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Correlation of the gift tax and the estate tax still requires legislative intervention. But to interpret the same phrases in the two taxes concerning the same subject matter in different ways where obvious reasons do not compel divergent treatment is to introduce another and needless complexity into this already irksome situation. Here, strong reasons urge identical construction. To hold otherwise would encourage tax avoidance. And it would not fulfill the purpose of the gift tax in discouraging family settlements so as to avoid high-income surtaxes. There is thus every reason to construe the provisions of both taxes harmoniously.
By the antenuptial agreement entered by petitioner taxpayer with a certain Kinta Desmare, petitioner agreed to set up within ninety days after marriage an irrevocable trust for $ 300,000, the provisions of which were to conform to Desmare's wishes. In return, Desmare released all rights that she might acquire as wife or widow in taxpayer's property, both real and personal, excepting the right to maintenance and support. On their gift tax return for 1939, both reported the creation of the trust but claimed that no tax was due. The respondent, Commissioner of Internal Revenue, however, determined a deficiency of $ 99,000 in taxpayer's return in relation to the transfer of the $ 300,000. Upon the Commissioner's rejection of the taxpayer's claim for refund of the assessment paid by him, the present suit against the Collector was filed. The District Court sustained the taxpayer, but was reversed by the Circuit Court of Appeals for the Fifth Circuit. Certiorari was granted.
Was the trust created by the taxpayer in exchange for an antenuptial agreement taxable as a gift by the Collector of Internal Revenue?
The U.S. Supreme Court affirmed the lower court's holding that a trust created by the taxpayer in exchange for an antenuptial agreement was taxable as a gift by the Collector of Internal Revenue. The gift and estate taxes had to be given the same reading given their similar purposes, and the estate tax had been interpreted so as not to allow relinquishment of marital rights to avoid high income taxes. A different holding would have encouraged tax avoidance.