This is a federal estate tax controversy. Here, as in Commissioner v. Church, 335 U.S. 632, 69 S.Ct. 322, we granted certiorari to consider questions dependent upon the meaning and application of a provision of § 811(c) of the Internal Revenue Code. 47 Stat. 169, 279, 26 U.S.C. § 811(c), 26 U.S.C.A. § 811(c). The particular provision requires including in a decedent's gross estate the value at his death of all property 'To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise * * * intended to take effect in possession or enjoyment at or after his death * * *.'
In 1920 Sidney M. Spiegel, a resident of Illinois, made a transfer by trust of certain stocks to himself and another. He died in 1940. During his life the trust income was to be divided among his three children; if they did not survive him, to any of their surviving children. On his death the trust provided that the corpus was to be distributed in the same manner. But no provision was made for distribution of the corpus and its accumulated income should Mr. Spiegel survive all of his children and grandchildren. For this reason the Government has contended that under controlling state law the property would have reverted to Mr. Spiegel had he surv ved his designated beneficiaries.
The value of the corpus of this trust was not included in the Spiegel estate tax return. The Commissioner concluded that its value with accumulated income, about $1,140,000 should have been included in the gross estate under § 811(c). The Tax Court held otherwise in an unreported opinion. The Court of Appeals for the Seventh Circuit reversed. 159 F.2d 257. It held that the possession or enjoyment provision of § 811(c) required inclusion of the value of the trust property and accumulated income under the rule declared in Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368, because under state law the trust agreement left the way open for the property to revert to Mr. Spiegel in case he outlived all the beneficiaries. This holding rested on the agreement of parties that whether there was a right of reverter depended on Illinois law, and the court's conclusion that under Illinois law a right of reverter did exist.
The Hallock case on which the Court of Appeals relied held that the value of trust properties should have been included in a settlor's gross estate under the 'possession or enjoyment' provision where trust agreements had expressly provided that the corpus should revert to the settlor in the event he outlived the beneficiaries. The taxpayer has contended here, as in the Tax Court and the Court of Appeals, that the Hallock rule is not applicable to this trust, where the settlor's chance to get back his property depended on state law and not on an express reservation by the settlor. This contention of the taxpayer rests in part on the argument that § 811(c) imposes a tax only where it can be shown that the settlor's intent was to reserve for himself a contingent reversionary interest in the property. Another contention is that the value of this contingent reversionary interest was so small in comparison with the total value of the corpus that the Hallock rule should not be applied. A third contention is that the Court of Appeals holding was erroneous in that under Illinois law the corpus of this trust would not have reverted to the settlor had all the beneficiaries died while the settlor was still living. Petitioners urge that in that event the Illinois courts would have held that the corpus passed to the heirs of the last surviving beneficiary.
We hold that the Hallock rule was rightly applied by the Court of Appeals and we accept its holding as to the applicable Illinois law.