Frew v. Bowers, 284.

• Decision Date: 01 June 1926
• Docket Number: No. 284.,284.
• Citation: 12 F.2d 625
• Parties: FREW et al. v. BOWERS, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Second Circuit

12 F.2d 625 (1926)

FREW et al. v. BOWERS, Collector of Internal Revenue.

No. 284.

Circuit Court of Appeals, Second Circuit.

June 1, 1926.

Kellogg & Rose, of New York City (Abram J. Rose, Alfred C. Pette, and Philip M. Brett, all of New York City, on the brief), for plaintiffs in error.

Emory R. Buckner, U. S. Atty., of New York City (Sherwood E. Hall, Asst. U. S. Atty., of New York City, of counsel), for defendant in error.

Before HOUGH, MANTON, and HAND, Circuit Judges.

HOUGH, Circuit Judge (after stating the facts as above).

Consideration of the problem presented seems to require some definition of the nature of the tax imposed. To call it, as it is officially called, an estate tax, does not advance the matter, for the phrase merely indicates the incidence of the charge, not its nature or species.

We think that authority, rather than speculation on the reason of things, must control definition, and we premise by holding that this tax, like any similar burden imposed by the nation rather than a state, is an excise upon the right or privilege (it matters not which word is preferred) of transmitting property from a decedent to those chosen by will or selected by the law of descent. It is not a tax upon the right or privilege of receiving that which is given by will or conferred by law; it is upon the succession from the deceased owner. That which is taxed is the right or privilege of transmitting property, and, if there be "no property to transmit, there would be nothing upon which the tax levied on the occasion of death could be computed." Knowlton v. Moore, 178 U. S. 41, 20 S. Ct. 747, 44 L. Ed. 969. And see the cases collated in Randolph v. Craig (D. C.) 267 F. 993.

Furthermore these citations prove it as law that such taxes are and have been "almost from the beginning of our national life treated as duties and not as direct taxes." Knowlton v. Moore, supra. If the tax were direct, it would admittedly require apportionment under the Constitution, for which the statute makes no provision.

We next inquire as to the nature, or at least as to the presently material attributes, of the property whose transmission gives rise to this indirect tax — this duty or excise. It is and must be the property of the decedent whose estate bears the incidence of tax. No estate, no tax, said White, C. J., in substance, in Knowlton v. Moore, supra; and it is laid on the transfer of "the net estate of every decedent dying after the passage of this act." Such are the statutory words; so what is taxable in this instance is the property lately of Mr. Nash, and not the property of any one else.

We now consider the extent and intent of the applicable and above-cited statute. Transfers "in contemplation of death" are not relevant, and this is admitted, as it must be, whether regard be had to the language of the act, or the facts pleaded and undenied in respect of the conduct of Mr. Nash in 1910, when he was a man vigorously and successfully occupying a laborious and important place in the financial world, a position he continued acceptably to fill almost to the day of his death.

The statutory declaration is (speaking in terms of this case) that Mr. Nash's "gross estate" shall be determined by "including" any "interest therein" — i. e., any interest in "all property * * * wherever situated" — of which Mr. Nash "at any time made a transfer, or * * * created a trust * * * 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."

Having regard to the recent history of estate tax legislation, as shown by Shwab v. Doyle, 258 U. S. 529, 42 S. Ct. 391, 66 L. Ed. 747, 26 A. L. R. 1454, the report of the same case below in (C. C. A.) 269 F. 321, Coolidge v. Nichols (D. C.) 4 F.(2d) 112, and Girard Trust Co. v. McCaughn (D. C.) 3 F. (2d) 618 (reversed in the Third Circuit, since argument herein, and still unreported), we have no doubt that the intent of the draftsman of the act of 1921, and therefore the intent of the Congress that approved his work, was to coerce, by words too strong to be avoided, the reluctance of courts to give retroactive effect to statutes of exaction, so as to impose on citizens burdens for doing what at the time of doing was unburdened. That reluctance was fully voiced in the Shwab and its allied cases in 258 U. S. 529, 42 S. Ct. 391, 66 L. Ed. 747, 26 A. L. R. 1454. Since mere retroactivity of a national taxing statute confessedly does not produce unconstitutionality, we are quite unable to see how it can be doubted that the intent of the statute was to reach past transactions irrespective of their antiquity. If Mr. Nash had been an old Parr, the transfer of 1910 might have taken place in 1810; the legal result would have been the same under this statute.

But the time of creating the trust is not the only matter determinative of the application of the statute; the transfer must be made or the trust created with intent that it "take effect in possession or enjoyment at or after his death" — i. e., after the death of the transferor.

Again, to state the question in terms of this case, there was a "transfer" — i. e., a passing of title — by Mr. Nash; but did he "create" a trust? In a strict legal sense he certainly did not, Mrs. Nash did that; but for the purposes of this statute we believe there is no difference between creating a trust and utilizing one already created, the terms of which suit the wishes of the transferor. So we regard the statute as intended to apply to Mr. Nash as fully as though he had executed a deed of trust inter vivos to the same legal effect as Mrs. Nash's will.

But, further, what is meant by the phrase "take effect in possession or enjoyment at or after" the death of the trust creator? The natural inclination of every lawyer is to recognize that "take effect" is not a phrase of art, to search for some artistic equivalent, and find it in the word "vest." But if, as the result of a passage of title, the passing estate is vested, whether in fee, for life, in remainder, or in reversion, even though subject to divestment by subsequent event, then the transfer is complete, and so is the "possession or enjoyment," for one "possesses and enjoys" a reversion as thoroughly as he does a fee, even though most men prefer a fee to a reversion.

But if the transfer of an estate results in the immediate vesting thereof, and of each and every part of the same, the transaction is complete, and the grantor or transferor has no "interest" left therein; wherefore on his death there can be found no such "interest" to include in his gross estate.

On the interpretation of these words we think the cases hopelessly at variance. On comparing the Girard Trust Co. Case, Coolidge v. Nichols, supra, Shukert v. Allen (C. C. A.) 6 F.(2d) 551, Cleveland, etc., Co. v. Routzahn (D. C.) 7 F.(2d) 483, and Frick v. Lewellyn (D. C.) 298 F. 803, there will be seen a diversity of opinion incapable of reconciliation. One man may regard the words of the act as a conveyancer would, i. e., read them like the carrying words in a deed; while another may look only to what Congress is supposed to have wanted, i. e., to collect the largest quantum of tax and so read "possession" and particularly "enjoyment" as meaning the time when remaindermen and/or reversioners will obtain the usufruct of the property.

The ruling decisions seem to us to go no further than to definitely hold that a trust creation, wherein the possession or enjoyment in the usufruct sense is deferred until "at or after" the death of the settlor, is a "completed" transaction, a holding consistent only with the more technical and legal interpretation of the statutory words. Shwab v. Doyle, 258 U. S. 529, 42 S. Ct. 391, 66 L. Ed. 747, 26 A. L. R. 1454; Union Trust Co. v. Wardell, 258 U. S. 537, 42 S. Ct. 393, 66 L. Ed. 753; Levy v. Wardell, 258 U. S. 542, 42 S. Ct. 395, 66 L. Ed. 758. But it is observable that this was said only as preparatory to a holding that the act of 1916 (39 Stat. 778 Comp. St. §§ 6336½a-6336½m), in laying taxes in respect of transfers made at "any time," did not mean (as to completed transactions) any time prior to the passage of the act. The point that, if the transaction was "complete," there could be no "interest" left in the estate of the transferor, was certainly not decided and apparently not argued.

Before expressing opinion on this point, we shall consider the ownership and nature of the property in respect of which this particular tax is laid. This excise is on the transfer by his will of the estate of Mr. Nash; if he had no estate, or one less than the statutory exemption, there would be no tax.

It is not on the transfer of 1910; and at that date there was no tax burden of any kind upon what Mr. Nash then did. It is not laid because Mr. Nash died owning or having any testamentary power over what he parted with in 1910. The statute does not pretend to declare ownership, and it could not if it would; for the right to own property, grant it, and dispose of it by will is a matter for the states, and not the nation, and by the law of New York Mr. Nash did not own, and could neither grant nor bequeath, what was owned by the trustees of Mrs. Nash. He did possess and enjoy a life interest in the net income, but that is not relevant to this tax.

Furthermore, Mr. Nash never did own more than $200,000 worth of the property used in computing this tax. By financial operations successfully carried on by Mrs. Nash's trustees, they acquired $500,000 worth of securities, by using the capital given them. How, in any reasonable usage of the word, Mr. Nash can be said to have an "interest" in 1922 in what he never owned, because he "transferred" in 1910 the capital so skillfully increased by others, we are quite unable to perceive.

It is suggested that what was given in 1910 was a seed from which has grown a lusty plant, and the giver...