Commissioner of Internal Revenue v. Field, 334.

• Decision Date: 07 July 1930
• Docket Number: No. 334.,334.
• Citation: 42 F.2d 820
• Parties: COMMISSIONER OF INTERNAL REVENUE v. FIELD.
• Court: U.S. Court of Appeals — Second Circuit

42 F.2d 820 (1930)

COMMISSIONER OF INTERNAL REVENUE v. FIELD.

No. 334.

Circuit Court of Appeals, Second Circuit.

July 7, 1930.

G. A. Youngquist, Asst. Atty. Gen., and Sewall Key and Helen R. Carloss, Sp. Asst. Attys. Gen. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Prew Savoy, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for petitioner.

Masten & Nichols, of New York City (Edward N. Perkins, Beverley R. Robinson, and Daniel B. Priest, all of New York City, of counsel), for respondent.

Before MANTON, L. HAND, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

Marshall Field, the respondent's grandfather, by his will set up a series of trusts, in one of which he devised and bequeathed three-fifths of his residuary estate to his trustees in trust for his grandson, Marshall III, the respondent, and the other two-fifths in trust for another grandson, Henry. The limitations were as follows: To Marshall, a legacy of $450,000 to be paid when he reached twenty-five years of age, and equal sums at thirty, thirty-five and forty; to Henry $300,000 at corresponding ages. The income of the corpus of each trust, subject to these reductions, was to be accumulated till the beneficiary was thirty years old, when he was to receive one-sixth with accumulations until he was thirty-five, one-third until he was forty, one-half until he was forty-five, after which he would receive the full income until he was fifty, when the trust was to end, and the beneficiary to receive the principal absolutely. There were cross remainders to the survivor, in case either grandson died without issue before distribution; no title or interest in the income was to vest in either before distribution, nor should he have power to assign any part. There were also remainders over to the issue of each grandson who might die before distribution leaving issue.

Henry died without issue before the time of distribution, and his share devolved upon Marshall. Marshall thereupon insisted that Henry's share came to him free from the provisions for accumulation, the restraints upon alienation, and apparently also from the contingent remainders over. This the trustees denied, and a suit was begun in Illinois, whose courts had jurisdiction over the estate, in which it was decreed that Marshall was right, that the provisions for accumulation no longer applied to Henry's share after his death, and that he became entitled to the whole income as it fell due, "absolutely with all the incidents of absolute ownership, including the right of testamentary disposition and transmission by him to his heirs and next of kin." Thereupon Marshall executed a deed to his wife, assigning to her a two-thirds interest "in all the income of the two-fifths of the residuary estate of Marshall Field, deceased, * * * intending hereby to convey to and vest in" his wife "an undivided two-thirds interest in all the net income adjudicated to belong to" him by the Illinois decree. The first question is whether this deed effected a conveyance in præsenti of two-thirds of the income accruing upon Henry's share, which Marshall need not, as he did not, return. The Commissioner charged him with the amount, but the Board held otherwise and the Commissioner appealed.

The Supreme Court has declared in the broadest language that instruments intended to deflect income, subsequently falling due serially, from a husband to his wife are unavailing for tax purposes (Lucas v. Earl, 281 U. S. 111, 50 S. Ct. 241, 74 L. Ed. 731), thus taking a more comprehensive view of the statute than we found necessary in Mitchel v. Bowers (C. C. A.) 15 F.(2d) 287, and Harris v. Commissioner (C. C. A.) 39 F.(2d) 546. These were, however, all cases in which, though the instrument affected to convey an existing interest in property, there was none at the time which the law recognized. We do not understand that, where there are such, they may not be assigned like other property, or that, when they have been, the income is still taxable to the assignor. Hence the case turns upon whether, after the Illinois decree, Marshall had a present interest in the income of Henry's share assignable under the law of Illinois. If so, his deed as effectively divested him of the assigned interest, as though it had been land or a chattel; his wife became the beneficiary under the trust, and was the only person who could be taxed.

Under the trustees' contention Henry's share after his death was still subject to the provisions for accumulation, the restraints on alienation and the contingent remainders over. We need not consider the validity of these for we must accept the decree as holding that Henry's share was not so limited after his death. On the contrary it became merely a trust until Marshall reached fifty, when he got the principal. Now if this trust was terminable at any time at...