Irwin v. Gavit

SCOTUSCase
Litigants=Irwin v. Gavit
ArgueDate=April 15
ArgueYear=1925
DecideDate=April 27
DecideYear=1925
FullName=Irwin, Former Collector of Internal Revenue, v. Gavit
USVol=268
USPage=161
Citation=45 S. Ct. 475; 69 L. Ed. 897; 1925 U.S. LEXIS 557; 1 U.S. Tax Cas. (CCH) P132A; 5 A.F.T.R. (P-H) 5380; 1925-1 C.B. 123; 1925 P.H. P8032
Prior=U.S. Dist Ct. N.D.N.Y. found for plaintiff, 275 F. 643; U.S. Ct. App. for the 2nd cir. affirmed, 295 F. 84
Subsequent=
Holding=The income paid from a trust or estate is taxable, even where the bequest of the entire corpus of the trust would be considered a gift.
SCOTUS=1925-1930
Majority=Holmes
JoinMajority=Taft, Stone, Van Devanter, McReynolds, Brandeis, Sanford
Dissent=Sutherland
JoinDissent=Butler
LawsApplied=Internal Revenue Code

"Irwin v. Gavit", 268 U.S. 161 (1925), [ [http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=CASE&court=US&vol=268&page=161 268 U.S. 161] Full text of the opinion courtesy of Findlaw.com.] was a case in which the Supreme Court of the United States held that the income from property held in trust was taxable income under United States tax law.

Facts and procedural history

The plaintiff in this case was the administrator of the will of Anthony N. Brady. Brady's will had left his estate to be divided into six parts. The income of one of those parts was to go to the education and support of Brady's granddaughter, Marcia Ann Gavit, and the remaining five-sixths would be divided in half, one part of which to be paid Brady's son-in-law (who was the administrator of the estate and the named plaintiff in this matter). Marcia Ann Gavit was only six years old at the time of the suit; the will provided that when she reached the age of twenty-one (or died), the fund would go over, so that the plaintiff's interest in the funds held in trust for Marcia would not exceed fifteen years maximum. The plaintiff sued the Commissioner of Internal Revenue in the United States District Court for the Northern District of New York for a refund of the tax paid. The district court found for the plaintiff, and the United States Court of Appeals for the Second Circuit affirmed.

Majority opinion

The Internal Revenue Code at the time provided that while the gains, profits and income "derived from any source whatsoever" was taxable, the value of property acquired by gift or bequest was not to be included in taxable income, and that trustees could be required to account for and withhold certain amounts for the payment of tax. Justice Holmes, writing for the majority, reasoned that the statute as then written required that the income received by trustees and paid to the remainderman be considered taxable income. Holmes held that although the receipt of the estate funds would be considered a non-taxable bequest, the receipt of income from those funds in installments is taxable.

Dissent

Justice Sutherland dissented, rejecting Holmes' distinction between the income from the trust and the trust itself, and suggesting that the majority stretched the meaning of the statute too far. He wrote that money is itself property, and therefore the money paid to Marcia Ann Gavit should also be considered part of the bequest:

"The corpus of the estate was not the legacy which respondent received, but merely the source which gave rise to it. The money here sought to be taxed was not the fruits of a legacy; it was the legacy itself."

268 U.S. 161 at 169.

ee all

* List of United States Supreme Court cases, volume 268

References