Morgan v. Commissioner
309 U.S. 78 (1940)
U.S. Supreme Court
Morgan v. Commissioner, 309 U.S. 78 (1940)
Morgan v. Commissioner
No. 210
Argued January 4, 5, 1940
Decided January 29, 1940
309 U.S. 78
CERTIORARI TO THE CIRCUIT COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Syllabus
A decedent in Wisconsin exercised a power of appointment
over property held in trusts created under the law of that State. The trusts
empowered the trustees to withhold from any beneficiary property which, in
their judgment, would be dissipated. or be improvidently handled, and gave
directions for disposition, in such event, of what was withheld.
Held:
1. That the power exercised was a "general power of
appointment" within § 302(f) of the Revenue Act of 1926, whatever its
characterization -- whether "general" or "special" -- by
the Wisconsin law. P. 309 U. S. 80.
State law creates legal interests and rights. The federal
Revenue Acts designate what interests or rights, so created, shall be taxed.
2. The term "general power of appointment," as
used in the federal Revenue Acts, applies where the donee may appoint to any
person he chooses, including his own estate or his creditors. P. 309 U. S. 81.
This accords with common acceptation and with administrative
construction approved by Congressional reenactments of the provisions
construed.
3. Assuming that the trustees could withhold the appointed
property from an appointee, the power must still be held general. The important
consideration is the breadth of the control in the donee of the power, whatever
the nature or extent of the appointee's interest. P. 309 U. S. 82.
103 F.2d 636 affirmed.
Certiorari, 308 U.S. 534, to review an affirmance by the
court below of a decision of the Board of Tax Appeals (36 B.T.A. 588),
approving a deficiency assessment.
Page 309 U. S. 79
MR. JUSTICE ROBERTS, delivered the opinion of the Court.
We took this case because it raises an important question as
to the construction of the Revenue Act of 1926, § 302(f), amended by the
Revenue Act of 1932, § 803(b).
The question is to what extent and in what sense the law of
the decedent's domicile governs in determining whether a power of appointment
exercised by him is a general power within the meaning of the statute.
The petitioner
is the executor of Elizabeth S. Morgan, who was the donee of two powers of
appointment over property held in two trusts created by her father by will and
by deed. The persons named are, or were at death, citizens of Wisconsin.
It is unnecessary to recite the terms of the trusts. Suffice it to say that,
under each, property
remaining in the trustees' hands for Elizabeth S. Morgan was given, at her
death, to the appointee or appointees named in her will, with gifts over in
case she failed to appoint. Under both trusts, if in the judgment
Page 309 U. S. 80
of the
trustees, property going to any beneficiary would be dissipated for any reason,
or improvidently handled, the trustees were to withhold any part of such
property, with directions for disposition, in such event, of what was withheld.
The decedent appointed in favor of her husband.
The
Commissioner ruled that the value of the appointed property should be included
in the gross estate, and determined a tax deficiency. The Board of Tax Appeals
approved his action. The Circuit Court of Appeals affirmed the Board's
decision.
Although, under the law of Wisconsin, the decedent could
have appointed anyone to receive the trust property, including her estate and
her creditors, the petitioner urges that, by statute and decision, Wisconsin
has defined as special a power such as she held. The respondent urges that this
is not a correct interpretation of the State law. We find it unnecessary to
resolve the issue, since we hold that the powers are general within the intent
of the Revenue Act, notwithstanding they may be classified as special by the
law of Wisconsin.
State law creates legal interests and rights. The federal
revenue acts designate what interests or rights, so created, shall be taxed.
Our duty is to ascertain the
Page 309 U. S. 81
meaning of the words used to specify the thing taxes. If it
is found in a given case that an interest or right created by local law was the
object intended to be taxes, the federal law must prevail no matter what name
is given to the interest or right by state law.
None of the revenue acts has defined the phrase "general power of
appointment." The distinction usually made between a general and a special
power lies in the circumstance that, under the former, the donee may appoint to
anyone, including his own estate or his creditors, thus having as full dominion
over the property as if he owned it, whereas, under the latter, the donee may
appoint only amongst a restricted or designated class of persons other than
himself.
We should expect, therefore, that Congress had this
distinction in mind when it used the adjective "general." The
legislative history indicates that this is so. The Treasury regulations have
provided that a power is within the purview of the statute if the donee may
appoint to any person.
With these regulations outstanding, Congress has several
times re-enacted § 302(f), and has thus adopted the administrative
construction. That construction is in accord with the opinion of several
federal courts.
Page 309 U. S. 82
The petitioner claims, however, that the decision below is
in conflict with two by other Circuit Courts of Appeal. The contention is based
on certain phrases found in the opinions. We think it clear that, in both
cases, the courts examined the local law to ascertain whether a power would be
construed by the state court to permit the appointment of the donee, his estate
or his creditors, and on the basis of the answer to that question determined
whether the power was general within the intent of the federal act.
As the decedent in this case could have appointed to her
estate or to her creditors, we hold that she had a general power within the
meaning of § 302(f). This conclusion is not inconsistent with authorities on
which the petitioner relies, holding that, in the application of a federal
revenue act, state law controls in determining the nature of the legal interest
which the taxpayer had in the property or income sought to be reached by the
statute.
The petitioner's section position is that, inasmuch as the trustees had
an unfettered discretion to withhold principal or income from any beneficiary,
they could exercise their discretion as respects any appointee of the decedent.
This fact, they say, renders the power a special one. Assuming that the
trustees could withhold the appointed property from an appointee, we think the
power must still be held general. The quantum or character of the interest
appointed, or the conditions imposed by the terms of the trust upon its
enjoyment, do not render the powers in question special within the purport
Page 309 U. S. 83
of § 302(f). The important consideration is the breadth of the control the decedent
could exercise over the property, whatever the nature or extent of the
appointee's interest.
The
judgment is
Affirmed.