Guggenheim v. Rasquin
| Decision Date | 03 February 1941 |
| Docket Number | No. 92,92 |
| Citation | 312 U.S. 254,85 L.Ed. 813,61 S.Ct. 507 |
| Parties | GUGGENHEIM v. RASQUIN, Collector of Internal Revenue |
| Court | U.S. Supreme Court |
Messrs. John G. Jackson, Jr., and Paul B. Barringer, Jr., both of New York City, for petitioner.
Mr. J. Louis Monarch, of Washington, D.C., for respondent.
It is provided in the Revenue Act of 1932, 47 Stat. 169, 248, that for gift-tax purposes the amount of a gift of property shall be 'the value thereof at the date of the gift.' § 506, 26 U.S.C.A. Int.Rev.Code, § 1005. This controversy involves the question of whether such 'value' in case of single-premium life insurance policies, which are irrevocably assigned simultaneously with issuance, is cost to the donor or cash-surrender value of the policies. The case is here on a petition for certiorari which we granted because of a conflict among the Circuit Courts of Appeals1 as respects the proper method for valuation of such gifts made prior to 1936.2
In December, 1934, petitioner purchased, at a cost of $852,438.50, single-premium life insurance policies on her own life in the aggregate face amount of $1,000,000. At substantially the same time she assigned them irrevocably to three of her children. Her gift-tax return listed the policies at their asserted cash-surrender value3 of $717,344.81. The Commissioner determined that the 'value' of the policies was their cost and assessed a deficiency which petitioner paid. This is a suit for a refund. Judgment for petitioner in the District Court, 28 F.Supp. 322, was reversed by the Circuit Court of Appeals. 2 Cir., 110 F.2d 371.
We agree with the Circuit Court of Appeals that cost rather than cash-surrender value is the proper criterion for valuation of such gifts under § 506 of the Act.
Cash-surrender value is the reserve less a surrender charge. And in case of a single-premium policy the reserve is the face amount of the contract discounted at a specified rate of interest on the basis of the insured's expected life. If the policy is surrendered, the company will pay the cash-surrender value. It is asserted that the market for insurance contracts is usually he issuing companies or the banks who will lend money on them; that banks will not loan more than the cash-surrender value; and that if policies had an actual realizable value in excess of their cash-surrender value, there would arise a business of purchasing such policies from those who otherwise would surrender them. From these facts it is urged that cash-surrender value represents the amount which would be actually obtained for the policies in a willing buyer-willing seller market—the test suggested by Treasury Regulations 79, Art. 19(1), promulgated October 30, 1933.4
That analysis, however, overlooks the nature of the property interest which is being valued. Surrender of a policy represents only one of the rights of the insured or beneficiary. Plainly that right is one of the substantial legal incidents of ownership. See Chase National Bank v. United States, 278 U.S. 327, 335, 49 S.Ct. 126, 127, 73 L.Ed. 405, 63 A.L.R. 388; Vance on Insurance, 2d Ed., pp. 54—56. But the owner of a fully paid life insurance policy has more than the mere right to surrender it; he has the right to retain it for its investment vitues and to receive the face amount of the policy upon the insured's death. That these latter rights are deemed by purchasers of insurance to have substantial value is clear from the difference between the cost of a single-premium policy and its immediate or early cash-surrender value—in the instant case over $135,000. All of the economic benefits of a policy must be taken into consideration in determining its value for gift-tax purposes. To single out one and to disregard the others is in effect to substitute a different property interest for the one which was the subject of the gift. In this situation as in others (Susquehanna Power Co. v. State Tax Commission, 283 U.S. 291, 296, 51 S.Ct. 434, 436, 75 L.Ed. 1042), an important element in the value of the property is the use to which it may be put. Certainly the petitioner here did not expend $852,438.50 to make an immediate gift limited to $717,344.81. Presumptively the value of...
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