Phipps v. Commissioner of Internal Revenue

• Decision Date: 16 August 1937
• Docket Number: No. 1491.,1491.
• Citation: 91 F.2d 627
• Parties: PHIPPS v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Tenth Circuit

91 F.2d 627 (1937)

PHIPPS v. COMMISSIONER OF INTERNAL REVENUE.

No. 1491.

Circuit Court of Appeals, Tenth Circuit.

August 16, 1937.

David A. Reed, of Pittsburgh, Pa. (Gerald Hughes, of Denver, Colo., and W. A. Seifert, of Pittsburgh, Pa., on the brief), for petitioner.

Helen R. Carloss, Sp. Asst. to Atty. Gen. (Robert H. Jackson, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for respondent.

Before PHILLIPS, BRATTON, and WILLIAMS, Circuit Judges.

BRATTON, Circuit Judge.

This petition to review a decision of the Board of Tax Appeals presents the question whether a gift of first Liberty Loan bonds is immune from the gift tax imposed by the Revenue Act of 1932.

Petitioner made gifts of such bonds of the par value of $160,000 to members of his family during the year 1933, and he made other gifts in that year. He filed a gift tax return in which the gifts of Liberty Loan bonds were noted with the statement that according to his information they were exempt from tax. The Commissioner increased the amount of the total gifts by including the Liberty Loan bonds and determined a resulting deficiency in gift taxes. The Board of Tax Appeals sustained that action, one member dissenting. 34 B.T.A. 641.

The first Liberty Loan bonds were issued under authority conferred by the Act of April 24, 1917. 40 Stat. 35. It is specifically provided in the first section of that act (31 U.S.C.A. § 746) that such bonds "shall be exempt, both as to principal and interest, from all taxation, except estate or inheritance taxes, imposed by authority of the United States, or its possessions, or by any State or local taxing authority." The bonds contain a provision identical with that in the statute.

Section 501 of the Revenue Act of 1932 imposes a tax upon the disposition of property by gift, to be measured by a graduated scale contained in the succeeding section. 47 Stat. 169, 245 (26 U.S.C.A. § 550 and note).

It will be noted that the provision in the authorizing statute and the covenant in the bonds each provide that the bonds, as to principal and interest, shall be exempt from all taxation, except estate and inheritance taxes. A provision exempting bonds of a sovereign from taxation as to principal and interest, without more, relates exclusively to ad valorem or other direct taxes on them as property. Bonds issued under such a statute and containing such a covenant may be subjected to payment of an inheritance tax or an estate tax, because an indirect tax of that kind is an excise upon the transmission of the property, not a tax on the property eo nomine. Knowlton v. Moore, 178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969; Plummer v. Coler, 178 U.S. 115, 20 S. Ct. 829, 44 L.Ed. 998; Murdock v. Ward, 178 U.S. 139, 20 S.Ct. 775, 44 L.Ed. 1009. In like manner, a gift tax is not a direct tax on property as such. Its imposition does not rest upon general ownership. It is an excise upon the use made of property, upon the exertion of the privilege of transmitting title by gift. Keeney v. New York, 222 U.S. 525, 32 S.Ct. 105, 56 L.Ed. 299, 38 L.R.A.(N.S.) 1139; Bromley v. McCaughn, 280 U.S. 124, 50 S.Ct. 46, 74 L.Ed. 226; Burnet v. Guggenheim, 288 U.S. 280, 53 S.Ct. 369, 77 L.Ed. 748.

If the authorizing act and the provision in the bonds had merely provided that the bonds should be exempt from taxation as to principal and interest, gift taxes would not be included in the exemption. We understand that is conceded. But, petitioner contends that when Congress went further and expressly excluded estate taxes and inheritance taxes from the exemption, it evidenced an intention to include all others of the same class in the exemption. The familiar rule of expressio unius est exclusio alterius is advanced to sustain the contention. The considerations which prompted the insertion of the exception in the exemption provision are not clear. Estate taxes and inheritance taxes would have been excluded without it. The language expressly excluding them did not make any change so far as they were concerned.

A federal inheritance tax was imposed in 1898¹ and repealed in 1902²; an estate tax was laid in 1916³ and was still in force, while our attention has not been called to any provision for a gift tax prior to passage of the statute authorizing the issuance of the first Liberty Loan bonds. Of course, in enacting the statute, Congress legislated concerning the power to tax, not merely as to existing taxes; but the explanation of the language contained in the act may lie in the fact that the two kinds of excises with which previous legislation dealt were borne in mind while no consideration was accorded the third kind to which Congress had not addressed itself in the form of specific legislation. Whatever the reason, Congress elected to make a specific declaration of exception in respect to the two kinds and to withhold it as to all others, either existing or which might be subsequently imposed. The reason, wisdom, or policy underlying the action was exclusively for Congress. But, the three species of excises are closely allied in structure and purpose (Burnet v. Guggenheim, supra), and no persuasive reason has been suggested which may have evoked a legislative desire that the bonds be subject to two of them and free from the third. In view of the cognate nature of such excises, it is difficult to perceive any basis for such a purpose.

It is further argued that all parts of the statute must be reconciled and given consistent, harmonious, and sensible effect if that can be done; that all of the words contained in it must be given effect; that it will not be presumed that Congress used extra and idle verbiage; and that a taxing statute should be liberally construed in favor of the taxpayer. These are recognized rules of a general nature for guidance in the interpretation of statutes. But, the maxim that a taxing statute should be liberally construed in favor of the taxpayer (Gould v. Gould, 245 U.S. 151, 38 S.Ct. 53, 62 L.Ed. 211; United States v. Merriam, 263 U.S. 179, 44 S.Ct. 69, 68 L.Ed. 240, 29 A.L.R. 1547; Hecht v. Malley, 265 U.S. 144, 44 S.Ct. 462, 68 L.Ed. 949) applies only where there is doubt, and it is not unyielding (Burnet v. Guggenheim, supra). Furthermore, it has no application in dealing with an asserted exemption. Exemption is not lightly inferred or readily implied. Philadelphia & Wilmington R. R. v. Maryland, 10 How. 376, 393, 13 L.Ed. 461; Vicksburg, S. & P. R. R. Co. v. Dennis, 116 U.S. 665, 668, 6 S.Ct. 625, 29 L.Ed. 770; Heiner v. Colonial Trust Co., 275 U.S. 232, 235, 48 S.Ct. 65, 72 L.Ed. 256. A provision granting it is construed against the taxpayer in respect to all ambiguities, and immunity is not founded upon doubtful phrases or ambiguous language. Hoge v. Railroad Co., 99 U.S. 348, 25 L.Ed. 303; Bank of Commerce v. Tennessee, 104 U.S. 493, 26 L.Ed. 810; Bank of Commerce v. Tennessee, 161 U.S. 134, 146, 16 S.Ct. 456, 40 L.Ed. 645; Cornell v. Coyne, 192 U.S. 418, 24 S.Ct. 383, 48 L.Ed. 504; Millsaps College v. Jackson, 275 U.S. 129, 48 S.Ct. 94, 72 L.Ed. 196; Riverdale Co-op. Creamery Ass'n v. Commissioner (C.C.A.) 48 F.(2d) 711; Sun-Herald Corporation v. Duggan (C.C.A.) 73 F.(2d) 298; Retailers Credit Ass'n v. Commissioner (C.C.A.) 90 F.(2d) 47. An asserted exemption will be denied unless it is granted by statute in plain terms. United States Trust Co. of New York v. Anderson (C.C.A.) 65 F.(2d) 575, 89 A.L.R. 994, certiorari denied 290 U.S. 683, 54 S.Ct. 120, 78 L.Ed. 589.

We think it cannot be said that the exemption provision with the language of exception evidences a plain and controlling legislative intent that gift taxes shall be included in the exemption. Appropriate application of the principles just stated leads to the conclusion that in the absence of a plainly granted immunity none exists. This conclusion finds support in Hamersley v. United States (Ct.Cl.) 16 F.Supp. 768.

The order of the Board of Tax Appeals is sustained.

PHILLIPS, Circuit Judge (dissenting).

The first federal gift tax was imposed by the Revenue Act of 1924, 43 Stat. 253, 313, § 319 et seq. It remained in force for the years 1924 and 1925 and was repealed as of January 1, 1926, by the Revenue Act of 1926, 44 Stat. 9, 126, § 1200.

A federal gift tax was again imposed by the Revenue Act of 1932, 47 Stat. 173, 245, § 501 (26 U.S.C.A. § 550 and note). It was amended by the Revenue Act of 1934, § 511, 48 Stat. 758 (26 U.S.C.A. § 550).

The bonds, which were the subject matter of the gift here involved, were issued under the Act of April 24, 1917 (40 Stat. 35), the pertinent part of which is set out in the majority opinion.

The bonds contained this language:

"The principal and interest of this bond shall be payable in United States Gold coin of the present standard of value and shall be exempt, both as to principal and interest, from all taxation, except estate or inheritance taxes, imposed by authority of the United States, or its possessions, or by any state or local taxing authority."

Section 10 of the Act of January 22, 1932 (47 Stat. 5, ch. 8 15 U.S.C.A. § 610), creating the Reconstruction Finance Corporation, reads:

Sec. 10. "Any and all notes, debentures, bonds, or other such obligations issued by the corporation shall be exempt both as to principal and interest from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States, by any Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority."

Section 13 of the "Federal Home Loan Bank Act" of July 22, 1932 (47 Stat. 725, 735, ch. 522 12 U.S.C.A. § 1433 and note), reads in part as follows:

Sec. 13. "Any and all notes, debentures, bonds, or other such obligations issued by any bank shall be exempt both as to principal and interest from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States, by any...