Appeals from the District Court of the United States for the Northern District of Illinois, Eastern Division; Philip L. Sullivan, Judge.
Before TREANOR and KERNER, Circuit Judges, and LINDLEY, District Judge.
This action was brought in the District Court under the Tucker Act.*fn1 to recover gift taxes for the years 1934 and 1935. The taxes were assessed by the Commissioner of Internal Revenue and have been paid by the taxpayer. Recovery is sought on the ground that the taxes were wrongfully exacted.
Two questions are presented on appeal. One question is whether in case of a gift under a trust agreement only one exclusion of $5,000 is allowed for the trust as the donee or whether an exclusion is allowed for each of the beneficiaries as a donee; and the second question involves the measure of value of four fully paid life insurance policies, the assignments of which constituted the gifts in question.
The facts are not in dispute and will be indicated sufficiently in the course of our discussion.
In respect to the method of determining the value of a gift of a fully paid life insurance policy the District Court stated as a conclusion of law that the value "should be based upon the price that any person of the same age, sex, and condition of health as the insured would have to pay for a similar policy in the same insurance company on the date the gift was made."
The plaintiffs*fn2 contend that the District Court was in error in stating such conclusion of law and it is their contention that the proper measure of value of a paid up life insurance policy is the cash surrender value.
The only statutory provision which is relevant reads as follows: "If the gift is made in property, the value thereof at the date of the gift shall be considered the amount of the gift."*fn3 The foregoing provision is so general in its terms as to require some interpretative regulation. The Act was passed in 1932 and in 1933 the following treasury regulation was adopted: "The irrevocable assignment of a life insurance policy * * * constitutes a gift in the amount of the net cash surrender value, if any, plus the prepaid insurance adjusted to the date of the gift."
In 1936 a new regulation was issued which accords with the ruling of the District Court and the contention of the United States.
In Helvering v. Winmill*fn4 the Supreme Court stated the generally recognized rule that "Treasury regulations and interpretations long continued without substantial change, applying to unamended or substantially reenacted statutes, are deemed to have received congressional approval and have the effect of law." In Helvering v. Cronin*fn5 the Circuit Court of Appeals for the Eighth Circuit discussed the 1933 regulation, and the following pertinent excerpt is from its opinion: "If the gift tax is to be computed by the original regulation of 1933, the taxpayer's return was correct; if by the regulation of 1936, the Commissioner is right. If the regulation of 1933 were invalid because inconsistent with the statute, the 1936 regulation would be applicable. * * * It is not claimed, however, that the 1933 regulation is invalid. It had the approval of Congress by the renactment without material change of section 506 of the Revenue Act of 1932 in the Revenue Acts of 1934 and 1935. That regulation, therefore, had the effect of law. * * * Since it was in effect on the date of the gift it rules the determination of the value of the policies. The 1936 regulation can not be given retroactive effect. * * * "
The Courts of Appeals in the Third, Fourth and Fifth Circuits are in accord with the reasoning and holding of the Eighth Circuit in Helvering v. Cronin.
When the Commissioner, with the approval of the Secretary, promulgates an administrative regulation which the Commissioner is authorized by the Revenue Act to promulgate, such regulation, by force of the Act of Congress, has the effect of law. In the Gift Tax Act Congress does not designate the factors which shall be taken into consideration in determining the amount of a gift. Congress merely provides that if the gift is made in property, the value thereof shall be considered the amount of the gift. There is no fixed, general rule of law which determines value of property. The factors entering into the concept of value vary with types of property and with the purpose for, or use to be made of, the valuation. Likewise, the relative weight to be attached to the different factors may vary. In view of the very general and indefinite standard fixed by Congress for the determination of the amount of the gift of property it became a practical necessity for the Commissioner to designate some factual test of value which could be used to fix the amount of the gift in terms of money. If the test, or measure of value, which was adopted by the Commissioner in 1933 fell within the standard fixed by the Act, and if it afforded a reasonably accurate measure of the monetary value of the gift, the regulation embodying such test or measure was authorized by Congress and had the force of law. The fact that some other test or measure might have been reasonable, or the fact that the regulation embodying the first measure might later be modified and still represent a valid exercise of power by the Commissioner, does not in any way vitiate the validity, and the binding force, of the first regulation during the period that it was officially recognized and enforced.
We are not concerned with a regulation which embodies an erroneous construction of an Act of Congress and which, therefore, would be invalid. In such a case a substituted regulation embodying the correct construction would not represent a change in the law but would constitute a correct expression of the law. Nor do we have an example of an administrative construction by administrative practice, in which case, if the construction ...