TAXATION - INCOME TAX - CAPITAL GAINS - COST BASIS TO DISTRIBUTEE

Authors

David N. Mills, University of Michigan Law SchoolFollow

Abstract

Testator died in 1903, and the executors turned over the residue of his estate to themselves as testamentary trustees in 1905. In 1923, pursuant to the will, trustees delivered part of the original trust property, together with other property purchased with trust funds, to plaintiff, the equitable remainderman under the trust. In 1930 plaintiff sold some of the securities which had constituted the corpus of the trust. In determining the cost basis for the capital gains tax on this transaction, plaintiff claimed that the market value on the date when the trustees delivered the property to him in 1923 should be controlling under the Revenue Act of 1928, which provides that the cost basis with respect to general bequests should be the value of the property at the time of "distribution to the taxpayer." The Board of Tax Appeals sustained the taxpayer's contention, but the circuit court of appeals reversed this decision. On appeal, the Supreme Court held, two justices dissenting, that the decision of the circuit court of appeals must be affirmed, since the cost basis of securities which were part of the testator's estate is their value at the time they were transferred from the executors to the trustees. Also, the proper valuation of securities purchased by the trustees with trust funds is the cost to the trustees. Maguire v. Commissioner of Internal Revenue, 313 U. S. 1, 61 S. Ct. 789 (1941).

Recommended Citation

David N. Mills, TAXATION - INCOME TAX - CAPITAL GAINS - COST BASIS TO DISTRIBUTEE, 40 Mich. L. Rev. 478 (1942).
Available at: https://repository.law.umich.edu/mlr/vol40/iss3/20