Cary v. Commissioner

Background

Henry M. Flagler died on May 20, 1913. People named in his will were beneficiaries of a trust that lasted ten years and ended on May 20, 1923. When the trust ended, the trustees delivered certain securities to the beneficiaries. Those securities were later sold in 1934 and 1936. The beneficiaries argued they had only contingent interests at the decedent’s death under Florida law and that their taxable gain should be measured by the securities’ value when delivered rather than by their value at death.

Reasoning

The central question was whether the proper basis for taxable gain under §113(a)(5) of the 1934 and 1936 Revenue Acts is the securities’ value when the beneficiaries received them or their value on the decedent’s date of death. The Court, relying on the reasoning set out in Helvering v. Reynolds, held that the correct basis is the value at the date of death. The opinion explains that even if the beneficiaries had contingent interests under Florida law, that fact does not change the result. The Court noted the statute and Treasury regulations were the same in the relevant years and affirmed the lower court’s judgment (116 F.2d 800).

Real world impact

This ruling means people who inherit securities from a will must use the decedent’s date-of-death value to compute taxable gain when they later sell, not the later delivery value. That affects tax bills for beneficiaries who sell inherited investments many years after death. The opinion also notes specific deliveries to one beneficiary in 1921 and a related transfer between spouses, which the Court treated as the same situation.

Dissents or concurrances

The Chief Justice and Justice Roberts dissented, joining reasons they gave in their separate opinion in Helvering v. Reynolds.