Source: https://caselaw.findlaw.com/us-supreme-court/271/1.html
Timestamp: 2019-04-21 07:13:48+00:00

Document:
[271 U.S. 1, 2] The Attorney General and Messrs. William D. Mitchell, Sol. Gen., Newton K. Fox. A. W. Gregg, and W. H. Trigg, all of Washington, D. C., for petitioner.
[271 U.S. 1, 3] Mr. Sidney V. Lowell, of Brooklyn, N. Y. (Messrs. Harrison Tweed and Benjamin Mahler, both of New York City, of counsel), for respondent.
Messrs. John M. Perry, C. Alexander Capron, Russell L. Bradford, and Walter F. Taylor, all of New York City, amici curiae.
In 1917, John B. Johnson, a resident of New York, died intestate. Respondent was appointed administratrix and in that year paid to the state $ 233,044.20, the transfer tax imposed pursuant to article 10, Tax Law ( chapter 60, Consolidated Laws). When respondent made the income tax return for the estate for 1917 (Revenue Act 1916, c. 463, 39 Stat. 756, 757 (Comp. St. 6336a et seq.)), she claimed that the state transfer tax paid in that year was deductible; but, yielding to the regulations of the Treasury Department, she did not make the deduction, and under protest paid to the United States an income tax calculated on $164,958.00, amounting to $30, 985.53. If the deduction had been made there would have been no taxable income. This action was brought to recover the amount paid. The District Court gave respondent judgment which was affirmed by the Circuit Court of Appeals.
The government contends that the state transfer tax is not imposed on the estate and is not deductible in calculating the federal tax on the income of the estate.
That case was brought to this court on writ of error. United States v. Perkins, 16 S. Ct. 1073, 163 U.S. 625 . Following the decisions of the New York court it was held that the transfer tax is not imposed on property but on the transfer, and that the property does not pass to the heirs or legatees until, by the enforced contribution to the state, it has suffered diminution to the amount of the tax. And see Prentiss v. Eisner (D. C.) 260 F. 589, affirmed (C. C. A.) 267 F. 16; People v. Fraser, 40 N. E. 165, 145 N. Y. 593, affirming 26 N. Y. S. 814, 74 Hun, 282.
The government cites New York Trust Co. v. Eisner, 41 S. Ct. 506, 256 U.S. 345 , 16 A. L. R. 660. In that case there was involved the amount of the federal estate tax under section 201 of the Revenue Act of 1916, 39 Stat. 756, 777 (Comp. St. 6336 1/2 b). Section 203 (Comp. St . 6336 1/2 d) provided that there should be deducted from the value of the gross estate funeral expenses, administration expenses, claims against the estate, certain losses, 'and such other charges against the estate as are allowed by the laws of the jurisdiction' where the estate was administered. When that case was before this court the latest decision of the New York Court of Appeals, having a direct bearing upon the matter, was Matter of Gihon, 62 N. E. 561, 169 N. Y. [271 U.S. 1, 7] 443. It was there held that the state transfer tax was the same as the federal inheritance tax imposed by the War Revenue Act of June 13, 1898, c. 448, 30 Stat. 448, which was considered by this court in Knowlton v. Moore, 20 S. Ct. 747, 178 U.S. 41 ; that the tax was not primarily payable out the estate; that it was a tax not upon property but upon succession, 'that is to say, a tax on the legatee for the privilege of succeeding to property,' and that payment of the tax by the personal representative was for the legatee and not on account of the estate. In harmony with that case this court held that the state transfer tax paid by the executors was not deductible in calculating the amount of the federal estate tax. Since then the courts of New York, notwithstanding the Gihon Case, have construed the statute in harmony with the earlier decisions of the New York courts and United States v. Perkins, supra.
This decision was affirmed by the Court of Appeals without opinion. 142 N. E. 303, 236 N. Y. 607.
By indicating that the latest decisions of the state courts will be followed here as binding, it is not intended to intimate that a different view is entertained as to the construction properly to be given the state law. In fact we agree with that construction; and feel justified in so saying as the same question arises in another case-No. 470, the opinion in which is announced concurrently with this one-on a substantially similar statute of a state where there has been no authoritative construction by [271 U.S. 1, 9] the state courts. Compare Harrigan v. Bergdoll, No. 181, 46 S. Ct. 413, 270 U.S. 560 , decided this day. And we are of opinion that the transfer tax is deductible. It was primarily payable by the respondent out of moneys and other property of the estate; and it was so paid by her. While this lessens the amount for distribution among the heirs, it cannot be said that they bore any part of that tax. As well might it be claimed that they paid the funeral expenses and debts, if any, of the intestate. No part of the transfer tax so paid could be taken by the heirs as a deduction in claculating their federal income taxes. It follows that the amount of the tranfer tax paid in 1917 by the respondent was deductible in ascertaining the taxable income of the estate received by her in that year.
the same manner that payment of the legacy might be enforced, or by the district attorney under section two hundred and thirty-five of this chapter. If any such legacy shall be given in money to any such person for a limited period, the executor, administrator or trustee shall retain the tax upon the whole amount, but if it be not in money, he shall make application to the court having jurisdiction of an accounting by him, to make an apportionment, if the case require it, of the sum to be paid into his hands by such legatees, and for such further order relative thereto as the case may require.

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