Court Opinion

ID: 4496316
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:14:47.681023+00
Date Added: 2024-06-11T14:54:13.906868
License: Public Domain

OPINION.
Millee :
This is a proceeding involving a deficiency in estate tax in the amount of $104,539.90. The issue is whether or not respondent erred in including in the gross estate of decedent, a nonresident alien, as property situated in the United States, the value of certain bonds issued by private and public corporations of the United States, which bonds were physically located in Cuba at the time of decedent’s death.
The decedent, Luisa Terry Ponvert, at the time of her death on January 8, 1934, was a citizen and resident of Cuba, and was not engaged in business in the United States.
At the time of her death decedent was the oivner of certain bonds having a value, including accrued interest, of $872,544.30, at which value they were included by respondent in decedent’s gross estate in determining the deficiency involved herein. Said bonds were all physically located in Cuba at the time of decedent’s death. They *569had been, theretofore, issued by domestic corporations of the United States, the United States Government, the United States Federal Land Banks, and states and municipalities of the United States. The bonds were all coupon and not registered bonds.
The Federal Land Bank bonds included among the bonds herein-above referred to had a face value of $170,000 and a fair market value, plus accrued interest, at the time of' decedent’s death, of $160,609, at which last stated value they were included by respondent in decedent’s gross estate.
The applicable statute is the Revenue Act of 1926, which, so far as material here, is set forth in the margin.1
The question presented is whether the property in controversy constituted a part of the gross estate of the alien decedent, Ponvert, situated in the United States, within the meaning of the statute, at the time of decedent’s death. In our opinion, such was .not the intent of Congress.
The Supreme Court has decided that similar bonds, physically situated in the United States, were properly included in the estate of a nonresident decedent, for purposes of tax determination. Burnet v. Brooks, 288 U. S. 378. In the instant case, the Commissioner proposes that we go one step farther and hold that such bonds, physically situated in Cuba, were actually situated in the United States. So to hold would distort the meaning of the word and the intent of the statute.
A careful reading of the statute shows that Congress intended to use a different basis for tax determination in the case of a nonresident alien decedent. It selected as a method of establishing that basis, the test of situs of property in the United States; except that stock in a domestic corporation, owned and held by a nonresident, was required to be included, regardless of situs.2 It would have been easy, if Congress had wished, to require the inclusion as well, of bonds issued by domestic corporations. This it did not do, and the special provision regarding stocks, is, in itself, evidence of intent to treat bonds as in a separate class, and to require their inclusion only when they are actually, physically situated in the United States.
In determining legislative intent we must assume that the principles impliedly invoked by the statute were principles of law thereto*570fore declared and then held. It would be quite inadmissible to assume that the Congress was legislating in disregard of existing doctrine. Burnet v. Brooks, supra. The distinction made, by the provisions of the statute, between bonds and stocks in domestic corporations follows, logically, principles of law theretofore established. Those principles are clearly set out by Beale in his treatise on Conflict of Laws (vol. 1, p. 573), as follows:
A bond is a “common law specialty” and bas a situs at the place where it is situated; it is in all respects libe a chattel. A bond therefore should be held to be taxable at its situs and not taxable elsewhere except at the domicil of the owner, in those states where the right to tax is settled by authority, though contrary to legal principle.
The true nature of a share of stock in a corporation is that it confers upon the owner of the share membership in the corporation. The stock is a creature of the law that created the corporation, and its ownership depends solely upon the provisions of that law. The right of the owner of the stock is therefore created and guarded by the law of one state, and always within the power of that law; and must be regarded as within its juridiction. This says the Supreme Court of the United States, is “the law of the property.” It has accordingly been held that a state which charters a corporation may tax the shares of its capital stock, even though owned by a non-resident.
Another guiding principle, applicable in the taxation of nonresident aliens, is set forth in a statement of White, C. J., speaking for the Court in United States v. Goelet, 232 U. S. 293:
It may not be doubted, as observed by the trial court in these cases (omitting the consideration of taxes imposed on property having a situs within the jurisdiction of the taxing authority), speaking in a general sense, that the taxing power, when exerted, is not usually applied to those even albeit they are citizens, who have a permanent domicil or residence outside of the country levying the tax. Indeed, we think it must be conceded that the levy of such a tax-is so beyond the normal and usual exercise of the taxing power as to caxise it to be, when exerted, of rare occurrence and in .the fullest sense exceptional.
and in United States v. Bennett, 232 U. S. 299, the same principle was restated, to the effect that a statute “would not be construed without clear intendment manifested to that effect as including a tax on a citizen permanently domiciled outside of the geographical limits of the United States.” The Court went on to say that as taxing statutes are usually confined to persons within the territorial jurisdiction of a taxing authority, and that to do otherwise would be exceptional, the statute involved should not be construed as having been adopted to accomplish such unusual and strange results, unless such a view was compelled by its terms.
The taxing statutes of the United States have been extended to include the transfer of property by citizens, and aliens as well, permanently domiciled outside of the United States. Nevertheless, the *571principle still stands, that such statutes should be construed according to their “clear intendment.” Unless the interpretation contended for by the Commissioner, of the applicable statutes involved in the instant case, is compelled by their terms, such interpretation should not be adopted.
Reliance can not be placed upon Burnet v. Brooks to secure the result desired by the Commissioner; in fact, the reasoning in that case leads to the exactly opposite conclusion. The Court, in that case, began its consideration of the question of legislative intention in the enactment of the pertinent sections as follows:
As to tangibles and intangibles alike, it made the test one of situs, and we think it is clear that the reference is to property which according to accepted principles, could be deemed to have a situs in this country for the purpose of the exertion of the federal power of taxation. [Italics supplied.]
What were the accepted principles to which the Court referred, and which were in the mind of Congress ? Answering this question, the Court went on to say:
The argument is pressed that the reference to situs must, as to intangibles, be taken to incorporate the principle of mobilia sequuntur personam and thus, for example, that the bonds here in question though physically in Nciv Yorh should be regarded as situated in Cuba where decedent resided. But the Congress did not enact a maxim. When the statute was passed it was well established that the taxing power could reach such securities in the view that they had a situs where they were physically located. As securities thus actually present in this country were regarded as having a situs here for the purpose of taxation, we are unable to say that the Congress in its broad description, embracing all property “situated in the United States,” intended to exclude such securities from the gross estate to be returned and valued.3 [Italics supplied.]
The conclusion is inescapable that the Court in Burnet v. Brooks, supra, relied upon the physical presence of the bonds in the United States, to bring them within the established principles referred to. In the instant case the bonds were physically present in Cuba. The doctrine of mobilia sequuntur personam is not involved. De Ganay v. Lederer, 250 U. S. 376. It is a question of physical situs. That is the test established by Congress. Applied in the case of Burnet v. Brooks, that test brought the bonds in question within the language of the statute. Applied in the instant case, that test excludes such bonds from the gross estate contemplated by Congress as a basis for tax determination.
The conclusion set out above is further confirmed by another statement of the Court in Burnet v. Brooks, supra, where, in considering the possibility of violation of established principles of international *572law in the imposition and collection of taxes, the Court said that the bonds, physically situated in the United States as they were, were “within the reach of the power which the United States by virtue of its sovereignty could exercise as against other nations * * *. This, view of the scope of the sovereign power [it said] in the matter of the taxation of securities physically within the territorial limits of the sovereign is sustained by high authority and is a postulate of legislative action in other countries” (italics supplied), citing Winans v. Attorney General (1910), A. C. 27.
The Supreme Court, in Burnet v. Brooks, supra, went on to examine carefully the language of the various revenue acts from 1916 to 1924, inclusive, together with the rulings of the Commissioner of Internal Revenue and the Treasury regulations which had been promulgated over a period of years, for the purpose of interpreting the words “situated in the United States” as they had appeared in each of the acts referred to. As the opinion clearly shows, these rulings and regulations, uniformly, spoke in terms of bonds, actually physically situated in the United States. They also spoke, uniformly, of stock in domestic corporations, regardless of physical situs. By way of summary the Court said:
We find no ground for questioning the intention of the Congress, when in the Revenue Act of 1924 it reenacted the provision as to the property of nonresidents “situated in the United States”, to impose the tax with respect to-bonds physically within the United States and stock in domestic corporations. Brewster v. Gage, 280 U. S. 327, 337, 50 S. Ct. 115, 74 L. Ed. 457. [Italics supplied.]
The language of section 303 (b) in the Revenue Act of 1924 is identical with the language of section 303 (b) in the Act of 1926. As the Treasury Department regulations issued in connection with the 1924 Act (Regulations 68, art. 50, T. D. 3683) again spoke in terms of bonds physically present in the United States, the statement of the Court, above quoted, becomes even more conclusive of the intent of Congress in reenacting the same provision of the 1926 Act. The reference to Brewster v. Gage, 280 U. S. 327, cited by the Supreme Court, reads as follows:
It is the settled rule that the practical interpretation of an ambiguous or doubtful statute that has been acted upon by officials charged with its administration will not be disturbed except for weighty reasons. [See also Guaranty Trust Co. of New York v. Commissioner, 79 F. (2d) 245, (Second Circuit), 16 A. F. T. R. 245 and cases there cited.]
There can be no doubt that the Supreme Court in Burnet v. Brooks, supra, had clearly in mind the different theory used for the inclusion of domestic stocks; for while it spoke in every instance of the actual, *573physical presence of the bonds in the United States as the basis of inclusion for tax purposes, it spoke equally clearly of the fact that physical situs was not necessary in the case of domestic stocks: '
We think that the Government’s construction of the provision is the more reasonable one, that the place where the stock was held was not an element in the application of section 303 (d) and that this provision was designed to insure the inclusion of the stock of a domestic corporation in all cases whether the certificates were physically present in the United States or not.
The Treasury Department regulations adopted under the Revenue Act of 1924, contained further evidence of adoption of the interpretation which we have placed upon the words “situated in the United States.” As the Court said in Burnet v. Brooks, supra, these regulations :
* * * expanded the provision as to the “situs of property of nonresident decedents” so as to include stock in foreign corporations when the certificates were held, hero, by providing: “Real estate within the United States, stocks and bonds physically in the United States at date of death, moneys due on open accounts by domestic debtors, and stock of a corporation or association created or organized in the United States, constitute property having a situs in the United States”. Reg. 68, Art. 50, T. D. 3683. [Italics supplied.]
Thus, we see that when a new type of property (stock in foreign corporations) was brought to the attention of the Treasury Department for classification under the act, it adopted a regulation making such foreign stocks, together with bonds, subject to inclusion for purposes of taxation, only if physically situated in the United States.
Congress was informed of this regulation and of the several preceding ones, when it reenacted sections 302 and 303 of the Revenue-Act of 1924, in the Act of 1926. We assume that by such reenactment, it expressed its intention to continue in effect the interpretation set out in these successive regulations; thus excluding from the gross estate of a nonresident alien decedent, for purposes of tax determination, such bonds as are here involved.
Reviewed by the Board.
Decision will be entered for the petitioner.

 Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated * * *.
Sec. 303. Por the purpose of the tax the value of the net estate shall be determined—
(a) In the case of a resident, by deducting from the value of the gross estate—
* * * a- * # *
(b) In the case of 'a nonresident, by deducting from the value of that part of his gross estate which at the time of his death is situated in the United States * * *.

 [Revenue Act of 1926.] Sec. 303. (d) Por the purpose of this title stock in a domestic corporation owned and held by a nonresident shall be deemed property within the United States * * *.

 See also People, etc. v. Graves, - U. S. - (January 4, 1937), where the Supreme Court said: “Where we speak of a ‘business situs’ of intangible property in the taxing State we are indulging in a metaphor.”