COMMISSIONER OF INTERNAL REVENUE v. Estate of Hinds

• Decision Date: 02 March 1950
• Docket Number: No. 12852.,12852.
• Citation: 180 F.2d 930
• Parties: COMMISSIONER OF INTERNAL REVENUE v. ESTATE OF HINDS.
• Court: U.S. Court of Appeals — Fifth Circuit

180 F.2d 930 (1950)

COMMISSIONER OF INTERNAL REVENUE v. ESTATE OF HINDS.

No. 12852.

United States Court of Appeals Fifth Circuit.

March 2, 1950.

George D. Webster, Sp. Asst. to Atty. Gen., Theron Lamar Caudle, Asst. Atty. Gen., Ellis N. Slack, Sp. Asst. to Atty. Gen., Charles Oliphant, Chief Counsel, Bureau of Internal Revenue, Washington, D. C., Charles E. Lowery, Sp. Atty., Bureau of Internal Revenue, Washington, D. C., Helen Goodner, Sp. Asst. to Atty. Gen., Francis W. Sams, Sp. Asst. to Atty. Gen., for petitioner.

Gilbert M. Denman, Jr., San Antonio, Tex., Leroy G. Denman, San Antonio, Tex., Leroy G. Denman, Jr., San Antonio, Tex., for respondent.

Before HUTCHESON, Chief Judge, and WALLER and BORAH, Circuit Judges.

HUTCHESON, Chief Judge.

The commissioner, complaining of the decision of the Tax Court, presents for decision the question: whether the Tax Court erred in failing to hold that taxpayer's entire interest in certain community property, irrevocably transferred in trust for the use and benefit of his wife and their children, was, under Sec. 811(c) of the Internal Revenue Code, 26 U.S.C.A. § 811(c), includable within taxpayer's gross estate because taxpayer retained the possession and enjoyment of, or right to the income from the property during his life.

This is the record. On Dec. 31, 1940, decedent and his wife, who were domiciled in Texas, transferred, in New York, to a New York trust company, in trust, the income to be payable to the wife during her life and afterward to her children, certain community property owned by them.

The commissioner determined that, as to the decedent's one-half of the property, the transfer was in contemplation of death, and, further, was a transfer under which the decedent retained the possession or enjoyment of, or the right to the income from, the property, and, therefore, must, under Sec. 811(c) of the Internal Revenue Code, be included.

The Tax Court rejected the commissioner's determination, that the transfer was made in contemplation of death. It, however, approved his determination that, though the transfer made the property the separate property of the wife, the income from it was community property and, therefore, the decedent had, within Sec. 811(c), retained the use, possession, or enjoyment of, or the right to the income from, it.

Unlike the commissioner, however, the Tax Court, under the purported authority of Treasury Regulation 105 Sec. 81.18,¹ included only one-half of the community one-half transferred by the decedent, or one-fourth of the whole property transferred in trust, and directed recomputation of the tax accordingly.

The commissioner is here urging upon us that, while the Tax Court was right in holding that the transfer was a Sec. 811(c) transfer and includable in part, it was wrong in not holding it includable in whole.

The taxpayer, who because she thought the amount of tax imposed under the decision was too small to justify further litigation, did not appeal from it, is here urging upon us that it should be affirmed on the commissioner's appeal, not because it is right, but because it gave the commissioner more than he was entitled to, and he cannot, therefore, complain of it.

We agree with the taxpayer. Without, therefore, at all approving the decision of the Tax Court, or deciding the point so much labored here by the commissioner and taxpayer, but unnecessary to the decision of this case, whether the income from the property was, within the decision of Commissioner of Internal Revenue v. Porter, 5 Cir., 148 F.2d 566, community property, we deny the petition for review. We do this upon the authority of the settled law of Texas,² that whether the income be regarded as separate property of the wife or as community income from the wife's separate property, the taxpayer retained neither "the possession or enjoyment of, or the right to the income from," the property so as to make applicable Sec. 811(c) (1) (B), invoked by the commissioner and in part applied by the Tax Court.

The petition for review is denied, and as against that petition, the judgment is affirmed.

WALLER, Circuit Judge (specially concurring).

I concur in the holding of the majority opinion that the taxpayer retained neither "`the possession or enjoyment of, or the right to the income from,' the property so as to make applicable Sec. 811(c) (1) (B)," but I do not think that so holding we have as fully met the issue in this case as its importance seems to deserve.

It is not disputed that a trust, such as General Hinds and his wife created for the benefit of Mrs. Hinds, Marjorie Hamilton Hinds Crews, and John Hamilton Hinds — daughter and son respectively of the settlors — and to whom shall be conveyed the residue of the trust property upon their reaching certain ages, is lawful under the laws of the State of Texas.

It seems undisputed that even though the corpus of the community property conveyed by the husband and wife to the trust estate is no longer community property, nevertheless the income of the wife received from the trust estate would, during the existence of the commounity, have been community income unless there was a clear, definite, and distinct intention expressed in the trust indenture to make such income her separate, rather than community, property. I think that the trust indenture did make it quite clear not only that "neither the possession or enjoyment of, or the right to the income from" the trust estate was retained by the husband but that the income from the property of the trust estate was clearly and expressly made the separate property...