The opinion of the court was delivered by: DIMOCK
This is an action to recover estate taxes previously paid. There are before me motions by both parties for summary judgment.
The decedent, Lester Field, executed a trust indenture on June 8, 1922. He died on November 16, 1937. He received the income from the trust during his lifetime. After his death his widow received the sum of $ 150,000 under the terms of the trust. It is conceded that, under section 302(c) of the Revenue Act of 1926, 44 Stat. 70, that sum was part of his taxable estate because of a provision in the trust instrument which allowed him during his lifetime to reduce or cancel the gift. The controversy involves the taxability of the rest of the trust fund which was valued on his death at $ 157,452.82. The taxability of this amount is contested but it has been taxed and the tax has been paid. The action is to recover the tax on that amount.
Not only the question of taxability is presented but also the question whether recovery is not barred by one of several statutes of limitation. The motions before me deal with both these points, although the questions of the statute of limitations have been decided by Judge Murphy in favor of the estate in Field Estate v. United States, D.C., 131 F.Supp. 76. The Government invokes the rule of Dictograph Products Company v. Sonotone Corporation, 2 Cir., 230 F.2d 131, and asks me to pass upon the questions of the statute of limitations despite Judge Murphy's decision. Even if I were disposed to encourage successive submissions of the same questions to several judges by reexamining these matters passed upon by my brother I would find it unnecessary since, on the merits, I find that there is no right to recover.
The provision of the trust instrument which seems to me to render taxable the interest in question is one which gives the donor the power during his lifetime to reduce or cancel the interests of his issue who were made the primary trust beneficiaries. As above stated, it is conceded that the reservation of a similar power in the case of the decedent's widow who survived him rendered taxable the interest destined for her. Plaintiff urges, however, that, since the donor lived and died without issue, the power to reduce or cancel the interests destined for them 'never came into effect' and thus did not affect the taxability of the subject of the gift. The soundness of this position is the question before me.
The question is treated by Mr. Justice Douglas in a concurring opinion in Commissioner of Internal Revenue v. Estate of Field, 324 U.S. 113, 65 S. Ct. 511, 89 L. Ed. 786, where the Supreme Court held the interests taxable because of a possibility of reverter to the donor under the terms of the trust instrument. Mr. Justice Douglas, in his concurring opinion, distinguished May v. Heiner, 281 U.S. 238, 50 S. Ct. 286, 74 L. Ed. 826, on the ground that the case before him differed not only on account of the possibility of reverter but also because, 324 U.S. at page 117, 65 S. Ct. at page 512, 'in this case the grantor retained the right to reduce or cancel by will or written instrument the interests of the children'.
Mention of this decision of the United States Supreme Court holding taxable the interest here involved brings me to the explanation of this subsequent suit for recovery of the tax brought on the ground that the interest is not taxable. This suit is based upon section 607 of the Revenue Act of 1951, enacted after the Supreme Court decision in this case, which provides:
'Transfers Conditioned Upon Survivorship.
'In the case of property transferred by a decedent dying after March 18, 1937, and before February 11, 1939, the determination of whether such property is to be included in his gross estate under section 302(c) of the Revenue Act of 1926 (44 Stat. 70) as a transfer intended to take effect in possession or enjoyment at or after his death shall be made in conformity with Treasury Regulations in force at the time of his death.'
The Supreme Court decision in this case to the effect that the interest is taxable because of the existence of a possibility of reverter was not in harmony with the Treasury Regulations existing at the time of the decedent's death and the purpose of the subsequently enacted section 607 was to give to estates of decedents dying, as he did, between March 18, 1937 and February 11, 1939, the benefit of those Treasury Regulations, despite the effect of the later adopted contrary doctrine of the United States Supreme Court. In view of the determination which I have reached that the estate is taxable even under the Treasury Regulations in force at the time of the decedent's death, I need not consider the question whether this remedial section 607 would permit the recovery of taxes the propriety of the assessment of which had been adjudged by a decision of the United States Supreme Court still in full force and effect.
The consideration of the point raised by Mr. Justice Douglas requires study of the terms of the trust instrument. These terms are excellently summarized in the opinion of the Tax Court in the original litigation, Estate of Field, 2 T.C. 21, 22, and I can do no better than to restate the terms here as they were stated there:
A. The trust is to continue for the joint lives of two nieces and the life of the survivor of them unless terminated earlier under F, infra.
B. The income is to be paid to decedent for his life unless the trust terminates before his death.
C. Upon the death of decedent prior to the termination of the trust leaving issue or a widow, $ 150,000 is to be placed in trust for the widow and the balance, or, if he left no widow, all, is to be held in trust for his children, the issue of any deceased child to take the share of such deceased child. Separate, equal trusts are to be set up for each.
D. The aforesaid trusts are subject to decedent's right to reduce or cancel the amounts of the gifts by will or instrument in writing and the amounts by which any gifts are reduced or canceled are to be added to the gifts for the issue which are not ...