Porter v. Commissioner of Internal Revenue

Decision Date13 March 1933
Docket NumberNo. 466,466
PartiesPORTER et al. v. COMMISSIONER OF INTERNAL REVENUE
CourtU.S. Supreme Court

Mr. Walter E. Hope, of New York City, for petitioners.

[Argument of Counsel from page 437 intentionally omitted] The Attorney General andMr. Erwin N. Griswold, of Washington, D.C., for respondent.

[Argument of Counsel from page 438 intentionally omitted] Mr. Justice BUTLER delivered the opinion of the Court.

The question presented is whether, for the purpose of determining the tax liability of the estate of the deceased, section 302(d) of the Revenue Act of 1926,1 requires that there shall be included in the value of the gross estate certain bonds that he had transferred in trust.

October 18, 1918, and again on February 1, 1919, decedent transferred to the Bankers' Trust Company certain bonds for the benefit of his daughter and her son. Contemporaneously he made similar transfers of bonds to the same trustee for the benefit of his son and his son's daughter. November 27, 1926, in order to make provision for two children of his daughter born after the creation of these trusts, he sent the trust company letters purporting to revoke the trusts of which she was a beneficiary, to terminate the interest of all persons therein, and to direct it to deliver the principal and income to itself as trustee according to a new deed then delivered. Each of the five trust agreements included provisions governing the management, investment, and disposition of principal and income, and contained a paragraph reserving to the donor power at any time to alter or modify the indenture and any or all of the trusts in any manner, but expressly excepting any change in favor of himself or his estate.2

Deceased died November 30, 1926. The Commissioner of Internal Revenue included in the gross estate the value of the property described in the last deed and petitioners sought redetermination. The Board of Tax Appeals, because of the reserved power to alter and amend, held section 302(d) applied, and included the corpus of all the trusts in the gross estate. 23 B.T.A. 1016. The Circuit Court of Appeals affirmed that ruling. 60 F.(2d) 673. Its decision being in conflict with that of the Circuit Court of Appeals for the First Circuit in Brady v. Ham, 45 F.(2d) 454, and that of the Court of Appeals of the District of Columbia in Cover v. Burnet, 60 App.D.C. 303, 53 F.(2d) 915, we granted a writ of certiorari. 287 U.S. 591, 53 S.Ct. 121, 77 L.Ed. —-.

By the trust agreements, decedent divested himself of all interest in the bonds and, subject only to the reserved power, transferred full title to the trustee and beneficiaries. The reservation is broad; evidently he intended to be free at any time and from time to time to alter or modify the disposition of the property as he might see fit, subject to the restriction above mentioned. The power did not amount to an estate or interest in the property. It was much like, and for the purposes of this case may be deemed the substantial equivalent of, a general power of appointment by will. Cf. United States v. Field, 255 U.S. 257, 263, 41 S.Ct. 256, 65 L.Ed. 617, 18 A.L.R. 1461; Patterson v. Lawrence, 83 Ga. 703, 707, 10 S.E. 355, 7 L.R.A. 143; Clapp v. Ingraham, 126 Mass. 200.

The act, section 301(a), 26 USCA § 1092, imposes a tax 'upon the transfer of the net estate of every decedent.' The net estate as there used does not mean an amount to be ascertained as such under any general rule of law or under statutes governing the administration of estates, but is the gross estate as specifically defined in section 302 (26 USCA § 1094) less deductions permitted by section 303 (26 USCA § 1095). The former section declares that 'the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated—(a) To the extent of the interest therein of the decedent at the time of his death.'

(b) To the extent of any interest therein of the surviving spouse as or in lieu of dower or curtesy. (c) To the extent of any interest therein of which the decedent has at any time made a transfer by trust or otherwise in contemplation of, or intended to take effect in, possession or enjoyment at or after his death.

(d) 'To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke. * * *'

(e) To the extent of the interest therein held by decedent as a joint tenant or as a tenant by the entirety. (f) To the extent of any property passing under a general power of appointment exercised by the decedent by will or by deed in contemplation of or intended to take effect in possession or enjoyment at or after death. (g) To the extent of the amount of life insurance receivable as specified. Subdivision (h) requires the interests defined in (b) to (g), inclusive, to be included whether transfer was made before or after the passage of the act.

Petitioners contend that the only thing taxed is the transfer of the net estate at death, and that property in which the decedent then held no interest or power of enjoyment must be excluded. They rely on Reinecke v. Northern Trust Co., 278 U.S. 339, 49 S.Ct. 123, 73 L.Ed. 410, 66 A.L.R. 397. But that case is not in point. It involved seven trusts created by the decedent. Two were held taxable because subject to a power of revocation in him alone. In each of the others he reserved power to alter, change, or modify, to be exercised in four by joint action of himself and a single beneficiary and in the remaining one by himself and a majority of the beneficiaries acting jointly. As the title was put beyond his control, we held these transfers not taxable. And petitioners assume, as held in White v. Erskine (C.C.A.) 47 F. (2d) 1014, 1016, that (a) is a limitation upon (d), and argue that the gross estate includes property only to the extent of the 'interest therein of the decedent at the time of his death' and that, as before his death he had divested himself of all title, the property so transferred is not to be included in the gross estate. But the construction thus taken for granted cannot be sustained. Subdivision (a) does not in any way refer to or purport to modify (d) and, in view of the familiar rule that tax laws are to be construed liberally in favor of taxpayers, it cannot be said that, if it stood alone, (a) would extend to the transfers brought into the gross estate by (d). United States v. Field, supra, 264 of 255 U.S., 41 S.Ct. 256, 65 L.Ed. 617, 18 A.L.R. 1461. Moreover, Congress has progressively expanded the bases for such taxation. Comparison of section 302 with corresponding provisions of earlier acts warrants the conclusion that (d) is not a mere specification of something covered by (a), but that it covers something not included therein. Cf. Chase National Bank v United States, 278 U.S. 327, 49 S.Ct. 126, 73 L.Ed. 405, 63 A.L.R. 388; Tyler v. United States, 281 U.S. 497, 50 S.Ct. 356, 74 L.Ed. 991, 69 A.L.R. 758; Gwinn v. Commissioner, 287 U.S. 224, 53 S.Ct. 157, 77 L.Ed. 270; Burnet v. Guggenheim, 288 U.S. 280, 53 S.Ct. 369, 77 L.Ed. 748.

The net estate upon the transfer of which the tax is imposed is not limited to property that passes from decedent at death. Subdivision (d) requires to be included in the calculation all property previously transferred by decedent, the enjoyment of which remains at the time of his death subject to any change by the exertion of a power by himself alone or in conjunction with another. Petitioner argues that, as decedent was without power to revoke the transfers or to alter or modify the trusts in favor of himself or his estate, the property is not...

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