Heiner v. Beatty, 3476.
| Decision Date | 23 February 1927 |
| Docket Number | No. 3476.,3476. |
| Citation | 17 F.2d 743 |
| Parties | HEINER, Collector of Internal Revenue, v. BEATTY. |
| Court | U.S. Court of Appeals — Third Circuit |
John D. Meyer and W. J. Aiken, both of Pittsburgh, Pa. (A. W. Gregg and T. H. Lewis, Jr., both of Washington, D. C., of counsel), for plaintiff in error.
Thorp, Bostwick, Stewart & Reed and Smith, Shaw & McClay, all of Pittsburgh, Pa. (W. D. Stewart, Earl F. Reed, and W. A. Seifert, all of Pittsburgh, Pa., of counsel), for defendant in error.
Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.
The learned trial court so construed the will of Andrew Carnegie and so interpreted the applicable revenue act as to allow the executrix of John W. Beatty, one of the beneficiaries, to recover income taxes he had paid on moneys he had annually received from the executor and trustee under the will. The collector appealed.
Referring to the opinion of the trial court, reported in 10 F.(2d) 390, for an extended statement of facts and discussion of the law, we shall do little more than give the opposing positions of the parties and recite what we regard to be the pertinent provisions of the will and the statute.
The plaintiff contended and the trial court held that the sums annually paid the "annuitant" (so named in the will) were gifts or bequests and were therefore exempt from income tax under the Revenue Act of 1918, 40 Stat. 1057, c. 18, §§ 210-213 (Comp. Stat. §§ 6336 1/8-6336 1/8ff), which, though demanding a tax on net income reckoned from gross income "derived from any source whatever," did not include the value of property acquired by gift or bequest but did include the income therefrom. The position of the Government was that the money which annually came to the annuitant was not an annual gift or a gift annually distributed but was income within the sense of the act and therefore taxable.
The first part of the Carnegie will with which we are concerned is the Fifth Article. It reads as follows:
"Fifth: I give to each of the persons hereinafter in this Fifth Article named an annuity of the annual amount in this Fifth Article set after his or her name, to be paid semi-annually during the annuitant's life, that is to say, to * * * Mr. Beatty Art-Dept wife succeeding Five Thousand Dollars."
If the will had stopped there, it is possible the testator's provision for John W. Beatty would have been a bequest, payable in semi-annual installments directly from the estate, and all payments made to him year by year would have been exempt from taxation under paragraph 3 of subdivision (b) of section 213 of the cited act (Comp. St. § 6336 1/8ff). However, the will did not stop there, but, going on, it provided in the very next article, by words whose significance we have emphasized by italics, as follows:
"Sixth: I direct my executor and trustee either to set apart, hold in trust, invest and keep invested, in separate funds, one for each annuitant, sufficient sums to produce by the clear net interest and income thereof respectively, the several annuities provided in the Fifth Article of this will, * * * and to pay the said several annuities from the interest and income of the respective funds in semi-annual payments, or to purchase such annuities in life insurance companies. * * *"
By the Eighth Article the testator authorized his executor and trustee (who is one corporate person), "in its discretion,...
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