In this case certiorari was granted, 282 U.S. 817, to review a judgment of the Court of Claims denying to petitioners recovery of a tax alleged to have been illegally exacted under the decedents' estates provisions of the Revenue Act of 1918. 38 F.2d 381; Act of February 24, 1919, c. 18, 40 Stat. 1057, 1096, 1097, 1149, 1150.
In December, 1916, while the Revenue Act of that year was in force (Act of Sept. 8, 1916, c. 463, 39 Stat. 756, 777), petitioners' decedent gave to his children certain shares of corporate stock. The donor died March 5, 1920,
Section 401 of the 1918 Act imposed taxes at specified rates upon transfers of estates by decedents. Under § 403, the taxable estate was the "gross estate" less enumerated deductions. Section 402 provided for the inclusion in the gross estate of the value of property "(c) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death (whether such transfer or trust is made or created before or after the passage of this act) . . ." The Act of 1916, §§ 201, 202 (b), which had contained similar provisions for the taxing of decedents' estates, including gifts in contemplation of death, but at lower rates, was repealed, with provisos not now material, by § 1400 of the 1918 Act.
The finding of the Commissioner that the present gift was in contemplation of death is not questioned by petitioners, and is controlling here since it is not challenged by any facts appearing of record. Niles Bement Pond Co. v. United States, 281 U.S. 357, 361; Burnet v. Sanford & Brooks Co., 282 U.S. 359. Although antedating the enactment of § 402, the gift is embraced within its provisions, which are in terms applicable to gifts in contemplation of death made before the passage of the Act.
Petitioners' argument that § 402 does not apply is not supported by their citations of Reinecke v. Northern Trust Co., 278 U.S. 339, and May v. Heiner, 281 U.S. 238. In
This Court has not passed directly on the constitutionality of the federal taxation of gifts made in contemplation of death. But taxation of transfers at death has been upheld, Knowlton v. Moore, 178 U.S. 41, as has, more recently, the taxation of gifts inter vivos, Bromley v. McCaughn, 280 U.S. 124; and we hold, as this Court has several times intimated, that the inclusion of this type of gifts in a single class with decedents' estates to secure equality of taxation, and prevent evasion of estate taxes, is a permissible classification of an appropriate subject of taxation. See Nichols v. Coolidge, 274 U.S. 531, 542; Tyler v. United States, 281 U.S. 497, 505; Corliss v. Bowers, 281 U.S. 376, 378; Taft v. Bowers, 278 U.S. 470, 482; cf. Schlesinger v. Wisconsin, 270 U.S. 230, 239.
The objection to the tax chiefly urged in brief and argument, is that the taxing statute, as applied, is a denial of due process of law because retroactive. It is said that the statute is invalid not alone because it reaches a gift made before its enactment, but because it measures the tax by rates not in force when the gift was made, applied to the value of the property not when given, but at the uncertain later time of the death of the donor.
This Court has held the taxation of gifts made, and completely vested beyond recall, before the passage of any statute taxing them, to be so palpably arbitrary and unreasonable
But a tax is not necessarily and certainly arbitrary and therefore invalid because retroactively applied, and taxing acts having retroactive features have been upheld in view of the particular circumstances disclosed and considered by the Court. See Stockdale v. Insurance Companies, 20 Wall. 323, 331; Railroad Co. v. Rose, 95 U.S. 78, 80; Railroad Co. v. United States, 101 U.S. 543, 549; Flint v. Stone Tracy Co., 220 U.S. 107; Billings v. United States, 232 U.S. 261, 282; Brushaber v. Union Pacific R. Co.,
Hence, in challenging the present tax it does not suffice to say that the gift antedated the statute. It is necessary to consider the nature of the tax and of the decedent's gift. When the gift was made it was subject to the provisions of the 1916 Revenue Act. By it, Congress had adopted the well understood system of taxation of transfers of property at death, already in force in forty-two states. Report No. 793, Senate Committee on Finance; Report No. 922, House Committee on Ways and Means; both on H.R. No. 16763, Sixty-fourth Congress. A characteristic feature of the system was that incorporated in §§ 202 (b) of the 1916 Act and 402 (c) of the 1918 Act, both of which imposed a tax on gifts made in contemplation of death, computed at the same value and rate as though the property given had been a part of the donor's estate passing at death.
While we need not attempt at this time to define with precision gifts in contemplation of death, their characteristic features have been sufficiently indicated by the various treasury regulations dealing with the subject. Regulation
It is sufficient for present purposes, that such gifts are motivated by the same considerations as lead to testamentary dispositions of property, and made as substitutes for such dispositions without awaiting death, when transfers by will or inheritance become effective. Underlying the present statute is the policy of taxing such gifts equally with testamentary dispositions, for which they may be substituted, and the prevention of the evasion of estate taxes by gifts made before, but in contemplation of, death. It is thus an enactment in aid of, and an integral part of, the legislative scheme of taxation of transfers at death. Decedent's gift as a substitute for a testamentary disposition was thus brought within the operation of the 1916 Act taxing such gifts on the same basis, with respect to rate and valuation, as transfers of property at death. Not only was the decedent left in no uncertainty that the gift he was then making was subject to the provisions of the existing statute, but in view of its well understood purpose he should be regarded as taking his chances of any increase in the tax burden which might result from carrying out the established policy of taxation under which substitutes for testamentary gifts were classed and taxed with them.
The reasonableness of the present application of the increased rate of tax of the 1918 Act must be determined in the light of the legislative policy which the 1916 Act had established before the gift was made. Obviously that
Only a word need be said of the suggestion that the application of § 402 (c) to gifts made while the 1916 Act was in force destroys the character of the tax as one on privileges, and so renders it invalid as an unapportioned direct tax forbidden by §§ 2 and 9 of Article I of the Constitution. See Levy v. Wardell, 258 U.S. 542, 545. The present gift was subject to the excise when made; and for reasons already indicated, we think a mere increase in the tax, pursuant to a policy of which the donor was forewarned at the time he elected to exercise the privilege, did not change its character. See Hecht v. Malley, supra, p. 164. Further, as an appropriate and indeed necessary measure to secure the effective administration of a system of death taxes, we think the present tax is to be supported as an incident and in aid of the exercise of the constitutional power to levy a tax on the transfer of the decedent's estate at death. See Purity Extract Co. v. Lynch, 226 U.S. 192;
Affirmed.
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