Blodgett v. Holden

Background

The case involves a U.S. resident, Mr. Blodgett, who made large gifts in January 1924 valued at over $850,000 and smaller gifts after June 2, 1924. The federal government assessed a gift tax under sections of the Revenue Act of 1924, later amended by a 1926 law that said the amendment took effect as of June 2, 1924. Blodgett paid the tax and sued to recover the amount claimed for the transfers made before the statute’s effective date.

Reasoning

The main question was whether Congress could impose a tax on gifts that were completed before the tax law came before Congress or took effect. Justice McReynolds concluded the statute’s application to gifts made in January 1924 was arbitrary and violated the Fifth Amendment’s guarantee of due process because donors made absolute transfers in good faith and could not reasonably have anticipated a retroactive tax. The Court therefore ruled those taxes invalid as applied to the gifts made before June 2, 1924.

Real world impact

The immediate effect is that donors who completed gifts before the law’s effective date cannot be charged under the 1924 Act for those past transfers and may recover taxes paid. The opinion does not finally decide whether the law is valid for gifts made after June 2, 1924, so future transfers may still be taxed under the statute or its amendments.

Dissents or concurrances

Justice Holmes agreed with the result but relied on interpreting the statute to apply only to gifts after it was passed; Justices Brandeis, Sanford, and Stone joined his view. The Chief Justice, Van Devanter, and Justice Butler joined McReynolds’s opinion.