Source: http://openjurist.org/309/f2d/592/united-states-v-stapf-b-t-ii-h-stapf-b-t-ii-h
Timestamp: 2017-01-17 17:44:58
Document Index: 548372678

Matched Legal Cases: ['§ 566', '§ 81', 'art, 5', '§ 211', 'art. 43', 'art, 5', '§ 17']

309 F2d 592 United States v. Stapf B T II H Stapf B T II H | OpenJurist
309 F. 2d 592 - United States v. Stapf B T II H Stapf B T II H HomeFederal Reporter, Second Series 309 F.2d.
309 F2d 592 United States v. Stapf B T II H Stapf B T II H 309 F.2d 592
UNITED STATES of America, Appellant,v.Dorothy Anne STAPF and B. T. Ware, II, Executors and Trustees of the Estate of Lowell H. Stapf, Deceased, and Dorothy Anne Stapf, Individually, Appellees.Dorothy Anne STAPF and B. T. Ware, II, Executors and Trustees of the Estate of Lowell H. Stapf, Deceased, and Dorothy Anne Stapf, Individually, Appellants,v.UNITED STATES of America, Appellee.
This is an estate tax case. The opinion of the District Court is reported at 189 F.Supp. 830. Suit was filed by the executors of the estate of Lowell H. Stapf for a refund of estate taxes and interest paid pursuant to a deficiency asserted against the estate.
First, the Texas case law makes it abundantly clear that decedent by the terms of his will could so obligate his estate and his community property. Medlin v. Medlin, Tex.Civ.App., 1947, 203 S.W.2d 635; and Matthews v. Jones, Tex.Civ.App., 1952, 245 S.W.2d 974. It is true that neither of these cases involved taxes, but the regulation here requires only that the payment be authorized under the Texas law. Cf. In re Marinos' Estate, 1940, 39 Cal.App.2d 1, 102 P.2d 443.
Second, the government contends that only one-half of the debts represented personal obligations of the decedent and for that reason only one-half may be claimed as deductible. Cf. Lang's Estate, supra. This, too, is a question of state law. The general rule is that on dissolution of the community the husband, but not the wife is personally liable for community debts. 42 C.J.S. Husband and Wife § 566b(1), p. 100. This is the law of Texas. A judgment could have been obtained against the estate of decedent for the full amount of the community debts. Of course, the community of the wife under Texas law is liable for payment of the community debts, and her husband could recover from it for advances made to pay community debts, but no personal judgment could be obtained against her for community debts. The surviving wife does not personally owe the community debts. Leatherwood v. Arnold, 1886, 66 Tex. 414, 1 S.W. 173; Security Nat. Bank of Wichita Falls v. Allen, Tex.Civ.App., 1924, 261 S.W. 1057; Sargeant v. Sargeant, 1929, 118 Tex. 343, 15 S.W.2d 589; and Anderson v. Bundick, Tex.Civ.App., 1952, 245 S.W. 2d 318. The debts were personal to decedent and to him only under the Texas law. The fact that the community property or even his property was sufficient to pay the debts does not take them out of the personal category.
The government relies on Treasury Regulation 105, (1939 Code), § 81.47c(b), which extends the language of this statute to include an election as here, specifying by example that in computing the marital deduction the value of the bequest to a widow is to be reduced by the value of the community property interest relinquished by her. Neither this section of the Act or its legislative history envision such an example or result.6 The regulation in this regard changes the plain terms of the statute by sweeping away the last clause thereof and must give way to the statute. Koshland v. Helvering, 1936, 298 U.S. 441, 56 S.Ct. 767, 80 L.Ed. 1268; Miller v. Commissioner of Internal Revenue, 5 Cir., 1956, 237 F.2d 830.
We also put aside the contention of the taxpayer that an encumbrance or obligation to be taken into account in valuing the property to be excluded means an encumbrance or obligation on the property such as a lien against the property for a debt, as distinguished from an obligation or encumbrance in the nature of a condition as here under the election. Wachovia Bank & Trust Co. v. United States, 1958, 163 F.Supp. 832, 143 Ct.Cl. 376.
The value of a gift by a husband to a wife of property, on the condition that she surrender to, or give for the benefit of a third party a portion of her property, would not be reduced or "netted" by the amount of property given up by the wife. There must be a monetary consideration or like benefit to the original donor before the value of the property surrender is to be deducted from the value of the gift. Commissioner of Internal Revenue v. Wemyss, 1945, 324 U.S. 303, 65 S.Ct. 652, 89 L.Ed. 958; Commissioner v. Bristol, 1 Cir., 1941, 121 F.2d 129; and Estate of Bartman, 1948, 10 T.C. 1073. All that Mrs. Stapf did by her election was to take the property devised to her and in turn surrender part of her property to the trust for the benefit of her children. Within gift tax confines the community property of the widow passing under the will of the husband to others may not be "netted" against the devise to the widow, and thus testator, were the transfer inter vivos, would be liable for gift taxes on the full value of the devise.7 Viewed in this light the devise of the one-half interest in the automobile and the one-third interest in the separate property of the testator qualify as a part of the marital deduction and the District Court did not err in so holding.
Allowedin toto here. Blair v. Stewart, 5 Cir., 1931, 49 F.2d 257.
"Granting the government's proposition that these taxpayers have found a hole in the dike, we believe it one that calls for the application of the Congressional thumb, not the court's." Fabreeka Products Co. v. Commissioner, 1 Cir., 294 F. 2d 876, 879, cited in The Hanover Bank, Ex'r v. Commissioner, 369 U.S. 672, 80 S.Ct. 1080, 8 L.Ed.2d 187.
The will does make plain the testator's intention that the debts and charges against the community should be payable from his share of the community or from his separate property. This is a testamentary provision common in a community property state. "There is no doubt", as Judge Dooley, the district judge below, remarked, "that a testator may lawfully exercise selectivity among different portions or different devises and bequests of his estate and order an impact of liabilities resulting in disproportionate burdens, or even a total burden on the one hand and exoneration on the other, and that is true in respect to payment of taxes, even the Federal Estate Tax." 189 F.Supp. 830, 834. Usually, "the intention of the testator [is] to give his wife her interest in the community estate free from all claims or debts so far as the other legatees [are] concerned." Redelsheimer v. Zepin, 1919, 105 Wash. 199, 177 P. 736. See also In re Hart's Estate, 1929, 150 Wash. 482, 273 P. 735.9 "This would allow of the division or partition of the community property between the surviving spouse and the heirs of the deceased spouse before debiting against such property the community property debts, so that the share going to the surviving spouse would go free of any liability for the community debt." 1 DeFuniak, Principles of Community Property Law, § 211 (1943). The Texas cases cited in the majority opinion are to the same effect. Medlin v. Medlin, Tex.Civ. App., 1947, 203 S.W.2d 635; Matthews v. Jones, Tex.Civ.App., 1952, 245 S.W.2d 974. In such cases, the dispute is only over the construction of the will. There is no holding and no intimation in these decisions that the purpose or effect of a will such as Stapf's is to enable executors to take a tax deduction for paying the debts chargeable by law to the wife's share of the community.
The basic error of the majority lies in their not recognizing that in the settlement of the community, following its dissolution, the community is regarded as a third person, vis-a-vis husband and wife. It is not a civil person in the common law sense, but time and again courts have referred to it as a separate entity. "[T]he laws of Washington establish a community between spouses which is a separate entity, `just as a corporation or an association.'"10 More often, the community is described as a partnership. "The law recognizes a partnership between the husband and the wife * * * [who] are entitled to an equal share in the community. * * * At the same time both are liable in equal proportion, for the losses and debts incurred during its existence". Schmidt, Civil Law of Spain and Mexico, T. 1, c. IV, Sec. 1, art. 43, 49, p. 12 (1851). In a very early case the California Court said:
1. The "Claim" contemplated. Section 812(b) (3), Internal Revenue Code of 1939, permits the deduction of such "claims against the estate * * * as are allowed by the laws of the jurisdiction * * * under which the estate is being administered." The state law does not apply of its own force. The federal tax law, for its own purposes, incorporates state law by reference. See Hart and Wechsler, The Federal Courts and the Federal System, p. 456; cf. Towner v. Commissioner, 182 F.2d 903, 907 (2d Cir., 1950). The role played by state law in the taxing statute is explained by the Supreme Court in Morgan v. Commissioner, 309 U.S. 78, 80, 60 S.Ct. 424, 426, 84 L.Ed. 585, 626, (1940):
The principles applicable to allowance of funeral expenses are completely inapplicable to allowance of debts or claims against the community. A claim for funeral expenses comes into existence after dissolution of the community. In Blair v. Stewart, 5 Cir., 1931, 49 F.2d 257; cert. den. 1931, 284 U.S. 658, 52 S.Ct. 35, 76 L.Ed. 558, this Court, construing Texas law, held that funeral expenses chargeable against "the estate" were chargeable against the only estate being administered, "the interest of the decedent in community property." Since that case, "it has been the uniform practice of examining revenue agents in Texas to allow all of the decedent's funeral expenses * * * as a deduction against the decedent's half of the community."12 However, both courts and legislatures have stretched community property law in dealing with funeral expenses. Texas courts take the view that "a decent regard for the memory of the dead" warrants holding the community liable for funeral charges, and have expressly disapproved of Blair v. Stewart. Norwood v. Farmers & Merchants National Bank of Abilene, Tex.Civ.App., 145 S.W.2d 1100, 1103, err. ref'd; see also Goldberg v. Zellner, Tex.Com.App., 235 S.W. 870; Richardson v. McCloskey, Tex.Civ.App., 261 S.W. 801; Tex.Com.App., 276 S.W. 680; Hocker v. Piper, Tex.Civ.App., 2 S.W.2d 997; Goggans v. Simmons, Tex. Civ.App., 1958, 319 S.W.2d 442.
If the majority decision is not corrected, the will of every informed taxpayer in all the community property states is certain to follow Stapf's will. Such taxpayers will enjoy a substantial advantage over taxpayers in common law states. With the same amount of property as that of a married couple in a common law state, a Texas widow's share of the community will be larger than the marital deduction, to the extent of one-half of the debts. Judge Dooley pointed this out clearly, 189 F.Supp. 830, 834:
D. Costs of Administration
Strong economic, social, and moral reasons support the view that marriage is a full partnership between equal partners. Judge Dooley speaks for all of the traditional community states when he says, there is a "deep-rooted tradition * * * that liabilities against the whole community estate should be borne half and half, in the true spirit of the marital partnership." 189 F.Supp. 830, 835.
The majority start with the premise that a marital bequest must be given the identical tax treatment as a gift. They point then to the unquestioned fact that in determining the taxability of a gift, a condition that the donee transfer a portion of her property to a third person does not reduce the value of the gift. The consideration must benefit the donor to relieve a transfer by him from being a gift. Commissioner v. Wemyss, 1945, 324 U.S. 303, 65 S.Ct. 652, 89 L.Ed. 958. Since Mrs. Stapf's transfer went to the trust, not to her deceased husband, the majority hold that the value of the bequest was undiminished by the widow's election.
"[W]hat the Regulations are driving at seems to be this. If a decedent bequeaths property to his wife in lieu of her interest in community property, which is not part of his estate and which does not pass to her from him, it seems clear that the only thing which the surviving spouse actually receives from the decedent is the excess of the interest bequeathed to her over and above the value of her interest in the community property. Therefore, this should be the only amount which qualifies for the marital deduction". Lowndes and Kramer, Federal Estate and Gift Taxes, § 17.5 (1962).
The Supreme Court has "many times declared that Treasury Regulations must be sustained unless unreasonable and plainly inconsistent with the revenue statutes and that they constitute contemporaneous constructions by those charged with administration of these statutes which should not be overruled except for weighty reasons." Commissioner v. South Texas Lumber Co., 1948, 333 U.S. 496, 501, 68 S.Ct. 695, 698, 92 L.Ed. 831, 836. I do not see any basis whatsoever on which the regulation governing marital deductions could be called "unreasonable and plainly inconsistent with the revenue statutes".
Lang's Estate v. Commissioner, 1938, 304 U.S. 264, 58 S.Ct. 880, 881, 82 L.Ed. 1331
Rompel v. United States, S.D.Tex., 1945, 59 F.Supp. 483, rev'd United States v. Rompel (Herbst), 1945, 326 U.S. 367, 66 S.Ct. 191, 90 L.Ed. 137. This is the Texas companion case to the Louisiana case of Wiener v. Fernandez, E.D.La., 1945, 60 F.Supp. 169, rev'd Fernandez v. Wiener, 1945, 326 U.S. 340, 66 S.Ct. 178, 90 L.Ed. 116 upholding the constitutionality of the Revenue Act of 1942. Both cases were carefully pleaded, briefed, and decided. Their import was thoroughly understood in all of the community property states, as well as in Texas and Louisiana
See Surrey, Federal Taxation of the Family — The Revenue Act of 1948, 61 Harv.L.Rev. 1097 (1948); Anderson, The Marital Deduction and Equalization under the Federal Estate and Gift Taxes Between Common Law and Community Property States, 54 Mich.L.Rev. 1087 (1956). DeWind, The Approaching Crisis in Federal Estate and Gift Taxation, 38 Cal.L.Rev. 79 (1950). See also Memorandum Submitted by the Secretary of Treasury to the Senate Committee on Finance, March 1, 1948, Analysis of the Estate Gift Tax Provisions of H.R. 4790 (Revenue Act of 1948), reprinted in Warren and Surrey, Estate and Gift Taxation (1961). Lowndes and Kramer, Beveridge, and, not surprisingly, legal writers in the community states have found that after adoption of the 1948 Act the sky did not fall. Beveridge, Law of Federal Estate Taxation, Chap. 14 (1956); Lowndes and Kramer, Chap. 17 (1962). See Thurman, Jackson, Riehm, Nossaman, and Ray, cited in notes 17 and 18. See also Golden, A Decade with the Marital Deduction, 97 Trusts and Estates, 304 (1958)
For discussion of the widow's election and the marital deduction, see Ray, The Widow's Election — A Study in Three Parts, 15 S.W.L.J. 85 (1961); Westfall, Estate Planning and the Widow's Election, 71 Harv.L.Rev. 1269 (1958); Brown, The Widow's Election as a Tax Savings Device, 96 Trusts and Estates 30 (1957); Brookes, The Tax Consequences of Widows' Elections in Community Property States, U.So.Cal.1951 Tax Inst. 83; Nossaman, Trusts Under The Revenue Act of 1948, U.So.Cal.1950 Tax Inst. 459
The approach we take is in keeping with Commissioner v. Siegel, 9 Cir., 1957, 250 F.2d 339, affirming 26 T.C. 743 (1956). In that case the decedent's estate consisted entirely of community property. The husband's will created a testamentary trust with his widow as income beneficiary and his son as remainderman, and put his widow to an election. The basic question was whether the value of the gift is reduced by the value of the property received by the donor from a third person. The court considered it all one transaction and permitted the reduction. The surrender by the widow of her community property rights, in effect, was a gift to the estate of the decedent to the extent that the value of the interest surrendered exceeded the value of the interest received. The Court spoke of the transaction as "a contract supported by adequate consideration" and treated it as part gift and part exchange. To the same effect, see Chase National Bank, 25 T.C. 617 (1955), decided on other grounds, sub. nom. Commissioner v. Chase Manhattan, 5 Cir., 1958, 259 F. 2d 231
I would distinguish Helvering v. Butterworth, 1933, 290 U.S. 365, 54 S.Ct. 221, 78 L.Ed. 365, on the basis of the difference between the Pennsylvania widow's dower rights which had no value prior to her husband's death, and the Texas widow's interest in community property, which belonged to her prior to her husband's death and could be surrendered as the price of acquiring an interest in property which she did not heretofore own. See Brooks, The Tax Consequences of Widows' Elections in Community Property States, U.So.Cal.1951 Tax Inst., 83, 88.