Helvering v. Reynolds

Background

A man inherited a remainder interest in his father’s trust. The trust’s trustee delivered securities to him on April 4, 1934; some securities had come from the decedent’s estate and others were later bought by the trustee. The beneficiary sold securities in 1934 and used the April 4, 1934 value as his tax basis. The Commissioner said the basis for decedent-owned securities was their value at the decedent’s death and that trustee-purchased securities should use the trustee’s cost. Lower tribunals split on the question and the case reached the Court to resolve the conflict.

Reasoning

The Court had to decide what “time of acquisition” means for property acquired by bequest when the beneficiary’s interest was contingent. It upheld a Treasury regulation that treats titles from a will or inheritance as relating back to the decedent’s death for basis purposes. The Court found that the regulation reasonably interprets the statute and that using the decedent’s death value avoids taxing beneficiaries on gains they never actually received. For securities the trustee purchased after the decedent’s death, the Court held the correct basis is the trustee’s cost.

Real world impact

Practically, heirs who receive securities traced to a decedent will use the securities’ value at the decedent’s death to compute gain or loss. Securities bought later by a trustee keep the trustee’s cost basis. The decision settles conflicting lower-court views and lets Treasury rules guide how inherited property is measured for tax purposes.

Dissents or concurrances

Justice Roberts dissented, arguing the regulation overreaches and that Congress’ prior practice and history show the beneficiary’s acquisition should be when the beneficiary actually gains full ownership.