Merrill v. Fahs

• Decision Date: 24 June 1943
• Docket Number: No. 549-J.,549-J.
• Citation: 51 F. Supp. 120
• Parties: MERRILL v. FAHS, Collector of Internal Revenue.
• Court: U.S. District Court — Southern District of Florida

51 F. Supp. 120

MERRILL v. FAHS, Collector of Internal Revenue.

No. 549-J.

District Court, S. D. Florida.

June 24, 1943.

Sam R. Marks, of Jacksonville, Fla., for plaintiff.

Herbert S. Phillips, U. S. Atty., and Harry G. Taylor, both of Tampa, Fla., for defendant.

DE VANE, District Judge.

The validity of the prenuptial agreement and the sufficiency of consideration to sustain it, as between the parties, is not challenged by defense counsel. They maintain, however, that the plaintiff's transfer of funds to the trust was taxable because the term "consideration" as used in Section 503 of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, page 585, is not the same thing as common-law consideration and point to the decision in Commissioner v. Bristol, 1 Cir., 121 F.2d 129, 134 where it was said that "the purpose of this section in the gift tax statute * * * was to prevent the depletion of the transferror's * * * estate, unless a tax was paid on the transfer." On this question there seems to be some difference of opinion. In discussing the legislative history of the Revenue Acts and the difference between the words "fair", "adequate" and "full" as they have been used in defining the consideration contemplated by comparable estate taxing acts, Mr. John E. Hughes in his book "The Federal Death Tax," § 93, p. 152, says: "The law does not require that the consideration be paid to the donor in order that it may swell his estate and the Court should not add such a provision to the law by judicial construction," citing United States v. Mitchell, 7 Cir., 74 F.2d 571, 575; and Mr. Randolph E. Paul is evidently of like opinion—in volume 1 of his work on "Federal Estate and Gift Taxation", § 11.20, p. 602, he says: "The Courts have held, as a rule, that consideration need not flow directly to the decedent or his estate," citing numerous authorities. See, also, volume 2 of the same work, § 16.14, p. 1114. So the mere fact that plaintiff withdrew money from his assets would not seem to be controlling if he acquired in exchange something that may fairly be said to have been of equivalent benefit or advantage.

It is further contended by defendant that release of a wife's statutory rights may not constitute consideration in money or money's worth and that Congress by Section 804 of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, page 642, has so specified. That section in Title VI, Estate Tax Amendments, reads as follows:

"Sec. 804. Relinquishment of Dower, etc., as Consideration.

"Section 303(d) of the Revenue Act of 1926 is amended by adding at the end thereof a new sentence to read as follows:

"`For the purposes of this title, a relinquishment or promised relinquishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's property or estate, shall not be considered to any extent a consideration "in money or money's worth"'".

Plaintiff contends that the Federal Courts, prior to 1932, had consistently held the relinquishment of a wife's statutory rights to be consideration in money's worth for a transfer to her of property by the husband; that, with this rule known to it, Congress deliberately omitted from the gift tax provisions of the 1932 Revenue Act any provision comparable to above quoted Section 804, which amends the estate tax law. Plaintiff directs attention to the following authorities: Ferguson v. Dickson, 3 Cir., 300 F. 961; McCaughn v. Carver, 3 Cir., 19 F.2d 126; Stubblefield v. United States, 6 F.Supp. 440, 79 Ct.Cl. 268; Mason v. United States, D.C., 17 F.2d 317. Those decisions undoubtedly hold as counsel contend and should be followed unless Congress has specified to the contrary.

The case of Empire Trust Co. v. Commissioner of Internal Revenue, 4 Cir., 94 F. 2d 307, 309, is noticed but is not considered applicable since it presented a different factual situation and involved an attempt by the taxpayer to circumvent the plain mandate of the estate tax law (requiring the value of a dower interest to be included in computing the gross estate). As that court specifically pointed out: "The amount paid the widow under the antenuptial agreement became payable to her only on the death of her husband. Had the wife died first, her estate would have had no valid enforceable claim against the husband. The shifting of the economic benefits was occasioned by the death of the husband and did not take place on the execution of the antenuptial agreement under which the wife acquired no property rights unless the agreement was matured and made effective by her survival of the husband." What was said in that opinion must necessarily be considered and weighted in the light of the factual situation there presented.

Counsel on both sides admit the similarity of the Bristol case and when that litigation was before the Board of Tax Appeals (42 B.T.A. 263) this same question, as to the proper construction of the Revenue Act of 1932, arose and was disposed of as indicated by the following excerpts from the opinion:

"The difference between the parties in this case arises partly from the parallelism between certain language used in the gift tax law and that found in the estate tax law. The provision `adequate and full consideration in money or money's worth' appears in both statutes. By section 804 of the Revenue Act of 1932 26 U.S.C.A. Int. Rev.Acts, page 642 the Estate Tax Law of 1926 was amended to provide that the release of dower, or similar interests, `shall not be considered to any extent a consideration in money or money's worth' * * * there is no comparable provision in the gift tax law.

"Counsel for respondent urges that, despite this omission of the quoted provision from the gift tax sections, we should construe the words `adequate and...