Phipps v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 02 June 1936 |
| Docket Number | Docket No. 78915. |
| Citation | 34 BTA 641 |
| Parties | LAWRENCE C. PHIPPS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
David A. Reed, Esq., and W. A. Seifert, Esq., for the petitioner.
E. G. Smith, Esq., for the respondent.
Respondent determined a deficiency of $4,108.17 in gift taxes due from petitioner for the calendar year 1933. The petitioner alleges that:
The Commissioner has erred in including in the total taxable gifts for the calendar year 1933 $160,000 par value Liberty Loan First 3½ per cent Bonds, due June 15, 1947, representing gifts from petitioner to members of his family during 1933. Said bonds contained the express provision that they are free of all taxation except state and federal estate and inheritance taxes, and under the terms of that provision, the assessment of a gift tax upon the transfer of said bonds is erroneous and void.
It is established by the pleadings that on October 3, 1933, petitioner made a gift to his son, Allen R. Phipps, of $100,000 par value of First Liberty Loan 3½ percent bonds due June 15, 1947, and on December 25, 1933, made six gifts of $10,000 each par value of the same issue of bonds to other members of his family.
The following provision appears on the face of the bonds:
* * * 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. * * *
The above provision is quoted from the authorizing statute (40 Stat. 35, ch. 4).
Section 501 of the Revenue Act of 1932 provides:
(a) For the calendar year 1932 and each calendar year thereafter a tax, computed as provided in section 502, shall be imposed upon the transfer during such calendar year by any individual, resident or nonresident, of property by gift.
(b) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible; * * * Petitioner relies chiefly on the maxim "Expressio unius est exclusio alterius" and argues that had Congress intended to permit the imposition of gift taxes where Liberty bonds were the subject of the gift, it would have done so expressly as it did as to other obligations in the "Federal Home Loan Bank Act" (47 Stat. 725, 735, ch. 522) which exempts obligations of the bank "from all taxation (except surtaxes, estate, inheritance, and gift taxes) * * *" and as it did in the act creating the "Reconstruction Finance Corporation" (47 Stat. 5, ch. 8) where language identical to that just quoted was used.
The most obvious answer to petitioner's petition is that a gift tax is not a tax on "the principal and interest of this bond" but is an excise on the transfer of the property to another. Knowlton v. Moore, 178 U. S. 41; New York Trust Co. v. Eisner, 256 U. S. 345; Bromley v. McCaughn, 280 U. S. 124. Consequent on the reasoning of Knowlton v. Moore, supra, is the holding in Plummer v. Coler, 178 U. S. 115, that a legacy of United States bonds is not exempted from the inheritance tax laws of a state by the provisions of the Act of Congress of July 14, 1870, and the declaration on the face of the bonds issued thereunder exempting them from taxation in any form by or under state authority, for the reason that the inheritance tax is not imposed on the bonds but on the privilege of acquiring property by will or inheritance, which is a right and privilege created and regulated by the state.
Following the same principles, we held in Edgar A. Igleheart, Executor, 28 B. T. A. 888; affd., 77 Fed. (2d) 704, that:
The estate tax being a transfer or transmission tax and not a tax on property, the value of Federal Farm Loan bonds issued under the provisions of section 26 of the Federal Farm Loan Act approved July 17, 1916, should be included in a decedent's gross estate for Federal estate tax purposes, notwithstanding that by the provisions of the act such bonds and the income derived therefrom are exempted from "Federal, State, municipal and local taxation."
The logic of these cases leads irresistibly to a conclusion adverse to petitioner's contention. A tax under the provisions of section 501 is an excise on the privilege of making a gift and not a tax on the property given. The taxes referred to in the bond and the taxes provided by section 501 are basically dissimilar.
In view of the fact that the basic nature of the gift tax controls our decision, we do not deem it necessary to discuss seriatim the several arguments advanced in support of petitioner's position. The legal principles on which we base our holding are so well established that, in our judgment, merely to state them is to indicate their applicability. See Regulations 79, arts. 1, 2.
Reviewed by the Board.
Decision will be entered for the respondent.
McMAHON, dissenting:
I dissent from the holding of the majority that the gifts of First Liberty Loan bonds and accrued interest thereon are taxable under section 501 of the Revenue Act of 1932.
On the face of each bond is language taken from the authorizing statute as follows: "* * * The principal and interest of this bond * * * shall be exempt, both as to principal and interest, from all taxation, except estate and inheritance taxes, imposed by authority of the United States, or its possessions, or by any state or local taxing authority. * * *" (Emphasis supplied.)
This is a mandatory exemption statute, expressly incorporated into the bonds in question. Its language is ordinary, simple and plain, as it should be, for the benefit of prospective purchasers of these bonds and others. It provides that "The principal and interest of this bond * * * shall be exempt * * * from all taxation." This is broad, inclusive, comprehensive language. It would be difficult, if not impossible, to find English that is more so. These bonds are, in express language, made "exempt * * * from all taxation", "both as to principal and interest." The words "as to", as here used, have broad, inclusive, comprehensive significance. They make the bonds "exempt from all taxation" touching either principal or interest or both, except as their "taxation" is expressly permitted in other language of the statute and bonds. There are only two of such express exceptions from this provision making them "exempt * * * from all taxation." They are the express exceptions imposing "estate or inheritance taxes" "both as to principal and interest", as specified in the statute and in the bonds. These express exceptions were necessary to permit "estate or inheritance taxes." Without such exceptions neither "estate" nor "inheritance taxes" touching the principal or interest could be imposed. If only "estate" taxes were expressly excepted from the exemption then they alone, and not "inheritance taxes", could be imposed. And by a parity of reasoning, since gift taxes were not expressly excepted, they likewise can not be imposed in view of the broad exemption "from all taxation." Obviously, if Congress had intended to add other exceptions to the exemption, in addition to "estate or inheritance taxes", it would, at the same time, have expressed its intention to do so. In any event, it did not except gift taxes from the exemption. It is apparent from the omission of Congress to expressly except gift taxes from the exemption that Congress intended that they should be included in the exemption. To hold otherwise is, in effect, to exercise the power of legislation which is reserved, under the Federal Constitution, to Congress alone, by amending the words of the exemption provision "except estate or inheritance taxes" by inserting therein immediately before the word "taxes" the words "or gift." We have not authority, under the Constitution or otherwise, to do this. Even courts are not at liberty to ingraft upon a statute exceptions other than those expressed. Kendall v. United States, 107 U. S. 123.
The majority opinion correctly points out that the gift tax imposed by section 501 of the Revenue Act of 1932 is an excise tax on the transfer of property; and also correctly recognizes, and it can not be successfully challenged, that estate and inheritance taxes are likewise excise taxes upon the transfer of property. Thus the gift tax imposed by section 501 of the Revenue Act of 1932 is in the same category as inheritance or estate taxes in that all of them are excise taxes on the transfer of property. Since Congress in the statute authorizing the issuance of the Liberty bonds deemed it necessary to except Federal and state estate and inheritance taxes, which, like gift taxes, are excise taxes, from the exemption provided, it is clear that Congress considered that such excise taxes, as well as gift or other excise taxes, would have been prohibited under the general exemption provision had exceptions not been made. It is well settled that the exception of a particular thing from general words of a statute proves that, in the opinion of the lawmakers, the thing excepted would be within the general clause had the exception not been made. Brown v. Maryland, 12 Wheat. 419; and Arnold Constable & Co. v. United States, 147 U. S. 494. It is also well settled that an exception in a statute amounts to an affirmation of the application of its general provisions to all other cases not excepted. Bend v. Hoyle, 13 Pet. 263, and Kendall v. United States, supra. These cases well illustrate the maxim of expressio unius est exclusio alterius, which is a maxim of universal application in the construction of statutes. United States v. De La Maza Arrendondo, 6 Pet. 691. Under the above authorities it is clear that the exemption "from all taxation" contained in the authorizing statute and in the bonds...
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