Commissioner of Internal Revenue v. Stern/Dissent Black

Mr. Justice BLACK, with whom The CHIEF JUSTICE and Mr. Justice WHITTAKER join, dissenting.

We are concerned here with a suit against the United States to determine the liability of a party for federal income taxes. In my judgment it is a mistake to look to state law to decide that liability. The laws of the several States are bound to vary widely with respect to the responsibility of transferees for the obligations of their transferors. Therefore application of state law leads to the anomalous result that transferees will be liable for federal taxes in one State but not in another even though they stand in precisely the same position. I believe that such uneven application of what this Court has characterized as 'a nationwide scheme of taxation,' Burnet v. Harmel, 287 U.S. 103, 110, 53 S.Ct. 74, 77, 77 L.Ed. 199, is thoroughly unwise and is not required by the Constitution, by Act of Congress, or by any compelling practical considerations.

In my view, liability for federal taxes should be determined by uniform principles of federal law, in the absence of the plainest congressional mandate to the contrary. Where as here Congress has provided no standards which define the liability of a transferee for the taxes of his transferor the federal courts themselves should fashion a uniform body of controlling rules which fairly implement the collection of government revenues. Cf. Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838; United States v. Standard Rice Co., 323 U.S. 106, 65 S.Ct. 145, 89 L.Ed. 104; United States v. Standard Oil Co., 332 U.S. 301, 67 S.Ct. 1604, 91 L.Ed. 2067; Priebe & Sons, Inc., v. United States, 332 U.S. 407, 68 S.Ct. 123, 92 L.Ed. 32; Textile Workers Union of America v. Lincoln Mills of Alabama, 353 U.S. 448, 77 S.Ct. 912, 1 L.Ed.2d 972. It can hardly be denied that uniformity in the imposition and collection of federal taxes has always been regarded as extremely desirable in this country. Indeed those who framed the Constitution deemed it so important that they expressly required that 'all Duties, Imposts and Excises (levied by Congress) shall be uniform throughout the United States.' Art. I, § 8. Cf. Art. I, §§ 2, 9. Taxpayers should be treated equally without regard to the fortuity of residence; and the additional complication and inconvenience in the administration of an already complex federal tax system which is certain to follow an attempt to apply the differing laws of 48 States to transferee liability ought to be avoided, if at all possible.

Here, Congress has never directed that the tax liability of a transferee be determined by state law. The legislative history of § 280 of the Revenue Act of 1926 certainly falls far short of a congressional mandate to that effect. Prior to that Act the federal courts had applied general principles of equity to determine the liability of transferees for federal taxes, without regard to state law, except for a few instances where state statutes apparently were more favorable to the Commissioner. Both Senate and House Committees emphasized that § 280 was simply a procedural provision not affecting the substantive liability of a transferee as it had been previously developed by the federal courts. S.Rep. No. 52, 69th Cong., 1st Sess. 30; H.R.Conf.Rep. No. 356, 69th Cong., 1st Sess. 43-44. And the House Conference Committee went on to express the hope that the newly created Board of Tax Appeals would gradually fashion a uniform body of principles to govern transferee liability. H.R.Conf.Rep. No. 356, supra, at 44. All this is hardly consistent with the notion that state law was to be decisive; if anything, it indicates precisely the contrary. It might be added that the Tax Court, measuring up to the expectations of the House Committee, has persistently endeavored to develop consistent standards to determine transferee liability despite the opposition of several Courts of Appeals. See, e.g., Muller v. Commissioner, 10 T.C. 678; Leary v. Commissioner, 18 T.C. 139; Bales v. Commissioner, 22 T.C. 355; Stoumen v. Commissioner, 27 T.C. 1014.

I would hold, as a matter of federal law, that where a transferee receives property from a taxpayer who is left with insufficient assets to pay his federal taxes the transferee is liable for those taxes to the extent he has not given fair consideration for the property received. This has been the rule applied by those courts which have heretofore determined transferee liability on the basis of federal law. See, e.g., Pearlman v. Commissioner, 3 Cir., 153 F.2d 560; Updike v. United States, 8 Cir., 8 F.2d 913; Stoumen v. Commissioner, 27 T.C. 1014. Such a rule has long-standing antecedents in the federal courts which may be traced back, in part, at least as far as the noted decision by Justice Story in Wood v. Drummer, 30 Fed.Cas. page 435, No. 17,944. It would operate to prevent tax evasion, and yet not impose an unfair burden on transferees.

Turning to the present case, I agree with the Court in United States v. Bess, 357 U.S. 51, 78 S.Ct. 1054, that the cash surrender values of insurance policies, but not the proceeds, are property of the insured for purposes of the federal tax laws which pass to the beneficiary of the policy upon the insured's death. Here it appears that the insured had insufficient assets at the time of his death to satisfy his unpaid income taxes. Therefore I would hold the beneficiary of his policies, Mrs. Stern, responsible for the unpaid taxes to the extent of the cash surrender value of those policies just before he died.