Source: http://www.chanrobles.com/usa/us_supremecourt/375/118/case.php
Timestamp: 2017-10-20 14:35:12
Document Index: 170699692

Matched Legal Cases: ['§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812', '§ 812']

Respondents brought this suit against the Government in the District Court for the Northern District of Texas for a refund of estate taxes paid pursuant to an asserted deficiency. The Court of Appeals for the Fifth Circuit held that respondents were entitled to certain marital deductions under § 812(e) of the Internal Revenue Code of 1939 [Footnote 1] and also to deductions for other payments as chanroblesvirtualawlibrary
"claims against the estate" and "administration expenses" under § 812(b)(3) and (2) of the 1969 Code. [Footnote 2] 309 F.2d 592. We granted certiorari to consider questions of statutory interpretation important to the administration of the federal estate tax laws. 372 U.S. 928.
Lowell H. Stapf died testate on July 29, 1953, a resident and domiciliary of Texas, a community property jurisdiction. At the time of his death, he owned, in addition to his separate estate, a substantial amount of property in community with his wife. His will required that his widow elect either to retain her one-half interest in the community or to take under the will and allow its terms to govern the disposition of her community interest. If Mrs. Stapf were to elect to take under the will, she would be given, after specific bequests to others, one-third of the community property and one-third of her husband's separate chanroblesvirtualawlibrary
The relevant facts and computations are not in dispute. The decedent's separate property was valued at $65,100 and the community property at $258,105. [Footnote 3] The only debts were community debts totalling $32,368. The administration expenses, including attorneys' fees, were $4,073. If Mrs. Stapf had not elected to take under the will, she would have retained her fully vested one-half interest in the community property ($129,052) which would have been charged with one-half of the community debts ($16,184) and 35% of the administration expenses ($1,426). [Footnote 4] Thus, as the parties agree, she would have received a net of $111,443.
In fact, Mrs. Stapf elected to take under the will. She received, after specific bequests to others, one-third of the combined separate and community property, a devise valued at $106,268, [Footnote 5] which was $5,175 less than she would chanroblesvirtualawlibrary
have received had she retained her community property and refused to take under the will. [Footnote 6]
In computing the net taxable estate, the executors claimed a marital deduction under § 812(e)(1) of the Internal Revenue Code of 1939 for the full value of the one-third of decedent's separate estate ($22,367) which passed to his wife under the will. The executors also claimed a deduction for the entire $32,368 of community debts as "claims against the estate" under § 812(b)(3) and for the entire $4,073 of expenses as "administration expenses" under § 812(b)(2). The Commissioner of Internal Revenue disallowed the marital deduction and the deductions for claims and administration insofar as these represented debts (50%) and expenses (35%) chargeable to the wife's one-half of the community. Respondents then instituted this suit for a tax refund. The District Court allowed the full marital deduction, but disallowed the disputed claims and expenses. 189 F.Supp. 830. On cross-appeals, the Court of Appeals, with one judge dissenting on all issues, held that each of the claimed deductions was allowable in full. 309 F.2d 592. For reasons stated below, we hold that the Commissioner was correct, and that none of the disputed deductions is allowable. [Footnote 7] chanroblesvirtualawlibrary
. THE MARITAL DEDUCTION
The Court of Appeals, in allowing the claimed marital deduction, reasoned that, since the valuation is to be "as if" a gift were being taxed, the legal analysis should be the same as if a husband had made an inter vivos gift to his wife on the condition that she give something to the children. In such a case, it was stated, the husband is taxable in the full amount for his gift. The detriment incurred by the wife would not ordinarily reduce the amount of the gift taxable to the husband, the original donor. [Footnote 8] The court concluded:
This conclusion, based on the alleged plain meaning of the final gift amount clause of § 812(e)(1)(E)(ii), [Footnote 9] is not supported by a reading of the entire statutory provision. First, § 812(e) allows a marital deduction only for the decedent's gifts or bequests which pass "to his surviving spouse." In the present case, the effect of the devise was not to distribute wealth to the surviving spouse, but instead to transmit, through the widow, a gift to the couple's children. The "gift to the surviving spouse" terminology reflects concern with the status of the actual recipient or donee of the gift. What the statute provides is a "marital deduction" -- a deduction for gifts to the surviving spouse -- not a deduction for gifts to the children or a deduction for gifts to privately selected beneficiaries. The appropriate reference, therefore, is not to the value of the gift moving from the deceased spouse, but to the net value of the gift received by the surviving spouse.
"If the decedent bequeaths certain property to his surviving spouse subject, however, to her agreement, or a charge on the property, for payment of $1,000 to X, the value of the bequest (and, accordingly, the value of the interest passing to the surviving spouse) is the value, reduced by $1,000, of such property."
State of their residence. The wife elected to relinquish her community property interest and to take the bequest. For the purpose of the marital deduction, the value of the bequest is to be reduced by the value of the community property interest relinquished by the wife. [Footnote 10]"
We conclude, therefore, that the governing principle, approved by Congress and embodied in the Treasury Regulation, [Footnote 11] must be that a marital deduction is allowable only to the extent that the property bequeathed to the surviving spouse exceeds in value the property such spouse is required to relinquish. chanroblesvirtualawlibrary
Our conclusion concerning the congressionally intended result under § 812(e) (1) accords with the general purpose of Congress in creating the marital deduction. The 1948 tax amendments were intended to equalize the effect of the estate taxes in community property and common law jurisdictions. [Footnote 12] Under a community property system such as that in Texas, the spouse receives outright ownership of one-half of the community property, and only the other one-half is included in the decedent's estate. To equalize the incidence of progressively scaled estate taxes and to adhere to the patterns of state law, the marital deduction permits a deceased spouse, subject to certain requirements, to transfer free of taxes one-half of the non-community property to the surviving spouse. Although applicable to separately held property in a community property state, the primary thrust of this is to extend to taxpayers in common law States the advantages of "estate splitting" otherwise available only in community property States. The purpose, however, is only to permit a married couple's property to be taxed in two stages and not to allow a tax-exempt transfer of wealth into succeeding generations. Thus, the marital deduction is generally restricted to the transfer of property interests that will be includible in the surviving spouse's gross estate. [Footnote 13] Respondents' construction of § 812(e)(1) would, nevertheless, permit one-half of a spouse's wealth to pass from one generation to another without being subject either to gift or estate chanroblesvirtualawlibrary
taxes. [Footnote 14] We do not believe that this result, squarely contrary to the concept of the marital deduction, can be justified by the language of § 812(e)(1). Furthermore, since, in a community property jurisdiction, one-half of the community normally vests in the wife, approval of the claimed deduction would create an opportunity for tax reduction that, as a practical matter, would be more readily available to couples in community property jurisdictions than to couples in common law jurisdictions. [Footnote 15] Such a result, again, would be unnecessarily inconsistent with a basic purpose of the statute.
Since, in our opinion, the plain meaning of § 812(e)(1) does not require the interpretation advanced by respondents, the statute must be construed to accord with the clearly expressed congressional purposes and the relevant Treasury Regulation. We conclude that, for estate tax purposes, the value of a conditional bequest to a widow should be the value of the property give to her less the value of the property she is required to give to another. In this case, the value of the property transferred to Mrs. Stapf ($106,268) must be reduced by the value of the community property she was required to relinquish ($111,443). Since she received no net benefit, the estate is entitled to no marital deduction. chanroblesvirtualawlibrary
. CLAIMS AGAINST THE ESTATE AND ADMINISTRATION EXPENSES
The first question to consider is whether the claim is of the type intended to be deductible. [Footnote 16] It cannot be denied that, where the executors are directed to pay the debts of another party, the substance of the direction is to confer a beneficial gift on that party. Respondents' contentions in effect require that § 812(b) -- designed to chanroblesvirtualawlibrary
allow deductions for "expenses, losses, indebtedness, and taxes" -- be construed to authorize tax free gifts despite the general policy that wealth not be transmitted tax free at death. [Footnote 17] The provisions of § 812(b) demonstrate that it was not intended to allow deductions for voluntary transfers that deplete the estate merely because the testator described the transfers or payments as the settlement of "claims" or "debts." This intent is evidenced by the treatment of claims or debts founded upon promises or agreements. The section carefully restricts the deductible amount
Absent such an offset or augmentation of the estate, a testator could disguise transfers as payments in settlement of debts and claims, and thus obtain deductions for transmitting gifts. As this requirement suggests, a deduction under § 812(b) should not be predicated solely on the finding that a promise or claim is legally enforceable under the state laws governing the validity of contracts and wills. [Footnote 18] The claims referred to by the statute are those "claims against" the property of the deceased which are allowed by and enforceable under the laws of the administering State, and not those claims created by the deceased's gratuitous assumption of debts attaching to the property of another. chanroblesvirtualawlibrary
The pertinent Treasury Regulation states that the deductible claims are "such only as represent personal obligations of the decedent. . . ." [Footnote 19] We cannot agree with respondents' contention that the debts chargeable to the wife's community property are "personal obligations" of the decedent within the meaning of the Regulation. It is true, as the Court of Appeals stated, that, under Texas law, the husband, as manager of the community property, was personally liable for the full amount of community debts. 309 F.2d 592, 596. His liability for the portion of debts chargeable to his wife's community property was, however, accompanied by a right over against her half of the community. Ibid. The basic rule of Texas law is that the community is liable for its debts, and, accordingly, half the debts attach to the wife's community property. Since the will of the decedent cannot be allowed to define what is an "obligation" or a "claim," where, as in this case, the community is solvent, the debts chargeable to the wife's property cannot realistically be deemed "personal obligations" of the decedent or "claims against" his estate.
The provisions of § 812(b), like those of § 812(e) allowing marital deductions, must be analyzed in light of the congressional purpose of equalizing the incidence of chanroblesvirtualawlibrary
taxation upon couples in common law and community property jurisdictions. If the deductible "claims" were to include all community debts that might be, in a literal sense, "personal obligations" of the husband as surety, then a married couple in a community property State might readily increase their tax free estate transfers. For example, by borrowing against the value of the community property and then requiring that his executors pay all community debts, the husband could obtain a tax deduction for what would in effect be a testamentary gift to his wife. [Footnote 20] That gift might or might not qualify for treatment as a marital deduction, [Footnote 21] but it certainly was not intended to be made deductible by § 812(b). A contrary interpretation of § 812(b)(3) would, in our opinion, generally tend to create unwarranted tax advantages for couples in community property States. [Footnote 22]
The testator's will provided that administration expenses, as well as community debts, should be paid entirely out of his half of the community property. The administration expenses totalled $4,073. Under Texas law, an allocable share of these costs was chargeable to the chanroblesvirtualawlibrary
In our view, the payments made as a result of the testator's assumption of responsibility both for his wife's share of the community debts and for her share of the administration expenses are more properly characterized as marital gifts, rather than as "claims" or "expenses." Since these gifts were to the surviving spouse, respondents contend that a marital deduction should be allowed. Our interpretation of § 812(e) disposes of this argument, for, under any view of the facts, even if these items are deemed to be gifts to the wife, the will required her to surrender property more valuable than the bequests chanroblesvirtualawlibrary
she received. [Footnote 23] In the absence of a net benefit passing to the surviving spouse, no marital deduction is allowable.
See, e.g., Commissioner of Internal Revenue v. Wemyss, 324 U. S. 303. There, the Court stated that, under the Revenue Act of 1932, mere detriment to the transferee did not constitute the requisite "consideration in money or money's worth" to the transferor so as to relieve him of gift tax liability. Respondents' reliance on this case ignores that it involved neither a determination of who was to be considered the beneficial donee nor a valuation of the gift received by such donee.
Skidmore v. Swift & Co., 323 U. S. 134, 323 U. S. 140. Although the weight to be given to an interpretative rule varies with its statutory and legislative context, a Treasury Regulation is particularly persuasive when, as in this case, it is supported by declarations of congressional intent.
309 F.2d 592, 598. For an illustration of the tax effects of the decision, see the dissent of Judge Wisdom. 309 F.2d 608-609.
See Morgan v. Commissioner, 309 U. S. 78, 309 U. S. 80-81 (concerning the meaning of "general power of appointment" under a federal revenue act):
Her share of the gross community assets was $129,052. The portion of the debts ($16,184) and administration expenses ($1,426) chargeable to her was $17,610. When the assumption of the debts and expenses is viewed as a legacy, the effect of taking under the will may be summarized as follows: Mrs. Stapf in effect retained one-third of the total community property remaining after certain bequests ($83,902; see note 5 supra) and allowed the balance of her community ($129,052 minus $83,902) to pass into the trust for the children. Thus, she gave up property worth $45,151. In return, she was given separate property value at $22,367 (see note 6 supra) and the benefit of the debt and expense assumption, or $17,610, a total transfer of $39,976. Thus, the exchange produced a net loss to Mrs. Stapf of $5,175.