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ESTATE PUTNAM GUARANTY TRUST CO. v. COMMISSIONER INTERNAL REVENUE

decided: March 26, 1945.

ESTATE OF PUTNAM; GUARANTY TRUST CO., EXECUTOR
v.
COMMISSIONER OF INTERNAL REVENUE



CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.

Stone, Roberts, Black, Reed, Frankfurter, Douglas, Murphy, Jackson, Rutledge

Author: Reed

[ 324 U.S. Page 394]

 MR. JUSTICE REED delivered the opinion of the Court.

This case brings here for review a judgment which applies Section 42, Revenue Act of 1938,*fn1 so as to "accrue" corporate dividends on the date of their declaration rather than the later record or payment dates. The result is that the dividends are taxable as income to a decedent taxpayer instead of to his estate.

Certiorari was granted*fn2 because of a conflict in conclusion

[ 324 U.S. Page 395]

     between Tar Products Corp. v. Commissioner, 130 F.2d 866, and this case as to the date of accrual of corporate dividends. The resolution of this conflict is complicated by further conflicts between the decision below and those in other circuits as to whether the governing rule is to be drawn from federal or state law. Helvering v. McGlue's Estate, 119 F.2d 167, 171; Commissioner v. Cohen, 121 F.2d 348, 349.

The decedent, Henry W. Putnam, died on March 30, 1938. Prior to his death several corporations in which he owned stock declared dividends which by the resolutions were payable and were paid to stockholders of record on dates which were subsequent to his death. Each of these dividends, aggregating in all $24,051.75, was held by the Commissioner to constitute income to the decedent under the provisions of § 42. The Board of Tax Appeals decided that the time of accrual depends upon the varying state decisions as to when a corporate debt arises upon a declaration of dividend with a provision for its payment to stockholders of record on some future date. 45 B. T. A. 517. This resulted in an agreement in part with the Commissioner's determination.

The Circuit Court of Appeals was of the view that federal law controlled the disposition of the controversy and that the dividend accrued on its declaration. Commissioner v. Guaranty Trust Co., 144 F.2d 756.

We think the federal law controls. A federal revenue act applicable throughout the nation fixes liability on the decedent taxpayer under § 42 if the dividend is "accrued." The meaning of that word in this section should be uniform unless Congress has shown an intention to permit its meaning to be varied by state law. Burnet v. Harmel, 287 U.S. 103, 110; Palmer v. Bender, 287 U.S. 551, 555; United States v. Pelzer, 312 U.S. 399, 402-3. Section 42 lays down the test of accrual for the taxation of a decedent's income and the definition of the meaning and extent

[ 324 U.S. Page 396]

     of that test is a federal responsibility. The present problem is closely akin to that resolved in Lyeth v. Hoey, 305 U.S. 188, 193. In that case an heir received a sum in settlement of litigation over a will. Its taxability as income under the federal statute depended upon the meaning of the statutory exemption "acquired by inheritance." The law of the testator's domicile held sums paid as will compromises were not inheritances. Acting on the principle that, in the interest of uniformity, exemptions under federal statutes should be determined by federal courts, we reached a contrary federal rule. The same principle leads to our conclusion in this case.*fn3

We recently examined the Congressional purpose in the enactment of § 42. Helvering v. Enright, 312 U.S. 636. That purpose was to cover into income the "accruals" ...


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