, whichever should first happen. In

all five trusts there were remainders over upon the deaths

of the life beneficiaries. The opinion of the Court, after

citing Shukert v. Allen, supra, goes on to say, at page 347:

- “There the gift of a remainder interest, having been

made without reference to the donor’s death, although

it did in fact vest in possession and enjoyment after his

| death, was held not to be a transfer intended to take

‘ effect in possession or enjoyment at or after the donor’s

death, and for that reason not to ‘be subject to the tax.

But here the gift was intended to ‘so take. effect, al-

though the transfer which effected it preceded the death

of the settlor and was itself not subject to the tax unless

—made so by the circumstances that the possession or

enjoyment passed as indicated.

‘*In-its plan and scope the tax is one imposed on

transfers at death or made in contemplation of death

and is measured by the value at death of the interest

which is transferred. Cf. Y. M. C. A. v. Davis, 2

U.S. 47, 50; Edwards v. Slocum, 264 U. S. 61, 62; N.

Trust Co. v. Eisner, 256 U. S. 345, 349. It is not a

tax, and the tax on gifts once imposed by the Reve

Art of 1924, ec. 234, 43 Stat. 313, has been repealed, 44

Stat. 126. One may freely give his property to another

by absolute gift without subjecting himself or his estate

toa tax, but we are asked to say that this statute means

~~. -that he may not make a gift inter vivos, equally abso- -

lute and complete, without subjecting it to a tax if the.

gift takes the form of a life estate in one with remainder |

- over to another at or after the donor’s death. 1t would

require plain and compelling language to justify sO

incongruous a result and we think it is’ wanting in the |

present statute. es .

Clearly the time wher’ the remaindermen in that case

would come into actual possession. or enjoyment of the

trust properties was directly dependent upon the death of

the grantor and in that sense the transfer of the remainders

might have been said to be testamentary or intended to take

effect in possession or enjoyment at or after death. But |

the remainders were vested by the trust instruments and

nothing passed from the possession, enjoyment or control

of the settlor at his death. The case, therefore, very im-

portantly limits the scope of the statute.

The next interpretative decision is May v. He einer, 281

U.S. 238. There the decedent had made a transfer in trust,

“under which the income was payable to her husband during

his lifetime and after his death to the decedent during

_her lifetime, with remainder over to her children. Revers-

ing the lowef-courts, the Court held that the trust was not - |

. subject to the estate tax as a transfer intended to take effect

in possession or enjoyment at or after death. ‘The Court

said at page 243: e

‘The transfer of October 1, 1917, was not made i in

contemplation of death within the-legal significance of

those words. It was not testamentary,in character and

was beyond recall by the decedent. At the death of

-.Mrs. May no interest in the property held under, the

trust deed passed from her to the living; title thereto

.--had ‘been definitely fixed by the trust deed. The inter- .

est therein which she possessed immediately prior ‘to

her death.was obliterated by that event.’’

_ The Court went on to quote from that part of the opin-

ion in Reinecke v. Northern Trust Company, supra, which

indicates that the statute only reaches trusts or interests ©

Passing from the possession, enjoyment or control of the

donor at his death aud that any doubts about the matter

must be-resolved in favor of the taxpayer.

It was argued for the Government in May v. Heiner

that the decedent ’s death terminated her life estate and that

the termination of this right to receiye the trust income for .

life if she should survive her husband, which freed the re-

mainder of the possibility of its exercise, was a transfer

within the meaning of the statute.: No real difference with |

respect to the. question being diseussed ean be seen be-

tween the right or interest retained by the grantor in May .

-v. Heiner and the possibilities of reverter in the St. Louis

Trust Company cases. In: the former case the grantor’s.

death obliterated her life estate; in the latter two cases the

, deaths of the grantors obliterated their contingent rever-

stqnary interests—the possibilities of reverter.

, Although May v., Heiner was but a logical saslinitins

- of the principles of Shukert v. Allen and Reinecke v. North-

ern Trust Company, its full implications were not évery-

where perceived until the decisions in Burnet v. Northern |

Truft ompany, 283.U. S. 782;! Morsman:v. Burnet, 283

“ia 3? and McCormick v. Burnet, 283. U. S. 784.8

These cases all involved trusts where the decedent og

ugrantors had retained life income interests or ah with.

remainders over. By per curiam decisions the t

all held not to be subject to the estate tax upon the authority

: of May v. Heiner, supra.

In each of these three cases the death of the. aoe had -

far greater practical consequences than the obliteration of -

mere contingent interests or possibilities of reverter; death

terminated the grantor’s life estate, which was vested in

‘ possession and enjoyment. Viewing the right to the income °

from property as equivalent to the possession of the prop-

erty itself, each grantor, enjoyed his property. until. his

death and that event. enerets the enjoyment: of it to

others. ils 2 “|

At page 30 of his brief petitioner states, that, while of

apart from the shifting of econontic benefits at death, the *,

remainder i in the Hallock trust is taxable because it was a

i Reported pelow,. 41 F. (24) 732: _

2 Reported below; 44 F. (2d) 902.

Beported“below, 43 F. (2a) 277.

Ss were .

a ee . rete

VA,

substitute: for a toatauisiitery disposition and was “liter- .

ally’’ intended to take effect in possession or enjoyment at

or after death. The argument seems "to be that although

‘nothing passes at the grantor’s death, nevertheless if that —

death in any manner affects the coming into possession or

enjoyment of the property, it is’ taxable. Stated another

way, it is that no matter how complete the transfer when

-madé and even though nothing passes frdim.the grantor at .

his death, if that- death marks the time at which possession

- or enjoyment of some part of the transfer commences or

in any other manner affeets the character, quality or ex-

istence of a beneficiary’ s -riglits, the transfer _is- taxable. .

This must’ be based upon the broad premise that sinegtes-,

tamentary dispositions’ speak. as' of the date of death, any-

thing which a grantor: does which affects rights at or after

his death is necessarily a substitute for.a testamentary dis-

position.

To support this novel view, the Court’ s attention is

called to the fact. that Congress has included in the gross —

estate ‘gifts i in contemplation: of death (petitioner’s brief,.

p..30) and has taxed income to a grantor who has nothing

‘more than the power to control -that income (petitioner’ S-

brief, p. 31). But the fact™hat Congress may cohstitu-

tionally prevent avoidance of taxes by making a gift in a

contemplation -of death the legal equivalent - of a testa-

_ Inentary disposition and by making control over income in®

certain circumstances the equivalent of the receipt of the in-” -

come does not: warrant the concliision that where Congress.

is not attempting. so to do butvis merely. taxing a‘ defined

type of transfer, i.e.. one. to take effect at or after death,

_ the statute by: which this is done must be interpreted to

_ include-transfers in which there is no shifting. of | economic

benefits at death. Ale ke”

oer

In the case of gifts j in ielemigtinilon of death, we pi

»»dealing with substitutes for property passing at death. In

wD,

€ 28 a |

the case of gifts to take effect at or after death under. Sec-

tion 302(c);, we are dealing not with substitutes for property _

passing at death but with email aroaae passing at \

death.”

_ All of the cases ‘last above discussed Wegiitning with

. Shukert v. Allény 273 U. S. 545, and ending with the St. .

so Lous Trust Company cases depend basically upon the

- transfer of property, i.e. the shifting of economic benefits

_at death. That this Court’s approach.to estate tax problems: . |

_ based upon the necessity of the passage of economic benefits « |

_ (save where Congress has constitutionally made something

the equivalent thereof) is not to be criticized, is fairly in-

ferable from MryJustice Stone’s discussion in Sanford v.

Commissioner, ease No. 34, October, 1939 Term, decided .

November .6, 1939, where it is said:: ~

“Tn. -ascertaining the correct construction of the stat-

utes ‘taxing gifts, it is necessary to read them in the #

light of the closely related provisions of the revenue

‘» laws taxing transfers.at death, as they have been inter-

preted by our decisions. Section 319 of the Revenue fe

_ Act of 1924, 43 Stat. 253; reenacted as Section 501 of the —

1932 Act, 47 Stat. 169, imposed a graduated tax upon FF

gifts. It supplemented that om transfers at death,

which had long been a feature of the revenue laws.

When the Gitt Tax was enacted Congress was aware

that .the essence of a transfer is the passage ¢ of control

over the eeonomiec benefits of property rather- an

any technical changes i in its title.’”

Similarly i in United States v. Jacobs, 306°U. 8S. 363, in

diseussing the inclusion of the entire value of property held

under joint tenancy in. Illinois where upon déath of one

ae 4oint tenant the other —— Mr. Justice snared said, at

“Ss page 368: De.

: ‘*Thus the death of one of the parties to the tenaney

became the ‘generating source’ of important and defi-

“mite accessions to the property rights of the other.”’

29 .

of the statute is involved, the death ofthe grantor

may effect some change in the quality of.the remainder

interests without resulting in a testamentary transfer ©

“within the scope of the statute. .

It is. true that the obliteration ” death of a possibility

‘of reverter of the type under discussion méy effect some

technical or limited change. in the quality of a remainder i in-

terest. In the Hallock trust, for example, the termination

fet the possibility had the. effect. of converting the re-

mainders of the Hallock children, which prior to their

father’s death were ‘vested subject to defeasance, into in- *

- defeasibly yested remainders. ~ ~*~.

It is equally true that, _ broadly speaking, “taxation is

- not so much concerned with: Ahe refinements of title as it is

with‘actual command over the property taxed. a Corliss v.

Bowers, 281 U. S. 376, 378.

‘But, in Bocnet >. Wells, 289 U.S. 670, after refatvine

to the above quotation from Corliss v. Bowers, it-is said

at page 678 of the opinion by Mr. J ustice Cardozo:

‘‘Refinements of title have at times supplied the vile

when the question has beer? one of construction and. -

nothing more, a question as to the meaning of a taxing

-act to be read in favor of the taxpayer. Refinements of

title are without controlling force when a statute, un-

mistakable in meaning, is assailed by a taxpay er as

overpassing ‘the bounds of reason, an exercise’ by the

Jaw makers of arbitrary power.’’ :

The prineiple thus expressed is iil in the instant’.

case. If Section'302 (c) were amended so as expressly to

tax transfers with possibilities of reverter and the con-

stitutionality of the amendment. were under’ attack, then

the legal or equitable nature of the reversionary interests

or remainders would be subordinated to the question ‘of

| whether the act is 80 arbitrary or capricious as to amount —

to confiscation. And in‘ determining the presence or ab-.

sence of these attributes the inquiry would be directed to

whether the amendment has any relation fo the prevention

of tax avoidance and whether ‘the death of the grantor:

brought into. being or ripened for a survivor property, —

rights of such character as to’ make appropriate the im-'

position of a tax upon that result. igor v. United Stales,.

281 U.S. 497. ; Sees ieee

But .where the question is fierely one of jnterpreting

language-which Congress has selécted and could have made

as broad or as narrow.as it might have desired, it is quite

proper that a greater effect be given to the legal meaning

of the Congressional words. The doctrine of Corliss v.

: Bow ers, supra, has found its greatest expression in con-

; ‘stitutional cases. ee

The proposition now under discussion is, we submit,

~ tutionality of State or Federal laws taxing various kinds of

transfers was under consideration. See Nichols v. Coolidge,

274 U. S. 531; Coolidge v. Long, 282 U. S. 582; Saltonstall

v. Saltonstall, 276 U. S. 260; Chase National Bank v. United

States, 278 U. S. 327; Tyler v. United States, 281 U.S.,

497; Porter v. Commissioner, 288 Ux S. 436; Helvering v.

Bullard, 303 U. S. 297; United States v.-Jacobs, 306 U.S

1368. : re a eee \ |

Taken as a group these cases imply quite strongly

that transfers may be deemed to have testamentary attri-

butes to the extent. necessary to sustain the constitution-: —

ality of a statute explicitly taxing them, even though,

as a matter of interpretation, they would not be considered

testamentary in the absence:of such an express provision.

If -Congfess should amend Section 302 to include trans-

fers in which there is a possibility of reverter, these cases

* would . unquestionably sustain the validity of such an

amendment, prospectively applied. But the implication

= 31 |

. all of them, read in connection with cases like Reinecke

. Northern Trust Co.. and May v. Heiner, supra, is .

ae it is in the constitutional field: that the reluctance

of the Court ‘to be governed by niéeties and legalistic « con- .

cepts finds its greatest expression. ‘This, it ‘is submitted,

is perfectly sound in principle. Where Congress can choose

the words, the taxpayer is in all fairness entitled to a lib-

. eral measure of reliance upon the at meaning. of pases

“words.

—————$—_, —____,__ * : ot

- OT.

A POSSIBILITY or REVERTER IS NOT SUCH A PROPERTY

INTEREST THAT ITS OBLITERATION BY THE DEATH OF .

THE GRANTOR EFFECTS THAT TRANSFER OF PROPERTY

’ OR OF ECONOMIC BENEFITS WHICH IS THE ee 3

AS) \ OF THE ESTATE TAX. |

- The cases above cited and discussed show that mn

Section 302(c) to tax a transfer there must be some real

. element of property or of economic benefit of property

passing from the possession, enjoyment @r control of the

grantor at his ‘death. It is submitted that’ the termination |

by death of a possibility of reverter does not meef that

test. & :

Obv iously the Aeitviitien of such a . possibility ae death

is very différent from the termination.by death of a power —

of revocation or to designate beneficiaries. (Cf. Reimeke v.

Northern Trust Co., yk U. S. 339; Sanford v. ‘Commr., No.

_ 34, present term; and asquin v. Humphreys, No. 37, pres-

_ ent term.) Not only isa power of revocation a substantial

cineident of ownership of the property (Chase National.

. Bank v. United States, 278 U.S. 327), but whether the prop-

erty will revert depends solely upon the will of the grantor. |

The. happening of the condition upon which a possibility

of reverter based upon some person’s death may be ful- 5

filled becomes entirely beyond the control of the grantor i!

” momert the peas dente is executed. :

hy an

' nothing is shifted or transmitted when a posaibility of re- a

| . 39 @. 2+ @

" Tt is plain that in any realistic sense a possibility of

rev verter ‘such as in the. St.-Louis Trust Company cages is

not property or an ‘estate in property ,atd to regard it as —

such would be founding a tax upon a refinement which ap- .

proaches a fiction. _Furthermore, the extinguishment of

the possibility, whife “terminating any versionary inter-

est of the grantor afd thus indirectly causing some change

in the technical nature of the remainder, does not in atSelf

transmit the grantor’ s retained interest or any interest to

RT ee re, 8 ec

Prior to the specific amendment of Section 302(d) a

remainder was not ineludable in the gross. estate even

. though dependent upon the terminatiqn of a preceding life (>

estate retained by the grantor.. Tf in this situation the ©

_ death of the grantor does not cause a ‘shifting of the pos-

- session and enjoyment of the property -to the remainder:

man and thus bring about a taxable’ afisaction, a fortiart- a

verter comes to an end. :

These views as to the true nature of a possibility of ’

reverter are in harmony with what petitioner characterizes “

as_ technical principles of the early common law and with |

such expressions ‘as there have been by the Ohio courts.’

1In Gilpin v. “Williams, 25 O. S, oft. 397, in which was in-

volved the question of whether the legi iture could pass an act

_ affecting estates created before its passage, the court said: "4

“There isa clear distinction between contingent estates

which may vest, and vested estates which may be defeated,

‘upon the happening of a future event. ° There are also other

rights {so called) which do not rise to the dignity 6f estates

at-all, but are mere expectancies or possibilities, such as those.

of heirs apparent, possibilities ‘of .reverter, .ete.. It may be ~

admitted that the legislature may control these at‘its pleasure; 7

. but the question before us‘¥elates to vested estates: in expéct-

ancy, although subject to be divested on the ee

of an uncertain future event.’’>

* See also Needles vs. Needles, 7 0. S. 482; Branch v. i ie

Assn., 11 O. C. si 185.

"Assuming a case where ‘a young wife creates a trust,

the property’ to ‘reye ert to her“if she suryives her elderly)

| husband, her possibility of reverter becomes in practical”)

effect a probability. -But in most: trusts the probability is

against the happening of the condition upon which reverter

_ wilbtake place and in many.the possibility i is remote indeed.

For example, a very usual type of transfer is where a

grantor. transfers propert by a trust instrument giving

. the income to his wife for life-and upon her death the prin-. .

“cipal to his his three children or the eurvivd: of them; with the

proviso that if he shall survive his wife and children the .

property shall revert to hi.’ Here the possibility is. SO"

remote as to be almost non- existent and ‘the imposition of

~a tax-would be ‘an extremely. unjust ignoring of realities:

But manifestly the degree of remoteness of the possibility

- cannot judicially be made a test. of ' taxability —_—__——_~

Kindred difficulties : surround the application of the >

“judicial process. tothe ascertainment of the value of the

_ possibility of reverter. The Government claims that it is®

the value of the remainder interest’in ‘the trust property

Cwhich is to be included‘in the gross estate under Section

302(¢), but this, it is submitted, is viewing. the taxing law

asa succéasion rather _than as a transfer tax. If the tax

is upon the transmission of property from the dead-to the

_living, then it is in no sense to be measured by the value of

the remainder. If there is to be any tax at all it must be on __

_ what the grantor retained. ‘This would require an attempt .

to value the e possibility of reverter itself.

1 Tilustrations of trusts of this general nafure are found Jn

Trust Company v. Field, 10 F. Supp. 635, Bonney v. Commissioner,

_ 29 B.. T. A. 45, Nichols v. Bradley, 27 Fed. (2d) 47, Tait v. Trust

Co. 74 F, (24). 851, Wheeler v. Commissioner, 20 B. T. A. 695,

Commissioner v. Grosse, 100 F..(2d) 37. This list is by no means

exhaustive, but only. illustrative of the extreme remoteness of the

* pomuibility of reverter in many trusts. CE eae

ar a -

ot : 2 , E ‘ : =

Any actuarial formulae from which such a valuation _

_may be arrived at would give the most artificial: results.

Common sense and experience tell us: that ordinarily the -

value of a possibility of reverter depending upon a father:

surv iving his dayghter_ is more imaginary than real. It .

satisfactory method of valuation. This difficulty does not

. restrict the’ right of Congress to amend the statute, tax the 4

transfers and adopt some rule which it regards’ as appro-

priate fog measuring the value of the reverter; but it does,

“we submit, inhibit the judicial construction of the general -

language of Section’ 302(c) as _imposing any’ tax in | this

case. Pal _— !

e |

. WHETHER THE EFFECTIVE ‘ADMINISYRATION or. THE

ESTATE TAX LAW REQUIRES THE APPLICATION OF SEC.

TIQN .302(c) ADVOCATED BY THE GOVERNMENT ISA |

MATTER FOR CONGRESSIONAL ACTION’ EXCLUSIVELY, :

AND CONGRESS HAS INDICATED ITS SATISFACTION

| WITH THE SECTION AS HERETOFORE CONSTRUED.

The position of the administrative branch of the Gov:, *

ernment in urging a new construction of Section 302(c) is

based at least in part upon considerations of policy and’

expediency in the administration-of the law. It is sub-.

mitted that the result advocated is one to be reached, if at

all, by the legislative process and not by judicial construe- 7

? tion; especially where such construction would retrospec-

tively overturn an established rule.

Laying aside technical questions of. statutory inter-

pretation, it isnot to be presumed that Congress desires or

at any time has desired that transfers subject to possibili-

ties of reverter be taxed, or feels:that they are essentially

_ testamentary, or that their taxation is necessary to prevent

*- tax avoidance. On the contrary, the evidence points the

other way. : | |

On November 11, 1935, the any the Seiden’ in the St.

‘Louis-Trust Com pany cases were announced, White v. ‘head |

296 U. ‘S$. 98, was afso decided. The trust involved i in that

ease was terminable by the joint action of three tr stees,

_ of whom the decedent was originally one. She resigned as’

trustee, but later, upon the ‘resignation of OT

was reappointed under a clause in the trust instrument pro-:

viding for the filling of such vacancy. It was held that the’:

power thus acquired to participate in terminating the trust,

‘not being in any sense a power resery@d by the decedent —

_ in the trust instrument, was not a peer to ‘‘alter, amend _

_ or revoke’. within the’ meaning opSection 302 (d) of the -

Revenue Act of 1926,

Just as soon’ as possible, in Section. 805. of ihe Revenue

Act of 1936, Congress indicated its dissatisfaction with this

result by amending Secti tien. -802 (d)‘so as to prevent the

application of the decision in White v. Poor; the amendment

being’ expressly made’ prospective in operation.’

It.would be difficult to imagine a ‘stronger case of legis-

lative acquiescence in the judicial construetion of a statute — 7

_than this. shows as to the attitude. of Congress toward the

es i. .

1The House ‘Committee Report on Section 805 of "the ities

Aét of 1936 as contained in the original bill was in part as: follows:

rely changes made by. this. section are made necessary

- largely by reason of the decision of the United States Supreme

Court in the ease of White v. Poor, 296 U. S..98.° Although in

that case ‘the decedent had created a trust which was at her

death subject to a power to terininite, existing in thealecedent

as trustee in conjunction with two other trustees, nevertheless

the Supreme Court held that Section 302 (d) did not require

the inclusion im the gross. estate of the decedent of the prop-

erty subject to such power of termination. * * * It is, therefore,

provided that Section 302 (d) covers a powet whether created

at the time of transfer or thereafter arising from any source

“and whether exercisable. in an “individual or representative

capacity. " : G3

House Committee Report on H. R: 12793, part of which was later

adopted with changes i in the Revenue Act of 1936. -

. P

a< y

. .

‘ | i ann ;

_ St. Louis’ Trust Company decisions. Coming as they did

simultaneously with the decision in White. v. Poor and af-

fecting the same general subject matter. and the same ,

section of the Act interpreted by the latter decision, no

~ conclusion can be reached but that Congress had them ii

mind when the. amendment was. under consideration and

was content with them. °

If it should be said that di may have been inisilcett

’ time between November 11, 1935, ‘and the passage ‘of the

Revenue Act of 1936 for, the effect’ of the St. Louis Trust .

Company décisions to have been fully. realized by Congress

and desired action taken, stich a Suggestion would be: over-

‘come by the circumstances that three additional revenue

acts have since been passed, noné of which has touched -

Section, 302(c); although | one of themi was avowedly for

‘the purpose of preventing tax avoiding practices.’

Another striking illustration of what has been the prac-

tice when Congress has:not acquiesced in decisions inter-

preting Section 302(c) or has felt that effective ta& admin-

istration requires a different construction, is found in what. .

happened to the section after the decisions in May v..Hei-

_ ner, Burnet ~. Northern Trust Co., Morsman v. Burnet, and

McCormick v. Burnet; supra, which held the section inap- _

; plicable to irrevocable transfers where the grantor retains

a life interest in the ii income. So quickly did Congress act, ?

that the amendment of Section 302(¢) to chafige the result

_ of these decisions was passed, under suspension of the

rules;, on the day after the decisions in the three Burnet

cases, the last day of the session: , See Hassett v. Welch,

= U. S. 303, 309. .

. 1.Revenue hon of 1937, 1938 and 1939. The 1937 Act. was .

entitled—‘‘An Acf to Provide Revenue, Equalize Taxation, Pre.

vent Tax Evasion and: Avoidance and For Other Purposes.’”* The

1938 Act contained (Sections 501-505) certain amendments of the

_, estate and gift tax laws. The 1939 Act; consists primarily of

amendments to the income tax laws, although Section 403, amends 7

the estate tax law in‘tWo minor respects.

ce Se.

'. Certainly such prompt action showed that Congress

_ thought that transfers with a life estate reserved to the »

_ grantor’ were basically testamentary and ought to. be

_ reached by the estate tax law. The absence of similar action

for féur active Congressional ‘years after the. ‘St. Louis

Trust Company. decisions is a strong indication of Con-

gressional concurrence with the principle of those cases.

If it is going too far to say that such legislative ac- -

quiescence necessarily or conclusively, shows eXpress agree- .

ment with the construction ofSection. 302(c) heretofore ;

made (for reasons stated infra we think that such-explicit

agreement must be considered to exist), it is at least sig-

‘Nifieant as showing no feeling that the St. Louis Trust.

— Company cases are any substantial hindrance to the effec- |

tive administration. of the estate tax law. It is easy to

see why this isso. . Without the amendment ‘to Section .

“302(e) by the Joint Resolution of March 3, 1931, it is cer-

tain that an immense’ amount of property: would have es-

caped, the’ estate. tax. Multitudes of tax conscious people

would: doubtless have set up trusts under which. they could _

have continued to enjoy the income of their property, but

no comparable. opportunity for tax avoidance is offered -

by the St. Louis’ Trust Company decisions. In. the.great

‘majority of cases where trust instruments create possibil-.

ties of reverter, the grantor ean have no thought: that he —

is retaining anything approximating the substance of’en- _

Joyment of the property. ‘In the typical case the possihil-

ity is worth little or nothing and is. inserted. merely, that

- every possible contingency-may be covered. From its very —

nature it is no®a highly material condition or one which, . :

in the-mind of a grantor, is related to tax avoidance.

U nder date of March 18, 1937,. Article 17 of Treasury.

Regulations 80 was: amended by the: addition a of the follow-

“ing paragraph : pie ‘

; +. See :

~- Qn-+the other hand, if, as a result of the transfer, |

there remained inthe decedent at the time of his death

no title or interest in the transferred property, -then -

_ no part of the property is to be included in. the gross)

estate merely by reason of'a provision in the instrv-

ment of transfer to the effect that the property was to.

revert to the decedent upon the prédecease ‘of some

other person or babes or the oe of some other

event.’’. ; )

Article 17. as 80 amended not ali adopts the peiadgin

of the St.Louis Trust ‘Company decisions, but states quite

aptly the very distinction between those cases and the Klein

case which is now ‘claimed to be unsound and unsatisfactory.

The amended regulation was in effect when the Internal

by the Act of February 10, 1939. Section 302(c) -was re.

enacted by this act, as Section 811(c).. Thus, in the present

- year, Congress has in effect ‘expressly adopted the construe:

tion of Section 302(c) by the St. Louis Trust Company cases

and the’ Treasury Régulation following. them.

In Copper Queen Consolidated Mining Co..v. Arizona,

_ 206 U.S. 474; at p. 479, it was said by Mr=Justice. Holmes:

‘And again, when-for a considerable time a statute

notoriously has received the econstruetion in practice

from those whose duty it is to carry it out, and: after-

wards ‘is reenacted in the same words, it may. be pre-

sumed that the construction is satisfactory to the jegis-

lature, unless plainly erroneous, since otherwise nat-

urally the words would have been changed.” -

Again, it is stated in the opinion in escnd v. Welch, 303°

U.S. 303, at p. 312: ; ie. “ ;

Not only is the legislative bistedy of Section 803(a)

of the Act of 1932 bare of indication of any. purpose

' that it should affect past transfers, ‘but what ‘appears

tends to disprove any such thought: Moreover, the

reenactment. of hats Resolution of: 1981 in the light of .

the administrative rulings requires the ednclusion that i

Congress approved and adopted the administrative con-

struction of the provision it reenacted.’’. Fee

| Of like effect are Hecht v. Malley, 265 U.S. 144; Massa-

hea. Mutual Life v. United States, 288:U. 8. 269; Mur-

“phy Gil: Co. v. Burnet, 287 U. S. 299; Harley v. Commis- . -

sioner, 295 U. S. 216; Old Mission Portland Cement Co. v.

Helvering, 293 U. S. 289 ; Burnet v, Chicago Portrait Co.,

MUL -* o.

“Granting some show of reason. to the petitioner ’ s posi-

tion that he should not be prejudiced by an amendment of -

a regulation into which he felt he was, forced by a decision.

of this Court,’ the argument is of no av ail when. following -

‘the amendment of the regulation. Congress, after four years |

of inaction on the subject,, reenacts the cognate statute.

- Itis. therefore submitted that the problem is within the °

legislative province and that under the circumstances here _

the disapproval of the St. Louis Trust Company cases

would amount to-a judicial amendment of Section 302(c),

contrary to the actual intention which must now be ascribed

to Congress with reference to the meaning of. the section.’

An important practical aid to the ascertainment of the -

real intention of*Congress is found in the. relation of the —

Gift Tax Law to the situation. It is fair to say that a |

transfer like those in the St. Louis Trust Company cases,

where a grantor parts with all control over his property

‘ad where it can only revert to him on the happening of a —

condition beyond his power to direct, is one which a prac-

tical minded legislator would think ought to be subject to

——

stated :

“2 hula of practice to conform to judicial decision, such

as has occurred since the‘ decision in the Hesslein casé, or to

‘meet administrative exigencies, will be atcepted as ‘controlling

wuen consistent with our decisions.’’ .-

1 But sée Sanford v. Commissioner, ‘supra, in which it is

Lo) ,

40° if

the Gift Tax as a consummated gift. In Sanford v. Com ft

missioner, Docket No. 34 at this term, it is said:

” “The gift tax was supplementary to the estate tax.

The two are in pari materia and must be construed to-

gether.’’ ( Giting Burnet v. Guggenheim, 288 U. 8.

280); and .

‘‘We think, as was ‘pointed out in the Guggeéenhein Ff

’ Case, supra, 285, that the gift tax statute does not con- ft

template two taxes upon gifts not made. in contempla-

tion of death, one upon the gift when a trust is created ° 4 |

or when the power of revocation; if any; is relinquished,

-and another on the transfer of the same property at

death’ because: the gift previously. made was incon-

» -plete.’’

If transfers like eer in the St. Louis Trust- ene

cases are held to be subject to the estate tax, there should

therefore be no gift tax upon them. But to hold them not

taxable under the Gift Tax Law would ga far beyond any

of the principles so far announced in cases like Burnet ¢.

Guggenheim, and Sanford v. Commissioner, supra, ani

would seem to carry. possibilities of inconsistencies ani |%

~ eonfusion i in fhe administration of the Gift Tax Law.

_In any event this may present an added reason for the 4 “4

undoubtedly conscious action and conduct of Congress after 5

the St. Louis Trust Company decisions. It may well have (@

_ been i in the legislative mind that if-transfers such as were

there involved are not taxable at death they, are when

executed and, having regard-to the fact that transfers of

this nature do fot readily lend themselves to tax avoiding

devices, it is a fair inference that vangren desires, the law

to remain as iti is. -

rt aie dis ee : a. ,

THIS COURT’S DECISIONS APPLYING THE DOCTRINE OF

STARE DECISIS ARE: PERSUASIVE IN FAVOR OF AD.

HERENCE TO THE ST. LOUIS TRUST COMPANY CASES.

Assuming, arguendo, that the rule of the St.. Louis

Courtetife question arises whether the Court shall ov errule

them, or shall adhere to the rule as settled, leaving it to fe

Congress to make such change, if any, as it may deem neces-

cretion and is one upon which this Court has often spoken.

The fundamentals of the doctrine of stare: decisis are

explained in the dissenting’ opinion. of Mr. Justice Brandeis

in Burnet v. Coronado Oil € Gas Co., 285 U. S. 393, at page

a ; .

“Stare decisis is not, like the rule of. res adjudicata,

a universal, inexorable command. ‘The rule of stare ;

decisis, though one tending to consistency and_uni-

formity of decision is not. inflexible. Whether it shall

be followed -or departed from is a question entirely

-within the discretion of the court, which is again called

- upon to consider a question once decided.’ Hertz v.

W oodman, 218 U.S. 205, 212... Stare decisis'is usually ~

the wise policy, because in most matters it is more

important that thé applicable.rule of law be settled than

that it be settled right. Compare National Bank v.

Whitney, 103 U. 8.99, 102. This is commonly true even ,

wher@the error is a matter of serious concern provided.

correction can be had by legislation. But in cases in-

volving .the Federal: Constitution, where correction

through legislative action is practically impossible, this

court has often overruled its earlier -decisions. The

court bows to the lessons of experience and the force.

of better ne, recognizing that the process df trial

_| This case involved Sonstitutional limitations: | It was over-

‘uled by Helv ‘ering v. Producers Corp., 303 U. Ss. 387.

42 i ee,

and error, so fruitful i in the physical sciences, is appro,

priate also in the judicial function.’”

In National Bank v. Whitney, 103 U. S. 99, it Was held

_ that a national bank might enforce a mortgage, against the

mortgagee and parties claiming under him witlr notice, not

only as to then existing but also as to after acquired ‘in-

debtedness. The Court regarded itself as bound by Nationa

“Bank v. Matthews, 98 U. 8. 621. “The opinion delivered by _

Mr. Justice Field states, page 102:

' 1 An analysis of those cases in which’ this Court has departed

from rules heretofore declared by it “(collected by Mr. Justice.

. Brandeis, 285 U. S. 406-409, and supplemented by later research

has resulted in no case being found by respondents in which this

Court has departed from an earlier decision, (not involving con-

stitutional grounds and therefore amenable to legislative action) :

except in cases where there existed no possibility of harm sufficient

to outweigh the desirability of a correct decision. The following

cases are illustrative of the character of the legal question where the

Court has felt free to overrule earlier seeping where non:

constitutional questions were involved. .

C. E. & I. Railroad v. Industrial tii 284 U.

(whether a railroad employee when injured was, under the ie

to be regarded as engaged in interstate commerce under the

Federal Employers Liability Act); Les v. C. & O. Ry.,: 200

U. S. 653, (whether a right of removal to the federal coir

existed when neither plaintiff nor defendant was a resident of |

~ the state); Rosen.v. U. 8., 245 U. 8.467, (whether. one convicted

6f forgery might testify ’ against his codefendant) ; Roberts. ¢.

Lewis, 153 U. S. 367, (the interpretation of a particular will u-

der loca! law of Nebpaika ) ; Mason v. Eldred, 6 Wall, 231, (the

éommon law rule that a judgment against one joint contractor bars

. an action against others and merges the contract with the judg:

ment); Vidal v. Gerard’s Executors, 2 Howard 127, (the right of.

. the City of Philadelphia to accept propefty in trust by devise):

Gazzam v. Lessee of Phillips, 20 Howard 372, (the method of de

termining the quantity of land granted to a patentee under 8

preemption. The earlier decision was _‘‘controlled.’’ There the

court recognized the ‘‘possibility’’ of disturbing some rights but

felt that an adherence to the earlier erroneous rule would cau%

more .confusion) ; Hornbuckle +. Toombs, 18 Wall. 648, (whether

the procedure in territorial courts was toabe governed by that

applicable. to eg and cireuit courts or left to the territorial

legislatures) ; U. 8S. v. Phelps; 107 U. S. 320, (time within whieh

-an importer may apply for appraisement of damaged goods to

reduce customs, duty. -The. court overruled the earlier decision.

/ ; 43 ark eh | >

“The construction of the act of Congress thus given

has been acted upon by: the national banks’ throughout

the country.ever since it was published. It is not unrea-

sonable to suppose that they have conducted their busi-

ness and made loans to a large amount in reliance upon °

it, and that in many cases great injury would follow

a departure from it.. Judicial decisions affecting the

business interests of. the country should not be dis-

turbed: except for the most cogent reasons, gertainly

not because of subsequent doubts as to their soundness.

The prosperity of a commercial community depends,

in a great degree, upon the stability of thé rules by

_which ifs transactions are governed. If there should

be a change, the legislature can make-it with infinitely

less derangement of those interests than would follow —

a new ruling of the court, for statutory regulations

would operate only in the future.’”

b .

e St. Louis Trust Company cases ought to be adhered’ to because

widespread reliance thereon, that it be shown that Mr. Hallock

lied upon that rule. * Manifestly he did not rely on it, because his

ath preceded the decision of those cases. That the considerations .

relianee. are of a general nature and that its presence is not

sential in any given ease is shown by National Bank v: Whitney.

lat case was decided at the October, 1880 term. The case by

lich the Court regarded itself as bound, National Bank »v. Mat-

ews, was decided at the October, 1878 term. The Court’s as-

mption that national banks had conducted their business and

ide loans-in reliance upon the rule had chief reference therefore

the period.between 1878 and 1880. The mortgage loan involved

the Whitney case, however, had been made i in 1872.

(Continued from p. 42.)

d its action in so doing was against the revenue interests of the

ited States) ; Fairfield v. Gallatin County, 100 U. S. 47, (over-

ling an earlier decision that a county in Illinois had no power

issue bonds under the Illinois: constitution. A new Illinois deci-

n had intervened favorable to the. validity of the bonds. The-

‘ision sanctioned: the rights of- investors and did -not disturb

ver to issue negotiable-bonds held not to be implied from power _

borrow money. The overruled cases were held to have. been

eady overruled in effect by later cases. The Court suggests —

sible recovery if the action. not brought ‘‘directly’’ on the |

ids) ; U.S. v. Nice, 241 U. S. 591, (upholding.the Congressional

as). to prohibit or regulate sale of ‘intoxicating liquor to In-

It is not essential in order to validly argue that the rule of -

iF)

The view expressed in the dissent in Burnet v. Coro-

nado Oil & Gas Co:, supra,-i.e. that which favors a quite

rigid appli¢ation of the rule of stare decisis: where mere

statutory construction is involved, as contrasted with a

- flexible approach where constitutionality i is concerned and

Congress can afford no remedy, is the prevailing rule. Thus

in Erie R. Co. v. Tompkins, 304 U. S. 64, in which the doc.

trine of Swift xv. Tyson, 16 Peters 1, namely, that insofar as

general law is concerned, federal courts will apply their

own common law, was held unconstitutional and | overruled,

the majority opinion states, p. 77: * x |

‘‘The injustice and confusion incident to the doctrin

of Swift v. Tyson have been repeatedly urged as ‘rea-

sons for abolishing or limiting diversity of citizenship

_ jurisdiction. Other legislative relief has been pro-

: posed. If only a question of statutory construction

were involved, we should not be prepared to abandon

the doctrine so widely applied throughout nearly & (eM

- tury. But the unconstitutionality of the course parsual

_has now been made clear’ and compels us % do so.”

( CounsdPs emphasis.) oe )

In: Boston Store v. American Gramaphone Co., ‘O46

U. S. 8, deciding that stipylations in a contract of sale

of a patented article fixing/the price on resale are void u-

der the. general law and not within the monopoly conferred’

or the,remedies afforded by the patent law, the majority.

~ leaned heavily upon certain earlier decisions. Although ap

parently in doubt as to their soundness Mr. Justice

Brandeis concurred in a separate opinion, saying at p. 2°:

‘‘T concur, however, in the answers given herein 0

all the questions certified; because-I consider that the

series of cases referred to in the opinion settles the la¥

for this court. If the rule.so declared is believed to &

harmful in its operation, the remedy may be found, a

it has been sought, through application to the Congres

or relief. may possibly be given by the Federal Trade

Commission which has algo been appealed le

the views of Mr. Justice Sutherland, concurred in“by ’

. Justice McReynolds and Mr. J ustice Butler, in the dis-

t in United States v. Raynor, 302 U.S. 540, at p. 552.

The Nature of Judicial Process (Cardozo) states at

re 146; Ee eas

‘“‘T say, therefore, that i in the vast majority of cases

the retrospective effect of judge-made law is felt either

to involve no hardship or only*such.hardship as is in-

‘evitable ‘where no-rule has beén declared. I think itis —

7 gels that when-the hardship is felt to be too great

to be unnecessary, retrospective sain is. 3. with-

held.’’

And on np. 149 we find:.

“T think adherence to secubiias aual be the rule

and not the exception. I have already had occasion to

dwell’ upon some of the considerations that sustain it.

To these I may add that the labor of judges would be

increased almost to the breaking point if every past

decision could be reopened in every case, and one could

not lay one’s own course of bricks on the secure founda-

* = . %

tion of the courses laid by dthers who had: ~ before —

him.’?’

is latter eomatderition is important. Granted that the

se division of the Court in the St. Louis Trust Company

es indicates sharp conflict in judicial thought, the an-

incement of another rule might he similarly conditioned.

t inevitably, but very possibly, the Court a few brief

irs hence might again be besought for reconsideration.

In speaking of the wisdom of rulés which lead to cer-

ity and repose in our judicial system, Judge Robert von

schzisker in XXXVII Harvard Law Review, page 409,.

[ article entitled “‘Stare Decisis in Courts of Last Re-

’ said on page 413: .

“For the purpose of ieeniia: the. ne standartiond

so it may be knowable to all, the doctrine of stare

deci sig is dictates that decisions formally reduced-to judg:

ment shall thereafter be followed as precedents; that

is to say, the. law of such decisions,—even though

thought to be wrong in principle or to have been in-

correctly applied,—shall not be departed froni in sub-

sequent cases where a departure is apt to do more

harm than would occur should the decision be allowed

to stand until the legislature: might see fit to change

the rules of-conduct there laid down or ‘acted upon

~~ But if, after. thorough examination and deep ‘thought,

a prior judicial decision seems wrong in principle or

_ manifestly out of accord with-modern conditions of life.

it: ‘should. not be followed as a controlling precedent,

w here departure therefrom can be made without u-

duly affecting contract rights or other interests calling

for. consideration.’’ : .

The question here before the Court i is one of. statutory

-- gonstruction and involves no question of constitutionalitt<

As in National Bank v. Whitney, 103 U. S. 99, this Court

‘may tae account of the fact that many business transac-

tions have been entered into upon the strength of the de:

sions which it is now sought to have this Court. overrule.

That the rule crystallized in its final form but four years

ago is not important, because it must~be the frequenct.

‘character and size of transactions. entered into rather tha

P ae ee - q. .

_ the number of calendar. years involved which determine

whether a rule of law has become so far entrenched as 10

warrant its retention until Congress shall act.

We are dealing not with a single decision ‘but with

true series of decisions. The cases preceding the St. Lowi:

Trust Company cases and which are akin in principle at.

set out at pages 19 to 21, supra. Some of the eases follow: |

ing and approving the St. Louis Trust Company. cases att

the following : Bingham v. U. S., 296 U. S. 211; Comme

sioner v. Grosse, 100 F. (2d) 37; inlaid v. Kaplas.

102°-F. (2d) 329; Rothensies v. Cassell, 103 F. (2d) 8

(argued herewith) ; Corning v. Commissioner, 104 F. (2d)

329; Blakeslee v. Smith, 26 F. Supp. 28 (semble); Baile!

BS.

..U. 8, 97 F. Sup. 617, (semble); Nicholson fv. —— + 3

Ps Sup. 424; Commissioner.v. Brooks; 87 F. (2d) 1000-3;

Mackay v. Commissioner, 94 F. (2d) 558. Old Colony Trust

00. v. U: S., 15 F. Sup. 417, 422-3; Myers v. Magruder, 15

P. Sup. 488, 493; U. S. v. Nichols, 92 F. (2d) 704; Knee-:

and, 34 B. T..A. 8163 John T. H.. Mitchell 37 B. T. A. 1, 83

Vatdo C. Bryant, 36 B. r. A. 669, 676.

¢ | ss

Joagress lias power to amend Section 302(c).

That Congress. may correct the situation. if avchange

n the law be advisable is clear. In fact Congress only

an adequately do(so.. This is beeause the Congressional

lesire may be either (a) to keep the law as it is or. (b)

0 tax all transfers otherwise taxable even though there

remains to the transferor nothing more than a possibility

of reverter, or (c) to tax certain transfers of the charac-

er last above described but not all. In this latter conhec-

ion it is pointed out that transfers completed and. ‘vested

ontaining possibilities of Teverter” may be of many dif-

fering types, somé of w!:ich Congress may desire to tax and

‘ome not. This is because the possibility of reverter has

in some cases a substantial value and i in some no real value °

whatever.) . ;

It cannot be that: Congress ‘intended that all such eases . -

kere to be taxed, but, if the rule of the St. Louis Trust.Com-.

"any cases is to be abandoned, inevitably all come within

he ambit of taxation. The judicial process cannot draw a

‘igid line of demarcation. “The legislative process can draw

he line of. taxability rigid)y wherever it may in its wisdom

hoose. Congress might make taxability depend upon the

——p

‘It is only a odicial answer to this argument that the carving

ut of the various life estates’ would radically reduce the value of - .

he remainder. No matter te-what point the value of the remainder

‘reduced. there would remain a tax on a possibility which, viewed

ractiqally, is of no value whatever.

Pea

_™/

_—

—*

ve)

48 "i

number of lives whose predecease must occur before the re

.verter takes place or upon the ages of the beneficiaries in

relation to that of the donoor upon any other criterion of

: probapility. that the reverter will take place; or Congress

‘might be contented to leave the law as this Court four year:

ago declared it to be. All of these considerations argue for

leaving to Congress a delicate matter much more properly

. -of legislative than of judicial significance.

Petitioner states, page 28 of his hrief, “The problem

is one which: cannot ‘weills be dealt with by amendatory

legislation. It would be unsatisfactory, if not almost im-

. possible, to attempt to describe in the statute the numerou:

limitations of estates by which transfers are made to take

effect in possession or enjoyment at or after the death of:

the grantor.” We submit that the ‘argument’ is utterly

_ without merit. Passing the unsupported assumption that

Congress desires to deal with the problem by amendators

. legislation, we point out that mere difficulty, short of im-

possibility, in arriving. at a solution does not call for 3

relaxation of the settled rules of law which guide this Court

in determining whether to adhere to an earlier determina

tion. But no real difficulty exists. If ‘Congress should

desire .to tax all transfers- in which there exists a poss:

bility of reverter, Congress may do so quite simply. 4!

that is required is an additional sentence in Section 302(c}

stating in appropriate linguage.that if a transfer is other-

wise taxable under that section, the fact that the transferor

may have retained a possibility of reverter shall not render

the transfer nontaxable; or perhaps that. in enforcing: the

section no distinction shall be drawn between vested it-

‘terests transferred subject to divestiture by condition sub

sequent and contingent interests to come into being up0l

condition. precedent; or that a retention by the transfero!

of any reversionary interest, however denominated, shal

require inclusion in the gross estate. To be realistic abou!

it, if the St. Louis Trust Company cases had been decide!

. 49

differently the Commissionet would have had no trouble in

laying down clear regulations. sufficient to ‘enable him to

collect his taxes. :

Congress may very well decide to keep the law as de-

élared in the St. Louis Trust Company cases.. Whether i in

that respect Congress is ‘acting wisely is for Congress to ._

determine. It i is not essential that reasons be ascribed for

the contentment of Congress. - One possible reason however

is apparent. | As heretofore pointed out- Congress may well

have reasoned that adequate revenue will .be ‘produced.

through gift taxation and that estate taxation related to

the same subject is not important. . eer ae 4

_. It is submitted that the conclusion ‘that Congress .in-

tends the law to’ remain as it is is inevitable. As shown

above, four times since the decision of the St. Louis Trust

Company cases: Congress has enacted revenue legislation.

The 1937 Act was specifically intended to prevent tax avoid- _

ance and would. have covered transfers with possibilities of

reverter had Congress thought they were .being used to

avoid taxes. Jieier ae ‘

These conclusions as to.Convressional intent are forti:

fied by’ the fact that as heretofore’: shown Congress has

never been unwilling promptly to: produce amendatory legis-

lation whenever it has felt it required by decisions of this

Court. Such considerations, as well as the recodification —

in 1939 of the Revenue Laws, are, we submit, cogent factors

to be considered in connection with the wisdom of applying

the rule of stare decisis.

Petitioner makes the. sweeping assertion that the de-

cisions of thi@Court have substantially deprived Section 302

to the extent that Congress .has regarded this Court’s deci-

sions construing Section 302 as impairing the efficacy of.

that section and kindred sections, it has easily remedied the

situation at once by amendment. Thus the statute. is by

:- 4 3

no. . |

As the entire Section 302 now stands, whefe a transfer

_g is otherwise complete and irrevocable but the donor retains

some real incident of ownership or. property which js

thought to. be properly, taxablé the matter is B apecifcal

covered by various subsections.

The general language of Section 302 (c) covering trans.

férs intended to take effect in possession or enjoyment at.

or after death is intended for the sole purpose of eaching

transfers.where the grantor has in some way retained in

himself during his Wfe the guse, benefit or control of -

the property, i.e., transfers where the gift remains am.

bulatory during the life of the donor i in the : sense of being

subject to recall or other disposition at his will. A typical

example of*such transfers is the conditional delivery of an

unrecorded deed not to be delivered to the grantee unti

‘the’grantor’s death. Other typical cases are shown in the

footnote.’ Congress can add to them if it be wise.

1The following cases, in most of which the Klein case wa

cited, furnish a few examples of transfers held to be taxable a

intended to take effect at death: Commissioner v. Schwarz, 74 Fed.

(2d) 712 (where income was payable to grantor ‘if. living. at his

sister’s death; otherwise to the grantor’s descendants) ; Univn

Trust Company v. U. 8., 54 Fed. (2d) 152- (Court of Claims

{where decedent. delivered stock endorsed*in blank to a bank #

trustee under. an agreement that it should be held for the jeit'

‘lives of himself and wife and upon the death of one should be de.

liyéred to the survivor, the decedent having’ the right to the incow

meanwhile); Bryant v. Commissioner, 36 B. T. A. 669 (wher

-property was transferred to a trustee under agreement for pay

ment of income to the decedent’s wife for life, then to decedent fot

life, the principal to. be paid to the decedent’ & estate upon the

death. of the survivor) ; Jaeger v. ‘Commissioner, 33 B. T. A. 9

(w here decedent erdorsed stock certificates to his several childre.

and delivered them to a son with a statement that he could have

them transferred and delivered to the donees whenever he saw fit ali!

dividends were. received by the decedent until his death) ; Tr

Company v . Commissidner, 27 B. T. A. 972 (where trust agret

ment made net income payable to decedent’s two. daughters {0

life and upon their respective deaths the corpus was to be paid te

reilly. if living and if not to such persons: as. he — appoun'

by will) :

mn) |

"Another strong intendment in favor of applying: the

‘tule of stare decisis arises by analogy from the rule that

where doubts exist in respect of the interpretation of a tax.

statute they should be resolved in favor of the taxpayer.

‘To be sure-the rule is by no means inexorable and attempts

of taxpayers to use it as a sword rather than a shield have

been rejected by the Court. Nevertheless thedoctrine, when |

based upon a real doubt, seems fundamentally sound. If -

doubts of the character stated shall be resolved in favor of

the taxpayer when the highest court in the land has not

spoken, they shguld, we submit, ’ e resolved in favor of the

taxpayer when the hi@hest court in the land has authori-

tatively spoken and is being asked to change its view rather.

than await the action of the legislative branch.

It is submitted, both upon principle: and authority, that

‘the Court’s judicial discretion sliould be exercised i in favor

of not overruling the St. Louis Trust Compaity cases even

though the Court should think that they ought not to have =

been decided as they were.

eeney submitted,

W. B. Srewart,

Wa ker H. Nye,

Asuuey M. Van Duzer,

-Counsel for Respondents in Cages Nos.

_ 110 and iil.

6G W. H. Annat,

- Counsel for Respondeng t in Case N 0. 112.

Bis

¢ —_—

bid e

. ft. .

> 5 ‘ ’

¥ .

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