McAllister v. Commissioner , 5 T.C. 714 ( 1945 )

Beulah Eaton McAllister, Petitioner, v. Commissioner of Internal Revenue, Respondent

McAllister v. Commissioner

Docket No. 4037

United States Tax Court

5 T.C. 714; 1945 U.S. Tax Ct. LEXIS 84;

September 13, 1945, Promulgated

---

Decision will be entered under Rule 50.

Payment to petitioner in return for termination of her life interest in income of trust and in full settlement therefor, held, taxable as ordinary income in year of receipt.

Charles B. Collins, Esq., William Diebold, Esq., and Rudolph J. Welti, C. P. A., for the petitioner.

Lawrence F. Casey, Esq., for the respondent.

Opper, Judge. Van Fossan and Kern, JJ., dissent. Disney, J., dissenting. Black, J., agrees with this dissent.

---

OPPER

This case involves income tax for the calendar year 1940. Respondent has determined a deficiency in the sum of $ 19,468.59.

The only question remaining for our consideration is whether the transaction by which the sum of $ 55,000 was paid to petitioner on July 19, 1940, and accepted by her in full settlement of her interest in a certain trust created by the will of Richard McAllister, deceased, under which trust petitioner was entitled to receive the income for life, resulted in the receipt by petitioner of ordinary income taxable in full, or constituted a sale or exchange of a capital asset resulting in a deductible capital loss.

FINDINGS OF FACT.

We adopt as part of our findings of fact the stipulation of facts filed by the parties, including the exhibits referred to therein and admitted in evidence. Such parts of the stipulation of facts and of the exhibits referred to therein as are necessary to an understanding of the question presented are summarized below. We also include additional findings of fact based upon evidence adduced at the hearing.

Beulah Eaton McAllister (hereinafter sometimes referred to as petitioner) is an individual residing in Beverly Hills, California. She filed her Federal income tax return for the calendar year 1940 with the collector of internal revenue for the second district of New York on February 26, 1941.

Petitioner was the lawful widow of John McAllister, who died, leaving no children, on May 1, 1937, on which date petitioner was 32 years, 4 months, 26 days old, having been born on December 4, 1904. John McAllister was the son of Richard McAllister, who died on or about April 6, 1926.

The last will and testament (executed March 3, 1921) and codicil thereto (executed September 3, 1921) of Richard McAllister (hereinafter sometimes referred to as the decedent) provided in part as follows: That a trust fund of $ 100,000 be set up, the income to be paid to John McAllister for life and upon his death to his wife (the petitioner herein) in the event John McAllister left no children; the trust to terminate upon the death of the widow of John McAllister; that the residue go to Josephine C. McAllister, the testator's wife, and Richard McAllister, his son. The will and codicil further provided:

* * * I further direct that the income from the various trusts hereinabove created shall not be subject to any transfers, assignments or encumbrances, made or created by any of the respective beneficiaries, and shall not be subject to any suits, liens, judgments, attachments, or executions resulting from any debts or acts of any of the respective beneficiaries, nor shall the same be subject to any suits, actions or proceedings, of any kind, brought against any of them.

* * * *

CODICIL

Second: I will and direct that all the shares of principal and income by this my will given to or directed to be held for the use and benefit of the several and respective beneficiaries in the Trusts in this my will mentioned or set out shall not be in any way or manner subject or liable to their or either of their anticipation, sale, pledge, debts, contracts, engagements or liabilities, and not subject or liable to attachment or sequestration under any legal or equitable or other process.

The decedent's son, Richard McAllister (hereinafter sometimes referred to as Richard, Jr.,) and John Casey were designated executors and these two, together with the Provident Life & Trust Co. of Philadelphia, were designated trustees. The will and codicil thereto were admitted to probate by the surrogate of Atlantic County, New Jersey, on May 26, 1926, and Richard, Jr., and John Casey were duly authorized to administer the estate.

Josephine C. McAllister died on or about April 16, 1935, leaving a last will which was duly admitted to probate and under which Richard, Jr., and Josephine Curtis duly qualified as executors.

In a proceeding (Docket No. 119/561 in the Court of Chancery of New Jersey) between Beulah Eaton McAllister, petitioner herein, complainant, and Richard McAllister, John Casey, and Provident Trust Co. of Philadelphia, defendants, a final decree, dated June 2, 1939, was entered, which provided in part as follows: That Beulah Eaton McAllister was the lawful widow of John J. McAllister, upon his death on May 1, 1937, and that she was entitled to receive for life the net income from the $ 100,000 trust fund set up by Richard McAllister, which income the trustees were ordered to pay to her.

The $ 100,000 bequeathed in trust by the third clause of the decedent's will was invested in a certain bond and mortgage for $ 100,000 made by Richard, Jr., and decedent's widow on January 3, 1928, to the trustees designated in decedent's will. The mortgage covered premises in Atlantic City, New Jersey, and the investment in this bond and mortgage was the subject of a surcharge decree dated June 8, 1936, rendered by the Chancery Court of New Jersey, against the trustees in a proceeding (Docket No. 110/403) between John McAllister and Beulah Eaton McAllister, his wife, complainants, and Richard McAllister et al., defendants. On April 8, 1940, the Chancery Court directed the trustees to comply with that decree, requiring them to deliver $ 100,000 to themselves as trustees for the purpose of the trust.

In a further proceeding in the Chancery Court of New Jersey (Docket No. 125/47), petitioner, individually and as administratrix of the estate of her husband, recovered possession of 120 shares of R. McAllister, a corporation, an asset of the estate of John McAllister which had been pledged as security for payment of legal fees owing by petitioner as administratrix of her husband's estate. These 120 shares were the only assets of the estate of John McAllister. Claims had been filed against the estate for funeral services and doctor's bills; also claims were filed by R. McAllister (the corporation) for $ 471.38 and McAllister Coal Co., a corporation, for $ 5,049.77. An attempt to sell these 120 shares to protect the estate of John McAllister from insolvency or bankruptcy resulted in the receipt of an offer to purchase at only $ 210 per share, although the book value of this stock was about $ 800 a share.

On June 24, 1940, a proceeding was commenced in the Court of Chancery of New Jersey (Docket No. 129/370) between Beulah Eaton McAllister, complainant, and Richard McAllister, John Casey, and the Provident Trust Co. of Philadelphia, a corporation, as trustees of the trust set up in the third clause of the will of Richard McAllister, deceased, Richard McAllister, individually, and Richard McAllister and Josephine Curtis, as executors of, and trustees under, the will and codicil of Josephine C. McAllister, deceased, defendant. The bill of complaint filed in this proceeding, after setting forth substantially all the facts hereinbefore set forth in our findings of fact, further provided as follows:

12. Complainant, by reason of the present economic conditions and a desire to terminate litigation which has been pending for a long period of time, as well as further contemplated expensive litigation, and by reason of her desire to return to Kentucky where her immediate relatives reside, and by reason of the necessity of obtaining money with which to pay various claims of the estate of her husband, John McAllister, which to date remain unpaid due to insufficient funds in the estate of said John McAllister, has indicated to the aforesaid trcstees, the remaindermen, the officers of R. McAllister, a corporation, and Richard McAllister, individually, her desire to terminate the trust set forth in the Third clause of the will of Richard McAllister, deceased, and to affect [sic] a sale of said 120 shares of stock of R. McAllister, a corporation. Complainant is advised and verily believes that said trustees and remaindermen, hereinabove mentioned, are willing to consent to the termination of said trust and will pay to complainant the sum of $ 55,000, together with all accumulated income from the trust corpus, which is payable to her at 6% per annum, computed to the date on which she receives the said sum of $ 55,000, in full consideration of the surrender by her of her life interest in said trust, which settlement figure is based to a large extent upon her present life expectancy. Complainant, however, is unwilling to terminate said trust as hereinbefore stated unless Richard McAllister, or his nominee, agrees to purchase from her individually and as administratrix of the estate of John McAllister, deceased, said 120 shares of stock of R. McAllister, a corporation, for the sum of $ 50,000, to the end that all litigation regarding said stock may be finally terminated. Said Richard McAllister has advised complainant, individually and as administratrix, that he or his nominee will purchase from her, in said capacity, the said 120 shares of stock of R McAllister, a corporation, for $ 50,000, in the event that the trust is terminated as hereinbefore set forth, and that all claims of R. McAllister, a corporation and McAllister Coal Company, a corporation, against the estate of John McAllister will be settled upon payment of $ 5,000 by complainant as administratrix to said corporation and the mutual exchange of general releases between all interested parties herein.

Complainant is without adequate remedy in the courts of law, and therefore prays:

* * * *

That the trust set up in and by the Third clause of the will of Richard McAllister, deceased, be terminated by the decree of this Honorable Court, conditioned, however, upon full payment of the various sums of money and performance of the various acts more particularly set forth in paragraph 12 of this bill of complaint and that upon termination of said trust the trustees thereof be directed to make distribution of the trust corpus remaining after satisfaction of all the administration expenses to the remaindermen or their personal representatives.

At the time of the filing of the bill of complaint in Docket No. 129/370, the Provident Trust Co., a trustee under decedent's will, filed a claim against the executors under the will of Josephine McAllister, deceased, for $ 100,000 and interest based upon the original investment of the corpus of the trust under the third paragraph of the will of Richard McAllister, deceased, and upon the basis of which investment the surcharge decree had been entered.

A stipulation of facts was filed in the proceeding in the Chancery Court of New Jersey (Docket No. 129/370) and, after reciting in substance the various facts which have been hereinbefore set forth in our findings of fact, it further provided in part as follows:

11. That all the parties in interest in this cause, [naming the parties] * * * are desirous of settling and determining the protracted litigation which has for sometime been in progress and to eliminate further future litigation among the respective parties in the premises, to terminate the trust set up in the third clause of the will of said Richard McAllister, deceased, including the sale by said Beulah Eaton McAllister, individually and as administratrix aforesaid of the said 120 shares of stock of said R. McAllister, a corporation, and have agreed among themselves and each with the other in consideration of the premises to settle and adjust all of their said differences, disputes and litigation, as follows:

1. That the trust set up in the third clause of the will of Richard McAllister, deceased, hereinbefore specifically referred to, be completely terminated and ended by the payment to the widow of John McAllister, deceased, Beulah Eaton McAllister, and by the acceptance by her of the sum of Fifty-Five Thousand Dollars, in lawful money of the United States of America, to be paid by Richard McAllister, subject to the approval of this Honorable Court, in full settlement of the termination of said trust, which payment is to be made to her after the approval of this Honorable Court and upon the execution and delivery by her of good and sufficient releases to the said trustees, of said trust, consenting, among other things, to the termination and cancellation thereof and to the assignment by said trustees to Richard McAllister of a certain bond and mortgage made by Richard McAllister and Josephine C. McAllister, to said trustees as trustees of the trust set up in said third clause of the will of said Richard McAllister, deceased, dated January 3, 1928, in the amount of $ 100,000, which mortgage covers premises in the City of Atlantic City, New Jersey, and is recorded in the Clerk's Office of Atlantic County, N. J., in Book No. 488 of Mortgages, page 249, etc.

It was further provided that Beulah Eaton McAllister, individually and as executrix of the estate of John McAllister, transfer to Richard McAllister the 120 shares of stock of R. McAllister, a corporation, and any stock owned or controlled by her in the corporations McAllister Coal Co., R. McAllister, or R. McAllister, Inc., upon payment to her of $ 50,000.

A final decree was entered in the proceeding in the Chancery Court of New Jersey (Docket No. 129/370) on July 19, 1940, approving the settlement referred to in the pleadings and stipulation filed in that cause. The final decree, after a recitation of various facts, "the court being of the opinion that it * * * [was] to the best interests of the complainant and all of the parties in interest to terminate the said trust," provided in part as follows:

1. That Richard McAllister pay to Beulah Eaton McAllister and that she forthwith accept the sum of $ 55,000. in lawful money of the United States of America, in full settlement of the termination of the trust created by the third clause of the will of Richard McAllister, deceased, upon the execution and delivery by her of good and sufficient release to the said trustees of said trust, consenting among other things to the determination and cancellation thereof, and Josephine C. McAllister, to said trustees as trustees of the trust set up in said third clause of the will of said Richard McAllister, deceased, dated January 3, 1928, in the amount of $ 100,000. * * *

It was further provided that Beulah Eaton McAllister, individually and as executrix of the estate of John McAllister, transfer to Richard McAllister the 120 shares of stock of R. McAllister, a corporation, together with any other stock owned or controlled by her in McAllister Coal Co. and the corporations of R. McAllister and R. McAllister, Inc., upon payment to her of $ 50,000 and upon execution by her of releases to such corporations; also:

7. That upon the said settlement being fully made and consummated in all respects as set forth herein, the said trustees under the third clause of the will of Richard McAllister, deceased, shall together with the complainant, individually and as administratrix of the estate of John McAllister, deceased, and the said Richard McAllister, report to this Honorable Court the consummation of said agreement, and forthwith make application to this Honorable Court for the discharge of said trustees from the duties and tasks imposed upon them under the will of said Richard McAllister, deceased, as to the trust set up in the third clause of said will, in accordance with the rules and practices of this Honorable Court.

8. * * *

It is further ordered, adjudged and decreed that upon the said settlement being fully made and consummated in all respects, as set forth herein, the whole of the trust under the third paragraph of the last will and testament and codicil of Richard McAllister, deceased, shall terminate and end and the trustees of said trust shall be thereby freed and discharged from any and all duties, rights, tasks and liabilities imposed upon them under the third clause of said will and codicil of said Richard McAllister, deceased.

The foregoing decree was consented to by petitioner, her counsel, and all the other parties referred to therein and their respective counsel.

On September 3, 1940, the parties to the proceeding in the Chancery Court of New Jersey (Docket No. 129/370) filed a "Report of Consummation of Settlement under Decree of July 19, 1940." This report provided in part as follows:

1. Richard McAllister, Jr. paid to Beulah Eaton McAllister the sum of Fifty-five Thousand ($ 55,000.) Dollars, accepted by her in full settlement of the termination of the trust created by the third clause of the will of Richard McAllister, deceased, upon the delivery by her of a good and sufficient release to the trustees aforesaid, releasing them of everything pertaining to said trust, and consenting to the determination and cancellation of said trust, and to the assignment by said trustees to said Richard McAllister, Jr. of the bond and mortgage referred to in paragraph one of said decree on page 7 thereof and of her personal receipt for said sum.

It was also provided that Beulah Eaton McAllister individually and as executrix of the estate of John McAllister assigned and delivered the 120 shares of stock in Richard McAllister, a corporation, to McAllister Coal Co., designated as purchaser by Richard McAllister, Jr., together with all her right in any other stock in which she, individually or as executrix of estate of John McAllister, had in the corporations R. McAllister, R. McAllister, Inc., or McAllister Coal Co., together with release of her claims, and that she received $ 50,000 from McAllister Coal Co.; also:

8. That the settlement among the parties making this report, approved and authorized by this Court in its final decree made in the above stated cause on July 19, 1940, has been fully, completely and in all respects performed, carried out and consummated and the whole of the trust set up under third clause of the Last Will and Testament and codicil thereto of Richard McAllister, deceased, has thereby ended and determined and the said trustees of said trust, said Richard McAllister, Jr., John Casey and Provident Trust Company of Philadelphia, were, thereupon, under the provisions of the said final decree of July 19, 1940, aforesaid, freed and discharged from any and all duties, rights, tasks and liabilities imposed upon them under the trust aforesaid.

On September 6, 1940, an "ORDER CONFIRMING SETTLEMENT AUTHORIZED IN FINAL DECREE DATED JULY 19, 1940, MADE IN THIS CAUSE, TERMINATING TRUST THEREIN REFERRED TO AND DISCHARGING TRUSTEES" was entered in the proceeding in the Chancery Court of New Jersey (Docket No. 129/370). The order provided in pertinent part as follows:

It Is Thereupon, on this 6th day of September, 1940, Adjudged, that the said settlement made among all of the parties in interest in manner and form as set forth in said report was made by all of the said parties in interest in full and complete accordance with all of the terms and provisions of the said final decree made in the above stated cause on July 19, 1940, and the consummation of the said settlement and all of the terms and provisions thereof approved and authorized by the said final decree, the payment of the moneys, the execution and delivery of the respective releases, papers and documents provided for therein and the actions and doings of the respective parties in interest in the performance of the terms and provisions of the said authorized and approved settlement be and are hereby ordered ratified and confirmed; and

It Is Further Ordered that the said trust created under the third clause of the will and codicil of Richard McAllister, deceased, be and the same is hereby ended, terminated and extinguished and the said trustees of said trust, Richard McAllister, John Casey and Provident Trust Company of Philadelphia, Pennsylvania, be and they are hereby freed and discharged from any and all duties, rights, tasks and liabilities imposed upon them, or any of them, under the third clause of the Last Will and Testament and Codicil of Richard McAllister, deceased.

The release dated July 19, 1940, of Beulah Eaton McAllister to Richard McAllister, John Casey, and Provident Trust Co. of Philadelphia, trustees under the third paragraph of the last will and testament of Richard McAllister, deceased, provides in part as follows:

Whereas it is provided inter alia in said settlement agreement that said Beulah Eaton McAllister is to receive the sum of One Hundred Five Thousand Dollars ($ 105,000.00) of which Fifty Five Thousand Dollars ($ 55,000.00) is to represent the value of her life interest in the aforesaid trust, created in the third paragraph of the last will and testament of Richard McAllister, deceased.

Now, Therefore, in consideration of the premises and in consideration of the sum of Fifty Five Thousand Dollars ($ 55,000.) * * * to me in hand paid by Richard McAllister and in consideration of the consummation of all the terms and provisions of the aforesaid settlement agreement, I, Beulah Eaton McAllister, * * * have released * * * and forever discharged Richard McAllister, John Casey and Provident Trust Company of Philadelphia individually and as trustees under the third paragraph of the last will and testament of Richard McAllister, deceased, * * * particularly from any and all matters arising or to arise in connection with the trust set up under the third paragraph of the last will and testament of Richard McAllister, deceased

* * * *

And I do further consent and agree that my estate in the aforesaid trust, created under the third paragraph of the last will and testament of Richard McAllister, deceased, shall be and the same is hereby terminated absolutely, and I do decline to accept further any benefits therefrom or interest therein, and further do promise and agree to execute such paper or papers as may be proper and necessary to enable the decree entered in the New Jersey Court of Chancery on June 8, 1936, above recited, to be marked satisfied in full.

On July 19, 1940, petitioner received from Richard McAllister, Jr., the sum of $ 55,000.

Petitioner received and reported for income tax purposes the following amounts of income from the Provident Trust Co., trustee, under the third paragraph of decedent's will:

1937	$ 1,594.72
1938	3,831.39
1939	5,847.52
1940	2,850.00

In her Federal income tax return for the calendar year 1940 petitioner reported losses including a loss of $ 8,790.20 which was explained in the return as the difference between the $ 55,000 received upon sale of the life interest under the will of Richard McAllister, and $ 63,790.20, the value thereof computed in accordance with I. T. 2076, based on the age of petitioner, stated as 36 years in December 1940.

Respondent in his deficiency notice adjusted petitioner's net income by adding thereto the sum of $ 63,790.20 and in explanation of this adjustment stated as follows:

It is held that the sum of $ 55,000.00 received by you in 1940 upon the termination of the trust created under the will of Richard McAllister, is includible in your income as ordinary income. Accordingly, the amount of $ 63,790.20 deducted thereagainst is disallowed.

During the year 1940 petitioner, individually, paid deductible expenses totaling $ 7,500 for services in the above proceedings.

OPINION.

Sooner or later it is probable that the precise question involved in Estate of F. S. Bell, 46 B. T. A. 484; reversed (C. C. A., 8th Cir.), 137 Fed. (2d) 454, will have to be definitely settled. The then Board of Tax Appeals, one member dissenting, there concluded that sale of a life estate having no cost basis resulted, not in capital gain, but in ordinary income, a conclusion which was subsequently reversed by a divided Court of Appeals.

This proceeding, however, does not present the occasion for a reconsideration of that question, for the distinction in the present facts, limited as that may appear, seems to us to require that respondent's determination be sustained, regardless of the principle of the Bell case.

The general subject narrows in these cases to a resolution of the possible conflict between Blair v. Commissioner, 300 U.S. 5">300 U.S. 5, on the one hand, and Hort v. Commissioner, 313 U.S. 28">313 U.S. 28, and Irwin v. Gavit, 268 U.S. 161">268 U.S. 161, on the other, or at least to the question of which line of authority is more nearly applicable.

In reversing the Bell case, the court relied upon Blair v. Commissioner for the proposition that a life estate constituted property, and concluded that its sale gave rise to capital gain. It distinguished the Hort case in the following language: "* * * Blair v. Commissioner does not conflict with Hort v. Commissioner * * * which involved the extinguishment of a contractual right to future rentals, and not an assignment of an interest in property."

In the Hort case the Supreme Court had assumed that the lease in question was "property" and continued: "Simply because the lease was 'property' the amount received for its cancellation was not a return of capital * * * the disputed amount was essentially a substitute for rental payments * * * and it is immaterial that for some purposes the contract creating the right to such payments may be treated as 'property' or 'capital.'"

The distinction drawn by the court in the Bell case must accordingly have been limited to the circumstance that the rights in the Hort case were "extinguished," as opposed to being "assigned," since, in both, the element of some sort of "property" was concededly present. That being so, we view the present situation as falling within that distinction, petitioner having received the payment in question in return for surrendering her rights under the trust to receive future income payments, just as the taxpayer in the Hort case surrendered its rights to the rental payments under the lease. She did not assign her interest in the trust, as did petitioners in the Bell case. See also Sayers F. Harman, 4 T. C. 335; Estate of Johnson N. Camden, 47 B. T. A. 926; affirmed per curiam (C. C. A., 6th Cir.), 139 Fed. (2d) 697. The facts show with unmistakable clarity, by repeated reference in the various documents, that the payment here in question was made "in full consideration of the surrender by her of her life interest in said trust" and upon her "consenting to the determination and cancellation of said trust." There was no transfer or assignment any more than there was in Hort v. Commissioner.

When it is considered further that the payment was "to represent the value of her life interest in the aforesaid trust," which consisted purely of the right to receive income, and that the "settlement figure is based to a large extent upon her life expectancy," as the documents recite, it becomes apparent that this was a current payment of income in anticipation, in exchange for the relinquishment of rights to receive that same income over the future years. Since Irwin v. Gavit, supra, makes it clear that such income, whenever received, is included in the definition of gross income, and, as such, is taxable to petitioner, the analogy to the Hort case is complete, and "Where, as in this case, the disputed amount was essentially a substitute for * * * payments which § 22 (a) * * * characterizes as gross income, it must be regarded as ordinary income * * *." Hort v. Commissioner, supra.

That the applicability of the Hort case must proceed at least so far seems to us the necessary outcome of what actually occurred here, as disclosed by the record. Petitioner was in need of funds. She was under "the necessity of obtaining money with which to pay various claims of the estate of her husband * * *." She proposed to the trustees -- or they proposed to her -- an immediate lump sum payment in lieu of the periodic future installments. "Complainant [petitioner] is advised and verily believes that said trustees and remaindermen * * * will pay to complainant the sum of $ 55,000, together with all accumulated income from the trust corpus, which is payable to her at 6% per annum, computed to the date on which she receives the said sum of $ 55,000, in full consideration of the surrender by her of her life interest in said trust, which settlement figure is based to a large extent upon her present life expectancy. * * *"

It is difficult to envisage circumstances from which it could more clearly appear that by agreement of the parties petitioner's future income payments were to be delivered to her immediately at their discounted value; and, of course, since they would not again be due, the trust must end. Such payments, as we have had occasion to note, were taxable in full as ordinary income, whenever received. It is inconceivable that, by the agreement to anticipate, the parties could convert taxable income into a deductible loss.

It follows that there was no error in respondent's action.

Decision will be entered under Rule 50.

DISNEY

Disney, J., dissenting: The majority opinion in my opinion is opposed to statute, departmental regulation and attitude, and decisions both of this Court and others.

The life estate sold by the petitioner was received by devise. Section 113 (a) (5) provides that property received by devise has a basis of the value at the time of acquisition -- in this case value at the date of the death of petitioner's husband. That a life interest in a trust fund (not inalienable by its terms) is a property interest is too firmly established to require argument. Blair v. Commissioner, 300 U.S. 5">300 U.S. 5. That a life estate is alienable (in the absence of restrictions upon alienation) can not be denied in the face of many decisions. Bell v. Commissioner, 137 Fed. (2d) 454, reversing46 B. T. A. 484; Sayers F. Harman, 4 T. C. 335 (acquiescence by Commissioner, I. R. B. No. 6, Mar. 26, 1945); Estate of Johnson N. Camden, 47 B. T. A. 926; affd., 139 Fed. (2d) 697; Orrin G. Wood, 40 B. T. A. 905; Elmer J. Keitel, 15 B. T. A. 903. It is alienable "like any other property," Commissioner v. Field, 42 Fed. (2d) 820. Indeed, I do not understand that the majority opinion disagrees with those decisions or denies the alienability. That the life estate here was not inalienable as set up by a spendthrift trust is settled for us by the decision of the local court allowing the alienation. Though only by inference so holding, that court could not, without so holding, have rendered the decision it did, and such opinion, though only by inference, binds us. Irving National Bank v. Law, 10 Fed. (2d) 721.

We have, then, in this case, sale of alienable property having a base provided by statute. Of course that value must be ascertained, and the Treasury Department has devised a way to so value a life interest -- by the use of expectancy tables based upon the life expectancy of the recipient of the life interest at the date of acquisition. I. T. 2076, C. B. III-2, p. 18, provides specifically for such valuation. The use of such tables is too well settled to be arguable. I. T. 2076 is altogether consistent with the statute, section 113 (a) (5). Thus we arrive at the petitioner's base for her life estate. But Regulations 103, section 19.113 (a) (5)-1 (e), specifically provides that such base is always the same (except of course for the necessary adjustment for depreciation or depletion upon property subject thereto). There being no such depreciation or depletion applicable here, the basis petitioner had at acquisition of the property remains the same, and when she sold for $ 55,000 she took a capital loss, the basis being a greater amount.

The majority opinion is obviously based upon some idea or fear that the petitioner should not be allowed her original base because she had enjoyed the income from the life estate from acquisition to date of sale. The answer is, first, that base in property is not affected or adjusted by the mere receipt of income therefrom; and, second, that if there should be adjustment of the base because of lapse of time, it is the function of Congress, and not of this Court, to provide the adjustment. I see no reason to indulge here in judicial legislation, most particularly when Congress has specifically prescribed the base in section 113 (a) (5), and the Treasury Department has followed it in regulation and ruling.

Section 24 (d) offers no aid on this subject. The words of the section referring to "deduction" may not, with reason, be held to apply to the computation of gain or loss on sale of property; and the Committee Report thereon plainly shows such to be the intent. H. R. No. 350, 1st sess., 67th Cong., Aug. 16, 1921 (C. B. 1939-1, pt. 2, p. 177). The regulations, too, make it clear that the only intent of the section was to prevent capitalization of a life interest and deduction of a portion thereof by amortization. Regulations 103, section 19.24-7, after quoting the pertinent part of the statute, adds: "In other words, the holder of such an interest so acquired may not set up the value of the expected future payments as corpus or principal and claim deductions from shrinkage or exhaustion thereof due to the passage of time. (See section 113 (a) (5).)" I suggest that the situation so explained is a long step from computing gain or loss upon sale of the property interest.

Finally, I see no reason on this question to refuse to follow either our own opinion on this particular question in Sayers F. Harman, supra, and that of the Circuit Court of Appeals for the Eighth Circuit, reversing our earlier view, in Bell v. Commissioner, supra. The latter reviews the field of authority, including Irwin v. Gavit, 268 U.S. 161">268 U.S. 161, upon which the majority opinion here leans, and Helvering v. Horst, 311 U.S. 112">311 U.S. 112; and Harrison v. Schaffner, 312 U.S. 579">312 U.S. 579, held assignments of life interests to be transfers of interest in trust assets and not merely assignments of income and concluded that a sale of a life interest resulted in capital gain. I think we should follow it. Fear that the petitioner may have a loss is offset by the fact that it might have been a gain -- for the trust fund might well have appreciated, by wise investment.

As pointed out in the Bell case, the Supreme Court has had opportunity to overrule the Blair case, and has not "either expressly or by implication," done so. That case squarely decrees that a property interest was owned by the petitioner, and such cases as Harrison v. Schaffner, involving mere assignment of income, do not apply. I think it late to hold, as the majority opinion does in essence, that sale of the life estate here involved is anticipation of income. I respectfully dissent.