Commissioner v. Estate of Copley

In 1931, nine days before Ira and Chloe Copley got married, the couple entered a prenuptial contract. In this contract, Chloe gave up her marital rights to make any claim against Ira’s property after the two got married. In exchange, Ira agreed to pay Chloe $1 million. In 1932, Congress enacted the first gift tax, imposing a federal tax on any property that was not transferred for its value in money or the equivalent of money. In 1936, Ira transferred $500,000 worth of stock to Chloe as part of the promised $1 million. In 1944, Ira transferred another $500,000 worth of stock to complete the promised payment. When Ira died, the commissioner of Internal Revenue (commissioner) (defendant) determined that Ira’s estate (plaintiff) owed gift taxes on the two $500,000 stocks transfers. The commissioner argued that the transfers were taxable gifts because, under existing United States Supreme Court precedent, virtually all payments made pursuant to prenuptial agreements were considered gifts. Ira’s estate petitioned for a new determination. The estate argued that the transfer was not taxable because it occurred when the contract was created in 1931, before any gift tax existed. The commissioner responded that transfers had not actually occurred until 1936 and 1944, when the gift tax was effective. The United States Tax Court ruled that the transfers were not taxable gifts, and the commissioner appealed to the Seventh Circuit.