Court Opinion

ID: 9651417
Source: CourtListenerOpinion
Date Created: 2023-08-23 16:18:58.90938+00
Date Added: 2024-06-11T18:12:33.050579
License: Public Domain

FRANK, Circuit Judge
(dissenting)..
We are dealing here with an exemption statute. It is hornbook law that such statutes are to be construed against the person claiming the exemption,1 and that for a good reason: Every exemption increases the tax burden of other taxpayers, and it is not lightly to be assumed that Congress intended inequality of tax burdens. I think my colleagues, with no support from any legislative history, have here ignored that doctrine. The statute exempts “amounts received under a life insurance contract paid by reason of the death of the insured.” Are the amounts here paid “by reason of” such death? Yes, in part; for the contract made by the insured provided that the beneficiary upon the death of the insured should have an option, so that the option came into being “by reason of” his death. But the death alone did not bring about such payment; it required both (a) the death of the insured and (b) the election, after that death, of the beneficiary to exercise the option. The question, then, is this: Did Congress mean (1) “paid in part by reason of the death” or (2) “paid solely by reason of the death”? Because of the doctrine as to tax exemptions, it seems to me that we should hold that Congress meant the latter, i. e., “solely.”
Having in mind that, concededly, the amount received by taxpayer was not paid to her solely by reason of the death of the insured, I am persuaded by the reasoning in the dissenting opinion of Chief Judge Lehman in Latterman v. Guardian Life Insurance Company, 280 N.Y. 102, 106-108, 19 N.E.2d 978, 127 A.L.R. 450. Doubtless the death of the insured conferred on the taxpayer, because of the insurance contract, a privilege to make an investment which, but for the death, would probably not have been available to her. But the money is paid by the insurance company not “by reason of the death,” but because the beneficiary exercised a deliberate choice to avail herself of the privilege of making such an investment.
I think my colleagues are well advised in stating that the two decisions which they suggest as analogies are “by no means on all fours.” In Helvering v. Butterworth, 290 U.S. 365, 54 S.Ct. 221, 78 L.Ed. 365, the taxpayer was defeated; the Court, referring to the familiar doctrine as to tax exemptions, said (290 U.S. at page 369, 54 S.Ct. at page 222, 78 L.Ed. 365) : “Certainly, Congress did not intend any income from a trust should escape taxation unless definitely exempted.” In Lyeth v. Hoey, 305 U.S. 188, 59 S.Ct. 155, 83 L.Ed. 119, 119 A.L.R. 410, to be sure, the taxpayer won. But there the question was whether the taxpayer, an heir, acquired property “by * * * inheritance,” when he received it under an agreement compromising and settling his contest of the decedent’s will. The Court noted that Congress had already imposed a tax upon the transfer of the entire net estate and said (305 U.S. at page 195, 59 S.Ct. at page 159, 83 L.Ed. 119, 119 A.L.R. 410): “Congress has not indicated any intention to tax again the value of the property which legatees, devisees or heirs, received from the decedent’s estate.” The Court went on to say that the taxpayer obtained the property “because of his standing as an heir”; pointing out that, if the will contest “had been fought to a finish” and the taxpayer “had succeeded,” the property received by him would have been exempt under the statute; the Court said (305 U.S. at page 196, 59 S.Ct. at page 159, 83 L.Ed. 119, 119 A.L.R. 410) : “We think that the distinction sought to be made between acquisition *392through such a judgment and acquisition by a compromise agreement in lieu of such a judgment is too formal to be sound, as it disregards the substance of the statutory exemption. It does so, because it disregards the heirship which underlay the compromise, the status which commanded that agreement and was recognized by it. * * * Respondent agrees that the word ‘inheritance’ as used in the federal statute is not solely applicable to cases of complete intestacy. The portion of the decedent’s property which petitioner obtained under the compromise did not come to him through the testator’s will. That portion he obtained because of his heirship and to that extent he took in spite of the will and as in case of intestacy.” It seems to me that, as thus explained by the Supreme Court, the rationale of Lyeth v. Hoey is not at all apposite here.2

 See, e. g., Chicago, B. & K. C. R. Co., v. Guffey, 120 U.S. 569, 575, 7 S.Ct. 693, 30 L.Ed. 732; Phoenix Eire & Marine Ins. Co. v. Tennessee, 161 U.S. 174, 177, 16 S.Ct. 471, 40 L.Ed. 660; Willcuts v. Bunn, 282 U.S. 216, 51 S.Ct. 125, 75 L.Ed. 304, 71 A.L.R. 1260; United States Trust Co. v. Anderson, 2 Cir., 65 F.2d 575, 89 A.L.R. 994, certiorari denied 290 U.S. 683, 54 S.Ct. 120, 78 L.Ed. 589; cf. New Colonial lee Co. v. Helvering, 292 U.S. 435, 54 S.Ct. 788, 78 L.Ed. 1348.

 It may well be that, if my interpretation is correct, the case here would come under § 22(b) (2), for it would then be as if the beneficiary had purchased an annuity. The result would be to in-creaso the tax beyond that determined by the Commissioner. But, by his determination, he relinquished that increased amount of tax.