McBrier v. Commissioner of Internal Revenue, 7155.

• Decision Date: 19 December 1939
• Docket Number: No. 7155.,7155.
• Citation: 108 F.2d 967
• Parties: McBRIER v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Third Circuit

108 F.2d 967 (1939)

McBRIER v. COMMISSIONER OF INTERNAL REVENUE.

No. 7155.

Circuit Court of Appeals, Third Circuit.

December 19, 1939.

Elmer K. Weppner, of Buffalo, N. Y., for petitioner.

Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Norman D. Keller, and Edward M. English, Sp. Assts. to Atty. Gen., for respondent.

Before MARIS, CLARK, and JONES, Circuit Judges.

CLARK, Circuit Judge.

What is a person? To one conversant with the English language it is primarily a human being or individual. To the lawyer it also suggests a corporation.¹ The lexicographer goes further, listing numerous gradations and differences of meaning, i.e., a role, a personage, or "the body in its external aspect", New Century Dictionary p. 1288. The Congress, however, outdoes them all. As defined by it in the Revenue Act of 1932:

"Sec. 1111. (a) When used in this Act —

"(1) The term `person' means an individual, a trust or estate, a partnership, or a corporation." 47 Stat. 289, cf. 26 U.S. C.A. § 1696(1).

This definition carries over into the statute governing the circumstance at bar. Embodied in the same Act, it taxes gifts and reads in part: "(b) Gifts less than $5,000. In the case of gifts (other than of future interests in property) made to any person by the donor during the calendar year, the first $5,000 of such gifts to such person shall not, for the purposes of subsection (a), be included in the total amount of gifts made during such year." 26 U.S.C. A. § 553(b).

We are asked to determine to what "person" a gift in trust is made. The Commissioner, as respondent-appellee, thinks it is the trust person, so that one trust with ten beneficiaries should be given one exemption and, startlingly, vice versa. The taxpayer, having set up a trust for ten grandchildren, advocates, needless to say, the individual person theory with its far less drastic consequences from the standpoint of tax avoidance.

These opposing views are, of course, the direct result of an express statutory ambiguity. It is appropriate, therefore, to resolve that ambiguity by recourse to pertinent Congressional sources. They are explicit: "Such exemption, on the one hand, is to obviate the necessity of keeping an account of and reporting numerous small gifts, and, on the other, to fix the amount sufficiently large to cover in most cases wedding and Christmas gifts and occasional gifts of relatively small amounts. The exemption does not apply with respect to a gift to any donee to whom is given a future interest. The term `future interests in property' refers to any interest or estate whether vested or contingent, limited to commerce in possession or enjoyment at a future date. The exemption being available only in so far as the donees are ascertainable, the denial of the exemption in the case of gifts of future interests is dictated by the apprehended difficulty in many instances of determining the number of eventual donees and the values of their respective gifts." 72 Cong. 1st Sess. Sen. Rept. No. 665, p. 41; 72 Cong. 1st Sess. H. Rept. No. 708, p. 29.

To be sure, wedding and Christmas presents are not ordinarily given in trust, nor, on the other hand, do trusts ever celebrate Christmas or marry. However that may be, a conclusive indication of legislative intent exists, we think, in the reason for the denial of the exemption for gifts of future interests. The trust as an abstraction is immortal. If it is the donee, what becomes of the postulated difficulties of ascertainment and valuation? Other and further grounds for regarding "person" as meaning individual have been summed up in this wise: "* * * It appears from the Committee Reports on the Revenue Act of 1932 discussing the tax generally that Congress believed that the beneficiary and not the trust was the donee. Similarly Congress recognized that the beneficiary was the real donee when it exempted from the tax that portion of the present value of a transfer in trust which inured to charity. Furthermore, it has been recognized that where a settlor has irrevocably transferred property to a trust, reserving only the power to change the beneficiary to persons other than himself, there is no taxable gift since the cestuis que trust are not finally determined, and a gift requires a definite donee. Therefore, while it is difficult to overlook the usual recognition of an irrevocable trust as a legal entity for tax purposes and to avoid the fact that the trustee and not the beneficiary is the only one having an immediate legal interest in the property, it seems wiser to recognize that the gift tax should apply to the shifting of economic benefit rather than of bare legal title." 86 University of Pennsylvania Law Review 907, 908.

The writers' views are amply sustained by the authorities cited in their support. See, also, Sanford's Estate v. Commissioner, 60 S.Ct. 51, 84 L.Ed. ___. Furthermore, every case on the question has reached the same conclusion, Welch v. Davidson, 1 Cir., 102 F.2d 100; Rheinstrom v. Commissioner, 8 Cir., 105 F.2d 642; Ryerson v. United States, D.C., 28 F.Supp. 265.

One case, not on the...