United States v. De Bonchamps

These three cases, consolidated for our decision, present the question whether legal life tenants are taxable either as owners or as fiduciaries on capital gains realized in sales of portions of the corpus. In all three cases, gains were realized by sales of estates assets. Taxes were paid thereon by the life tenants as owners; claims for refund were made and these actions were brought to recover such refunds. In each action the United States has counterclaimed for the amount of tax payable by the taxpayer as fiduciary of a trust. 1 In each case summary judgment by the trial court was rendered in favor of the taxpayer. Appeals have been taken by the United States.

The life estates were created by will under California law and grant broad powers to the life tenants to use and consume the corpus for their needs, maintenance and comfort.

In the De Bonchamps and Cowgill cases, the taxpayers are daughters of the testator. The will granted one-half of the estate to each daughter for her use during her life. Upon her death, the remainder was to go to her children then living and the issue of any deceased child per stirpes. It provided:

In the King case, the taxpayer is the wife of the…

(dissenting).

I am in complete agreement with that portion of the majority opinion which *134 concludes by stating, “We conclude that the capital gains in question may not be taxed to these taxpayers as owners.” However, I must part company with the majority opinion wherein it concludes “that the capital gain here involved is taxable as income of property held in trust under 26 U.S.C. § 641 (a).”

While the imposition of a tax under the circumstances reflected in the record may be a consummation devoutly to be desired, such consummation should be effected by Congress and not by the judiciary. In my view Congress has not done so, although there is recent indication that Congress intends to do so shortly. H.R. 9662 was introduced by the chairman of the House Ways and Means Committee on January 18, 1960. It is known as the “Trust and Partnership Income Tax Revision Act of 1960”. On January 28, 1960 the bill was committed to the Committee of the whole House. H.R. 9662 contains a provision amending Section 641 of the Revenue Code of 1954, by adding a new sub-section, imposing upon the legal life tenant the liability to report and pay a tax on gross income not otherwise taxable. The…

(dissenting).

I join Judge JERTBERG in dissenting from the majority decision of the Court, and concur in his opinion.