Court Opinion

ID: 9651378
Source: CourtListenerOpinion
Date Created: 2023-08-23 16:17:09.71023+00
Date Added: 2024-06-11T18:12:32.879893
License: Public Domain

HUTCHESON, Circuit Judge
(dissenting).
This appeal involves a tax deficiency in the amount of $84,951.55, assessed against the estate of Eugene Bender, sole legatee of his brother, Frank Bender, who had died eight months before. In arriving at the deficiency determination, taxpayer and commissioner found themselves in -almost complete agreement upon the values of the properties forming the gross estates of the two brothers. They found themselves in complete disagreement upon whether in determining the reduction from the deduction, it allowed, Section 303 (a) (2)1 ******required the use in the equation of the gross or the net estate values.
The Board in confessed inability to understand the significance and effect of taxpayer’s insistence that the section required an equation using the gross estates, brushed the contention aside as really detrimental to taxpayer.2 Proceeding then on the wholly erroneous assumption that the commissioner’s use of net estate figures favored the taxpayer, it sustained the deficiency determination which had been arrived at by the use of the net, rather than the gross estate.
Petitioners are here insisting that the commissioner in arriving at his determination as to the deduction allowable under Section 303 (a) (2), as amended, and the Board in affirming it, have not as they *376should have done applied the ratio provision of the 1932 Amendment.3 They have read and applied the section as though it still contained the provision found in prior acts, “and not deducted under paragraph 1 or 3 of subsection (a) of this section.” I agree with petitioners.
From the very beginning the estate tax acts have provided that, for the purpose of the tax, the value of the net estate shall be determined by first ascertaining the gross estate and then making certain deductions from it. Whatever form additions to or amendments of the estate taxing acts have taken, this method of arriving at the net estate has always been pursued.
The first provision for deduction of the value of properties forming part of a prior estate, appeared in Section 403 (a) (2), Revenue Act of 1918.4 In 1921 this section was amended,5 so as to make more detailed and accurate provision for taking this pri- or estate deduction. In this act there first appeared the words, “and not deducted under paragraphs (1) or (3) of subdivision (a) of this section.” This provision was carried substantially unchanged into the 1924 and 1926 Acts, 26 U.S.C.A. Int.Rev. Acts, pages 69, 233. The ratio provision in question here, italicized in note 3, first appeared in the 1932 Amendment of the 1926 Act. As then amended it has been carried forward in subsequent tax laws.
The report of the House Ways and Means Committee on the Revenue Act of 1932,6 purports to give a reason for amending out of the section, the provision in the prior acts against deductions already taken, and writing into it in lieu.thereof, the provision for reducing the deduction by the use of an arbitrary ratio. Whether this is a good reason for the change or whether the purpose of it has been accomplished, is beside the mark here. The report is cited only to emphasize what the Board and the Commissioner seem to have completely overlooked, that this section of the Act of 1926, as amended in 1932 is a very dif*377ferent thing iroin the section as it existed before the amendment. As so written it does not provide as the former acts did, for reducing the deduction for prior taxed property, allowed under subsection (2) of the section, by excluding from the value of the gross estate, inherited by the second decedent, deductions allowed under subsections (1) and (3) of the section. It provides for reducing the paragraph (2) deduction by an amount bearing the same ratio to the deductions allowed under the other three paragraphs of the section, which the paragraph 2 deduction hears “to the value of the decedent’s gross estate.”
Petitioners sought below and seek here the application of this formula. In principle they ask no more than this, in principle no less should be accorded them. Where the words of a taxing" act have a sensible meaning they are controlling. They must be followed rather than a supposed intent not expressed in them. “Courts and administrative agencies are bound to enforce the plain words of the statute although there may he reason to think, in view of the general legislative purpose that some other provision would have met with favor if the Legislature had called it to mind.” Commissioner of Internal Revenue v. Windrow, 5 Cir., 89 F.2d 69, 71, 110 A.L.R. 1251. The Board cannot, if it would, amend subdivision (2) of the statute, to read into it the provision, “and not deducted under paragraphs (1) or (3) or subdivision (a) of this section”, which Congress has by amending it, taken out of it. It will not do then for the Board to say to the petitioners, we think the method employed by us is more nearly right and just than the one you invoke. For this is not to apply but to rewrite the section. It must be able to point out that its determination is in accordance with the section as amended and not as it formerly was. It lias failed to do this. The majority opinion, though satisfied with the conclusions of the Board, recognizes that the reasons it advances for its conclusions do not form a sound basis for them, and it therefore puts forward reasons of its own to sustain them. These reasons are that the Benders were partners and because they were, the value of Eugene’s gross estate and the deductions from it, are different from what they would have been but for the partnership relation. With deference then, rationalization of the Board’s conclusions is as fallacious and unsound, does as complete violence to the terms of the statute as that the Board puts forward. I therefore respectfully dissent from the judgment of affirmance.
It does not follow however that I think that petitioners, though right in principle in insisting that gross rather than net estate values should be used, in determining the amount of the subsection (2) deduction, are right throughout. I think they are wrong in claiming as a deduction the $64,-090.41 federal estate taxes due and paid by Frank Bender’s estate. It is not, it could not be claimed that Frank Bender could take these taxes as a deduction in his estate. It may not any more be claimed that Eugene may take them because they were unpaid at the time of Eugene’s death. Federal taxes are not deductible and though they are obligations of Eugene Bender’s estate by reason of his having taken under Frank Bender’s will, all of his property subject to the payment of his debts,7 they are not deductible obligations.
In arriving then at the true amount of the subsection (2) deduction, the figures to be used are the gross value of Frank Bender’s estate as found by the Commissioner, to wit, $909,349.98, less payments made on account of that estate before Eugene’s death, over the gross value of Eugene Bender’s estate as also found by the Commissioner, to-wit, $2,414,929.07, and all of Eugene’s deductions. These to include, not merely the approximately $203,000 of the partnership debts which was Eugene Bender’s original share, but the $304,500 both Eugene and Frank Bender’s share, and the other debts and charges against the estate of Frank Bender including therein, stale inheritance taxes but excluding therefrom *378federal estate taxes. I therefore think that the order of the Board should be reversed and the cause remanded for a redetermination of the deficiency in accordance with these views.

 “An amount equal to the value of any property (A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, * * * where such property can be identified as having been received by the decedent * * * from such prior decedent by gift, bequest, devise, or inheritance * * ». This deduction shall be allowed only where * * * an estate tax imposed under this or any prior Act of Congress, was finally determined and paid by or on behalf of * * * the estate of such prior decedent, * * * and only in the amount finally determined as the value of such property in determining the value of * * * the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent’s gross estate * * *. Where a deduction was allowed of any mortgage or other lien in determining the gift tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to the decedent’s death, then the deduction allowable under this paragraph shall be reduced by the amount so paid. The deduction allowable under this paragraph shall be reduced by an amount which hears the same ratio to the amounts allowed as deductions under paragraphs (1), (0), and (4) of this subdivision as the amount otherwise deductible under this paragraph bears to the value of the decedent’s gross estate. Where the property referred to in this paragraph consists of two or more items the aggregate value of such items shall be used for the purpose of computing the deduction. * * *” 26 U.S.C.A. Int.Rev.Acts, page 233.

 After saying that the first point of petitioner was that a much larger gross figure than the Commissioner used, should have been used in computing deductions under Sec. 303(a) (2), the Board said that “if the larger amount were used both places, the contention of the petitioners under section 303(a) (2) would tend to increase the deficiency rather than reduce it. [The Board is] puzzled to know why this situation was not recognized and disclosed in petitioners’ brief. * * * Since a favorable decision on the first point can not of itself result in any benefit to the petitioners, and since the Commissioner is contending that his own method, which results in a smaller deficiency, is correct, it is really not an issue which requires or justifies a decision by the Board.” [41 B.T.A. 82.]

 “The deduction allowable under this paragraph shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under paragraphs (1), (8), and (Jj) of this subdivision as the amount otherwise deductible under this paragraph bears to the value of the decedent’s gross estate.’’ (Italics supplied.)

 “(2) An amount equal to the value at the time of the decedent’s death of any property, real, personal, or mixed, which can be identified as having been received by the decedent as a share in the estate of any person who died within five years prior to the death of the decedent, or which can be identified as having been acquired by the decedent in exchange for property so received, if an estate tax under the Revenue Act of 1917 or under this Act was collected from such estate, and if such property is included in the decedent’s gross estate.” 40 Stat. 1098. Cf. Rodenbough v. United States, 3 Cir., 25 F.2d 13, 15, 57 A.L.R. 1091.

 “An amount equal to the value of any property forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of The decedent where such property can be identified as having been received by the decedent from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received: Provided, That this deduction shall be allowed only where an estate tax under this or any prior Act of Congress was paid by or on behalf of the estate of such prior decedent, and only in the amount of the value placed by the Commissioner on such property in determining the value of the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent’s gross estate and not deducted under paragraph (1) or (3) of subdivision (a) of this section.” 42 Stat.' 279.

 “,(2) Provision for reducing the deduction for prior taxed property on account of other deductions, such as claims against the estate, administration expenses, charitable bequests and the specific exemption. The words and not deducted under paragraphs (1), (3), of this subdivision were inserted in section 403 (a) (3) of the Revenue Act of 1921 to prevent a double deduction, but that purpose has not been entirely accomplished. Under existing law, if the decedent received from the first decedent bonds valued at $100,000 and specifically bequeathed those bonds to charity, only one deduction would be allowed. However, if instead of specifically bequeathing the bonds, he gave charity a general legacy of $100,000, which could be satisfied out of property other than the bonds, two deductions would be allowed. Under the amendment, the allowable deduction in the two examples is the same: namely, the full amount of the charitable bequest, and a pro rata part of the prior taxed property.”

 The will of Frank V. Bender contained tlia following provision:
“Second: I hereby devise and bequeath all of my property, real, personal and mixed wheresoever situated to my brother, Eugene L. Bender, in fee simple.”
With respect to the passing of title to property upon the death of a testator, Article o3Ll of the Revised Oivil Statutes of Texas (1923) provides: "‘When a person dies, leaving a lawful will, all of his estate devised or bequeathed by such will shall vest immediately in the devisees or legatees; and all the estate of such person, not devised or bequeathed, shall vest immediately in his heirs at law; subject however, to the payment of the debts of the testator or intestate, except such as may be exempted by law; « & % >’