ally accepted" rule that Byrum might do what he had done here. It is said that the hypothesized rule “may” have been relied upon by "hundreds" of others; if so, its modification "could" have a serious impact, especially upon settlors who "happen" to have been controlling shareholders in closely held corporations and who "happen" to have transferred shares in those corporations to trusts while forbidding the trustee to sell the shares without approval and while retaining voting rights in those shares. Therefore the rule ought not to be "modified" by this Court.

A

The argument, apparently, is that what "appear[s] to be established" should become established because it has appeared. Judges can and will properly differ on the questions of what deference to accord reliance on a well-established rule, but I doubt that we are precluded from reaching what would otherwise be a right result simply because in the minds of some litigants a contrary rule had heretofore "appear [ed] to be established." If the majority's approach were widely accepted, artful claims of past understanding would consistently suffice to frustrate judicial as well as administrative efforts at present rationalization of the law and every precedent— even at the tax court level-might lay claim to such authority that the Government and the tax bar could afford to leave no case unappealed.

B

Of course, the reliance argument is doubly infirm if the majority's rule cannot be said to have "appear[ed] to be established." Did Byrum have a sound basis for calculating that there was no substantial risk of taxation when he persisted in retaining the powers and privileges described above?

And we spoke of:

WHITE, J., dissenting

408 U.S.

"This power he exercised by accumulating and adding income to principal and this same power he held until the moment of his death. . . ." 383 U. S., at 634 (emphasis supplied).

Other passages could be quoted.

IV

Apparently sensing that considerations of logic, policy, and recent case law point to the inclusion of Byrum's trust in his estate, the majority would blunt these considerations by invoking the principle that courts should refrain from decisions detrimental to litigants who have taken a position in legitimate reliance on possibly outdated, but once established, case law. This principle is said to bring great weight to bear in Byrum's favor. I need not quarrel with the principle. I think, however, that its application in this context is inappropriate. The majority recites these facts: This Court has never held that retention of power to manage trust assets compels inclusion of a trust in a settlor's estate. fact, Reinecke v. Northern Trust Co., 278 U. S. 339 (1929), specifically held a trust arrangement immune from taxation though the settlor retained power to decide how the trust assets were to be invested. Though Northern Trust was decided before the passage of § 2036 (a) (2), it has been followed by "several" more recent lower court decisions. Though most of the lower court decisions provide only the most oblique reference to circumstances like those of this case, a 1962 unappealed Tax Court decision, Estate of King v. Commissioner, 37 T. C. 973, is squarely in point.

In

On the basis of these two authorities, a 1929 Supreme Court decision and an unreviewed 1962 Tax Court decision, the majority concludes that there exists a "gener

the Revenue Act of 1932 notes in relation to amendment of the predecessor of § 2036 (a) (1) that:

"The insertion of the words 'the right to the income' in place of the words 'the income' is designed to reach a case where decedent had the right to the income, though he did not actually receive it. This is also a clarifying change." H. R. Rep. No. 708, 72d Cong., 1st Sess., 47.

And see S. Rep. No. 665, 72d Cong., 1st Sess., 50, to the same effect.

I repeat the injunction of Mr. Justice Frankfurter, 25 years ago: "This is tax language and should be read in its tax sense." United States v. Ogilvie Hardware Co., 330 U. S. 709, 721 (1947) (dissenting opinion).

Lest this by itself not be considered enough to refute the majority's approach, I must add that it is quite repugnant to the words and sense of our opinion in O'Malley to read it as though it pivoted on an interpretation of "right" rather than power. The opinion could hardly have been more explicitly concerned with the realities of a settlor's retained power rather than the theoretical legal form of the trust. Thus we said:

"Here Fabrice [the settlor] was empowered . . . This is a significant power . . . of sufficient substance to be deemed the power to 'designate' within the meaning of [the predecessor of § 2036 (a) (2)]. ..." 383 U. S., at 631 (emphasis supplied). And we said:

"With the creation of the trusts, he relinquished all of his rights to income except the power to distribute that income to the income beneficiaries or to accumulate it and hold it for the remaindermen of the trusts." 383 U. S., at 632 (emphasis supplied).

passed both Houses of Congress in one day-the last day of the session. There was no printed committee report. Substantial references to the bill appear in only two brief sections of the Congressional Record.11 Under the circumstances I see no warrant for reading the words in a niggardly way.

Moreover, it appears from contemporary evidence that if the use of the word "right" was intended to have any special meaning it was to expand rather than to contract the reach of the restraint effected by the provision in which it appeared. The House Report on

11 The intent of Congressmen and the care with which they measured the language which the majority thinks was carefully limited is suggested by the following:

"Mr. HAWLEY. Mr. Speaker, I ask unanimous consent for the present consideration of a joint resolution (H. J. Res. 529) relating to the revenue, reported from the Committee on Ways and Means. [The resolution, § 2036 (a) (1) and (2) substantially as they appear today, was read.]

"The SPEAKER. Is there objection?

"Mr. SCHAFER of Wisconsin. Reserving the right to object, I shall object unless the gentleman explains just what the bill is.

"Mr. HAWLEY. Mr. Speaker and gentlemen, the Supreme Court yesterday handed down a decision to the effect that if a person creates a trust of his property and provides that, during his lifetime, he shall enjoy the benefits of it, and when it is distributed after his death it goes to his heirs-the Supreme Court held that it goes to his heirs free of any estate tax.

"Mr. SCHAFER of Wisconsin. This is a bill to tax the rich man. I shall not object.

"Mr. COLLINS. I would like to have a little more explanation. "Mr. SABATH. Reserving the right to object, all the resolution purports to do is to place a tax on these trusts that have been in vogue for the last few years for the purpose of evading the inheritance tax on the part of some of these rich estates?

"Mr. HAWLEY. It provides that hereafter no such method shall be used to evade the tax.

"Mr. SABATH. That is good legislation." 74 Cong. Rec. 7198.

ference in internal affairs.' The courts have accepted the general defense of discretion, supplemented by one or more of a number of grounds put forward as reasons for not paying dividends or larger dividends . . . .' W. Cary, Cases and Materials on Corporations 1587 (4th ed. 1969).

And cf. Commissioner v. Sunnen, 333 U. S. 591, 609 (1948).

The ease with which excess taxes, derivative suits, and economic vicissitudes alike may be circumvented or hurdled if a controlling shareholder chooses to so arrange his affairs is suggested by the pay-out record of Byrum's corporations noted above.

C

The majority proposes one other method of distinguishing O'Malley. Section 2036 (a)(2), it is said, speaks of the right to designate income beneficiaries. O'Malley involved the effort of a settlor to maintain a legal right to allocate income. In the instant case only the power to allocate income is at stake. The Government's argument is thus said to depart from "the specific statutory language" and to stretch the statute beyond endurance by allocating tax according to the realities of the situation rather than by the more rigid yardstick of formal control.10

This argument conjures up an image of congressional care in the articulation of § 2036 (a) (2) that is entirely at odds with the circumstances of its passage. The 1931 legislation, which first enacted what is now § 2036 (a) (2) in language not materially amended since that date,

9 This call for literalness strongly contrasts with the majority's § 2036 (a) (2) analysis, see n. 3, supra.

10 The majority's argument ignores the fact that within a wide area of discretion Byrum had the "right" to allocate corporate income to purposes other than payment of dividends, and thus the "right" to shut off income to the trust's life tenants.