Commissioner v. Wemyss

Background

In 1939 a man proposed marriage to Mrs. More, a widow whose late husband had set up two trusts. The trusts split income between Mrs. More and her child, but Mrs. More’s income would stop if she remarried and then go to the child. To prevent her losing income, the man transferred a block of stock to her on May 24, 1939; they married within a month. The stock’s value was about $149,456 and had produced about $5,484 a year to Mrs. More before remarriage. The tax Commissioner treated the transfer as a taxable gift under the Revenue Act of 1932 and assessed a deficiency.

Reasoning

The Court examined sections 501 and 503 of the 1932 Act and Treasury rules. It explained that Congress meant the gift tax to cover transfers made for less than an adequate money-value return, without requiring proof that the transferor intended to make a gift. The Tax Court had concluded the transfer was not an ordinary business deal, and that marriage or the donee’s loss of trust income did not count as money or money’s worth. The Supreme Court agreed, rejecting the view that courts must look only for an intention to give a gift. It also accepted the Tax Court’s view that a money-value consideration must benefit the giver to avoid gift treatment.

Real world impact

The decision means transfers tied to marriage agreements or to a donee’s sacrifice of benefits can be taxed as gifts unless the donor receives true money-value consideration that benefits him. It prevents using such arrangements to evade the gift tax and gives tax officials a clear, money-value test.

Dissents or concurrances

A dissenting Justice would have upheld the appeals court, viewing the agreement as an arm’s-length bargain lacking intent to make a gift.