1. A will provided that the income from a fund in trust should
be applied to the education and support of the testator's
granddaughter so far as the trustees deemed proper, and that the
balance of it should be divided into two equal parts, one of which
should be paid to the plaintiff in equal, quarter-yearly
installments during his life. On the granddaughter's reaching the
age of twenty-one or dying, the fund was to go over, so that,
considering her age, the plaintiff's interest could not exceed
fifteen years. Held
that the sums paid the plaintiff were
taxable income within the meaning of the Constitution, and of the
Income Tax Act of October 3, 1913, which taxed "the entire net
income arising or accruing . . . to every citizen of the United
States" and defined net income as
"gains or profits and income derived from any source whatever,
including the income from but not the value of property acquired by
gift, bequest, devise, or descent."
P. 268 U. S.
2. The provision of the above act exempting bequests assumes the
gift of a corpus, and contrasts it with the income arising from it,
but was not intended to exempt income, properly so called, simply
because of a severance between it and the principal fund. P.
268 U. S.
3. The rule that tax laws shall be construed favorably for the
taxpayers is not a reason for creating or exaggerating doubts of
their meaning. P. 268 U. S.
295 F. 84 reversed.
Certiorari to a judgment of the Circuit Court of Appeals
affirming a judgment for the plaintiff in an action to recover
taxes and penalties exacted under an income tax law. See
275 F. 643.
Page 268 U. S. 165
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a suit to recover taxes and penalties exacted by the
Collector under the Income Tax Act of October 3, 1913, c. 16,
Section II, A, subdivisions 1 and 2; B, D, and
Page 268 U. S. 166
E, 38 Stat. 114, 166 et seq.
The Collector demurred to
the complaint. The demurrer was overruled and judgment given for
the plaintiff by the district court, 275 F. 643, and the circuit
court of appeals, 295 F. 84. A writ of certiorari was granted by
this Court. 264 U.S. 579.
The question is whether the sums received by the plaintiff under
the will of Anthony N. Brady in 1913, 1914, and 1915, were income,
and taxed. The will, admitted to probate August 12, 1913, left the
residue of the estate in trust to be divided into six equal parts,
the income of one part to be applied so far as deemed proper by the
trustees to the education and support of the testator's
granddaughter, Marcia Ann Gavit, the balance to be divided into two
equal parts and one of them to be paid to the testator's
son-in-law, the plaintiff, in equal quarter-yearly payments during
his life. But, on the granddaughter's reaching the age of
twenty-one or dying, the fund went over, so that, the granddaughter
then being six years old, it is said, the plaintiff's interest
could not exceed fifteen years. The courts below held that the
payments received were property acquired by bequest, were not
income, and were not subject to tax.
The statute, in Section II, A, subdivision 1, provides that
there shall be levied a tax "upon the entire net income arising or
accruing from all sources in the preceding calendar year to every
citizen of the United States." If these payments properly may be
called income by the common understanding of that word and the
statute has failed to hit them, it has missed so much of the
general purpose that it expresses at the start. Congress intended
to use its power to the full extent. Eisner v. Macomber,
252 U. S. 189
252 U. S. 203
By B, the net income is to include
"gains or profits and income derived from any source whatever,
including the income from but not not the value of property
acquired by gift, bequest, devise or descent.
Page 268 U. S. 167
By D, trustees are to make 'return of the net income of the
person for whom they act, subject to this tax,' and by D, trustees
and others having the control or payment of fixed or determinable
gains, etc., of another person who are required to render a return
on behalf of another are 'authorized to withhold enough to pay the
normal tax.' The language quoted leaves no doubt in our minds that,
if a fund were given to trustees for A for life with remainder
over, the income received by the trustees and paid over to A would
be income of A under the statute. It seems to us hardly less clear
that, even if there were a specific provision that A should have no
interest in the corpus, the payments would be income nonetheless
within the meaning of the statute and the Constitution and by
popular speech. In the first case, it is true that the bequest
might be said to be of the corpus for life, in the second, it might
be said to be of the income. But we think that the provision of the
act that exempts bequests assumes the gift of a corpus and
contrasts it with the income arising from it, but was not intended
to exempt income property so-called simply because of a severance
between it and the principal fund. No such conclusion can be drawn
from Eisner v. Macomber, 252 U. S. 189
, 252 U. S.
-207. The money was income in the hands of the
trustees, and we know of nothing in the law that prevented its
being paid and received as income by the donee."
The courts below went on the ground that the gift to the
plaintiff was a bequest, and carried no interest in the corpus of
the fund. We do not regard those considerations as conclusive, as
we have said, but, if it were material, a gift of the income of a
fund ordinarily is treated by equity as creating an interest in the
fund. Apart from technicalities, we can perceive no distinction
relevant to the question before us between a gift of the fund for
life and a gift of the income from it. The fund is appropriated
Page 268 U. S. 168
to the production of the same result whichever form the gift
takes. Neither are we troubled by the question where to draw the
line. That is the question in pretty much everything worth arguing
in the law. Hudson County Water Co. v. McCarter,
209 U. S. 349
209 U. S. 355
Day and night, youth and age, are only types. But the distinction
between the cases put of a gift from the corpus of the estate
payable in installments and the present seems to us not hard to
draw, assuming that the gift supposed would not be income. This is
a gift from the income of a very large fund, as income. It seems to
us immaterial that the same amounts might receive a different color
from their source. We are of opinion that quarterly payments, which
it was hoped would last for fifteen years, from the income of an
estate intended for the plaintiff's child must be regarded as
income within the meaning of the Constitution and the law. It is
said that the tax laws should be construed favorably for the
taxpayers. But that is not a reason for creating a doubt or for
exaggerating one when it is no greater than we can bring ourselves
to feel in this case.
MR. JUSTICE SUTHERLAND, dissenting.
By the plain terms of the Revenue Act of 1913, the value of
property acquired by gift, bequest, devise, or descent is not to be
included in net income. Only the income derived from such property
is subject to the tax. The question, as it seems to me, is really a
very simple one. Money, of course, is property. The money here
sought to be taxed as income was paid to respondent under the
express provisions of a will. It was a gift by will -- a bequest.
United States v. Merriam, 263 U.
, 263 U. S. 184
It therefore fell within the precise letter of the statute, and,
under well settled principles, judicial inquiry may go no further.
The taxpayer is entitled to the
Page 268 U. S. 169
rigor of the law. There is no latitude in a taxing statute; you
must adhere to the very words. United States v. Merriam,
p. 263 U. S.
The property which respondent acquired being a bequest, there is
no occasion to ask whether, before being handed over to him, it had
been carved from the original corpus of, or from subsequent
additions to, the estate. The corpus of the estate was not the
legacy which respondent received, but merely the source which gave
rise to it. The money here sought to be taxed was not the fruits of
a legacy; it was the legacy itself. Matter of Stanfield,
135 N.Y. 292, 294.
With the utmost respect for the judgment of my brethren to the
contrary, the opinion just rendered, I think without warrant,
searches the field of argument and inference for a meaning which
should be found only in the strict letter of the statute.
MR. JUSTICE BUTLER concurs in this dissent.