Source: https://en.wikisource.org/wiki/Fernandez_v._Wiener/Opinion_of_the_Court
Timestamp: 2020-01-24 14:49:21
Document Index: 23188745

Matched Legal Cases: ['§ 827', '§ 827', '§ 826', '§ 811', '§ 811', '§ 404', 'art, 317', '§ 811', '§ 404', '§ 811', 'Art. 2404', 'Art. 2404']

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Fernandez v. Wiener/Opinion of the Court
< Fernandez v. Wiener
899724Fernandez v. Wiener — Opinion of the Court
Argued: Nov. 5, 1945. --- Decided: Dec 10, 1945
'(2) Community interests. To the extent of the interest therein held as community property by the decedent and surviving spouse under the law of any State * * * of the United States, * * * except such part thereof as may be shown to have been received as compensation for personal services actually rendered by the surviving spouse or derived originally from such compensation or from separate property of the surviving spouse. In no case shall such interest included in the gross estate of the decedent be less than the value of such part of the community property as was subject to the decedent's power of testamentary disposition.' [1]
The revenue laws make no provision for the distribution of the burden of the tax beyond providing that the tax shall be a lien on all of the property included in the decedent's gross estate. Section 827(a) I.R.C., 26 U.S.C. § 827(a), 26 U.S.C.A. Int.Rev.Code, § 827(a). See Detroit Bank v. United States, 317 U.S. 329, 331-333, 63 S.Ct. 297, 298, 299, 87 L.Ed. 304. Section 826(b) of the I.R.C., 26 U.S.C.A.Int.Rev.Code, § 826(b), contemplates that the tax 'be paid out of the (taxable) estate before its distribution,' unless otherwise directed by decedent's will. Although the share of the surviving spouse is subject to the lien and the tax must be paid out of the estate as a whole, the federal statute leaves it to the states to determine how the tax burden shall be distributed among those who share in the taxed estate. See Riggs v. Del Drago, 317 U.S. 95, 63 S.Ct. 109, 87 L.Ed. 106, 142 A.L.R. 1131.
By the law of Louisiana, every marital status subject to the laws of the state superinduces a partnership or community of the spouses with respect to property in the state acquired during the life of the community, unless there be at the time of the marriage a stipulation to the contrary. [2] All earnings and all property acquired by the husband or wife during the life of the community become community property, with certain limited exceptions not here involved, and which need not be detailed further than to say that the spouses can acquire some separate property during marriage. [3] It is said that all property acquired by the spouses during the marriage which falls into the community is 'due to the joint or common efforts, labor, industry, economy, and sacrifices of the husband and wife,' and that for this reason the husband and wife each has at all times an equal present interest in an undivided half of the whole community. [4] The management of the community is entrusted to the exclusive control of the husband, [5] and he may deal with and dispose of community property with no liability to account to the wife so long as the community continues. [6] The rule is, however, that the husband may not give away any of the immoveables, nor a quota of the moveables, nor may he fraudulently make any alienation of property 'to injure (his) wife.' [7]
So long as the community continues, the wife has no control over community property. She may not give it away, nor sell it, and in general, may not bind it for the payment of her debts. [8] But upon the termination of the community, [9] she, her heirs or other designees receive in full possession and enjoyment one-half in value of the total community assets subject to the payment of community debts. [10] This right so to receive one-half is indefeasible, and if she die first, her heirs or legatees take her half-share to the exclusion of the husband; if the husband die first, his half passes to his heirs or as he has directed, and the other half is the wife's. [11]
Examination of the legislative history of the challenged statute, as disclosed by the Committee Hearings and Reports and the Congressional debates, can leave no doubt that the purpose of Congress in enacting it was the elimination of what was believed to be an unequal distribution of the tax burdens of estate taxes which led Congress to apply to community property the principles of death taxes which it had already applied to other forms of joint ownership, on the death of either of the joint owners. The Report of the House Committee recommending the adoption of the amendment to § 811 of the Internal Revenue Code pointed out the preferential treatment accorded by the federal estate tax laws to community property. H.Rep.No.2333, 77th Cong., 2d Sess., pp. 35 to 37, 160. [12]
If the gift of property may be taxed we cannot say that there is any want of constitutional power to tax the receipt of it, whether as the result of inheritance, Stebbins v. Riley, 268 U.S. 137, 45 S.Ct. 424, 69 L.Ed. 884, 44 A.L.R. 1454, or otherwise, whatever name may be given to the tax, and even though the right to receive it, as distinguished from its actual receipt and possession at a future date, antedated the statute. Receipt in possession and enjoyment is as much a taxable occasion within the reach of the federal taxing power as the enjoyment of any other incident of property. The taking of possession of inherited property is one of the most ancient subjects of taxation known to the law. Such taxes existed on the European Continent and in England prior to the adoption of our Constitution. [13]
The principles which sustain the present tax against due process objections are precisely those which sustained the California tax, measured by the entire value of community property in Moffitt v. Kelly, supra. There the Court recognized that the surviving wife took her share of the property on her husband's death, not as an heir, but as an owner of an interest, the right to which she acquired before the death and before the enactment of the taxing act. But the levy upon the entire value of the community was sustained, not as a tax upon property or the transfer of it, but as a tax upon the 'vesting of the wife's right of possession and enjoyment, arising upon the death of her husband' (218 U.S. 400, 31 S.Ct. 80), which the Court deemed an appropriate subject of taxation, notwithstanding the contract, equal protection and due process clauses of the Constitution. [14] So far as Coolidge v. Long, 282 U.S. 582, 51 S.Ct. 306, 75 L.Ed. 562, is inconsistent with Moffitt v. Kelly, supra, and the contentions now urged by the Government, the application of the reasoning of the Coolidge case, to the taxation of joint or community interests must be taken to have been limited by our decisions in Tyler v. United States, supra, and United States v. Jacobs, supra, and the cases following them.
The present statute, which was enacted in order to secure a more equitable distribution of the burden of federal death taxes, [15] is assailed because the tax is lacking in uniformity. But the uniformity in excise taxes exacted by the Constitution is geographical uniformity, not uniformity of intrinsic equality and operation. Knowlton v. Moore, supra, 178 U.S. at pages 83-109, 20 S.Ct. at pages 764-774, 44 L.Ed. 969. The Constitution does not command that a tax 'have an equal effect in each state', id. 178 U.S. at page 104, 20 S.Ct. at page 772, 44 L.Ed. 969. It has long been settled that within the meaning of the uniformity requirement a 'tax is uniform when it operates with the same force and effect in every place where the subject of it is found.' Head Money Cases (Edye v. Robertson), 112 U.S. 580, 594, 5 S.Ct. 247, 252, 28 L.Ed. 798. See also LaBelle Iron Works v. United States, 256 U.S. 377, 392, 393, 41 S.Ct. 528, 532, 65 L.Ed. 998; Bromley v. McCaughn, supra, 280 U.S. at page 138, 50 S.ct. at page 48, 74 L.Ed. 226; Steward Machine Co. v. Davis, supra, 301 U.S. at page 583, 57 S.Ct. at page 889, 81 L.Ed. 1279, 109 A.L.R. 1293.
The inclusion of all the proceeds of decedent's life insurance policies within his gross estate for purposes of estate taxation, requires no extended discussion. There is no contention that the proceeds of the policies are not made taxable by the terms of § 811(g) of the Internal Revenue Act as amended by § 404 of the Revenue Act of 1942. [16] The amendment indicates on its face the purpose to bring the provisions for the taxation of the proceeds of insurance policies payable at death into harmony with the amendment taxing community interests, and the court below seems to have regarded, as do the parties here, the disposition of the questions affecting the tax on community interests, as determinative of the validity of the tax on the proceeds of the policies. But it is sufficient for present purposes that the tax is laid upon the amount receivable by the wife as a beneficiary of the policies on the death of her husband, and that the husband possessed at his death an incident of ownership, the power to change the beneficiaries.
Prior to the Revenue Act of 1942 there was a great lack of uniformity among the States in the incidence of the federal estate tax. In most of the State the accumulations of the husband (who typically is the bread-winner) were taxed in their entirety on his death. In the community property states the tax generally reached only half of the accumulations because of the theory that they were the product of the wife's as well as of the husband's activities. It was this disparity which Congress sought to eliminate. As stated in the House Report (H.Rep.No.2333, 77th Cong., 2d Sess., pp. 35-37),
Much may be said for the community property theory that the accumulations of property during marriage are as much the product of the activities of the wife as those of the titular breadwinner. But I can see no constitutional reason why Congress may not credit them all to the husband for estate tax purposes. The character and extent or property interests under local law often determine the reach of federal tax statutes. Helvering v. Stuart, 317 U.S. 154, 161, 162, 63 S.Ct. 140, 144, 145, 87 L.Ed. 154, and cases cited. And see Cahn, Local Law in Federal Taxation, 52 Yale L. Journ. 799. Yet that is not always so. United States v. Pelzer, 312 U.S. 399, 61 S.Ct. 659, 85 L.Ed. 913. Taxation is eminently a practical matter. Congress need not be circumscribed by whatever lines are drawn by local law. It may rely, as Tyler v. United States, 281 U.S. 497, 502, 503, 50 S.Ct. 356, 358, 359, 74 L.Ed. 991, 69 A.L.R. 758, held, on more realistic considerations and base classifications for estate tax purposes on economic actualities. It was held, to be sure, In Hoeper v. Tax Commission, 284 U.S. 206, 52 S.Ct. 120, 76 L.Ed. 248, 78 A.L.R. 346, that a State could not assess against the husband an income tax computed on the combined total of his and his wife's income. But I can see no reason why that which is in fact an economic unit may not be treated as one in law. For as Mr. Justice Holmes pointed out in his dissent, there is a community of interest 'when two spouses live together and when usually each would get the benefit of the income of each without inquiry into the source.' And he went on to say 'Taxation may consider not only command over but actual enjoyment of the property taxed.' 284 U.S. at pages 219, 220, 52 S.Ct. at pages 123, 124, 76 L.Ed. 248, 78 A.L.R. 346. Cf. Helvering v. Clifford, 309 U.S. 331, 335-337, 60 S.Ct. 554, 556, 557, 84 L.Ed. 788.
^1 Section 811 of the Internal Revenue Code, 26 U.S.C. § 811, as amended by § 404 of the Act of 1942, 26 U.S.C.A. Int.Rev.Code, § 811(g)(1, 2, 4), provides that the taxable value of the gross estate of the decedent shall be determined by including the value at the time of his death of
^2 Dart's Louisiana Civil Code (1945) Article 2399.
^3 Id., Article 2402; see Troxler v. Colley, 33 La.Ann. 425. The income from the separate property of the husband, and of such of the wife's separate property as is given over to the husband's management also falls into the community by Article 2402, supra; see also Hellberg v. Hyland, 168 La. 493, 122 So. 593.
^4 Succession of Wiener, 203 La. 649, 14 So.2d 475, 480; see also Phillips v. Phillips, 160 La. 813, 825 et seq., 107 So. 584.
^5 Dart's Louisiana Civil Code (1945) Article 2404.
^6 McCaffrey v. Benson, 40 La.Ann. 10, 3 So. 393; Frierson v. Frierson, 164 La. 687, 114 So. 594.
^7 Dart's Louisiana Civil Code (1945) Art. 2404. The rights secured to the wife by this inhibition on gifts apparently may not be enforced against the husband or those taking under him either during the life of the community or after its termination. The sole remedy is a suit against the donee to recover the property in his hands, Bister v. Menge, 21 La.Ann. 216; Frierson v. Frierson, supra, and even such a suit apparently may not be maintained until after the termination of the community. Daggett, The Community Property System of Louisiana (1931) 24. Where the husband has aliened some part of the community in fraud of his wife's rights, she or those representing her have an action for reimbursement against the husband or his representatives upon the termination of the community, but not before. Guice v. Lawrence, 2 La.Ann. 226, 228. The fraud required for an action of this kind seemingly must be intentional and the motive for the transfer. See Art. 2404, supra; Succession of Packwood, 12 Rob. (La.) 334, 364, 365, 43 Am.Dec. 230; Exposito v. Lapeyrouse La.App., 195 So. 814.
^8 Bywater v. Enderle, 175 La. 1098, 145 So. 118; D. H. Holmes v. Morris, 18 La. 431, 177 So. 417, 114 A.L.R. 905.
^9 Dart's Louisiana Civil Code (1945) Articles 2406, 2425. At the dissolution of the community, the share of each spouse in the partnership's assets is credited with one-half of the amount by which the other spouse's separate property has been enhanced in value by the application thereto of community funds or of common labor, id., Article 2408; Dillon v. Dillon, 35 La.Ann. 92. The wife's share must also be credited with one-half of the amount of community funds expended to pay the husband's separate debts, Glenn v. Elam, 3 La.Ann. 611, although those debts may be satisfied during the community by levy upon community property. Davis v. Compton, 13 La.Ann. 396.
^10 Dart's Louisiana Civil Code (1945) Articles 2406, 2409, 2430.
^11 See Succession of Wiener, supra.
^12 The report stated:
The proposed amendment, it was said, 'eliminates special estate tax privileges enjoyed by decedents of community property estates.' To the same effect is S.Rep.No.1631, 77th Cong., 2d Sess., p. 231. The inequity inherent in allowing spouses in community property states to bear a lighter tax burden than their counterparts in other states had been brought to Congressional attention on other, occasions. See e.g., President Roosevelt's message to Congress June 1, 1937, H.Doc.No.260, 75th Cong., 1st Sess., p. 5; also Reports to the Joint Committee on Internal Revenue Taxation, Vol. 2, Part II (1933), pp. 15, 118-121, 139, 140.
^13 Nielsen v. Johnson, 279 U.S. 47, 54, et seq., 49 S.Ct. 223, 225, 73 L.Ed. 607; Gleason & Otis, 'Inheritance Taxation' (4th ed.), p. 243 et seq. Fudal 'relief' was a payment exacted of the heir for the privilege of admission to possession of the land of his ancestor. Digby, 'History of the Law of Real Property' (5th ed.) p. 40.
^14 The force of Moffitt v. Kelly, supra, as an authority controlling the taxation of community property in Louisiana where the wife's interest is vested before the death of the husband, is not impaired by the fact that the California courts later held that the wife's interest in community property in that state is not so vested. Cf. United States v. Robbins, 269 U.S. 315, 46 S.Ct. 148, 70 L.Ed. 285 with United States v. Malcolm, 282 U.S. 792, 51 S.Ct. 184, 75 L.Ed. 714. The Moffitt case was decided upon the assumption that the wife's interest was 'vested'.
^15 See footnote 12, ante.
^16 Footnote 1, ante.
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