1. By § 503 of the Revenue Act of 1932, transfers of property
are relieved from the gift tax to the extent that they are made for
an "adequate and full consideration."
Held, in the case of
a transfer of property pursuant to an antenuptial agreement, that
the relinquishment of marital rights cannot to any extent
constitute "adequate and full consideration." P.
324 U. S.
312.
2. Provisions of the federal gift and estate tax statutes are to
be construed harmoniously and, where obvious reasons do not compel
divergent treatment, identical phrases concerning the same subject
matter are to be given identical construction. P.
324 U. S.
313.
142 F.2d 651 affirmed.
Certiorari,
323 U. S. 66, to
review the reversal of a judgment of the District Court for the
taxpayer,
51 F.
Supp. 120, in a suit for a refund of gift taxes.
Page 324 U. S. 309
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
This is a companion case to
Commissioner v. Wemyss,
ante, p. 303.
On March 7, 1939, taxpayer, the petitioner, made an antenuptial
agreement with Kinta Desmare. Taxpayer, a resident of Florida, had
been twice married and had three children and two grandchildren. He
was a man of large resources, with cash and securities worth more
than $5,000,000, and Florida real estate valued at $135,000. Miss
Desmare's assets were negligible. By the arrangement entered into
the day before their marriage, taxpayer agreed to set up within
ninety days after marriage an irrevocable trust for $300,000, the
provisions of which were to conform to Miss Desmare's wishes. The
taxpayer was also to provide in his will for two additional trusts,
one, likewise in the amount of $300,000, to contain the same
limitations as the
inter vivos trust, and the other, also
in the amount of $300,000, for the benefit of their surviving
children. In return, Miss Desmare released all rights that she
might acquire as wife or widow in taxpayer's property, both real
and personal, excepting the right to maintenance and support. The
inducements for this agreement were stated to be the contemplated
marriage, desire to make fair requital for the release of marital
rights, freedom for the taxpayer to make appropriate provisions for
his children and other dependents, the uncertainty surrounding his
financial future and marital tranquillity. That such an antenuptial
agreement is enforceable in Florida is not disputed,
North v.
Ringling, 149 Fla. 739, 7 So. 2d 476, nor that Florida gives a
wife an inchoate interest in all the husband's property, contingent
during his life but absolute upon death. Florida Statutes 1941, §
731.34;
Smith v. Hines, 10 Fla. 258;
Henderson v.
Usher, 125 Fla. 709, 170 So. 846. The parties married, and the
agreement was fully carried out.
Page 324 U. S. 310
On their gift tax return for 1939, both reported the creation of
the trust, but claimed that no tax was due. The Commissioner,
however, determined a deficiency of $99,000 in taxpayer's return in
relation to the transfer of the $300,000. Upon the Commissioner's
rejection of the taxpayer's claim for refund of the assessment paid
by him, the present suit against the Collector was filed. The
District Court sustained the taxpayer,
51 F.
Supp. 120, but was reversed by the Circuit Court of Appeals for
the Fifth Circuit, one judge dissenting. 142 F.2d 651. We granted
certiorari in connection with
Commissioner v. Wemyss,
supra, and heard the two cases together. 323 U.S. 686.
This case, unlike the
Wemyss case, does not come here
by way of the Tax Court. No aid can therefore be drawn from a prior
determination by the tribunal specially entrusted with tax
adjudications. (
See Griswold, The Need for a Court of Tax
Appeals (1944), 57 Harv.L.Rev. 1153, 1173.) But, like the
Wemyss case, this case turns on the proper application of
§ 503 of the Revenue Act of 1932, 47 Stat. 169, 247, 26 U.S.C. §
1002. In the interest of clarity, we reprint it here:
"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 included in computing the
amount of gifts made during the calendar year."
Taxpayer claims that Miss Desmare's relinquishment of her
marital rights constituted "adequate and full consideration in
money or money's worth." The Collector, relying on the construction
of a like phrase in the estate tax, contends that release of
marital rights does not furnish such "adequate and full
consideration."
We put to one side the argument that, in any event, Miss
Desmare's contingent interest in her husband's property had too
many variables to be reducible to dollars and
Page 324 U. S. 311
cents, and that any attempt to translate it into "money's worth"
was "mere speculation bearing the delusive appearance of accuracy."
Humes v. United States, 276 U. S. 487,
276 U. S. 494. We
shall go at once to the main issue.
The guiding light is what was said in
Estate of Sanford v.
Commissioner, 308 U. S. 39,
308 U. S. 44:
"The gift tax was supplementary to the estate tax. The two are
in pari materia, and must be construed together." The
phrase on the meaning of which decision must largely turn -- that
is, transfers for other than "an adequate and full consideration in
money or money's worth" -- came into the gift tax by way of estate
tax provisions. It first appeared in the Revenue Act of 1926.
Section 303(a)(1) of that Act, 44 Stat. 9, 72, allowed deductions
from the value of the gross estate of claims against the estate to
the extent that they were
bona fide and incurred "for an
adequate and full consideration in money or money's worth." It is
important to note that the language of previous Acts which made the
test "fair consideration" was thus changed after courts had given
"fair consideration" an expansive construction.
The first modern estate tax law had included in the gross estate
transfers in contemplation of, or intended to take effect in
possession or enjoyment at, death, except "a
bona fide
sale for a fair consideration in money or money's worth." Section
202(b), Revenue Act of 1916, 39 Stat. 756, 777. Dower rights and
other marital property rights were intended to be included in the
gross estate, since they were considered merely an expectation,
and, in 1918, Congress specifically included them. Section 402(b),
40 Stat. 1057, 1097. This provision was for the purpose of
clarifying the existing law. H.Rep. No. 767, 65th Cong., 2d Sess.,
p. 21. In 1924, Congress limited deductible claims against an
estate to those supported by "a fair consideration in money or
money's worth," § 303(a)(1), 43 Stat. 253, 305, employing the same
standard applied to transfers in contemplation
Page 324 U. S. 312
of death, H.Rep. No. 179, 68th Cong., 1st Sess., pp. 28, 66.
Similar language was used in the gift tax, first imposed by the
1924 Act, by providing, "[w]here property is sold or exchanged for
less than a fair consideration in money or money's worth," the
excess shall be deemed a gift. Section 320, 43 Stat. 253, 314.
The two types of tax thus followed a similar course, like
problems and purposes being expressed in like language. In this
situation, courts held that "fair consideration" included
relinquishment of dower rights.
Ferguson v. Dickson, 300
F. 961,
and see McCaughn v. Carver, 19 F.2d 126;
Stubblefield v. United States, 6 F. Supp. 440, 79 Ct.Cl.
268. Congress was thus led, as we have indicated, to substitute in
the 1926 Revenue Act the words "adequate and full consideration" in
order to narrow the scope of tax exemptions.
See Taft v.
Commissioner, 304 U. S. 351,
304 U. S. 356.
When the gift tax was reenacted in the 1932 Revenue Act, the
restrictive phrase "adequate and full consideration" as found in
the estate tax was taken over by the draftsman.
To be sure, in the 1932 Act, Congress specifically provided that
relinquishment of marital rights for purposes of the estate tax
shall not constitute "consideration in money or money's worth." The
Committees of Congress reported that, if the value of relinquished
marital interests
"may, in whole or in part, constitute a consideration for an
otherwise taxable transfer (as has been held so), or an otherwise
unallowable deduction from the gross estate, the effect produced
amounts to a subversion of the legislative intent. . . ."
H.Rep. No. 708, 72d Cong., 1st Sess., p. 47; S.Rep. No. 665, 72d
Cong., 1st Sess., p. 50. Plainly, the explicitness was one of
cautious redundancy to prevent "subversion of the legislative
intent." Without this specific provision, Congress undoubtedly
intended the requirement of "adequate and full consideration" to
exclude relinquishment of dower and other marital rights
Page 324 U. S. 313
with respect to the estate tax.
Commissioner v.
Bristol, 121 F.2d 129;
Sheets v. Commissioner, 95
F.2d 727.
We believe that there is every reason for giving the same words
in the gift tax the same reading. Correlation of the gift tax and
the estate tax still requires legislative intervention.
Commissioner v. Prouty, 115 F.2d 331, 337; Warren,
Correlation of Gift and Estate Taxes (1941), 55 Harv.L.Rev. 1;
Griswold, A Plan for the Coordination of the Income, Estate and
Gift Tax Provisions (1942), 56 Harv.L.Rev. 337. But to interpret
the same phrases in the two taxes concerning the same subject
matter in different ways where obvious reasons do not compel
divergent treatment is to introduce another and needless complexity
into this already irksome situation. Here, strong reasons urge
identical construction. To hold otherwise would encourage tax
avoidance.
Commissioner v. Bristol, supra, 121 F.2d at
136; 2 Paul, Estate and Gift Taxation (1942) p. 1118. And it would
not fulfill the purpose of the gift tax in discouraging family
settlements so as to avoid high income surtaxes. H.Rep. No. 708,
72d Cong., 1st Sess., p. 28; S.Rep. No. 665, 72d Cong., 1st Sess.,
p. 40. There is thus every reason in this case to construe the
provisions of both taxes harmoniously.
Estate of Sanford v.
Commissioner, supra. *
Affirmed.
MR. JUSTICE ROBERTS dissents.
* Treasury Regulation 79 (1936 ed.) Art. 8 is inapplicable. To
find that the transaction was "made in the ordinary course of
business" is to attribute to the Treasury a strange use of
English.
MR. JUSTICE REED, dissenting.
This case differs from
Commissioner v. Wemyss, ante, p.
324 U. S. 303.
Whether the transferor of the sums paid for the release of dower
and other marital rights, received adequate
Page 324 U. S. 314
and full consideration in money and money's worth is a question
of fact. The agreement recites that the parties contemplate
marriage, and provides that the trust shall be set up only in the
event of and following the marriage. Petitioner was obligated to
create the trust upon consideration of the relinquishment of
marital rights and did so, and hence this is not a case involving
marriage alone as consideration. Through the tables of mortality,
the value of a survivor's right in a fixed sum receivable at the
death of a second party may be adequately calculated. By adopting
present value as the accepted future value, the uncertainty
inherent in fluctuations of an estate's value is theoretically
eliminated. The trial court thus found the present value of the
release of the taxpayer's estate from the wife's survivorship
rights largely exceeded the amount paid by the taxpayer and that
the transactions between the parties were made in good faith for
business reasons, and not an attempt to evade or avoid taxes. Thus,
the District Court findings bring this transaction within the
express language of the applicable Treasury Regulation. [
Footnote 1]
Merrill v.
Fahs, 51 F. Supp.
120. Its determination, we think, also makes it clear that the
husband's estate
Page 324 U. S. 315
received practical advantages of value in excess of the cost
paid.
See Henderson v. Usher, 125 Fla. 709, 727, 170 So.
846.
The question of the taxability as gifts of transfers to spouses
in consideration of the release of marital rights had been a matter
of dispute in courts before the passage of the Revenue Act of 1932,
§ 503, 47 Stat. 169, 247. [
Footnote
2] Congress, in the 1932 act, § 804, declared that a transfer
of marital rights should not be "consideration in money or money's
worth" under the estate tax provisions. Thus, Congress put beyond
any question the liability of transferors for estate taxes where
marital rights were the consideration for the transfer. On the
other hand, in the same 1932 Revenue Act, the language of the gift
tax section, § 503, did not have a provision forbidding the
valuation of marital rights. Consequently, Sec. 503, as interpreted
by Regulation 79, Act. 8, permits the treatment of the
relinquishment of such rights, not donative in intent or effect, as
"money's worth" consideration for property transferred. It seems to
us clear that, with the judicial history of the difficulties in
estate and gift taxes as to the transfer of marital rights when
Congress expressly provided that relinquishment of dower, curtesy,
or other statutory estate was not "consideration" for estate tax
purposes and left the gift tax provision without such a limitation,
it intended that these rights be accorded a different treatment
under these sections. This has been the determination of the Tax
Court. [
Footnote 3]
In our view, this judgment should be reversed.
THE CHIEF JUSTICE and MR. JUSTICE DOUGLAS join in this
dissent.
[
Footnote 1]
Treasury Regulations 79 (1936 ed.):
"Art. 8.
Transfers for a consideration in money or money's
worth. -- Transfers reached by the statute are not confined to
those only which, being without a valuable consideration, accord
with the common law concept of gifts, but embrace as well sales,
exchanges, and other dispositions of property for a consideration
in money or money's worth to the extent that the value of the
property transferred by the donor exceeds the value of the
consideration given therefor. However, 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) will be considered as made for an
adequate and full consideration in money or money's worth. 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."
[
Footnote 2]
Ferguson v. Dickson, 300 F. 961;
McCaughn v.
Carver, 19 F.2d 126;
Stubblefield v. United States,
79 Ct.Cl. 268, 6 F. Supp. 440.
[
Footnote 3]
Bristol v. Commissioner, 42 B.T.A. 263;
Jones v.
Commissioner, 1 T.C. 1207;
Wemyss v. Commissioner, 2
T.C. 876, 881.