United States v. Hemme

PETITIONER: United States
LOCATION: Circuit Court of Jefferson County

DOCKET NO.: 84-1944
DECIDED BY: Burger Court (1981-1986)

CITATION: 476 US 558 (1986)
ARGUED: Mar 05, 1986
DECIDED: Jun 03, 1986

Albert G. Lauber, Jr. - on behalf of Appellants
Edward F. Sutkowski - on behalf of Respondent

Facts of the case


Media for United States v. Hemme

Audio Transcription for Oral Argument - March 05, 1986 in United States v. Hemme

Warren E. Burger:

Mr. Lauber, you may proceed whenever you're ready.

Albert G. Lauber, Jr.:

Mr. Chief Justice and may it please the Court:

This case is here on direct appeal, somewhat unusual for a tax case, because the district court declared a provision of the Revenue Code unconstitutional as a retroactive law that deprives Appellees of property without due process.

In their brief on the merits Appellees, while not abandoning this constitutional theory, seem to place greater reliance upon the statutory construction argument, a variant of which they presented below, but which the district court did not pass upon.

Before talking about either of these arguments, I'd like to explain briefly how the challenged statute works, which is a little bit complicated in some ways.

The challenged statute is Section 210(c) of the Revenue Code, which Congress enacted in 1976.

This is one example of many transitional rules that Congress from time to time puts into the Revenue Code to bridge the gap between an older statutory regime and an amended regime.

In 1976 Congress overhauled the estate and gift tax quite comprehensively.

One thing Congress did was to effect an overall reduction of estate taxes, particularly for smaller estates.

Congress also brought about a degree of integration between the gift tax and the estate tax.

For present purposes, the most relevant integrating thing Congress did was to repeal a pair of exemptions that were available under the old law... they were basically deductions... and replace them with a single unified credit under the new law.

Under the old law, a taxpayer during life was entitled to exempt a total of $30,000 of his property in gift form from the gift tax.

That was in addition to the annual exclusion of $3,000 per donee.

The donor was free to claim this $30,000 exemption in whole or in part, whenever he wanted it.

At his death, his estate was then entitled to exempt $60,000 of property from the estate tax, and the ability to claim that was independent of the donor's inter vivos claim of the gift tax exemption.

In 1976 Congress abolished both of those exemptions and replaced them with a single unified credit, which was designed to replace both the gift tax $3,000 exemption and the estate tax $60,000 exemption.

And the new credit was to be available against either or both of these taxes as first incurred.

That meant that somebody could use part of the unified credit for gifts during life and what he didn't use would be available to be used against the estate tax by his executor after his death.

Congress realized that there was a problem of continuity here, because some people would have claimed the $30,000 gift tax exemption in whole or in part during life for gifts they made prior to 1977.

The effective date of the new law was January 1st, 1977.

Harry A. Blackmun:

Mr. Lauber, had he waited until January 2, '77, he'd get the full... we wouldn't have a case here, would we?

Albert G. Lauber, Jr.:

That's right, because after the new law was enacted that abolished the old gift tax exemption, and everything was then governed by the unified credit.

So if he had made the gifts on January 2, he would have had to use up part of his unified credit or pay gift tax on the transfer.

So if he gave away $30,000 on January 2, he would have had to use up--

Harry A. Blackmun:


Albert G. Lauber, Jr.:

--Well, it was 45, right, including the five little ones.

He would have had to use up part of his unified credit in order to avoid paying gift tax.

Byron R. White:

He'd have had to use it all up to avoid paying the tax.

Albert G. Lauber, Jr.:

I think not all, because the credit is dollar for dollar against the tax, whereas the old exemption you only get a number of cents on the dollar equal to your marginal rate.

Anyway, Congress saw there was a problem of continuity because if people who previously had claimed and been allowed their $30,000 gift tax exemption got the full unified credit, which was meant to be a replacement for the old exemption, they'd get the same thing twice.