Court Opinion

ID: 4496287
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:14:46.692195+00
Date Added: 2024-06-11T08:48:35.679106
License: Public Domain

VAN FossaN
dissenting: Finding myself in disagreement with the holding of the majority, I feel impelled to state the basis of my conclusion at some length.
The tax in the case before us is claimed under section 302 (a) of the Revenue Act of 1926, which reads:
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—
(a) To the extent of the interest therein of the decedent at the time of his death * * *.
Despite the all-inclusive language of the statute, in 31 Op. Atty. Gen. 287, the Attorney General of the United States so interpreted this section as to exclude real estate located outside the United States.
The construction given to the statute by the Attorney General was followed by the Treasury Department and has been approved by Congress in subsequent legislation (Senate Rept. No. 275, 67th Cong., 1st sess., p. 24; Senate Rept. No. 558,-73d Cong., 2d sess., p. 46) and Congress itself has formally recognized the correctness of this view by amending section 302 through the enactment of section 404 of the Revenue Act of 1934.1
*50Therefore, the question to be decided is whether or not the mortgages or “hipotecas” owned by the deceased at his death constituted real property.
This problem involves not only a- conflict of laws, but an utter disparity in nomenclature. The word “immovable” is not an exact equivalent of the term “real property”, but the terms have substantially the same meaning.
It is a well settled rule that the nature of property or of rights thereto and the conditions governing its transfer must be determined by the lex situs. Story on Conflict of Laws, ¶¶424, 591; Restatement of Conflict of Laws (American Law Institute), p. 247, 12 C. J. 468, 477; United States v. Fox, 94 U. S. 315; Robertson v. Pickerell, 109 U. S. 608. Dicey, in his work, “Conflict of Laws”, thus states the principle:
Rule 149. Tlie law of the country where a thing is situate (lex situs) determines whether (1) the thing itself or (2) any right, obligation or document connected with the thing, is to be considered an immovable or a movable. [4th ed., p. 550.]
Rule 150 (p. 553) states:
All rights over, or in relation to, an immovable (land) are (subject to the exceptions hereinafter mentioned) governed by the law of the country where the immovable is situate (lex situs).
On page 558 Dicey also states:
Every question with regard to the devolution of immovables, or land, in consequence of death is, subject, of course, to the exceptions hereinafter mentioned, governed by the lex situs.
The exceptions are not pertinent to the question here, at issue.
On examination, one of the mortgages in question is found to be primarily a deed conveying the land described for $37,500, of which $1,000 was paid in cash and the remainder according to specified terms. No notes or other evidences of indebtedness were executed to Fair. The payment of the $36,500 was secured by a first mortgage on the land sold. Cuban law permits no deficiency judgment to be taken against the purchaser, but the land itself must stand good for all unpaid purchase money. The document before us, therefore, was merely an evidence of the mortgagee’s right to take the land in default of the full payment of its purchase price.
All the incidents of ownership and the factors which rendered the mortgage valuable were located in Cuba and were derived from the land in that Republic and from the power of its courts.
Mortgages are known and classified as immovables in Cuba and all the characteristics of real estate and real property designated as such in the United States, are inherent in them under Cuban law. *51Therefore, although mortgages on property located in the United States might be considered personal property, a mortgage on property in Cuba would seem to fall within the term “foreign real estate.” This being true, it is not subject to the estate tax imposed by the United States Government.
The respondent relies on the following propositions:
(1) The power of the Federal Government to tax is not dependent upon jurisdiction over property alone, but may be predicated upon jurisdiction over the citizen.
(2) The power to tax being an essential attribute of sovereignty is not controlled or limited by consideration of the laws of foreign countries.
(3) The statute should not be construed to exempt from its provisions debts due a citizen of the United States from the sale of foreign lands.
To support his first contention the respondent cites (and the majority opinion relies on) United States v. Bennett, 232 U. S. 299, and Cook v. Tait, 265 U. S. 47, neither of which cases involves an estate tax. The facts in these cases, moreover, were quite different from those in the case at bar. In the Bennett case the Government imposed an annual excise tax on the use of a foreign-built yacht owned by a citizen of the United States. In sustaining the tax the Supreme Court stressed the assistance and protection accorded by the Government to its citizens while living and trading in foreign countries. In the case of Cook v. Tait the Commissioner assessed a tax on the income of a citizen of the United States residing and domiciled in the city of Mexico. The Court there said:
* * * tbe basis of the power to tax was not and cannot be made dependent upon the situs of the property in all cases, it being in or out of the United States, nor was not and cannot be made dependent upon the domicil of the citizen, that being in or out of the United States, but upon his relation as citizen to the United States and the relation of the latter to him as citizen. The consequence of the relations is that the native citizen who is taxed may have domicil, and the property from which his income is derived may have situs, in a foreign country, and the tax be legal, — the government having power to impose the tax.
Thus, in this case also the decision was predicated on the benefits of citizenship, including the right to protection in a foreign country. These cases are not comparable to the case before us. There was no question of tax upon the transfer of property ,at death, but in the one case a tax upon personal property oAvned and used by an American citizen and in the other a tax on income derived from real and personal property, such property in both cases being located outside the United States. In the case at bar the element of governmental protection is not, and can not be, present. In order to enforce her rights as executrix of the will of William B. Fair, which was executed in the Spanish language and legally filed in Cuba, the petitioner *52would be compelled to submit herself wholly to the jurisdiction of that country and to the requirements of its courts. Neither her citizenship nor the citizenship of her husband could help her.
The respondent also cites, and the majority relies on, Guaranty Trust Co. of New York, Executor (Smallman estate), 21 B. T. A. 330, and Guaranty Trust Co. of New York (executor of Kennedy estate) v. Commissioner, 79 Fed. (2d) 245. Both of these cases involve tangible personal property located outside the United States. In both it was held that an estate tax was properly assessed. The decisions were based on the citizenship of the decedent and the power to transfer. It is obvious that these decisions are not in point.
In support of the respondent’s second proposition he cites several cases, all of which, however, relate to interstate taxation and do not apply to the taxation of property situated in a foreign country. In United States v. Bennett, supra, the Supreme Court made clear the distinction between the taxing by one state of property situaled in another and the taxing by the United States of property situated in a foreign country. See Burnet v. Brooks, 288 U. S. 378.
The respondent relies on Kirtland v. Hotchkiss, 100 U. S. 491, to sustain his third point. In that case the holder of a bond secured by real estate in another state was held subject to tax. The decision there, likewise, was based on the theory of protection. Other cases cited by him involved tax controversies between states. He also contends that the expression “real property” means real estate as such, “that is, lands and things permanently affixed thereto” and quotes from the chairman of the Committee on Finance of the Senate (S. Kept. No. 558, 73d Cong., 2d sess., p. 46) as follows:
Your committee is of the opinion that real property located abroad should not be subject to the Federal estate tax since it is an almost universally established principle of estate taxation that real estate should be subject to death duties only in the country where situated. To tax such real estate, will make it difficult for many American citizens to live in foreign countries in the interest of American foreign trade for they will be subject to a tax burden much greater than that imposed on foreigners in a similar situation. Accordingly, your committee has amended the House bill to make it clear that real estate located abroad shall not be subject to the .Federal estate tax. The effect of this amendment with other amendments made by the House is to place nonresident American citizens in the same category as residents and thus subject them to the estate tax with respect to all of their property except real property located abroad.
The respondent can obtain little help from this quotation. In effect, the mortgages in question constituted “real property located abroad.” They were so treated by Cuba. Their taxation by Cuba patently subjected the petitioner to “a tax burden much greater than that imposed on foreigners in a similar situation.”
*53It is pertinent to note that in clause 13 of the mortgage, the parties waived the jurisdiction of their domiciles and submitted themselves to Cuban law in all respects. Their action in so doing removes all doubt, if any there was, as to the decedent’s conception of the character of the mortgages as immovables.
For the reasons indicated above I dissent.

 SEC. 404. REAL ESTATE SITUATED OUTSIDE THE TOUTED STATES.
So much of section 302 of the Revenue Act of 1926 as reads as follows: “The value of the gross estate of the decedent shall he determined hy including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated” is amended to read as follows: “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, except real property situated outside the united States.”