Trust Co. of Georgia v. Allen

• Citation: 164 F.2d 438
• Decision Date: 21 November 1947
• Docket Number: No. 11888.,11888.
• Parties: TRUST CO. OF GEORGIA v. ALLEN.
• Court: U.S. Court of Appeals — Fifth Circuit

164 F.2d 438 (1947)

TRUST CO. OF GEORGIA v. ALLEN.

No. 11888.

Circuit Court of Appeals, Fifth Circuit.

November 21, 1947.

Dan MacDougald and Robert S. Sams, both of Atlanta Ga., for appellant.

Melva M. Graney and Sewall Key, Sp. Assts. to Atty. Gen., and John P. Cowart, U. S. Atty., of Macon, Ga., for appellee.

Before HUTCHESON, HOLMES, and LEE, Circuit Judges.

HUTCHESON, Circuit Judge.

Appellant brought this suit to recover, as overpaid, estate taxes of $107,257.06 it had paid on a deficiency assessment based on the inclusion of the trust property in decedent's gross estate.

The primary claim of the suit was that the transfer in trust was not, within the meaning of Sec. 302(c), Rev.Act of 1926, 26 U.S.C.A.Int.Rev.Code, § 811(c), "intended to take effect in possession or enjoyment at or after the death of the transferor," and the commissioner had, therefore, erred in determining that it was, and including the whole of the transferred property in the decedent's estate. Subordinate claims were that (a) if the assets of the trust should be included in whole or in part, the valuation as of the date of decedent's death was excessive; (b) if the entire property should be included it should not be at its full value for the reason that at his death decedent's interests in it were contingent; and (c) in no event should more than two-thirds of the property be included, and this two-thirds should not be valued other than as a remainder interest. Added by amendment some two years later was the claim that during the twelve months following decedent's death there was a substantial decline in the value of part of the trust assets and plaintiff was entitled, under Sec. 302(j)¹ to have them valued as of one year after decedent's death.

The defenses were: general denial and an insistence that the deficiency assessment was correctly made.

Tried on stipulated facts,² there were findings and a judgment for defendant. The district Judge declared: that it was unnecessary to determine one of the contentions of the commissioner, that the property was includable under Sec. 302(c) because the instrument failed to insure against any possibility of reverter to the grantor; since he had concluded that the revocation provision of the instrument as originally made, and as changed by the alimony settlement, had effected the retention of such an interest in, and so held in suspension, the ultimate disposition of the property transferred as to make it includable under Sec. 302(c) and the authorities construing it. He also, on the authority of Fidelity-Philadelphia Trust Co. v. Rothensies, 324 U.S. 108, 65 S. Ct. 508, 89 L.Ed. 783, 159 A.L.R. 227, and Commissioner v. Field's Estate, 324 U.S. 113, 65 S.Ct. 511, 89 L.Ed. 786, 159 A.L.R. 230, rejected plaintiff's contention that the trust estate should not be included at its full value but at something less. Sustaining plaintiff's claim that the value of the Bibb stock at decedent's death was $101.00 and not $106, as found by the commissioner, he held that its claim that it was entitled to have the stock valued not on the date of decedent's death but as of one year thereafter, under Sec. 302(j) was not before him because not put forward in the claim for refund.

Appellant is here putting forward various arguments for, but making in substance, these primary contentions: (a) that the property transferred was not includable under Sec. 302(c) as a transfer intended to take effect at or after the death of the transferor; (b) that being a transfer containing a power to revoke, it must, if it comes under any statute, come under Section 302(d), a statute drawn especially to deal with such instruments;³ and (c) that since the power to revoke was contingent and not absolute at grantor's death, Sec. 302(d) is inapplicable.

In addition, appellant puts forward these alternative contentions: (1) If any portion of the trust property should have been included, only two-thirds of it should have been, for one-third of it was excluded by the alimony agreement from decedent's right to revoke, and that two-thirds should not be valued at full value but at a discount, considering the effect on the value of the interest which might revert to grantor of the contingencies in the way of the reversion; (2) in any event it was entitled to have excluded, under the provisions of Sec. 302(d), the value of the interest which would have been excluded from decedent's right to revoke under the alimony agreement, from the date of decedent's death to the date when revocation could take effect; and (3) if wrong in both of these contentions, it was entitled, under Sec. 302(j), to have the estate valued as of one year after the date of grantor's death.

Appellee, agreeing with appellant that, since the power to revoke was not absolute at grantor's death, Sec. 302(d) does not apply to the transfer, insists that Sec. 302(c) does, both because of the positive strings by which the grantor retained his hold on the trust property,⁴ and because of the possibility in law of a reverter to him.⁵

To appellant's position that the property must be valued at less than full value, he opposes the Rothensies and Field cases, note 4, supra, holding that under Sec. 302 (c) the whole value of the property subject to the contingency, and not the value of the contingency, is the measure of the tax.

To the claim for a 302(d) (2) allowance in determining value, appellee replies that appellant's argument is completely inconsistent in that it first claims that Sec. 302 (d) does not apply to the transfer and then, when the court agreeing with this contention holds that nevertheless Sec. 302(c) does, it claims that it is entitled to the valuation allowance provided in Sec. 302(d) (2) for cases arising under Sec. 302(d).

As to appellant's claim to the right under Sec. 302(j) to a valuation of the property 12 months after, instead of on the date of, decedent's death, appellee points out that the election the statute affords is a privilege accorded by statute and, therefore, available only when made in accordance with its terms. He points, too, to the evidence showing that no claim was filed until more than the year the statute provided had elapsed and then appellant elected to file the claim on the basis of the value at the date of decedent's death. Finally, appellee points to the fact that in his claim for refund appellant made no claim on the basis of an election to value the estate as of a year afterward, nor did it make such a claim in the suit until in 1946, when the amendment was filed.

We agree with appellee on his contention that the deficiency assessment was correctly imposed under Sec. 302(c) as construed in the Supreme Court cases he cites and that the judgment for the defendant must be affirmed. As the district judge did, we, therefore, pass without deciding appellee's contention that the possibility in law of a reverter to grantor made the trust assets includable.⁶ In so agreeing, we are not at all unmindful of the lack of symmetry, the inconsistencies, the confusion in the state of the law which have followed in the wake of the enactment of Sections 302 (c) and 302(d) of the 1926 Act,⁷ results, we venture to believe, not inhering in the language of the sections but arising out of the glosses on, and interpretations of, them by Treasury regulations and rulings and court decisions.⁸ Neither are we insensible to the appearance of equity in appellant's claim that under the undisputed facts showing the very substantial decline within the year in the value of its property it ought to have the benefit of the lower value under the election conferred by Sec. 302(j). In Jeffries v. Commissioner, 5 Cir., 158 F.2d 225, 226, we have, however, pointed out that: "Whether a transaction or result is taxable and what the tax is is not a matter to be determined in law upon consideration of general justice or equity. It is a matter of statutes and valid regulations, and what they mean. Neither is it to be determined in fact upon considerations of what was intended to be or ought to have been. Rather it is to be determined by what was done." In the light of what was there said, it is quite clear that this claim is completely foreclosed against appellant. Appellant made no such claim in his claim for refund. Besides, the statute affords merely an election, and the appellant irrevocably elected as the valuation date the date of decedent's death.

Appellant's contention most vigorously pressed is that Congress intended to deal exclusively in Sec. 302(d) with clauses of revocation, termination, etc., and thereby excluded from the application of 302(c), all instruments of transfer containing revocation clauses, even though such clause did not fall within the terms of 302(d). In Reinecke v. Northern Trust Company, 278 U.S. 339, 49 S.Ct. 123, 125, 73 L.Ed. 410, 66 A.L.R. 397, though Section 302(d) had been in existence some five years, the Supreme Court held taxable under prior acts, as "intended to take effect in possession or enjoyment at or after the donor's death," the corpus of a revocable trust. In addition, in Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368; Fidelity-Philadelphia Trust Company v. Rothensies, 324 U.S. 108, 65 S.Ct. 508, 89 L.Ed. 783, 159 A.L.R. 227, and Goldstone v. United States, 325 U.S. 687, 65 S.Ct. 1323, 89 L.Ed. 1871, 159 A.L.R. 1330, it in effect held includable all transfers where by the terms of the instrument decedent retained some tangible string or hold upon the property transferred in trust by which h...