Petition for review from Board of Tax Appeals.
Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.
Karl G. Roebling, father of the petitioner, Robert C. Roebling, in his will divided his estate into a certain number of shares and then provided as follows:
"III. I give, devise and bequeath one of such shares to my trustees, hereinafter named, in trust nevertheless, to hold the same for the benefit of each child of mine who shall survive me and shall not then have attained the age of twenty-one years and to collect and receive the rents, income, dividends and profits thereof, and, after paying out therefrom all lawful expenses and charges, to pay over to apply the said rents, income, dividends and profits thereof, or so much thereof as shall be deemed advisable in the discretion of any said trustees, for the education, support and maintenance of such child of mine in the manner to which he or she shall attain the age of twenty-one years, and, upon his or her attaining the age of twenty-one years, to pay, transfer, deliver and convey to him or her the principal of such equal share, together with any accumulated income thereon, or, in case such child of mine shall die before attaining the age of twenty-one years leaving descendants then living, to pay, transfer, deliver and convey the principal of such equal share, together with any accumulated income thereon, to such descendants of such deceased child of mine, per stirpes and not per capita.
"IV. In case any child of mine who shall survive me shall die before attaining the age of twenty-one years leaving no descendants then living, the share or shares to which such deceased child of mine would have been entitled if he or she had attained the age of twenty-one years before his or her death, together with any accumulated income thereon, shall be divided. * * *"
The testator died on May 29, 1921 and the petitioner reached the age of twenty-one years on September 22, 1925.
In 1925, prior to September 22, the income derived from the petitioner's share of the estate was $59,031.90 of which he received $21,657.70 and the balance, amounting to $37,374.20, was turned over to him when he reached his majority. The trustees reported and paid the tax on this balance of $37,374.20 accumulated during the petitioner's minority in 1925.
After he had received the principal of the trust, the petitioner sold certain of the securities for $69,746.87, prior to the end of the taxable year of 1925. The fair market value of these securities was $53,627.28 at the time of his father's death and $67,926.67 when the petitioner attained the age of twenty-one years.
The Commissioner of Internal Revenue determined that the gain from the sale of the securities should be computed for income tax purposes on the basis of their fair market value at the date of the testator's death and that the surplus income of $37,374.20 accumulated in 1925 was taxable to the petitioner and not to the trustees. The Board of Tax Appeals sustained this determination.
The first question is whether or not the basis for computing the gain to the petitioner on the securities sold by him in 1925 was their fair market value when his father died or when he became of age.
Section 204 (a) (5) of the Revenue Act of 1926 (26 USCA § 935) (a) (5) provides that the basis for determining gain or loss on property acquired by bequest or devise shall be the fair market value of the property "at the time of such acquisition."
The time of the "acquisition" of the property by the petitioner depends upon whether he received a vested or contingent interest under his father's will which must be construed in accordance with the law of New Jersey where his father was domiciled and the will was probated. Uterhart v. United States, 240 U.S. 598, 36 S. Ct. 417, 60 L. Ed. 819. If under the law of that state, the petitioner acquired a vested interest in the principal of the trust fund at the date of his father's death, the basis for computing the gain is the fair market value of the property at the date of his father's death; but if he acquired a contingent interest the basis is its value when he reached his majority.
The intention of the testator will be given effect if it can be determined from the language used in the instrument. Gifford v. Thorn, 9 N.J. Eq. 702; Neilson v. Bishop, 45 N.J. Eq. 473, 17 A. 962; In re Buzby's Estate, 94 N.J. Eq. 151, 118 A. 835. But naturally since the testator can not anticipate every problem that may arise after his death, it often occurs that the language of a testamentary gift is ambiguous, contradictory, or vague and ...