Rothensies v. Cassell
| Decision Date | 06 April 1939 |
| Docket Number | No. 6842.,6842. |
| Citation | 103 F.2d 834 |
| Parties | ROTHENSIES, Collector of Internal Revenue, v. CASSELL. |
| Court | U.S. Court of Appeals — Third Circuit |
James W. Morris, Asst. Atty. Gen., and Sewall Key, Norman D. Keller, and Lyle M. Turner, Sp. Assts. to Atty. Gen. (J. Cullen Ganey, U. S. Atty., of Bethlehem, Pa., and Thomas J. Curtin, Asst. U. S. Atty., of Philadelphia, Pa., of counsel), for appellant.
Isaac S. Grossman and George V. Strong, both of Philadelphia, Pa., for appellee.
Before BIGGS, MARIS, and CLARK, Circuit Judges.
We rather question the soundness of the Treasury's approach to the case at bar. The problem is one phase of the application of taxation to the "cake and eat it" weakness of our human nature. Congress and the courts have had to draw the line between "devices through which men of substance continued their dominion over property and yet evaded taxes which others with no more substantial dominion over the property had to pay", and cases involving genuine relinquishment of property and dominion over it, Sutter and Owen, Federal Taxation of Settlors of Trusts, 33 Michigan Law Review 1169, 1174; Surrey and Aronson, Inter Vivos Transfers and The Federal Estate Tax, 32 Columbia Law Review 1332. Cases may fall on either side of this line — a particular application of Mr. Justice Holmes' line theory first developed in "The Common Law" (1881), p. 127. See Bullen v. Wisconsin, 240 U.S. 625, 630, 36 S.Ct. 473, 60 L.Ed. 830. As Mr. Randolph E. Paul (incidentally at one time a fellow legal Helot of the writer of this opinion) discussing the case last cited in his stimulating Restatement of Tax Avoidance puts it: Studies in Federal Taxation First Series, p. 101. The same learned author in footnote 349 on p. 101 observes that the decedent was on the right side of the line in Becker v. St. Louis Union Trust Company, 296 U.S. 48, 56 S.Ct. 78, 80 L.Ed. 35. In that we agree with him and by the same token must disagree with the government in the principal case.
The one "phase" referred to in our opening paragraph has been a matter of much litigation ever since the imposition of the first state inheritance tax. The best discussion we know of is contained in two articles by Professor Rottschaefer (Professor of law, University of Minnesota) in 14 Minnesota Law Review 452 and 613. He entitles both articles in the stock words of the statutes, state and federal (26 U.S.C.A. § 411(c), "Taxation of Transfers Intended to Take Effect in Possession or Enjoyment at (or after) Grantor's Death". He phrases our particular circumstance:
In reviewing the cases in the state courts holding the transfer taxable, the Professor says: "The theory in the above cases seems to have been that the remainderman's interest continued contingent in right until the donor's death." P. 485. This view of the state cases and of the learned Professor did not meet with the approval of the majority of the Supreme Court. In the Restatement of Tax Avoidance, above cited, Mr. Paul says: "A remote possibility of reverter does not vary the rule that a complete and final transfer will not result in the imposition of estate tax." Studies in Federal Taxation First Series, above cited, pp. 45-46. He cites Becker v. St. Louis Union Trust Company, above cited; Helvering v. St. Louis Union Trust Co., 296 U.S. 39, 56 S.Ct. 74, 80 L.Ed. 29, 100 A.L.R. 1239; Bingham v. United States, 296 U.S. 211, 56 S.Ct. 180, 80 L.Ed. 160, decisions which had in fact been anticipated by the snuggest possible affirmance of a case arising in this circuit, Helvering, Commissioner of Internal Revenue v. Duke, 3 Cir., 62 F.2d 1057; Duke v. Commissioner, 23 B. T.A. 1103, 1104, affirmed by a divided court, 290 U.S. 591, 54 S.Ct. 95, 78 L.Ed. 521. See also Commissioner of Internal Revenue v. Grosse, 9 Cir., 100 F.2d 37.
We complain of the Treasury counsel's failure to meet this existing state of the law with complete candor. The taxpayer very properly made use of the deadly parallel and compared his trust with that of Becker:
In the Becker case In the case at bar
"(a) If the said beneficiary "In trust if the said R
should die before S. shall die during the
my death, then this trust lifetime of said G. F. U
estate shall thereupon to pay over the principal
revert to me and become and all accumulated
mine immediately and income thereof unto the
absolutely, or said G. F. U. in fee, free
and clear of any trust
"(b) If I should die before "In trust if the said
her death, then this R. S. after the marriage
property shall thereupon shall survive the said
become hers immediately G. F. U. to pay over the
and absolutely and be principal and all accumulated
turned over to her and income unto the
in either case this trust said R. S. — then R. U. —
shall cease." 296 U.S. in fee, free and clear of
48, 56 S.Ct. 79. any trust."
A skeletonization of the diverse expressions used in both trusts is, we think, even more revealing:
In the Becker case In the case at bar
(1) "my daughter" "R. S." (fiancee)
(2) "before my death" "during the life time
of the said G. F. U."
(3) "trust estate" "the principal and all
accumulated income"
(4) "revert to me" "pay over * * * unto
the said G. F. U."
(5) "mine absolutely" "free and clear of any
trust"
(6) "if I should die before "shall survive the said
her death" G. F. U."
(7) "turned over" "pay over"
(8) "this trust shall "free and clear of any
cease" trust"
It is apparent that the only differences are in the relationship of the settlor to the beneficiary and in the first and third person phraseology. To force a distinction from them is as futile as measuring the relative affection implicit in the different ties or appraising the delicacy implicit in avoiding the possessive appellation of the bride-to-be. Our argument notes indicate that counsel finally abandoned this uncongenial task and frankly stated that he agreed with the minority of the United States Supreme Court in Helvering v. St. Louis Union Trust Company, above cited, and Becker v. St. Louis Union Trust Company, above cited.
Why he did so may appear from a continuance of the deadly parallel method of argument:
Mr. Justice Sutherland Mr. Justice Stone dissenting
speaking for five for four
Justices Justices
"The grantor here, by "It seems plain that
the trust instrument, the gift here was not
left in himself no power complete until decedent's
to resume ownership, death. He did not desire
possession, or enjoyment, to make a complete
except upon a contingency gift. He wished to keep
in the nature the property for himself
of a condition subsequent, in case he survived his
the occurrence of daughter. He kept this
which was entirely fortuitous hold upon it by reserving
so far as any from his gift an interest
control, design, or volition terminable only
on his part was at his death, by which
concerned. After the full ownership would be
execution of the trust restored to him if he
he held no right in the survived his daughter
trust estate which in any * * *
sense was the subject
of testamentary disposition. "Having in
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