Property does not pass under a general power of appointment
exercised by will, within the meaning of § 302(f), Revenue Act of
1926, where the person named as appointee elects to renounce the
appointment and take as remainderman under another will, which
created the power. P.
294 U. S.
155.
70 F.2d 705 affirmed.
Certiorari, 293 U.S. 543, to review the reversal of an order of
the Board of Tax Appeals. The Board sustained the Commissioner in
assessing a deficiency in a federal estate tax because of failure
to include in gross estate the value of property which he thought
had passed under the exercise by the testatrix of a general power
of appointment.
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
In 1876, John O. Stone died a resident of New York. He left a
will by which he created for the benefit of his daughter, the
decedent, Annie Stone, a trust fund, the income from which was to
be paid to her during her life. The will provided that, upon her
death, her share of the
Page 294 U. S. 154
estate should go and be applied to such persons and such uses as
she might appoint by last will and testament; but, in default of
such appointment, her share of the estate should go and belong to
her children or issue, respectively, by right of representation,
or, in default of such issue, to her next of kin. Surviving John O.
Stone were his widow and three daughters, namely, this decedent and
Ellen J. Stone and Sarah J. Grinnell. These constituted his only
heirs at law and next of kin. The widow died many years before the
death of Annie Stone. Annie Stone, the decedent, died September 24,
1927, unmarried, without issue, and leaving as her sole next of kin
her two sisters just named. Her will provided
"that what property or money I am allowed to dispose of by will
under the will of my dear father, the late Dr. John O. Stone, of
the City of New York, I give, devise, and bequeath in equal shares
to my dear sisters Ellen J. Stone and Sarah J. Grinnell. . . ."
After the death of Annie Stone, the two sisters in writing
renounced their right to receive the property under this paragraph
of her will and elected to take the property under the provisions
of the will of their father, John O. Stone.
The Commissioner of Internal Revenue declared a tax deficiency
of several thousand dollars in the federal estate tax on the estate
of Annie Stone upon the theory that the property derived from the
estate of her father was required to be included in her gross
estate in virtue of the fact that she had exercised a power of
appointment in respect thereof. The Board of Tax Appeals, on
review, sustained the Commissioner. The order of the Board of Tax
Appeals based on this holding was reversed by the Circuit Court of
Appeals, 70 F.2d 705, upon the ground that the property did not
pass under the exercise of the power, and consequently an essential
condition of § 302 of the Revenue Act of 1926 was not present.
Page 294 U. S. 155
Section 302, c. 27, 44 Stat. 9, 70, 71, provides:
"Sec. 302. The value of the gross estate of the decedent shall
be determined by including the value at the time of his death of
all property, real or personal, tangible or intangible, wherever
situated --"
"
* * * *"
"(f) To the extent of any property passing under a general power
of appointment exercised by the decedent (1) by will, or (2) by
deed executed in contemplation of, or intended to take effect in
possession or enjoyment at or after, his death, except in case of a
bona fide sale for an adequate and full consideration in
money or money's worth."
The crucial words are "property passing under a general power of
appointment exercised by the decedent by will." Analysis of this
clause discloses three distinct requisites: (1) the existence of a
general power of appointment; (2) an exercise of that power by the
decedent by will, and (3) the passing of the property in virtue of
such exercise. Clearly, the general power existed and was
exercised, and this is not disputed. But it is equally clear that
no property passed under the power or as a result of its exercise,
since that result was definitely rejected by the beneficiaries. If
they had wholly refused to take the property, it could not well be
said that the property had passed under the power, for, in that
event, it would not have passed at all. Can it properly be said
that, because the beneficiaries elected to take the property under
a distinct and separate title, the property nevertheless passed
under the power? Plainly enough, we think, the answer must be in
the negative.
The contention of the government is that the tax is imposed
"upon the power to transmit or the transmission of property by
death; the shifting of the economic benefits in property is the
real subject of the tax. . . . The
Page 294 U. S. 156
property in question passed to the sisters under the general
power of appointment exercised by the decedent by will within the
meaning of the statute."
But this involves the obviously self-destructive conclusion that
an unsuccessful attempt to effectuate a thing required by the
statute is the same as its consummation. The tax here does not fall
upon the mere shifting of the economic benefits in property, but
upon the shifting of those benefits by a particular method --
namely, by their "
passing under a general power of
appointment," and not otherwise. Acceptance of the government's
contention would strip the italicized word of all meaning.
The government relies upon
Chase Nat. Bank v. United
States, 278 U. S. 327, and
Tyler v. United States, 281 U. S. 497. In
neither of these cases was the court concerned with the meaning of
the act. In the first case (p.
278 U. S.
334), the Court said the tax was plainly imposed by the
explicit language of the statute, and that there was no question as
to its construction. The sole question for determination was as to
the constitutional validity of the act. The same is true in respect
of the second case. Neither case sheds any light upon the question
here involved -- namely the meaning and application of the
statutory provision.
The court below leaned confidently upon the decision of the New
York Court of Appeals in the
Matter of Lansing, 182 N.Y.
238, 74 N.E. 882. That well considered case and this in principle
cannot be distinguished. We think the reasoning of the New York
court as to the meaning and application of the state law equally
applies to the federal statute here in question. There, as here,
the contention of the taxing authorities (there under the state
act, here under the federal act) was that the appointee named in
the will of the donee of the power took her property thereunder,
and not under the will of the creator of the power, notwithstanding
the property had been given to her by the will of the former
subject to the power
Page 294 U. S. 157
of appointment. But the state court answered that the power gave
the appointee nothing and took nothing away from her; that she had
the right of election, and could refuse to take under the
appointment and still hold the property, since her title without
was as good as it was with the power; that she treated the exercise
of the power as a mere attempt, and not as an effective execution
of it, and that it sufficiently appeared that she elected to reject
title from that source.
"Her rights were fixed by the will of her grandfather, and,
unless changed pursuant to its provisions, her estate in expectancy
would become an estate in possession upon the death of her mother.
. . . Although the power was exercised in form, her title was
perfect without it, and she derived no benefit from it. The power
was to 'dispose of the remainder,' and the remainder was not
disposed of, but continued where it was. The attempt to execute the
power was not effective, because it did nothing. The exercise of a
power which leaves everything as it was before is a mere form, with
no substance."
The opinion, p. 244, points out that the power might have been
exercised so as to have left the appointee with no title at all,
but that, in fact, it was exercised so as to leave her the same
title that she would have had if the power had not been exercised.
The same is true here.
"An appointee under a power," the court continued,
"has the right of election, the same as a grantee under a deed.
. . . He can accept the title tendered or reject it, in his
discretion. It cannot be forced upon him against his will. He
cannot be compelled to receive additional evidence of title when he
does not want it, and does not need it because his title is perfect
without it. His consent is necessary before the attempt to exercise
the power becomes binding upon him the same as consent is necessary
in making a contract or agreement. Declining or refusing to take
has the same effect as incapacity to take,
Page 294 U. S. 158
as in the case of a devise to a corporation which has no power
to hold any more property because the statutory limit has been
exceeded. The title is not affected, but remains where it was
before."
We granted the writ of certiorari in this case because of an
alleged conflict with
Wear v. Commissioner, 65 F.2d 665,
and
Lee v. Commissioner, 61 App.D.C. 33, 57 F.2d 399. The
reasoning and conclusions of those courts and of the court below
cannot be reconciled. We are of opinion that, to the extent of the
conflict, the view of the former is wrong, and that of the court
below is right, and we hold accordingly.
Judgment affirmed.