1. A gift in trust, with reservation of power in the donor to
alter the disposition of the property in any way not beneficial to
himself, is incomplete, and does not become subject to gift tax
under the Revenue Act of 1924, § 319, so long as the donor retains
that power. P. 308 U. S.
2. The federal gift tax is supplementary to the estate tax; the
two are in pari materia,
and must be construed together.
P. 308 U. S.
An important purpose of the gift tax was to prevent, or
compensate for, avoidance of death taxes. P. 308 U. S.
3. The gift tax statute does not contemplate two taxes upon
gifts not made in contemplation of death, one upon the gift when a
trust is created or when the power of revocation, if any, is
relinquished, and another on the transfer of the same property at
death because the gift previously made was incomplete. P.
308 U. S.
4. Transfers in trust, not taxable as gifts because the donor
has reserved power to change the beneficiaries, become subject to
death taxes when he dies. P. 308 U. S.
5. Art. I of Treas.Reg. 67, under the Revenue Act of 1924, was
not directed at relinquishments of reserved power to select new
beneficiaries other than the donor, and did not purport to govern
cases of reserved power different from or in addition to the power
to revest the title in the donor. P. 308 U. S.
At most, the regulation is ambiguous, and not persuasive in
determining the true construction of the statute.
6. Art. III, Reg. 79, amendment of 1936 under the Revenue Act of
1932, which declares that a gift is complete and subject to tax
when "the donor has so parted with dominion and control as to leave
in him no power to cause the beneficial title to be revested in
himself," is, by its terms, applicable only to gifts made after
June 6, 1932, and is of significance here only so far as it is
declaratory of the correct construction of the 1924 Act. P.
308 U. S.
7. A stipulation purporting to reveal the administrative
practice in applying the gift tax law held
too vague and
indefinite to afford basis for a judicial construction of the
statute. P. 308 U. S.
Page 308 U. S. 40
8. A stipulation as to questions of law cannot bind the Court.
P. 308 U. S.
9. Administrative practice may be persuasive in determining the
construction of a statute of doubtful meaning where the practice
does not conflict with other provisions of the statute and is not
so inconsistent with decisions of the courts as to produce
inconsistency and confusion in the administration of the law. P.
308 U. S.
But the Court does not give effect to an unpublished
administrative construction, on which taxpayers have not relied,
which conflicts with its own decisions and with a later
administrative practice conforming to lower court rulings.
10. The reenactment of the gift tax statute of 1924 by the
Revenue Act of 1932 was not a legislative approval of an
administrative practice which had not been disclosed by Treasury
Regulation, ruling, or decision, and which does not appear to have
been established before the adoption of the later Act. P.
308 U. S.
103 F.2d 81 affirmed.
Certiorari, 307 U.S. 618, to review a judgment which sustained a
decision of the Board of Tax Appeals affirming a deficiency
assessment based on the gift tax provision of the Revenue Act of
MR. JUSTICE STONE delivered the opinion of the Court.
This and its companion case, Rasquin v. Humphreys,
p. 308 U. S. 54
present the single question of statutory construction whether, in
the case of an inter vivos
transfer of property in trust,
by a donor reserving to himself the
Page 308 U. S. 41
power to designate new beneficiaries other than himself, the
gift becomes complete and subject to the gift tax imposed by the
federal revenue laws at the time of the relinquishment of the
power. Co-relative questions, important only if a negative answer
is given to the first one, are whether the gift becomes complete
and taxable when the trust is created or, in the case where the
donor has reserved a power of revocation for his own benefit and
has relinquished it before relinquishing the power to change
beneficiaries, whether the gift first becomes complete and taxable
at the time of relinquishing the power of revocation.
In 1913, before the enactment of the first gift tax statute of
1924, decedent created a trust of personal property for the benefit
of named beneficiaries, reserving to himself the power to terminate
the trust in whole or in part, or to modify it. In 1919, he
surrendered the power to revoke the trust by an appropriate writing
in which he reserved "the right to modify any or all of the
trusts," but provided that this right "shall in no way be deemed or
construed to include any right or privilege" in the donor "to
withdraw principal or income from any trust." In August, 1924,
after the effective date of the gift tax statute, 43 Stat. 313, §
319 et seq.,
decedent renounced his remaining power to
modify the trust. After his death in 1928, the Commissioner,
following the decision in Hesslein v. Hoey,
91 F.2d 954,
in 1937, ruled that the gift became complete and taxable only upon
decedent's final renunciation of his power to modify the trusts,
and gave notice of a tax deficiency accordingly.
The order of the Board of Tax Appeals sustaining the tax was
affirmed by the Court of Appeals for the Third Circuit, 103 F.2d
81, which followed the decision of the Court of Appeals for the
second circuit in Hesslein v. Hoey, supra,
in which we had
denied certiorari, 302 U. S. 756
case, as in the Humphreys
Page 308 U. S. 42
before us, a gift in trust with the reservation of a power in
the donor to alter the disposition of the property in any way not
beneficial to himself was held to be incomplete, and not subject to
the gift tax under the 1932 Act so long as the donor retained that
We granted certiorari in this case May 15, 1939, 307 U.S. 618,
and in the Humphreys
case May 22, 1939, 307 U.S. 619, upon
the representation of the Government that it has taken inconsistent
positions with respect to the question involved in the two cases,
and that, because of this fact and of the doubt of the correctness
of the decision in the Hesslein
case, decision of the
question by this Court is desirable in order to remove the
resultant confusion in the administration of the revenue laws.
It has continued to take these inconsistent positions here,
stating that it is unable to determine which construction of the
statute will be most advantageous to the Government in point of
revenue collected. It argues in this case that the gift did not
become complete and taxable until surrender by the donor of his
reserved power to designate new beneficiaries of the trusts. In the
case, it argues that the gift upon trust with
power reserved to the donor, not afterward relinquished, to change
the beneficiaries was complete and taxable when the trust was
created. It concedes by its brief that "a decision favorable to the
government in either case will necessarily preclude a favorable
decision in the other."
In ascertaining the correct construction of the statutes taxing
gifts, it is necessary to read them in the light of the closely
related provisions of the revenue laws taxing transfers at death,
as they have been interpreted by our decisions. Section 319 et
of the Revenue Act of 1924, 43 Stat. 253, 313, reenacted
as § 501 et seq.
of the 1932 Act, 47 Stat. 169, imposed a
graduated tax upon gifts. It supplemented that laid on transfers at
death, which had long been a feature of the revenue laws. When the
Page 308 U. S. 43
was enacted, Congress was aware that the essence of a transfer
is the passage of control over the economic benefits of property,
rather than any technical changes in its title. See Burnet v.
Guggenheim, 288 U. S. 280
288 U. S. 287
Following the enactment of the gift tax statute, this Court, in
Reinecke v. Northern Trust Co., 278 U.
, held that the relinquishment at death of a power
of revocation of a trust for the benefit of its donor was a taxable
transfer. Cf. Saltonstall v. Saltonstall, 276 U.
; Chase National Bank v. United States,
278 U. S. 327
and, similarly, in Porter v. Commissioner, 288 U.
, that the relinquishment by a donor at death of a
reserved power to modify the trust except in his own favor is
likewise a transfer of the property which could constitutionally be
taxed under the provisions of § 302(d) of the 1926 Revenue Act,
reenacting in substance 302(d) of the 1924 Act, although enacted
after the creation of the trust. Cf. Bullen v. Wisconsin,
240 U. S. 625
Curry v. McCanless, 307 U. S. 357
Graves v. Elliott, 307 U. S. 383
Since it was the relinquishment of the power which was taxed as a
transfer, and not the transfer in trust, the statute was not
retroactively applied. Cf. Nichols v. Coolidge,
274 U. S. 531
Helvering v. Helmholz, 296 U. S. 93
296 U. S. 98
The rationale of decision in both cases is that "taxation is not
so much concerned with the refinements of title as it is with the
actual command over the property taxed" (see Corliss v.
Bowers, 281 U. S. 376
281 U. S. 378
Saltonstall v. Saltonstall, supra, 276 U. S. 261
Burnet v. Guggenheim, supra, 288 U. S.
), and that a retention of control over the
disposition of the trust property, whether for the benefit of the
donor or others, renders the gift incomplete until the power is
relinquished, whether in life or at death. The rule was thus
established, and has ever since been consistently followed by the
Court, that a transfer of property upon trust, with power reserved
to the donor either to revoke it and recapture the trust property
or to modify its terms
Page 308 U. S. 44
so as to designate new beneficiaries other than himself is
incomplete, and becomes complete so as to subject the transfer to
death taxes only on relinquishment of the power at death.
There is nothing in the language of the statute, and our
attention has not been directed to anything in its legislative
history, to suggest that Congress had any purpose to tax gifts
before the donor had fully parted with his interest in the property
given, or that the test of the completeness of the taxed gift was
to be any different from that to be applied in determining whether
the donor has retained an interest such that it becomes subject to
the estate tax upon its extinguishment at death. The gift tax was
supplementary to the estate tax. The two are in pari
and must be construed together. Burnet v.
Guggenheim, supra, 288 U. S. 286
An important, if not the main, purpose of the gift tax was to
prevent or compensate for avoidance of death taxes by taxing the
gifts of property inter vivos
which, but for the gifts,
would be subject in its original or converted form to the tax laid
upon transfers at death. [Footnote
Page 308 U. S. 45
Section 322 of the 1924 Act provides that, when a tax has been
imposed by § 319 upon a gift the value of which is required by any
provision of the statute taxing the estate to be included in the
gross estate, the gift tax is to be credited on the estate tax. The
two taxes are thus not always mutually exclusive, as in the case of
gifts made in contemplation of death, which are complete and
taxable when made, and are also required to be included in the
gross estate for purposes of the death tax. But § 322 is without
application unless there is a gift inter vivos
taxable independently of any requirement that it shall be included
in the gross estate. Property transferred in trust subject to a
power of control over its disposition reserved to the donor is
likewise required by § 302(d) to be included in the gross estate.
But it does not follow that the transfer in trust is also taxable
as a gift. The point was decided in the Guggenheim
where it was held that a gift upon trust, with power in the donor
to revoke it, is not taxable as a gift because the transfer is
incomplete, and that the transfer, whether inter vivos
at death, becomes complete and taxable only when the power of
control is relinquished. We think, as was pointed out in the
Guggenheim case, supra, 288 U. S. 285
that the gift tax statute does not contemplate two taxes upon gifts
not made in contemplation of death, one upon the gift when a trust
is created or when the power of revocation, if any, is relinquished
and another on the transfer of the same property at death because
the gift previously made was incomplete.
Page 308 U. S. 46
It is plain that the contention of the taxpayer in this case
that the gift becomes complete and taxable upon the relinquishment
of the donor's power to revoke the trust cannot be sustained unless
we are to hold, contrary to the policy of the statute and the
reasoning in the Guggenheim
case, that a second tax will
be incurred upon the donor's relinquishment at death of his power
to select new beneficiaries, or unless, as an alternative, we are
to abandon our ruling in the Porter
case. The Government
does not suggest, even in its argument in the Humphreys
case, that we should depart from our earlier rulings, and we think
it clear that we should not do so, both because we are satisfied
with the reasoning upon which they rest and because departure from
either would produce inconsistencies in the law as serious and
confusing as the inconsistencies in administrative practice from
which the Government now seeks relief.
There are other persuasive reasons why the taxpayer's contention
cannot be sustained. By §§ 315(b), 324, 43 Stat. 312, 316, and more
specifically by § 510 of the 1932 Act, the donee of any gift is
made personally liable for the tax to the extent of the value of
the gift if the tax is not paid by the donor. It can hardly be
supposed that Congress intended to impose personal liability upon
the donee of a gift of property so incomplete that he might be
deprived of it by the donor the day after he had paid the tax.
Further, § 321(b)(1), 43 Stat. 315, exempts from the tax gifts to
religious, charitable, and educational corporations and the like. A
gift would seem not to be complete, for purposes of the tax, where
the donor has reserved the power to determine whether the donees
ultimately entitled to receive and enjoy the property are of such a
class as to exempt the gift from taxation. Apart from other
considerations, we should hesitate to accept as correct a
construction under which it could plausibly be maintained that a
gift in trust
Page 308 U. S. 47
for the benefit of charitable corporations is then complete, so
that the taxing statute becomes operative and the gift escapes the
tax even though the donor should later change the beneficiaries to
the non-exempt class through exercise of a power of modify the
trust in any way not beneficial to himself.
The argument of petitioner that the construction which the
Government supports here, but assails in the Humphreys
case, affords a ready means of evasion of the gift tax is not
impressive. It is true, of course, that, under it, gift taxes will
not be imposed on transactions which fall short of being completed
gifts. But if, for that reason, they are not taxed as gifts, they
remain subject to death taxes assessed at higher rates, and the
Government gets its due, which was precisely the end sought by the
enactment of the gift tax.
Nor do we think that the provisions of § 219(g) of the 1924 Act
have any persuasive influence on the construction of the gift tax
provisions with which we are now concerned. One purpose of the gift
tax was to prevent or compensate for the loss of surtax upon income
where large estates are split up by gifts to numerous donees.
] Congress was aware
that donors in trust might distribute income among several
beneficiaries, although the gift remains so incomplete as not to be
subject to the tax. It dealt with that contingency in § 219(g),
which taxes to the settlor the income of a trust paid to
beneficiaries where he reserved to himself an unexercised power to
"revest in himself title" to the trust property producing the
income. Whether this section is to be read as relieving the donor
of the income tax where the power reserved is to modify the trust,
except for his own benefit, we do not now decide. If Congress, in
enacting it, undertook to
Page 308 U. S. 48
define the extent to which a reserved power of control over the
disposition of the income is equivalent to ownership of it, so as
to mark the line between those cases, on the one hand, where the
income is to be taxed to the donor, and those, on the other, where,
by related sections, the income is to be taxed to the trust or its
beneficiaries, we do not perceive that the section presents any
question so comparable to that now before us as to affect our
decision. We are concerned here with a question to which Congress
has given no answer in the words of the statute, and it must be
decided in conformity to the course of judicial decision applicable
to a unified scheme of taxation of gifts, whether made inter
or at death. If Congress, for the purpose of taxing
income, has defined precisely the amount of control over the income
which it deems equivalent to ownership of it, that definition is
controlling on the courts even though, without it, they might reach
a different conclusion, and even though retention of a lesser
degree of control be deemed to render a transfer incomplete for the
purpose of laying gift and death taxes.
The question remains whether the construction of the statute
which we conclude is to be derived from its language and history
should be modified because of the force of treasury regulations or
administrative practice. Article I of Regulations 67, under the
1924 Act (adopted without any change of present significance in
Article III, Regulations 79, under the 1932 Act) provides that 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 the tax, and declares that,
"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
Petitioner urges that
Page 308 U. S. 49
the regulation is, in terms, applicable to the trust presently
involved because it was subject to a power of revocation in favor
of the donor before the enactment of the gift tax which was later
relinquished. But we think, as the court below thought, that the
regulation was not directed to the case of the relinquishment of a
reserved power to select new beneficiaries other than the donor,
and did not purport to lay down any rule for cases where there was
a reserved power different from or in addition to the power to
revest the title in the donor. At most, the regulation is
ambiguous, and without persuasive force in determining the true
construction of the statute. Burnet v. Chicago Portrait
Co., 285 U. S. 1
285 U. S. 16
285 U. S. 20
amended regulation of 1936 under the 1932 Act, Art. III, Reg. 79,
removed the ambiguity by declaring that the gift is complete, and
subject to the tax when "the donor has so parted with dominion and
control as to leave in him no power to cause the beneficial title
to be revested in himself." But this regulation is, by its terms,
applicable only to gifts made after June 6, 1932, and is of
significance here only so far as it is declaratory of the correct
construction of the 1924 Act.
Petitioner also insists that the construction of the statute for
which he contends is sustained by the administrative practice. That
practice is not disclosed by any published Treasury rulings or
decisions, and our only source of information on the subject is a
stipulation appearing in the record. It states that, in the
administration of the gift tax under the 1924 and 1932 Acts and
until the decision in the Hesslein
case, it was
"the uniform practice of the Commissioner of Internal Revenue,
in adjusting cases of the character of that here involved, to treat
the taxable transfer subject to gift tax as occurring when the
transferor relinquished all power to revest in himself title to the
property constituting the subject of
Page 308 U. S. 50
and that three hundred cases "of such character" have been
closed or adjusted in conformity to this practice.
This definition of the practice appears as a part of a
stipulation of facts setting forth in some 126 printed pages the
original trust deed of December 24, 1913, and thirteen
modifications of it between that date and the final relinquishment
of the power of modification on August 20, 1924. They reveal a
varied and extensive power of control by the donor over the
disposition of the trust property which survived the
relinquishment, in 1919, of the power of revocation for his own
benefit, and with which he finally parted after enactment of the
gift tax. The description of the practice as that resorted to in
adjusting "cases of the character of that here involved"
presupposes some knowledge on our part of what the signers of the
stipulation regarded as the salient features of the present case
which, although not specified by the stipulation, were necessarily
embraced in the practice. Administrative practice, to be accepted
as guiding or controlling judicial decision, must at least be
defined with sufficient certainty to define the scope of the
decision. If relinquishment of the power of revocation mentioned by
the stipulation was of controlling significance in defining the
practice, that circumstance was not present in the
case or in the Humphreys
in any of the three hundred cases mentioned in the stipulation, the
relinquishment of the power of revocation was followed by the
relinquishment inter vivos
of a power of changing the
beneficiaries like that in this case does not appear.
Such a stipulated definition of the practice is too vague and
indefinite to afford a proper basis for a judicial decision which
undertakes to state the construction of the statute in terms of the
practice. Moreover, if we regard the stipulation as agreeing merely
that the legal
Page 308 U. S. 51
questions involved in the present case have uniformly been
settled administratively in favor of the contention now made by the
petitioner, it involves conclusions of law of the stipulators both
with respect to the legal issues in the present case and those
resolved by the practice. We are not bound to accept as controlling
stipulations as to questions of law. Swift & Co. v. Hocking
Valley Ry. Co., 243 U. S. 281
243 U. S.
Without attempting to say what the administrative practice has
actually been we may, for present purposes, make the assumption
most favorable to the taxpayer in this case that the practice was
as stated by the Government in its brief in the Humphreys case --
that, until the decision in the Hesslein
"the Bureau consistently took the position that the gift tax
applied to a transfer in trust where the grantor reserved the right
to modify the trust but no right to revest title in himself."
But the record here shows that no such practice was recognized
as controlling in 1935, when the present case first received the
attention of the Bureau. On February 21, 1935, the Assistant
General Counsel gave an opinion reviewing at length the facts of
the present case and the applicable principles of law, and
concluded on the reasoning and authority of the Guggenheim
cases that the gift was not complete and
taxable until the relinquishment in August, 1924, of the power to
modify the trust by the selection of new beneficiaries. In April,
1935, the matter was reconsidered and a new opinion was given which
was finally adopted by the assistant secretary who had intervened
in the case. This opinion reversed the earlier one on the authority
of the Guggenheim
case. It was at pains to point out that,
in that case, the Court had held that the relinquishment of the
power of revocation was a taxable gift, but it made no mention of
the fact that there, unlike the present case, there was no power of
modification which survived the relinquishment of the
Page 308 U. S. 52
power of revocation, which was crucial in the Porter
case. Neither opinion rested upon or made any mention of any
practice affecting cases where such a power of modification is
reserved. After the decision in the Hesslein
ruling of the Bureau in this case was again reversed, and notice of
deficiency sent to the taxpayer.
From this record, it is apparent that there was no established
administrative practice before the opinion of April, 1935,
] and, if the
practice was adopted then, it was because of a mistaken
departmental ruling of law based on an obvious misinterpretation of
the decisions in the Porter
Administrative practice may be of persuasive weight in
determining the construction of a statute of doubtful meaning where
the practice does not conflict with other provisions of the statute
and is not so inconsistent with applicable decisions of the courts
as to produce inconsistency and confusion in the administration of
the law. Such a choice, in practice, of one of two possible
constructions of a statute by those who are expert in the field and
specially informed as to administrative needs and convenience tends
to the wise interpretation and just administration of the laws.
This is the more so when reliance has been placed on the practice
by those affected by it.
But courts are not bound to accept the administrative
construction of a statute regardless of consequences, even when
disclosed in the form of rulings. See Helvering v. New York
Trust Co., 292 U. S. 455
292 U. S. 468
Here, the practice has not been revealed by any published rulings
or action of the Department on which taxpayers could have relied.
The taxpayers in the present cases are contending
Page 308 U. S. 53
for different rulings. In Harriet Rosenau v. Comm'r, 37 B.T.A.
468, as in the Humphreys
case, the taxpayer contended that
the date when the power to change the beneficiary is renounced is
controlling. The petitioner here, who contends that the date of
relinquishment of the power of revocation is controlling, rather
than the date of surrender of power of modification, set up his
trust and relinquished the power of revocation before the gift tax
was enacted. The reenactment of the gift tax statute by the 1932
Act cannot be said to be a legislative approval of the practice
which had not been disclosed by Treasury regulation, ruling, or
decision, and which does not appear to have been established before
the adoption of the 1932 Act. Cf. McCaughn v. Hershey Chocolate
Co., 283 U. S. 488
283 U. S. 492
Massachusetts Mutual Life Ins. Co. v. United States,
288 U. S. 269
288 U. S. 273
Helvering v. New York Trust Co., 292 U.
, 292 U. S.
The very purpose sought to be accomplished by judicial
acceptance of an administrative practice would be defeated if we
were to regard the present practice as controlling. If a practice
is to be accepted because of the superior knowledge of
administrative officers of the administrative needs and
convenience, see Brewster v. Gage, 280 U.
, 280 U. S. 336
there is no such reason for its acceptance here. The Government, by
taking no position, confesses that it is unable to say how
administrative need and convenience will best be served. If, as we
have held, we may reject an established administrative practice
when it conflicts with an earlier one and is not supported by valid
reasons, see Burnet v. Chicago Portrait Co., 285 U. S.
, 285 U. S. 16
should be equally free to reject the practice when it conflicts
with out own decisions. A change of practice to conform to judicial
decision, such as has occurred since the decision in the
case, or to meet administrative exigencies, will
be accepted as controlling when consistent with our decisions.
Page 308 U. S. 54
296 U. S. 344
296 U. S. 354
Here, we have an added, and we think conclusive, reason for
rejecting the earlier practice and accepting the later. The
earlier, because in sharp conflict with our own decisions, as we
have already indicated, cannot be continued without the
perpetuation of inconsistency and confusion comparable to that of
which the Government asks to be relieved by our decision.
MR. JUSTICE BUTLER took no part in the consideration or decision
of this case.
The gift tax provisions of the Revenue Act of 1924 were added by
amendments to the revenue bill introduced on the floor of the House
and the Senate. Cong.Rec. Vol. 65, Part 3, pp. 3118-3119; Part 4,
pp. 3170, 3171; Part 8, p. 8094. The sponsor of the amendment in
both houses urged the adoption of the bill as a "corollary" or as
"supplemental" to the estate tax. Cong.Rec. Vol. 65, Part 3, pp.
3119-3120, 3122; Part 4, p. 3172; Cong.Rec. Vol. 65, Part 8, pp.
The gift tax of 1924 was repealed when Congress, concurrently
with the enactment of § 302(c) of the Revenue Act of 1926, 44 Stat.
70, 125, 126, establishing a conclusive presumption that gifts
within two years of death were made in contemplation of death, and
therefore subject to the estate tax. A gift tax was reenacted by §
501 of the Revenue Act of 1932, 47 Stat. 169, shortly after it was
decided, in Heiner v. Donnan, 285 U.
, that the legislative enactment of such a
presumption violated the Fifth Amendment.
Section 501(c) of the 1932 Act added a new provision that
transfers in trust, with power of revocation in the donor, should
be taxed on relinquishment of the power. This was repealed by § 511
of the Act of 1934, 48 Stat. 680, 758, because Burnet v.
Guggenheim, 288 U. S. 280
declared that such was the law without specific legislation. H.R.
No. 704, 73rd Cong., 2d Sess., p. 40; Sen.Rep. No. 558, 73rd Cong.,
2d Sess., p. 50.
references to Congressional Record, Footnote 1
In the petition for certiorari filed in November, 1937, in
Hesslein v. Hoey
(No. 556), the government asserted that
the 300 cases referred to in the stipulation in this case had been
decided so recently that the time for filing claims for refunds had