1. Pursuant to an antenuptial agreement, respondent made a
transfer of property to his prospective wife in consideration of
her promise of marriage and to compensate for her loss of trust
income which upon her marriage would go to a child by a former
marriage.
Held, that, under §§ 501 and 503 of the Revenue
Act of 1932 and applicable Treasury Regulations, the transfer was a
taxable gift in its entirety. P.
324 U. S.
306.
2. The decision of the Tax Court that the transfer was not made
for a "consideration in money or money's worth" within the meaning
of § 503 is binding on review. P.
324 U. S.
307.
3. To relieve a transfer from the gift tax under the Revenue Act
of 1932, there must be a consideration in money or money's worth of
benefit to the transferor; detriment to the transferee is
insufficient. P.
324 U. S.
307.
144 F.2d 78 reversed.
Certiorari, 323 U.S. 703, to review the reversal of a decision
Of the Tax Court, 2 T.C. 876, sustaining the Commissioners
determination of a deficiency in federal gift taxes.
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
In 1939, taxpayer proposed marriage to Mrs. More, a widow with
one child. Her deceased husband had set up
Page 324 U. S. 304
two trusts, one half the income of which was for the benefit of
Mrs. More and the other half for that of the child, with provision
that, in the event of Mrs. More's remarriage, her part of the
income ceased and went to the child. The corpus of the two trusts
consisted of stock which brought to Mrs. More from the death of her
first husband to her remarriage, about five years later, an average
income of $5,484 a year. On Mrs. More's unwillingness to suffer
loss of her trust income through remarriage the parties, on May 24,
1939, entered upon an agreement whereby taxpayer transferred to
Mrs. More a block of shares of stock. Within a month, they married.
The Commissioner ruled that the transfer of this stock, the value
of which, $149,456.13, taxpayer does not controvert, was subject to
the Federal Gift Tax, §§ 501 and 503 of the Revenue Act of 1932, 47
Stat. 169, 245, 247, 26 U.S.C. §§ 1000. Accordingly, he assessed a
deficiency which the Tax Court upheld, 2 T.C. 876, but the Circuit
Court of Appeals reversed the Tax Court, 144 F.2d 78. We granted
certiorari to settle uncertainties in tax administration engendered
by seemingly conflicting decisions. 323 U.S. 703.
The answer to our problem turns on the proper application of §§
501(a) and 503
supra, to the immediate facts. These
provisions are as follows:
"Sec. 501. IMPOSITION OF TAX."
"(a) For the calendar year 1932 and each calendar year
thereafter, a tax, computed as provided in section 502, shall be
imposed upon the transfer during such calendar year by any
individual . . . of property by gift."
"Sec. 503. TRANSFER FOR LESS THAN ADEQUATE AND FULL
CONSIDERATION."
"Where property is transferred for less than an adequate and
full consideration in money or money's worth, then the amount by
which the value of the property exceeded the value of the
consideration shall, for the purpose of the tax imposed by this
title, be deemed a gift, and shall be
Page 324 U. S. 305
included in computing the amount of gifts made during the
calendar year."
In view of the major role which the Tax Court plays in federal
tax litigation, it becomes important to consider how that court
dealt with this problem. Fusing, as it were, §§ 501 and 503, the
Tax Court read them as not being limited by any common law
technical notions about "consideration." And so, while recognizing
that marriage was, of course, a valuable consideration to support a
contract, the Tax Court did not deem marriage to satisfy the
requirement of § 503, in that it was not a consideration reducible
to money value. Accordingly, the Court found the whole value of the
stock transferred to Mrs. More taxable under the statute and the
relevant Treas.Reg. 79 (1936 ed.) Art 8:
"A consideration not reducible to a money value, as love and
affection, promise of marriage, etc., is to be wholly disregarded,
and the entire value of the property transferred constitutes the
amount of the gift."
In the alternative, the Tax Court was of the view that, if Mrs.
More's loss of her trust income, rather than the marriage, was
consideration for the taxpayer's transfer of his stock to her, he
is not relieved from the tax because he did not receive any money's
worth from Mrs. More's relinquishment of her trust income, and, in
any event, the actual value of her interest in the trust, subject
to fluctuations of its stock earnings, was not proved. One member
of the Tax Court dissented, deeming that the gift tax legislation
invoked ordinary contract conceptions of "consideration."
The Circuit Court of Appeals rejected this line of reasoning. It
found in the marriage agreement an arm's length bargain and an
absence of "donative intent" which it deemed essential:
"A donative intent followed by a donative act is essential to
constitute a gift, and no strained and artificial construction of a
supplementary statute should be indulged to tax as a gift a
transfer actually lacking donative intent."
44 F.2d 78, 82.
Page 324 U. S. 306
Sections 501 and 503 are not disparate provisions. Congress
directed them to the same purpose, and they should not be separated
in application. Had Congress taxed "gifts"
simpliciter, it
would be appropriate to assume that the term was used in its
colloquial sense, and a search for "donative intent" would be
indicated. But Congress intended to use the term "gifts" in its
broadest and most comprehensive sense. H.Rep. No. 708, 72d Cong.,
1st Sess., p. 27; S.Rep. No. 665, 72d Cong., 1st Sess., p. 39;
cf. Smith v. Shaughnessy, 318 U.
S. 176;
Robinette v. Helvering, 318 U.
S. 184. Congress chose not to require an ascertainment
of what too often is an elusive state of mind. For purposes of the
gift tax, it not only dispensed with the test of "donative intent."
It formulated a much more workable external test that, where
"property is transferred for less than an adequate and full
consideration in money or money's worth," the excess in such money
value "shall, for the purpose of the tax imposed by this title, be
deemed a gift. . . ." And Treasury Regulations have emphasized that
common law considerations were not embodied in the gift tax.
*
To reinforce the evident desire of Congress to hit all the
protean arrangements which the wit of man can devise that are not
business transactions within the meaning of ordinary speech, the
Treasury Regulations make clear that no genuine business
transaction comes within the purport of the gift tax by
excluding
"a sale, exchange, or other transfer of property made in the
ordinary course of business (a transaction which is
bona
fide at arm's length, and free from any donative intent)."
Treas.Reg. 79 (1936 ed.) Art. 8. Thus, on finding that a
transfer in the
Page 324 U. S. 307
circumstances of a particular case is not made in the ordinary
course of business, the transfer becomes subject to the gift tax to
the extent that it is not made "for an adequate and full
consideration in money or money's worth."
See 2 Paul,
Federal Estate and Gift Taxation (1942) p. 1113.
The Tax Court in effect found the transfer of the stock to Mrs.
More was not made at arm's length in the ordinary course of
business. It noted that the inducement was marriage, took account
of the discrepancy between what she got and what she gave up, and
also of the benefit that her marriage settlement brought to her
son. These were considerations the Tax Court could justifiably
heed, and heeding, decide as it did. Its conclusion on the issue
before it was no less to be respected than were the issues which we
deemed it was entitled to decide as it did in
Dobson v.
Commissioner, 320 U. S. 489;
Commissioner v. Heininger, 320 U.
S. 467;
Commissioner v. Scottish American Investment
Co., 323 U. S. 119.
If we are to isolate as an independently reviewable question of
law the view of the Tax Court that money consideration must benefit
the donor to relieve a transfer by him from being a gift, we think
the Tax court was correct.
See Commissioner v. Bristol,
121 F.2d 129. To be sure, the Revenue Act of 1932 does not spell
out a requirement of benefit to the transferor to afford relief
from the gift tax. Its forerunner, § 320 of the 1924 Act, 43 Stat.
253, 314, was more explicit in that it provided that the excess of
the transfer over "the consideration received shall . . . be deemed
a gift." It will hardly be suggested, however, that in reimposing
the gift tax in 1932 Congress meant to exclude transfers that would
have been taxed under the 1924 Act. The section taxing as gifts
transfers that are not made for "adequate and full [money]
consideration" aims to reach those transfers which are withdrawn
from the donor's estate. To allow
Page 324 U. S. 308
detriment to the donee to satisfy the requirement of "adequate
and full consideration" would violate the purpose of the statute
and open wide the door for evasion of the gift tax.
See 2
Paul,
supra, at 1114.
Reversed.
MR. JUSTICE ROBERTS dissents, and would affirm the judgment for
the reasons given in the opinion of the Circuit Court of
Appeals.
* Treas.Reg. 79 (1936 ed.) Art. 1:
"
Imposition of tax. -- . . . The tax is not limited in
its imposition to transfers of property without a valuable
consideration, which at common law are treated as gifts, but
extends to sales and exchanges for less than an adequate and full
consideration in money or money's worth."