# Brief for the Petitioner — Commissioner v. Disston > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386404_0172%3A3 ## Record - **Collection:** Supreme Court brief - **Document type:** Brief for the Petitioner - **Published:** January 1, 1945 - **Citation:** 325 U.S. 442 ## Text ~ oe ad - ~ ‘ > oe 6 ¢ . . * . . - . - . . . . $ . . . ‘ “ - , 2 . ~ ‘ ; é . . ° o . . pe A | . - - . - 7" . ae. . o. . * é . . . . - “ ; . ‘ . . ° : ee? ? ‘ e . . . . . . ws - ’ . ‘ Page Opinions below - - - --5---=--------- sth ate ahi een memtonagait | EE ae er a tbl cnn aameenhins ae Questions presented. --..-----------------+------------ mike 2 Statute and regulations involved- ------------ puqenaccesscee 2 NN Perr errr rrr ree 4 Specification of errors to be a, Saas ibe cantainandenadds a Summary of argument---------------------------------"-- 9 ~ Argument: , I. The interests given to the minor beneficiaries were : \ future interests... ...-------.-:----------¥--+--40 Il. The statute of limitatiqns does not preclude re pervent determination of the amount of net gifts made by. the taxpayer in prior years, for the purpose‘ of determining the correct tax liability for the current years.......----------++------- Oe es Sa te 23 NR i cn cancnsccbbatseccecssncevessids-ensesse- 26 co: ' . CITATIONS Cases: . ‘ . ‘ : Commissioner v..Brandegee, 123 F. 2d 58-------------- “ae 22 Commissioner v. Gardner, 127 F. 2d 929--- - ------------- ‘22 Commissioner v. Gooch Co., 320 U. 8. 418_..------- F 25 Commissioner v. Taylor, 122 F. 2d 714, certiorari denied, 2 SE clic anecddcdotnnapacpeessoin Sete Date AE § 8, 12 Fisher v. Commissioner, 132 F. ) ae eee «=~ 16,21 _ Fondren v. Commissioner, decided January 29, 1945.-.-.-- 9, . 11, 12,.15, 21 New Colonial Co. v. Helvering, 292 U. 8. 435-- /, 19 Roberts v. Commissioner, 2 T. C. 679, ‘affirmed, 143 F. 2d 657. certiorari denied, February 5, 1945__-.----------- 25 Sensenbrenner v. Commissioner, 134 F. 2d 883-_.--- ---- --- ' 16 Smith v. Commissioner, 131 F. 2d 254_-..- + ----------- i“ 20 ’ United States v. Pelzer, 312 U.S. 399------ Sees Cae - 20 Wallerstein vy. Commissioner, 2 T. C.542..*% ---.------ “~"25 W interbotham v. Commissioner, 46 B. T. A. 972- --------- 25° Wisotekey v. Commissioner, 144 F. 2d 632_.- _-. 13, 15, 19 Statutes: } “is : ' Revenue Act of 1932, c. 209, 47 Stat. 169: . See. 502__._- ~ aa Sec. 504.4 BS Seiden _ 2 Bee. $17.2... -::- 3,24 * (1) 634420— 45-——-1 II ' : ’ Miscellaneous: H. Rep. No. 708, “a0d Cong., Ist Sess., p. 29 (1980-1 Cause. Ball. (Past BD 460) o40. 3 cee wccccecnecdcgeccss H. Rep. No. 2333, -77th Cong., 2d ‘Sess., _P. 37 (1942-2 ; FRE Rs GE unne taut padbridbecancnsphnmpebesscaee - Treasury Regulations 79 (1986. ed.): : y MG Rievvasivides- peapeenesintienwats ratte toi tale 7. ‘Art. 9. eeecececeecescececasceseseeecaereecece dmeeceececeeeseres BWR. Bae 5 co... 22 nh nec ne eee ee ene se Jceeee ‘ F S - st : ° Ae } \ « ; \ A | \ \ se - ‘ a \ \ as \ \ 7 Inte Sore gor if the Winited Sines 7 7 OcTOBER TERM, 1944 Hee . CoMMissIONER OF INTERNAL REVENUE, PETITIONER 3 i ' ee BP cal | eres : . 3 a ~ _..... WiiraM D. Disston © ON WRIT OF CERTIORARI TO THE UNITED STATES CIRCUIT . COURT OF APPEALS FOR THE THIRD- CIRCUIT / \ ; _ BRIEF FOR THE PETITIONER OPINIONS BELOW - The Tax: Court entered a memorandum opinion _ (R. 39-41) which is not reported. ‘The opinion of the Cireuit Court of Appeals (R. (46-53) is reported at 144 F. 2d 115. . ‘JURISDICTION | 7 The Sadeaiab of the Circuit Court of i cee was entered on July 12, 1944. (R. 53.) The pe-) | tition for a writ of certiorari was filed on Oc tober. - 12, 1944,-and was granted on February 5, 1945. ° The jurisdiction of‘ this Court is invoked under - Section 240 (a) of the Judic ial Code, as emapet: by the Act of February 13, 1925. ee : ey oy ee fer . QUESTIONS PRESENTED 3 7 Whether gifts made by the taxpayer to his minor children under trusts for their benefit were | of ‘future interests in property”, and hence. not — within the $5,000 exclusion provision of Section | . 504 (b) of the: Revenue Act of 1932. Ree Whether the. tax liability for the tax years is : _ to be determined by correetly computing the ag- _ . gregate net gifts made by the taxpayer in prior years, even ‘though the. amount of net gifts was . erroneously computed in. the taxpayer’s returns for those years and the tax liability for those years : is closed by the statute of limitations. are STATUTE AND REGULATIONS INVOLVED — Revenue Act of 1932, ¢. 209, 47 Stat. 169: Sec. 502. CoMPUTATION OF TAX. The tax for each caletidar year shall be : - . an amount equal to the excess of — (1) a tax, computed in accordance with the Rate Schedule hereinafter set forth, on - the dggrezate sum of the net gifts for such “ealendar year and for each of ‘the preced- ing: calendar years, over (2) a tax, computed in accordance with the Rate Schedule, on the aggregate sum of the net gifts for each of the preceding cal- endar years. 7 . * vie" * o-: Sec. 504. Ner G ETS. (a) General Defin: tion-The term ‘“‘riet gifts’? means the total amount of gifts made ’ a ; a a during the calendar year, less the’ * due - tions ‘provided in section 505.. 3 (b) Gifts Léss Than $5,900.—In ~~ an b ‘. property). made to any person by the donor — during the calendar year,. the first $5,000 of such gifts to such person shall not, for the purposes of subsection (a}, be ineluded in the total amount: of. _ made during such year. See. 505, Drepu CTIONS. [As snanind by See. 301 (b) of the Revenue’ Act of 1935.]. in computing net gifts for any calendar . year there shall be allowed as deductions: (a) Residénts.—In_ the case of \a. citizen or resident— $ : ee Specific éxc ‘aitiiie Pw en cantinptian *. . of $40,000, less the aggregate of the amounts claimed and allowed as specific exemption for preceding calendar years. ~ = *- * . 7 _— . * - Treasury Regulations 79 (1936 ed.) : 5 Arr. 9. Net gists. —The t tax is computed upor the amount of the donor's net gifts (see articles 5, 6, and 7). The term \*iet gifts’ means the “total arnudunt of oifts’’ Me computed as provided in. sedtion 504 (\ > article 10), less the deduction: provided -_ sevtion 505. (See articles 12 and 15.) ~ Ant. 11. Future interests in property.—- : ‘No part of the value of a gift of a future in- terest may be excluded in determining the ' total amount of*gifts sista during the-éal- endar Year. ‘*Future interests’ is a legal ~ of gifts: (other than of future interests in - a . SN nee ee eee " term, and includes reversions, remainders, --and other interests*or estates, whether | vested or contingent, and whether. or not supported by ‘a particular interest..or es- ‘~ _ tate, which are limited to commence in use, possession, or énjoyment at some future ie ee te fe STATEMENT ° ‘The take, ee stipulated (R. 16-17, 36-38) and found by the Tax Court (R. 39-40), are not in dis- pute. They may be summarized as follows: . By deed dated December 17, 1936, the taxpayer pra Er a trust for the benefit of each of-his five children, thrée of whom were then. minors. (R. - 16-17.) Inauditing the taxpayer’ s gift tax return ) + for: the year 1936, the Conimissioner deter mined aa taxpayer had made gifts in that year to | ‘his wife and children in an aggregate amount of $71,952.49. (R. 16-17.) ) Phe Commissioner allowed the taxpayer an ex- clusion of $5,000 on each gift to his. five children and ‘on the gift to his wife.’ The taxpayer's net _ gifts for the year 1936, after deducting an exemp- ‘tion of $40,000, .were accordingly computed to be - $1, 952.49, upon whieh’ a tax was duly assessed and. ‘ pee ae paid. (R. 17.) | On March 21, 1937, the taxpayer augmented the corpus of the trust by transferring to the trustees 500 shares of stock having an aggregate value of $25,000. (R. 17.) Upon receipt of this. «> ‘gtoek the trustees allocated 100 shares, having a — . oO . . : Fishy Rants Mes agente: ici ip ROE, BE CEC Seay i vie it + | an. 7 value of $5,000, to. each of the sinaiiar's s five children, three.of whom were still minors. ~ (R. 1j.).. On December 9, 1938, the taxpayer created ‘another trust. for the benefit of each of his ‘five. children, the corpus consisting of two tracts of - land worth $38,581.54. .(R. 17.) When the 1938 . trust was established, ‘two of the taxpayer's chil- dren. were still minors. The terms of. the two trusts were substantially identical in their provisions for-each of the tax-. payer’s minor children, ~The trust instrument of December 17, 1936, provided, in part, as follows — (R.18-23): | sc appa Td Srconp: Terms of ‘the Trust: ‘Trustees shall divide the pr incipal of ‘the trust irto five equal shares -and shall hold,” manage, invest and’ reinvest the principal of said . shares in accordance with the powers here- inafter granted, IN TRUST, NEVER- THELESS, as follows: | oie * - eae 1+ ® 3. As to the third of said equal shares of | : principal, ‘to. accumulate the net income +”: —~ therefrom for the benefit of WILLIAM ~ / ' _L. -DISSTON until he reaches the age ae - twenty-one years, at which time to. pay over *— to him all accumulated income, and there- after to pay over: to.him ini not less than quarterly instalments ‘the entire net’ in- come derived. therefrom’ -during his life- time; provided, however, that upon his — reaching the.age of forty-five years one-half of the principal of his share shall be paid > Pe over to: him free and discharged of all wales TF : + 4 aoe * * * 6. Trustees shall hold the shares of minors in whom the principal shall have vested during their respective -minorities, ~and during such’ time shall apply such income theref rom as may be necessary for -the education, comfort and support ‘of the respective minors, and shall accumulate. for each minor until he or she reaches the ‘age of’ tweity-one years, all’ income not so needed.’ The foregoing clause shall apply to minor children of ‘the Settlor. ir- respective of the direction heretofore set forth to aceumulate all incotne for such minors. In the ‘administration ‘of the. shares of the minors, the Trustees shall have all of the powers, duties and_discre- tions, including the power of. investment and reinvestment, as are conferred — them as Trustees hereunder, y o: a *: aay Bee FourtH: Trustees’ Powers: *. * * * * : * : * uk Sa eee 7. To ‘apply the ineome to which any beneficiary shall ‘be entitled hereunder for the maintenance, education and support of: ‘such beneficiary should he or she by’ reason of age, illness. or any other ¢ eause in the opinion of the T rustees. be incapable of. dispensing “it. Payment by the Trustees _ to'the parent of:any miner or to the person with whom such minor residés and the —: ” RAS Aeterna fi esa | ae en OF . _ receipt of such parent or such person shall * be sufficient acquittance and discharge to the Trustees for such payment or payments. . * : * ; * ; * ' Partial ‘payments of income from the 1936 - trust were made to the. parent of the minor _ beneficiaries in each of the years 1936, 1937, and 1938; ¢ (R. 36-38.) At the time the case was before . the im Court there had been no net income from the 1938 trust. (R: 38.) In 1937, checks repre- senting trust income were sent by the corporate ~ trustee to the mother of the then mitiot bene- - ficiaries, but she revurned them with instructions to accumulate and hold the income until the chil- . dren became of age. «(R. 37-38.) The third child ~ became of age April 12, 1938. (R. 36.). After 1937 the trust income for the fourth child ‘was: accumulated until she became of age. (R. 38.) Since 1937 the trust income for the youngest child | has been accumulated. ‘(R. 38.) ey | determining the taxpayer’s gift tax. for . the year 1937, the Commissioner disallowed three — $5,000 exclusions from taxpayer’s net gifts for _ that year on the ground that the gifts to the three minor children were gifts of future interests. (R. 5-6:) For the year 1938,the Commissioner disallowed two $5,000 exclusions from taxpayer’s. net gifts for that year on the ground that the gifts. ~to- the-two-children-who-were still minors were . gifts of future interests. (R. 13.)— ces . 634420—45 Y - The Tax Court: upheld the’ Commissioner’s de- — terminations (R: 41), but its decision was re- -. versed by the Circuit Court of Appeals for the _. Third Circuit, sitting-en bane (R. 46-53). Judge Biggs dissented. In its opinion the court below . expressly overruled its prior decision in Commis- . stoner V. Taylor, 122 F. 2d 714, certiorari denied, 314 U. S. 699. . | 3 © For. the purpose of dletermiticiee the ape s net gifts ‘in prior years the Commissioner ad- , justed the exclusions which had been allowed for _ the gifts to the minor children in computing the ' taxpayer’s 1936 gift tax.. (R. 6.) _ At the time this adjustment was made the year 1936 was closed by the statute of limitations. (R. 41.) _The Tax Court also upheld the Commissioner’s determination in this respect.. (R. 41.) In view of its conclusion regarding the principal question, however, the court below did not pass on this . ‘q estion. The ‘dissenting opinion expressed the ° view that the Commigsioner’s: action was proper. ~ (R. 52-53.) SPECIFICATION Sa tribution of the trust income by the trustee. . © = Moreover, we do not think it can be said that théneed here’ was.. presently existing when the | gift wasimade, and therefore that the gift of in- > come was a pregent gift. Presently existing need. — - eannot he presuméed-in. the face of the grantor’s _- direetion to accumulate. ‘the income, If there was. ‘such a need, that fact must be’ proved by’ ex-. trinsic evidence showing, inter alia, the benefi- _ciaries’ station in life and how much they re- _. quire for their “‘comfort”’,-what likelihood there is: that the parents will continue to support the _ °. beneficiaries from resourees outside the gift, what __ other property the beneficiaries may have avail-. _ ‘able either by reason of other gifts or bequests or _- other donations to the same trust in earlier years, : whether the trustees’ are likely to be liberal oer ve stringent. in their application of the trust iticonie, * . + and what: likelihood there is that: the need. existing ~~ when the trust is ereated will coritinue throughout ot the accumulation period... ‘Even when sucha « § _ showing is made, unless it is proved that all of ~ | the income will in rensenatle certainty be paid / -19 ‘over as it acerwes, it still is. necessary to value— the present 23 . F « circumstances. The record shows that no income - was needed by the beneficiaries after the early part of 1937. (R. 37-38.) — "Under the 1938 trust no income - been pro- duced prior to. the hearing below, nor “did the grantor expect that any: income ‘would be produced, the’ corpus consisting whclly of entirely anim- proved real estate. (R. 38.) We submit that the | beneficiaries took no: present’ interest in the non- "existent income from-that gift. Certainly any present interest which they may have taken in the ‘income estate had no. value. And their interests in the corpus were clearly futuré interests. The ‘corpus was to be/keld by the trustees until the benefici ‘laries reached 45; then only part of it would be paid over. (R. 18-21, 27-29.) ‘The corpus could be invaded to a limited extent only, me. only during | illness or emergency. . We submit, therefore that no exclusion i is allow- able with penpect to either trust. o il THE STATUTE OF LIMITATIONS DOES NOT PRECLUDE THE CORRECT DETERMINATION OF THE AMOUNT OF NET GIFTS MADE BY THE TAXPAYER IN PRIOR YEARS, FOR THE PURPOSE OF DEFERMINING .THE CORRECT ‘TAX ~ LIABILITY FOR THE CURRENT YEARS — | \ © oo A ee tren 7 . nts --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386404_0172%3A3. Public record. Not legal advice.