## Facts

- In 1948, James C. Self, Jr.’s father transferred Greenwood Mills common stock into an inter vivos trust paying income to Self for life, with remainders to Self’s descendants and, if none, to a charitable foundation.
- The trust granted Self a limited (special) inter vivos power to appoint all or part of the trust property “to or among his descendants” by deed during his lifetime.
- Self’s father paid gift tax in 1948 on the full value of the property placed in trust.
- In 1951, Self exercised the special power by executing two deeds appointing 100 shares to a trust for his son and 100 shares to a trust for his daughter; the 200 shares were separated and transferred to the two new trusts.
- Self filed a 1951 gift tax return and paid gift tax on the value of his surrendered right to receive income for life from the 200 shares.
- Self timely sought a refund; after no administrative relief, he sued in the Court of Claims to recover $918.23 in gift tax paid for 1951.
- The United States conceded that transfers pursuant to a limited power of appointment are not taxable as gifts, but argued Self’s power related only to corpus, so the surrender of his income interest was a separate taxable gift under § 1000 of the 1939 Internal Revenue Code.

## Issues

1. Whether Self’s 1951 exercise of a special power of appointment constituted a taxable gift equal to the value of his life income interest in the appointed shares.
2. Whether the transfer of the income interest followed the appointment of the shares under the limited power (non-taxable) or instead was a separate gratuitous transfer by Self (taxable).

## Decision

- The Court of Claims held for Self and allowed recovery of the gift tax paid.
- The court concluded that Self did not make a taxable gift when he exercised the special power to appoint the 200 shares into trusts for his children.
- The court rejected the government’s characterization of the income-interest relinquishment as an independent taxable transfer by Self.

## Legal Principles

- At common law, property passing under a power of appointment is treated as transferred from the donor of the power to the appointee; the donee of the power is not treated as the transferor for gift tax purposes absent statutory change.
- Congressional amendments taxing the exercise or release of powers of appointment applied to general powers (exercisable for the donee, the donee’s estate, or creditors), not to limited (special) powers.
- When a life beneficiary exercises a limited power of appointment over trust property in a manner that necessarily carries with it the associated beneficial income rights in the appointed property, the resulting transfer is treated as occurring under the donor’s instrument rather than as a separate gift by the donee.

## Conclusion

The court held that Self’s appointment of trust stock to new trusts for his children pursuant to a limited inter vivos power of appointment was not a taxable gift, and the gift tax assessed on the value of his surrendered life income rights in the appointed shares was refundable.


Self v. United States, 142 F. Supp. 939 (Ct. Cl. 1956)