Maximov v. United States

RESPONDENT: United States
LOCATION: Clauson's Inn

DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 373 US 49 (1963)
ARGUED: Mar 28, 1963
DECIDED: Apr 29, 1963

Facts of the case


Media for Maximov v. United States

Audio Transcription for Oral Argument - March 28, 1963 in Maximov v. United States

Earl Warren:

Number 240, Andre Maximov, petitioner, versus United States.

Mr. Lindsay.

David A. Lindsay:

Mr. Chief Justice, members of the Court, may it please the Court.

This is a treaty case.

It arises under our Income Tax Convention with the United Kingdom and concerns the scope of Article XIV of that Convention which exempts British residents from United States tax on capital gains.

The question presented is whether the exemption in Article XIV embraces capital gains in an American domestic trust, which are retained as corpus and held for future distribution when all the beneficiaries, the income beneficiaries and the remaindermen alike are residents of the United Kingdom.

The facts are simple.

Petitioner is an American trustee of an inter vivos trust.

The trust was created in 1947 by an English grantor.

The English grantor is the life income beneficiary.

His wife is a contingent life income beneficiary.

His children are the remaindermen.

There are certain contingencies with respect to the remainder interest which could shift the interest in the trust corpus and the retained gains among the grantor's family, particularly between the children of the grantor and the grantor himself.

In 1954 and 1955, the trustee's sole securities, realized gains, pay the tax, sued for refund under Article XIV, which refunds were allowed by the District Court for the Southern District of New York following American Trust Company v. Smyth in the Ninth Circuit which held favorably for the trustee and the beneficiaries on the issue presented before this Court.

The court below reversed, creating a conflict.

Article XIV may be found on page 2 of petitioner's brief, also on page 13 of an appendix to the brief which includes the treaty as a whole.

Article XIV befits a treaty provision states simply and broadly that a resident of the United Kingdom not engaged in trade or business in the United States shall be exempt from United States tax on gains from the sale or exchange of capital assets.

Respondent concedes that the gains here involved are gains from the sale or exchange of capital assets within the meaning of Article XIV.

And that all the beneficiaries of the trust are residents of the United Kingdom within the meaning of Article XIV.

And respondent has not questioned that the burden of this tax is suffered by the beneficiaries.

The respondent and the adverse opinion of the court below rest on the ground that the trust under our domestic law is the taxpayer, that the English beneficiaries are not the taxpayers and therefore this exemption in this case is outside of the scope of the treaty.

John M. Harlan II:

Does the trustee have an option to distribute?

David A. Lindsay:

There's no discretion to distribute -- distribute, Mr. Justice Harlan.

I should've stated that the terms of the trust are governed by Connecticut law and under Connecticut law, the trustee was ret -- acquired to accumulate these gains as part of the corpus of the trust, so there was no discretion whatsoever.

John M. Harlan II:

[Inaudible] the beneficiaries that demanded distribution [Inaudible]

David A. Lindsay:

No, they could not.

It belongs to the remaindermen.

Byron R. White:

What -- what bore the burden of the tax, corpus?

David A. Lindsay:

The burden of the tax if I understand your question, Mr. Justice White is that --

Byron R. White:

Was the [Inaudible]