Hyman v. Nunan

• Decision Date: 30 June 1944
• Docket Number: No. 107-109.,107-109.
• Citation: 143 F.2d 425
• Parties: HYMAN v. NUNAN, Commissioner of Internal Revenue. GORDON v. SAME.
• Court: U.S. Court of Appeals — Second Circuit

143 F.2d 425 (1944)

HYMAN v. NUNAN, Commissioner of Internal Revenue. GORDON v. SAME.

Nos. 107-109.

Circuit Court of Appeals, Second Circuit.

June 30, 1944.

Arthur B. Hyman, of New York City (Morris Katz, of counsel), for petitioners.

Carlton Fox, of Washington, D. C., Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Robert N. Anderson, and Robert Koerner, Sp. Assts. to the Atty. Gen., for respondent.

Before L. HAND, SWAN, and FRANK, Circuit Judges.

L. HAND, Circuit Judge.

Florence S. Hyman appeals from an order of the Tax Court assessing a deficiency in her income tax for the year 1939, and a second order assessing a gift tax. Bertha M. Gordon appeals from an order assessing a deficiency in her income tax for the same year. In each appeal as to the income tax deficiencies two points are involved: (1) whether a dividend, assigned by the taxpayer as a gift two days before it was declared, and paid sixteen days after the assignment, was part of the taxpayer's gross income; (2) whether the income from a trust in personal property set up by the taxpayer for her son, remained her income. In the appeal from the gift tax only one point arises: whether the Tax Court correctly appraised the value of the assigned dividend.

In the income tax appeals the facts were as follows: Hyman, the taxpayer's husband, was a lawyer in partnership with Gordon, the husband of the other taxpayer. Mrs. Hyman held 10,000 shares of stock in the Climax Molybdenum Company; Mrs. Gordon, 12,000 shares. In 1936 this company had earned $2.065 a share and had declared four quarterly dividends, the first three of 20 cents each, and the last of 40 cents; in 1937 it had earned $2.85 and had declared four quarterly dividends of 30 cents each and an extra dividend of 50 cents at the same time as the third dividend; in 1938 it had earned $3.12 and had declared the same dividends as in 1937 except that the extra dividend had been one dollar instead of 50 cents. In 1939 it earned $4.09 and up to December had declared three regular dividends of 30 cents and an extra dividend of one dollar as in 1938. On December 8th of that year it declared a fourth dividend of 30 cents and a second extra dividend of one dollar. Thus out of earnings of about $12 in the four years the company had declared on December 6, 1939 dividends of $6.80. Each taxpayer on December 6, 1939, assigned to her husband the right to receive all dividends which might be declared and paid before the end of the year. The Commissioner nevertheless held that the dividend — regular and extra — of $1.30 declared on the 8th remained a part of their gross incomes.

On November 9, 1939, Mrs. Hyman executed a deed conveying 1,000 shares of Climax stock to herself and her husband as trustees for their son and only child, then nearly 18 years old. This trust was to last until he was 30 years old, when the property was to revert to Mrs. Hyman, who meanwhile had power at any time during its existence to substitute any other beneficiary but herself. The income was to be accumulated till the son reached twenty-one, and was then to be paid to him; and the income thereafter was to be paid to him, or used for his education and support. The trustees had the usual powers to invest and manage. On the same day (November 9, 1939), Mrs. Gordon conveyed 1000 shares of Climax stock to herself and her husband in trust for a son, aged seventeen and a half (the Gordons had two other older children). This trust was to last until he became 23 years of age, and, as in the Hyman trust, the income was to be accumulated until he was 21, when the accumulations were to be paid to him; and the future income was to be paid to him or used for his education and support. This trust had no provision allowing the settlor to change the beneficiary; but the powers of management were the same as in the Hyman trust. The Commissioner included the income from these trusts for the year 1939 in the gross income of the taxpayers.

The third appeal is from a gift tax assessed against Mrs. Hyman. The Tax Court assessed a gift tax upon the dividend which she assigned to her husband on December 6, 1939, appraising it on that day at $13,000, the amount declared on the 8th. Mrs. Hyman challenges the finding that the dividend actually declared and paid, was a proper measure of the value of the right assigned at the time of the assignment.

We take up first whether the dividends remained income of the taxpayers, despite the assignments to their husbands. The distinction drawn in the cases, as we understand them, is between a transfer of future increments issuing from property of which the taxpayer retains the source, and a transfer of the source itself. That is indeed largely a difference of form — like many legal distinctions — and in taxation the conceptual outlines have not always preserved even so much definiteness as they have in other jural transactions. The income received from the property, when a recognized legal interest has been transferred, is treated as coming from the property transferred, not as transferred income. Brown v. Fletcher, 235 U.S. 589, 599, 35 S.Ct. 154, 59 L.Ed. 374; Irwin v. Gavit, 268 U.S. 161, 167, 45 S.Ct. 475, 69 L.Ed. 897. So far as we can find, no one has, for instance, ever asserted that the income of a life estate or life interest — legal or equitable — is not taxable to the tenant or owner but to the grantor, even though he has retained the reversion for himself. Indeed, in Blair v. Commissioner, 300 U.S. 5, 57 S.Ct. 330, 81 L.Ed. 465, this was extended to grants by the life owner of shares in his life interest, measured by dollars. On the other hand, assigned income to accrue in the future, ordinarily remains the assignor's for purposes of taxation. Lucas v. Earl, 281 U.S. 111, 50 S.Ct. 241, 74 L. Ed. 731; Burnet v. Leininger, 285 U.S. 136, 52 S.Ct. 345, 76 L.Ed. 665. Indeed, in Helvering v. Horst, 311 U.S. 112, 61 S.Ct. 144, 85 L.Ed. 75, 131 A.L.R. 655, and Helvering v. Eubank, 311 U.S. 122, 61 S.Ct. 149, 85 L.Ed. 81, the line of cleavage was drawn so as to include in the grantor's income property which for other purposes the law treated as completely separate from its source: in the first case, a coupon detached from a negotiable bond; in the second, all future commissions which might become payable under an expired contract of employment. In Harrison v. Schaffner, 312 U.S. 579, 61 S.Ct. 759, 85 L.Ed. 1055, this doctrine was applied to the assignment by a life...