Burnet v. Guggenheim

In 1917, Murry Guggenheim (plaintiff) created two 10-year trusts for his two children. While the trusts were in effect, the children were entitled to some of the trusts’ income, and some income was returned to the trusts as principal. At the end of the trusts’ 10-year period, the children would receive the trusts’ entire principal. However, Guggenheim specifically retained a right to revoke his transfer of money into the trusts, i.e., the trusts’ principal, at any time before the trusts ended. In 1921, Guggenheim transferred several million dollars into the trusts. In 1924, Congress passed a statute that created a new gift tax on any gift transfers of property. The next year, in 1925, Guggenheim terminated his right to revoke the trusts’ principal. The commissioner of Internal Revenue (commissioner) (defendant) assessed a gift tax against Guggenheim on the approximately $13 million principal in the trusts at that time, under the theory that Guggenheim’s termination of his revocation rights had completed the gift transfer from Guggenheim to the children’s trusts. Guggenheim petitioned for a determination that his gift transfer had been completed when he transferred the money into the trusts, that is, before the gift tax took effect. The Board of Tax Appeals found that Guggenheim owed the gift tax, but the Second Circuit ruled that Guggenheim owed nothing. The United States Supreme Court agreed to review the issue.