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Commissioner of Internal Revenue v. Maguire

March 5, 1940

COMMISSIONER OF INTERNAL REVENUE
v.
MAGUIRE ET UX.



Petition for Review of Decision of the United States Board of Tax Appeals.

Author: Kerner

Before EVANS, MAJOR, and KERNER, Circuit Judges.

KERNER, Circuit Judge.

This is a petition to review an order of the Board of Tax Appeals, in a proceeding for determination of an alleged deficiency in respondent's income tax for the calendar year 1930. The Commissioner of Internal Revenue had asserted a deficiency of $71,429.62. The Board on March 29, 1939 entered its order finding a deficiency in the amount of $46,443.60.

Gustavus Swift, a resident of Illinois, died on March 29, 1903. he left surviving him his widow and nine children, one of whom, Ruth S. Maguire, and her husband are th respondents herein. He left a will which was duly admitted to probate in the Probate Court of Cook County, Illinois, on May 2, 1903, in which he devised and bequeathed to his executors and trustees in trust his residuary estate, to hold the same and to pay certain payments annually commencing with the date of his death and continuing until the final distribution of his estate.

By clause 8 of his will the trustees were directed to distribute the corpus not less than ten nor more than twenty years after his death among his widow and children in certain specified proportions.

On December 11, 1905 the Probate Court of Cook County entered an order approving the final account of and discharging the executors, and directed them to turn over to themselves as trustees the balance of the estate in accordance with the provisions of the will. Thereafter, the trustees continued to administer the estate as such trustees until March 29, 1923, when the securities received by the trustees, together with other securities subsequently purchased by them, were distributed in kind to the respondent Ruth S. Maguire. Thereafter in 1929 and 1930 certain of the securities were sold.

The taxing statute provides that in the case of property acquired after 1913 the basis for determining gain or loss is cost. § 113(a), Revenue Act of 1928, c. 852, 45 Stat. 818, 26 U.S.C.A. Int. Rev. Code, page 380. However, as to real property passing by will and personal property specifically bequeathed, the basis is the value of the property at the death of the testator; except that as to personal property passing by general bequest, the basis is the "value of the property at the time of the distribution to the taxpayer." § 113(a)(5).

The taxing statute also provides that in the case of property acquired before 1913 the basis is cost or 1913 value, whichever is greater. § 113(b). However, as to real property passing by will and personal property specifically bequeathed, the basis is value at death or 1913 value, whichever is greater; except that as to personal property passing by general bequest, the basis is value at distribution to the axpayer or 1913 value, whichever greater. § 113(b).

In the instant case the property in question was personal property, consisting of shares of capital stock of certain corporations, certain accounts and notes receivable. Some passed under the will be general bequest, and was distributed by the executors to the testamentary trustees in 1905. Some property was purchased by the trustees between 1905 and 1913, and some was purchased between 1913 and 1923. In 1923 the testamentary trustees delivered the properties to the taxpayer.

The taxpayer reasons that the property in question was property acquired by will, and therefore the basis is its value at the time of distribution to the taxpayer. In this regard she contends that although some of the property was purchased by the testimentary trustees, it nevertheless was acquired under and pursuant to the will.*fn1 On the other hand, the Government argues that the property subsequently purchased by the trustees was acquired by purchase. As to this property the Government contends that the basis is its cost to the trustees.*fn2

This court must answer two questions in this case: (1) To what does the language "distribution to the taxpayer" refer - distribution by the estate or delivery by the trust? (2) What is the proper basis of the properties received by the taxpayer? In this connection the Board of Tax Appeals agreed with the taxpayerhs position, and decided that the basis was the value of the properties in 1923, at which time there was "distribution to the taxpayer."

The controversy here is over the proper construction of a section of the 1928 revenue statute to the effect that in the case of personal property passing by general bequest, the basis is the "value of the property at the time of the distribution to the taxpayer." The term "distribution" might refer to distribution by the estate.Jenkins v. Smith, D.C., 21 F.Supp. 433; Dissenting opinion, Commissioner v. Libbey, 1 Cir., 100 F.2d 458.Or it might refer to delivery by the testamentary trust. Harbison v. Commissioner, 26 B.T.A. 896; Libbey case, supra.

In the light of the conflict of thought on this point, we are not convinved that the express language of the statute is unambiguous and definite, as counsel for taxpayer would have us believe. Every statute is to be construed with reference to its intended scope and to the purpose of the legislature in enacting it; and where language is used which admits of more than one meaning, it is to be taken in such a sence as will conform to the scope of the act and carry out the purpose of the statute, being mindful, however, that it is not permissible under the pretense of interpretation to make a law, either by extension or restriction, which shall depart from the legislative intent. In such a situation, resort to aids outside the language itself is necessary. Brown v. Duchesne, 60 U.S. 183, 194, 15 L. Ed. 595; Helvering v. New York Trust ...


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