Hamersley v. United States, 43147.

• Decision Date: 09 November 1936
• Docket Number: No. 43147.,43147.
• Citation: 16 F. Supp. 768
• Parties: HAMERSLEY v. UNITED STATES.
• Court: U.S. Claims Court

16 F. Supp. 768

HAMERSLEY v. UNITED STATES.

No. 43147.

Court of Claims.

November 9, 1936.

Ralph Royall, of New York City (Bartow H. Hall, Hoch Reid, and Ehrich, Royall, Wheeler & Walter, all of New York City, on the brief) for plaintiff.

George H. Foster, of Washington, D. C., and Robert H. Jackson, Asst. Atty. Gen. (Arnold Raum, of Washington, D. C., on the brief), for the United States.

Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.

GREEN, Judge.

This is a suit to recover a tax collected under the provisions of what is commonly known as the gift tax of the Revenue Act of 1932 (section 501 et seq. 26 U.S.C.A. § 550 et seq. and notes). There is no dispute as to the facts, which are as follows:

Plaintiff, on December 31, 1934, made a gift of $2,400,000 in principal face amount of United States 3¼ per cent. Treasury bonds due August 1, 1941, with interest coupons attached. The Commissioner of Internal Revenue required the plaintiff to make a gift tax return for 1934 and to pay the sum of $322,415 as a gift tax in connection with the transaction. Thereafter, in due time and proper form, plaintiff filed a claim for refund of the tax on the ground that the law under which it had been assessed was not applicable, and the claim having been denied, the plaintiff brought this suit.

The bonds which the plaintiff transferred contained a covenant which read as follows: "This bond shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess-profits and war-profits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. The interest on an amount of bonds authorized by said Act approved September 24, 1917, as amended, the principal of which does not exceed $5,000, owned by any individual, partnership, association, or corporation, shall be exempt from the taxes provided for in clause (b) above."

This covenant conformed to the act authorizing the issuance of the bonds which contained substantially the same language.

The fact that a tax is in some way related to government bonds and is measured by the value of the bonds does not make it a tax upon the bonds themselves. In Central Hanover Bank & Trust Co. v. United States, 14 F.Supp. 541, 82 Ct.Cl. —, decided May 4, 1936, it was held that a tax on profits from the sale of the bonds was not a tax on the bonds. In Hitner v. Lederer (D.C.) 14 F.(2d) 991, affirmed (C.C.A.) 63 F.(2d) 877, a payment in bonds was held subject to the income tax on the ground that the bonds themselves were not taxed. So also in James v. Commissioner, 13 B.T.A. 764, dividends payable in government bonds were held to be taxable. In Murdock v. Ward, 178 U.S. 139, 20 S.Ct. 775, 44 L.Ed. 1009, it was held that United States bonds belonging to the decedent were subject to an inheritance tax notwithstanding a comprehensive and general provision in the bonds exempting them from taxation. In Bromley v. McCaughn, 280 U.S. 124, 50 S.Ct. 46, 74 L.Ed. 226, it was held that gift taxes like death taxes are imposed on the exercise of the right to transfer the property and not upon the property itself. While in neither of the opinions in the two cases last cited is it said in so many words that the taxes considered were not taxes upon the bonds themselves, the decisions necessarily so held in effect, for if the taxes in question had been direct taxes upon the bonds they unquestionably would have been invalid for more than one reason. They were, however, upheld by the Supreme Court.

Starting then with the principle established by the cases above cited that the words "all taxation" mean all taxation upon the bonds themselves and do not refer to excise taxes upon some right connected with the bonds, we reach the conclusion that if the exception contained in the bond covenant and upon which the plaintiff relies had been omitted, there would be no question but that the bonds were subject to the tax. In other words, if the covenant had simply provided that the bonds were...