Milliken v. United States, J-337.
| Citation | 38 F.2d 381 |
| Decision Date | 17 February 1930 |
| Docket Number | No. J-337.,J-337. |
| Parties | MILLIKEN et al. v. UNITED STATES. |
| Court | Court of Federal Claims |
D. A. Embury, of New York City (Curtis, Mallet-Prevost, Colt & Mosle, of New York City, on the brief), for plaintiffs.
Fred K. Dyar, of Washington, D. C., and Herman J. Galloway, Asst. Atty. Gen. (William E. Davis and William T. Sabine, Jr., both of Washington, D. C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, WILLIAMS, LITTLETON, and GRAHAM, Judges.
This is a suit to recover $812,165.42 alleged to have been wrongfully collected as additional estate taxes. Plaintiffs filed a claim for refund thereof which was denied by the Commissioner.
The facts in the case are not in dispute.
The plaintiffs are executors of the estate of Seth M. Milliken, who died on March 5, 1920. In December, 1916, the testator transferred by way of gift 2,713 shares of capital stock of Minot Mills (Inc.). After the death of the decedent the plaintiffs filed a return for the purposes of the tax upon his estate. In so doing, they failed to include the 2,713 shares of stock above referred to. The commissioner held that this stock had been transferred in contemplation of death, and that the value thereof should have been included as a part of the gross estate. For the purpose of the federal estate tax he fixed the value thereof at the time of the decedent's death in the sum of $3,308,720.54. By reason of this action, an additional tax of $812,165.42 was assessed against the estate of the decedent. The plaintiffs paid this additional tax and their application for refund thereof having been denied, now bring this suit, but do not contend that the stock involved was not transferred in contemplation of death.
The issue in the case is whether the Commissioner correctly included the shares of stock above referred to in the gross estate.
The decedent died in March, 1920, and the Commissioner applied the provisions of the Revenue Act of 1918 in determining the tax against his estate, the 1916 act being then repealed. The transfer was by way of gift, and section 402 of the Revenue Act of 1918 (40 Stat. 1097), directs that the gross estate of the decedent shall be ascertained by including (among other things) the value at his death of all property:
"To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death (whether such transfer or trust is made or created before or after the passage of this Act), except in case of a bona fide sale for a fair consideration in money or money's worth."
This language is so plain and definite that it is clear that this section applies to the transfer under consideration in this case, although it was made prior to the passage of the 1918 act. Plaintiffs do not question this construction of the statute, but contend that when applied to gifts made prior to the time when the Revenue Act of 1918 went into force, the statute is unconstitutional. This constitutes the question to be determined in the case.
Nichols v. Coolidge, 274 U. S. 531, 47 S. Ct. 710, 714, 71 L. Ed. 1184, 52 A. L. R. 1081, is cited as supporting the contention of the plaintiffs. In that case it appeared that the decedent and her husband had, in July, 1907, transferred certain property without consideration to trustees who agreed to hold it and pay the income to the settlors, then to the survivor, and thereafter to dispose of it in a manner not necessary here to repeat. On April 6, 1917, the settlors assigned to their children their entire interest in the property. In May, 1917, the decedent and her husband conveyed absolutely certain other property to their children, but we are here concerned only with the application of the law made by the Supreme Court to the transfer first above set forth. The death of the decedent occurred in January, 1921. Her executors made a return under the Revenue Act of 1918 (approved February 24, 1919), which did not include the property first transferred. The Commissioner held that under the provisions of section 402(c) of said act (40 Stat. 1097), which are above set forth, the value of all this property at her death must be included in the gross estate.
The Supreme Court found that the transfer was not made in contemplation of death, and held that section 402(c):
"* * * in so far as it requires that there shall be included in the gross estate the value of property transferred by a decedent prior to its passage merely because the conveyance was intended to take effect in possession or enjoyment at or after his death, is arbitrary, capricious and amounts to confiscation;" and in giving its reasons for holding the statute arbitrary said:
One fact which is recited above is not found in the case at bar. In the Coolidge Case, supra, the transactions are said to be "not testamentary in character," by which we understand the court to mean that they were not made in contemplation of death as a part of a plan of distributing the estate of the grantor by conveyance instead of by will. In fact the court in another part of the opinion, states expressly that the transfers were not made in contemplation of death. It is true that the court said in this connection that "undoubtedly, Congress may require that property subsequently transferred in contemplation of death be treated as part of the estate for purposes of taxation." Counsel for plaintiffs argue that it is a fair inference from this language that conveyances made prior to the taxing statute under such circumstances would not be subject to taxation, but we think that what the court intended to have understood was that there was no doubt about such transfers being subject to the tax when made after the enactment of the statute, but as to those made prior thereto it was an open question when they were made in contemplation of death.
As the transfer under consideration in the case at bar was made in contemplation of death, it becomes necessary to determine this question.
If we consider only cases where the statute is not retroactive, we find in the language hereinabove quoted from the Coolidge Case that "undoubtedly, Congress may require that property subsequently transferred in contemplation of death be treated as part of the estate for purposes of taxation." If this be true, it is quite clear that such a statute is not arbitrary and capricious and cannot be held unconstitutional on that ground, although on first consideration it might appear that some of the language used in the Coolidge Case, and in other cases, might apply thereto as a reason for holding it invalid. But when we apply the statute to transfers made in contemplation of death, the whole aspect of the case is changed, and the reasons which the court gave for holding the conveyances in the Coolidge Case not subject to tax do not apply in the case at bar.
In the instant case, the maker of the transfer, as in practically all cases where a conveyance is made in contemplation of death, was using the conveyance to dispose of or distribute his property instead of a will. His purpose was to make this disposition before death intervened to terminate his control thereof. In its effect it differed but little from disposition by will. If another owner of property disposed of all of his property by will, the law required from his estate a tax based on the value thereof. What reason can be given why the estate of the man who transfers a part of his property in contemplation of death should not pay the same tax as the one who transfers it by will? None, we think, but on the contrary it appears that a provision for taxing property so conveyed in contemplation of death as part of the estate is reasonable and just, and makes for equality between taxpayers rather than inequality, which would otherwise exist. If these conclusions are correctly drawn, it is clear that such a tax is not arbitrary or capricious.
Another forcible and distinct reason for holding such a tax valid is, as stated in the Coolidge Case, that it is necessary to prevent evasion. It is perfectly evident that if the owner of an estate, after he had reason to believe that death was nigh, could, in contemplation thereof, distribute his property by gift instead of by will, the means of avoiding the estate tax would be so apparent and easy, avoidance would become the rule and the payment of the tax the exception. Moreover, in such event, those who were interested in estates conveyed by will could justly complain of the unfair and unjust situation in which they were placed, as compared to those who were purposely avoiding the estate tax. It is well settled that when the general purpose of a legislative act is within the admitted power of the government that the legislative body, as said in Purity Extract Co. v. Lynch, 226 U. S. 192, 201, 33 S. Ct. 44, 46, 57 L. Ed. 184, "may adopt such measures having reasonable relation to that end as it may deem necessary in order to make its action effective"; and further in the same case: "It does not follow that because a transaction, separately considered, is...
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