TEEATJTORNEYGENE~
OF TEXAS

FVIJiL WILSON *-x-r0RNEY GENERAL February 28,,lg61

HonorableRobert S. Calvert Opinion No. WW-1003 Comptrollerof Public Accounts Capitol Station Re: Reconsideration of Austin, Texas Opinion No. WW-922 pertaining to taxability for inheritancetax purposes of bequest to the United States to be used for the retirementof the National Debt in view of

Dear Mr. Calvert: new proposalwith regard to.use of said bequest.

In OpinionNo. W-922 this office-considered the taxability .for.inherLtance ~tsxpurposes of a beque~st,in trust to the United States Governmentto be used'forthe retirementof the National Debt. The specificbequest reads as follows:

'I direct that any Income from'the Susan Vaughan Clayton Trust.No., 2

. . . be paid for the period provided in the instrumentcreating said Trust, as follows:

"(a) One-half (l/2) of such income to my beloved country, the United States of America, to be used for the retirement of the National Debt.

. . . ."

This bequest was subject to inheritancetax unless exempt by the followingprovision of Article 14.06-Class E, ch. 14, Title 122-A, Ts.x.-Gen., V.C.S.:
"Provided,

however, that this Article shall not apply .on property passing to
or forthe use of the United States, or to or for the use of any.religlous,educational or charitableorgsnlzation,~incorporated,,~unlncorporated or in the form of a trust, when such bequest, devise or gift Is to be used within this State. The exemption from tax under the precedingprovisions of this Article shall, withoutlimiting its application

under other appxopriate-clrcumstances,

apply to all or so much of anyHonorableRobert S. Calvert,Page 2 Opinion No. WW-1003

bequest, devise or gift to or for the
use of the.,United

States, or a religious, educationalor charitableorganization, which is, In writing and.prior to the payment of the tax, irrevocablycommitted for use exclusively within the State of Texas or transferredto a religious, educationalor charitableorganization for use exclusively within this State.".

,In an effort to obtain exemption, the followingproposal
was submltted,in

a letter from William B. Butler, United States Attorney for the SouthernDistrict of Texas, by Norman W. Black, Assistant,dated July 13, 1960, addressed to HonorableRobert S. Calvert,.State

Comptrollerof Public Accounts.

"I.have informed the Department of Justice (and they have informed the Secretary of the Treasury) that Article 14.06 offers a possibility whereby the Unit@ States could,legally.avoid the payment:~ of State Inheritance Taxes onthis Trust .':

5the tax is estimatedat approximately 400,000.00). The Secretaryof the Treasuryhas suggestedthe following: arrangement,

whereby the ,income from thebequest by the late Mrs. Clayton could ~1 be used exclusively within the State:of Texas for the retirementof the National Debt. That proposed arrangementis as follows:

"'The Treasurywould make special arrangements.to

receive within the State ~ of Texas moneys representingincome derived from the Susan ,V.~Clayton Trust No. 2 and would maintain them in a separate account in the name of the Treasurer of the United States in the State of Texas and not interminglethem with sny.other funds of the United States. Such moneys. would be used solely to redeem public debt obligations

presented to the 4 ’Waswy for redemption in the State ,of Texas. "'Specifically,

.the~,moneys

would.be paid to the United.States at the.#Federal preserve

Bank of Dallas; Texas, for credit ~to the Treasurerof the United States.: : The Treasurerwould maintain a special '~ deposit accountwith.the Eederal Reserves,HonorableRobert S. Calvert,.Page 3 OpinionNo. WW-1003

Bank for these particularmoneys. This accountwould be separate from the account
now maintainedby the Treasurerwith the Federal Reserve Bank of Dallas for General operatingpurposes. .Themoneys thus received in Texas and held on depositwith the Federal Reserve Bank of Dallas would be identifiedspeciallyon the books of the Treasury to be available for retirementof the national debt. From time to time, as public debt obligationsare presented to the Federal Reserve Bank of Dallas for redemption

by that Bank as fiscal agent of the United States, the Treasurywould direct the bank to redeem such obligations ~-from the moneys held on deposit In the.speclal account representingthe income from the bequest."'
OpinionNo. WW-922 reviewed the controllingcourt decisions and reached the following conclus-ion:

"We think that the foregoingdecisions demonstratethat the 'use1 contemplated by the statute is a direct, actual uses within the State for the benefit of and limited to its citizens. We,do not think that this requisite,usecan be satisfied by the~mereretention in the.Stateof funds devised for the retirementof the national debt. Any benefit which the ,~ residentsof this State would receive under the proposed arrangement would be ~~ at best an incidentalbenefit shared equally with all of, the residentsof all other forty-ninestates."

In view of this conclusionexemptionwas denied.

The United States, through Its appropriateofficials, has submittedanother plan which It is urged would satisfy the requisiteuse withinthe State of Texas and result in exempting the bequest from any inheritancetax. We set out the plan, as submitted,

below:

"The Treasurywould make special arrangements to receive within the State of Texas moneys representingincome derived from the Susan V. Clayton Trust No. 2 and would malntain them in a separate account ln.the nameHonorableRobert S. Calvert, ,P~age ~4 Gpinion~.No. ~~-1003

of the Treasurer of the United States in the State of Texas and not intermingle them with any other funds of the..Unlted States. Such moneys would be used solely to redeem public debt obligationsowned by residentsof the State of Texas presented to the Treasury for redemptionIn the State of Texas. "Specifically,

the moneys would be paid to the United States at the‘Fe.deral Reserve Bank of Dallas, Texas, for credit to the Treasurerof the United States; The Treasurer would maintain a special deposit accountwith the Federal Reserve Rank fork theseparticular moneys. This account would be separate~.from the accountnow maintainedby the Treasurer with the Federal Reserve Bank of Dallas.for~.. general operatingpurposes. The moneys thus received in Texas and held on depo~sit with. the Federal Reserve Bank of Dallas. would be identifiedspeciallyon the books of the Treasury to be availablefor retirementof the national debt. From time to time, as public debt obligationsowned by residents of the State of Texas are presented to the Federal Reserve Bankof Dallas for redemption by that bank as fiscal agent of theunited States, the Treasurywould direct the-bank to redeem such obligationsfrom the moneys held on deposit in the special account representing the Income from the bequest;",

It is evident that the only differencebetween the proposal first submittedand the last proposal is that In using the trust income for the retirementof the National Debt, such
use would be limited to the dischargeof such public debt obligations

as are owned by residents of this State.
Although the Government's position In connection with this
new proposal is appealing on its face, we do not think it will bear analysis. True, only residents of,Texaswill have obligations of,

the United States Governmentsatisifed from the bequest, but are we to assume that an obligationowned by a Texas re,- sident Is, for this reason, any less an obligationof the Government of the United States or that the Government'sliability is limited to this bequest or mustbe satisfiedtherefrom? Wherein lies any~benefitto Texas residentsLnthe satisfaction of these obligationsfrom this special fund rather than from any Governmentrevenues? Were,,we,to assume .that

the Govern-HonorableRobert S. Calvert, Page 5 OpinionNo. WW-1003

ment will default in whole or in part in the dischargeof its obligations,

Texas residents,as a result of the contemplatedcommitment, would have no added security for their loans. The proposed commitmentcould not so change the Government's

existing contractualliability to all its creditorsnor effectuateany priority for Texas creditors.
Finally, who will ultimatelybenefit from the retirement of part or all of the National Debt of the United States? Not just the creditors who are repaid the loans that they have made to the United States. Rather, all of the citizens of the United States will benefit in the resultingdiminutionof the tax burden which they must bear.

We must, therefore,again conclude that any benefit which the residentsof this State would receive under this last proposed arrangement

would be, at best, an incidental benefit shared equally with all of the residents of all the other fortynine states. The requisite "use within this State" would not be satisfied,and exemptionmust be denied.

SUMMARY

A bequest in trust to the United States to be used for the retirementof the National Debt may not obtain exemption from inheritancetaxes by a commitment that the bequest will be used to redeem only public debt obligationsowned by Texas residents.

Yours very truly,

WILL WILSON Attorney General of Texas

MMP:cm

APPROVED:

OPINION COMMITTEE: W. V. Geppert, Chairman

William T. Blackburn Leon Pesek John C. Steinberger Marietta McGregor Assistant

REVIEWED FOR THE ATTORNEY GENERAL By: Morgan Nesbitt