A decedent in Wisconsin exercised a power of appointment over
property held in trusts created under the law of that State. The
trusts empowered the trustees to withhold from any beneficiary
property which, in their judgment, would be dissipated. or be
improvidently handled, and gave directions for disposition, in such
event, of what was withheld.
Held:
1. That the power exercised was a "general power of appointment"
within § 302(f) of the Revenue Act of 1926, whatever its
characterization -- whether "general" or "special" -- by the
Wisconsin law. P.
309 U. S.
80.
State law creates legal interests and rights. The federal
Revenue Acts designate what interests or rights, so created, shall
be taxed.
2. The term "general power of appointment," as used in the
federal Revenue Acts, applies where the donee may appoint to any
person he chooses, including his own estate or his creditors. P.
309 U. S.
81.
This accords with common acceptation and with administrative
construction approved by Congressional reenactments of the
provisions construed.
3. Assuming that the trustees could withhold the appointed
property from an appointee, the power must still be held general.
The important consideration is the breadth of the control in the
donee of the power, whatever the nature or extent of the
appointee's interest. P.
309 U. S.
82.
103 F.2d 636 affirmed.
Certiorari, 308 U.S. 534, to review an affirmance by the court
below of a decision of the Board of Tax Appeals (36 B.T.A. 588),
approving a deficiency assessment.
Page 309 U. S. 79
MR. JUSTICE ROBERTS, delivered the opinion of the Court.
We took this case because it raises an important question as to
the construction of the Revenue Act of 1926, § 302(f), amended by
the Revenue Act of 1932, § 803(b). [
Footnote 1]
The question is to what extent and in what sense the law of the
decedent's domicile governs in determining whether a power of
appointment exercised by him is a general power within the meaning
of the statute.
The petitioner is the executor of Elizabeth S. Morgan, who was
the donee of two powers of appointment over property held in two
trusts created by her father by will and by deed. The persons named
are, or were at death, citizens of Wisconsin. It is unnecessary to
recite the terms of the trusts. Suffice it to say that, under each,
property remaining in the trustees' hands for Elizabeth S. Morgan
was given, at her death, to the appointee or appointees named in
her will, with gifts over in case she failed to appoint. Under both
trusts, if in the judgment
Page 309 U. S. 80
of the trustees, property going to any beneficiary would be
dissipated for any reason, or improvidently handled, the trustees
were to withhold any part of such property, with directions for
disposition, in such event, of what was withheld. The decedent
appointed in favor of her husband.
The Commissioner ruled that the value of the appointed property
should be included in the gross estate, and determined a tax
deficiency. The Board of Tax Appeals approved his action. [
Footnote 2] The Circuit Court of
Appeals affirmed the Board's decision. [
Footnote 3]
Although, under the law of Wisconsin, the decedent could have
appointed anyone to receive the trust property, including her
estate and her creditors, the petitioner urges that, by statute and
decision, Wisconsin has defined as special a power such as she
held. [
Footnote 4] The
respondent urges that this is not a correct interpretation of the
State law. We find it unnecessary to resolve the issue, since we
hold that the powers are general within the intent of the Revenue
Act, notwithstanding they may be classified as special by the law
of Wisconsin.
State law creates legal interests and rights. The federal
revenue acts designate what interests or rights, so created, shall
be taxed. Our duty is to ascertain the
Page 309 U. S. 81
meaning of the words used to specify the thing taxes. If it is
found in a given case that an interest or right created by local
law was the object intended to be taxes, the federal law must
prevail no matter what name is given to the interest or right by
state law. [
Footnote 5]
None of the revenue acts has defined the phrase "general power
of appointment." The distinction usually made between a general and
a special power lies in the circumstance that, under the former,
the donee may appoint to anyone, including his own estate or his
creditors, thus having as full dominion over the property as if he
owned it, whereas, under the latter, the donee may appoint only
amongst a restricted or designated class of persons other than
himself. [
Footnote 6]
We should expect, therefore, that Congress had this distinction
in mind when it used the adjective "general." The legislative
history indicates that this is so. [
Footnote 7] The Treasury regulations have provided that a
power is within the purview of the statute if the donee may appoint
to any person. [
Footnote 8]
With these regulations outstanding, Congress has several times
re-enacted § 302(f), and has thus adopted the administrative
construction. That construction is in accord with the opinion of
several federal courts. [
Footnote
9]
Page 309 U. S. 82
The petitioner claims, however, that the decision below is in
conflict with two by other Circuit Courts of Appeal. [
Footnote 10] The contention is based
on certain phrases found in the opinions. We think it clear that,
in both cases, the courts examined the local law to ascertain
whether a power would be construed by the state court to permit the
appointment of the donee, his estate or his creditors, and on the
basis of the answer to that question determined whether the power
was general within the intent of the federal act.
As the decedent in this case could have appointed to her estate
or to her creditors, we hold that she had a general power within
the meaning of § 302(f). This conclusion is not inconsistent with
authorities on which the petitioner relies, [
Footnote 11] holding that, in the application of
a federal revenue act, state law controls in determining the nature
of the legal interest which the taxpayer had in the property or
income sought to be reached by the statute.
The petitioner's section position is that, inasmuch as the
trustees had an unfettered discretion to withhold principal or
income from any beneficiary, they could exercise their discretion
as respects any appointee of the decedent. This fact, they say,
renders the power a special one. Assuming that the trustees could
withhold the appointed property from an appointee, we think the
power must still be held general. The quantum or character of the
interest appointed, or the conditions imposed by the terms of the
trust upon its enjoyment, do not render the powers in question
special within the purport
Page 309 U. S. 83
of § 302(f). The important consideration is the breadth of the
control the decedent could exercise over the property, whatever the
nature or extent of the appointee's interest.
The judgment is
Affirmed.
[
Footnote 1]
44 Stat. 9, 71, 47 Stat. 169, 279, 26 U.S.C. § 411(f).
"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. . . ."
[
Footnote 2]
36 B.T.A. 588.
[
Footnote 3]
103 F.2d 636.
[
Footnote 4]
"Sec. 232.05.
General power. A power is general when it
authorizes the alienation in fee, by means of a conveyance, will,
or charge of the lands embraced in the power, to any alienee
whatever."
"232.06.
Special power. A power is special:"
"(1) When the person or class of persons to whom the disposition
of the lands under the power to be made are designated."
"(2) When the power authorizes the alienation by means of a
conveyance, will, or charge of a particular estate or interest less
than a fee."
See Will of Zweifel, 194 Wis. 428, 216 N.W. 840;
Cawker v. Dreutzer, 197 Wis. 98, 221 N.W. 401.
[
Footnote 5]
Burnet v. Harmel, 287 U. S. 103,
287 U. S. 110;
Bankers' Coal Co. v. Burnet, 287 U.
S. 308,
287 U. S. 310;
Palmer v. Bender, 287 U. S. 551,
287 U. S. 555;
Thomas v. Perkins, 301 U. S. 655,
301 U. S. 659;
Heiner v. Mellon, 304 U. S. 271,
304 U. S. 279;
Lyeth v. Hoey, 305 U. S. 188,
305 U. S.
193.
[
Footnote 6]
Sugden on Powers (8th Ed.) p. 394; Farwell on Powers (2d Ed.) p.
7.
[
Footnote 7]
House Rep. No. 767, 65th Cong., 2nd Sess., pp. 21, 22.
[
Footnote 8]
Regulations 63 (1922 Ed.) Art. 25; Regulations 68 (1924 Ed.)
Art. 24; Regulations 70 (1926 and 1929 Eds.), Art. 24; Regulations
80 (1935 Ed.) Art. 24.
[
Footnote 9]
Fidelity-Philadelphia Trust Co. v. McCaughn, 34 F.2d
600;
Stratton v. United States, 50 F.2d 48;
Old Colony
Trust Co. v. Commissioner, 73 F.2d 970;
Johnstone v.
Commissioner, 76 F.2d 55.
[
Footnote 10]
Whitlock-Rose v. McCaughn, 21 F.2d 164;
Leser v.
Burnet, 46 F.2d 756.
[
Footnote 11]
Poe v. Seaborn, 282 U. S. 101;
Freuler v. Helvering, 291 U. S. 35;
Blair v. Commissioner, 300 U. S. 5;
Lang v. Commissioner, 304 U. S. 264.