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Smith v. Shaughnessy

318 U.S. 176, 63 S. Ct. 545, 87 L. Ed. 690 (1943)

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Smith v. Shaughnessy

United States Supreme Court

318 U.S. 176, 63 S. Ct. 545, 87 L. Ed. 690 (1943)

Facts

Seventy-two-year-old Hurlbut Smith (plaintiff) gave his 44-year-old second wife $571,000 worth of stock in an irrevocable trust. The trust paid her the income for life and would return the stock to Smith only if he outlived her. Otherwise, the stock would go to whomever his wife’s will designated or to her heirs at law. Essentially, the gift involved three interests: his wife’s life estate in the income; her remainder interest in the corpus if she outlived him; and his reversionary interest if he outlived her. Internal revenue collector Frank Shaughnessy (defendant) assessed a $71,764 gift tax. Smith paid the tax under protest and sued for a refund. Smith conceded that his wife’s life-estate interest was subject to gift tax, and the tax collector conceded that Smith’s reversionary interest was not. That left the only remaining dispute whether the value of his wife’s remainder interest was subject to gift tax. The trial court found it not taxable, reasoning the gift had not been completed, but the appellate court reversed. The United States Supreme Court granted review.

Rule of Law

Issue

Holding and Reasoning (Black, J.)

Dissent (Roberts, J.)

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