1. The second sentence of § 302(c) of the Revenue Act of
1926, which creates a conclusive presumption that gifts made within
two years prior to the death of the donor were made in
contemplation of death, requiring the value of such gifts to be
included in computing the value of the estate of the decedent
subject to the graduated death transfer tax, and thus burdening the
estate beneficiaries because of acts bearing no relation to the
estate or to death as the generating cause of its transfer,
violates the due process clause of the Fifth Amendment.
Schlesiger v. Wisconsin, 270 U. S. 230;
Hoeper v. Tax Commission, 284 U.
S. 206. P.
285 U. S.
322.
2. A statute which imposes a tax upon an assumption of fact
which the taxpayer is forbidden to controvert is so arbitrary and
unreasonable that it cannot stand under the Fourteenth Amendment.
Schlesinger v. Wisconsin, 270 U.
S. 230. P.
285 U. S.
325.
3. The restraint imposed upon legislation by the due process
clauses of the Fourteenth Amendment and the Fifth Amendment is the
same P.
285 U. S.
326.
4. The claimed necessity of preventing frauds and evasions of
the death transfer tax cannot justify the otherwise
unconstitutional exaction imposed by the statute; the
constitutional rights of the individual are superior to this
supposed necessity. P.
285 U. S.
328.
5. The conclusive presumption created by the statute is invalid,
whether it be treated as a rule of evidence or of substantive law.
Id.
6. Section 302(c) cannot be sustained as imposing a gift tax (1)
because the intent of Congress to enact the provision as an
incident of the death tax is unmistakable, and, (2) as a gift tax,
it would be arbitrary and capricious, in violation of the due
process clause of the Fifth Amendment. P.
285 U. S.
330.
Certificate from the Circuit Court of Appeals upon an appeal
from a judgment of the District Court against the Collector on a
claim for refund of taxes alleged to have been illegally exacted.
48 F.2d 1058.
Page 285 U. S. 320
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
This case is here on a certificate from the Circuit Court of
Appeals for the Third Circuit. On March 1, 1927, John W. Donnan, by
complete and irrevocable gift
inter vivos, transferred
without consideration certain securities to trustees for his four
children, and, also without consideration, advanced a sum of money
to his son. He died on December 23, 1928, less than two years after
the gifts and advancement were made. The Commissioner of Internal
Revenue included in the gross estate of decedent the value of the
property transferred, and imposed a death transfer tax accordingly,
on authority of the clause in § 302(c) of the Revenue Act of
1926, c. 27, 44 Stat. 9, 70 (U.S.C. Supp. V, Title 26, §
1094), which, without regard to the fact, provides that such a
transfer made within two years prior to the death of the decedent
shall "be deemed and held to have been made in contemplation of
death within the meaning of this title." [
Footnote 1]
Page 285 U. S. 321
The executors paid the tax, and, after rejection of a claim for
refund, brought this action in the Federal District Court for
Western District of Pennsylvania to recover the amount of the tax
attributable to the inclusion of the property in question by the
commissioner. The trial court found that neither the transfer in
trust nor the advancement was made in contemplation of death.
Judgment was rendered in favor of the executors on the ground that
the foregoing provision of § 302(c) was unconstitutional as
contravening the due process clause of the Fifth Amendment, and
void as being repugnant other sections of the act. 48 F.2d 1058. An
appeal was taken, and the circuit court of appeals has certified to
this Court two questions of law upon which instruction is
desired:
"1. Does the second sentence of § 302(c) of the revenue act
of 1926 violate the due process clause of the fifth amendment to
the Constitution of the United States?"
"2. If the answer to the first question be in the negative, is
the second sentence of § 302(c) of the revenue act of 1926
void because repugnant to sections 1111, 1113(a), 1117, and 1122(c)
of the same act? "
Page 285 U. S. 322
A negative answer to the first question, if made, must rest
either upon the ground that Congress has the constitutional power
to deny to the representatives of the estate of a decedent the
right to show by competent evidence that a gift made within two
years prior to the death of the decedent was in fact not made in
contemplation of death, or upon the theory that, although the tax
in question is imposed as a death transfer tax, it nevertheless may
be sustained as a gift tax.
First. Section 301(a) of the Revenue Act of 1926
imposes a tax "upon the transfer of the net estate of every
decedent," etc. There can be no doubt as to the meaning of this
language. The thing taxed is the transmission of property from the
dead to the living. It does not include pure gifts
inter
vivos. The tax rests, in essence,
"upon the principle that death is the generating source from
which the particular taxing power takes its being, and that it is
the power to transmit, or the transmission from the dead to the
living, on which such taxes are more immediately rested. . . . It
is the power to transmit or the transmission or receipt of property
by death which is the subject levied upon by all death duties."
Knowlton v. Moore, 178 U. S. 41,
178 U. S. 56-57.
The value of property transferred without consideration and in
contemplation of death is included in the value of the gross estate
of the decedent for the purposes of a death tax, because the
transfer is considered to be testamentary in effect.
Milliken
v. United States, 283 U. S. 15,
283 U. S. 23.
But such a transfer, not so made, embodies a transaction begun and
completed wholly by and between the living, taxable as a gift
(
Bromley v. McCaughn, 280 U. S. 124),
but obviously not subject to any form of death duty, since it bears
no relation whatever to death. The "generating source" of such a
gift is to be found in the facts of life, and not in the
circumstance of death. And the death afterward of the donor in no
way changes the situation; that is to say, the
Page 285 U. S. 323
death does not result in a shifting, or in the completion of a
shifting, to the donee of any economic benefit of property, which
is the subject of a death tax,
Chase Nat. Bank v. United
States, 278 U. S. 327,
278 U. S. 338;
Reinecke v. Trust Co., 278 U. S. 339,
278 U. S. 346;
Saltonstall v. Saltonstall, 276 U.
S. 260,
276 U. S. 271;
nor does the death in such case bring into being, or ripen for the
donee or anyone else, so far as the gift is concerned, any property
right or interest which can be the subject of any form of death
tax.
Compare Tyler v. United States, 281 U.
S. 497,
281 U. S. 503.
Complete ownership of the gift, together with all its incidents,
has passed during the life of both donor and donee, and no interest
of any kind remains to pass to one or cease in the other in
consequence of the death which happens afterward.
The phrase "in contemplation of or intended to take effect . . .
at or after his death," found in the provisions of § 302(c) of
the act of 1926 and prior acts, as applied to fully executed gifts
inter vivos, puts them in the same category for purpose of
taxation with gifts
causa mortis. In this light, the
meaning and purpose of the provision were considered in a recent
decision of this Court dealing with the Revenue Act of 1918.
United States v. Wells, 283 U. S. 102,
283 U. S.
116-118.
"The dominant purpose is to reach substitutes for testamentary
dispositions, and thus to prevent the evasion of the estate tax.
Nichols v. Coolidge, 274 U. S. 531,
274 U. S.
54;
Milliken v. United States, ante, p.
285 U. S. 15. As the transfer
may otherwise have all the indicia of a valid gift
inter
vivos, the differentiating factor must be found in the
transferor's motive. Death must be 'contemplated' -- that is, the
motive which induces the transfer must be of the sort which leads
to testamentary disposition. As a condition of body and mind that
naturally gives rise to the feeling that death is near, that the
donor is about to reach the moment of inevitable surrender of
ownership,
Page 285 U. S. 324
is most likely to prompt such a disposition to those who are
deemed to be the proper objects of his bounty, the evidence of the
existence or nonexistence of such a condition at the time of the
gift is obviously of great importance in determining whether it is
made in contemplation of death. The natural and reasonable
inference which may be drawn from the fact that but a short period
intervenes between the transfer and death is recognized by the
statutory provision creating a presumption in the case of gifts
within two years prior to death. But this presumption, by the
statute before us [Act of 1918], is expressly stated to be a
rebuttable one, and the mere fact that death ensues even shortly
after the gift does not determine absolutely that it is in
contemplation of death. The question, necessarily, is as to the
state of mind of the donor."
"
* * * *"
"If it is the thought of death, as a controlling motive
prompting the disposition of property, that affords the test, it
follows that the statute does not embrace gifts
inter
vivos which spring from a different motive. Such transfers
were made the subject of a distinct gift tax, since repealed."
There is no doubt of the power of Congress to provide for
including in the gross estate of a decedent, for purposes of the
death tax, the value of gifts made in contemplation of death, and
likewise no doubt of the power of that body to create a rebuttable
presumption that gifts made within a period of two years prior to
death are made in contemplation thereof. But the presumption here
created is not of that kind. It is made definitely conclusive --
incapable of being overcome by proof of the most positive
character. Thus stated, the first question submitted is answered in
the affirmative by
Schlesinger v. Wisconsin, 270 U.
S. 230, and
Hoeper v. Tax Commission,
284 U. S. 206. The
only difference between the present
Page 285 U. S. 325
case and the
Schlesinger case is that there, the
statute fixed a period of six years as limiting the application of
the presumption, while here it is fixed at two, and there, the
Fourteenth Amendment was involved, while here it is the Fifth
Amendment. The length of time was not a factor in the case. The
presumption was held invalid upon the ground that the statute made
it conclusive without regard to actualities, while like gifts at
other times were not thus treated, and that there was no adequate
basis for such a distinction. "The presumption and consequent
taxation," the Court said (p.
270 U. S.
240),
"are defended upon the theory that, exercising judgment and
discretion, the legislature found them necessary in order to
prevent evasion of inheritance taxes. That is to say, A. may be
required to submit to an exactment forbidden by the Constitution if
this seems necessary in order to enable the state readily to
collect lawful charges against B. Rights guaranteed by the federal
Constitution are not to be so lightly treated; they are superior to
this supposed necessity. The state is forbidden to deny due process
of law or the equal protection of the laws for any purpose
whatsoever."
The
Schlesinger case has since been applied many times
by the lower federal courts, by the Board of Tax Appeals, and by
state courts, [
Footnote 2] and
none of them seems to have been at any loss to understand the basis
of the decision -- namely, that a statute which imposes a tax upon
an assumption of fact which the taxpayer is forbidden to controvert
is so arbitrary and unreasonable that it cannot stand under the
Fourteenth Amendment.
Page 285 U. S. 326
Nor is it material that the Fourteenth Amendment was involved in
the
Schlesinger case, instead of the Fifth Amendment, as
here. The restraint imposed upon legislation by the due process
clauses of the two amendments is the same.
Coolidge v.
Long, 282 U. S. 582,
282 U. S. 596.
That a federal statute passed under the taxing power may be so
arbitrary, and capricious as to cause it to fall before the due
process of law clause of the Fifth Amendment is settled.
Nichols v. Coolidge, 274 U. S. 531,
274 U. S. 542;
Brushaber v. Union Pac. R. Co., 240 U. S.
1,
240 U. S. 24-25;
Tyler v. United States, supra, p.
291 U. S.
504.
In
Hoeper v. Tax Commission, supra, this Court had
before it for consideration a statute of Wisconsin which provided
that, in computing the amount of income taxes payable by persons
residing together as members of a family, the income of the wife
should be added to that of the husband and assessed to and payable
by him. We held that, since in law and in fact the wife's income
was her separate property, the state was without power to measure
his tax in part by the income of his wife. At page
284 U. S. 215,
we said:
"We have no doubt that, because of the fundamental conceptions
which underlie our system, any attempt by a state to measure the
tax on one person's property or income by reference to the property
or income of another is contrary to due process of law as
guaranteed by the Fourteenth Amendment. That which is not in fact
the taxpayer's income cannot be made such by calling it income.
Compare Nichols v. Coolidge, 274 U. S.
531,
274 U. S. 540."
The suggestion of the state court that the provision was valid
as necessary to prevent frauds and evasions of the tax by married
persons was definitely rejected on the ground that such claimed
necessity could not justify an otherwise unconstitutional
exaction.
In substance and effect, the situation presented in the
Hoeper case is the same as that presented here. In the
Page 285 U. S. 327
first place, the tax, in part, is laid in respect of property
shown not to have been transferred in contemplation of death and
the complete title to which had passed to the donee during the
lifetime of the donor, and secondly, the tax is not laid upon the
transfer of the gift or in respect of its value. It is laid upon
the transfer, and calculated upon the value, of the estate of the
decedent, such value being enhanced by the fictitious inclusion of
the gift, and the estate made liable for a tax computed upon that
value. Moreover, under the statute, the value of the gift when made
is to be ignored, and its value arbitrarily fixed as of the date of
the donor's death. The result is that, upon those who succeed to
the decedent's estate there is imposed the burden of a tax,
measured in part by property which comprises no portion of the
estate, to which the estate is in no way related, and from which
the estate derives no benefit of any description. Plainly, this is
to measure the tax on A's property by imputing to it in part the
value of the property of B, a result which both the
Schlesinger and
Hoeper cases condemn as arbitrary
and a denial of due process of law. Such an exaction is not
taxation, but spoliation.
"It is not taxation that government should take from one the
profits and gains of another. That is taxation which compels one to
pay for the support of the government from his own gains and of his
own property."
United States v. Railroad
Co., 17 Wall. 322,
84 U. S.
326.
The presumption here excludes consideration of every fact and
circumstance tending to show the real motive of the donor. The
young man in abounding health, bereft of life by a stroke of
lightning within two years after making a gift, is conclusively
presumed to have acted under the inducement of the thought of death
equally with the old and ailing who already stands in the shadow of
the inevitable end. And, although the tax explicitly is based upon
the circumstance that the thought of death must be in impelling
cause of the transfer (
United
Page 285 U. S. 328
States v. Wells, supra, p,
283 U. S.
118), the presumption nevertheless precludes the
ascertainment of the truth in respect of that requisite upon which
the liability is made to rest, with the result, in the present case
and in many others, of putting upon an estate the burden of a tax
measured in part by the value of property never owned by the estate
of in the remotest degree connected with the death which brought it
into existence. Such a statute is more arbitrary and less
defensible against attack than one imposing arbitrarily retroactive
taxes, which this Court has decided to be in clear violation of the
Fifth Amendment. As said by Judge Learned Hand in
Frew v.
Bowers, 12 F.2d 625, 630:
"Such a law is far more capricious than merely retroactive
taxes. Those do indeed impose unexpected burdens, but at least they
distribute them in accordance with the taxpayer's wealth. But this
section distributes them in accordance with another's wealth; that
is a far more grievous injustice."
To sustain the validity of this irrebuttable presumption, it is
argued with apparent conviction that, under the
prima
facie presumption originally in force, there had been a loss
of revenue, and decisions holding that particular gifts were not
made in contemplation of death are cited. This is very near to
saying that the individual, innocent of evasion, may be stripped of
his constitutional rights in order to further a more thorough
enforcement of the tax against the guilty, a new and startling
doctrine, condemned by its mere statement and distinctly repudiated
by this Court in the
Schlesinger (p.
270 U. S. 240)
and
Hoeper (p.
284 U. S. 217)
cases involving similar situations. Both emphatically declared that
such rights were superior to this supposed necessity.
The government makes the point that the conclusive presumption
created by the statute is a rule of substantive law, and, regarded
as such, should be upheld, and decisions tending to support that
view are cited. The
Page 285 U. S. 329
earlier revenue acts created a
prima facie presumption,
which was made irrebuttable by the later act of 1926. A rebuttable
presumption clearly is a rule of evidence which has the effect of
shifting the burden of proof,
Mobile, J. & K.C. R. Co. v.
Turnipseed, 219 U. S. 35,
219 U. S. 43,
and it is hard to seen how a statutory rebuttable presumptions is
turned from a rule of evidence into a rule of substantive law as
the result of a later statute making it conclusive. In both cases,
it is a substitute for proof -- in the one, open to challenge and
disproof, and in the other, conclusive. However, whether the latter
presumption be treated as a rule of evidence or of substantive law,
it constitutes an attempt, by legislative fiat, to enact into
existence a fact which here does not, and cannot be made to, exist
in actuality, and the result is the same, unless we are ready to
overrule the
Schlesinger case, as we are not, for that
case dealt with a conclusive presumption, and the court held it
invalid without regard to the question of its technical
characterization. This Court has held more than once that a statute
creating a presumption which operates to deny a fair opportunity to
rebut it violates the due process clause of the Fourteenth
Amendment. For example,
Bailey v. Alabama, 219 U.
S. 219,
219 U. S. 238,
et seq.; Manley v. Georgia, 279 U. S.
1,
279 U. S. 5-6. "It
is apparent," this Court said in the
Bailey case (p.
219 U. S.
239)
"that a constitutional prohibition cannot be transgressed
indirectly by the creation of a statutory presumption any more than
it can be violated by direct enactment. The power to create
presumptions is not a means of escape from constitutional
restrictions."
If a legislative body is without power to enact as a rule of
evidence a statute denying a litigant the right to prove the facts
of his case, certainly the power cannot be made to emerge by
putting the enactment in the guise of a rule of substantive
law.
Page 285 U. S. 330
Second. The provision in question cannot be sustained
as imposing a gift tax, (1) because the intent of Congress to enact
the provision as an incident of the death tax, and not as a gift
tax, is unmistakable, and (2) because, if construed as imposing a
gift tax, it is in that aspect still so arbitrary and capricious as
to cause it to fall within the ban of the due process clause of the
Fifth Amendment.
1. The intent of Congress to include gifts made in contemplation
of death as integral parts of the decedent's estate for the
purposes of the death tax only is so clear as reasonably to
preclude argument to the contrary. In
United States v. Wells,
supra, this Court held, as already shown, that, since it is
the thought of death, as a controlling motive prompting the gift,
that affords the test whether it is made in contemplation of
death,
"it follows that the statute does not embrace gifts
inter
vivos which spring from a different motive. Such transfers
were made the subject of a distinct gift tax, since repealed."
And see Reinecke v. Trust Co., supra at p.
278 U. S. 347.
It is significant that the repeal of the gift tax referred to was
made by the same act (c. 27, § 1200(a), 44 Stat. 9, 125) which
contains the provision here in question. The tax is imposed upon
the transfer of the net estate, but it is first necessary to
ascertain the value of the gross estate, and the statute provides
that this is to be determined by including, among other things, the
value of any interest in property of which the decedent has at any
time made a transfer in contemplation of his death. The statute
requires that this value shall be determined as of the time of the
decedent's death, without regard to the value of the gift when
received. The event upon which the tax is made to depend is not the
transfer of the gift, but the transfer of the estate of the
decedent. The tax falls upon the estate, and not upon the gift, and
is computed not upon the value of the gift, but by
progressively
Page 285 U. S. 331
graduated percentages, upon the value of the entire estate. It
is so apparent from a consideration of these features of the
statute that Congress could not have had, even remotely, in mind
the imposition of a gift tax, that to construe the provision in
question as imposing such a tax is to disregard the plain language
and the plain intent of the act. For this Court to do so would be
to enact a law under the pretense of construing one, and thus
pronounce itself guilty of a flagrant perversion of the judicial
power.
2. But if we assume, contrary to what is reasonable, that a gift
tax is imposed by providing that the value of property transferred
without consideration by a decedent within two years prior to his
death shall be included in the value of the gross estate, the case
for the government is not better. In the
Schlesinger case,
the Supreme Court of Wisconsin had expressly held that the tax
could not be supported as one on gifts
inter vivos only,
saying:
"Under such taxation, the classification is wholly arbitrary and
void. We perceive no more reason why such gifts
inter
vivos should be taxed than gifts made within six years of
marriage or any other event. It is because only one class of gifts
closely connected with and a part of the inheritance tax law is
created that the law becomes valid."
Estate of Schlesinger, 184 Wis. 1, 10, 199 N.W. 951.
This Court accepted that view in these words (p.
270 U. S.
239):
"The court below declared that a tax on gifts
inter
vivos only could not be so laid as to hit those made within
six years of the donor's death and exempt all others-this would be
'wholly arbitrary.' We agree with this view, and are of opinion
that such a classification would be in plain conflict with the
Fourteenth Amendment."
And it follows that the present provision, written in almost
identical terms, is in plain conflict with the Fifth Amendment. The
provisions of the statute referred to in the preceding paragraph of
this opinion necessarily condition the tax, however it be
characterized.
Page 285 U. S. 332
If it be a gift tax, it nevertheless is based not upon the
transfer of the gift, but upon the transfer of the estate, and upon
the value of the estate, and not that of the gift. Obviously these
are bases having no relation whatever to the gift. Moreover, the
value of the gift is not to be determined as of the time when made,
but, considered as a part of the estate, is to be fixed as of the
date of the decedent's death -- a condition so obviously arbitrary
and capricious as by itself to condemn the tax, viewed as a gift
tax, as violative of due process. It is to be paid by the
beneficiaries of the decedent, although it is impossible for them
to share in the gift which has passed beyond recall. It is
therefore a contribution to the government exacted of one person,
based
pro tanto upon the wealth of another.
Considered as a gift tax, these conditions demonstrate the
entire lack of relation between the taxpayer and the transfer which
is the subject of the tax. They disclose that there is no rational
ground for measuring the tax, considered as a gift tax and not as a
death tax, by the value of an estate coming into being after the
gift has become complete and irrevocable, and of which the gift
comprises no part. And they show that to impose liability for the
tax, as a gift tax, upon the estate, as they in terms require, is
in effect to exact tribute from the gains or property of one
measured by the gains or property of another.
The first question must be answered in the affirmative, and this
makes it unnecessary to answer the second.
It is so ordered.
MR. JUSTICE CARDOZO took no part in the consideration or
decision of this case.
[
Footnote 1]
"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 --"
"
* * * *"
"(c) To the extent of any interest therein of which the decedent
has at any time made a transfer, by trust or otherwise, 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.
Where within two years prior to his death
but after the enactment of this act and without such a
consideration the decedent has made a transfer or transfers, by
trust or otherwise, of any of his property, or an interest therein,
not admitted or shown to have been made in contemplation of or
intended to take effect in possession or enjoyment at or after his
death, and the value or aggregate value at the time of such death,
of the property or interest so transferred to any one person is in
excess of $5,000, then, to the extent of such excess,
such
transfer or transfers shall be deemed and held to have been made in
contemplation of death within the meaning of this title. Any
transfer of a material part of his property in the nature of a
final disposition or distribution thereof, made by the decedent
within two years prior to his death but prior to the enactment of
this act, without such consideration, shall, unless shown to the
contrary, be deemed to have been made in contemplation of death
within the meaning of this title."
[
Footnote 2]
See, for example, Hall v. White, 48 F.2d 1060;
Donnan v. Heiner, 48 F.2d 1058 (the present case);
Guinzburg v. Anderson,
F.2d 592; American Security &
Trust Co., 24 B.T.A. 334;
State Tax Commission v. Robinson's
Executor, 234 Ky. 415, 28 S.W.2d 491 (involving a three-year
period).
MR. JUSTICE STONE.
I think the tax involved in this and its companion case,
Handy v. Delaware Trust Co, post, p.
285 U. S. 352, is
in all respects
Page 285 U. S. 333
valid, and that the certified questions in both cases should be
answered in the negative.
The present federal estate tax, enacted in 1916, Title II of the
Revenue Act of 1916, c. 463, 39 Stat. 777, has been continued in
each successive Revenue Act. Although levied upon the privilege of
transferring property passing at death and imposed on the estates
of decedents, the prescribed tax was not limited to such transfers.
By § 202(b) and (c) of the 1916 Act, it was extended to gifts
inter vivos, made in contemplation of death, and to gifts
or property upon joint tenancy or tenancy by the entirety, the
benefit of which inured to the surviving tenant upon the death of
the donor. Both classes of gifts were taxed as a part of the
decedent's estate at the rates prescribed by the estate tax. The
obvious purpose of these provisions was to prevent or compensate
for the withdrawal of property by gifts
inter vivos from
the operation of the estate tax. T he 1918 Revenue Act, §
402(c) and (f), c. 18, 40 Stat. 1057, 1097, included in the donor's
estate, subject to the estate tax, all gifts effected by any trust
taking effect in possession or enjoyment at the time of the donor's
death, and the proceeds in excess of $40,000 of life insurance
purchased by the decedent in his lifetime and payable to named
beneficiaries at his death.
As a further measure for preventing avoidance of the tax by
gifts
inter vivos, Congress, in 1924, adopted the gift
tax, §§ 319-324 of the Revenue Act of that year, chapter
234, 43 Stat. 253, 313-316. That it was adopted as a measure to
prevent avoidance of the estate tax sufficiently appears from the
fact that the graduated rates and exemptions of the tax were the
same as in the case of testamentary transfers, §§ 301(a),
319, 303(a)(4), 321(a)(1), [
Footnote
2/1] and from the fact that, in the Revenue Act of 1926,
Page 285 U. S. 334
the retroactive reductions in rates of the estate tax were
extended to the rates of the gift tax. §§ 301, 324,
Revenue Act of 1926, c. 27, 44 Stat. 9, 69, 86. Provisions were
also made for crediting the gift tax against the estate tax where
the amount of the gift was later required to be included in the
decedent's gross estate. § 322, Revenue Act of 1924, 43 Stat.
316; § 404, Revenue Act of 1928, c. 852, 45 Stat. 791,
863.
Because of inequalities and inconvenience, expense and other
difficulties in its operation and administration, the gift tax was
repealed by § 1200(a) of the Revenue Act of 1926, 44 Stat.
125, [
Footnote 2/2] and, as a
result of ten years' experience in the administration of the estate
tax, and particularly of the provision taxing gifts in
contemplation of death, the present provision of § 302(c) of
the Revenue Act of 1926, 44 Stat. 70, was added, which operates to
impose the tax on all gifts made within two years of death,
regardless of the purpose or motive of the donor. The Ways and
Means Committee of the House of Representatives, in its report
recommending this legislation (House Report No. 1, 69th Congress,
1st Sess., p. 15), pointed out that the tax on gifts in
contemplation of death had been ineffective in its practical
administration, with a great loss of revenue to the government in
consequence, and that "the difficulty of enforcement will be even
more serious in view of the repeal of the gift tax." It stated
without qualification that the amendment was one imposing the tax
on all gifts made within two years of death, and said that "the
inclusion of this provision will prevent most of the evasion and is
the only way in which it can be prevented." [
Footnote 2/3]
Page 285 U. S. 335
As we are concerned here only with the power of Congress to tax
such gifts, I shall take no time in discussing the particular form
of language by which Congress has sought to accomplish its purpose.
In this statute taxing gifts
inter vivos as though they
were legacies, it can be of no consequence whether the enactment
says that all gifts within two years of death of the donor are
irrebuttably presumed to be in contemplation of death or whether,
more directly, it imposes the tax on all gifts made within two
years of the donor's death. In either case, we are concerned only
with the power which, here, the legislative body has indisputably
sought to exert, and not with the particular choice of words by
which it has expressed that purpose.
The question, reduced to its simplest terms, is whether Congress
possesses the power to supplement an estate tax, and protect the
revenue derived from it, as was its declared purpose, by a tax on
all gifts
inter vivos made within two years of the death
of the donor at the same rate and in the same manner as though the
gift were made at death. I think it has.
At the outset, it is to be borne in mind that gifts
inter
vivos are not immune from federal taxation. Whatever doubts
may formerly have been entertained, it is now settled that the
national government may tax all gifts
Page 285 U. S. 336
inter vivos and at rates comparable to those which may
be imposed on gifts at death.
Bromley v. McCaughn,
280 U. S. 124.
That the present gifts were
inter vivos, made in the
lifetime of the donors, and effected as are any other dispositions
of property passing from the donors independently of death, is not
in dispute. The question, then, is not whether they may be taxed,
but, more narrowly, whether the congressional selection of some
such gifts -- those made within two years of death -- and their
taxation as though made at death, as an adjunct to the estate tax,
is so arbitrary and unreasonable as to amount to a taking of
property without due process of law prohibited by the Fifth
Amendment.
That question was not answered by
Schlesinger v.
Wisconsin, 270 U. S. 230. If
it had been, this case could and doubtless would be disposed of per
curiam on the authority of that one. This case comes to us after
ten years of experience in the administration of the estate tax, an
experience which was not available, or at least not presented, in
the
Schlesinger case. There, all gifts made within six
years of death were taxed. Here, only those within two years of
death are within the statute. There, the tax was a succession tax,
and so was a burden on the right to receive,
Leach v.
Nichols, 285 U. S. 165, and
necessarily payable by the donee, but at rates and valuations
prevailing at the time of the donor's death. Here, the tax was upon
the transfer effected by the donor's gift after the enactment of
the statute, and is payable from the donor's estate at the same
rates and values as though it had passed at his death. It burdens
the estate of the donor before distribution exactly as does the
estate tax.
New York Trust Co. v. Eisner, 256 U.
S. 345;
Leach v. Nichols, supra. In the
Schlesinger case, the Court declared (p.
270 U. S. 240)
that the gifts were "subjected to graduated taxes which could not
properly be laid on all gifts or, indeed, upon any gift without
testamentary character."
Page 285 U. S. 337
And, in stating the argument presented and rejected there, the
Court said (p.
270 U. S.
240):
"The presumption and consequent taxation are defended upon the
theory that, exercising judgment and discretion, the legislature
found them necessary in order to prevent evasion of inheritance
taxes. That is to say, A. may be required to submit to an exactment
forbidden by the Constitution if this seems necessary in order to
enable the state readily to collect lawful charges against B."
Here, a graduated tax imposed by Congress on gifts
inter
vivos is not forbidden,
Bromley v. McCaughn, supra,
and the case is not one where A.'s property is taxed to enable the
government to collect lawful charges against B. Here, A.'s gift,
which may be lawfully taxed, is, in this instance, taxed because it
removes property from the operation of another tax, which, but for
the gift, would be applied to the property at A.'s death.
Concededly there is nothing in the Federal Constitution or laws
which necessarily precludes taxation of gifts at the same rate and
value as if they had passed at the donor's death, rather than at
the rate and value prevailing at the time of the gift. The tax
upheld in
Bromley v. McCaughn, supra, taxed all gifts
inter vivos at the same rates and with the same exemptions
as in the case of testamentary transfers. In
Milliken v. United
States, 283 U. S. 15,
283 U. S. 20, a
selected class of gifts
inter vivos, which were not
testamentary, although made in contemplation of death, were so
taxed as a part of the donor's estate.
See Phillips v. Dime
Trust & Safe Deposit Co., 284 U.
S. 160. In
Tyler v. United States, 281 U.
S. 497, we upheld taxation, as a part of the donor's
estate, of another selected class of gifts
inter vivos,
estates by the entirety donated by one spouse for the benefit of
both, although the gift was not testamentary, and neither title,
possession, nor enjoyment passed at death. Similar taxation of
gifts made
inter
Page 285 U. S. 338
vivos, but finally effective only at death, was
sustained in
Reinecke v. Northern Trust Co., 278 U.
S. 339, and
Chase National Bank v. United
States, 278 U. S. 327;
see Taft v. Bowers, 278 U. S. 470,
278 U. S.
482.
In the
Schlesinger case, the classification of the
gifts selected for taxation under the state statute was deemed to
be so arbitrary as to violate the Fourteenth Amendment, which
forbids state legislation denying equal protection of the laws.
Here, we are concerned only with the Fifth Amendment. As was said
by this Court in
La Belle Iron Works v. United States,
256 U. S. 377,
256 U. S.
392:
"The Fifth Amendment has no equal protection clause, and the
only rule of uniformity prescribed with respect to duties, imposts,
and excises laid by Congress is the territorial uniformity required
by Article I, § 8. . . . The difficulty of adjusting any
system of taxation so as to render it precisely equal in its
bearing is proverbial, and such nicety is not even required of the
states under the equal protection clause, must less of Congress
under the more general requirement of due process of law in
taxation."
See Treat v. White, 181 U. S. 264,
181 U. S. 269;
Flint v. Stone Tracy Co., 220 U.
S. 107,
220 U. S. 158;
Barclay & Co. v. Edwards, 267 U.
S. 442,
267 U. S.
450.
No tax has been held invalid under the Fifth Amendment because
based on an improper classification, and it is significant that, in
the entire one hundred and forth years of its history, the only
taxes held condemned by the Fifth Amendment were those deemed to be
arbitrarily retroactive.
See Nichols v. Coolidge,
274 U. S. 531;
Untermeyer v. Anderson, 276 U. S. 440;
Coolidge v. Long, 282 U. S. 582.
It is, I think, plain, then, that this tax cannot rightly be
held unconstitutional on its face. These gifts
inter
vivos, not being immune from taxation, and the obvious and
permissible purpose of the present and related sections being to
protect the revenue derived from the taxation
Page 285 U. S. 339
of estates, [
Footnote 2/4] want
of due process in taxing them can arise only because the selection
of this class of gifts within two years of death, for taxation at
the prescribed rates, is so remote from the permissible policy of
taxing transfers at death or so unrelated to it as to be palpably
arbitrary and unreasonable.
It is evident that the practice of disposing of property by gift
inter vivos, if generally adopted, would, regardless of
the age or motive of the donor, defeat or seriously impair the
operation of the estate tax, and that the practice would be
encouraged if such gifts, made shortly before the death of the
donor, were left free of any form of taxation. That in itself would
be a legitimate ground for taxing all gifts at the same rates as
legacies, as was done by the gift tax; but, since the object is to
protect the revenue to be derived from the estate tax, the
government is not bound to tax every gift without regard to its
relation to the end sought or the convenience and expense of the
government in levying and collecting it. It may aim at the evil
where it exists, and select for taxation that class of gifts which
experience has shown tends most to defeat the estate tax. This
Court has held explicitly that the Fourteenth Amendment does not
forbid the selection of subjects for one form of taxation for the
very reason that they may not be readily or effectively reached by
another tax which it is the legislative policy to maintain.
Watson v. State Comptroller, 254 U.
S. 122,
254 U. S.
124-125. And, since the imposition of the one tax is
induced by the purpose to compensate for the loss of the other, the
effect in accomplishing this result may itself be the basis of the
selection of subjects of taxation.
St. John v. New York,
201 U. S. 633;
District of
Columbia
Page 285 U. S. 340
v. Brooke, 214 U. S. 138,
214 U. S. 150;
Shevlin-Carpenter Co. v. Minnesota, 218 U. S.
57,
218 U. S.
69.
That being the object here, it is not imperative that the motive
of the donor be made the exclusive basis of the selection of these
gifts for taxation, as in the case of gifts made in contemplation
of death. The fact that such gifts, made shortly before death,
regardless of motive, chiefly contribute to the withdrawal of
property from operation of the estate tax is enough to support the
selection, even though they are not conscious evasions of the
estate tax, and opprobrious epithets cannot certainly be applied to
them. The opinion of the Court does not deny that Congress has
power to select, on this basis, certain gifts to be taxed as
estates are taxed. In fact, this Court has recently held that
Congress does possess that power, and has said so in language
completely applicable to the present tax. In
Tyler v. United
States, 281 U. S. 497,
281 U. S. 505, the
tax on estates by the entirety, as a part of the decedent's estate
passing to the surviving spouse, was upheld regardless of the
motive which inspired it, and the decision was rested on the sole
and only possible ground that
"the evidence and legitimate aim of Congress was to prevent an
avoidance, in whole or in part, of any of the estate tax by this
method of disposition during the lifetime of the spouse who owned
the property, or whose separate funds had been used to procure it,
and the provision under review is an adjunct of the general scheme
of taxation of which it is a part, entirely appropriate as a means
to that end."
See also Reinecke v. Northern Trust Co., 278 U.
S. 339;
Taft v. Bowers, 278 U.
S. 470.
The gifts taxed may, in some instances, as the present opinion
states, bear no relation whatever to death except that all are near
death. But that all do have an intimate and vital relation to the
policy of taxing the estates of decedents at death cannot be
gainsaid, for what would
Page 285 U. S. 341
otherwise be taxed is, by the gift, withdrawn from the operation
of the taxing act, and the revenue derived from the taxation of
estates necessarily impaired, unless the act which impairs it, the
giving away of property
inter vivos, is itself taxed. It
cannot be said generally that gifts made near the time of death do
not have a greater tendency to defeat the estate tax than gifts
made at periods remote from it, both because of the greater number
and amounts of the former and because such gifts more certainly
withdraw the property from the operation of the estate tax than do
the earlier and relatively infrequent gifts of property which may
be lost or destroyed before the donor's death. Gifts of amounts in
excess of $5,000 to one donee in any one year, which alone are
taxed, are usually made from substantial fortunes which, in the
generality of cases, are accumulated relatively late in life, and
the great bulk of which, if not given away in life, would pass at
death. Nor can it be denied that the cost and inconvenience of
collecting the tax on earlier, generally smaller and less frequent
gifts, which led to the repeal of the gift tax, may not themselves
require or justify a distinction between them and gifts made nearer
to the time of death.
Since Congress has power to make the selection if the facts
warrant, we cannot say
a priori that such facts do not
exist, or that, in making the selection which it did, Congress
acted arbitrarily or without the exercise of the judgment or
discretion which rightfully belong to it.
Stebbins v.
Riley, 268 U. S. 137,
268 U. S. 143.
As was said in
Ogden v.
Saunders, 12 Wheat. 213,
25 U. S. 270,
it is but a proper
". . . respect due to the wisdom, the integrity and the
patriotism of the legislative body, by which any law is passed, to
presume in favor of its validity until its violation of the
constitution is proved beyond all reasonable doubt. "
Page 285 U. S. 342
The existence of facts underlying constitutionality is always to
be presumed, and the burden is always on him who assails the
selection of a class for taxation to establish that there could be
no reasonable basis for the legislative judgment in making it.
[
Footnote 2/5]
But, even if that presumption is not to be indulged, in passing
on the power of Congress to impose this tax, we cannot rightly
disregard the nature of the difficulties involved in the effective
administration of a scheme for taxing transfers at death, and we
cannot close our eyes to those perhaps less apparent, which have
been disclosed by the experience with this form of taxation in the
United States, which led to the enactment of the present
statute.
It is evident that the estate tax, if not supplemented by an
effective provision taxing gifts tending to defeat it, would, to a
considerable extent, fail of its purpose. The tax on gifts made in
contemplation of death, devised for this purpose, has been upheld
by this Court,
Milliken v. United States, 283 U. S.
15, but the difficulties of its successful
administration have become apparent. The donor of property which
would otherwise be subject to heavy taxes at his death does not
usually disclose his purpose in making the gift, even if he does
not conceal it. He may not, and often does not, analyze his motives
or determine for himself whether his dominating purpose is to
substitute the gift for a testamentary disposition which would
subject it to the tax,
see Milliken v. United States,
supra, p.
283 U. S. 23;
United States v. Wells, 283 U. S. 102,
or
Page 285 U. S. 343
whether it is so combined with other motives as to preclude its
taxation, even though, in making it, the donor cannot be unaware
that he, like others, must die, and that his donation will, in the
natural course of events, escape the tax which will be imposed on
his other property passing at death.
See United States v.
Wells, supra. The difficulty of searching the motives and
purposes of one who is dead, the proofs of which, so far as they
survive, are in the control of his personal representatives, need
not be elaborated. As the event has proved, the difficulties of
establishing the requisite mental state of the deceased donor has
rendered the tax on gifts in contemplation of death a weak and
ineffective means of compensating for the drain on the revenue by
the withdrawal of vest amounts of property from the operation of
the estate tax.
The government has been involved in 102 cases arising under
§ 202(b) of the 1916 Revenue Act and its successors. [
Footnote 2/6] This number does not include
any of the cases arising under § 302(c) of the Revenue Act of
1926, the statute under present consideration. And it includes only
those cases, decision of which was determined by the answer made to
the question of fact, whether a gift had been made in contemplation
of death.
In 20 cases involving gifts of approximately $4,250,000, the
government was successful. [
Footnote
2/7] In 3, it was partially
Page 285 U. S. 344
successful; [
Footnote 2/8] and
in 78 involving gifts largely in excess of $120,000,000, it was
unsuccessful. In another, the jury disagreed. [
Footnote 2/9]
In 56 of the total of 78 cases decided against the government,
the gifts were made within two years of death. In this group of 56
donors, two were more than ninety years of age at the time of
death; ten were between eighty and ninety; twenty-seven were
between seventy and eighty; six were between sixty and seventy; six
were between fifty and sixty, and only one was younger than fifty.
[
Footnote 2/10] There was one
gift of $46,000,000, made within two months of death by a donor
seventy-one years of age at death; [
Footnote 2/11] one of $36,790,000, made by a donor over
eighty, who consulted a tax expert before making the
Page 285 U. S. 345
gift; [
Footnote 2/12] one of
over $10,400,000, made by a donor aged seventy-six, six months
before death; [
Footnote 2/13] and
one by a donor aged seventy-five at death, in which the tax
assessed was over $1,000,000. [
Footnote 2/14] There was one other in excess of
$2,000,000; [
Footnote 2/15] 5
others largely in excess of $1,000,000; [
Footnote 2/16] 4 others in excess of $500,000;
[
Footnote 2/17] 18 in excess of
$250,000; [
Footnote 2/18] and 14
in excess of $100,000. [
Footnote
2/19] The value of the gifts was not shown definitely in 3
cases; [
Footnote 2/20] 12
involved gifts totalling
Page 285 U. S. 346
less than $100,000. [
Footnote
2/21] In the remaining 22 cases, the gifts were made more than
two years before the death of the donor. [
Footnote 2/22]
The judgment of the Ways and Means Committee that the provision
of § 302(c) of the 1926 Act was required to stop the drain on
the revenues from the estate tax is strikingly confirmed by these
56 cases. The value of the gifts in those cases alone was
$113,401,157, a total that does not include realty and personalty
of undetermined value or the very large gifts on which the
government, in the case already noted, sought to collect a tax of
more than $1,000,000.
In many of the cases, notably those in which large amounts were
involved, the gift was substantially all the donor's estate. In the
others, the addition of the amount
Page 285 U. S. 347
of the gifts to the estate of the donor would place the tax on
the gifts in the higher brackets, so that the total amount of the
tax that might have been collected is much larger than the tax that
would have been payable on the gifts considered separately from the
estates of which they had been part. It is also fairly inferable
that the cases actually litigated constitute only a small portion
of the instances in which large gifts were made within two years of
the donor's death.
These are but a few of the many details of the administration of
the act supporting the conclusion of congressional committees that
large amounts of money and property were being withdrawn from the
operation of the estate tax by gifts
inter vivos under
circumstances which clearly indicated that but for the gifts all
would have been taxed as a part of the donors' estates, and that,
by far the greater number and amount of such gifts had been made
within two years of death by persons of advanced age.
The present tax, if objectionable, is not so because motive or
intention of the donor is not made the basis of the classification.
It is not so because it does not tend to prevent or compensate for
the evil aimed at. It is not so because the revenue leak will not
be effectively stopped by including in the estate tax all gifts
made within two years of death. Legislation to accomplish that end,
and reasonably adapted to it, cannot be summarily dismissed as
being arbitrary and capricious. Nor can it be deemed invalid on the
assumption that Congress has acted arbitrarily in drawing the line
between all gifts made within two years of death and those made
before. Congress cannot be held rigidly to a choice between taxing
all gifts or taxing none, regardless of the practical necessities
of preventing tax avoidance, and regardless of experience and
practical convenience and expense in administering the tax. Even
the equal protection clause of the Fourteenth
Page 285 U. S. 348
Amendment has not been deemed to impose any such inflexible rule
of taxation.
The very power to classify involves the power to recognize and
distinguish differences in degree between those things which are
near and those which are remote from the object aimed at.
Citizens' Telephone Co. v. Fuller, 229 U.
S. 322;
see Miller v. Wilson, 236 U.
S. 373,
236 U. S. 384.
It has never occurred to anyone to suggest that a state could not,
by statute, fix the age of consent, or the age of competence to
make a will or conveyance, although some included within the class
selected as competent might be less competent than some who are
excluded. In the exercise of the police power, classification may
be based on mere numbers or amounts where the distinction between
the class appropriately subject to classification and that not
chosen for regulation is one of degree. [
Footnote 2/23]
As all taxes must be levied by general rules, there is a still
larger scope for legislative action in framing revenue laws, even
under the Fourteenth Amendment, with its guaranty of equal
protection of the laws. The legislature may grant exemptions.
Magoun v. Illinois Trust & Savings Bank, 170 U.
S. 283,
170 U. S. 300;
Hope Natural Gas Co. v. Hall, 274 U.
S. 284,
274 U. S. 289;
Missouri v. Dockery, 191 U. S. 165. It
may impose graduated taxes on gifts, inheritances, or on income.
Bromley v. McCaughn, 280 U. S. 124;
Knowlton v. Moore, 178 U. S. 41,
178 U. S. 109;
Brushaber v. Union Pacific R. Co., 240 U. S.
1,
240 U. S. 25.
See also
Page 285 U. S. 349
Stebbins v. Riley, 268 U. S. 137.
[
Footnote 2/24] It may impose a
tax that falls more heavily on ownership of chain stores than on
ownership of a smaller number.
State Board of Tax Commissioners
v. Jackson, 283 U. S. 527;
Great Atlantic & Pacific Tea Co. v. Maxwell, 284 U.S.
575. And generally it may create classes for taxation wherever
there is basis for the legislative judgment that differences in
degree produce differences in kind. [
Footnote 2/25]
The purpose here being admittedly to impose a tax on a privilege
-- that of making gifts
inter vivos -- to the extent that
its exercise substantially impairs the operation of the tax on
estates, it was for Congress to say how far that impairment extends
and how far it is necessary to go in the taxation of gifts either
to prevent or to compensate for it. Unless the line it draws is so
wide of the mark as palpably to have no relation to the end sought,
it is not for the judicial power to reject it and substitute
another, or to say that no line may be drawn.
Page 285 U. S. 350
The objection that the gifts are taxed as a part of the donor's
estate, and at the same rates and on values as of the donor's
death, has no more force than that made to the selection for
taxation of gifts made within two years of death. Since the basis
of the tax is that it compensates for the drain on the estate tax,
and since it is paid by the donor's estate, which would otherwise
be compelled to pay the estate tax on transmission at death, the
whole object of the tax on the gifts would be defeated if levied on
another basis. In determining the reasonableness of a tax which,
like this one, is levied in lieu of another, it is, of course,
necessary to consider all the statutes affecting the subject
matter.
Interstate Busses Corp. v. Blodgett, 276 U.
S. 245;
Farmers' & Mechanics' Savings Bank v.
Minnesota, 232 U. S. 516,
232 U. S. 529.
Where the very purpose and justification of the one tax is that it
is compensatory for the loss of the other, it is no objection that
the one is made the exact equivalent of the other, thus avoiding
inequality which, under some circumstances, might be objectionable.
See General American Tank Car Co. v. Day, 270 U.
S. 367. No one has yet indicated precisely in what way
this method of measuring the tax works any greater injustice or
hardship than the tax on estates. It is certainly not greater
where, as here, the tax is paid from the estate of the donor who,
regardless of his age, in giving away his property after the
statute was in force, took his chances that death within two years
would bring it into his estate for taxation, where it would have
been if the gift had not been made.
See Milliken v. United
States, supra, p.
283 U. S. 23-24.
A very different case would be presented if the taxed gift were
made before the enactment of the taxing statute and many years
before the death, as in
Frew v. Bowers, 12 F.2d 625, 630.
[
Footnote 2/26]
See
Nichols
Page 285 U. S. 351
v. Coolidge, supra. The application of the estate tax
to the other types of gift
inter vivos mentioned in the
Act has uniformly been upheld, even though the gift was made more
than two years before death.
Milliken v. United States, supra;
Phillips v. Dime Trust & Safe Deposit Co.; Tyler v. United
States, supra; Reinecke v. Northern Trust Co., supra; Chase
National Bank v. United States, supra.
I cannot say that the tax on all gifts made in contemplation of
death, supplemented by that imposed on all others made within two
years of death, is not adapted to a legitimate legislative object.
The history of the litigation over gifts made in contemplation of
death, to which reference has been made, and the reports of
Congressional Committees prepared after extensive investigation and
with expert aid, plainly indicate that it is. I can find no
adequate reason for saying that the tax is invalid. The denial of
its validity seems to me to rest on no substantial ground, and to
be itself an arbitrary and unreasonable restriction of the
sovereign power of the federal government to tax for which neither
the words of the Fifth Amendment nor any judicial interpretation of
it affords justification.
The questions should be answered in the negative.
MR. JUSTICE BRANDEIS joins in this opinion.
[
Footnote 2/1]
See also House Report No. 179, 68th Congress, 1st
Sess., p. 75; Congressional Record, vol. 65, part 3, pp. 3119,
3120, 3122; Part 4, pp. 3371, 3372, 3373; Part 8, pp. 8094, 8095,
8096.
[
Footnote 2/2]
See Senate Report No. 52, 69th Congress, , 1st Sess.,
p. 9.
[
Footnote 2/3]
This consideration seems also to have motivated the
corresponding English legislation. In 1881, England adopted a
statute, 44 Vict. c. 12, § 38(2)(a), which included gifts
inter vivos made within three months of the death in the
donor's estate, subject to death duties. The three months was
increased to one year in 1889, 52 Vict. c. 7, § 11(1), and to
three years in 1910, 10 Edw. VII, c. 8, § 59(1), the last
provision remaining in force, except in some particular
circumstances not now necessary to mention, until the present
time.
The brief for the government in No. 514, Appendix B, lists
fourteen states which, prior to the enactment of the present
statute in 1926, had found it necessary or expedient to adopt
similar legislation; the state statutes subjected to inheritance
taxation gifts made within periods ranging from one to six years of
the donor's death.
See also Sabine, "Transfers in
Contemplation of Death," 5 Internal Revenue News, September, 1931,
p. 8.
[
Footnote 2/4]
House Report Ways and Means Committee, No. 1, 69th Congress, 1st
Sess., p. 15.
See Tyler v. United States, 281 U.
S. 497,
281 U. S. 505;
Milliken v. United States, 283 U. S.
15,
283 U. S.
20.
[
Footnote 2/5]
Sinking Fund Cases, 99 U. S. 700,
99 U. S. 718;
Nicol v. Ames, 173 U. S. 509,
173 U. S.
514-515;
Buttfield v. Stranahan, 192 U.
S. 470,
192 U. S. 492;
Graves v. Minnesota, 272 U. S. 425,
272 U. S. 428;
Zahn v. Board of Public Works, 274 U.
S. 325,
274 U. S. 328;
Euclid v. Ambler Realty Co., 272 U.
S. 365,
272 U. S. 395;
Hardware Dealers Mut. Fire Ins. Co. v. Glidden Co.,
284 U. S. 151,
284 U. S. 158;
O'Gorman & Young, Inc. v. Hartford Fire Ins. Co.,
282 U. S. 251,
282 U. S.
257-258.
[
Footnote 2/6]
Revenue Act of 1916, § 202(b), c. 463, 39 Stat. 756, 778;
Revenue Act of 1918, § 402(c), c. 18, 40 Stat. 1057, 1097;
Revenue Act of 1921, § 402(c), c. 136, 42 Stat. 227, 278;
Revenue Act of 1924, § 302(c), c. 234, 43 Stat. 353, 304.
[
Footnote 2/7]
In 18 of these cases, the gifts were made within two years of
death. The value of the gifts so made was approximately $3,000,000,
exclusive of certain realty and personalty, the value of which was
not definitely indicated in the reports. Among this group of cases
was one in which the gift was $880,100, made when the donor was
advised by his physician that he was about to die,
Phillips v.
Gnichtel, 27 F.2d 662,
cert. den., 278 U.S. 636;
another of $421,200 made within four months of death by a donor
seventy-two years of age,
Luscomb v. Commissioner, 30 F.2d
818; one of over $1,000,000,
Brown v. Routzahn, 58 F.2d
329, and one of $312,000,
Kunhardt v. Bowers, 57 F.2d
1064. Two of the gifts were of more than $200,000,
Rengstorff
v. McLaughlin, 21 F.2d
177; Green v. Commissioner, 6 B.T.A. 278. Six were of more than
$100,000, Farmers' Bank & Trust Co. v. Commissioner, 10 B.T.A.
43; Burling v. Commissioner, 13 B.T.A. 264; Hale v. Commissioner,
18 B.T.A. 342; Sugerman v. Commissioner, 20 B.T.A. 960;
McClure
v. Commissioner, 56 F.2d 598;
Neal v. Commissioner,
53 F.2d 806. Two were of more than $50,000, Second National Bank v.
Commissioner, 12 B.T.A. 1066; Latham v. Commissioner, 16 B.T.A. 48.
The others were either less than that amount, Kahn v. Commissioner,
4 B.T.A. 1289; Wheelock v. Commissioner, 13 B.T.A. 828; Rolfe v.
Commissioner, 16 B.T.A. 519; or the appraised value of the gifts is
not shown,
Schoenheit v. Lucas, 44 F.2d 476; Lehman v.
Commissioner, 6 B.T.A. 791; Appeal of Ward, 3 B.T.A. 879.
[
Footnote 2/8]
Serrien v. Commissioner, 7 B.T.A. 1129;
Bloch v.
McCaughn, not reported; Kelly v. Commissioner, 8 B.T.A.
1193.
[
Footnote 2/9]
Byron v. Tait, not reported.
[
Footnote 2/10]
The age of four of the donors is not shown definitely by the
reports, but, as to at least three of these, there are indications
that the decedents were of advanced years.
[
Footnote 2/11]
Estate of Astor, not reported.
[
Footnote 2/12]
Commissioner v. Nevin, 47 F.2d 478,
cert. den.,
Burnet v. Nevin, 283 U.S. 835.
[
Footnote 2/13]
Rea v. Heiner, 6 F.2d
389.
[
Footnote 2/14]
Flannery v. Willcuts, 25 F.2d 951.
[
Footnote 2/15]
White v. Commissioner, 21 B.T.A. 500.
[
Footnote 2/16]
Crilly v. Commissioner, 15 B.T.A. 389; W. T. White v.
Commissioner, 15 B.T.A. 470; Gimbel v. Commissioner, 11 B.T.A. 214;
Stieff v. Tait, 26 F.2d
489;
Loughran v. McCaughn, unreported; American
Security & Trust Co. v. Commissioner, 24 B.T.A. 334.
[
Footnote 2/17]
Esty v. Mitchell, unreported;
Brehmen v.
McCaughn, unreported;
United States v. Wells,
283 U. S. 102;
Appeal of Borden, 6 B.T.A. 255.
[
Footnote 2/18]
Mather v. McLaughlin, 57 F.2d
223;
Pohlman v. United States, not reported;
Apperson v. Thurman, not reported;
Beltzhoover v.
Donald, not reported;
Safford v. United States, 66
Ct.Cls. 242; Romberger v. Commissioner, 21 B.T.A.193; Moore v.
Commissioner, 21 B.T.A. 279; Lavelle v. Commissioner, 8 B.T.A.
1150; Boggs v. Commissioner, 11 B.T.A. 824; White v. Commissioner,
15 B.T.A. 470; Jaeger v. Commissioner, 16 B.T.A. 897;
Fidelity-Philadelphia Trust Co. v. Commissioner, 17 B.T.A. 910;
Vaughan v. Riordan, 280 F. 742.
[
Footnote 2/19]
Wilfley v Helmich, 56 F.2d 845;
Richardson v.
Tait, not reported;
Armstrong v. Rose, not reported;
Off v. United States, 35 F.2d 222;
Loetscher v.
Burnet, 60 App.D.C. 38, 46 F.2d 835;
Howard v. United
States, 65 Ct.Cls. 332; Allen v. Commissioner, 20 B.T.A. 713;
Rogers v. Commissioner, 21 B.T.A. 1124; Mississippi Valley Trust
Co. v. Commissioner, 22 B.T.A. 136; Gerry v. Commissioner, 22
B.T.A. 748; Estate of Connell, 11 B.T.A. 1254; United States Trust
Co. v. Commissioner, 14 B.T.A. 312; Pratt v. Commissioner, 18
B.T.A. 377;
Meyer v. United States, 60 Ct.Cls. 474.
[
Footnote 2/20]
Beeler v. Motter, 33 F.2d
788; Lozier v. Commissioner, 7 B.T.A. 1050; Heipershausen v.
Commissioner, 18 B.T.A. 218.
[
Footnote 2/21]
Root v. United States, 56 F.2d 857;
Molton v.
Sneed, not reported;
Owen v. Gardner, not reported;
Cromwell v. Commissioner, 24 B.T.A. 461; Appeal of Kaufman, 5
B.T.A. 31; Schulz v. Commissioner, 7 B.T.A. 900; Davis v.
Commissioner, 9 B.T.A. 1212; Goldman v. Commissioner, 11 B.T.A. 92;
Gaither v. Miles, 268 F. 692; Appeal of Richardson, 1
B.T.A. 1196; Appeal of McDonald, 2 B.T.A. 1295; Appeal of
Hillenmeyer, 2 B.T.A. 1322.
[
Footnote 2/22]
The total value of these gifts, exclusive of realty, was
$6,707,056.
Tesdell v. United States, not reported;
Mason v. United States, 17 F.2d 317;
Tips v.
Bass, 21 F.2d
460;
Smart v. United States, 21 F.2d
188;
McCaughn v. Carnill, 43 F.2d 69; Phillips v.
Commissioner, 7 B.T.A. 1054; Stein v. Commissioner, 9 B.T.A. 486;
Baum v. Commissioner, 21 B.T.A. 176; Appeal of Spofford, 3 B.T.A.
1016; Hausman v. Commissioner, 5 B.T.A.199; Fleming v.
Commissioner, 9 B.T.A. 419; Brehmer v. Commissioner, 9 B.T.A. 423;
Hicks v. Commissioner, 9 B.T.A. 1226; Wolferman v. Commissioner, 10
B.T.A. 285; Illinois Merchants Trust Co. v. Commissioner, 12 B.T.A.
818; Bishop v. Commissioner, 14 B.T.A. 130; Fincham v.
Commissioner, 16 B.T.A. 1418; Hunt v. Commissioner, 19 B.T.A. 624;
Siegel v. Commissioner, 19 B.T.A. 683;
Polk v. Miles, 268
F. 175;
Fidelity & Columbia Trust Co. v.
Lucas, 7 F.2d 146;
Appeal of Starck, 3 B.T.A. 514.
[
Footnote 2/23]
Miller v. Schoene, 276 U. S. 272;
Reinman v. Little Rock, 237 U. S. 171;
Welch v. Swasey, 214 U. S. 91.
Consider also
Euclid v. Ambler Realty Co., 272 U.
S. 365;
Missouri, K. & T. R. Co. v. May,
194 U. S. 267;
Murphy v. California, 225 U. S. 623;
Keokee Consolidated Coke Co. v. Taylor, 234 U.
S. 224,
234 U. S. 227.
And see particularly the cases collected in footnote 1 of
the dissenting opinion of Mr. Justice Brandeis in
Louisville
Gas & Electric Co. v. Coleman, 277 U. S.
32,
277 U. S.
42-44.
[
Footnote 2/24]
Other types of graduated taxes have been upheld in
Clark v.
Titusville, 184 U. S. 329,
184 U. S. 331;
Metropolis Theater Co. v. Chicago, 228 U. S.
61,
228 U. S. 69-70.
And see Salomon v. State Tax Commission, 278 U.
S. 484;
Keeney v. New York, 222 U.
S. 525,
222 U. S. 536;
McCray v. United States, 195 U. S. 27.
See also McKenna v. Anderson, 31 F.2d 1016,
cert.
den., 279 U.S. 869;
F. Courthoui, Inc. v. United
States, 54 F.2d 158,
cert. den., post, p. 548.
[
Footnote 2/25]
Instances of classification for taxation dependent on numbers or
amounts are
Quong Wing v. Kirkendall, 223 U. S.
59;
Citizens' Telephone Co. v. Fuller,
229 U. S. 322.
See Bell's Gap R. Co. v. Pennsylvania, 134 U.
S. 232,
134 U. S. 237.
Taxing statutes have been upheld, even though the subject of
taxation was valued in a manner not necessarily related to real
value, where administrative necessities have made such
classification desirable.
Hatch v. Reardon, 204 U.
S. 152;
New York v. Latrobe, 279 U.
S. 421;
International Shoe Co. v. Shartel,
279 U. S. 429;
Paddell v. New York, 211 U. S. 446. An
annual excise tax on the privilege of selling cigarettes,
applicable to retailers and not wholesalers, has been held
constitutional even though set at a flat amount which bore more
heavily on small dealers than on large.
See Cook v. Marshall
County, 196 U. S. 261.
[
Footnote 2/26]
In this case, the Government sought to collect the tax on a
trust created before the estate tax was passed, and twelve years
before the settlor's death. Judge Learned Hand, concurring, said,
p. 630:
"As to transfers made after the law went into effect, I have
nothing to say; one may insist that settlors take their chances.
But as to those made before the law was passed, it appears to me
that the result is too whimsical to stand. There are settlements
which the settlor outlives for 30 or 40 years."