Court Opinion

ID: 9642909
Source: CourtListenerOpinion
Date Created: 2023-08-22 18:12:07.581809+00
Date Added: 2024-06-11T11:57:41.239087
License: Public Domain

AUGUSTUS N. HAND, Circuit Judge
(dissenting).
This is a doubtful case, and a dissent may be thought captious in view of the weight of authority in circuits other than our own sustaining the'views expressed in the majority opinion. Nevertheless the conviction that Congress never intended to allow a deduction for debts except against property from which such debts are payable seems to justify me in adopting the view of Judge Sibley, who dissented in Commissioner of Int. Rev. v. Windrow, 5 Cir., 89 F.2d 69, 72, 110 A.L.R. 1251, and of Judge Patterson, who followed that dissent in Kahn v. United States, D.C., 20 F.Supp. 312, and supplemented it with persuasive further argument.
The items which are to be deducted under section 303 of the Revenue Act of 1926, 44 Stat. 72, in determining the net taxable estate are:
“(1) Such amounts [A] For funeral expenses, [(B) For] administration expenses, [(C) For] claims against the estate, * * ■* as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered.”
While all valid claims may be proved, it seems reasonable to hold that in arriving at the net estate only such sums are deductible as are potentially payable’ out of the assets under the laws of the jurisdiction in which the estate is administered. There is no practical difficulty in this. It is perfectly true that the claims as proved may not at the time the tax is assessed seem likely to be satisfied, yet the estate may so increase in value during administration that they will be paid in full. The converse may also happen. But such eventualities do not affect the assessment of estate taxes which are always based upon estimates that may not be verified by future experience.
Judge Patterson said in Kahn v. United States, D.C., 20 F.Supp. 312, 313:
“That Congress * * * did not have in mind the amount of claims nominally allowable against the estate, but had in mind such amounts for claims as are actually allowed out of the estate by the local law. The words are susceptible of this construction. * * * That this must have been the meaning of Congress is indicated by section 315(a) of the act (44 Stat. 80, 26 U.S'.C.A. § 427), to the effect that the tax shall be a lien on the gross estate, ‘except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof, shall be divested of such lien.’ These two sections, 303 and 315, should be construed to harmonize with one another, and section 315 makes it evident that the deductions permitted by section 303 are intended to be no larger than the portions of the gross estate ‘used’ for the payment of charges and expenses. This construction also carries out the general purpose of the act * * * which is to tax the passing of property by way of gift taking effect on death. It cannot be doubted that the deductions for funeral expenses, administration expenses, and debts of the decedent were permitted because the amounts necessary to satisfy such items do not pass as gifts.”
*855Any other construction enables the objects of a decedent’s bounty wholly to escape taxation if his debts happen to be greater than his assets, including the proceeds of life insurance, even though the beneficiaries of such insurance receive enormous gifts. In view of the general policy of Congress to impose some tax upon the proceeds of life insurance policies in excess of $40,000, a holding that there is to be no tax in such a case as I have put seems so extraordinary as to call for a clearer warrant for the deductions allowed by the Board of Tax Appeals than I find in the language of the statute. It is familiar law that deductions are matters of grace which must plainly appear.
In my opinion, the order should be reversed and the tax redetermined by the Board in accordance with the views I have expressed.