New York Trust Co. v. Commissioner (68 F.2d 19, 1933)

L. HAND, Circuit Judge.

Ono, Matthiessen, in order to make a settlement for his son, transferred six thousand shares of stock to the petitioner in trust to accumnlate the income and pay the aceumula-tions to the son when he became twenty-' one, thereafter to pay him the income yearly until he became twenty-live, and at that time to transfer the shares to him. If the son died under twenty-five, the trustee was to transfer tho shares to two other sons, share and share alike. Matthiessen bought the shares in 1906, for $141,375; when he transferred them to the trustee, on December 24, 1921, they were worth $577,600: The petitioner by virtue of powers under the deed sold the shares in 1922 for $603,832. The questions arising are 5 whether in estimating the basis upon which to calculate profits, the date of Mat-thiessen’s purchase should be taken, or the date of the settlement; and whether, in case the first is the proper date, the tax is limited to twelve and a half per cent, under section 206 (a) (6) and section 206 (b) of the Rev-enne Act of 1921 (42 Stat. 232). The Board held against the petitioner upon both points.

Section 202 (a) (2) of the act (42 Stat. 229) provided that when property was “aequired by gift,” the “basis” in estimating profits was to be the cost or value when the donor acquired it. This was held constitutional in Taft v. Bowers, 278 U. S. 470, 49 S. Ct. 199, 73 L. Ed. 460, 64 A. L. R. 362, and as the settlement was made after the act of 1921 was passed, tne only question is as to the meaning of the statute. Was the transfer a certainly not a “purchase,” except m the archaic sense that all transfers of land, not by descent, were purchases. Coli0q-,jjapy perhaps, it was a gift to the son, wbo al¿ne , tbe beneflt Byen s0, it was neyer^pjegg a gift; the transaction as a whole eould not be leaa> the trustee’s parj- ^ werG regarded as only instrumental. Yerbally all tbe conditi0ns specified in section 202 (a) (2) tbere was a gift and a donOT; ^ that geetio.n required. Again> its undcriyjng purpose was to reach the appreeiation which occurred in the hands of the donor, and which could not be taxed in any otller ^ Eor be ^ »ot \ That P«T>ose_ demanded that; such a transaction as ^ be lncm(;e(L So it seems to us immate"al ^ ™pmge