Pierce Butler

“ It may rightly be said that the trustee and beneficiary 'acquired by gift' as meant by section 202 (a) . [2] If the broad definition in section 2 (9) stood alone, either might be regarded as the taxpayer, but it is qualified by the rule that the trustee must pay the tax. It follows that the trustee properly may be regarded as the taxpayer and, for the purpose of calculating the gain, as having assumed the place of the trustor. Section 202 (a) (2) was enacted to prevent evasion of taxes on capital gains. ”

“ Transfers to trustees for the benefit of others are clearly within the reason for the enactment. They may be used to avoid burdens intended to be imposed, quite as effectively as may gifts that are directly made. The difference between the cost to the trustor in 1906 and the amount for which the trustee sold in 1922 was rightly taken as taxable income of the trust.
We come to the question whether the gain derived from the trustee's sale is taxable at 12 1/2 per cent. ”

“ Legislative reasons for applying the lower rate to capital gains give support to the construction for which the trustee contends. The report of the Committee on Ways and Means states: 'The sale of * * * capital assets is now seriously retarded by the fact that gains and profits earned over a series of years are under the present law taxed as a lump sum (and the amount of surtax greatly enhanced thereby) in the year in which the profit is realized. Many such sales, with their possible profit taking and consequent increase of the tax revenue, have been blocked by this feature of the present law. ”

“ These are distinct sections, found not in juxtaposition with 202, but in portions of the act dealing with unrelated topics; the one with 'capital Gains' and the other with 'Estates and Trusts.' Confessedly the first grants an exemption from the normal rate of tax and allows payment at a lower rate only to a 'taxpayer' who realizes gain from the sale of a capital asset which he (the 'taxpayer') has held for profit or investment for over two years. The second, in words too plain to be misunderstood, designates the trustee of a trust such as the one here in question as the taxpayer. ”

“ In order to permit such transactions to go forward without fear of a prohibitive tax, the proposed bill, in section 206, adds a new section * * * to the income tax, providing that where the net gain derived from the sale or other disposition of capital assets would, under the ordinary procedure, be subjected to an income tax in excess of 15 per cent. (afterwards changed to 12 1/2 per cent.) the tax upon capital net gain shall be limited to that rate. ”

“ The rule that, where the statute contains no ambiguity, it must be taken literally and given effect accoring to its language, is a sound one not to be put aside to avoid hardships that may sometimes result from giving effect to the legislative purpose. ”

“ This controversy arises out of the calculation of an income tax on the gain realized on the sale of property by a trustee in 1922. April 27, 1906, one Matthiessen acquired 6,000 shares of stock at a cost of $141,375. Its value on March 1, 1913, was less than cost. December 4, 1921, desiring to make provision for his son, Erard, he transferred the stock to the New York Trust Company in trust for him with remainder over in case of his death. ”

“ It results that, whereas the taxpayer may now include such property as the residence occupied by him, his automobiles, his jewels, and similar items, in respect to gains, he may not include them with respect to losses, for no deduction whatever for losses is permitted in the case of property held for personal use or consumption. ”

“ That construction was followed by the Board of Tax Appeals, the Circuit Court of Appeals for the Third Circuit, and the Court of Appeals of the District of Columbia. [3] The Commissioner says that the words of the definition are free from ambiguity, and that the statute contains no exception. From an opinion of this court he invokes these statements: 'If the language be clear it is conclusive. There can be no construction where there is nothing to construe.' United States v. ”