Helvering v. Gambrill

Background

A man who inherited the remainder interest under his grandmother’s will received trust property after his mother (the life beneficiary) died in March 1928. The trustees delivered the corpus to him on May 5, 1928. Some assets had belonged to the grandmother at her death in 1897; other assets were bought by the trustees before or after March 1, 1913. The heir sold portions of the property in February, May 6, and June 1930. Lower tribunals treated the heir’s tax basis and the time he had held the property in a way that the Court reviewed.

Reasoning

The Court considered two questions: what dollar basis the heir uses to figure gain or loss, and when his holding period began for capital-gain treatment. The Court held that for property the grandmother owned at her death the heir’s basis tracks the value when the executors gave the property to the trustees, while for property bought by the trustees the basis is the trustees’ cost. The Court also held that the heir’s holding period runs from the grandmother’s death for property she owned and from the trustees’ purchase date for property they bought. The decision relies on the tax statute’s rule allowing a successor’s holding time to include earlier holders when the basis is the same.

Real world impact

The ruling affects people who inherit property through trusts: it determines when sales qualify as long-term capital gains (which usually get lower tax rates) and whether trustee purchases count toward the two-year holding requirement. The Court reversed the lower courts’ decision, changing tax outcomes for the sales at issue.

Dissents or concurrances

The Chief Justice and Justice Roberts would have affirmed the lower court’s judgment, showing a clear disagreement about applying the statute to these facts.