1. Under the Revenue Act of 1924, §§ 319, 320, taxing transfers
by gift, a transfer of title by deed of trust reserving power of
revocation in the grantor was not taxable while that power existed,
but became so when it was surrendered. P.
288 U. S.
283.
2. The provision was not aimed at every transfer of the legal
title without consideration, but at transfers of title that have
the quality of a gift, and a gift is not consummated until put
beyond recall. P.
288 U. S.
286.
3. Uncertainties in statutes should be so resolved as to avoid
unnecessary hardships. P.
288 U. S.
285.
Page 288 U. S. 281
4. In applying the rule that doubt in a taxing act hall be
resolved in favor of the taxpayer, the court must consider the
effect of a proposed liberal construction not only upon the
taxpayer in the case before it, but also upon others, differently
circumstanced, upon whom it would operate illiberally, and must
endeavor to strike a balance of advantage. P.
288 U. S.
286.
5. The statutory concept of a transfer by gift is illuminated by
the other provisions taxing transfer by death, as to which the
essence of a transfer had come to be identified more nearly with a
change of economic benefits than with technicalities of title. P.
288 U. S.
286.
58 F.2d 188 reversed.
Certiorari, 287 U.S. 587, to review the reversal of a decision
of the Board of Tax Appeals, 24 B.T.A. 1181, affirming the
assessment of a gift tax.
MR. JUSTICE CARDOZO delivered the opinion of the Court.
The question to be decided is whether deeds of trust made in
1917, with a reservation to the grantor of a power of revocation,
became taxable as gifts under the Revenue Act of 1924 when, in
1925, there was a change of the deeds by the cancellation of the
power.
On June 28, 1917, the respondent, a resident of New York,
executed in New Jersey two deeds of trust, one for the benefit of
his son, and one for the benefit of his daughter. The trusts were
to continue for ten years, during which period part of the income
was to be paid to the
Page 288 U. S. 282
beneficiary and part accumulated. At the end of the ten-year
period, the principal and the accumulated income were to go to the
beneficiary, if living, if not living, then to his or her children,
and, if no children survived, then to the settlor in the case of
the son's trust, and in the case of the daughter's trust, to the
trustees of the son's trust as an increment to the fund. The
settlor reserved to himself broad powers of control in respect of
the trust property and its investment and administration. In
particular, there was an unrestricted power to modify, alter, or
revoke the trusts except as to income, received or accrued. The
power of investment and administration was transferred by the
settlor from himself to others in May, 1921. The power to modify,
alter, or revoke was eliminated from the deeds, and thereby
cancelled and surrendered, in July, 1925.
In the meanwhile, Congress had passed the Revenue Act of 1924,
which included among its provisions of tax upon gifts.
"For the calendar year 1924 and each calendar year thereafter .
. . , a tax . . . is hereby imposed upon the transfer by a resident
by gift during such calendar year of any property wherever
situated, whether made directly or indirectly,"
the tax to be assessed in accordance with a schedule of
percentages upon the value of the property. 43 Stat. 253, 313, c.
234, §§ 319, 320, 26 U.S.Code, §§ 1131, 1132.
At the date of the cancellation of the power of revocation, the
value of the securities constituting the corpus of the two trusts
was nearly $13,000,000. Upon this value the Commissioner assessed
against the donor a tax of $2,465,681, which the Board of Tax
Appeals confirmed with a slight modification due to a mistake in
computation. The taxpayer appealed to the Court of Appeals for the
Second Circuit, which reversed the decision of the Board and held
the gift exempt. 58 F.2d 188. The case is here on certiorari.
Page 288 U. S. 283
On November 8, 1924, more than eight months before the
cancellation of the power of revocation, the Commissioner of
Internal Revenue, with the approval of the Secretary of the
Treasury, adopted and promulgated the following regulation:
"The creation of a trust where the grantor retains the power to
revest in himself title to the corpus of the trust does not
constitute a gift subject to tax, but the annual income of the
trust which is paid over to the beneficiaries shall be treated as a
taxable gift for the year in which so paid. Where the power
retained by the grantor to revest in himself title to the corpus is
not exercised, a taxable transfer will be treated as taking place
in the year in which such power is terminated."
Regulations 67, Article I.
The substance of this regulation has now been carried forward
into the Revenue Act of 1932, which will give the rule for later
transfers. Revenue Act of 1932, c. 209, 47 Stat. 169, 245, §
501(c). [
Footnote 1]
We think the regulation, and the later statute continuing it,
are declaratory of the law which Congress meant to establish in
1924.
"Taxation is not so much concerned with the refinements of title
as it is with actual command over the property taxed -- the actual
benefit for which the tax is paid."
Corliss v. Bowers, 281 U. S. 376,
281 U. S. 378;
cf. Chase National Bank v. United States, 278 U.
S. 327;
Saltonstall v. Saltonstall,
276 U. S. 260;
Tyler v. United
States,
Page 288 U. S. 284
281 U. S. 497,
281 U. S. 503;
Burnet v. Harmel, 287 U. S. 103;
Palmer v. Bender, 287 U. S. 551.
While the powers of revocation stood uncancelled in the deeds, the
gifts, from the point of view of substance, were inchoate and
imperfect. By concession, there would have been no gift in any
aspect if the donor had attempted to attain the same result by the
mere delivery of the securities into the hands of the donees. A
power of revocation accompanying delivery would have made the gift
a nullity.
Basket v. Hassell, 107 U.
S. 602. By the execution of deeds and the creation of
trusts, the settlor did indeed succeed in divesting himself of
title and transferring it to others (
Stone v. Hackett, 12
Gray 227;
Van Cott v. Prentice, 104 N.Y. 45, 10 N.E. 257;
National Newark & Essex Banking Co. v. Rosahl, 97
N.J.Eq. 74, 128 A. 586;
Jones v. Clifton, 101 U.
S. 225), but the substance of his dominion was the same
as if these forms had been omitted (
Corliss v. Bowers,
supra). He was free at any moment, with reason or without, to
revest title in himself, except as to any income then collected or
accrued. As to the principal of the trusts and as to income to
accrue thereafter, the gifts were formal and unreal. They acquired
substance and reality for the first time in July, 1925, when the
deeds became absolute through the cancellation of the power.
The argument for the respondent is that Congress, in laying a
tax upon transfers by gift made in 1924 or in any year thereafter,
had in mind the passing of title, not the extinguishment of
dominion. In that view, the transfer had been made in 1917, when
the deeds of trust were executed. The argument for the government
is that what was done in 1917 was preliminary and tentative, and
that not till 1925 was there a transfer in the sense that must have
been present in the mind of Congress when laying a burden upon
gifts. Petitioner and respondent are at one in the view that from
the extinguishment of the power there came about a change of legal
rights and a shifting
Page 288 U. S. 285
of economic benefits which Congress was at liberty, under the
Constitution, to tax as a transfer effected at that time.
Chase
National Bank v. United States, supra; Saltonstall v. Saltonstall,
supra; Tyler v. United States, supra; Corliss v. Bowers,
supra. The question is not one of legislative power. It is one
of legislative intention.
With the controversy thus narrowed, doubt is narrowed too.
Congress did not mean that the tax should be paid twice, or partly
at one time and partly at another. If a revocable deed of trust is
a present transfer by gift, there is not another transfer when the
power is extinguished. If there is not a present transfer upon the
delivery of the revocable deed, then there is such a transfer upon
the extinguishment of the power. There must be a choice, and a
consistent choice, between the one date and the other. To arrive at
a decision, we have therefore to put to ourselves the question,
which choice is it the more likely that Congress would have made?
Let us suppose a revocable transfer made on June 3, 1924, the day
after the adoption of the Revenue Act of that year. Let us suppose
a power of revocation still uncancelled, or extinguished years
afterwards, say in 1931. Did Congress have in view the present
payment of a tax upon the full value of the subject matter of this
imperfect and inchoate gift? The statute provides that, upon a
transfer by gift, the tax upon the value shall be paid by the
donor, 43 Stat. 316, c. 234, § 324, and shall constitute a lien
upon the property transferred, 43 Stat. c. 234, §§ 324, 315. By the
act now in force, the personal liability for payment extends to the
donee. Act of June 6, 1932, c. 209, § 510, 47 Stat. 249. A statute
will be construed in such a way as to avoid unnecessary hardship
when its meaning is uncertain.
Hawaii v. Mankichi,
190 U. S. 197,
190 U. S. 214;
Sorrells v. United States, 287 U.
S. 435. Hardship there plainly is in exacting the
immediate payment of a tax upon the value of the principal when
nothing has been
Page 288 U. S. 286
done to give assurance that any part of the principal will ever
go to the donee. The statute is not aimed at every transfer of the
legal title without consideration. Such a transfer there would be
if the trustees were to hold for the use of the grantor. It is
aimed at transfers of the title that have the quality of a gift,
and a gift is not consummate until put beyond recall.
The respondent invokes the rule that, in the construction of a
taxing act, doubt is to be resolved in favor of the taxpayer.
United States v. Merriam, 263 U.
S. 179;
Gould v. Gould, 245 U.
S. 151. There are many facets to such a maxim. One must
view them all, if one would apply it wisely. The construction that
is liberal to one taxpayer may be illiberal to others. One must
strike a balance of advantage. It happens that the taxpayer before
us made his deeds in 1917, before a transfer by gift was subject to
a tax. We shall alleviate his burden if we say that the gift was
then complete. On the other hand, we shall be heightening the
burdens of taxpayers who made deeds of gift after the Act of 1924.
In making them, they had the assurance of a treasury regulation
that the tax would not be laid, while the power of revocation was
uncancelled, except upon the income paid from year to year. They
had good reason to suppose that the tax upon the principal would
not be due until the power was extinguished or until the principal
was paid. If we disappoint their expectations, we shall be
illiberal to them.
The tax upon gifts is closely related, both in structure and in
purpose, to the tax upon those transfers that take effect at death.
What is paid upon the one is, in certain circumstances, a credit to
be applied in reduction of what will be due upon the other, 43
Stat. 315, § 322, 26 U.S.C. § 1134. The gift tax is Part II of
Title III of the Revenue Act of 1924; the estate tax is Part I of
the same title. The two statutes are plainly
in pari
materia. There has been a steady widening of the concept of a
transfer for the purpose of taxation under the provisions of Part
I.
Page 288 U. S. 287
Tyler v. United States, supra; Chase National Bank v. United
States, supra; Saltonstall v. Saltonstall, supra; cf. Bullen v.
Wisconsin, 240 U. S. 625.
There is little likelihood that the lawmakers meant to narrow the
concept, and to revert to a construction that would exalt the form
above the substance, in fixing the scope of a transfer for the
purposes of Part II. We do not ignore differences in precision of
definition between the one part and the other. They cannot obscure
identities more fundamental and important. The tax upon estates, as
it stood in 1924, was the outcome of a long process of evolution;
it had been refined and perfected by decisions and amendments
almost without number. The tax on gifts was something new. Even so,
the concept of a transfer, so painfully developed in respect of
taxes on estates, was not flung aside and scouted in laying this
new burden upon transfers during life. Congress was aware that what
was of the essence of a transfer had come to be identified more
nearly with a change of economic benefits than with technicalities
of title. The word had gained a new color, the result, no doubt in
part, of repeated changes of the statutes, but a new color
nonetheless.
Cf. Towne v. Eisner, 245 U.
S. 418,
245 U. S. 425;
International Stevedoring Co. v. Haverty, 272 U. S.
50;
Gooch v. Oregon Short Line R. Co.,
258 U. S. 22,
258 U. S. 24;
Hawks v. Hamill, 288 U. S. 52.
The respondent finds comfort in the provisions of § 302(d) of
the Revenue Act of 1924, governing taxes on estates. [
Footnote 2]
Page 288 U. S. 288
He asks why such a provision should have been placed in Part I
and nothing equivalent inserted in Part II if powers for purposes
of the one tax were to be treated in the same way as powers for the
purposes of the other. Section 302(d) of the Act of 1924 is in part
a reenactment of a section of the Revenue Acts of 1918 and 1921,
though it has been changed in particulars. 40 Stat. 1097, c. 18, §
402(c); 42 Stat. 227, c. 136, § 402(c).
Cf. Reinecke v.
Northern Trust Co., 278 U. S. 339. It
is an outcome of that process of development which has given us a
rule for almost every imaginable contingency in the assessment of a
tax under the provisions of Part I. No doubt the draftsman of the
statute would have done well if he had been equally explicit in the
drafting of Part II. This is not to say that meaning has been lost
because extraordinary foresight would have served to make it
clearer. Here, as so often, there is a choice between
uncertainties. We must be content to choose the lesser. To lay the
tax at once, while the deed is subject to the power, is to lay it
on a gift that may never become consummate in any real or
beneficial sense. To lay it later on is to unite benefit with
burden. We think the voice of Congress has ordained that this be
done.
Precedents are cited, as opposed to our conclusion. We find none
of them decisive.
United States v. Field, 255 U.
S. 257, holds that, under the Revenue Act of 1916 (39
Stat. 777, c. 463), the subject of a power created by another is
not a part of the estate of the decedent to whom the power was
committed. It does not hold that a revocable conveyance
inter
vivos is a perfected transfer by gift that will justify the
immediate imposition of a tax upon the value. There was no such
question in the case.
Page 288 U. S. 289
Jones v. Clifton, 101 U. S. 225,
holds that a power of revocation in a deed of conveyance from a
husband to his wife does not avail without more to invalidate the
transaction as one in fraud of creditors. A transfer within the
meaning of a taxing act may or may not be one within the Statute of
Elizabeth.
We are referred to cases in the state courts, from Pennsylvania
and New Jersey.
In re Dolan's Estate, 279 Pa. 582, 124 A.
176;
In re Hall's Estate, 99 N.J.Law, 1, 125 A. 246. In
neither did the court decide that a conveyance
inter vivos
was taxable as a present gift when the conveyance was subject to
revocation at the pleasure of the grantor. No such statute was
involved. In each, the ruling was that, upon the death of the
grantor, the subject of the conveyance was not taxable as part of
his estate, and hence not taxable at all. The ruling might have
been different if a choice had been necessary between taxing the
conveyance, or its subject, while the power was outstanding, and
taxing it later on. New channels of thought cut themselves under
the drive of a dilemma.
A decision of the Court of Claims,
Means v. United
States, 39 F.2d 748, 69 Ct.Cls. 539, upholds the contention of
the government that, within the meaning of the act of Congress, the
termination by a settlor of the power to revoke a trust is a
transfer of the property and as such subject to taxation.
The argument for the respondent, if pressed to the limit of its
logic, would carry him even farther than he has claimed the right
to go. If his position is sound that a power to revoke does not
postpone for the purpose of taxation the consummation of the gift,
then the income of these trusts is exempt from the tax as fully as
the principal. What passed to the beneficiaries was the same in
either case, an interest inchoate and contingent till rendered
absolute and consummate through receipt or accrual before the act
of revocation. Congress did not mean that
Page 288 U. S. 290
recurring installments of the income, payable under a revocable
conveyance which had been made by a settlor before the passage of
this statute, should be exempt, when collected, from the burden of
the tax.
The judgment is
Reversed.
THE CHIEF JUSTICE took no part in the consideration or decision
of this case.
MR. JUSTICE SUTHERLAND and MR. JUSTICE BUTLER are of opinion
that the termination of the donor's power of revocation was not a
transfer by gift of any property within the meaning of the statute,
and that the judgment of the Circuit Court of Appeals should be
affirmed.
[
Footnote 1]
Section 501(c):
"The tax shall not apply to a transfer of property in trust
where the power to revest in the donor title to such property is
vested in the donor, either alone or in conjunction with any person
not having a substantial adverse interest in the disposition of
such property or the income therefrom, but the relinquishment or
termination of such power (other than by the donor's death) shall
be considered to be a transfer by the donor by gift of the property
subject to such power, and any payment of the income therefrom to a
beneficiary other than the donor shall be considered to be a
transfer by the donor of such income by gift."
[
Footnote 2]
By § 302(d), the gross estate of a decedent is to be taken as
including the subject of any trust which he has created during
life
"where the enjoyment thereof was subject at the date of his
death to any change through the exercise of a power, either by the
decedent alone or in conjunction with any person, to alter, amend,
or revoke, or where the decedent relinquished any such power in
contemplation of his death, except in case of a
bona fide
sale for a fair consideration in money or money's worth."
By Section 302(h), the foregoing subdivision (d), as well as
many others, is declared to
"apply to the transfers, trusts, estates interests, rights,
powers, and relinquishment of powers, as severally enumerated and
described therein whether made, created, arising, existing,
exercised or relinquished before or after the enactment of this
act."