Bromley v. McCaughn

Background

Bromley, a U.S. resident, paid a federal tax on gifts he made after the Revenue Act of 1924 (as later amended) and sued to recover it. The statute imposed a graduated tax on transfers “by gift” of any property wherever situated and exempted total gifts under $50,000, small gifts to one person under $500, and certain charitable or educational gifts. The appeals court asked the Supreme Court whether applying these rules to ordinary lifetime gifts not made in contemplation of death was constitutional.

Reasoning

The Court framed the core question as whether the gift tax is a “direct” tax that must be apportioned among the states or an excise (a tax on a specific use or act) that need not be apportioned. The majority said the tax targets the act of giving — a particular exercise of ownership — and therefore is an excise. The opinion relied on earlier cases that allow taxes on specific uses or privileges without apportionment. The Court also held that geographic uniformity is required, not identical treatment across all taxpayers, and found the statute’s graduated rates and exemptions did not violate due process or the Constitution’s uniformity requirement. The Court answered the certified questions “No.”

Real world impact

Congress may continue to collect the federal gift tax as written. People who make large or structured lifetime gifts remain subject to the statute’s graduation and exemption rules. The ruling resolves the certified questions for the pending case and guides lower courts on applying the tax to non‑death transfers.

Dissents or concurrances

A dissent argued the gift tax is in substance a tax on property and thus should be treated as a direct tax requiring apportionment, cautioning that taxing the power to give is equivalent to taxing ownership.