Blodgett v. Holden

The Circuit Court of Appeals for the Sixth Circuit has-certified three questions and asked instructions in'respect of them. Title 28, § 346, U. S. C. It is only necessary to answer the one which follows.

“Are the provisions of Secs, 319-324 of the Revenue Act of 1924, c. 234, 43 Stat. 313, unconstitutional insofar as they impose and levy a tax upon transfers of property by gifts inter vivos, not made' in contemplation of death, and made prior to June 2,1924, on which date the Act was approved, because the same is a direct tax and unappor-tioned, or because it takes property without due process. *145 or for public use without just compensation, in violation of the Fifth Amendment? ”

The Revenue Act approved June 2, 1924, provides—

“ Sec. 319. For the calendar year 1924 and each calendar year thereafter, a tax equal to the sum of the following is hereby imposed upon the transfer by a resident by gift during such calendar year of any property wherever situated, whether made directly or indirectly, and upon the transfer by a nonresident by gift during such calendar year of any property situated within the United States, * whether made directly or indirectly: 1 per centum of the., amount of the taxable gifts not in excess of $50,000;' etc. ... -

“ Sec.'320. If the gift is made in property, the fair market value thereof at the date of the gift shall be considered the amount of the gift. Where property is sold or exchanged for less than a fair consideration in money or money’s worth, then the amount by which the fair market value of the property exceeded the consideration réceived shall, for the purpose of the tax imposed by section 319, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year,” '

Section 321 allows certain deductions — $50,000; dona-' tions for charitable purposes, etc. ..

Section 322 is unimportant here.

“ Sec. 323. Any person who within the year .1924 or any calendar year thereafter makés any gift or gifts in excess of the deductions allowed by section 321 shall, on or before the 15th day of March, file with the collector a return under oath in duplicate, listing and setting forth therein all gifts and contributions made by him during such calendar year. . . .

“ Sec. 324. The tax imposed, by section 319 shall be paid by the donor'on or before the 15th day of March, and shall be assessed, collected, and paid in the same manner and *146 subject, in so far as applicable, to the same provisions of law as the tax imposed by section 301.”

Act of February 26, 1926, 44 Stat. 9, 86, c. 27:—

“ Sec. 324. (a) Section 319 of the Revenue Act of 1924 is amended to read as-follows:

“ ‘ Sec. 319. For the calendar year 1924 and the calendar year 1925, a tax equal to the sum of the following is hereby imposed upon the transfer by a resident by gift during such calendar year of any property wherever situated, whether made directly or indirectly, and upon the transfer by a nonresident by gift during such calendar year of any property situated within the United States, whether made directly or indirectly: 1 per centum of the amount of the taxable gifts not in excess of $50,000; . . .’ [Some of the succeeding percentages are less and some are higher than those specified by the Act of 1924.]

“(b) Subdivision (a) of this section shall take effect as of June 2, 1924.”

During the calendar year 1924, and prior to June 2, plaintiff Blodgett, a resident of the United States, transferred by gifts inter vivos, and not in contemplation of death, property valued at more than $850,000.00; after June 2 he made other gifts valued at $6,500.00. The collector exacted of him the tax prescribed by the Act of 1924, as amended, on such transfers and this suit seeks recovery of the sum so paid. The claim is that the taxing Act, if applicable in the circumstances stated, conflicts with the Fifth Amendment.

At the argument here counsel for Blodgett affirmed that all the transfers prior to June 2 were really made during the month of January; and the accuracy of this statement was not questioned. Under the circumstances, we will treat this affirmation as if it were part of the recital of facts by the court below.

The brief in behalf of the Collector sets out the legislative history of the gift tax provisions in the Revenue Act *147 .of 1924 and shows that they were not presented for the consideration of Congress prior to February 25 of that year. We must, therefore, determine whether Congress had power to impose a charge upon the donor because of' gifts fully consummated before such, provisions came before it.

In Nichols v. Coolidge, 274 U. S. 531, this Court pointed out that a statute purporting to lay a tax may be so arbitrary and capricious that its enforcement would amount to deprivation of property without due process of- law within the inhibition of the Fifth Amendment.. As to the gifts which Blodgett made during January, 1924, wé • think the challenged enactment is-arbitrary and for that reason invalid. It- seems wholly unreasonable that one who, in entire good faith and without the slightest premonition of such consequence, made absolute disposition of his property by gifts should' thereafter be required to pay a charge for so doing.

Determination of the cause .does not require us to consider other objections to the Statute which hkve been advanced. And it is unnecessary to express an opinion concerning the validity of the Statute as to transfers subsequent to June 2. Here, all such gifts were within the exemption granted.

■ So far as the Revenue Act of, 1Q24 undertakes to impose a tax because of the gifts made during January, 1924, it is arbitrary and invalid under the due process clause of the Fifth Amendment.-

Although research has shown and practice has established the futility of the charge that it was a usurpation when this Court undertook to declare an Act of Congress unconstitutional, I suppose that we all agree that- to do *148 so is the gravest and most delicate duty that this Court is called on to perform. Upon this among other consider-tions th.e rule is settled that as between two possible interpretations of a statute, by one of which it would be unconstitutional and by the other valid, our plain duty is to adopt that which will save the Act. Even to avoid a serious doubt the rule is the same. United States v. Delaware & Hudson Co., 213 U. S. 366, 407, 408. United States v. Standard Brewery, 251 U. S. 210, 220. Texas v. Eastern Texas R. R. Co., 258 U. S. 204, 217. Bratton v. Chandler, 260 U. S. 110, 114. Panama R. R. Co. v. Johnson, 264 U. S. 375, 390. Words have been strained more than they need to be strained here in order to avoid that doubt. United States v. Jin Fuey Moy, 241 U. S. 394, 401, 402. In a different sphere but embodying, the-same general' attitude as to construction, see United States v. Goelet, 232 U. S. 293, 297

By § 319 of the Revenue Act of .1924, (June 2, 1924, c.. 234; .43 Stat. 253, 313) a-tax is laid on gifts ‘ For the calendar year 1924 and each calendar year thereafter.’’ In the Code the words are ‘ during any calendar year.’ Title 26, § 1131. The latter phrase- brings out what I should think was obvious "without its aid, that the purpose is a general one to indicate thé periods to be regarded, as distinguished from fiscal years, not necessarily to run counter to the usual understanding, that statutes direct themselves to future not to past transactions. Reynolds v. McArthur, 2 Pet. 417, 434. Shwab v. Doyle, 258 U. S. 529, 534. Lewellyn v. Frick, 268 U. S. 238, 251, 252. If when the statute was passed it had been' well recognized that Congress had no power to tax past gifts I think that we should, have no. trouble in reading the Act ,as meant to operate only from its date and only to tax gifts thereafter made. If I am right, we should read it in that way now. By § 324 (a) of the Revenue Act of 1926, (February 26, 1926, c. 27; 44 Stat. 9, 86,) § 319 of the Act of 1924 is amended *149 and the rates of taxation aré reduced, and then by (b) it is provided that ' subdivision (a) of this section shall take, effect‘as of June. 2, 1924/the date when the earlier act was passed. A reasonable interpretation is that the reduction and the tax operate alike on gifts after.that date. Taking both statutes into account, and the principles of construction to which I have referred, I think it tolerably plain that the Act should be read as referring only to transáctions taking place'after it was passed, when to disregard the rule * would be to impose an unexpected .liability that if known .might have induced those .concerned to avoid it and to use their money in other ways.’ Lewellyn v. Frick, 268 U. S. 232, 251, 252.

On the general question whether there is power to' tax gifts I éxpress ho opinion now. I agree with the result that the plaintiff is entitled to recover the taxes paid in respect of gifts made before the statute went into effect.