FRANK, Circuit Judge.
This is an appeal, by petition for review filed by the Commissioner of Internal Revenue, from a decision of the Board of Tax Appeals, holding that the value of certain remainders created by trusts executed by the respondent was not subject to gift tax for the year 1937. The facts found by the Board may be summarized as follows:
The taxpayer (respondent) established two irrevocable trusts on June 3, 1937, and transferred $10,000 to each. The income of one was to be paid to Kathleen Bowen for life, and the income of the other was to be paid to Mary Eells for life. The principal of each trust fund was to be distributed to the taxpayer upon the death of the life beneficiary, if taxpayer were then living, but if she were not then living, the principal was to be distributed among her children and their issue per stirpes.
The parties stipulated as follows as to the values of the several interests if computed on an actuarial basis: The value of Kathleen Bowen's life interest at the date of the creation of the trust was $4,753.63. The value of the taxpayer's reversionary interest in the trust for Kathleen Bowen was $2,951.90, and the value of the gift over in the event taxpayer did not survive the life beneficiary was $2,294.47. The value of Mary Eells' life interest at the date of the creation of the trust was $5,542.85. The value of taxpayer's reversionary interest in the trust for Mary Eells was $2,112.60, and the value of the gift over in the event taxpayer did not survive the life beneficiary was $2,344.55.
At the hearing before the Board the parties were in agreement that there was a gift of the value of the life estate in each trust and that the value of the taxpayer's reversionary interest in each trust is excludible in computing the taxable gift. The parties were in disagreement only as to whether the value of the contingent remainders to the grantor's children and their issue was properly includible in determining the taxpayer's taxable gifts for 1937. The Board of Tax Appeals held that the value of such contingent remainders was not so includible.
"The terms `property,' `transfer,' `gift,' and `indirectly' [in § 501] are used in the broadest and most comprehensive sense; the term `property' reaching every species of right or interest protected by law and having an exchangeable value." Senate Report 665, 72d Cong., 1st sess., p. 39; House Report 708, 72d Cong., 1st sess., p. 27.
How, then, does the taxpayer hope to escape the tax?
1. It is argued, in effect, that the differentiation made in "property law" between "vested" and "contingent" remainders is a sort of sacred cow which, in all circumstances and in particular when applying the gift tax statute, must be respected. The argument runs that once a contingent remainder always a contingent remainder: that if a gift is "contingent," it is not a "completed" gift and is, therefore, not taxable as such. But surely Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 450, 84 L.Ed. 604, 125 A.L.R. 1368, once and for all destroyed such a word-juggling contention. The Supreme Court there remarked that "the law of contingent and vested remainders is full of casuistries"; said that those "elusive and subtle casuistries" may "have their historic justification but possess no relevance for tax purposes"; noticed that those "niceties of * * * conveyancing" derive "from medieval concepts" relating to ancient forms of land ownership; and flatly announced: "Distinctions which originated under a feudal economy when land dominated social relations are peculiarly irrelevant in the application of tax measures now so largely directed toward intangible wealth."
That argument proves too much. It would preclude a tax on any "value" which is not almost certain to correspond with actual enjoyment. But "value" seldom does so correspond. The fallacy in that argument stems largely from lack of recognition of the eely character of the word "value." It is a bewitching word which, for years, has disturbed mental peace and caused numerous useless debates. Perhaps it would be better for the peace of men's minds if the word were abolished.
It is immaterial that actuarial estimates may not accord with realities. Few estimates of value do, whether used by courts or laymen: For purposes of corporate reorganization, value, generally, is a reasonable capitalization of future earnings as reasonably foreseeable at the date of reorganization; reliance is had upon an educated guess or peering into the future, which, being a human conjecture, may be wrong. No one can foretell what changes in technology will do to the earnings of any business.
Much could be said for such a contention, if the donor in this case had reserved the power to alter the trust so that the actual enjoyment or non-enjoyment of the
3. Respondent's next argument proceeds on the assumption (which we adopt arguendo) that, under Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368, the remainders here will be included in the donor's gross estate for estate tax purposes.
It is true that in the Sanford case the Court said: "The gift tax was supplementary to the estate tax. The two are in pari materia and must be construed together."
In the Sanford case, the Court pointed to the fact that the Act "provides that when a tax has been imposed * * * upon a gift, the value of which is required by any provision of the statute * * * to be included in the gross estate, the gift tax is to be credited on the estate tax." And it went on expressly to state that "the two taxes are thus not always mutually exclusive. * * *" But, respondent contends, the Court limited that statement to one specific instance by adding, "as in the case of gifts made in contemplation of death which are complete and taxable when made, and are also required to be included in the gross estate for purposes of the death tax." We do not read the Court's language as limited to that one type of case; it was, we think, used as but one illustration. This appears from the following:
(a) A vested remainder after a life estate is subject to the estate tax. Helvering v. Bullard, 303 U.S. 297, 58 S.Ct. 565, 82 L.Ed. 852. But no one would venture to assert — respondent does not nor did the Board — that the Sanford case holds that Congress, in order to avoid a double tax, intended to exempt such a vested remainder from the gift tax.
(b) We remarked in Herzog v. Commissioner, 2 Cir., 116 F.2d 591, 595, 596: "It may be added that the Revenue Act provides for the credit of gift taxes on estate taxes subsequently levied on property included in the gift and that the possibility of overlapping does not necessarily preclude the imposition of a gift tax here. Tyler v. United States, 281 U.S. 497, 50 S.Ct. 356, 74 L.Ed. 991, 69 A.L.R. 758; Helvering v. Bowers, 303 U.S. 618, 58 S.Ct. 525, 82 L.Ed. 1083; Lilly v. Smith, 7 Cir., 96 F.2d 341; Commissioner v. Hart, 3 Cir., 106 F.2d 269; Helvering v. Bullard, 303 U.S. 297, 58 S.Ct. 565, 82 L.Ed. 852. In transfers to tenants by the entirety and in trust settlements made after March 3, 1931, under which income is reserved to the settlor for life, estate taxes are imposed which to some extent overlap gift taxes. We do not understand that Estate of Sanford v. Commissioner, supra, inferentially overruled the decisions in the cases last mentioned, or that it went any farther than to hold that because a transfer in trust which was incomplete would ultimately be subject to estate tax it was not subject to gift tax." We adhere to that view of the Sanford case. We conclude that the taxability under the estate tax of the contingent remainders in the instant case does not exempt them from the gift tax.
For the foregoing reasons, we think that Hughes v. Commissioner, 9 Cir., 104 F.2d 144, was correct and that its conclusion is unaffected by the subsequent decisions in the Sanford and Hallock cases. We accept Mr. Paul's summary:
The decision of the Board of Tax Appeals is reversed.
Revenue Act of 1932, c. 209, 47 Stat. 169:
"Sec. [§] 501. Imposition of Tax. (a) For the calendar year 1932 and each calendar year thereafter a tax, computed as provided in section 502, shall be imposed upon the transfer during such calendar year by any individual, resident or nonresident, of property by gift. (b) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible; * * *." 26 U.S.C.A. Int.Rev. Acts, page 580.
"Sec. 506. [§ 1005.] Gifts made in property. If the gift is made in property, the value thereof at the date of the gift shall be considered the amount of the gift." 26 U.S.C.A. Int.Rev.Code, § 1005.
"Sec. 510. [§ 1009.] Lien for tax. The tax imposed by this title [chapter] shall be a lien upon all gifts made during the calendar year, for ten years from the time the gifts are made. If the tax is not paid when due, the donee of any gift shall be personally liable for such tax to the extent of the value of such gift. * * *" 26 U.S.C.A. Int.Rev.Code, § 1009.
Treasury Regulations 79 (1936 Ed.):
"Art. 2. Transfers reached. The statute imposes a tax whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Thus, for example, a taxable transfer may be effected by the declaration of a trust * * *. Inasmuch as the tax also applies to gifts indirectly made, all transactions whereby property or property rights or interests are donatively passed or conferred upon another, regardless of the means or device employed, constitute gifts subject to tax * * *.
"Art. 17. Gifts made in property. A gift made in property is subject to the tax in the same manner as a gift of cash, and the amount of the gift is the value of the property at the date of the gift.
"Art. 19. Valuation of property. * * * If the gift is of a remainder or reversionary interest subject to an outstanding life estate, the value of the gift will be obtained by multiplying the value of the property at the date of the gift by the figure in column 3 of Table A opposite the number of years nearest to the age of the life tenant. In case the remainder or reversion is subject to an estate for a term of years, Table B should be used * * *."
Valuations "are of the stuff that dreams are made of," Jenkins v. Smith, D.C., 21 F.Supp. 251, 253, quoting Professor Ely.
The court noted (308 U.S. at page 47, 60 S.Ct. 51, 84 L.Ed. 20) that the legislative history also showed that Congress intended the gift tax to supplement the income tax. That fact was stressed in Commissioner v. Prouty, 1 Cir., 1940, 115 F.2d 331, 337, 133 A.L.R. 977 where the court said: "It may be frankly recognized, however, that the interrelation of the income, estate, and gift taxes presents many puzzling problems which deserve the attention of Congress." And see Paul, Federal Estate and Gift Taxation, supra, 1200-1201 (cf. 1175); Warren, Correlation of Gift and Estate Taxes, 55 Harv.L.Rev. (1942) 1, 37-43.