United States v. O'Malley/Dissent Stewart

by Potter Stewart

United States Supreme Court

383 U.S. 627

UNITED STATES, Petitioner,  v.  Charles E. O'MALLEY et al.

 Argued: Jan. 24 and 25, 1966. --- Decided: March 23, 1966

Mr. Justice STEWART, with whom Mr. Justice HARLAN joins, dissenting.

In the 1930's Edward Fabrice made an irrevocable transfer of certain property to trusts for the benefit of his wife and daughters. Twelve years later he died. Because of the provisions of § 811(c)(1)(B)(ii) of the Internal Revenue Code of 1939, ^[1] the value of the property Fabrice had irrevocably transferred was nonetheless included in his gross estate for estate tax purposes. The respondents do not question the correctness of that determination. But in this case the Court holds that the accumulated income which that property generated during the 12 years that elapsed after Fabrice had irrevocably transferred it is also to be included in his gross estate under § 811(c)(1)(B)(ii). I think the Court misreads the statute.

By its terms the statutory provision applies only to property 'of which the decedent has at any time made a transfer.' Fabrice 'made a transfer' only of the original trust corpus. He never 'made a transfer' of the income which the corpus thereafter produced, whether accumulated or not. ^[2] I can put the matter no more clearly than did the Court of Appeals for the Seventh Circuit in Commissioner of Internal Revenue v. McDermott's Estate, 222 F.2d 665, 668:

'Irrespective of all other considerations, property to be includible must have been transferred. Obviously, the accumulations here involved were not transferred by the decedent to the trustee. It is true, of course, that the accumulations represented the fruit derived from the property which was transferred but, even so, Congress did not make provision for including the fruit, it provided only for the property transferred. If it desired and intended to include the accumulations, it would have been a simple matter for it to have so stated.'

See also Michigan Trust Co. v. Kavanagh, 284 F.2d 502, 506 507 (C.A.6th Cir).

Nothing in the legislative history persuades me that the statute should not be applied as it was written, and I would therefore affirm the judgment.

Notes

1. The relevant text of the statute is set out on page 628 of the Court's opinion.
2. The value of the original trust corpus at the time of transfer and at the time of Fabrice's death no doubt reflected its income-producing capacity.