Court Opinion

ID: 4485806
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:00.556949+00
Date Added: 2024-06-11T12:14:37.790157
License: Public Domain

WRIGHT, J. dissenting: I respectfully dissent from the majority’s holding that so-called project notes issued under the United States Housing Act of 1937 (the Act of 1937), as amended, are includable in a decedent’s gross estate for Federal estate tax purposes. In so holding, this Court has determined that neither the language of the Act of 1937 nor its legislative history supports the conclusion that Congress intended public housing agency project notes to be exempt from all taxation, including Federal estate tax. I believe the reasoning set forth in Haffner v. United States, 585 F. Supp. 354 (N.D. Ill. 1984), affd. per curiam 757 F.2d 920 (7th Cir. 1985), and followed by a majority of other courts, is sound and represents the correct interpretation as to the taxability of such notes. Accordingly, I would hold that such notes should not be included in the decedent’s gross estate for Federal estate tax purposes. I disagree with the majority’s analysis of the statutory construction respecting the Act of 1937. Although the majority acknowledges that the phraseology differences between sections 20(b) and 5(e) are significant, they do not agree with the Haffner court’s analysis as to those differences. (See p. 733.) Instead, the majority has determined that section 20(b) of the Act of 1937 was drafted differently from section 5(e) because unlike the phrase “exempt from all taxation” in section 5(e),1 the phraseology of section 20(b) had not been definitively interpreted. Thus, the majority concludes that for purposes of clarity it was necessary for section 20(b) to add “estate tax” to the parenthetical expression and that no purpose can be ascribed to Congress in drafting section 5(e) without the parenthetical. The majority’s analysis, however, defies the logic of legislative drafting. It is difficult to comprehend why Congress would have seen fit to draft two sections of the same statute differently, if it intended each section to accomplish the same result as to the application of estate and gift tax. Instead, it is entirely possible that Congress intended that the public housing notes issued under section 5(e) carry with them an added incentive for investors to buy them. By exempting such notes from Federal estate taxes, Congress effectively lowered their overall cost (or increased the return on investment), thus making them an attractive investment for citizens in the post-Depression era, as well as a vehicle to spur local participation in the national housing endeavor.2  The majority’s approach would be more acceptable to me if we did not have the comments of Senator Walsh who played an important role in the passage of this legislation.3 The majority chooses not to attach much significance to Senator Walsh’s comments concerning the section 5(e) exemption. In making his comments, Senator Walsh noted that he was “discussing every financial feature” of the bill. 81 Cong. Eec. 8085 (1937). He also purported to “put in the Record the viewpoint of the Committee” that considered the bill. It appears rather incongruous that members of the Senate, who made frequent comments during the lengthy discussion of the bill prior to its passage, would have let a “misstatement” stand on the record without making any reference to it or undertaking any effort towards correcting it if it were indeed wrong. Therefore, in my view, given his position, Senator Walsh’s statement stands in the absence of a committee report as the uncontradicted legislative history as to congressional intent with respect to the taxability of public housing agency project notes. Finally, the majority attempts to distinguish the facts of this case from the facts of Jandorfs Estate v. Commissioner, 171 F.2d 464 (2d Cir. 1948), revg. 9 T.C. 338 (1947). (Pp. 736-737). The majority opinion asserts that the legislative history surrounding the statute in issue in Jandorfs Estate, as well as the Treasury Department’s long-standing position, conclusively established that foreign-held bonds were exempt from estate tax. The majority states that such is not the case with respect to obligations authorized to be issued under the Act of 1937. In my opinion, the majority’s conclusion that Jandorfs Estate is inapposite to the case at bar is erroneous. In Jandorfs Estate, a case involving the interpretation of a similarly worded and constructed statute as that now before us, the Second Circuit stated: The use of the same words of exemption in different sections of the same statute with an expressly declared exception in one case and not in the other, is a strong indication that the Congress thought the exception necessary in order to exclude estate and inheritance taxes from the broad words of the exemption provision. [171 F.2d at 466.] The Court of Appeals then referred to the legislative history as supporting that interpretation of congressional intent. The Second Circuit, in addressing respondent’s arguments that the language “exempt from any and all taxation” does not include Federal estate tax, acknowledged that cases such as Murdock v. Ward, 178 U.S. 139 (1900), support the “proposition that a provision exempting United States bonds from taxation as to principal and interest, without more, relates exclusively to direct taxation of them as property.” 171 F.2d at 467 (emphasis in original). In further distinguishing the facts in Jandorfs Estate from those cases relied on by respondent, the court of appeals emphasized: “The cited cases would be persuasive, if Congress had not shown an intent to use the phrase ‘exempt * * * from all taxation’ to include estate taxes by expressly excepting them in one section of the statute and not in the other.” Jandorf’s Estate u. Commissioner, supra at 467 (emphasis supplied). And, in its conclusion, the Second Circuit wrote, “For reasons already stated we believe that the statute discloses the intent of Congress to grant exemption from the Federal estate tax.” 171 F.2d at 467. Thus, the Court of Appeals found the wording of the statute itself to be evidence of congressional intent. Such language was further bolstered by the legislative history as well as the long-standing position of the Treasury Department. Similarly, I find that the statutory language of the Act of 1937, as well as the uncontradicted statement of Senator Walsh, contains sufficient indicia of a congressional intent to exempt public housing agency project notes from estate taxes so as to preclude application of the long established general rule concerning the phrase “exempt from all taxation.”4  Thus, for the reasons noted above, as well as those enunciated in the Haffner decision, I would construe the phrase “exempt from all taxation” contained in section 5(e) of the Act of 1937 as encompassing exemption from Federal estate tax. Korner, Jacobs, Parr, and Williams, JJ., agree with this dissent.   The majority notes, however, that although income from obligations of States and political divisions was exempt from taxation under the Revenue Act of 1936, the provision in sec. 5(e) was arguably included because at that time it was unclear whether a public housing agency was a political subdivision of a State, (p. 732, note 3).    One of the reasons for the legislation was to reduce unemployment and to stimulate business activity. See 81 Cong. Rec. 8076 (1937). Congress realized that there was an acute shortage of affordable housing and wanted to put such housing within the reach of lower income families. Although recognizing that local authorities had the powers to alleviate undesirable living conditions, Congress believed that they had not been exercised “partly because many of the owners of these slums are wealthy property owners who pay taxes to the city and have the power to prevent the tenement authorities or other authorities, such as those concerned with health, actually condemning their properties.” See 81 Cong. Rec. 8077 (1937) (remarks of Senator Walsh).    See Senator Walsh’s introductory remarks at 81 Cong. Rec. 8.076 (1937): “Mr. President, I was Chairman of the Committee on Education and Labor last year when extensive hearings were held on a bill similar in character to the one now pending. This year, because of the unfortunate illness of the Senator from Alabama (Mr. Black) it fell to my lot to preside over the hearings on the pending bill which were also of several days duration. I rise now not merely for the purpose of seeking to influence the Members of the Senate in favor of this proposed legislation but rather to perform what I think is a very important duty for a member of an important Committee dealing with a important bill, namely, to put in the Record the viewpoint of the Committee and the viewpoint of at least some members of the Senate with respect to certain features of the authority and power granted by the bill.”    See sec. 20.2033-1, Estate Tax Regs., embodying this rule which provides in pertinent part: “Various statutory provisions which exempt bonds, notes, bills, and certificates of indebtedness of the Federal Government or its agencies and the interest thereon from taxation are generally not applicable to the estate tax, since such tax is an excise tax on the transfer of property at death and is not a tax on the property transferred.” However, the obligations at issue herein are ones which are issued by State and local authorities and not the Federal Government.