Court Opinion

ID: 9445670
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:36:03.654447+00
Date Added: 2024-06-11T17:30:22.377945
License: Public Domain

POPE, Circuit Judge
(dissenting).
Bishop v. Commissioner, 9 Cir., 152 F.2d 389, should be read in the light of its own facts. The key to that decision is found in the following statement therein (at page 391): “The Tax Court appears to have assumed that, upon decedent’s death, petitioner’s half of the community property ceased to be hers and became a part of decedent’s estate. The assumption is incorrect. Petitioner’s half, like decedent’s half, was subject to administration, but, unlike his half, her half never became a, part of his estate.” (Emphasis mine.)
In contrast to that situation the facts here are quite different. For, whatever the theory behind them, the California decisions make it plain that an arrangement like this one makes the property all pass under the husband’s will; all the property became a part of his estate. The general statement in the Bishop case that “ownership is the test of tax-ability” is a good enough rule for most cases, and unobjectionable when used in that case where “her half never became a part of his estate.” But when sought to be applied to the far different facts here, that statement is not only demonstrably wrong, but contrary to the express terms of the statute.
“It is well settled that the estate of a decedent vests, subject to administration, in his heirs or devisees and legatees immediately upon his death.” Noble v. Beach, 21 Cal.2d 91, 130 P.2d 426, 429. This rule, stated in California Probate Code §§ 28 and 300, prevails in nearly every state. See 96 C.J.S. Wills § 1099, p. 821. So if a decedent left A and B as his devisees, application of a rule that “ownership is the test of taxability”, would make A and B pay the taxes on the income of the estate. But they do not. The tax on the income during the administration of the estate is paid by the estate because the Act of Congress says so. I.R.C., 1939, Title 26, § 161. The estate collects the income, it has the funds in hand, and the devisees might not be able to pay a tax even if all of them were then ascertainable. At any rate that is what the statute says. It should be applied here.
The income here in question was that for the period January 1, 1941 to August 26, 1941. During all that period the estate was in the course of administration. A reference to § 166 of the same Revenue Code is not appropriate here. The trust set up under the will, like other devisees, is no doubt the “owner” of the trust res in the same sense that other devisees become owners under the rule of Noble v. Beach and Probate Code 28, supra, but until the estate was closed on August 26, 1941, there was no occasion for determining whether the trust should pay the tax on the trust income, or whether the wife, Emily, should pay it under § 166, as one who might be deemed a “grantor” with power to revest within the meaning of § 166.