196 U.S. 480
WILLIAM K. VANDERBILT et al., as Executors, etc.,
FERDINAND EIDMAN, as United States Collector of Internal Revenue.
Argued October 13, 14, 1904.
Decided February 20, 1905.
Cornelius Vanderbilt died in the city of New York on September 12, 1899, leaving a will, which was admitted to probate, the seventeenth clause of which provides as follows:
This clause contains the only provisions in the will relating to or in any manner affecting the disposition of the residuary estate of the testator, and determining the extent and character of the interests therein.
All of the children of Cornelius Vanderbilt, named in the seventeenth clause of his will, were living at the time this suit was brought. At the time of the death of Cornelius Vanderbilt his son Alfred G. Vanderbilt was between twenty-two and twenty-three years of age, and his son Reginald C. Vanderbilt was between nineteen and twenty years of age, and both were unmarried.
The appraised value of the residuary personal estate at the time of the testator's death was $18,972,117.46.
The right of Alfred G. Vanderbilt to the beneficial enjoyment, as provided in the will until he became thirty years of age, was appraised at $ 5,119,612.43, and upon this sum the executors paid a death duty under 29 and 30 of the act of June 13, 1898 (30 Stat. at L. 464, chap. 448, U. S. Comp. Stat. 1901, pp. 2307, 2308), at the rate of 2 1/4 [196 U.S. 480, 483] per cent, the tax amounting to $115,191.28. After payment of this amount, and subsequently to the passage, on March 2, 1901 (31 Stat. at L. 946, chap. 806, U. S. Comp. Stat. 1901, p. 2307), of an amendment to the war revenue act of 1898, the commissioner of internal revenue, considering that by that amendment Alfred G. Vanderbilt had become immediately liable for a tax on his right to succeed to the whole residue if he lived to the ages of thirty and thirty-five years respectively, assessed a death duty based upon that hypothesis. In making this assessment, as by the mortality tables it was shown that Alfred G. Vanderbilt had a life expectancy beyond the ages of thirty and thirty-five years, the commissioner assessed the interest as a vested estate equal in value to the sum of the entire residuary estate; viz., $18,972,117.46. Upon this valuation a tax was levied of 2 1/4 per cent, producin $426,872.64. On this amount, however, credit was allowed for the sum of the tax previously paid, leaving the balance due $311,681.36. On September 3, 1901, this balance was paid by the executors under protest, 'and upon compulsion of the collector's threat of distraint and sale.' The executors thereupon made the statutory application to the commissioner of internal revenue for the refunding of the amount, and, it being refused, commenced in the circuit court of the United States for the southern district of New York this action to recover the payment.
The facts, as above stated, were averred and the right to recover was based upon the ground that, as Alfred G. Vanderbilt only had the enjoyment presently of the revenues of the residuary estate up to the period when he might attain the age of thirty years, he was only liable to be assessed upon that beneficial interest. For this reason it was charged that the assessment made of the bequest to Alfred G. Vanderbilt of the whole residuary estate, upon condition that he reached the ages of thirty and thirty-five years respectively, was unwarranted.
The circuit court, on the ground that the complaint did not [196 U.S. 480, 484] state a cause of action, sustained a demurrer to that effect filed by the government, and dismissed the action. 121 Fed. 590. The circuit court of appeals stated the facts as above recited, and certified certain questions.
Howard Taylor, Henry B. Anderson, and Chandler P. Anderson for Vanderbilt et al.
[196 U.S. 480, 487] Assistant Attorney General Robb for Eidman.
Statement by Mr. Justice White: [196 U.S. 480, 488]
Mr. Justice White, after making the foregoing statement, delivered the opinion of the court:
The four questions certified are as follows:
Whilst the questions, apparently, present distinct matters, yet underlying and involved in them all is the fundamental consideration whether the burden imposed by the war revenue act was confined to the interest of which Alfred G. Vanderbilt had the beneficial right of immediate enjoyment, or whether that burden also bore upon the right to the residue which Alfred G. Vanderbilt might possess or enjoy in the future, if he lived to the ages specified in the will, upon the theory that the right so to possess or enjoy in the future was technically vested. To avoid repetition we therefore come at once to the consideration of this subject in order that when we have disposed of it we may be able, in the light of the correct construction of the statute, to respond to the questions propounded, in so far as it may be found necessary to do so.
Before coming to the statute we put aside, as not directly decisive of the question here presented, a case referred to by both parties; that is, Knowlton v. Moore, 178 U.S. 41 , 44 L. ed. 969, 20 Sup. Ct. Rep. 747. Whilst that case involved the constitutionality of the act of Congress with whose meaning we are here concerned, it required a construction of that act only to the extent necessary to enable it to be decided what was the subject upon which the law levied the tax, and whether the statute required the tax levied to be progressively increased by reference to the whole amount of the estate of the decedent, or alone by reference to the particular legacy or distributive share upon the right to succeed to which the tax bore. The case did not, therefore, pass on the controversies here arising.
To state briefly the conflicting contentions of the parties as to the meaning of the statute may serve to accentuate and narrow the question for decision. The proposition of the government is thus stated in the argument:
The contrary contentions are as follows: First. That Congress, in the act in question, did not concern itself with the mere technical vesting of the title to possibly possess or enjoy in the future personal property; but, on the contrary, the act subjected to the death duties which it imposed only real and beneficial interests. In other words, the proposition is that the act did not make subject to taxation a gift, which, even if technically vested in title, was yet subject to be defeated in possession or enjoyment by the happening of a contingency stated in the will. The argument, therefore, is that where such a gift was made by will, no tax could be imposed until the time when, by the happening of the contingency stated, the right to possess or enjoy had accrued. Second. That, even if the statute imposed a tax upon vested remainders, the interest in question was a contingent, and not a vested, remainder.
The provisions of the act of 1898 which require elucidation for the purpose of disposing of these contentions are contained in 29 and 30. They are reproduced in the margin. [196 U.S. 480, 491] It will be observed that the duties imposed in 29 have relation to two classes; first, legacies or distributive shares passing by death and arising from personal property; and, second, any personl property or interest therein trans- [196 U.S. 480, 492] ferred by deed, grant, bargain, sale, or gift, to take effect in possession or enjoyment after the death of the grantor or bargainor, in favor of any person or persons, or to any body or bodies, politic or corporate, in trust or otherwise. As to this [196 U.S. 480, 493] second class, the statute specifically makes the liability for taxation depend, not upon the mere vesting, in a technical sense, of title to the gift, but upon the actual possession or enjoyment thereof. By any fair construction the limitation as to possession or enjoyment expressed as to one class must be applied to the other, unless it be found that the statute, whilst treating the two as one and the same for the purpose of the imposition of the death duty, has yet subjected them [196 U.S. 480, 494] to different rules. A consideration of the subsequent provisions of the section leaves no room for such a contention, since immediately following the designation of the two classes there are five distinct paragraphs, subjecting the passing of the property taxed in both classes to a different rate of tax, dependent upon the degree of relationship of the beneficiary to the decedent, and in each it is specifically provided that a tax is to be levied in respect only of a beneficial interest having a clear value. Moreover, the meaning of the statute, fairly to be deduced from the reiteration in each of the five paragraphs of the beneficial interest and clear value as the subject of the tax, is greatly strengthened by the inference to be drawn from the fact that nowhere in the section is there contained language referring to technical estates in personalty, or treating them as subjects of taxation, despite the absence of the right to immediate possession or enjoyment. And coming to consider 30, relating to the collection of the duty or tax imposed by 29, the meaning of 29, as just indicated, is made clearer. Thus, by 30 it is provided that 'every executor, administrator, or trustee, before payment and distribution [of a legacy or distributive share] to the legatees, or any parties entitled to beneficial interest therein, shall pay to the collector . . . of the district of which the deceased person was a resident the amount of the duty or tax assessed upon such legacy or distributive share.' It also requires that the schedule, etc., to be furnished by an executor, administrator, or trustee to a collector or deputy collector shall contain the name of each person having a beneficial interest in the property in the charge or custody of the executor, etc., with a statement 'of the clear value of such interest.'
These provisions harmonize with the meaning which we have ascribed to 29, since they clearly import that the tax is to be deducted from a beneficial interest which the beneficiary was entitled to enjoy, and from which, before payment or distribution, a deduction of the duty was to be made. [196 U.S. 480, 495] In view of the express provisions of the statute as to possession or enjoyment and beneficial interest and clear value, and of the absence of any express language exhibiting an intention to tax a mere technically vested interest in a case where the right to possession or enjoyment was subordinated to an uncertain contingency, it would, we think, be doing violence to the statute to construe it as taxing such an interest before the period when possession or enjoyment had attached. And such is the construction which has been affixed to some state statutes, the text of which lent themselves more strongly to the construction that it was the intention to subject to immediate taxation merely technical interests, without regard to a present right to possess or enjoy. Re Curtis, 142 N. Y. 219, 222, 36 N. E. 887; Re Roosevelt, 143 N. Y. 121, 25 L. R. A. 695, 38 N. E. 781.
In Re Hoffman, 143 N. Y. 327, 38 N. E. 311, the court was called upon to construe the meaning of a statute, enacted in 1892, providing that 'all taxes imposed by this act shall be due and payable at the time of the transfer; provided, however, that taxes upon the transfer of any estate, property, or interest therein limited, dependent, or determinable upon the happening of any contingency or future event, by reason of which the fair market value thereof cannot be ascertained at the time of the transfer as herein provided, shall accrue and become due and payable when the persons or corporations beneficially entitled thereto shall come into actual possession or enjoyment thereof (Laws 1892, chap. 399, 3);' the court said:
So, also, the supreme court of Illinois, in construing an inheritance tax law of that state, containing language identical in some respects with that found in the act of Congress, observed (Billings v. People, 189 Ill. 472, 486, 59 L. R. A. 807, 59 N. E. 798):
And see also Howe v. Howe, 179 Mass. 546, 550, 55 L. R. A. 626, 61 N. E. 225.
Indeed, in accord with its text, and in harmony with the principles of construction expounded in the cases just cited, the act of 1898 was primarily construed by the officers charged with its administration as taxing only beneficial interests where the right to possess or enjoy had accrued. The rulings of the Internal Revenue Department to this effect were without deviation for several years.
The practice followed in carrying out the statute was illustrated by the assessment which was made in the case considered in Knowlton v. Moore, 178 U.S. 41 , 44 L. ed. 969, 20 Sup. Ct. Rep. 747, as exhibited in the schedule on page 44 of the report of that case. It was also by this construction that the tax in this case was originally assessed only upon the benficial interest which was being enjoyed by Alfred G. Vanderbilt.
The change of construction was made because the administrative officers deemed it was required by the amendment of March 2, 1901, to the act of 1898. 31 Stat. at L. 946, chap. 806, U. S. Comp. Stat. 1901, p. 2307. This is shown by a ruling made by the Commissioner of Internal Revenue on October 17, 1901, in which it was said (Treasury Decisions, Internal Revenue, vol. 4, p. 209):
The case therefore reduces itself to this: Did the amendatory act of 1901 enlarge the act of 1898 so as to cause that act to embrace subjects of taxation which were not included prior to the amendment? The amendatory act, so far as necessary to be considered for the purposes of this question, reenacted 29 and 30 of the original act. The amendments which the administrative officers decided made subject to taxation vested interests where the right of immediate possession or enjoyment had not accrued, and which had been treated as not taxable prior to the amendment, were that the tax or duty should be due and payable in one year after the death of the person from whom the estate had passed, and that the executor, administrator, or trustee should make return of the estate in his control within thirty days after taking charge thereof. Giving to these provisions their natural import, they imply only that a uniform period was fixed within which the obligation should arise of paying the tax authorized to be levied by the original act; that is, the obligation of paying the duty on each beneficial interest which in effect had vested in possession or enjoyment. The amendments, therefore, did not, in our opinion justify the construction that Congress intended, by adopting them, to cause death duties to become due within one year as to legacies and distributive shares which were not capable of being immediately possessed or enjoyed, and were therefore not subject to taxation under the original act. This conclusion irresistibly follows when it is observed that no word is found in the amendatory act importing an intention to change the administrative construction which had theretofore prevailed from the beginning. On the contrary, the amendatory act reiterated, without alteration, the provisions found in the original act as to possession or enjoyment and beneficial interest and clear value. Indeed, the amendatory act contained new provisions not expressly found in the original act, [196 U.S. 480, 499] supporting and adding cogency to the prior administrative construction, such as the proviso at the close of 30, as follows:
Further elucidation as to the meaning of the amendatory act of 1901 is unnecessary in view of the subsequent legislation of Congress. By the act of April 12, 1902 (32 Stat. at L. 96, chap. 500), 29 of the act of 1898, as amended on March 2, 1901, was repealed, to take effect on July 1, 1902.1 The repealing act, however, saved 'all taxes or duties imposed by section 29 of the act of June 13, 1898, and the amendments thereto prior to the taking effect of this act.' On June 27, 1902 (32 Stat. at L. 406, chap. 1160)2 an act was adopted, the 3d section of which reads as follows:
In view of the provision for refunding we see no escape from the conclusion that this statute was in a sense declaratory of what we hold was the true construction of the act of 1898, and which, as we have seen, had prevailed prior to the amendment of March 2, 1901, and which was only departed from by the administrative officers under a misconception of the import of that amendatory act. There is no suggestion that any prior practice prevailed in the enforcement of the act of 1898, calling for the enacting of the refunding clause, except the mistaken construction placed on the amendatory act of 1901. The act of 1902 was, therefore, a legislative islative affirmance of the construction given to the act of 1898, prior to the amendment of 1901. It follows that the act of 1902 was, moreover, a legislative repudiation of the construction of the act of 1898, now insisted on by the government. It is, we think, incontrovertible that the taxes which the 3d section of the act of 1902 directs to be refunded and those which it forbids the collection of in the future are one and the same in their nature. Any other view would destroy the unity of the section, and cause its provisions to produce inexplicable conflict. From this it results that the taxes which are directed in the first sentence to be refunded, because they had been wrongfully collected on contingent beneficial interests which had not become vested prior to July 1, 1902 were taxes levied on such beneficial interests as had not become vested in possession or enjoyment prior to the date named, within the intendment of the subsequent sentence. In other words, the statute provided for the refunding of taxes collected under the circumstances stated, and at the same time forbade like collections in the future.
In view of the text of the act of 1898 and the other considerations to which we have referred, we have not deemed it [196 U.S. 480, 501] necessary to advert to a contention made by the government in argument, that the true meaning of the act of 1898 is shown by the administrative construction placed upon the act of July 1, 1862, levying legacy taxes (12 Stat. at L. 485, chap. 119), of which, in effect the act of 1898 was a reproduction. It is undoubtedly true that both under the act of 1862 and the act of June 30, 1864 (13 Stat. at L. 285, chap. 173, U. S. Comp. Stat. 1901, p. 2268), there was an administrative construction by which vested interests, although unaccompanied with the right of immediate possession or enjoyment, were treated as at once taxable. Without entering into details on the subject, we content ourselves with saying that it is also true that the correctness of that construction was in effect repudiated by legislative action (act of July 13, 1866, 14 Stat. at L. 140, chap. 184), and was, moreover, in substance, treated as unsound by the reasoning of the opinion in Clapp v. Mason, 94 U.S. 591 , 24 L. ed. 213.
Thus, by legislative action and judicial interpretation, it came to pass that the acts of 1862 and 1864 signified exactly what we now construe the act of 1898 to mean. It was doubtless this concordance of legislative action and judicial interpretation concerning the earlier acts which caused the administrative department of the government, when the act of 1898 was adopted, to interpret that act, not as the acts of 1862 and 1864 had been originally erroneously interpreted in administration, but in accord with the subsequent legislative and judicial construction which had been placed upon the language of those acts, and which language in effect was repeated in the act of 1898
Concluding, as we do, that there was no authority under the act of 1898 for taxing the interest of Alfred G. Vanderbilt, given him by the residuary clause of the will, conditioned on his attaining the ages of thirty and thirty-five years, respectively, it is unnecessary to determine whether such interest was technically a vested remainder, as claimed by counsel for the government. In passing, however, we remark that in a case recently decided by the court of appeals of New York (Re Tracy, 179 N. Y. 506, 72 N. E. 519), it was declared [196 U.S. 480, 502] that such interest was a contingent, and not a vested, remainder.
Coming to apply the construction which we have given the statute to the solution of the questions propounded by the Court of Appeals, it follows that the first, second, and fourth questions are unnecessary to be answered, and the third question should be answered in the negative.
And it is so ordered.
Sec. 29. That any person or persons having in charge or trust, as administrators, executors, or trustees, any legacies or distributive shares arising from personal property, where the whole amount of such personal property as aforesaid shall exceed the sum of $10,000 in actual value, passing, after the passage of this act, from any person possessed of such property, either by will or by the intestate laws of any state or territory, or any personal property or interest therein, transferred by deed, grant, bargain, sale, or gift, made or intended to take effect in possession or enjoyment after the death of the grantor or bargainor, to any person or persons, or to any body or bodies, politic or corporate, in trust or otherwise, shall be, and hereby are, made subject to a duty or tax, to be paid to
the United States, as follows-that is to say: Where the whole amount of said personal property shall exceed in value $10,000, and shall not exceed in value the sum of $25,000, the tax shall be--
First. Where the person or persons entitled to any beneficial interest in such property shall be the lineal issue or lineal ancestor, brother, or sister to the person who died possessed of such property, as aforesaid, at the rate of seventy-five cents for each and every $100 of the clear value of such interest in such property.
Second. Where the person or persons entitled to any beneficial interest in such property shall be the descendant of a brother or sister of the person who died possessed, as aforesaid, at the rate of one dollar and fifty cents for each and every $100 of the clear value of such interest.
Third. Where the person or persons entitled to any beneficial interest in such property shall be the brother or sister of the father or mother, or a descendant of a brother or sister of the father or mother, of the person who died possessed as aforesaid, at the rate of three dollars for each and every one hundred dollars of the clear value of such interest.
Fourth. Where the person or persons entitled to any beneficial interest in such property shall be the brother or sister of the grandfather or grandmother, or a descendant of the brother or sister of the grandfather or grandmother, of the person who died possessed as aforesaid, at the rate of four dollars for each and every hundred dollars of the clear value of such interest.
Fifth. Where the person or persons entitled to any beneficial interest in such property shall be in any other degree of collateral consanguinity than as hereinbefore stated, or shall be a stranger in blood to the person who died possessed, as aforesaid, or shall be a body politic or corporate, at the rate of five dollars for each and every hundred dollars of the clear vaiue of such interest: Provided, That all legacies or property passing by will, or by the laws of any state or territory, to husband or wife of the person who died possessed, as aforesaid, shall be exempt from tax or duty.
Where the amount or value of said property shall exceed the sum of $ 25,000, but shall not exceed the sum or value of $100,000, the rates of duty or tax above set forth shall be multiplied plied by one and one half; and where the amount or value of said property shall exceed the sum of $ 100,000, but shall not exceed the sum of $500,000, such rates of duty shall be multiplied by two; and where the amount or value of said property shall exceed the sum of $500,000, but shall not exceed the sum of $1,000, 000, such rates of duty shall be multiplied by two and one half; and where the amount or value of said property shall exceed
the sum of $1,000,000, such rates of duty shall be multiplied by three.
Sec. 30. That the tax or duty aforesaid shall be a lien and charge upon the property of every person who may die as aforesaid for twenty years, or until the same shall, within that period, be fully paid to and discharged by the United States; and every executor, administrator, or trustee, before payment and distribution to the legatees, or any parties entitled to beneficial interest therein, shall pay, to the collector or deputy collector of the district of which the deceased person was a resident, the amount of the duty or tax assessed upon such legacy or distributive share, and shall also make and render to the said collector or deputy collector a schedule, list, or statement, in duplicate, of the amount of such legacy or distributive share, together with the amount of duty which has accrued, or shall accrue thereon, verified by his oath or affirmation, to be administered and certified thereon by some magistrate or officer having lawful power to administer such oaths, in such form and manner as may be prescribed by the commissioner of internal revenue, which schedule, list, or statement shall contain the names of each and every person entitled to any beneficial interest therein, together with the clear value of such interest, the duplicate of which schedule, list, or statement shall be by him immediately delivered, and the tax thereon paid to such collector; and upon such payment and delivery of such schedule, list, or statement, said collector or deputy collector shall grant to such person paying such duty or tax a receipt or receipts for the same in duplicate, which shall be prepared as hereinafter provided. Such receipt or receipts, duly signed and delivered by such collector or deputy collector, shall be sufficient evidence to entitle such executor, administrator, or trustee to be credited and allowed such payment by every tribunal which, by the laws of any state or territory, is, or may be, empowered to decide upon and settle the accounts of executors and administrators. And in case such executor, administrator, or trustee shall refuse or neglect to pay the aforesaid duty or tax to the collector or deputy collector, as aforesaid, within the time hereinbefore provided, or shall neglect or refuse to deliver to said collector or deputy collector the duplicate of the schedule, list, or statement of such legacies, property, or personal estate under oath, as aforesaid, or shall neglect or refuse to deliver the schedule, list, or statement of such legacies, property, or personal estate, under oath as aforesaid, or shall deliver to said collector or deputy collector a false schedule or statement of such legacies, property, or personal estate, or give the names and relationship of the persons entitled to beneficial interest therein untruly, or shall not truly and correctly set forth and state therein
the clear value of such beneficial interest, or where no administration upon such property or personal estate shall have been granted or allowed under existing laws, the collector or deputy collector shall make such lists and valuation as in other cases of neglect or refusal, and shall assess the duty thereon; and the collector shall commence appropriate proceedings before any court of the United States, in the name of the United States, against such person or persons as may have the actual or constructive custody or possession of such property or personal estate, or any part thereof, and shall subject such property or personal estate, or any portion of the same, to be sold upon the judgment or decree of such court, and from the proceeds of such sale the amount of such tax or duty, together with all costs and expenses of every description to be allowed by such court, shall be first paid, and the balance, if any, deposited according to the order of such court, to be paid under its direction to such person or persons as shall establish title to the same. The deed or deeds, or any proper conveyance of such property or personal estate, or any portion thereof, so sold under such judgment or decree, executed by the officer lawfully charged with carrying the same into effect, shall vest in the purchaser thereof all the title of the delinquent to the property or personal estate sold under and by virtue of such judgment or decree, and shall release every other portion of such property or personal estate from the lien or charge thereon created by this act. And every person or persons who shall have in his possession, charge, or custody any record, file, or paper containing, or supposed to contain, any information concerning such property or personal estate, as aforesaid, passing from any person who may die, as aforesaid, shall exhibit the same at the request of the collector or deputy collector of the district, and to any law officer of the United States, in the performance of his duty under this act, his deputy or agent, who may desire to examine the same. And if any such person, having in his possession, charge, or custody and such records, files, or papers, shall refuse or neglect to exhibit the same on request, as aforesaid, he shall forfeit and pay the sum of $500: Provided, That in all legal controversies where such deed or title shall be the subject of judicial investigation, the recital in said deed shall be prima facie evidence of its truth, and that the requirements of the law had been complied with by the officers of the government.
[ Footnote 1 ] U. S. Comp. St. Supp. 1903, p. 278.
[ Footnote 2 ] U. S. Comp. St. Supp. 1903, p. 282.