Before GOODRICH, McLAUGHLIN and HASTIE, Circuit Judges.
The question in this case is whether the taxpayer is liable for a gift tax for the year 1947. This in turn depends upon whether a gift in trust made by her in 1930 was a final gift in that year or whether its finality was postponed until the later date.
The facts are not difficult. The settlor, then Mrs. Bissell, who was separated from her husband, set up a trust in 1930. Beneficial interest was to herself for life and remainder to the two adopted children of the Bissells. The instrument contained a provision that the trust could be rescinded or changed by the settlor at any time but only with the unanimous consent of the trustees. In 1947 this provision was deleted from the instrument. It is the Commissioner's contention that it was not until this deletion was made that the gift became final and that, as a consequence, gift tax is payable for that year. The Tax Court agreed with this contention, CCH TC Mem.Dec. 19,686 (1953).
The controversy turns upon the clause in the trust deed just mentioned and upon the effect of Treasury Regulations 108, § 86.3. To focus the controversy the language must be quoted:
"A donor shall be considered as himself having the power [to alter or revoke] where it is exercisable by him in conjunction with any person not having a substantial adverse interest in the disposition of the transferred property or the income therefrom. A trustee, as such, is not a person having an adverse interest in the disposition of the trust property or its income."
There are two questions. One is rather hard; the other rather simple. The first is whether the regulation is to be given effect according to its own language. The second is whether, if the regulation is valid, the trustees of this trust have a sufficient adverse interest to qualify under the terms of the regulation.
Upon the first point the taxpayer's argument is that the regulation is valid only in so far as it may shift to a taxpayer the burden of showing that the trustees are not persons subject to the taxpayer's wishes or demands. This argument is bottomed on counsel's conception of the history of the gift tax statute. When this trust was first set up in 1930 there was no gift tax.*fn1 Obviously the trust was not set up with any gift tax consequences in mind. In 1932 the tax was re-established and a section of the statute provided for adverse interest in the following terms:
"(c) The tax shall not apply to a transfer of property in trust where the power to revest in the donor title to such property is vested in the donor, either alone or in conjunction with any person not having a substantial adverse interest in the disposition of such property or the income therefrom, but the relinquishment or termination of such power (other than by the donor's death) shall be considered to be a transfer by the donor by gift of the property subject to such power, and any payment of the income therefrom to a beneficiary other than the donor shall be considered to be a transfer by the donor of such income by gift." 47 Stat. 169, 245-246, 26 U.S.C.A.Int.Rev.Acts, p. 580.
The regulations for the 1932 Act contained a provision for adverse interest on the part of the trustee almost identical in language with the one under consideration in this case.*fn2 Following this the Supreme Court decided Burnet v. Guggenheim, 1933, 288 U.S. 280, 53 S. Ct. 369, 77 L. Ed. 748. This case involved only the effect of a reservation of a power to alter or revoke on the part of a settlor alone. It did not involve the question of other persons on whose will, in conjunction with that of a settlor, revocation or alteration depended.
The principle established by this decision is stated by Judge Magruder in Camp v. Commissioner, 1 Cir., 1952, 195 F.2d 999, 1003 as follows:
"What, then, was this 'principle' recognized in the Guggenheim case? We think it is to be found in the Court's opinion, 288 U.S. at [page] 286, 53 S. Ct. 369, 371, 77 L. Ed. 748, that the gift tax was not aimed at every transfer of the legal title without consideration, which would include a transfer to trustees to hold for the use of the grantor, but was aimed, rather, 'at transfers of the title that have the quality of a gift, and a gift is not consummate until put beyond recall.'"*fn3
In the 1934 statute, § 501(c) of the 1932 Act was repealed by the Congress, 48 Stat. 680, 758. The committee reports show very clearly why it was omitted. The reason was that the lawmakers felt that the Guggenheim case had covered the point and that the paragraph was unnecessary.*fn4 The regulation written for the 1932 Act remained virtually unchanged for the Act of 1934, Treas. Regs. 79, Art. 3 (1936), and, as said above, has remained about the same ever since. It is to be noted, however, that the Commissioner did not by the regulation write back into the law what Congress had intended to change. Congress had dropped the provision out of the law because it was felt it was already there without the necessity of express words in the statute. Under these circumstances we do not see how it can be charged that the administrative body is writing into the law something that is not there.
Almost as close a case as one could find on this point is the First Circuit's opinion in Camp v. Commissioner, cited above. This was a case where the settlor's power to revoke or revise was dependent upon the agreement of another without an adverse interest.*fn5 The court held that the gift did not become complete, as to its tax incidence, until the provision for amendment was relinquished. It said expressly that "the regulation recognizes realistically that when the donor has reserved the power to withdraw any of the donated interests with the concurrence of some third person who has no ...