1. A gift in trust reserving power in the donor to change the
beneficiaries other than himself is incomplete and not subject to
be taxed as a gift under the Revenue Act of 1932.
Sanford v.
Commissioner, ante, p.
308 U. S. 39,
followed. P.
308 U. S.
55.
2. Article III of Treasury Regulation 79 (1933 ed.), under the
Revenue Act of 1932, affords no basis for modification of the above
construction of the statute, and the amendment of the regulation in
1936 is so plainly in conflict with the statute as to preclude its
application retroactively.
Id.
101 F.2d 1012 affirmed.
Certiorari, 307 U.S. 619, to review the affirmance of a judgment
recovered from the Collector in an action to recover money
collected as a gift tax.
Page 308 U. S. 55
MR. JUSTICE STONE delivered the opinion of the Court.
Decision in this case turns on the question, differing only in
form from that this day decided in
Sanford v. Comm'r,
Helvering, ante, p.
308 U. S. 39,
whether, in case of an
inter vivos transfer of property in
trust, reserving to the donor power to designate new beneficiaries
other than himself, the gift becomes complete at the time of the
creation of the trust and subject to the gift tax imposed by the
Revenue Act of 1932.
In December, 1934, respondent created a trust of personal
property for his own benefit for life, with remainders over to
specified classes of beneficiaries. By the trust indenture, he
reserved to himself a power to change the beneficiaries of the
trust and to prescribe the conditions under which the new
beneficiaries should take an interest in the trust, but without any
power to increase his own beneficial interest in the trust
property.
Respondent paid the gift tax assessed against him with respect
to the transfer of the remainder interests upon creation of the
trust, and brought the present suit in the district court to
recover the tax as illegally collected. Judgment in his favor was
affirmed by the Circuit Court of Appeals for the second circuit,
101 F.2d 1012, on the authority of
Hesslein v. Hoey, 91
F.2d 954. We granted certiorari May 22, 1939, 307 U.S. 619, so that
this case might be considered with the
Sanford case.
The gift tax, § 319
et seq. of the 1924 Act, 43 Stat.
313, so far as now material, reappeared in § 501
et seq.
of the 1932 Act, 47 Stat. 169. Other pertinent provisions of the
earlier act
Page 308 U. S. 56
were reenacted without change of present moment in §§ 501, 510,
801. The applicable estate tax provisions are § 302(c)(d) of the
1926 Act, 44 Stat. 40, 71. 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, because
Burnet v. Guggenheim, 288 U. S. 280, had
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.
For the reasons stated in our opinion in the
Sanford
case, we conclude that the reserved power in the donor at the time
of the creation of the trust rendered the gift incomplete, and not
subject to the gift tax. As pointed out in our opinion in the
Sanford case, the Treasury regulation under the 1932 Act,
Art. III, Regulation 79 (1933 edition), in force when the trust was
created, affords no basis for modification of our construction of
the statute. Whatever validity the amended regulation of 1936 may
have in its prospective operation, we think it is so plainly in
conflict with the statute as to preclude its application
retroactively so as to subject to tax such transfer as was made by
the creation of the trust in 1934.
Cf. Helvering v. R. J.
Reynolds Tobacco Co., 306 U. S. 110.
Affirmed.
MR. JUSTICE BUTLER took no part in the consideration or decision
of this case.