Helvering v. Grinnell

• Decision Date: 04 February 1935
• Docket Number: No. 268,268
• Citation: 55 S.Ct. 354,79 L.Ed. 825,294 U.S. 153
• Parties: HELVERING, Commissioner of Internal Revenue, v. GRINNELL
• Court: U.S. Supreme Court

294 U.S. 153

55 S.Ct. 354

79 L.Ed. 825

HELVERING, Commissioner of Internal Revenue,

v GRINNELL.

No. 268.

Argued Jan. 16, 1935.

Decided Feb. 4, 1935.

The Attorney General and Mr. J. Crawford Biggs, Sol. Gen., of Washington, D.C., for petitioner.

Mr. Bernhard Knollenberg, of New York City, for respondent.

Mr. Justice SUTHERLAND delivered the opinion of the Court.

In 1876, John O. Stone died a resident of New York. He left a will by which he created for the benefit of his daughter, the decedent, Annie Stone, a trust fund, the income from which was to be paid to her during her life. The will provided that upon her death her share of the estate should go and be applied to such persons and such uses as she might appoint by last will and testament; but, in default of such appointment, her share of the estate should go and belong to her children or issue, respectively, by right of representation, or, in default of such issue, to her next of kin. Surviving John O. Stone were his widow and three daughters, namely, this decedent and Ellen J. Stone and Sarah J. Grinnell. These constituted his only heirs at law and next of kin. The widow died many years before the death of Annie Stone. Annie Stone, the decedent, died September 24, 1927, unmarried, without issue, and leaving as her sole next of kin her two sisters just named. Her will provided 'that what property or money I am allowed to dispose of by will under the will of my dear father, the late Dr. John O. Stone, of the city of New York. I give, devise, and bequeath in equal shares to my dear sisters Ellen J. Stone and Sarah J. Grinnell. * * *' After the death of Annie Stone, the two sisters in writing renounced their right to receive the property under this paragraph of her will and elected to take the property under the provisions of the will of their father, John O. Stone.

The Commissioner of Internal Revenue declared a tax deficiency of several thousand dollars in the federal estate tax on the estate of Annie Stone, upon the theory that the property derived from the estate of her father was required to be included in her gross estate in virtue of the fact that she had exercised a power of appointment in respect thereof. The Board of Tax Appeals, on review, sustained the Commissioner. The order of the Board of Tax Appeals based on this holding was reversed by the Circuit Court of Appeals, 70 F.(2d) 705, upon the ground that the property did not pass under the exercise of the power; and consequently an essential condition of section 302 of the Revenue Act of 1926 (26 USCA § 1094) was not present.

Section 302, c. 27, 44 Stat. 9, 70, 71, provides:

'Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated—* * *

'(f) To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in possession or enjoyment at or after, his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth.'

The crucial words are 'property passing under a general power of appointment exercised by the decedent by will.' Analysis of this clause discloses three distinct requisites: (1) The existence of a general power of appointment; (2) an exercise of that power by the decedent by will; and (3) the passing of the property in virtue of such exercise. Clearly, the general power existed and was exercised; and this is not disputed. But it is equally clear that no property passed under the power or as a result of its exercise, since that result was definitely rejected by the beneficiaries. If they had wholly refused to take the property, it could not well be said that the property had passed under the power, for in that event it would not have passed at all. Can it properly be said that, because the beneficiaries elected to take the property under a distinct and separate title, the property nevertheless passed under the power? Plainly enough, we think, the answer must be in the negative.

The contention of the government is that the tax is imposed 'upon the power to transmit or the transmission of property by death; the shifting of the economic benefits in property is the real subject of the tax. * * * The property in question passed to the sisters under the general power of appointment exercised by the decedent by will within the meaning of the statute.' But this involves the obviously self-destructive conclusion that an unsuccessful attempt to effectuate a thing required by the statute is the same as its consummation. The tax here does not...